<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 5, 1997
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
FORM S-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------
DONNELLY CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
--------------
MICHIGAN 38-0493110
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
414 E. FORTIETH STREET
HOLLAND, MICHIGAN 49423
(616) 786-7000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
--------------
WILLIAM R. JELLISON
414 E. FORTIETH STREET
HOLLAND, MICHIGAN 49423
(616) 786-7000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
--------------
COPIES TO:
WILLIAM J. LAWRENCE III WILLIAM M. HARTNETT
VARNUM, RIDDERING, SCHMIDT & HOWLETT CAHILL GORDON & REINDEL
LLP 80 PINE STREET
333 BRIDGE STREET, N.W. NEW YORK, NEW YORK 10005
GRAND RAPIDS, MICHIGAN 49504 (212) 701-3000
(616) 336-6000
--------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered in connection with dividend or interest
reinvestment plans, check the following box. [_]
If the registrant elects to deliver its latest annual report to security
holders, or a complete and legible facsimile thereof, pursuant to Item
11(a)(1) of this form, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED PROPOSED
TITLE OF EACH CLASS OF AMOUNT MAXIMUM MAXIMUM AMOUNT OF
SECURITIES BEING TO BE OFFERING PRICE AGGREGATE REGISTRATION
REGISTERED REGISTERED (1) PER UNIT (2) OFFERING PRICE (2) FEE
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<S> <C> <C> <C> <C>
Class A Common Stock,
$.10 par value........ 1,725,000 $15.25 $26,306,250 $7,972
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</TABLE>
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(1) Includes 225,000 Shares which may be sold by the Company to cover over-
allotments.
(2) Estimated solely for purposes of calculating the registration fee in
accordance with Rule 457 of the Securities Act of 1933.
--------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED MAY 5, 1997
PROSPECTUS
1,500,000 SHARES
[LOGO] DONNELLY
CLASS A COMMON STOCK
--------
All of the 1,500,000 shares of Class A Common Stock, $0.10 par value per
share (the "Class A Common Stock"), offered hereby are being issued and sold by
Donnelly Corporation (the "Company"). The Class A Common Stock is listed on the
New York Stock Exchange (the "NYSE") under the symbol "DON." On May 2, 1997,
the last reported sale price of the Class A Common Stock on the NYSE was $16.00
per share. See "Price Range of Class A Common Stock and Dividends."
The Company's authorized capital stock includes the Class A Common Stock and
shares of Class B Common Stock, $0.10 par value per share (the "Class B Common
Stock"). The economic rights of the Class A Common Stock and the Class B Common
Stock (collectively, the "Common Stock") are identical in all material
respects, except that each share of Class A Common Stock entitles the holder
thereof to one vote with respect to matters submitted for the vote of holders
of Common Stock, whereas each share of Class B Common Stock entitles the holder
thereof to ten votes on such matters. The holders of Class A Common Stock are
entitled to elect one-quarter of the Company's directors and the holders of
Class B Common Stock are entitled to elect the remaining directors.
SEE "RISK FACTORS" BEGINNING ON PAGE 4 OF THIS PROSPECTUS FOR A DISCUSSION OF
CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE
SHARES OF CLASS A COMMON STOCK OFFERED HEREBY.
--------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HASTHE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
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<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS (1) COMPANY (2)
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<S> <C> <C> <C>
Per Share...................... $ $ $
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Total (3)...................... $ $ $
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</TABLE>
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(1) For information regarding indemnification of the Underwriters, see
"Underwriting".
(2) Before deducting expenses estimated at $ , payable by the Company.
(3) The Company has granted the Underwriters a 30-day option to purchase up
to 225,000 additional shares of Class A Common Stock solely to cover
over-allotments, if any. See "Underwriting". If such option is exercised
in full, the total Price to Public, Underwriting Discounts and
Commissions, and Proceeds to Company will be , $ and
$ , respectively.
--------
The shares of Class A Common Stock are being offered by the several
Underwriters named herein, subject to prior sale, when, as and if received and
accepted by them and subject to certain conditions. It is expected that
certificates for shares of Class A Common Stock will be available for delivery
on or about 1997, at the offices of Smith Barney Inc., 333 W. 34th
Street, New York, New York 10001.
--------
SMITH BARNEY INC. SALOMON BROTHERS INC
, 1997
<PAGE>
Donnelly Corporation Prospectus
FRONT COVER INSIDE GATEFOLD
DONNELLY LOGO
PICTURE: Electrochromic Automotive Interior Mirror
CAPTION: Donnelly produces a complete line of automotive rearview mirror
systems, including standard day/night flip mirrors and added-feature
mirrors with options such as electronic compasses, directional
signals, reading lamps and automatic (electrochromic) dimming.
PICTURE: ILLUMINATOR/TM/ Automotive Exterior Mirror
CAPTION: The ILLUMINATOR/TM/ features an electrochromic automatic dimming
mirror surface, integrated turn signals and a high-intensity
security light that is activated by a key fob, allowing drivers to
approach their cars safely and confidently. This mirror system was
recognized by Popular Science magazine as one of the "100 Best of
What's New" products for 1996.
PICTURE: Dodge Caravan (full side view) and PICTURE: Dodge Caravan (windows
close up)
CAPTION: This best-selling minivan, the Dodge Caravan, features another
Donnelly innovation. Single-sided encapsulation technology allows
weather stripping and hardware to be bonded directly to the inside
of the glass, making it possible for the windows to fit flush to the
sheet metal for a sleek, aerodynamic installation.
PICTURE: European Mirror Products Group and PICTURE: Single Interior Mirror
CAPTION: With a large and growing presence in Europe, Donnelly is supplying
vision systems to an impressive array of European automakers,
including BMW, Volkswagen, Volvo, SEAT, Renault, Audi, Ford and Opel
as well as to bus manufacturers.
PICTURE: Automotive Overhead Console Modules
CAPTION: Interior trim and lighting systems is a promising and expanding
product line, which combines four areas of Donnelly expertise--
innovative product design, plastic molding, unique optical design
and integrated electronics. The Company's customer list for these
products includes Chrysler, Ford, General Motors, Honda,
Mercedes-Benz and Toyota.
PICTURE: Ford Expedition Vehicle
CAPTION: Donnelly is placing increasing content on popular vehicles such as
the new Ford Expedition. This vehicle features a broad mix of
Donnelly-made mirror systems, trim and lighting components, modular
windows and door handles.
PICTURE: Ford Taurus Wagon Rear Window and PICTURE: Chevrolet Monte Carlo Window
CAPTION: Modular, or encapsulated, automotive windows were invented by
Donnelly in 1974. The Company is a leader in the market for this
technology, creating new innovations such as hardware bonded to the
glass surface for the Ford Taurus wagon and molded-in, painted trim
bezels for the Chevrolet Monte Carlo.
PICTURE: Touch Screen Computer Kiosk
CAPTION: Donnelly's capabilities include the application of conductive
coatings to glass surfaces. This technology supplies a growing
market for touch screen computers such as this vinyl flooring
information kiosk.
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the information requirements of the Securities
Exchange Act of 1934 and, in accordance therewith, files reports, proxy
statements and other information with the Securities and Exchange Commission
(the "Commission"). Such reports, proxy statements and other information can
be inspected and copied at the Public Reference Section of the Commission,
Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
Commission's Regional Office located at 7 World Trade Center, Suite 1300, New
York, New York 10048, and 500 West Madison Street, Chicago, Illinois 60601.
Copies of such materials can be obtained by mail from the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549,
at prescribed rates. The Commission maintains a Web site (which can be found
at http://www.sec.gov) that contains reports, proxy and information statements
and other information regarding registrants that file electronically with the
Commission. The Company's Class A Common Stock is listed on the NYSE, and
reports, proxy statements and other information concerning the Company can
also be inspected at the NYSE.
The Company has filed with the Commission a Registration Statement on Form
S-2 (herein, together with all amendments and exhibits thereto and documents
incorporated by reference, referred to as the "Registration Statement") under
the Securities Act of 1933, as amended (the "Securities Act"). This Prospectus
does not contain all of the information set forth in the Registration
Statement, certain parts of which are omitted in accordance with the rules and
regulations of the Commission. For further information, reference is hereby
made to the Registration Statement. The statements contained in this
Prospectus concerning the contents of any contract or other document referred
to are not necessarily complete. Where such contract or other document is an
exhibit to the Registration Statement, each statement is qualified in all
respects by the provisions of such exhibit, to which reference is hereby made
for a full statement of the provisions thereof.
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.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company's annual report on Form 10-K for the year ended June 29, 1996,
as amended by its Form 10-K/A filed with the Commission on April 16, 1997, its
quarterly reports on Form 10-Q for the quarters ended September 28, 1996 and
December 28, 1996, as amended by its Form 10-Q/A filed with the Commission on
April 16, 1997, and its current report on Form 8-K dated October 28, 1996, as
amended by its Form 8-K/A filed with the Commission on November 27, 1996, have
been filed by the Company with the Commission pursuant to the Securities
Exchange Act of 1934 and are incorporated herein by reference.
Any statement contained in a document incorporated herein by reference shall
be deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus.
Upon request, the Company will provide, without charge, copies of any
documents incorporated by reference herein (other than certain exhibits) to
any person to whom a Prospectus is delivered. Requests for such copies should
be directed to Maryam Komejan, Senior Vice President and Corporate Secretary,
Donnelly Corporation, 414 East Fortieth Street, Holland, Michigan 49423,
telephone (616) 786-7000.
i
<PAGE>
FORWARD-LOOKING STATEMENTS
This Prospectus contains certain forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995 concerning
certain aspects of the business of the Company. When used in this Prospectus,
words such as "believe", "anticipate", "intend", "goal", "expects", and
similar expressions may identify forward-looking statements. Forward-looking
statements are subject to risks and uncertainties that could cause actual
results to differ materially from those contemplated in such forward-looking
statements, including, without limitation, changes in demand for automobiles
and light trucks, relationships with significant customers, price pressures,
the timing and structure of future acquisitions or dispositions, the impact of
environmental regulations, continued availability of adequate funding sources,
currency and other risks inherent in international sales, and general economic
and business conditions. See "Risk Factors" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations." Prospective
investors are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date of this Prospectus. The Company
undertakes no obligation to release publicly any revisions to these
forwarding-looking statements to reflect events or circumstances after the
date hereof or to reflect the occurrence of unanticipated events.
ii
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and combined consolidated financial statements and notes thereto
appearing elsewhere in this Prospectus or incorporated by reference herein.
Unless otherwise indicated, all references to years refer to the Company's
fiscal year, which is the 52 or 53 week period ending on the Saturday nearest
June 30. Unless otherwise indicated, all share and per share data, including
market prices, in this Prospectus have been adjusted to reflect a five for four
split of the Class A Common Stock and Class B Common Stock on January 30, 1997,
effected as a stock dividend. Unless otherwise indicated, all information in
this Prospectus assumes that the Underwriters' over-allotment option is not
exercised.
THE COMPANY
Donnelly Corporation produces a complete line of automotive rearview mirror
systems and believes it is the world's largest supplier of such systems. In
1996, the Company sold approximately 17.5 million interior rearview mirrors
worldwide, more than any other company in the world. The Company is also a
leading supplier of modular window systems and an emerging supplier of
innovative automotive lighting and trim products. The Company serves automotive
customers throughout the world from manufacturing locations in North America
and Europe and through joint ventures in Asia. The Company's primary customers
in North America include Chrysler, Ford and General Motors, and the North
American operations of Honda, Toyota, Isuzu and Mazda. The Company's primary
customers in Europe include BMW, Volkswagen, Volvo, SEAT, Renault and Audi.
From 1992 through 1996, the Company's net sales grew from $271.4 million to
$439.6 million, representing a compound annual growth rate of approximately
13%. The Company's net sales for 1996 were $664.4 million on a pro forma basis
to reflect the consolidation of Donnelly Hohe GmbH & Co. KG ("Donnelly Hohe"),
a leading European supplier of automotive rearview mirror systems.
The Company's products include rearview mirror systems, modular windows,
interior lighting and trim components. The Company produces a full line of
automotive rearview mirror systems, including interior prismatic base mirrors,
mirrors with added features such as integrated compasses and lights, and
exterior rearview mirrors. The Company also produces advanced-technology
interior and exterior electrochromic mirrors that automatically dim when
headlights approach from the rear. The Company believes that electrochromic
mirrors represent a significant growth opportunity, and that the settlement of
patent litigation concerning this technology will allow the Company to compete
more vigorously in the market for electrochromic mirrors.
The Company pioneered and is a leading supplier of modular window systems,
which are produced by molding glass, weather stripping and other materials into
a single unit designed for ease of assembly by automakers. The Company uses its
expertise in glass fabrication, plastics and optics technology to develop,
manufacture and sell advanced interior lighting and trim products. The Company
also seeks to develop synergistic products and businesses, including coated
glass products for computer applications, advanced plastic diffractive optical
systems and, through its 25.6% ownership of London Stock Exchange-listed Vision
Group plc, microchip-based electronic vision systems.
The Company expects to invest approximately 4.5% to 5.0% of its net sales
each year in research and development. The Company's core technologies include
glass fabrication and encapsulation, electrochromics, optics and lighting,
electronic applications, painting and precision coatings, precision plastic
injection molding, and the design, assembly and system integration of complex
components. The Company continually seeks to use its technological capabilities
to create innovative value-added features for its existing products, such as
automatic electrochromic dimming and the integration of lights and compasses
into automotive mirrors. Since January 1, 1996, the Company has been awarded
over 20 new patents, including patents relating to electrochromic mirrors,
flush surface windows, automotive vision systems and advanced diffractive
optics. The Company believes that its manufacturing know-how, design of its own
manufacturing equipment and development of manufacturing processes provide a
strong foundation for its success.
1
<PAGE>
The Company's strategy for continued growth and for capitalizing on trends in
the automotive industry includes the following elements:
. Grow Through Modular Systems and Value-Added Products. The Company is
using its design, manufacturing and marketing capabilities to produce
modular systems and value-added products designed to result in sales and
earnings growth. The Company's dollar content per vehicle produced in
North America has increased from $6.24 in 1986 to $25.05 in 1996.
. Improve Productivity. The Company has implemented strategic business
systems as part of an integrated philosophy designed to develop, design,
manufacture and deliver the Company's products to satisfy the
engineering, cost, quality and delivery standards of the Company's
customers. The Company's net sales per employee have increased at a
compound annual growth rate of approximately 9% from 1992 through 1996.
. Expand Technology and Product Development Capabilities. The Company
strives to be the technological leader in its markets by continually
enhancing the Company's core technologies. The Company expects to spend
approximately 4.5% to 5.0% of its net sales each year on research and
development.
. Expand Global Presence. The Company has developed a significant global
presence in North America, Europe and Asia, directly and through joint
ventures, and intends to continue to expand its global presence and
customer base. Approximately 2,200 of the Company's 4,700 employees are
located outside of the United States.
. Create Additional Product and Market Opportunities. The Company seeks to
use its technology and manufacturing capabilities, both directly and
through joint ventures, to develop product improvements and new products
for both automotive and non-automotive applications.
During the past two years, the Company has significantly expanded its
presence in Europe by opening a modular window manufacturing facility in
Langres, France in 1996, and through the acquisition of a controlling interest
in Donnelly Hohe, headquartered in Collenberg, Germany. The Company believes
that the expansion of its European operations will play a crucial role in
maintaining the Company's position as a global leader in the market for
automotive rearview mirrors and will also offer significant opportunities for
the Company to market its modular windows, interior lighting, trim components
and other products in Europe and elsewhere. In Europe, the Company has begun
implementing its plan to realign its manufacturing capacity, reduce the number
of non-production employees and achieve additional cost reductions in
operations.
The Company believes that its growth has resulted from its commitment to
research and development, close working relationships with customers, a strong
international presence, a skilled and dedicated workforce and a participative
management approach. As a result of its capabilities and business strategy, the
Company believes it is well-positioned in its existing markets to compete
effectively and to pursue additional growth and product opportunities.
THE OFFERING
<TABLE>
<S> <C>
Class A Common Stock Offered by the Company............... 1,500,000 shares
Shares to be Outstanding after the Offering (1):
Class A Common Stock (2)................................ 6,912,286 shares
Class B Common Stock.................................... 4,463,243 shares
-----------------
Total Common Stock.................................... 11,375,529 shares
Use of Proceeds........................................... To repay indebtedness
New York Stock Exchange Symbol............................ DON
</TABLE>
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(1) The Class B Common Stock is limited in its transferability and is not
publicly traded, but each share of Class B Common Stock is convertible at
the option of the holder at any time into one share of Class A Common
Stock. See "Description of Capital Stock."
(2) Excludes 4,463,243 shares of Class A Common Stock issuable upon future
conversions of Class B Common Stock and 1,300,120 shares of Class A Common
Stock reserved for issuance under the Company's stock option, director
stock option and stock purchase plans. At May 2, 1997, options to acquire
525,844 shares were outstanding under the Company's stock option plan and
director stock option plan.
2
<PAGE>
SUMMARY COMBINED CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
-------------------------------------------------------- --------------------------------------
PRO FORMA PRO FORMA
JUNE 27, JULY 3, JULY 2, JULY 1, JUNE 29, JUNE 29, DECEMBER 30, DECEMBER 28, DECEMBER 28,
1992 1993 1994 1995 1996 1996(1) 1995 1996 1996(1)
-------- -------- -------- -------- -------- ----------- ------------ ------------ ------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT
DATA:
Net sales.......... $271,399 $300,927 $337,262 $383,340 $439,571 $664,376 $197,346 $301,437 $349,899
Gross profit....... 60,752 68,910 73,632 82,568 81,741 115,330 33,715 57,919 64,243
Operating income... 12,892 12,458 13,121 17,033 13,491 21,546 1,812 13,542 13,787
Income before taxes
on income......... 10,805 10,936 11,008 16,823 12,349 15,793 1,312 11,021 10,054
Income before
extraordinary gain
and cumulative
effect of change
in accounting
principle......... 6,893 7,257 6,745 11,009 8,454 8,454 840 5,639 5,639
Net income......... $ 7,082 $ 7,852 $ 7,258 $ 11,009 $ 8,454 $ 8,454 $ 840 $ 5,639 $ 5,639
Net income per
share of common
stock............. $ 0.80 $ 0.82 $ 0.75 $ 1.14 $ 0.86 $ 0.86 $ 0.09 $ 0.57 $ 0.57
Dividends per share
of common stock... $ 0.19 $ 0.22 $ 0.26 $ 0.26 $ 0.32 $ 0.32 $ 0.16 $ 0.16 $ 0.16
Weighted average
common shares
outstanding....... 8,837 9,608 9,646 9,680 9,754 9,754 9,732 9,809 9,809
BALANCE SHEET DATA:
Working capital.... $ 28,085 $ 33,832 $ 36,406 $ 40,502 $ 63,482 $ 68,026 $ 56,559 $ 58,911
Total assets....... 131,229 139,840 183,801 233,788 271,492 366,476 258,979 372,666
Long-term debt,
including current
maturities........ 24,882 33,765 53,485 66,802 101,916 151,985 103,301 141,177
Shareholders'
equity............ 61,158 65,546 70,826 82,900 88,852 88,852 81,221 95,591
</TABLE>
- -------
(1) The pro forma income statement data for the year ended June 29, 1996 and
for the six month period ended December 28, 1996 give effect to the
consolidation of Donnelly Hohe as if it occurred at the beginning of the
period. The pro forma balance sheet data at June 29, 1996, gives effect to
the consolidation of Donnelly Hohe as if it occurred on that date. The
unaudited pro forma information presented is based on the historical
financial statements of the Company and Donnelly Hohe for the periods
indicated. The pro forma data do not purport to represent what the
Company's results of operations and financial position would actually have
been if such transactions had in fact occurred as of the dates indicated or
to project results for any future date or period. See "Pro Forma Condensed
Combined Consolidated Financial Statements" included elsewhere in this
Prospectus.
RECENT DEVELOPMENTS
On April 17, 1997, the Company announced net income for the third quarter
ended March 29, 1997 of $.30 per share compared to $.26 per share for the third
quarter ended March 30, 1996. The Company's net sales for the third quarter of
1997 increased 56% to $181.7 million from $116.4 million for the third quarter
of 1996. While the increase in net sales was primarily the result of the
consolidation of Donnelly Hohe for the third quarter of 1997, net sales
excluding the net sales of Donnelly Hohe increased 12% from net sales for the
third quarter of 1996. Net income for the third quarter of 1997 increased 18%
to $3.0 million from $2.5 million for the third quarter of 1996. The increase
in net income was primarily due to strong performance and higher sales by the
Company's North American operations. The Company continues to benefit from
strong dollar content per vehicle on popular platforms such as the Ford
Expedition and the Chrysler minivans.
3
<PAGE>
RISK FACTORS
Prospective purchasers should carefully consider, together with the other
information included and incorporated by reference in this Prospectus, the
following factors:
The Automotive Supplier Industry. The Company competes in the worldwide
automotive supplier industry. The automotive supplier industry is highly
cyclical and, in large part, dependent upon the overall strength of consumer
demand for passenger cars and trucks, which is subject to substantial
variation based on general economic conditions. There can be no assurance that
the automotive industry for which the Company supplies components and systems
will not experience downturns in the future. A decrease in overall consumer
demand for passenger cars and trucks could have a material adverse effect on
the Company's financial condition and results of operations.
The automotive industry is characterized by a limited number of automakers
that are able to exert considerable pressure on components and systems
suppliers to reduce costs, improve quality and provide additional design and
engineering capabilities. In the past, automakers have generally demanded and
received price reductions and measurable increases in quality by implementing
competitive selection processes, rating programs and various other
arrangements. The Company has existing orders requiring annual price
reductions. Also, through increased partnering on platform work, automakers
have generally required components and system suppliers to provide more design
engineering input at earlier stages of the product development process, the
costs of which have, in some cases, been absorbed by the suppliers. There can
be no assurance that future price reductions, increased quality standards or
additional engineering capabilities required by automakers will not have a
material adverse effect on the financial condition and results of operations
of the Company.
Dependence on Principal Customers. Sales to the Company's four largest North
American customers, Chrysler, Ford, Honda and General Motors accounted for
approximately 81% of the Company's net sales for fiscal 1996. The Company has
reduced the dependence on these principal customers due to the recent
consolidation of Donnelly Hohe. The primary customers of Donnelly Hohe include
BMW, Volkswagen, Volvo, SEAT, Renault and Audi. Although the Company has on-
going supply relationships with all of these companies, there can be no
assurance that sales to any of these customers will continue at the same
levels; further, continuation of the relationships is dependent upon customer
satisfaction with the quality, delivery and price of the Company's products.
If any of these customers were to substantially reduce or discontinue its
purchases for any reason, the Company's financial condition and results of
operations could be adversely affected.
Competition. The Company operates in the highly competitive automotive
supplier industry. Accordingly, there can be no assurance that the Company's
products will continue to compete successfully with the products of other
companies, including the automakers themselves and other automotive suppliers,
many of whom are significantly larger and have greater financial and other
resources available to them. The Company is under constant pressure from its
major customers to reduce product costs and improve quality. In addition, many
of the products offered by the Company are expected to require continual
technological improvements and face competition from products using similar or
alternative technologies. For example, the Company believes that
electrochromic interior and exterior mirrors, which currently represent a
small portion of the interior rearview mirrors purchased by automakers will
represent a growing share of the automotive rearview mirror market. The
Company's principal competitor in the market for electrochromic rearview
mirrors currently has a significantly larger share of the market for
electrochromic mirrors than the Company. While the Company believes that it
will be able to compete effectively in the market for electrochromic mirrors
and increase its market share, no assurances can be given. See "Business--
Competition," "Business--Products and Markets" and "Business--Litigation."
Integration of Donnelly Hohe; Increased Foreign Operations. During the past
two years, the Company has significantly expanded its presence in Europe
through the acquisition of a controlling interest in Donnelly Hohe. Management
is in the process of integrating into the Company's business Donnelly Hohe's
European manufacturing operations. The Company has announced its intention to
restructure the Company's European operations, including Donnelly Hohe, to
realign the Company's manufacturing capacity and to reduce future operating
costs, primarily by reducing the number of non-production employees in the
Company's European
4
<PAGE>
operations. The Company is in the process of finalizing the details of the
planned restructuring, and has begun its implementation. Management believes
that the expense of the restructuring will reduce the Company's net income by
approximately $4.0 to $5.0 million in the fourth quarter of 1997. See
"Business--Expansion of European Operations." The Company's implementation
strategies are subject to numerous contingencies, some of which are beyond
management's control. These contingencies include general and regional
economic conditions, competition and changes in regulation and interest rates.
In addition, the complete implementation of the reduction in European
personnel is subject to the approval of the Works Council in Germany. Even if
management is able to successfully restructure its European operations, the
Company will be dependent to a significant extent on international operations,
specifically those in Europe, and therefore subject to various political,
economic and other uncertainties. Among others, the Company's foreign
operations are subject to the risks of taxation policies, foreign exchange
restrictions, changing political conditions and governmental regulations.
Accordingly, no assurance can be given that any of the Company's strategies
will prove to be effective or that management's goals will be achieved. In
addition, the Company receives a substantial portion of its revenues in
currencies other than U.S. Dollars. Fluctuations in the exchange rates of
these currencies with respect to the U.S. Dollar could have an adverse effect
on the Company's financial condition and results of operations. From time to
time the Company engages in hedging programs intended to reduce the Company's
exposure to currency fluctuations. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Liquidity and Capital
Resources."
Control by Present Shareholders. Holders of each share of Class A Common
Stock are entitled to one vote per share, and holders of each share of Class B
Common Stock are entitled to ten votes per share. Upon completion of the
offering of the Class A Common Stock, the holders of the Class B Common Stock
will also hold approximately 24% of the outstanding Class A Common Stock and
will control approximately 90% of the vote on matters to be voted upon by all
holders of common stock voting as a single class. Five of the Company's ten
directors are descendants of, or are married to descendants of, the Company's
founder, and each represents one of five family groups of each such
descendants (the "Donnelly Family"). Four family groups have the ability to
elect at least one director if they act together and accumulate the votes of
the Class B Common Stock. Members of the Donnelly Family own approximately 99%
of the Class B Common Stock and after the offering of the Class A Common Stock
will own approximately 24% of the Class A Common Stock of the Company. As
such, the Donnelly Family will control approximately 89% of the vote on
matters to be voted upon by all holders of Common Stock voting as a single
class. Given the voting control of the Donnelly Family, the Donnelly Family
could, if all or part of the family took a united position in response to
attempts to acquire control of the Company through tender offers or proxy
contests, effectively block any such attempts. There is no assurance that any
united action would or would not be taken. See "Description of Capital Stock."
Raw Materials and Suppliers. The Company's primary raw materials are glass
supplied by third party glass manufacturers and by glass manufacturers
affiliated with automakers, as well as resins and adhesives provided by third
party chemical companies. Inability to obtain raw materials on a timely basis
or problems with the quality of raw materials supplied to the Company could
have a material adverse effect on the Company's ability to meet its customer's
requirements and could jeopardize the Company's relationship with one or more
customers. An adhesive for one of the Company's principal products is supplied
solely by Dow Chemical and the Company believes that an alternative source of
supply is not currently available. See "Business--Business Systems and
Manufacturing--Raw Materials."
Warranty Exposure and Recalls. The Company warrants the quality of its
products to its automotive customers and that the products meet certain
specifications designated by the automakers. The automakers in turn offer
product warranties to their retail customers. In some instances of common
complaint, the automobile manufacturer may institute a voluntary recall or may
be required by a governmental agency to conduct a recall. Although warranty
and recall expense has not historically been material for the Company, there
can be no assurance that the Company will not incur substantial warranty or
recall expense in the future. Such complaints and the related expenses may
have a material adverse effect on the Company's relationship with its
automotive customers, its financial condition and results of operations.
Environmental Laws. Like similar companies, the Company's operations and
properties are subject to a wide variety of increasingly complex and stringent
federal, state, local and international laws and regulations,
5
<PAGE>
including those governing the use, storage, handling, generation, treatment,
emission, release, discharge and disposal of certain materials, substances and
wastes, the remediation of contaminated soil and groundwater, and the health
and safety of employees (collectively, "Environmental Laws"). As such, the
nature of the Company's operations exposes it to the risk of claims with
respect to such matters and there can be no assurance that material costs or
liabilities will not be incurred in connection with such claims. Based upon
its experience to date, the Company believes that the future cost of
compliance with existing Environmental Laws and liability for known
environmental claims pursuant to such Environmental Laws, will not have a
material adverse effect on the Company's financial position or results of
operations and cash flows. However, future events, such as new information,
changes in existing Environmental Laws or their interpretation, and more
vigorous enforcement policies of regulatory agencies, may give rise to
additional expenditures or liabilities that could be material. See "Business--
Environmental Matters."
Shares Eligible for Future Sale. Sales of substantial amounts of Class A
Common Stock in the public market, or the perception that such sales could
occur, could adversely affect the market price of the Class A Common Stock.
Upon completion of the Offering, the Company will have approximately 6,912,286
(7,137,286 if the Underwriters' over-allotment option is exercised in full)
shares of Class A Common Stock outstanding, excluding 4,463,243 shares of
Class A Common Stock issuable upon future conversions of Class B Common Stock,
525,844 shares of Class A Common Stock subject to stock options outstanding as
of May 2, 1997, and any stock options or warrants granted by the Company after
May 2, 1997. Of these shares, the Class A Common Stock sold in the offering of
the Class A Common Stock will be freely tradeable without restriction or
further registration under the Securities Act of 1933, as amended (the "Act").
Approximately 3,366,754 additional shares are currently freely tradeable,
except to the extent such shares were purchased by affiliates of the Company,
in which case they are subject to Rule 144 under the Act ("Rule 144"). In
addition, all shares that may be issued pursuant to the Company's Employees'
Stock Purchase Plan and upon exercise of options granted under the Company's
1987 Stock Option Plan and the Company's Director Stock Option Plan will be
freely tradeable without restriction, except that any such shares issued to
affiliates of the Company will be subject to Rule 144. The remaining 2,041,208
shares of outstanding Class A Common Stock and any shares of Class A Common
Stock issuable upon future conversions of Class B Common Stock (the
"Restricted Shares") were sold by the Company in reliance on exemptions from
the registration requirements of the Act and are "restricted securities" as
defined in Rule 144 and may not be sold in the absence of registration under
the Act unless an exemption is available, including an exemption afforded by
Rule 144.
Anti-takeover Effect of Certain Provisions. Certain provisions of the
Michigan Business Corporation Act and the Company's Articles of Incorporation
may have the effect of discouraging transactions involving an actual or
potential change in control of the Company. See "Description of Capital
Stock--Certain Special Article and Statutory Provisions."
USE OF PROCEEDS
The net proceeds to the Company from the sale of 1,500,000 shares of Class A
Common Stock are estimated to be approximately $22,370,000 ($25,763,000 if the
Underwriters' over-allotment option is exercised in full) assuming a public
offering price of $16.00 per share and after deducting underwriting discounts
and commissions. The Company intends to use the net proceeds to repay
indebtedness, including amounts incurred under its revolving credit
agreements. At April 28, 1997, $17.8 million was outstanding under the
Company's $80.0 million U.S. revolving credit agreement at an average interest
rate of 5.63%. At April 11, 1997, $26.9 million was outstanding under Donnelly
Hohe's 75.0 million German Mark (approximately $45.0 million) revolving credit
agreements with several banks at an average interest rate of 3.96%. The
Company's revolving credit agreement terminates November 20, 2002, and the
Donnelly Hohe revolving credit agreements terminate in stages beginning June
30, 1999, and ending December 31, 1999. Repayment of amounts outstanding under
the revolving credit agreements will not reduce the total amount available for
borrowing under the revolving credit agreements. See "Management's Discussion
and Analysis of Results of Operations and Financial Condition--Liquidity and
Capital Resources" and Note 5 of the Notes to Combined Consolidated Financial
Statements.
6
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company at December
28, 1996, and as adjusted to reflect the sale by the Company of 1,500,000
shares of Class A Common Stock (assuming a public offering price of $16.00 per
share) and the application of the estimated net proceeds of such sale as
described in "Use of Proceeds." All share data have been adjusted to reflect a
five for four split of the Class A Common Stock and Class B Common Stock on
January 30, 1997, effected as a stock dividend.
<TABLE>
<CAPTION>
DECEMBER 28, 1996
(1)
--------------------
AS
ACTUAL ADJUSTED
--------- ---------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
Short-term debt (including current maturities of long-
term debt).............................................. $ 6,132 $ 6,132
Long-term debt, less current maturities (2).............. 135,045 112,675
Shareholders' equity:
Series Preferred Stock, no par value, 1,000,000 shares
authorized, none issued and outstanding............... -- --
7 1/2% Cumulative Preferred Stock, $10.00 par value per
share, 250,000 shares authorized, 53,112 issued and
outstanding (3)....................................... 531 531
Class A Common Stock, $.10 par value per share,
30,000,000 shares authorized, 5,354,723 issued and
outstanding and 6,854,723 issued and outstanding as
adjusted (3)(4)....................................... 535 685
Class B Common Stock, $.10 par value per share,
15,000,000 shares authorized, 4,469,183 issued and
outstanding (3)....................................... 447 447
Donnelly Export Corporation Common Stock, $.01 par
value per share, 600,000 shares authorized, 408,614
issued and outstanding (3)............................ 4 4
Additional paid-in capital............................. 28,167 50,387
Foreign currency translation adjustment................ (1,284) (1,284)
Retained earnings...................................... 67,191 67,191
--------- ---------
Total shareholders' equity........................... 95,591 117,961
--------- ---------
Total capitalization............................... $236,768 $236,768
========= =========
</TABLE>
- --------
(1) The Company's Combined Consolidated Balance Sheet as of December 28, 1996,
includes the consolidated balance sheet of Donnelly Hohe as of November
30, 1996. See "Management's Discussion and Analysis of Results of
Operation and Financial Condition--General."
(2) See Note 5 of Notes to Combined Consolidated Financial Statements.
(3) See Note 9 of Notes to Combined Consolidated Financial Statements.
(4) As of December 28, 1996, excludes 324,656, 412,162, and 40,625 shares of
Class A Common Stock reserved for issuance under the 1987 Stock Option
Plan, the 1987 Employees' Stock Purchase Plan and the Director Stock
Option Plan, respectively, and 4,469,183 shares of Class A Common Stock
reserved for issuance upon conversion of Class B Common Stock. See Note 10
of Notes to Combined Consolidated Financial Statements and "Description of
Capital Stock."
7
<PAGE>
PRICE RANGE OF COMMON STOCK
AND DIVIDENDS
The Company's Class A Common Stock is listed on the NYSE under the symbol
"DON." Prior to March 10, 1997, the Company's Class A Common Stock was listed
on the American Stock Exchange ("AMEX") under the symbol "DON." On May 2,
1997, the Class A Common Stock was held by approximately 900 shareholders of
record, and the Class B Common Stock was held by approximately 150
shareholders of record. The following table sets forth, for the quarters
indicated, the high and low sale prices as reported on the AMEX and the NYSE
of the Class A Common Stock, and the per share cash dividends declared in such
quarters, as adjusted retroactively to reflect the five for four stock split,
effective January 30, 1997.
<TABLE>
<CAPTION>
DIVIDENDS
HIGH LOW PER SHARE(1)
------ ------ ------------
<S> <C> <C> <C>
YEAR ENDED JULY 1, 1995
First quarter ............................... $14.00 $12.10 $.06
Second quarter............................... 14.10 10.60 .06
Third quarter................................ 14.40 12.10 .06
Fourth quarter............................... 14.10 11.90 .06
YEAR ENDED JUNE 29, 1996
First quarter ............................... $13.40 $11.60 $.08
Second quarter............................... 12.50 11.00 .08
Third quarter................................ 11.90 10.40 .08
Fourth quarter............................... 12.90 11.00 .08
YEAR ENDED JUNE 28, 1997
First quarter................................ $14.70 $12.70 $.08
Second quarter............................... 17.90 14.10 .08
Third quarter................................ 20.00 16.00 .10
Fourth quarter (through May 2, 1997)......... 16.13 14.38 .10
</TABLE>
- --------
(1) Per share dividends for Class A Common Stock and the Class B Common Stock
were the same for the periods indicated. For holders of Class B Common
Stock, includes dividends paid by Donnelly Export Corporation. See
"Description of Capital Stock."
Prior to the adjustment for the Company's five for four stock split, the
Company's per share dividend was $.10. The Company's Board of Directors
presently intends to continue to pay dividends at a rate of $.10 per share per
quarter after the five for four stock split (effectively a 25% increase in the
dividend per share). The payment and rate of future dividends are subject to
the discretion of the Board of Directors and depend upon the Company's
earnings, financial condition, capital requirements, restrictions in loan or
other debt agreements, and other factors. As limited by the terms of certain
of the Company's debt agreements, retained earnings available for dividends at
March 1, 1997 were $24.0 million. On May 2, 1997, the last reported sale price
of Class A Common Stock on the NYSE was $16.00 per share.
8
<PAGE>
SELECTED COMBINED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The historical selected combined consolidated financial data set forth
below, insofar as they relate to the five fiscal years ended June 29, 1996,
are derived from the audited combined consolidated financial statements of the
Company. The data for the six month periods ended December 30, 1995, and
December 28, 1996, have been derived from unaudited interim financial
statements; however, in the opinion of the Company, such unaudited interim
statements include all adjustments (consisting of normal recurring accruals)
necessary to fairly present the data for such periods. The results of
operations for the six month period ended December 28, 1996, are not
necessarily indicative of results to be achieved for the full fiscal year.
Such data are qualified by reference to the Combined Consolidated Financial
Statements included elsewhere or incorporated by reference in this Prospectus
and should be read in conjunction with such financial statements and related
notes thereto and "Management's Discussion and Analysis of Results of
Operations and Financial Condition." The per share data has been adjusted for
the five for four stock split, effective January 30, 1997.
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
------------------------------------------------------------- --------------------------------------
PRO FORMA PRO FORMA
JUNE 27, JULY 3, JULY 2, JULY 1, JUNE 29, JUNE 29, DECEMBER 30, DECEMBER 28, DECEMBER 28,
1992(1) 1993(2) 1994(3) 1995(4) 1996(5) 1996(5)(6) 1995 1996(7) 1996(6)(7)
-------- -------- -------- -------- -------- ----------- ------------ ------------ ------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales.............. $271,399 $300,927 $337,262 $383,340 $439,571 $664,376 $197,346 $301,437 $349,899
Cost of sales.......... 210,647 232,017 263,630 300,772 357,830 549,046 163,631 243,518 285,656
-------- -------- -------- -------- -------- -------- -------- -------- --------
Gross profit........... 60,752 68,910 73,632 82,568 81,741 115,330 33,715 57,919 64,243
Selling, general and
administrative
expense............... 32,775 40,563 37,965 45,067 38,123 57,841 20,023 28,810 33,753
Research and
development expense... 14,175 15,889 21,362 22,733 27,728 32,235 11,880 15,567 16,703
Restructuring charges
(gain)................ 910 -- 1,184 (2,265) 2,399 3,708 -- -- --
-------- -------- -------- -------- -------- -------- -------- -------- --------
Operating income....... 12,892 12,458 13,121 17,033 13,491 21,546 1,812 13,542 13,787
Interest expense....... 3,506 3,216 3,528 5,010 8,102 12,608 3,737 4,991 5,890
Royalty income......... (1,238) (1,681) (1,370) (3,774) (5,239) (5,274) (2,503) (1,081) (1,082)
Interest income........ -- -- (153) (514) (1,017) (396) (604) (414) (152)
Other (income) expense,
net................... (181) (13) 108 (512) (704) (1,185) (130) (975) (923)
-------- -------- -------- -------- -------- -------- -------- -------- --------
Income before taxes on
income................ 10,805 10,936 11,008 16,823 12,349 15,793 1,312 11,021 10,054
Taxes on income........ 3,889 3,571 3,334 5,795 4,191 5,291 430 4,143 3,767
-------- -------- -------- -------- -------- -------- -------- -------- --------
Income before minority
interest and equity
earnings.............. 6,916 7,365 7,674 11,028 8,158 10,502 882 6,878 6,287
Minority interest in
net (income) loss of
subsidiaries.......... (26) (741) (825) (371) 186 (492) 202 (594) (251)
Equity in earnings
(losses) of affiliated
companies............. 3 633 (104) 352 110 (1,556) (244) (645) (397)
-------- -------- -------- -------- -------- -------- -------- -------- --------
Income before
extraordinary gain and
cumulative effect of
change in accounting
principle............. 6,893 7,257 6,745 11,009 8,454 8,454 840 5,639 5,639
Tax benefit from
utilization of loss
carry forward......... 189 585 -- -- -- -- -- -- --
Cumulative effect of
adopting SFAS No. 109. -- -- 513 -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- -------- -------- --------
Net income............. $ 7,082 $ 7,852 $ 7,258 $ 11,009 $ 8,454 $ 8,454 $ 840 $ 5,639 $ 5,639
======== ======== ======== ======== ======== ======== ======== ======== ========
Income per share of
common stock.......... $ 0.80 $ 0.82 $ 0.75 $ 1.14 $ 0.86 $ 0.86 $ 0.09 $ 0.57 $ 0.57
Dividends per share of
common stock.......... $ 0.19 $ 0.22 $ 0.26 $ 0.26 $ 0.32 $ 0.32 $ 0.16 $ 0.16 $ 0.16
Weighted average common
shares outstanding.... 8,837 9,608 9,646 9,680 9,754 9,754 9,732 9,809 9,809
BALANCE SHEET DATA:
Working capital........ $ 28,085 $ 33,832 $ 36,406 $ 40,502 $ 63,482 $ 68,026 $ 56,559 $ 58,911
Total assets........... 131,229 139,840 183,801 223,788 271,492 366,476 258,979 372,666
Long-term debt,
including current
maturities............ 24,882 33,765 53,485 66,802 101,916 151,985 103,301 141,177
Shareholders' equity... 61,158 65,546 70,826 82,900 88,852 88,852 81,221 95,591
</TABLE>
Footnotes appear on the following page.
9
<PAGE>
- --------
(1) 1992 included costs of $0.9 million for a severance program and other
expenses associated with the formation of the Applied Films Corporation
joint venture.
(2) Selling, general and administrative expenses in 1993 included a $3.6
million charge relating to the settlement of patent litigation.
(3) 1994 included costs of $1.2 million for a severance program and other
expenses associated with the restructuring of Donnelly Mirrors Limited and
a charge of $1.1 million relating to the adoption of FASB Statement 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions."
(4) 1995 included the restructuring of non-automotive businesses resulting in
a $4.7 million pretax gain, and the restructuring of certain automotive
operations resulting in a charge of $2.4 million.
(5) Selling, general and administrative expenses in 1996 included a gain of
$2.3 million associated with a patent and license settlement. 1996 also
included restructuring charges 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.
(6) The pro forma income statement data for the year ended June 29, 1996 and
for the six month period ended December 28, 1996 give effect to the
consolidation of Donnelly Hohe as if it had occurred at the beginning of
each period. The pro forma balance sheet data at June 29, 1996, gives
effect to the consolidation of Donnelly Hohe as if it occurred on that
date. The unaudited pro forma information presented is based on the
historical financial statements of the Company and Donnelly Hohe for the
periods indicated. The pro forma data do not purport to represent what the
Company's results of operations and financial position would actually have
been if such transactions had in fact occurred as of the dates indicated
or to project results for any future date or period.
(7) The Company's Combined Consolidated Balance Sheet as of December 28, 1996,
includes the consolidated balance sheet of Donnelly Hohe as of November
30, 1996. See "Management's Discussion and Analysis of Results of
Operation and Financial Condition--General."
10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
This Prospectus, including the disclosures below, contains certain forward-
looking statements that involve substantial risks and uncertainties. When used
herein, the terms "believe," "anticipate," "intend," "goal," "expects," and
similar expressions may identify forward-looking statements. The Company's
actual results, performance or achievements may differ materially from those
expressed or implied by such forward-looking statements. Factors that could
cause or contribute to such material differences include those disclosed in
the "Risk Factors" section of this Prospectus, which prospective purchasers of
the Class A Common Stock offered hereby should consider carefully.
RECENT DEVELOPMENTS
On April 17, 1997, the Company announced net income for the third quarter
ended March 29, 1997 of $.30 per share compared to $.26 per share for the
third quarter ended March 30, 1996. The Company's net sales for the third
quarter of 1997 increased 56% to $181.7 million from $116.4 million for the
third quarter of 1996. While the increase in net sales was primarily the
result of the consolidation of Donnelly Hohe for the third quarter of 1997,
net sales excluding the net sales of Donnelly Hohe increased 12% from net
sales for the third quarter of 1996. Net income for the third quarter of 1997
increased 18% to $3.0 million from $2.5 million for the third quarter of 1996.
The increase in net income was primarily due to strong performance and higher
sales by the Company's North American operations. The Company continues to
benefit from strong dollar content per vehicle on popular platforms such as
the Ford Expedition and the Chrysler minivans.
GENERAL
The following is a discussion of the financial condition and results of
operations of the Company for the six months ended December 30, 1995 and
December 28, 1996, and the years ended July 2, 1994, July 1, 1995, and June
29, 1996. The following discussion should be read in conjunction with the
Combined Consolidated Financial Statements of the Company and the related
notes thereto and other financial information included elsewhere and
incorporated by reference in this Prospectus.
Effective 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, supplies many of the main automakers in Europe with
exterior automotive mirrors, interior mirrors, door handles, automotive
tooling and electronic components related to mirror systems. The Company
initially acquired for $3.6 million 48% of the controlling general partnership
interest and 66 2/3% of the limited partnership interest in Donnelly Hohe. The
Company also made a $28 million subordinated loan to Donnelly Hohe. In October
1996, the Company acquired an additional 13% interest in the general partner
of Donnelly Hohe, resulting in the Company owning a controlling interest in
Donnelly Hohe. Accordingly, Donnelly Hohe's financial statements are
consolidated with those of the Company in the second quarter of 1997, and at
December 28, 1996, Donnelly Hohe represented approximately 33% of Company's
combined consolidated total assets.
The Company's fiscal year ends on the Saturday nearest June 30, and its
fiscal quarters end on the Saturdays nearest September 30, December 31, March
31 and June 30. Donnelly Hohe's fiscal year ends on May 31, and its fiscal
quarters end on August 31, November 30, February 28 and May 31. Accordingly,
the Company's Combined Consolidated Financial Statements as of or for a period
ended on a particular date include Donnelly Hohe's financial statements as of
or for a period ended approximately one month before that date. The Company
intends to continue this practice. The Company's Financial Statements for the
six months ended December 28, 1996, consolidate Donnelly Hohe's financial
statements for the three month period ended November 30, 1996.
On February 18, 1997, the Company announced its intention to restructure the
Company's European operations to realign the Company's European manufacturing
capacity and to reduce future operating costs, primarily by reducing the
number of non-production employees in the Company's European operations. The
11
<PAGE>
restructuring is intended to result in reductions in operating costs through
improved quality, better personnel training and management and outsourcing
certain production. The restructuring also involves reorganizing product lines
and production to realize efficiencies in the production process. The Company
is in the process of finalizing the details of the planned restructuring, and
has begun its implementation. Management believes that the expense of the
restructuring (primarily severance payments resulting from a reduction in the
number of employees) will reduce net income by a one-time charge of
approximately $4.0 to $5.0 million in the fourth quarter of 1997. See
"Business--Expansion of European Operations."
The Company's net sales and net income are subject to significant quarterly
fluctuations attributable primarily to production schedules of the Company's
major automotive customers. These same factors cause quarterly results to
fluctuate from year to year. 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.
SIX MONTHS ENDED DECEMBER 28, 1996 COMPARED TO SIX MONTHS ENDED DECEMBER 30,
1995.
Net sales were $301.4 million for the first six months of 1997 compared to
$197.3 million for the same period in 1996. The consolidation of Donnelly Hohe
contributed $60.5 million of net sales for the first six months of 1997, all
in the second quarter. Excluding Donnelly Hohe, consolidated net sales for the
first six months of 1997 were $240.9 million, an increase of 22% over the
first six months of 1996. Net sales for the Company's operations in North
America increased by 20% for the first six months of 1997 compared to the same
period in 1996, despite the fact that automotive industry production remained
stable. North American net sales increased primarily due to programs launched
in 1996 running at full production volumes and new product introductions in
the modular window and interior trim product lines. Net sales also increased
as a result of strong sales of vehicles containing Company products, such as
the Chrysler Caravan and the Ford Expedition. Excluding the consolidation of
Donnelly Hohe, net sales for the Company's European operations for the first
six months of 1997 were 38% higher than the same period in 1996 due to higher
sales of interior and electrochromic mirrors and modular windows.
Gross profit margin for the first six months of 1997 was 19.2% compared to
17.1% for the first six months of 1996. The Company's North American gross
profit margins were stronger due to higher volumes and significantly lower
start-up expenses compared to 1996. In the first six months of 1996, the
Company's North American gross profit margin was negatively impacted due to
simultaneous start-up of three major new business programs. Management
believes that annual net sales in 1997 for these products will exceed $100
million. The Company's European gross profit margins for 1997 were lower as a
percentage of net sales than for 1996 due to the consolidation of Donnelly
Hohe and lower gross profit margins at the Company's Irish subsidiaries.
Donnelly Hohe's gross profit margin, as a percentage of net sales, has been
slightly lower than that of the Company. Accordingly, the consolidation of
Donnelly Hohe unfavorably impacted gross profit performance as a percentage of
net sales for the period. In addition, the Company's Irish operations
experienced lower gross profit for the first six months of 1997 compared to
the same period in 1996 due to a number of factors, including price decreases
resulting from currency fluctuations associated with the strong Irish punt and
a paint supplier performance problem. The Irish operations also experienced
new business start-up costs primarily related to electrochromic mirrors.
Donnelly Hohe's gross profit margin, as a percent of net sales, has been
slightly lower than that of the Company. Accordingly, the consolidation of
Donnelly Hohe unfavorably impacted gross profit performance as a percentage of
net sales for the period.
Selling, general and administrative expenses were 9.6% of net sales for the
first six months of 1997 compared to 10.1% for the same period in 1996.
Selling, general and administrative expenses continued to decline as a
percentage of net sales due to the Company's ability to achieve higher sales
levels without a proportionate increase in these expenses.
Research and development expenses were 5.2% of net sales in the first six
months of 1997 compared to 6.0% for the first six months of 1996. Excluding
the consolidation of Donnelly Hohe, research and development expenses as a
percentage of net sales for the first six months of 1997 were comparable to
those in the same period in 1996. Management expects that these expenses will
be approximately 4.5% to 5.0% of net sales in future periods.
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Interest expense was $5.0 million in the first six months of 1997 compared
to $3.7 million for the first six months of 1996. The higher interest expense
was due to the consolidation of Donnelly Hohe. Interest expense incurred for
the first six months of 1997, excluding the consolidation of Donnelly Hohe,
was at the same level as the first six months of 1996.
Royalty income was $1.1 million and $2.5 million for the first six months of
1997 and 1996, respectively. Royalty payments associated with the sale of the
refrigerator glass shelving business (the "Appliance Business") in 1995
concluded in the fourth quarter of 1996.
Other income was $1.0 million for the first six months of 1997. The Company
sold 2.5% of its holding in Vision Group plc ("Vision Group"), resulting in a
gain to the Company of $0.9 million. The Company now owns 25.6% of the common
stock of Vision Group. The Company's cash investment in the net assets of
Vision Group is $0.7 million, which is reflected as an $8.4 million investment
on the Company's balance sheet at December 28, 1996. During 1997, 1996 and
1995, Vision Group sold common shares in a private placement and through
public offerings reducing the Company's ownership interest from 40.0% to
25.6%. The Company's equity in the net proceeds of these sales is reflected as
an increase in its investment and additional paid-in capital in the
accompanying financial statements.
Minority interest in net (income) loss of subsidiaries was ($0.6) million in
the first six months of 1997 due to the consolidation of Donnelly Hohe,
compared to $0.2 million in the first six months of 1996. Beginning in the
second quarter of 1997, the Company accounts for its investment in Donnelly
Hohe under the purchase method of accounting, thereby requiring the
recognition of minority interest in net (income) loss for 33 1/3% of this
subsidiary. Prior to the second quarter of 1997, the Company accounted for its
investment in Donnelly Hohe under the equity method of accounting. Equity in
losses of affiliated companies were ($0.6) million in the first six months of
1997 compared to a loss of ($0.2) million for the same period in 1996.
The Company's effective tax rate was 37.6% for the six month period ending
December 28, 1996, compared to 32.8% for the six month period ending December
30, 1995. The increase in the effective tax rate is due to higher net
operating losses at the Company's subsidiaries in Ireland that provide a lower
tax benefit due to lower tax rates in Ireland.
Net income for the six month period was $5.6 million in 1997 compared to
$0.8 million in 1996. North American net income increased compared to the
first six months of 1996 due to higher sales, significantly lower start-up
costs, improved operational performance and lower selling, general and
administrative expenses as a percent of net sales. Net income for the
Company's European operations was lower in the first six months of 1997 as
compared to the same period in 1996 due to losses experienced at the Company's
Irish operations. The Company's net income was positively impacted for first
six months of 1997 by the gain on sale of Vision Group stock. The
consolidation of Donnelly Hohe did not impact the comparability of net income
from 1996 to 1997 for the six month periods.
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's operations in North
America increased by approximately 12% 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 net sales in 1995) and
price pressures from the Company's major automotive customers. Price
decreases, however, did not have a material impact on the Company's increase
in net sales for 1996. The Company's net sales remained strong due to higher
sales of modular window systems (particularly for the new Chrysler
Caravan/Voyager minivans), lighting and trim products, complete exterior
mirror products and door handles. Net sales for the Company's European
operations increased by over 40% from the previous year due to the
introduction of modular window programs in Langres, France for the Chrysler
Caravan/Voyager minivan and Jeep Cherokee and stronger sales for the Company's
electrochromic mirror product line. The Company's Irish operations experienced
significant pricing pressures during the year from competition in Eastern
Europe and Asia slightly offsetting the higher sales volumes. Net sales
remained relatively strong throughout the year, but were exceptionally strong
during the fourth quarter with an increase of 24% over the fourth quarter of
1995.
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Gross profit margin decreased to 18.6% of net sales in 1996, from 21.5% of
net sales in 1995. The gross profit margins were adversely impacted in the
first half of the year by the start-up of various modular window programs,
particularly for the Chrysler Caravan/Voyager minivan, and the implementation
of a new paint line in the Company's Newaygo facility. North American 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 gross margins
by $2.2 million. Although this problem was largely due to factors not directly
under the Company's control, the issue was resolved in a timely and
cooperative way that provided an uninterrupted source of supply to the
customer. Finally, the Company's European operations experienced lower gross
profit margins in 1996 compared to 1995 due to pricing pressures and operating
expenses at the Company's Irish operations.
Selling, general and administrative expenses were 8.7% of net sales in 1996,
down from 11.8% of net sales in 1995. These costs were significantly reduced
primarily as a result of the restructuring plan implemented in 1995 and
continued commitment to achieve higher sales levels without a proportionate
increase in these expenses. In addition, a patent settlement recognized in
1996 resulted in a reduction of these expenses by 1.3% of net sales. See
"Business--Litigation."
Research and development expenses for 1996 were 6.3% of net sales, compared
to 5.9% of net sales in 1995. The increase in research and development costs
was 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.
A restructuring charge of $2.4 million was recorded in the fourth quarter of
1996 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 during 1995 and the inability to attract significant
new business for the plant. These costs included accruals for severance and
related employee support programs and write-down of certain assets removed
from service. The majority of these liabilities were paid or settled during
the first six months of 1997.
Interest expense increased to $8.1 million in 1996, from $5.0 million in
1995. The increase over 1995 resulted from higher borrowing levels to support
the Company's investment in and advances to Donnelly Hohe, which was then an
equity affiliate of the Company, and to support the Company's 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 was 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.
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. Royalty payments associated with the sale of the
Appliance Business in 1995 concluded in the fourth quarter of 1996.
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. The combined impact on net income from the Company's non-
automotive joint ventures was a loss of $1.5 million in 1996, compared to
income of $0.1 million in 1995. AFC's results were adversely affected by a
downturn in the market for coated glass used in the production of liquid
crystal displays. The Company is currently exploring opportunities to exit
this business. Vision Group continued to experience start-up losses during
1996.
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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 restructuring of certain non-automotive businesses.
Positively impacting the Company's North American operations were higher sales
volumes, higher royalty income, lower selling, general and administrative
costs as a percentage of net sales and a patent and license settlement with a
competitor. 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 which resulted in a reduction of net
earnings by $1.2 million, higher research and development costs as a percent
of net sales and restructuring charges taken in the fourth quarter. The
Company's European operations experienced lower net income at the Company's
subsidiaries in Ireland in addition to start-up losses at Langres, France. The
Company's net income was also lower in 1996 due to the recognition of a $1.5
million loss for non-automotive affiliated companies.
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, Ltd. is itself a
joint venture between Ford Motor Company and Shanghai Yao Hua Glass Works. The
joint venture is expected to begin manufacturing encapsulated and framed glass
products by the end of 1997.
COMPARISON OF 1995 TO 1994
Donnelly's net sales were $383.3 million in 1995, an increase of 14% over
the $337.3 million of net sales in 1994. The Company's North American net
sales increased by approximately 10% while automotive production increased 5%
in 1995 over 1994 production levels. New business in exterior mirrors, door
handles, interior systems and modular systems, along with the strong
automotive production levels, all contributed to the stronger sales level. The
Company continues to experience pricing pressures from its automotive
customers. Price decreases, however, were not material to the Company's
increase in net sales for 1995. The Company's European net sales were higher
due to twelve months of net sales included in 1995 for Donnelly Vision Systems
Europe ("DVSE"), compared to two months in 1994. The Company acquired DVSE in
April 1994.
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, general and administrative expenses were 11.8% of net sales in
1995, an increase from 11.3% of net sales 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 5.9% of net sales in 1995 compared to
6.3% of net sales in 1994.
In the second quarter of 1995, the Company implemented a restructuring plan
to focus on its automotive business. The restructuring plan included the sale
of the Company's appliance business, the sale of the heavy truck mirror
business and the liquidation of the Company's investment in OSD Envizion, a
joint venture engaged in the manufacture of welding helmet shields which
resulted in a pretax gain of $4.7 million. The Company received total proceeds
of $14.2 million associated with the restructuring of these businesses, net of
$6.5 million net book value of assets disposed and $3.0 million of
restructuring costs consisting of a severance program and other expenses
associated with the restructuring plan. The severance program included twenty-
five personnel, primarily middle and senior managers of the Company. These
non-automotive businesses represented an insignificant portion of the
Company's operations.
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
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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. D&A represented 5% and 8%,
respectively, of the Company's net sales and net income in 1995.
Interest expense increased to $5.0 million in 1995, from $3.5 million in
1994, due to higher interest rates and to increased borrowing to support
increased capital spending.
Royalty income was $3.8 million in 1995 compared to $1.4 million in 1994.
The increase resulted primarily from royalty income associated with the sale
of the Appliance Business in 1995. 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 AFC and a
slight profit from Donnelly Hohe for the two month period ending May 31, 1995,
more than offset start-up costs at Vision Group.
The Company had net income of $11.0 million in 1995, compared to $7.3
million in 1994. The increase in net income was the result of a restructuring
of non-automotive businesses, higher sales volumes, lower research and
development costs as a percentage of net 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.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal capital requirements are to fund working capital
needs, complete planned maintenance and expansion expenditures, and meet
required debt payments. The Company believes that the long-term liquidity and
capital resource needs of the Company will continue to be provided principally
by funds from operating activities supplemented, to the extent required, by
borrowing under the Company's existing and future credit facilities. The
Company currently utilizes two revolving credit agreements: an $80.0 million
United States credit facility, and a 75.0 million German Mark (approximately
$45.0 million) revolving credit agreements at the Company's Donnelly Hohe
subsidiary. Having acquired a controlling interest in Donnelly Hohe, the
Company now expects to guarantee and increase the amount of the Donnelly Hohe
revolving credit agreement by 20.0 million German Marks. These actions are
being implemented to increase availability and improve terms of the revolving
credit agreements. The Company believes the available borrowing capacity under
the revolving credit agreements, combined with funds from operations, will
provide the Company with sufficient flexibility to fund European restructuring
costs, planned capital expenditures and increased working capital requirements
for the foreseeable future. The Company considers, from time to time, new
joint ventures, alliances, and acquisitions, the implementation of which could
impact liquidity and capital resource needs.
In November 1996, the Company entered into an agreement to sell, on a
revolving basis, an interest in a defined pool of trade accounts receivable.
The maximum allowable amount of receivables to be sold is $50.0 million. The
amount outstanding at any measurement date varies based upon the level of
eligible receivables and management's discretion. Under this agreement, $32.0
million of receivables were sold at December 28, 1996, and the proceeds were
used to reduce borrowings under the Company's revolving credit agreements. The
sale is reflected as a reduction of accounts receivable in the accompanying
Combined Consolidated Balance Sheet and as operating cash flows in the
accompanying Combined Consolidated Statement of Cash Flows. The proceeds of
sales are less than the face amount of accounts receivable sold by an amount
that approximates the purchaser's financing costs of issuing its own
commercial paper backed by these accounts receivable. The discount fees were
$0.2 million during the second quarter ended December 28, 1996, and have been
included in selling, general and administrative expense in the Company's
Combined Consolidated Statement of Income. The Company, as agent for the
purchaser, retains collection and administrative responsibilities for the
participating interests of the defined pool.
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Working capital was $58.9 million at December 28, 1996, compared to $63.5
million at June 29, 1996, resulting in current ratios of 1.5 and 2.0,
respectively. The decrease in the current ratio for the period was due to the
sale of $32.0 million of accounts receivable at December 28, 1996, offset by
the addition of Donnelly Hohe's working capital. The Company had a cash
balance of $10.8 million at December 28, 1996, due to the timing of customer
payments and cash received on the sale of accounts receivable at Donnelly
Hohe. The cash balance was used to reduce bank debt by December 30, 1996. The
Company's working capital was $40.5 million and its current ratio was 1.7 at
July 1, 1995. The increase in working capital at June 29, 1996, compared to
July 1, 1995, was due to an increase in accounts receivable resulting from
higher sales and the timing of customer payments, in addition to higher
customer tooling and inventories to support new business programs reaching
full production in the first quarter of 1997. The Company's accounts
receivable balance as a percent to net sales increased from 13.3% at July 1,
1995, to 16.8% at June 29, 1996. With respect to the timing of customer
payments, the Company's North American customers pay the Company on pre-
established payment dates ranging from the 25th to the 30th of each month.
Therefore, a number of customer payments were not received by the June 29,
1996 balance sheet date, accounting for the increase in accounts receivable
compared to July 1, 1995.
The Company's $80.0 million revolving credit agreement had borrowings
against it of $24.7 million at December 28, 1996, compared to $35.4 million at
June 29, 1996. The decrease is primarily due to the sale of $32.0 million of
accounts receivable at December 28, 1996, the proceeds of which were used to
reduce borrowings against the Company's revolving credit agreement. Donnelly
Hohe's 75.0 million German Mark (approximately $45.0 million) revolving credit
agreements had borrowings against them of approximately $28.7 million as of
November 30, 1996, which was the end of Donnelly Hohe's second fiscal quarter.
Capital expenditures for the first six months of 1997 and 1996 were $11.5
million and $12.5 million, respectively. 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 during the last two years to the Company's Langres, France, and
Newaygo, Michigan facilities. These additions were built 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 include costs
for equipment to support new business for complete exterior mirrors, door
handles and modular window encapsulation, bonding and hardware programs.
Excluding Donnelly Hohe, capital expenditures in 1997 are expected to be
somewhat higher than capital expenditures in 1996. An additional $4.0 to $6.0
million of capital expenditures by Donnelly Hohe will be included in the
consolidated financial statements of the Company due to the consolidation of
Donnelly Hohe. The Company does not have any material commitments for capital
expenditures other than those arising out of the normal course of business,
which were approximately $9.0 million at June 29, 1996.
Except for Mexico, the value of the Company's consolidated assets and
liabilities located outside the United States and income and expenses reported
by the Company's foreign operations may be affected by translation values of
various functional currencies. Translation gains and losses adjustments are
reported as a separate component of shareholders' equity. For the Company's
subsidiary in Mexico, whose functional currency is the United States Dollar,
transaction and 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 for any period reported.
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
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," 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
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events or changes in circumstances indicate the carrying amount may not be
recoverable through future net cash flows generated by the assets. The Company
adopted SFAS No. 121 in the first quarter of 1997. The effect of adoption was
not material to the accompanying financial statements.
SFAS No. 123, "Accounting for Stock-Based Compensation," 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 effective for 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.
SFAS No. 125, "Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities," provides accounting and reporting
standards for sales, securitizations, and servicing of receivables and other
financial assets, accrued borrowing and collateral transactions, and the
extinguishments of liabilities. The Company is required to adopt the Statement
for all transactions occurring after December 31, 1996, including transfers of
assets pursuant to securitization structures that previously were entered
into. The adoption of this Statement will not be material to the accompanying
financial statements.
SFAS No. 128, "Earnings Per Share," establishes standards for computing and
presenting earnings per share ("EPS") and simplifies the standards previously
found in APB Opinion No. 15, which has been superseded. It replaces the
presentation of primary EPS with a presentation of basic EPS, which excludes
dilution and is computed by dividing net income available to common
stockholders by the weighted-average number of common shares outstanding for
the period. Diluted EPS is computed similarly to fully diluted EPS pursuant to
APB No. 15. This Statement is effective for the Company in 1998, and requires
restatement of all prior-period EPS data presented. It is not expected to have
a material effect on the accompanying financial statements.
No other recently issued accounting standards are expected to have a
material impact on the Company.
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BUSINESS
GENERAL
Donnelly Corporation produces a complete line of automotive rearview mirror
systems and believes it is the world's largest supplier of such systems. In
1996, the Company sold approximately 17.5 million interior rearview mirrors
worldwide, more than any other company in the world. The Company is also a
leading supplier of modular window systems and an emerging supplier of
innovative automotive lighting and trim products. The Company serves
automotive customers throughout the world from manufacturing locations in
North America and Europe and through joint ventures in Asia. The Company's
primary customers in North America include Chrysler, Ford and General Motors,
and the North American operations of Honda, Toyota, Izuzu and Mazda. The
Company's primary customers in Europe include BMW, Volkswagen, Volvo, SEAT,
Renault and Audi. From 1992 through 1996, the Company's net sales grew from
$271.4 million to $439.6 million, representing a compound annual growth rate
of approximately 13%. The Company's net sales for 1996 were $664.4 million on
a pro forma basis to reflect the consolidation of Donnelly Hohe.
The Company's products include rearview mirror systems, modular windows,
interior lighting and trim components. The Company produces a full line of
automotive rearview mirror systems, including interior prismatic base mirrors,
mirrors with added features such as integrated compasses and lights, and
exterior rearview mirrors. The Company also produces advanced, technology
interior and exterior electrochromic mirrors that automatically dim when
headlights approach from the rear. The Company believes that electrochromic
mirrors represent a significant growth opportunity, and that the settlement of
patent litigation concerning this technology will allow the Company to compete
more vigorously in the market for electrochromic mirrors.
The Company pioneered and is a leading supplier of modular window systems,
which are produced by molding glass, weather stripping and other materials
into a single unit designed for ease of assembly by automakers. The Company
uses its expertise in glass fabrication, plastics and optics technology to
develop, manufacture and sell advanced interior lighting and trim products.
The Company also seeks to develop synergistic products and businesses,
including coated glass products for computer applications, advanced plastic
diffractive optical systems and, through its 25.6% ownership of Vision Group,
microchip-based electronic vision systems.
The Company expects to invest approximately 4.5% to 5.0% of its net sales
each year in research and development. The Company's core technologies include
glass fabrication and encapsulation, electrochromics, optics and lighting,
electronic applications, painting and precision coatings, precision plastic
injection molding, and the design, assembly and system integration of complex
components. The Company continually seeks to use its technological
capabilities to create innovative value-added features for its existing
products, such as automatic electrochromic dimming and the integration of
lights and compasses into automotive mirrors. Since January 1, 1996, the
Company has been awarded over 20 new patents, including patents relating to
electrochromic mirrors, flush surface windows, automotive vision systems and
advanced diffractive optics. The Company believes that its manufacturing know-
how, design of its own manufacturing equipment and development of
manufacturing processes provide a strong foundation for its success.
The Company believes that its growth has resulted from its commitment to
research and development, close working relationships with customers, a strong
international presence, a skilled and dedicated workforce and a participative
management approach. As a result of its capabilities and business strategy,
the Company believes it is well-positioned in its existing markets to compete
effectively and to pursue additional growth and product opportunities.
EXPANSION OF EUROPEAN OPERATIONS
The Company has manufactured and marketed products in Europe since
establishing its own manufacturing facility in Ireland in 1968. During the
past two years, the Company has significantly expanded its presence in Europe
by opening a modular window manufacturing facility in Langres, France in 1996,
and through the
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acquisition of a controlling interest in Donnelly Hohe, headquartered in
Collenberg, Germany. The acquisition of Donnelly Hohe provides the Company
with manufacturing facilities in Germany and Spain and positions the Company
as a leading European producer of interior and exterior automotive rearview
mirrors, automotive tooling and electronics components related to mirror
systems. The Company believes that the expansion of its European operations
will play a crucial role in maintaining the Company's position as a global
leader in the market for automotive rearview mirrors and will also offer
significant opportunities for the Company to market its modular windows,
interior lighting, trim components and other products in Europe and elsewhere.
Although the Company made its first substantial investment in Donnelly Hohe
in April 1995, the financial results of Donnelly Hohe were not consolidated
with the Company's financial results until the Company acquired a controlling
interest in October 1996. The European operations acquired as a result of the
Donnelly Hohe acquisition represented approximately 33% of the Company's
assets as of December 28, 1996, and have contributed approximately 32% of the
Company's net sales and approximately 19% of the Company's net income for the
three month period ended December 28, 1996. See "Selected Combined
Consolidated Financial Data."
The Company's strategic decision to expand its European operations provides
the Company with a number of benefits, including:
. An expanded European customer base, including major European automakers
such as BMW, Volkswagen, Volvo, SEAT, Renault and Audi.
. A significant manufacturing presence in continental Europe, which
includes five manufacturing facilities in Germany, France and Spain.
. Increased market share and production of exterior rearview mirrors. The
Company is the leading supplier of exterior rearview mirrors in Europe.
. Numerous production, purchasing and technological synergies, serving to
improve the Company's position in the global marketplace.
. Increased penetration of the Company's modular windows, electrochromic
mirrors and interior lighting and trim products in the European market
and exterior rearview mirrors in the worldwide market.
When the Company made the strategic decision to acquire Donnelly Hohe in
1995, the Company anticipated that significant changes in the management,
administration and manufacturing systems of Donnelly Hohe would be necessary
to improve the competitiveness of the European operations and achieve the
Company's objectives. The Company first focused on improving the management of
its European operations and in 1996 appointed Robert C. Hange as Chief
Operating Officer with responsibility for all of the Company's European
operations. The Company has also appointed new heads of European manufacturing
and finance. After acquiring control of Donnelly Hohe in October 1996, the
Company announced its intention to restructure its European operations in
Germany, France, Ireland and Spain. The restructuring is designed to realign
the Company's European manufacturing capacity and to reduce future operating
costs, primarily by reducing the number of non-production employees in the
Company's European operations. The restructuring is intended to result in
reductions in operating costs through improved quality, better personnel
training and management and outsourcing certain production. The restructuring
also involves reorganizing product lines and production to realize
efficiencies in the production process. The Company is in the process of
finalizing the details of the planned restructuring and has begun implementing
this restructuring plan. Management believes that the expense of the
restructuring (primarily severance payments resulting from a reduction in the
number of non-production employees) will reduce net income by approximately
$4.0 to $5.0 million in the fourth quarter of 1997.
The Company believes that the expansion of its European operations will play
a crucial role in maintaining the Company's position as a global leader in the
market for automotive rearview mirrors and will also offer significant
opportunities for the Company to market its modular windows, interior
lighting, trim components and other products in Europe and elsewhere.
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INDUSTRY OVERVIEW
A number of trends in the global automotive market have had and will
continue to have a fundamental impact on the Company's future profitability
and growth prospects, including: the purchase of integrated modules and
systems, the competitive pricing dynamics of the automotive industry, the
expansion of automotive supplier responsibilities and the globalization of the
automotive supplier base. These trends have contributed to the consolidation
of automotive suppliers, which the Company expects will continue. The Company
has carefully assessed these automotive trends in formulating its strategy for
future growth and believes it is well-positioned to respond to these current
and anticipated demands.
Purchase of Integrated Modules and Systems. Automakers are relying
increasingly on suppliers who can provide entire modular components and
systems rather than a number of separate components. Automakers can reduce
their own internal engineering efforts and the number of suppliers by
purchasing systems rather than components. Management believes the engineering
and technological challenges facing systems suppliers will continue to grow as
these systems become more complex. To strengthen the Company's position as a
major supplier of automotive mirror, window and interior lighting and trim
products, the Company has pioneered integrated modules such as modular windows
and is actively implementing its systems philosophy. This continuing shift
will create new opportunities for the Company to utilize its engineering
capabilities and low-cost, quality manufacturing.
Competitive Pricing Dynamics. In an effort to reduce costs and to ensure the
affordability and competitiveness of their products, many automakers are
sourcing automotive components by establishing a target price for the vehicle
and systematically dividing this price into system and component target
prices. In addition, automakers are often requiring annual price reductions
for the vehicle's systems and components. As a result, these competitive
pricing dynamics have generally required automotive suppliers to focus on
continually reducing product costs while improving quality standards. The
Company is using its technology and manufacturing capabilities and is
implementing strategic production and management systems to remain competitive
in the automotive market and to meet the target price objectives of its
customers.
Expansion of Automotive Supplier Responsibilities (Outsourcing). Since the
1980s, Ford, Chrysler and General Motors have been actively reducing their
respective supplier bases to include those suppliers who accept significant
responsibility for product management and meet increasingly strict standards
for product quality, on time delivery and manufacturing costs. Ford, Chrysler
and General Motors are increasing their reliance on such outside suppliers and
reducing their own design, tooling and production of component parts.
Automotive suppliers are increasingly expected to participate in and control
all aspects of the production of system components, including design,
development, component sourcing, manufacturing, quality assurance, testing and
delivery to the customer's assembly plant. The key success factors for
suppliers to automakers have changed from pure cost minimization to total
program management that encompasses state-of-the-art design, manufacture and
delivery of high quality products at competitive prices. The Company believes
that many suppliers do not have the capabilities to meet the increasingly
rigorous automotive customer requirements and that the automotive supplier
market will be divided among a smaller group of key suppliers. Management
believes that early involvement in the design and engineering of new
components affords the Company a competitive advantage in securing new
business and provides its customers with significant cost reduction
opportunities.
Globalization of the Automotive Supplier Base. The Company believes that
automakers will increasingly seek suppliers who can fulfill the automakers'
requirements worldwide and that particular vehicle models will increasingly
contain components sourced on a worldwide basis. The Company believes that the
trend towards non-U.S. automakers acquiring and building manufacturing
facilities in the U.S. also contributes to the globalization of the automotive
market and the automotive supplier base. The trend towards globalization is
further reflected in the fact that several automakers have announced certain
models designed for the world automotive market and have encouraged their
existing suppliers to establish foreign production support for these "world
car" programs. The Company believes the trend toward global sourcing will
benefit the Company due to the Company's established international presence,
its global design and manufacturing expertise, and its close relationships
with its global customers.
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<PAGE>
BUSINESS STRATEGY
The Company intends to capitalize on trends in the automotive industry
through the development of its technology and expansion of its product line
and customer base. The key elements of the Company's strategy include:
Grow Through Modular Systems and Value-Added Products. The Company seeks to
achieve sales and earnings growth within its existing product markets through
effective use of its design, manufacturing and marketing capabilities. In
1995, the Company reorganized its marketing organization to better serve its
automotive customers. The Company's marketing efforts are organized into
strategic customer business units that work to address the needs of each
customer and provide innovative solutions early in the customer's design and
development process. The Company seeks to become the supplier of choice for
automotive rearview mirrors, modular windows and interior lighting and trim
products. The Company seeks to provide integrated solutions for customers
using the Company's capability to design, manufacture and deliver a wide range
of automotive products, including interior and exterior rearview mirrors,
modular windows and interior lighting and trim. For example, the Company
supplies interior and exterior rearview mirrors, door handles, modular window
systems for all windows (except the windshield), and various interior trim
lighting products for the Ford Expedition model. The Company also uses its
technology and product development capabilities to market innovative value-
added features, such as electrochromic dimming technology, lights and
compasses integrated into mirrors, and interior lighting using optics
technology to increase light while reducing glare. The Company is targeting
automotive lighting and interior trim as a significant growth area for the
Company. As a result of these strategies, the Company's dollar content per
vehicle produced in North America has increased from $6.24 in 1986 to $25.05
in 1996. The Company believes its design and manufacturing capabilities,
strong customer relationships and international presence will enable the
Company to achieve sales and earnings growth within its product markets.
Improve Productivity. The Company has implemented strategic business systems
as part of an integrated philosophy designed to develop, design, manufacture
and deliver the Company's products to satisfy the engineering, cost, quality
and delivery standards of the Company's customers. The Company is committed to
improving productivity by designing products for ease of manufacture. The
Company also works closely with its customers to realize efficiencies in the
design, development and manufacturing process. As a result of the ongoing
implementation of quality, production and program management systems, the
Company's net sales per employee have increased at a compound annual growth
rate of approximately 9% from 1992 through 1996. The Company has received
numerous awards in recent years, including the Ford Q1 Preferred Quality
Award, the Ford Full Service Supplier Award, the Chrysler Gold Pentastar,
General Motors Supplier of the Year, Toyota Superior VA/VE Performance Award,
the Toyota Delivery Award and the Nissan Quality Master Award. See "Business
Systems." The Company believes that it is well-positioned to respond to and
compete within the competitive pricing dynamics of the automotive supply
industry.
Expand Technology and Product Development Capabilities. The Company places a
major emphasis on research and development to help meet the needs of customers
and expand its product lines. The Company's technical capabilities have
resulted in the development of new and improved products, including techniques
for mass production of day/night prismatic mirror glass in the 1940's, and the
introduction of chrome-coated exterior mirror glass in 1958, modular windows
in 1974, convex outside mirror glass in 1975, lighted rearview mirrors in
1985, heavy truck solid state electrochromic mirrors in 1991, flush mounted
hinged window assemblies in 1996 and advanced diffractive optics in 1997. The
Company expects to spend approximately 4.5% to 5.0% of its net sales each year
on research and development. Over 200 of the Company's employees (including 10
PhDs) are involved in research and development, including product specific
design and development. The Company's polyvinyl chloride ("PVC") research and
computer-aided plastic molding simulations have contributed significantly to
its position as a leading supplier of modular windows. The Company strives to
be the technological leader in its markets by continually enhancing the
Company's core technologies. The Company believes that its technological and
product development capabilities will enable the Company to provide
sophisticated integrated modules and systems and to perform the increased
responsibilities automotive suppliers are expected to manage. See "--Product
Development and Technology."
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<PAGE>
Expand Global Presence. The Company has developed a significant global
presence with operations in North America and Europe and through joint
ventures in Asia. The Company has been manufacturing in Europe since 1968 and
has operated a sales and marketing office in Japan since 1983. At present,
approximately 2,200 of the Company's approximately 4,700 employees live and
work outside of the United States. The Company intends to continue to expand
its global presence to meet the needs of its customers. The Company's recent
expansion of its European operations provides the Company with a major
increase in its European sales volumes and customer base and provides the
Company with a base of operations from which to expand in the future. The
Company's international operations also create important synergies and access
to new markets and technologies. To increase its manufacturing and sales
presence in Asia, in the fourth quarter of 1996 the Company formed the
Shanghai Fu Hua joint venture in mainland China to manufacture modular
windows. In the first quarter of 1997 the Company formed Shunde Donnelly Zhen
Hua Automotive Systems Co., Ltd., a joint venture in mainland China, to
manufacture interior and exterior mirrors. The Company believes that it is
well-positioned to adapt to and benefit from the globalization of the
automotive supplier base.
Create Additional Product and Market Opportunities. The Company seeks to use
its technology and manufacturing capabilities both directly and through joint
ventures to develop product improvements and new products for both automotive
and non-automotive markets. The Company effectively implemented this strategy
with its investment in Vision Group, a developer of microchip-based electronic
vision systems. The Company presently owns 25.6% of Vision Group's outstanding
common stock, which is traded on the London Stock Exchange. The Company is
also seeking additional opportunities in connection with its Donnelly Optics
subsidiary which is dedicated to commercializing low cost, high quality,
advanced diffractive optics for both automotive and nonautomotive
applications. Potential applications of diffractive optics technology include
automotive lighting and fiber optic networks. In the first quarter of 1997,
the Company created a joint venture named Donnelly Electronics LLC that will
specialize in the design and manufacture of electronic components and sub-
assemblies. In addition, the Company continues to pursue and evaluate new
opportunities to create additional products and serve new markets.
PRODUCTS AND MARKETS
Automotive Rearview Mirror Systems
The Company began producing prismatic day/night mirror glass in 1939, and
today manufactures a wide range of interior and exterior rearview mirror
products and believes it is the world's largest producer of automotive
rearview mirror systems.
Interior Rearview Mirrors. The Company has a predominant share of the U.S.
market for interior rearview prismatic mirrors and in 1996 sold approximately
17.5 million units worldwide, more than any other company in the world. The
interior rearview mirror product line ranges from the basic day/night flip
mirror to rear-vision systems that incorporate a variety of sophisticated
electronic features into complex modular interior rearview mirror assemblies.
The Company continues to design and market innovative value-added features
integrated into the rearview mirror such as lights and electronic compasses.
The Company manufactures and markets automotive interior rearview mirrors
using patented electrochromic technology that automatically dims the mirror
when headlights approach from the rear. Electrochromic rearview mirrors are a
value-added substitute for traditional prismatic base mirrors and are sold for
a higher dollar price per unit than prismatic base mirrors. The Company
believes that electrochromic rearview mirrors currently represent
approximately 10% of all interior rearview mirrors in the North American
market for the 1996 model year. In 1996, electrochromic mirrors were offered
on approximately 51 new car models in North America, compared to only
approximately 19 models in 1991. The Company believes that electrochromic
mirrors will represent an increasing share of the rearview mirror market, both
in terms of number of units and dollar volume, and represent a significant
growth area for the Company.
The Company is in the process of developing electronic vision systems for
vehicles that make use of advanced sensors and video microchip technology to
control dimmable interior and exterior mirror systems. Although not yet
commercialized, the development of this technology is part of the Company's
strategy to be a technology leader in the market for automotive rearview
vision systems.
23
<PAGE>
Exterior Rearview Mirrors. The Company has used its expertise and customer
relationships in the interior mirror market to develop its product line and
increase its share of the market for complete exterior mirror systems. The
recent expansion of the Company's European operations has substantially
increased the Company's production capacity and sales of exterior rearview
mirrors, particularly in the European market. The Company believes that its
increased presence in the European market will assist the Company in
increasing its sales of exterior rearview mirrors in North America and other
markets. The Company supplies exterior rearview mirror assemblies primarily to
Honda, Ford and Mazda in the United States and to major European automakers
including BMW, Volkswagen, SEAT, Renault and Audi in Europe. Exterior rearview
mirrors are combined with automatic or manual adjusting mechanisms, wire
harnesses and other hardware into an injection-molded, color-matched housing
and are more complex than base interior rearview mirrors. The per vehicle
sales price of exterior mirrors substantially exceeds that of interior
rearview mirrors due to the greater complexity of exterior rearview mirrors
and the fact that most new vehicles are equipped with two exterior rearview
mirrors.
The Company manufactures and markets dimmable electrochromic exterior
rearview mirrors. The Company believes that electrochromic rearview mirrors
currently represent only 3% of all exterior rearview mirrors in the North
American market for the 1996 model year. The Company believes that
electrochromic exterior rearview mirrors will represent an increasing share of
the rearview mirror market, both in terms of number of units and dollar
volume, and that the electrochromic mirror market presents a significant
growth opportunity for the Company. See "--Interior Rearview Mirrors."
In 1996, the Company introduced its patented Illuminator(TM) ground
illumination mirror, the world's first commercial automotive outside mirror
that includes remote-control security lighting. The Illuminator(TM) can also
be equipped with electrochromic dimming and exterior turn indicators. The
Illuminator(TM) was recognized as one of the "1996 100 Best of What's New
Products" by Popular Science magazine. The Illuminator(TM) is initially being
offered as an option on the Lincoln Mark VIII. The Company is aggressively
marketing the Illuminator(TM) to its customers.
Modular Windows
The Company pioneered and today is a leading supplier of modular windows.
Modular windows, which have continued to increase in popularity since their
introduction, are produced by molding glass, hardware, weather stripping and
other components into a single unit assembly and can be used for all
automotive windows and sunroofs. The Company believes its modular windows
offer improved quality and aerodynamics, greater design flexibility and lower
production costs for automakers than conventional automotive windows. A recent
technological innovation by the Company is 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 modular window assemblies are used for rear and liftgate
windows, quarter windows, aperture windows, fixed vent windows, roll-up
windows, sun roofs, and rear windows. The Company produces modular windows for
Chrysler, Ford, General Motors, Honda, Isuzu and Toyota. The Company's modular
windows are used on many popular vehicles such as the Chrysler Caravan/Voyager
minivan, the Jeep Grand Cherokee, the Ford Expedition, and the Ford
Taurus/Sable. Modular window technology can also be used for windshields,
although the Company does not currently produce modular windshields.
The Company believes that its materials technology and manufacturing
capabilities provide a significant competitive advantage in the market for
modular windows. 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 advantages.
The Company believes that the increasing use of modular windows reflects
trends in the automotive industry towards increased levels of outsourcing,
demand for integrated modules and systems and reliance on suppliers for design
and manufacturing. The Company expects continued growth in the global modular
window market, as evidenced by the number of modular windows that automakers
have specified for future models.
24
<PAGE>
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 believes its automotive lighting systems have been well-received by
the marketplace largely because of the Company's expertise in developing
precision optical lenses. The Company's extensive capabilities in advanced
optics technology, precision plastic injection molding, glare management and
automotive electronics provide a competitive advantage for the Company's
automotive interior lighting and overhead trim products. These skills enable
the Company to produce interior lighting that is highly focused and directed
within the vehicle which significantly reduces unwanted spill-over glare.
The Company believes that automakers will increasingly seek 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. The Company's customers for those
products will integrate them into larger, complete interior systems that will
then be assembled into the automaker's final products. The Company currently
supplies these products for Chrysler, Ford, General Motors, Honda, Mercedes
Benz, Nissan and Toyota.
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. The Company is now producing a wide variety of exterior door
handles for Ford, Honda and Mazda.
Non-Automotive Businesses
The Company is committed to its core automotive businesses. However, the
Company has developed a number of significant non-automotive businesses and
relationships over the years, which arose 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 business.
The Company's Information Products division is the Company's principal non-
automotive business and develops, manufactures and supplies various
electrically conductive, transparent, thin-film and coated glass products.
These 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. The
Company is involved in a legal dispute concerning the Company's Information
Products division. See "--Litigation."
In January 1997 the Company formed Donnelly Optics, located in Tucson,
Arizona, to commercialize low cost, high quality, advanced diffractive optics
for both automotive and non-automotive applications. The Company has been
issued a patent and believes this new optics development significantly
improves lighting and imaging systems through the use of diffractive optics
which involves the precise bending and directing of light rays. The Company
believes that potential applications for its diffractive optics technology
include automotive lighting, fiber optic networks, and cameras.
Although not yet commercialized, the Company has announced that it has
successfully completed Phase I of an electrochromic window development program
supported by grant funding from the United States Department of Energy.
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.
Joint Ventures and Affiliates
Vision Group. The Company is working with Vision Group to produce electronic
vision systems for the world automotive industry using an innovative video
microchip developed by Vision Group. The Company and Vision Group, which is
located in Edinburgh, Scotland, have been collaborating to produce smart chips
that can
25
<PAGE>
perform a variety of functions in a vehicle including control of advanced
mirror systems, video displays, lighting control and security devices. In
March 1995, Vision Group completed an initial public offering of its common
stock, which is listed on the London Stock Exchange. The Company owns 25.6% of
the outstanding common stock of Vision Group.
Automotive Joint Ventures in China. The Company is actively pursuing
opportunities to expand its manufacturing presence and market penetration of
modular windows and rearview mirrors in Asia, particularly in China. The
Company formed Shunde Donnelly Zhen Hua Automotive Systems Co., Ltd. ("Zhen
Hua"), a joint venture with Shunde Zhen Hua Automobile Parts Co., Ltd, in the
first quarter of 1997. The Company has a 30% interest in the Zhen Hua joint
venture and has an option to purchase an additional 30% interest. The Zhen Hua
joint venture manufactures interior and exterior mirrors for automakers
throughout southern China, including the Chinese operations of Volkswagen,
Isuzu, and Chrysler. Zhen Hua operates out of three owned buildings in Shunde,
China, and approximately 200 Shunde Zhen Hua employees currently are employed
at these facilities.
In the fourth quarter of 1996, the Company formed a 50-50 joint venture
named Shanghai Donnelly Fu Hua Window Systems Company Ltd. ("Fu Hua") to
produce framed glass products for the Asian automotive industry. Shanghai Fu
Hua Glass Company is the Company's joint venture partner and is itself a joint
venture between Ford Motor Company and Shanghai Yao Hua Glass Works. The joint
venture is expected to begin manufacturing modular windows by the end of 1997.
Donnelly Electronics. In the first quarter of 1997, the Company created a
new affiliate, Donnelly Electronics, LLC that will specialize in the design
and manufacture of automotive electronic components and sub-assemblies. The
new company is a joint venture between the Company and an individual with
expertise in automotive technology. The Company owns 19% of Donnelly
Electronics with the option to acquire up to 27% of the company. Based in
Flint, Michigan, Donnelly Electronics will initially produce the electronic
components that Donnelly uses for products such as electrochromic rearview
mirrors and electronic compass systems. In addition to supporting the
automotive electronic needs of the Company, Donnelly Electronics will pursue
business with other automotive suppliers that are not competitors of the
Company.
Coated Glass. Applied Films Corporation ("AFC") is a major manufacturer of
thin-film coated glass used in the production of liquid crystal displays
("LCD's") and of equipment used to manufacture these products. LCD's are
widely used in watches, games, calculators and instrumentation. AFC is located
in Boulder, Colorado. The Company owns 50% of the outstanding common stock of
AFC, but is currently exploring opportunities to exit this business. The
Company also owns 50% of a Chinese joint venture named Donnelly Yantai
Electronics Corporation, Ltd., which produces coated glass similar to those
produced by AFC for sale in the Chinese LCD market. The Donnelly Yantai joint
venture operates in the Yantai Peninsula of the People's Republic of China.
PRODUCT DEVELOPMENT AND TECHNOLOGY
Continued emphasis on effective research and product development is a key
part of the Company's strategy for future growth. The Company believes that
its technological and product development capabilities will enable the Company
to provide sophisticated integrated modules and systems and to perform the
increased responsibilities automotive suppliers are expected to manage.
The Company expects to spend approximately 4.5% to 5.0% of its net sales
each year on research and development. Approximately 80% of the Company's
research and development expenditures are product specific and conducted by
the Company's product engineers. The Company has a corporate applied research
group, including 10 Ph.Ds, located at research facilities in Holland,
Michigan, and at a separate applied research center in Tucson, Arizona. The
Company owns approximately 140 patents and has licenses for other patents and
technology. The Company also licenses certain of its own patents and
technology to others. The Company believes its manufacturing know-how, design
of its own manufacturing equipment and development of manufacturing processes
are another important competitive advantage. See "--Business Strategy."
26
<PAGE>
MARKETING AND CUSTOMERS
The Company produces and markets a complete line of automotive rearview
mirror systems and other products to automakers throughout the world. In 1995,
the Company reorganized its marketing structure to better serve its automotive
customers. The Company's marketing efforts are organized into strategic
customer-focused business units that work to address the needs of each
customer and provide innovative solutions early in the customer's design and
development process. Through such efforts, the Company seeks to become the
supplier of choice for automotive rearview mirrors, modular windows and
interior lighting and trim products. The Company markets integrated solutions
for customers using the Company's capability to design, manufacture and
deliver a wide range of automotive products. The Company also uses its
technology and product development capabilities to market innovative value-
added features, such as electrochromic dimming technology, lights and
compasses integrated into mirrors, and interior lighting using optics
technology to increase light while reducing glare.
The Company recently significantly expanded its European operations,
marketing and customer base. Net sales from European operations are expected
to constitute approximately 38% to 40% of the Company's total net sales in
1997, on a pro forma basis. The Company also operates a permanent marketing
and technical liaison office in Japan, which oversees its activities in Japan
and other Asian countries.
In 1996, approximately 81% of the Company's total net sales (excluding
Donnelly Hohe) were to Chrysler, Ford, General Motors and Honda, and
represented 54% of the Company's total net sales on a pro forma basis to
reflect the consolidation of Donnelly Hohe. The Company believes that the
recent expansion of its European operations will assist the Company in
broadening its customer base, particularly in Europe. See "Risk Factors--
Dependence on Principal Customers." The Company typically produces automotive
products under purchase orders for specific models with shipments made against
releases based upon production of that model. Although the Company typically
does not have long-term contracts with its customers, automakers typically
continue using the same supplier once the automaker has begun manufacturing a
vehicle. Purchase orders are renegotiated annually, especially as to price.
The Company has existing orders requiring annual price reductions.
Interior Rearview Mirrors. In 1996, the Company sold approximately 17.5
million interior rearview mirrors worldwide, more than any other company in
the world. The following table is a summary of various customers for which the
Company will supply interior rearview mirrors during fiscal 1997:
INTERIOR REARVIEW MIRROR CUSTOMERS
Ford Fuji Peugeot
Chrysler Hyundai Porsche
General Motors Isuzu PSA
Honda Jaguar Renault
Toyota Kenworth Truck Range Rover
AM General Land Rover Saab
Audi Leyland DAF Saturn
Aston Martin Lotus SEAT
BMW Mazda Subaru
CAMI Automotive Mercedes-Benz Suzuki
Citroen Mitsubishi Vauxhall
Delphi Interior & Lighting Nedcar Volkswagen
Diamond Star Nissan Volvo
Eurostar NUMMI Winnebago
Ferrari Opel
In fiscal 1997, the Company will supply electrochromic automotive interior
rearview mirrors to Ford, Chrysler, General Motors, Mercedes Benz, Audi,
Honda, Mitsubishi and Jaguar.
27
<PAGE>
Exterior Rearview Mirrors. The following table is a summary of customers for
which the Company will supply exterior rearview mirrors during fiscal 1997:
<TABLE>
<CAPTION>
EXTERIOR REARVIEW MIRROR CUSTOMERS PLATFORM/MODEL
---------------------------------- ------------------------------------
<S> <C>
Ford Expedition; Econoline;
Contour/Mystique; Mondeo; Scorpio;
Galaxy; Transit
Honda Accord; Acura; Civic
Mazda Probe
Audi A6; A8
BMW 3 Series; 5 Series; 7 Series; 8 Se-
ries
Mercedes Benz Vito; Evobus; V-Class
Mitsubishi Carisma
Opel Combo; Omega
Porsche Boxster; 911
Renault Express; Clio; Safrane; Megan Scenic
Saab 900; 9000
SEAT Alhambra
Volkswagen Polo; Golf; Passat; Sharan; Trans-
porter
Volvo 40 series; 70 series; 90 series
</TABLE>
In fiscal 1997, the Company will supply electrochromic automotive exterior
rearview mirrors to Ford and Jaguar.
Modular Windows. Most of the Company's sales of modular windows have been
directly to automakers, particularly in the United States where the use of
modular windows has been more widespread than in Europe or Asia. Through its
operations in Langres, France and the acquisition of Donnelly Hohe, the
Company intends to aggressively market and increase penetration of modular
windows in the European market. The Company recently formed its Fu Hua joint
venture to produce and market modular windows in the Asian market. The
following table is a summary of various customers for which the Company will
supply modular windows during fiscal 1997:
<TABLE>
<CAPTION>
MODULAR WINDOW CUSTOMERS PLATFORM/MODEL
------------------------ --------------------------------------------
<S> <C>
Ford Aerostar; F-150 truck; Expedition; Lincoln
Town Car; Ranger; Sable; Taurus; Thunderbird
Chrysler Caravan; Grand Cherokee; Neon; Voyager;
Town & Country; Viper
General Motors Achieva; Brougham; Cutlass; Grand Am; Lumi-
na; Monte Carlo; Regal; Skylark
Honda Accord; Acura; Civic
Isuzu Rodeo/Passport
Toyota Avalon; Camry; Minivan
</TABLE>
28
<PAGE>
Interior Lighting and Trim. The following table is a summary of various
customers for which the Company will supply interior lighting and trim during
fiscal 1997, either directly to the automakers or indirectly through other
automotive suppliers:
<TABLE>
<CAPTION>
INTERIOR LIGHTING AND TRIM CUSTOMERS PLATFORM/MODEL
------------------------------------ --------------------------------------------
<S> <C>
Ford Aerostar; Cougar; F-Series truck; Mustang;
Sable; Taurus; Thunderbird;
Windstar; Contour/Mystique; Expedition; Mark
VIII
Chrysler Caravan; Voyager; Grand Cherokee; Dakota;
Ram van
General Motors Blazer/Jimmy; Bravada
Honda Accord
Isuzu Rodeo/Passport
Mercedes-Benz AAV Sport Utility
Nissan Quest; Tsuru GS
Toyota Camry; Avalon; Lexus; Tacoma
</TABLE>
BUSINESS SYSTEMS AND MANUFACTURING
Business Systems
The Company has implemented various strategic business systems as part of an
integrated philosophy designed to develop, design, manufacture and deliver the
Company's products to satisfy the engineering, cost, quality and delivery
standards of the Company's customers. The Company is committed to improving
productivity by designing products for ease of manufacture. The Company also
works closely with its customers to realize efficiencies in the design,
development and manufacturing process. Specific business systems initiatives
being implemented by the Company include the following:
The Donnelly Production System is a comprehensive, integrated methodology
that includes elements of lean manufacturing, process standardization,
continuous improvement, just-in-time delivery and a cross-trained, team-
based approach to work. The Donnelly Production System has resulted in
improved productivity, cost reduction and employee involvement in the
Company's manufacturing, distribution and office support areas.
The Donnelly Quality System is based on the QS 9000 quality standards
agreed to by Chrysler, Ford and General Motors as a uniform standard of
quality measurement and compliance. The key to the Donnelly Quality System
is the development of measurable quality standards and policies, and their
consistent, across-the-board application. The Company's Naas, Ireland
facility is QS 9000 certified and substantially all of the Company's United
States manufacturing facilities are expected to achieve QS 9000
certification in the fourth quarter of 1997.
The Donnelly Program Management Process provides a single standard for new
product launches, no matter where those products will be made. From a new
product's concept through its launch and delivery, the Donnelly Program
Management Process outlines processes, testing, financial reviews and
customer interaction to be followed.
Manufacturing
The Company's automotive manufacturing operations are highly flexible with
state-of-the-art equipment, much of which was designed and built by the
Company. The Company has been recognized by its customers with many
significant supplier awards including the Ford Q1 Preferred Quality Award, the
Ford Full Service Supplier Award, the Chrysler Gold Pentastar, General Motors
Supplier of the Year, Toyota Superior VA/VE Performance Award, the Toyota
Delivery Award and the Nissan Quality Master Award. In addition, the Company's
net sales per employee have increased at a compound annual growth rate of
approximately 9% from 1992 through 1996.
29
<PAGE>
Automotive Rearview Mirrors and Trim. The manufacture of both interior and
exterior mirrors and interior lighting and trim products requires skills and
know-how involving many different processes including glass coating, grinding,
cutting and bending, and plastic injection molding. A number of other
companies perform some of these required processes, but the Company believes
that few have its broad range of skills and technology.
Modular Windows. The Company uses PVC and RIM injection molding processes in
modular window manufacturing. See "--Products." PVC is more difficult to mold,
particularly in large windows, because of slower material flow and because of
high-pressure clamping of glass, which can cause glass breakage. The breakage
problem can be acute in large, expensive windows. To solve these problems, the
Company is continually developing know-how and technology in mold design and
molding techniques, including polymer characteristic studies and computer-
aided design of material flow in the molds. The ability to offer a window in
PVC or RIM can be a significant competitive factor at the design stage because
it permits the Company to offer the technology that best satisfies the
customer's needs. Recent additions to the Company's modular window
manufacturing capabilities include hinged 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.
Other Products. The Company has developed proprietary processes and
equipment that enable it to coat glass to the high tolerances required for
electronics applications. These processes require the coatings to be performed
in highly-sophisticated vacuum chambers, most of which were designed and built
by the Company. The Company's electronic information products are manufactured
primarily by cleaning thin glass sheets, bending the glass when necessary, and
coating it with transparent, conductive layers. Some products require screen
printing after completion of the coating process.
Raw Materials. The Company's primary raw materials are glass, resins and
adhesives. Glass is supplied by third party glass manufacturers such as PPG
Industries, Inc., and by glass manufacturers affiliated with automakers. For
modular windows, the automakers contract directly with the glass manufacturers
and the Company passes the cost of the glass through to its automotive
customers. Resins and adhesives are another important raw material. Most of
the resins and adhesives the Company uses are supplied by Condea Vista Company
and Dow Chemical, although the Company believes that alternative suppliers are
available. An adhesive for one of the Company's principal products is supplied
solely by Dow Chemical and the Company believes that an alternative source of
supply is not currently available.
COMPETITION
Competition in the markets for the Company's automotive products is based
primarily on manufacturing capabilities, design, quality, cost and delivery. 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. The level and nature of competition involving the Company's
automotive products are varied. See "Risk Factors--Competition."
Interior Rearview Mirrors. The Company knows of three principal competitors
in the U.S. market: one in the market for base interior rearview mirror
assemblies, and one in the electrochromic market and one in the lighted mirror
market. The Company has several worldwide competitors for interior mirror
glass sales in Japan and Europe, although the Company believes each competitor
has a smaller market share than the Company. In Europe, the Company competes
with several other manufacturers of complete interior rearview mirror
assemblies.
The Company's principal competitor for automatic electrochromic rearview
mirrors is Gentex Corporation, which has a dominant share of the market for
electrochromic mirrors. The Company and Gentex Corporation had been involved
in patent litigation with respect to certain aspects of electrochromic
technology. The litigation has previously had an adverse impact on the
Company's ability to market interior electrochromic mirrors in the
30
<PAGE>
United States and Europe. During the fourth quarter of 1996, the Company
reached a patent and licensing settlement with Gentex Corporation, and
management believes that this settlement will facilitate its efforts to market
electrochromic mirrors. See "Risk Factors--Competition" and "--Litigation."
Exterior Rearview Mirrors. The Company has many competitors in the worldwide
exterior rearview mirror market. With the Company's recent consolidation of
Donnelly Hohe, the Company believes that it is now a leading producer of
automotive exterior rearview mirrors. The Company has one competitor in the
U.S. market for automatic exterior electrochromic mirrors.
Modular Windows. The Company has many competitors in the worldwide modular
window market. Certain 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 a technology leader
for glass encapsulation and metal bonding of attachments to glass.
Other Products. There are many competitors in the market for interior
lighting and trim products, many of whom have greater resources and market
share than the Company. With respect to its information products business, 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 both of these segments is based on price, service and quality.
FACILITIES
The Company conducts its manufacturing, office and distribution operations
in North America, Europe and Asia at the following 31 facilities which
together comprise a total of over 2,000,000 square feet:
<TABLE>
<CAPTION>
LOCATION OF FACILITY SQUARE FOOTAGE USE
-------------------- -------------- -------------------------------
<C> <C> <S>
Manufacturing, Warehouse and
Holland, Michigan (10)* 889,000 Office
Manufacturing, Warehouse and
Grand Haven, Michigan 133,000 Office
Manufacturing, Warehouse and
Newaygo, Michigan* 177,000 Office
Detroit, Michigan* 4,000 Sales and Marketing Office
Manufacturing, Warehouse and
Mt. Sterling, Kentucky 37,000 Office
Tucson, Arizona (2)* 20,000 Research and Sales Office
Manufacturing, Warehouse and
Naas, Ireland 84,000 Office
Manufacturing, Warehouse and
Manorhamilton, Ireland 21,600 Office
Manufacturing, Warehouse and
Langres, France* 40,000 Office
Manufacturing, Warehouse and
Collenberg, Germany 207,000 Office
Manufacturing, Warehouse and
Dorfprozelten, Germany* 296,000 Office
Manufacturing, Warehouse and
Schleiz, Germany (2)* 85,000 Office
Manufacturing, Warehouse and
Monterrey, Mexico 40,000 Office
Manufacturing, Warehouse and
Barcelona, Spain 34,000 Office
Manufacturing, Warehouse and
Shunde City, China (3)** 74,000 Office
Shanghai, China** 11,000 Manufacturing and Office
Tokyo, Japan 4,000 Sales and Marketing Office
Goteborg, Sweden 4,000 Design Office
</TABLE>
- --------
*Leased facilities. Three of the ten Holland, Michigan facilities are leased.
Approximately 165,000 square feet of the Dorfprozelten, Germany facility is
leased. One of the two Schleiz, Germany facilities is leased.
**Owned or leased by a joint venture.
EMPLOYEES
The Company believes its human resources are one of its fundamental
strengths. 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
31
<PAGE>
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. The Company was rated one of the 10 best
companies to work for in America in the most recent edition (1993) of the
publication "100 Best Companies to Work for in America."
The Company currently has approximately 4,700 employees worldwide, and
approximately 2,500 work in the Company's North American operations. The
Company's non-U.S. employees are primarily located in Germany, Ireland,
France, Spain and Mexico. The Company considers its relationship with its
employees to be good.
The Company's United States workforce is non-union. The Company's workforces
in Germany, Ireland, Mexico, Spain and France are unionized, as are the
workforces 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 German, Spanish and Irish workforce. The
Company negotiates wages approximately annually and benefits approximately bi-
annually with its workforce 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 is currently reducing its European workforce as part of
its European restructuring plan. See "Management's Discussion and Analysis of
Financial Conditions and Results of Operations."
ENVIRONMENTAL MATTERS
Like similar companies, the Company's operations and properties are subject
to a wide variety of increasingly complex and stringent federal, state, local
and international laws and regulations, including those governing the use,
storage, handling, generation, treatment, emission, release, discharge and
disposal of certain materials, substances and wastes, the remediation of
contaminated soil and groundwater, and the health and safety of employees
(collectively, "Environmental Laws"). As such, the nature of the Company's
operations exposes it to the risk of claims with respect to such matters and
there can be no assurance that material costs or liabilities will not be
incurred in connection with such claims.
Certain Environmental Laws regulate air emissions, water discharges,
hazardous materials and wastes and require public disclosure related to the
use of various hazardous or toxic materials. The Company's operations are also
governed by Environmental Laws relating to workplace safety and worker health.
Compliance with Environmental Laws may require the acquisition of permits or
other authorizations for certain activities and compliance with various
standards or procedural requirements.
The Comprehensive Environmental Response, Compensation, and Liability Act of
1980, as amended ("CERCLA") and similar state laws provide for responses to
and liability for releases of certain hazardous substances into the
environment. These obligations are imposed on the current owner or operator of
a facility, the owner or operator of a facility at the time of the disposal of
hazardous substances at the facility, on any person who arranged for the
treatment or disposal of hazardous substances at the facility, and on any
person who accepted hazardous substances for transport to a facility selected
by such person. Generally, liability under CERCLA is strict, joint and
several. The Company, among others, has been identified as a potentially
responsible party ("PRP") based on its disposal of hazardous substances at
three third party sites that are subject to investigation and cleanup of
contamination. The Company has resolved its liability at two of these sites
pursuant to separate settlements. Based on information known at this time, the
Company does not expect its liability at the third site to be material.
Based upon its experience to date, the Company believes that the future cost
of compliance with existing Environmental Laws, and liability for known
environmental claims pursuant to such Environmental Laws, will not have a
material adverse effect on the Company's financial position or results of
operations and cash flows. However, future events, such as new information,
changes in existing Environmental Laws or their interpretation,
32
<PAGE>
and more vigorous enforcement policies of regulatory authorities, may give
rise to additional expenditures or liabilities that could be material.
LITIGATION
On January 21, 1997, Midwest Manufacturing Holdings, L.L.C. ("Midwest")
filed a lawsuit against the Company in Cook County, Illinois Circuit Court
with respect to terminated discussions regarding the possibility of Midwest's
acquisition of the Company's Information Products business. The litigation has
been removed to the Federal District Court for the Northern District of
Illinois. Midwest alleges that a verbal agreement to purchase the Information
Products business had been reached, and has filed its lawsuit in an attempt to
compel the Company to proceed with the sale and to pay unspecified damages.
Management believes that the claim by Midwest will be resolved without a
material adverse effect on the Company's financial condition or results of
operations and liquidity.
In April 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 settlement, the
Company and Gentex Corporation agreed to cross-license certain patents, which
each company may practice within its own core technology. The Company's core
electrochromic technology achieves dimming by electrochromic coloration of a
solid film, and the Company manufactures and markets electrochromic mirrors
using the Company's solid film electrochromic technology. In the settlement,
the parties also agreed not to pursue patent litigation against each other on
certain other patents for a period of four years. In addition, Gentex
Corporation agreed to pay the Company a settlement of $6.0 million in patent
settlement fees plus a $0.2 million contingent payment if the Company prevails
in its appeal involving the Company's lighted mirror patent. The Company used
the settlement proceeds primarily to offset related patent litigation costs
that had previously been capitalized and recognized a gain of $2.3 million net
of those costs. Management believes that the settlement with Gentex
Corporation is a positive development for the Company that will allow the
Company to compete more vigorously in the market for electrochromic mirrors.
In June, 1994, the Company entered into a joint venture with Happich
Fahrzeug-InnausstaHung GmbH of Germany ("Happich") to purchase sun visors,
grab handles and other interior parts in North America. In July, 1995, when
the joint venture was at an early stage of its development, Happich expressed
its desire to terminate the joint venture. The parties have been engaged in
arbitration over the terms of the joint venture termination since July 29,
1996. The Company has made several claims against Happich, including for
damages, as has Happich against the Company. Management believes that the
arbitration will be concluded without a material adverse effect on the
Company's financial condition or results of operations and liquidity.
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 that such litigation and claims will be resolved
without a material adverse effect on the Company's financial condition,
results of operations and liquidity, individually and in the aggregate.
33
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the names of and certain other information
concerning the Company's directors and executive officers and other key
employees:
<TABLE>
<CAPTION>
EMPLOYED BY OR
DIRECTOR
OF THE COMPANY
NAME AGE TITLE SINCE
---- --- ----- --------------
<C> <C> <S> <C>
J. Dwane Baumgardner, Ph.D.. 56 Chairman, Chief Executive 1969
Officer, President
and Director
Robert C. Hange............. 45 Chief Operating Officer-- 1996
Europe
Donn J. Viola............... 52 Chief Operating Officer-- 1996
North America
John F. Donnelly............ 43 Senior Vice President-- 1977
Corporate Business
Development and Marketing
Maryam Komejan.............. 45 Senior Vice President and 1979
Corporate Secretary
Niall R. Lynam, Ph.D........ 43 Senior Vice President and 1980
Chief Technical Officer
William R. Jellison......... 39 Vice President, Corporate 1980
Controller and Treasurer
Russell B. Scaffede......... 47 Vice President-- 1995
Manufacturing
James A. Knister............ 59 Group Managing Director-- 1967
Ventures
John A. Borden.............. 63 Director 1996
Arnold F. Brookstone........ 66 Director 1975
B. Patrick Donnelly, III.... 52 Director 1980
Joan E. Donnelly............ 49 Director 1987
R. Eugene Goodson, Ph.D..... 61 Director 1996
Thomas E. Leonard........... 67 Director 1967
Gerald T. McNeive........... 55 Director 1980
Rudolph B. Pruden........... 67 Director 1984
Donald R. Uhlmann, Ph.D..... 60 Director 1978
</TABLE>
- --------
(1) Mr. Borden, Dr. Goodson and Dr. Uhlmann were last elected by the holders
of Class A Common Stock. The other directors were last elected by the
holders of Class B Common Stock.
Dr. Baumgardner joined the Company in 1969 and has been Chief Executive
Officer since 1983, Chairman of the Board since 1986, and President since
October 1994. Dr. Baumgardner is a director of SL Industries, Inc.
Mr. 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 Freudenberg-NOK, a major international
automotive supplier, from 1994 to 1996 and Senior Vice President and General
Manager of that division from 1992 through 1996.
Mr. Viola joined the Company as Chief Operating Officer of the Company's
North American operations in August 1996. Prior to joining the Company, Mr.
Viola was 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.
Mr. John F. Donnelly, an employee of the Company since 1977, has been a
Senior Vice President of the Company since October 1992, with responsibility
for Corporate Business Development and Marketing.
Ms. Komejan, an employee of the Company since 1979, has been a Senior Vice
President since October, 1995, with responsibility for corporate
administration, human resources, communications and investor relations.
Dr. Lynam, an employee of the Company since 1980, was elected Senior Vice
President and Chief Technical Officer in December 1995.
34
<PAGE>
Mr. Jellison has been Vice President since October 1991, Corporate
Controller since October 1992 and Treasurer since December 1988.
Mr. 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. Mr. Scaffede was Vice
President of Toyota Motor Manufacturing U.S.A., Inc. (Powertrain) from 1988 to
1993.
Mr. Knister has been Group Managing Director of Ventures since January 1997.
From 1988 until his semi-retirement in December 1996, he was Senior Vice
President of the Company. Mr. Knister joined the Company in 1967. Mr. Knister
is a director of X-Rite, Inc.
Mr. Borden has been a consultant with FTD (Florist Transworld Delivery
Incorporated), a worldwide communications and financial services organization,
since January 1996. From 1988 until his retirement in December 1995, he was
Executive Vice President and Chief Executive Officer of FTD Association.
Mr. Brookstone served as Executive Vice President, Chief Financial and
Planning Officer of Stone Container Corporation, a major international pulp
and paper manufacturer, until his retirement on January 31, 1996. Mr.
Brookstone serves on a number of Boards of Directors including MFRI, Inc.;
Stone-Consolidated Corporation; Venepal, SACA; and Florida Coast Paper
Company, LLC. He is a trustee of the Rembrandt Family of Mutual and Money
Market Funds and is also a director of several privately held companies.
Mr. B. Patrick Donnelly, III has been Plant Manager of Ran Enterprises, an
automotive parts supplier, since November 1995. From October 1993 through June
1995 he was Production Manager of Technical Auto Parts Inc., an automotive
parts supplier; from July through December 1992 he was Vice President of
Donnelly-Cooper Industries, Inc., a company engaged in production powder
coating of manufactured components; from 1989 through 1992 he was President of
that company. Donnelly-Cooper Industries, Inc., which emerged from Chapter 11
proceedings in July, 1992, is not affiliated with the Company. Mr. Donnelly is
a director of Ottawa Financial Corporation.
Ms. Joan E. Donnelly has been Executive Director of Tohono Chul Park, a non-
profit desert preserve and museum, since May 1995. From 1984 to 1995 she was a
shareholder and Vice President of Tizzard, Knuttinen, Donnelly & Wright, P.C.,
certified public accountants.
Dr. Goodson has been Chairman of the Board of Directors and Chief Executive
Officer of Oshkosh Truck Corporation, a manufacturer of specialized trucks and
transport equipment, since 1990.
Mr. Leonard has been President of Henry C. Grebe & Co., Inc. and Grebe Yacht
Sales, Inc., since 1972. These companies are currently engaged in land
development.
Mr. McNeive was appointed Senior Vice President of Finance and Chief
Financial Officer for Laclede Gas Co., a natural gas distributor, in September
1995. From 1994 through 1995 he was Vice President--Associate General Counsel,
from September 1992 through 1993 he was Assistant Vice President--Associate
General Counsel, and from 1986 through 1992 he was associate general counsel
of that company.
Mr. Pruden retired in January 1995 from the National Oceanic and Atmospheric
Administration (NOAA), an agency of the United States Department of Commerce.
His last position, which he held since 1985, was as chief of the audits and
internal control branch in the office of the controller.
Dr. Uhlmann has been a Professor of Engineering and Chairman of the
Department of Material Science and Engineering at the University of Arizona
since 1986.
Directors B. Patrick Donnelly, III, Joan E. Donnelly, Leonard, McNeive and
Pruden are all descendants of, or are or were married to descendants of,
Bernard P. Donnelly, the Company's founder, and each represents one of five
family groups of such descendants. John F. Donnelly, Jr., a Senior Vice
President of the Company, is also a descendant of Bernard P. Donnelly and is
the brother of Ms. Donnelly. See "Description of Capital Stock."
35
<PAGE>
PRINCIPAL SHAREHOLDERS
The Company was founded in 1905 by Bernard P. Donnelly. Direct familial
descendants of Bernard P. Donnelly or individuals related by marriage to
Bernard P. Donnelly or such descendants own approximately 30% (24% after the
offering of the Class A Common Stock) of the Class A Common Stock and
approximately 99% of the Class B Common Stock and control approximately 92%
(89% after the offering of the Class A Common Stock) of the voting power of
the Company.
The following table sets forth certain information as of April 14, 1997, and
as adjusted to reflect the sale of shares of Class A Common Stock offered by
the Company hereby, with respect to (a) each person who is known by the
Company to be the beneficial owner of more than five percent of the Class A
Common Stock or Class B Common Stock, (b) each director of the Company, and
(c) all officers and directors of the Company as a group. Except as otherwise
indicated below, each of the persons named in the table has sole voting and
investment power with respect to all shares of Class A Common Stock and Class
B Common Stock beneficially owned by such person as set forth opposite such
person's name. Upon completion of the offering of the Class A Common Stock,
the holders of Class B Common Stock will control approximately 90% of the vote
on matters to be voted upon by all holders of Common Stock voting as a single
class.
<TABLE>
<CAPTION>
PRIOR TO OFFERING
---------------------------------------------- PERCENTAGE OF
PERCENT OF CLASS A COMMON
NUMBER OF SHARES CLASS STOCK TO BE
----------------------- ------------------ BENEFICIALLY OWNED
CLASS A(1) CLASS B CLASS A CLASS B AFTER THE OFFERING
---------- --------- ------- ------- ------------------
<S> <C> <C> <C> <C> <C>
Investment Counselors of
Maryland, Inc.......... 393,750(2) -- 7.3 -- 5.7
NBD Bank, N.A........... 381,816(3) 627,885(3) 7.1 14.0 5.2
Putnam Investments,
Inc.................... 401,812(4) -- 7.4 -- 5.8
Anne H. Copps........... 47,735(5) 245,595(5) * 5.5 *
Bernard P. Donnelly..... 332(6) 496,212(6) * 11.1 *
Virginia N. Donnelly.... 332(6) 496,212(6) * 11.1 *
Katherine S. Donnelly... 224,911(7) 314,878(7) 4.2 7.1 3.3
Jane H. Krahmer......... 116,029(8) 363,353(8) 2.1 8.1 1.7
Gerald T. McNeive**..... 58,226(9) 328,805(9) *(14) 7.4 *(14)
Louise H. McNeive....... 58,226(9) 328,805(9) *(14) 7.4 *(14)
Marie Josephte
Martineau.............. 17,176 269,762 * 6.0 *
Fernande M. Pruden...... 222,809(10) 299,335(10) 3.8(14) 6.7 3.0(14)
Rudolph B. Pruden**..... 222,809(10) 299,335(10) 3.8(14) 6.7 3.0(14)
J. Dwane Baumgardner**.. 115,716 -- 2.0(14) -- 1.6(14)
John A. Borden**........ 625 -- *(14) -- *(14)
Arnold F. Brookstone**.. 25,625 -- *(14) -- *(14)
B. Patrick Donnelly,
III**.................. 56,305(11) 137,161(11) *(14) 3.1 *(14)
Joan E. Donnelly**...... 130,997(12) 182,583(12) 2.2(14) 4.1 1.8(14)
R. Eugene Goodson**..... 2,500 -- *(14) -- *(14)
Thomas E. Leonard**..... 10,625(13) 159,323(13) *(14) 3.6 *(14)
Donald R. Uhlmann**..... 15,937 -- *(14) -- *(14)
All officers and
directors as a group
(17 persons)........... 843,271 1,164,457 14.5(14) 26.1 11.5(14)
</TABLE>
- --------
*Less than one percent.
**Director.
36
<PAGE>
For purposes of the following notes, shares of Class A Common Stock are
referred to as "A Shares" and shares of Class B Common Stock are referred to
as "B Shares."
(1) Includes the following number of shares with respect to which the
Directors have the right to acquire beneficial ownership under stock
options exercisable in 60 days; Dr. Baumgardner--90,312; Dr.
Uhlmann--15,937; Dr. Goodson, Ms. Donnelly and Messrs. Brookstone,
Donnelly, Leonard, McNeive, Pruden--1,875 shares.
(2) In a Schedule 13G, dated February 14, 1997, and delivered to the Company,
Investment Counselors of Maryland, Inc. ("Investment Counselors")
disclosed on behalf of its investment advisory clients that they had
acquired beneficial ownership of 393,750 A Shares. Investment Counselors
has the sole power to dispose of all such shares, and shared power to
vote 93,750 of such shares.
(3) Includes (i) 77,733 B Shares held by NBD Bank, N.A. (the "Bank") as co-
trustee of the Robert M. Leonard Trust, 43,750 Shares as co-trustee of
the B. P. Donnelly Descendants Trust, 117,577 B Shares as co-trustee of
the John Donnelly Residual Trust, and 388,825 B Shares held in two trusts
for which the Bank serves as sole trustee, (ii) 381,816 A Shares held by
Trussal & Co., acting as nominee of the Bank as follows: 2,500 A shares
in the Robert M. Leonard Trust, 17,854 shares in the B.P. Donnelly
Descendants Trust, and 83,983 shares in the John Donnelly Residual Trust,
for all of which trusts the Bank serves as co-trustee and 275,606 shares
held in two trusts for which the Bank serves as sole trustee, and (iii)
1,873 A Shares held by the Bank as trustee, co-trustee, custodian, or
agent of other trusts.
(4) In a Schedule 13G, dated January 26, 1994, and delivered to the Company,
Putnam Investments, Inc. ("Putnam") disclosed on behalf of its investment
management subsidiaries that they had acquired beneficial ownership of
401,812 A Shares. Putnam has the sole power to dispose of all of such
shares, and shared power to vote 132,062 of such shares.
(5) Includes 47,735 A Shares and 245,595 B Shares owned by a trust of which
Anne H. Copps is trustee.
(6) Includes 332 A Shares and 496,212 B Shares owned by two trusts of which
Bernard P. Donnelly, Jr. and Virginia N. Donnelly (husband and wife) are
co-trustees.
(7) Includes 83,983 A Shares and 117,577 B Shares held in the John Donnelly
Residual Trust for which Katherine S. Donnelly is a co-trustee.
(8) Includes 12,218 A Shares and 16,406 B Shares owned by Mrs. Krahmer's
husband, C. Alan Krahmer, as to which she disclaims beneficial ownership.
(9) Includes (i) 34,870 A Shares and 298,730 B Shares owned by Louise H.
McNeive, (ii) 9,765 A Shares, and 13,671 B Shares owned by her husband,
Gerald T. McNeive, a director of the Company, and (iii) 11,716 A Shares
and 16,404 B Shares as to which Louise H. McNeive is custodian for her
children, and as to which Gerald T. McNeive disclaims beneficial
ownership.
(10) Includes (i) 205,192 A Shares and 282,547 B Shares owned by Fernande
Pruden and her retirement plans, and (ii) 15,742 A Shares, and 16,788 B
Shares owned by Rudolph Pruden and his retirement plans. Rudolph Pruden
is Fernande Pruden's husband and a director of the Company. Fernande
Pruden and Rudolph Pruden each disclaim beneficial ownership of the
other's shares.
(11) Includes (i) 5,250 A Shares and 2,500 B Shares owned jointly with Mr.
Donnelly's wife, Jacqueline K. Donnelly, (ii) 1,406 A Shares and 2,343 B
Shares owned by Jacqueline K. Donnelly, (iii) 4,700 A shares and 2,606 B
Shares owned by Mr. Donnelly as custodian and trustee for his children,
(iv) 6,296 A Shares and 8,815 B Shares held in trust for the benefit of a
niece, for which Mr. Donnelly is a co-trustee, and (v) 17,856 A Shares
and 43,750 B Shares held in trust for the benefit of Mr. Donnelly and his
brothers and sisters, for which Mr. Donnelly is co-trustee.
(12) Includes (i) 1,178 A Shares and 1,651 B Shares owned by Joan E.
Donnelly's husband, David K. Taylor as to which Ms. Donnelly disclaims
beneficial ownership, (ii) 1,952 A Shares and 2,732 B Shares held by Ms.
Donnelly as custodian for her children, and (iii) 95,312 A Shares and
133,437 B Shares held in trust as to which Ms. Donnelly is the trustee.
37
<PAGE>
(13) Includes (i) 2,500 A Shares and 77,733 B Shares held by the Robert M.
Leonard Trust, for which Mr. Leonard is a co-trustee, and (ii) 11,590 B
Shares owned by Mr. Leonard's wife, Ann N. Leonard, as to which Mr.
Leonard disclaims beneficial ownership.
(14) Calculated based on the number of shares outstanding plus 419,594 shares
with respect to which officers and directors have the right to acquire
beneficial ownership under stock options exercisable within 60 days.
Five of the Company's directors, B. Patrick Donnelly, III, Joan E. Donnelly,
Leonard, McNeive and Pruden are all descendants of, or are married to
descendants of, Bernard P. Donnelly, Sr., the Company's founder, and each
represents one of five family groups of such descendants (the "Donnelly
Family"). John F. Donnelly, Jr., a Senior Vice President of the Company, is
also a descendant of Bernard P. Donnelly and is the brother of Ms. Donnelly.
Each of four family groups has the ability to elect at least one director if
they act together and cumulate the votes of the Class B Common Stock.
DESCRIPTION OF CAPITAL STOCK
The Company's authorized capital stock consists of 30,000,000 shares of
Class A Common Stock, $.10 par value per share; 15,000,000 shares of Class B
Common Stock, $.10 par value per share; 1,000,000 shares of Series Preferred
Stock, no par value; and 250,000 shares of 7 1/2% Preferred Stock, $10 par
value per share.
CLASS A COMMON STOCK AND CLASS B COMMON STOCK
Upon completion of this offering, 6,912,286 shares of Class A Common Stock
(assuming no exercise of the Underwriter's over-allotment option) and
4,463,243 shares of Class B Common Stock will be outstanding. All shares of
Class A Common Stock and Class B Common Stock currently outstanding are, and
the shares of Class A Common Stock offered by the Company hereby will be,
fully paid and non-assessable, not subject to redemption and without
preemptive or other rights to subscribe for or purchase any proportionate part
of any new or additional issues of stock of any class or of securities
convertible into stock of any class.
Voting Rights. Holders of shares of Class A Common Stock are entitled to one
vote per share on all matters submitted to shareholders. Holders of shares of
Class A Common Stock, as a class, are also entitled to elect one quarter of
the Company's directors (rounded, if necessary, to the nearest whole number
and rounded up if one quarter of the directors equals a number falling exactly
between two whole numbers) to be elected at each meeting held for the election
of directors. Holders of shares of Class B Common Stock are entitled to ten
votes per share on all matters submitted to shareholders, except that they are
not entitled to vote in the election of the directors which the holders of
Class A Common Stock are entitled to elect. Holders of shares of Class B
Common Stock elect, as a class (with any Preferred Stock entitled to vote),
the directors not elected by the shares of Class A Common Stock. Holders of
shares of Class B Common Stock have cumulative voting rights in the election
of directors. Both the Class A Common Stock and the Class B Common Stock are
entitled to vote separately as a class on any amendments to the Company's
Articles of Incorporation that alter the powers, preferences or rights of the
respective class so as to affect them adversely, and with respect to such
other matters as may require class votes under the Michigan Business
Corporation Act.
Dividends and Distributions. Dividends on Class A Common Stock and Class B
Common Stock will be paid if, as and when declared out of funds legally
available therefor. If cash dividends are declared, the amount paid on each
share of Class A Common Stock must be equal to the combined cash dividends
paid to the holder of each share of Class B Common Stock (i) on that stock and
(ii) on the related Donnelly Export Corporation common stock. The shares of
common stock of Donnelly Export Corporation are held entirely by the holders
of the Company's Class B Common Stock. See "--Donnelly Export Corporation."
Otherwise, Class A Common Stock and Class B Common Stock rank equally,
including in distributions paid in partial or complete liquidation of the
Company. The Board may declare and pay a stock dividend only of Class A Common
Stock on Class A Common Stock and only of Class B Common Stock on Class B
Common Stock. If either such class receives a stock dividend, the other class
must also receive a comparable stock dividend.
38
<PAGE>
Conversion. The Class A Common Stock is not convertible into shares of any
other equity security of the Company. Holders of Class B Common Stock may
elect at any time to convert any or all of such shares into shares of the
Class A Common Stock on a share for share basis. If the number of outstanding
shares of Class B Common Stock falls below 12 1/2% of the aggregate number of
issued and outstanding shares of Class A Common Stock and Class B Common
Stock, all the shares of Class B Common Stock will automatically be converted
into shares of Class A Common Stock.
Transferability. The Class A Common Stock is freely transferable. The Class
B Common Stock may be transferred by a shareholder only to or among his or her
spouse, certain relatives (and their spouses), trusts established for such
persons' benefit, and a corporation or partnership all of the stock or units
of which are owned by such eligible holders and transferees. Accordingly, no
trading market has developed or will develop in the Class B Common Stock and
it has not been and will not be listed or traded on any exchange or any
market.
Future Issuances of Class B Common Stock, Status of Class B Common Stock
Upon Conversion. The Company may not issue any additional shares of Class B
Common Stock, except in a stock split or stock dividend upon the Class B
Common Stock, without the approval of the holders of a majority of the
outstanding shares of Class A Common Stock who do not hold Class B Common
Stock. The restrictions on future issuances of Class B Common Stock and the
existence of the DISC (see "--Donnelly Export Corporation") may limit the
ability of the Company to account for business combinations using the "pooling
of interests" method. All shares of Class B Common Stock received by the
Company upon conversion thereof to Class A Common Stock will revert to the
status of authorized but unissued shares of Class B Common Stock.
Effect on Relative Voting Power. Direct and indirect descendants of Bernard
P. Donnelly own approximately 99% of the Class B Common Stock and immediately
after the offering will own approximately 32% of the issued and outstanding
Class A Common Stock of the Company (assuming none of such shareholders
purchase stock in this offering and that the Underwriter's over-allotment
option is not exercised). Those shareholders will therefore possess 89% of the
voting power of the Company and 32% of the voting power of the Class A Common
Stock. The descendants of Bernard P. Donnelly may transfer shares of Class B
Common Stock among themselves, enabling them to retain voting control of the
Company for an extended period. Given the voting control of the Donnelly
Family, the Donnelly Family could, if all or part of the family took a united
position in response to attempts to acquire control of the company through
tender offers or proxy contests, effectively block any such attempts. There is
no assurance that any united action would be taken.
TRANSFER AGENT
The Company's transfer agent and registrar for the Class A Common Stock and
Class B Common Stock is The Bank of New York.
SERIES PREFERRED STOCK
The authorized Series Preferred Stock consists of 1,000,000 shares, no par
value. The Series Preferred Stock may be issued by resolutions of the
Company's Board of Directors from time to time without any action of the
shareholders. Such resolutions may authorize issuances in one or more classes
or series of the Series Preferred Stock, and may fix and determine dividend
and liquidation preferences, voting rights (except as provided below),
conversion privileges, redemption terms and other privileges and rights of the
shareholders of each class or series so authorized. The Series Preferred Stock
may not be given more than one vote per share or the right as a class to elect
any directors. The Company has no present plans to issue shares of Series
Preferred Stock.
7 1/2% PREFERRED STOCK
The authorized 7 1/2% Preferred Stock consists of 250,000 shares, par value
$10 per share, of which 53,112 shares are presently issued and outstanding.
These shares are held entirely by five individuals, two of whom, Bernard P.
Donnelly, Jr. (40,000 shares) and Marie Josephte Martineau (12,617 shares),
are holders of more than
39
<PAGE>
five percent of the common equity and voting power of the Company. See
"Principal Shareholders." The Company has no plans to issue additional shares
of this stock. Holders of the 7 1/2% Preferred Stock are entitled to receive
cumulative preferential dividends in cash of $.75 per share per annum when and
as declared by the Board of Directors. In the event the Company is liquidated,
dissolved or wound up, voluntarily or involuntarily, holders of the 7 1/2%
Preferred Stock are entitled to receive in cash $10 per share plus accumulated
and unpaid dividends from the assets of the Company available for distribution
to shareholders, before any payment is made to holders of any other class of
common stock or any other class of capital stock ranking junior to the 7 1/2%
Preferred Stock. The Company may, at its option, at any time on thirty days'
notice, redeem all or some of the 7 1/2% Preferred Stock by paying $10.50 per
share in cash plus all accumulated and unpaid dividends. If less than all of
the shares are redeemed, the Company may designate by lot, in such manner as
the Board of Directors determines, the shares to be redeemed, or may effect
such redemption in any other equitable manner.
The holders of the 7 1/2% Preferred Stock do not have any voting rights
except as required by applicable law and except that if at any time the
Company is in arrears in the payment of cumulative dividends to the extent of
four quarterly dividends (whether consecutive or not), holders of the 7 1/2%
Preferred Stock are entitled to one vote for each share in the election of the
directors not elected by the Class A Common Stock, and on all other matters.
The voting rights would continue until a quarterly dividend is paid reducing
the amount of arrearages to less than four quarterly dividends. The holders of
the 7 1/2% Preferred Stock have no preemptive rights.
DONNELLY EXPORT CORPORATION
Donnelly Export Corporation, a shareholder Domestic International Sales
Corporation under the Internal Revenue Code (the "DISC"), has been designed to
reduce the income tax liability of the Company. The DISC does not provide the
holders of the Class B Common Stock, who hold all of the DISC common stock,
any financial advantage over holders of the Class A Common Stock.
The holders of Class B Common Stock hold, for every 176 such shares, 16
shares of common stock of the DISC. The Company owns no shares of the DISC,
but its officers manage the DISC. The financial statements of the DISC are
combined with those of the Company. See Note 1 of Notes to Combined
Consolidated Financial Statements. The shareholders of the DISC are not
entitled to vote on issues voted upon by the Company's shareholders.
The holders of DISC common stock have received and expect to continue to
receive dividends with respect to those shares. Dividends are paid from net
income of the DISC, which is generated by commissions paid to the DISC by the
Company. The effect is to achieve dividends to the holders of Class B Common
Stock which are deductible to the Company for federal income tax purposes. The
Company's Articles of Incorporation provide that cash dividends on each share
of Class A Common Stock must equal the sum of the dividends paid per share of
Class B Common Stock and per 16/176 of a share of common stock of the DISC.
DISC shares are subject to the same restriction on transfer as the Class B
Common Stock. In addition, DISC stock and shares of Class B Common Stock may
be transferred only if 16 shares of DISC stock are transferred with every 176
shares of Class B Common Stock that are transferred. In the event of a
conversion of Class B Common Stock into Class A Common Stock, 16 shares of the
DISC common stock will be canceled for every 176 shares of Class B Common
Stock that are converted. If all Class B Common Stock is converted to Class A
Common Stock, the DISC will automatically terminate.
CERTAIN SPECIAL ARTICLE AND STATUTORY PROVISIONS
The Company's Articles of Incorporation include provisions which are
designed to or which may have the effect of deterring acquisitions of the
Company, including proposed transactions that might have the support of a
majority of the Company's voting power or a majority of the Company's common
equity. These devices could also have the effect of inhibiting certain changes
in management and temporary fluctuations in the market price
40
<PAGE>
of the Company's Class A Common Stock that could arise from actual or rumored
takeover bids. The Company's two classes of common stock may have similar
effects.
The Company's Articles of Incorporation state that any vacancy in, or newly
created, directorships will be filled only by the affirmative vote of a
majority of directors continuing in office. The Articles also provide that
nominations for the election of directors must be made as provided in the
Company's Bylaws, which set forth a procedure for shareholder nominations of
directors. Notice of any nomination must be given 30 days in advance of the
Company's annual meeting at which directors will be elected. These provisions
may restrict the ability of a shareholder to conduct a proxy contest against
management.
The Articles of Incorporation also provide that the Board of Directors shall
not approve or recommend any offer to make a tender or exchange offer for the
Company's shares, to merge or consolidate the Company or to purchase
substantially all of the assets of the Company (i) if such proposal is known
by the Board to be a possible violation of law or (ii) unless the Board of
Directors has evaluated the offer and determined that the offer is in the best
interest of the Company and its shareholders. In making its evaluation, the
Board is permitted to consider several factors, including the adequacy and
fairness of the consideration to be received and the potential social and
economic impact of the offer and its consummation on the Company, its
employees, vendors and communities.
The Company's Articles of Incorporation further state that the Company shall
not merge with another corporation, sell substantially all of its assets, or
voluntarily dissolve or liquidate its assets without the approval of two-
thirds of the voting power of the then outstanding shares of the classes of
stock entitled to vote. The Articles also require that any purchase by the
Company of shares of its voting stock from any person known by the Company to
be the beneficial owner of five percent or more of the voting power of the
Company for less than two years at a price in excess of the fair market value
at the time of purchase, be approved by a majority of the votes of the
outstanding voting stock of the Company. This provision is intended to
eliminate the payment of "greenmail" by discouraging purchasers from
accumulating significant blocks of the Company's stock and then offering that
stock for resale to the Company at a premium over market price.
As a Michigan corporation, the Company is subject to the "Fair Price" and
"Shareholder Equity" provisions of the Michigan Business Corporation Act
("MBCA"). The Fair Price provisions of the MBCA provide that, except in cases
in which certain minimum price, form of consideration and procedural
requirements are satisfied or for certain transactions that may be approved in
advance by the Board of Directors, higher than normal voting requirements are
imposed with respect to various transactions involving persons who own 10% or
more of the Company's voting stock ("Interested Shareholders"). Transactions
to which the higher voting requirements apply require an advisory statement
from the Board of Directors and must be approved by not less than 90% of the
votes of each class of stock entitled to vote and by not less than two-thirds
of the votes, other than the votes of Interested Shareholders who are (or
whose affiliates are) a party to the proposed transaction or an affiliate of
the Interested Shareholder, of each class entitled to vote. The Shareholder
Equity Provisions of the MBCA affect the voting rights of persons who acquire
more than 20%, 33 1/3% or 50% of a Michigan corporation's voting stock
("Control Shares"). The Shareholder Equity Provisions deny voting rights to
those shareholders who make purchase offers or increase their holdings above
any of the Control Share levels, unless they are granted voting rights by a
majority vote of all disinterested shareholders (shareholders excluding the
bidders or owners of Control Shares and the corporation's management). If the
shareholders do not elect to grant voting rights to Control Shares under
certain circumstances, the Control Shares may become subject to redemption by
the corporation.
41
<PAGE>
UNDERWRITING
Upon the terms and subject to the conditions stated in the Underwriting
Agreement dated , 1997, each of the underwriters named below (the
"Underwriters") has severally agreed to purchase, and the Company has agreed
to sell to each such Underwriter, the number of shares of Class A Common Stock
set forth opposite the name of such Underwriter.
<TABLE>
<CAPTION>
NUMBER
NAME OF SHARES
---- ---------
<S> <C>
Smith Barney Inc...............................................
Salomon Brothers Inc...........................................
---------
Total...................................................... 1,500,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares are subject to
approval of certain legal matters by Cahill Gordon & Reindel, their counsel,
and to certain other conditions. The Underwriters are obligated to take and
pay for all shares of Class A Common Stock offered hereby (other than those
covered by the over-allotment option described below) if any such shares are
taken.
The Underwriters, for whom Smith Barney Inc. and Salomon Brothers Inc are
acting as the Representatives, initially propose to offer part of the shares
directly to the public at the public offering price set forth on the cover
page of this Prospectus and part of the shares to certain dealers at a price
which represents a concession not in excess of $ per share below the
public offering price. The Underwriters may allow, and such dealers may
reallow, a concession not in excess of $ per share to certain other
dealers. After the initial public offering of the shares to the public, the
public offering price and such concessions may be changed by the Underwriters.
The Company granted to the Underwriters an option, exercisable for thirty
days from the date of this Prospectus, to purchase up to an aggregate of
225,000 additional shares of Class A Common Stock at the public offering price
set forth on the cover page of this Prospectus less the underwriting discounts
and commissions. The Underwriters may exercise such option solely for the
purpose of covering over-allotments, if any, in connection with the Offering
of the Class A Common Stock. To the extent such option is exercised, each
Underwriter will be obligated, subject to certain conditions, to purchase
approximately the same percentage of such additional shares as the number of
shares set forth opposite each Underwriter's name in the preceding table bears
to the total number of shares listed in such table.
In connection with the offering of the Class A Common Stock and in
compliance with applicable law, the Underwriters may overallot (i.e., sell
more Class A Common Stock than the total amount shown on the list of
Underwriters and participations which appears above) and may effect
transactions which stabilize, maintain or otherwise affect the market price of
the Class A Common Stock at levels above those which might otherwise prevail
in the open market. Such transactions may include placing bids for the Class A
Common Stock or effecting purchases of the Class A Common Stock for the
purpose of pegging, fixing or maintaining the price of the Class A Common
Stock or for the purpose of reducing a syndicate short position created in
connection with the offering. A syndicate short position may be covered by
exercise of the option described above rather than by
42
<PAGE>
open market purchases. In addition, the contractual arrangements among the
Underwriters include a provision whereby, if, prior to termination of price
and trading restrictions, the Representatives purchase Class A Common Stock in
the open market for the account of the underwriting syndicate and the
securities purchased can be traced to a particular Underwriter or member of
the selling group, the underwriting syndicate may require the Underwriter or
selling group member in question to purchase the Class A Common Stock in
question at a cost price to the syndicate or may recover from (or decline to
pay to) the Underwriter or selling group member in question the selling
concession applicable to the securities in question. The Underwriters are not
required to engage in any of these activities and any such activities, if
commenced, may be discontinued at any time.
The Company and its officers and directors have agreed that, for a period of
90 days from the date of this Prospectus, they will not, without the prior
written consent of Smith Barney Inc., offer, sell, contract to sell, or
otherwise dispose of, any shares of Common Stock of the Company or any
securities convertible into, or exercisable or exchangeable for, Common Stock
of the Company.
The Company and the Underwriters have agreed to indemnify each other against
certain liabilities, including liabilities under the Securities Act of 1933.
LEGAL MATTERS
The validity of the Class A Common Stock offered hereby will be passed upon
for the Company by Varnum, Riddering, Schmidt & Howlett LLP, Grand Rapids,
Michigan. Cahill Gordon & Reindel (a partnership including a professional
corporation), New York, New York, are acting as counsel for the Underwriters.
Members of Varnum, Riddering, Schmidt & Howlett LLP own, in the aggregate,
approximately 27,688 shares of Class A Common Stock as of March 24, 1997.
EXPERTS
The financial statements and schedules included and incorporated by
reference in this Prospectus and elsewhere in the Registration Statement, have
been audited by BDO Seidman, LLP and BDO BINDER GmbH, independent certified
public accountants, to the extent and for the periods set forth in their
respective reports appearing elsewhere herein and incorporated herein by
reference. The financial statements and schedules are included and
incorporated herein in reliance upon such reports given upon the authority of
such firm as experts in auditing and accounting.
43
<PAGE>
DONNELLY CORPORATION AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
COMBINED CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Certified Public Accountants......... F-2
Combined Consolidated Statements of Income................. F-3
Combined Consolidated Balance Sheets....................... F-4
Combined Consolidated Statements of Cash Flows............. F-5
Combined Consolidated Statements of Stockholders' Equity... F-6
Notes to the Combined Consolidated Financial Statements.... F-7 through F-19
CONDENSED COMBINED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Condensed Combined Consolidated Statements of Income....... F-20
Condensed Combined Consolidated Balance Sheets............. F-21
Condensed Combined Consolidated Statements of Cash Flows... F-22
Notes to the Condensed Combined Consolidated Financial
Statements................................................ F-23 through F-25
PRO FORMA CONDENSED COMBINED CONSOLIDATED STATEMENTS OF
INCOME (UNAUDITED)
Introduction............................................... F-26
Pro Forma Condensed Combined Consolidated Statements of
Income.................................................... F-27, F-28
Notes to the Pro Forma Condensed Combined Consolidated
Statements of Income...................................... F-29
</TABLE>
F-1
<PAGE>
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.
BDO Seidman, LLP
Grand Rapids, Michigan
August 2, 1996
F-2
<PAGE>
DONNELLY CORPORATION AND SUBSIDIARIES
COMBINED CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED
----------------------------
JUNE 29, JULY 1, JULY 2,
1996 1995 1994
-------- -------- --------
(IN THOUSANDS, EXCEPT
SHARE DATA)
<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.......................... $ 0.86 $ 1.14 $ 0.70
Cumulative effect of adopting SFAS No. 109..... -- -- 0.05
-------- -------- --------
Income per share of common stock............. $ 0.86 $ 1.14 $ 0.75
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE>
DONNELLY CORPORATION AND SUBSIDIARIES
COMBINED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 29, JULY 1,
1996 1995
--------- ---------
(IN THOUSANDS,
EXCEPT SHARE DATA)
<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.
F-4
<PAGE>
DONNELLY CORPORATION AND SUBSIDIARIES
COMBINED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED
----------------------------
JUNE 29, JULY 1, JULY 2,
1996 1995 1994
-------- -------- --------
(IN THOUSANDS)
<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 costs and postretirement
benefits..................................... 4,934 2,742 3,941
Deferred income taxes......................... (2,386) (2,108) (1,432)
Minority interest net income (loss) of
subsidiaries................................. (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.
F-5
<PAGE>
DONNELLY CORPORATION AND SUBSIDIARIES
COMBINED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK CUMULATIVE
----------------------- FOREIGN
DONNELLY ADDITIONAL CURRENCY
PREFERRED CLASS CLASS EXPORT PAID-IN TRANSLATION RETAINED
STOCK A B CORPORATION CAPITAL ADJUSTMENT EARNINGS
--------- ----- ----- ----------- ---------- ----------- --------
(IN THOUSANDS, EXCEPT 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--$.26 per
share................. (1,323)
Class B--$.26 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--$.75
per share............. (40)
Common stock:
Class A--$.26 per
share................. (1,337)
Class B--$.26 per
share................. (1,147)
Common stock issued
under employee benefit
plans................. 3 475
Change in investment in
Vision Group, plc..... 2,317
---- ---- ---- --- ------- ----- -------
Balance, July 1, 1995... 531 418 358 4 23,522 154 57,913
Net income............. 8,454
Foreign currency
translation
adjustment............ (925)
Cash dividends
declared:
Preferred stock--$.75
per share............. (40)
Common stock:
Class A--$.32 per
share................. (1,690)
Class B--$.32 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.
F-6
<PAGE>
DONNELLY CORPORATION AND SUBSIDIARIES
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, transaction and
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.
REVENUE RECOGNITION
The Company's primary source of revenue is generated from the sale of its
products. The Company recognizes revenue when its products are shipped.
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.
CUSTOMER TOOLING TO BE BILLED
Customer tooling to be billed represents costs incurred on behalf of the
Company's customers. Customer tooling costs are recoverable at the time of
tool completion and approval, or are recovered in the program's piece price
over the program's life, not to exceed a period of three years.
F-7
<PAGE>
DONNELLY CORPORATION AND SUBSIDIARIES
NOTES TO THE COMBINED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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:
<TABLE>
<CAPTION>
YEARS
--------
<S> <C>
Buildings....................... 10 to 40
Machinery and equipment......... 3 to 12
</TABLE>
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 the stock split
effective January 30, 1997 (9,753,558 in 1996, 9,680,053 in 1995 and 9,646,154
in 1994). The potential dilutive effect from the exercise of stock options is
not material.
On December 6, 1996, the Board of Directors declared a five for four stock
split in the form of a 25 percent stock dividend distributed on January 30,
1997. All references to weighted average number of shares outstanding, per
share information and stock plan data have been adjusted to reflect the stock
split.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company estimates the fair value of all financial instruments where the
carrying value differs from the fair value, primarily 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. The carrying value of the Company's variable rate debt and all
other financial instruments approximates their fair value.
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 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
F-8
<PAGE>
DONNELLY CORPORATION AND SUBSIDIARIES
NOTES TO THE COMBINED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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
rearview mirror systems, modular 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>
YEAR ENDED
----------------------------
1996 1995 1994
-------- -------- --------
(IN THOUSANDS)
<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>
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................................................... 33% 18% 18%
Ford....................................................... 22 22 24
Honda...................................................... 16 14 12
General Motors............................................. 10 17 21
--- --- ---
81% 71% 75%
=== === ===
</TABLE>
F-9
<PAGE>
DONNELLY CORPORATION AND SUBSIDIARIES
NOTES TO THE COMBINED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
3. INVENTORIES
Inventories consist of:
<TABLE>
<CAPTION>
1996 1995
------- -------
(IN THOUSANDS)
<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 Group"), 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 Group 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 Group, based on the quoted market price for Vision Group'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
Group 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, supplies many of the main automakers 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
F-10
<PAGE>
DONNELLY CORPORATION AND SUBSIDIARIES
NOTES TO THE COMBINED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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's 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>
1996 1995
-------- -------
(IN THOUSANDS)
<S> <C> <C>
Summarized Balance Sheet Information:
Current assets....................................... $ 90,927 $80,443
Non-current 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>
5. DEBT AND OTHER FINANCING ARRANGEMENTS
Debt consists of:
<TABLE>
<CAPTION>
1996 1995
-------- -------
(IN THOUSANDS)
<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>
F-11
<PAGE>
DONNELLY CORPORATION AND SUBSIDIARIES
NOTES TO THE COMBINED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 covenants. Retained earnings available for
dividends at June 29, 1996, are $19.6 million.
Annual principal maturities consist of:
<TABLE>
<CAPTION>
YEAR ENDING AMOUNT
----------- --------------
(IN THOUSANDS)
<S> <C>
1997...................... $ 159
1998...................... 117
1999...................... 3,525
2000...................... 7,000
2001...................... 20,357
2002 and thereafter....... 70,758
--------
$101,916
========
</TABLE>
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 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. 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.
F-12
<PAGE>
DONNELLY CORPORATION AND SUBSIDIARIES
NOTES TO THE COMBINED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In accordance with the requirements of SFAS No. 107, "Disclosures About Fair
Value of Financial Instruments" (see Note 1), the Company has provided the
following fair value estimates for instruments in which the fair value differs
from carrying value at June 29, 1996:
<TABLE>
<CAPTION>
CARRYING VALUE FAIR VALUE
-------------- ----------
(IN THOUSANDS)
<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.
Assumptions and net periodic pension cost are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
-------------------------
1996 1995 1994
------- ------- -------
(IN THOUSANDS)
<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>
1996 1995
-------- --------
(IN THOUSANDS)
<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>
F-13
<PAGE>
DONNELLY CORPORATION AND SUBSIDIARIES
NOTES TO THE COMBINED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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.
The components of the net periodic postretirement benefit cost are as
follows:
<TABLE>
<CAPTION>
YEAR ENDED
--------------------
1996 1995 1994
------ ------ ------
(IN THOUSANDS)
<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>
1996 1995
-------- --------
(IN THOUSANDS)
<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
F-14
<PAGE>
DONNELLY CORPORATION AND SUBSIDIARIES
NOTES TO THE COMBINED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
amounts as measured by income tax laws. The Company has grouped the noncurrent
deferred tax assets with other assets and the net noncurrent deferred tax
liability with certain other liabilities on the balance sheet. The tax effects
of temporary differences which give rise to a significant portion of deferred
tax assets (liabilities) are as follows:
<TABLE>
<CAPTION>
1996 1995
------- -------
(IN THOUSANDS)
<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>
Per Balance Sheet:
<TABLE>
<CAPTION>
1996 1995
------- -------
(IN THOUSANDS)
<S> <C> <C>
Current income tax asset............................... $ 1,912 $ 2,197
Noncurrent income tax asset............................ 2,095 --
Noncurrent income tax liability........................ (3,564) (3,648)
------- -------
Net deferred tax asset (liability)..................... $ 443 $(1,451)
======= =======
</TABLE>
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>
YEAR ENDED
-------------------------
1996 1995 1994
------- ------- -------
(IN THOUSANDS)
<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>
F-15
<PAGE>
DONNELLY CORPORATION AND SUBSIDIARIES
NOTES TO THE COMBINED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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>
YEAR ENDED
-----------------------
1996 1995 1994
------ ------- ------
(IN THOUSANDS)
<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-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 547,250 shares of Class A Common Stock. Eligible
employees may purchase stock at market value, or 90% of market value if the
price is $6.40 per share or higher, up to a maximum of $5,000 per employee in
any calendar year. The Company issued 21,825 shares in 1996 and 28,464 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 1,078,125 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.
F-16
<PAGE>
DONNELLY CORPORATION AND SUBSIDIARIES
NOTES TO THE COMBINED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Options have been granted to purchase common stock at prices ranging from
$7.36 to $16.10 per share. Options were exercised during 1995 and 1996 at
prices ranging from $7.36 to $8.48 per share. A summary of option transactions
follows:
<TABLE>
<CAPTION>
YEAR ENDED
----------------
1996 1995 1994
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Options outstanding, beginning of year.................. 515 451 353
Options granted......................................... 100 95 99
Options exercised....................................... (59) (16) (1)
Options expired......................................... (45) (15) --
--- --- ---
Options outstanding, end of year........................ 511 515 451
=== === ===
Exercisable, end of year................................ 421 429 353
=== === ===
</TABLE>
The Company has reserved 456,219 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.
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
F-17
<PAGE>
DONNELLY CORPORATION AND SUBSIDIARIES
NOTES TO THE COMBINED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
other on certain other patents for a period of four years. This settlement was
recognized in selling, general and administrative, net of related patent
litigation costs previously capitalized. Patent litigation costs included in
selling, general and administrative expenses were $3.7 million, $3.1 million
and $0.8 million in 1996, 1995, and 1994, respectively.
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, results of operation and liquidity, individually
and in the aggregate.
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. In 1995 the Company entered an agreement
for the sale and leaseback of newly installed modular window production
equipment. The equipment was sold at cost and no gain or loss was recognized
on the transaction. The lease, which has six one year renewal terms, an
effective 6.9% fixed interest rate, and a 40% balloon option for the Company
to purchase the equipment after the full seven year term, is classified as an
operating lease.
Future minimum lease payments, excluding renewal options, consist of:
<TABLE>
<CAPTION>
YEAR ENDING AMOUNT
----------- --------------
(IN THOUSANDS)
<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 severance 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 implemented a restructuring plan
of its non-automotive businesses to focus on its automotive businesses. The
restructuring plan included the sale of the Company's appliance business, the
sale of the heavy truck mirror business and the liquidation of the Company's
investment in OSD Envizion, a joint venture engaged in the manufacture of
welding helmet shields. The Company received total proceeds of $14.2 million
associated with the restructuring of these businesses, which had a combined
net
F-18
<PAGE>
DONNELLY CORPORATION AND SUBSIDIARIES
NOTES TO THE COMBINED CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED)
book value of $6.5 million. In addition, restructuring costs of $3.0 million
were also recognized consisting of a severance program and other expenses
associated with the plan. The severance program included twenty-five
personnel, primarily middle and senior managers of the Company. The spending
for these costs was essentially completed by the end of 1995. The
restructuring of the non-automotive businesses resulted in a pretax gain of
$4.7 million. These non-automotive businesses represented an insignificant
portion of the Company's operations for each period reported.
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.
14. QUARTERLY FINANCIAL DATA--UNAUDITED
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH TOTAL
QUARTER QUARTER QUARTER QUARTER YEAR
------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<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.............. (.18) .27 .25 .52 .86
Dividends declared per share of
common stock................... .08 .08 .08 .08 .32
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) .49 .32 .34 1.14
Dividends declared per share of
common stock................... .064 .064 .064 .064 .256
</TABLE>
All per share data has been adjusted for the stock split effective January
30, 1997. The impact of certain transactions on the 1996 and 1995 quarterly
results of operations is discussed in Notes 11 and 13. See Management's
Discussion and Analysis of Results of Operations and Financial Condition for
discussion of the Company's results of operations.
F-19
<PAGE>
DONNELLY CORPORATION AND SUBSIDIARIES
CONDENSED COMBINED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
-------------------------------
DECEMBER 28, DECEMBER 30,
1996 1995
--------------- ---------------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
Net sales................................ $ 301,437 $ 197,346
Costs and expenses:
Cost of sales.......................... 243,518 163,631
Selling, general and administrative.... 28,810 20,023
Research and development............... 15,567 11,880
------------- -------------
Operating income......................... 13,542 1,812
Interest expense....................... 4,991 3,737
Royalty income......................... (1,081) (2,503)
Interest income........................ (414) (604)
Other income, net...................... (975) (130)
------------- -------------
Income before taxes on income............ 11,021 1,312
Taxes on income........................ 4,143 430
------------- -------------
Income before minority interest and
equity earnings......................... 6,878 882
Minority interest in net (income) loss
of subsidiaries....................... (594) 202
Equity in losses of affiliated
companies............................. (645) (244)
------------- -------------
Net income............................... $ 5,639 $ 840
============= =============
Per share of common stock:
Net income............................. $ 0.57 $ 0.08
Cash dividends declared................ $ 0.16 $ 0.16
Average common shares outstanding...... 9,809,136 9,732,025
</TABLE>
The accompanying notes are an integral part of these statements.
F-20
<PAGE>
DONNELLY CORPORATION AND SUBSIDIARIES
CONDENSED COMBINED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
DECEMBER 28, JUNE 29,
1996 1996
------------ --------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............................... $ 10,794 $ 1,303
Accounts receivable, less allowance of $939 and $571.... 86,048 73,658
Inventories............................................. 47,142 24,228
Prepaid expenses and other current assets............... 32,608 27,506
-------- --------
Total current assets.................................. 176,592 126,695
Property, plant and equipment........................... 295,968 157,161
Less accumulated depreciation........................... 133,876 57,397
-------- --------
Net property, plant and equipment..................... 162,092 99,764
Investments in and advances to affiliates............... 15,163 37,932
Other assets............................................ 18,819 7,101
-------- --------
Total assets.......................................... $372,666 $271,492
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts and notes payable.............................. $ 75,954 $ 44,349
Current maturities of long-term debt.................... 6,132 159
Other current liabilities............................... 35,595 18,705
-------- --------
Total current liabilities............................. 117,681 63,213
Long-term debt, less current maturities................. 135,045 101,757
Deferred income taxes and other liabilities............. 23,923 17,670
-------- --------
Total liabilities..................................... 276,649 182,640
-------- --------
Minority interest....................................... 426 --
Preferred stock......................................... 531 531
Common stock............................................ 790 787
Other shareholders' equity.............................. 94,270 87,534
-------- --------
Total shareholders' equity............................ 95,591 88,852
-------- --------
Total liabilities and shareholders' equity............ $372,666 $271,492
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-21
<PAGE>
DONNELLY CORPORATION AND SUBSIDIARIES
CONDENSED COMBINED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
-------------------------
DECEMBER 28, DECEMBER 30,
1996 1995
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
OPERATING ACTIVITIES
Net income.......................................... $ 5,639 $ 840
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH FROM
(FOR) OPERATING ACTIVITIES:
Depreciation and amortization..................... 9,443 6,534
Gain on sale of property and equipment............ (805) --
Gain on sale of affiliate stock................... (872) --
Deferred pension cost and postretirement benefits. 2,744 968
Deferred income taxes............................. (1,709) 331
Minority interest net income (loss) of
subsidiaries..................................... 1,201 (202)
Equity in losses of affiliated companies.......... 1,032 562
CHANGES IN OPERATING ASSETS AND LIABILITIES:
Sale of accounts receivable....................... 31,957 --
Accounts receivable............................... (19,887) (8,686)
Inventories....................................... (4,440) (2,202)
Prepaid expenses and other current assets......... (1,344) (9,443)
Accounts payable and other current liabilities.... 11,538 1,378
Other............................................. (889) (681)
------- -------
Net cash from (for) operating activities........ 33,608 (10,601)
------- -------
INVESTING ACTIVITIES
Capital expenditures................................ (11,497) (12,503)
Investments in and advances to equity affiliates.... (4,567) (13,683)
Proceeds from sale of property and equipment........ 3,132 --
Proceeds from sale of affiliate stock............... 974 --
Purchase of minority interest....................... -- (2,100)
Change in unexpended bond proceeds.................. 47 292
Cash increase due to consolidation of subsidiary.... 9,963 --
Other............................................... (739) --
------- -------
Net cash for investing activities............... (2,687) (27,994)
------- -------
FINANCING ACTIVITIES
Proceeds from long-term debt........................ -- 37,213
Repayments on long-term debt........................ (19,812) --
Common stock issuance............................... 322 411
Dividends paid...................................... (1,594) (1,616)
------- -------
Net cash from (for) financing activities........ (21,084) 36,008
------- -------
Effect of foreign exchange rate changes on cash and
cash equivalents................................... (346) --
Increase (decrease) in cash and cash equivalents.... 9,837 (2,587)
Cash and cash equivalents, beginning of period...... 1,303 5,224
------- -------
Cash and cash equivalents, end of period............ $10,794 $ 2,637
======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
F-22
<PAGE>
DONNELLY CORPORATION AND SUBSIDIARIES
NOTES TO THE CONDENSED COMBINED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
DECEMBER 28, 1996
1. BASIS OF PRESENTATION
The accompanying unaudited condensed combined consolidated financial
statements have been prepared in accordance with the instructions to Form 10-Q
and Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for
a fair presentation have been included. Operating results for the six months
ended December 28, 1996, should not be considered indicative of the results
that may be expected for the year ended June 28, 1997. The combined
consolidated balance sheet at June 29, 1996, has been taken from the audited
combined consolidated financial statements and condensed. The accompanying
condensed combined consolidated financial statements and footnotes thereto
should be read in conjunction with the Company's annual report on Form 10-K
for the year ended June 29, 1996.
The Company's fiscal year is the 52 or 53 week period ending the Saturday
closest to June 30. Accordingly, each quarter ends on the Saturday closest to
quarter end. Both the quarters ended December 28, 1996, and December 30, 1995,
included 13 weeks.
2. INVENTORIES
At the beginning of fiscal 1997, the Company changed to the FIFO (first-in,
first-out) method for determining the cost of all inventories. Until fiscal
1997, the Company used the LIFO (last-in, first-out) method for determining
inventory cost, except for the inventories of consolidated subsidiaries which
used the FIFO method. The change in accounting principle was made to provide a
better matching of revenue and expenses. This accounting change is not
expected to be material for the year and was not material to the financial
statements for any previously reported periods. Accordingly, no retroactive
restatement of the prior year's financial statements was made.
Inventories consist of:
<TABLE>
<CAPTION>
DECEMBER 28, JUNE 29,
1996 1996
------------ --------
(IN THOUSANDS)
<S> <C> <C>
LIFO cost:
Finished products and work in process............. $ -- $ 6,745
Raw materials..................................... -- 6,622
-------- -------
-- 13,365
-------- -------
FIFO costs:
Finished products and work in process............. 21,428 3,397
Raw materials..................................... 25,714 5,280
-------- -------
47,142 8,677
-------- -------
$ 47,142 $22,042
======== =======
</TABLE>
F-23
<PAGE>
DONNELLY CORPORATION AND SUBSIDIARIES
NOTES TO THE CONDENSED COMBINED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
3. INCOME PER SHARE
Income per share is computed by dividing net income, adjusted for preferred
stock dividends of approximately $10,000 in each respective quarter, by the
weighted average number of shares of Donnelly Corporation common stock
outstanding, as adjusted for stock splits.
On December 6, 1996, the Board of Directors declared a five for four stock
split in the form of a 25 percent stock dividend distributed on January 30,
1997. All references to weighted average number of shares outstanding and per
share information have been adjusted to reflect the stock split.
4. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
<TABLE>
<CAPTION>
SIX MONTHS ENDED
-------------------------
DECEMBER 28, DECEMBER 30,
1996 1995
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Cash paid during the period for:
Interest...................................... $5,424 $1,427
Income taxes.................................. $5,175 $ 183
</TABLE>
5. ACQUISITION AND INVESTMENTS IN AFFILIATES
In October 1996, the Company acquired a controlling interest in Donnelly
Hohe GmbH & Co KG ("Donnelly Hohe"). Accordingly, Donnelly Hohe's financial
statements are consolidated with those of the Company in the second quarter of
1997. The Company consolidates Donnelly Hohe's financial statements for the
period ending one month prior to the Company's period end. For the Company's
period ended December 28, 1996, Donnelly Hohe's financial statements are
consolidated using the three month period ended November 30, 1996. Pro forma
results of operations as though the companies had combined at the beginning of
each period presented is as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
-------------------------
DECEMBER 28, DECEMBER 30,
1996 1995
------------ ------------
(IN THOUSANDS, EXCEPT
SHARE DATA)
<S> <C> <C>
Net sales....................................... $349,899 $305,745
Net income...................................... 5,639 840
Income per share of common stock ............... $ 0.57 $ 0.08
</TABLE>
The Company formed Shunde Donnelly Zhen Hua Automotive Systems Co., Ltd.
("Zhen Hua"), a joint venture with Shunde Zhen Hua Automobile Parts Co., Ltd,
in the first quarter of 1997. The Company has a 30% interest in the Zhen Hua
joint venture and has an option to purchase an additional 30% interest. The
Zhen Hua joint venture manufactures interior and exterior mirrors for
automakers throughout southern China, including the Chinese operations of
Volkswagen, Isuzu and Chrysler. Zhen Hua operates out of three owned buildings
in Shunde, China, and approximately 200 Hunde Zhen Hua employees currently are
employed at these facilities.
6. ASSET SECURITIZATION
In November 1996, the Company entered into an agreement to sell, on a
revolving basis, an interest in a defined pool of trade accounts receivable.
The maximum allowable amount of receivables to be sold is $50 million. The
amount outstanding at any measurement date varies based upon the level of
eligible receivables and
F-24
<PAGE>
DONNELLY CORPORATION AND SUBSIDIARIES
NOTES TO THE CONDENSED COMBINED CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED)
(UNAUDITED)
management's discretion. Under this agreement, $32.0 million were sold at
December 28, 1996, the proceeds of which were used to reduce borrowings under
the Company's revolving credit agreements. The sale is reflected as a reduction
of accounts receivable in the accompanying Combined Consolidated Balance Sheet
and as operating cash flows in the accompanying Combined Consolidated Statement
of Cash Flows. The proceeds of sales are less than the face amount of accounts
receivable sold by an amount that approximates the purchaser's financing costs
of issuing its own commercial paper backed by these accounts receivable. The
discount fees were $0.2 million during the second quarter ended December 28,
1996, and has been included in selling, general and administrative expense in
the Company's Combined Consolidated Statement of Income. The Company, as agent
for the purchaser, retains collection and administrative responsibilities for
the participating interests of the defined pool.
7. RECENTLY ISSUED ACCOUNTING STANDARDS
See Management's Discussion and Analysis of Results of Operations and
Financial Condition for discussion of recently issued accounting standards.
F-25
<PAGE>
DONNELLY CORPORATION AND SUBSIDIARIES
PRO FORMA CONDENSED COMBINED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
INTRODUCTION
In October 1996, the Company acquired an additional 13% interest in the
general partner of Donnelly Hohe resulting in the Company owning a controlling
interest in Donnelly Hohe. Accordingly, Donnelly Hohe's financial statements
are consolidated with those of the Company in the second quarter of 1997.
Prior to the second quarter of 1997, the Company's investment in Donnelly Hohe
was accounted for using the equity method, with the results of Donnelly Hohe's
operations included in the Company's combined consolidated financial
statements from the initial date of acquisition, April 1, 1995.
The following unaudited pro forma Condensed Combined Consolidated Statements
of Income for the year ended June 29, 1996, and the six months ended December
28, 1996, include Donnelly Hohe's results for the twelve month period ended
May 31, 1996, and the six month period ending November 30, 1996, respectively,
giving the effect to the consolidation of Donnelly Hohe as if it occurred at
the beginning of the periods presented. The pro forma information presented is
based on the historical financial statements of the Company and Donnelly Hohe
for the periods listed. Income related items are translated at the average
exchange rate for the period presented. See the December 28, 1996 Condensed
Combined Consolidated Balance Sheet presented on page F-21 of this report for
a presentation of the Company's balance sheet including Donnelly Hohe.
The pro forma data do not purport to represent what the Company's results of
operations would actually have been if such transactions had in fact occurred
as of the dates indicated or to project results for any future date or period.
F-26
<PAGE>
DONNELLY CORPORATION AND SUBSIDIARIES
PRO FORMA CONDENSED COMBINED CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THE DONNELLY
YEAR ENDED JUNE 29, 1996 COMPANY HOHE ADJUSTMENTS NOTES PRO FORMA
------------------------ -------- -------- ----------- ----- ---------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C>
Net Sales...................... $439,571 $225,085 $ (280) 3 $664,376
COST AND EXPENSES:
Cost of sales.................. 357,830 191,496 (280) 3 549,046
Selling, general and
administrative................ 38,123 19,718 -- 57,841
Research and development....... 27,728 4,507 -- 32,235
Restructuring charges.......... 2,399 1,309 -- 3,708
-------- -------- ------ --------
Operating income............. 13,491 8,055 -- 21,546
NON OPERATING EXPENSES
(INCOME):
Interest expense............... 8,102 7,057 (2,551) 3 12,608
Royalty income................. (5,239) (35) -- (5,274)
Interest income................ (1,017) (268) 889 1,3 (396)
Other income, net.............. (704) (481) -- (1,185)
-------- -------- ------ --------
Income before taxes on
income...................... 12,349 1,782 1,662 15,793
Taxes on income................ 4,191 710 294 1,2 5,291
-------- -------- ------ --------
Income before minority
interest and equity
earnings.................... 8,158 1,072 1,368 10,502
Minority interest in net
(income) loss of subsidiaries. 186 (660) (114) 4 (492)
Equity in earnings (losses) of
affiliated companies.......... 110 -- (1,666) 1 (1,556)
-------- -------- ------ --------
Net income................... $ 8,454 $ 412 $ (412) $ 8,454
======== ======== ====== ========
Income per share of common
stock $ 0.86 $ 0.86
</TABLE>
See notes to pro forma condensed combined consolidated statement of income
F-27
<PAGE>
DONNELLY CORPORATION AND SUBSIDIARIES
PRO FORMA CONDENSED COMBINED CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED DECEMBER 28, THE DONNELLY
1996 COMPANY HOHE(5) ADJUSTMENTS NOTES PRO FORMA
----------------------------- -------- -------- ----------- ----- ---------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C>
Net sales....................... $301,437 $48,848 $ (386) 3 $349,899
COST AND EXPENSES:
Cost of sales................... 243,518 42,524 (386) 3 285,656
Selling, general and
administrative................. 28,810 4,943 33,753
Research and development........ 15,567 1,136 16,703
-------- ------- ------ --------
Operating income (loss)......... 13,542 245 -- 13,787
NON OPERATING EXPENSES (INCOME):
Interest expense................ 4,991 1,657 (758) 3 5,890
Royalty income.................. (1,081) (1) (1,082)
Interest income................. (414) (29) 291 1,3 (152)
Other income, net............... (975) 52 (923)
-------- ------- ------ --------
Income (loss) before taxes on
income....................... 11,021 (1,434) 467 10,054
Taxes on income................. 4,143 325 (701) 1,2 3,767
-------- ------- ------ --------
Income (loss) before minority
interest and equity earnings. 6,878 (1,759) 1,168 6,287
Minority interest in net
(income) loss of subsidiaries.. (594) (265) 608 4 (251)
Equity in earnings (losses) of
affiliated companies........... (645) 248 1 (397)
-------- ------- ------ --------
Net income (loss)............. $ 5,639 $(2,024) $2,024 $ 5,639
======== ======= ====== ========
Income per share of common
stock.......................... $ 0.57 $ 0.57
</TABLE>
See notes to pro forma condensed combined consolidated statement of income
F-28
<PAGE>
DONNELLY CORPORATION AND SUBSIDIARIES
NOTES TO THE PRO FORMA CONDENSED COMBINED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
NOTE A--The pro forma adjustments to the condensed consolidated statements of
income are as follows:
(1) These adjustments reflect the reversal of Donnelly Hohe's equity earnings
recorded by the Company and reversal of the Company's consolidating
adjustments to eliminate intercompany interest out of equity earnings for
fiscal 1996 and the first three months of fiscal 1997, net of tax.
(2) These adjustments reflect the taxes on the Donnelly Hohe partnership
earnings.
(3) These adjustments reflect the elimination of intercompany sales and cost
of sales and to reflect the elimination of interest on intercompany debt.
(4) These adjustments reflect the elimination of the Company's investment in
Donnelly Hohe and related minority interest.
(5) Represents Donnelly Hohe's results of operations for the three month
period ended August 31, 1996. Donnelly Hohe's results of operations for
the three month period ended November 30, 1996 are consolidated with the
Company's results of operations for the six months ended December 31,
1996.
F-29
<PAGE>
INSIDE BACK COVER
Picture: World map with dots at Donnelly locations
Caption: (U.S. flag)
World Corporate Headquarters
Holland, Michigan
Manufacturing Facilities
Mirror Systems / Window Systems / Interior Trim Systems
Holland, Michigan (5 sites)
Grand Haven, Michigan
Newaygo, Michigan
Mt. Sterling, Kentucky
Research Laboratories
Holland, Michigan
Tucson, Arizona
Engineering / Sales Office
Detroit, Michigan
Non-Automotive Operations
Information Products
Computer Touch Screens Holland, Michigan
Donnelly Optics Corporation
Diffractive Optics Tucson, Arizona
Applied Films Corporation
LCD Coated Glass Boulder, Colorado
(Mexico flag)
Donnelly De Mexico S.A. de C.V.
Mirror Components Monterrey, Mexico
(Ireland flag)
Donnelly Mirrors Ltd.
Mirror Systems Naas, Ireland
Donnelly Vision Systems Europe Ltd.
Mirror Systems Manorhamilton, Ireland
Donnelly Eurotrim Ltd.
Interior lighting and Trim Systems Naas, Ireland
(France flag)
Donnelly EuroGlas Systems
Window Systems Langres, France
(Germany flag)
Donnelly Hohe GmbH & Co. KG
Mirror Systems Collenberg, Germany
Mirror Systems Dorfprozelten, Germany
Mirror Systems Schleiz, Germany
(Spain flag)
Donnelly Hohe Espana S.A.
Mirror Systems Barcelona, Spain
(Portugal flag)
Donnelly Hohe I.C.A.
Mirror Systems Palmela, Portugal
(Sweden flag)
Donnelly Scandinavia A.B.
Interior Lighting and Trim Goteborg, Sweden
(Scotland flag)
VISION Group, PLC
Video Microchip Technology Edinburgh, Scotland
(Japan flag)
Donnelly Corporation
Sales Office Tokyo, Japan
(China flag)
. Shanghai Donnelly Fu Hua Window Systems Company Ltd.
Window Systems PuDong Shanghai, China
Shunde Donnelly Zhen Hua
Mirror Systems Shunde, China
Donnelly Yantai Electronics
LCD Coated Glass Products Yantai, China
DONNELLY WORLDWIDE CUSTOMERS
Ford Mazda
Chrysler Mercedes-Benz
General Motors Mitsubishi
Honda Nedcar
Toyota Nissan
AM General NUMMI
Aston Martin Opel
Audi Peugeot
BMW Porsche
CAMI PSA
Citroen Renault
Diamond Star Rover
Eurostar Saab
Ferrari Saturn
Fuji SEAT
Isuzu Subaru
IVECO Suzuki
Jaguar Vauxhall
Kenworth Truck Volkswagen
Land Rover Volvo
Leyland DAF Winnebago
Lotus
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY IN-
FORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN OR IN-
CORPORATED BY REFERENCE IN THIS PROSPECTUS IN CONNECTION WITH THE OFFERING DE-
SCRIBED HEREIN, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRIT-
ERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF
AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY
PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION IN SUCH JU-
RISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION
CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information..................................................... i
Incorporation of Certain Documents by Reference........................... i
Forward-looking Statements................................................ ii
Prospectus Summary........................................................ 1
Risk Factors.............................................................. 4
Use of Proceeds........................................................... 6
Capitalization............................................................ 7
Price Range of Common Stock and Dividends................................. 8
Selected Combined Consolidated Financial Data............................. 9
Management's Discussion and Analysis of Results of Operations and
Financial Condition...................................................... 11
Business.................................................................. 19
Management................................................................ 34
Principal Shareholders.................................................... 36
Description of Capital Stock.............................................. 38
Underwriting.............................................................. 42
Legal Matters............................................................. 43
Experts................................................................... 43
Index to Combined Consolidated Financial Statements....................... F-1
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1,500,000 SHARES
[LOGO]DONNELLY
CLASS A COMMON STOCK
--------
PROSPECTUS
--------
SMITH BARNEY INC.
SALOMON BROTHERS INC
, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Expenses in connection with the issuance and distribution of the securities
being registered are estimated as follows, all of which are to be borne by the
Company:
<TABLE>
<S> <C>
SEC Registration Fee............................................ $7,972.00
National Association of Securities Dealers filing fee........... 3,346.25
New York Stock Exchange Listing................................. *
Printing and Engraving Expenses................................. *
Accounting Fees................................................. *
Transfer and Registrar's Fees................................... *
Legal Fees and Expenses......................................... *
Blue Sky Qualification Fees and Expenses........................ *
Miscellaneous................................................... *
---------
Total......................................................... $ *
=========
</TABLE>
- --------
* To be completed by amendment.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Sections 561-571 of the Michigan Business Corporation Act, as amended (the
"Act"), grant the Registrant broad powers to indemnify any person in
connection with legal proceedings brought against him by reason of his present
or past status as an officer or director of the Registrant, provided that the
person acted in good faith and in a manner he reasonably believed to be in or
not opposed to the best interests of the Registrant, and with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful. The Act also gives the Registrant broad powers to indemnify any
such person against expenses and reasonable settlement payments in connection
with any action by or in the right of the Registrant, provided the person
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Registrant, except that no
indemnification may be made if such person is adjudged to be liable to the
Registrant unless and only to the extent the court in which such action was
brought determines upon application that, despite such adjudication, but in
view of all the circumstances of the case, the person is fairly and reasonably
entitled to indemnity for reasonable expenses as the court deems proper. In
addition, to the extent that any such person is successful in the defense of
any such legal proceeding, the Registrant is required by the Act to indemnify
him against expenses, including attorneys' fees, that are actually and
reasonably incurred by him in connection therewith.
The Registrant's Second Amended and Restated Articles of Incorporation
contain provisions entitling directors and officers of the Registrant to
indemnification against certain liabilities and expenses. The Registrant has
entered into indemnification agreements with each of its directors providing
for indemnity by the Registrant of directors against certain liabilities and
expenses.
Under an insurance policy maintained by the Registrant, the directors and
officers of the Registrant are insured within the limits and subject to the
limitations of the policy, against certain expenses in connection with the
defense of certain claims, actions, suits or proceedings, and certain
liabilities which might be imposed as a result of such claims, actions, suits
or proceedings, which may be brought against them by reason of being or having
been such directors and officers.
The Registrant has agreed to indemnify the Underwriters, and the
Underwriters have agreed to indemnify the Registrant against certain civil
liabilities, including liabilities under the Securities Act, as amended.
Reference is made to the Underwriting Agreement filed as Exhibit 1 herewith.
II-1
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
Reference is made to the Exhibit Index which appears at page II-5 of the
Registration Statement.
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities under the Securities Act of 1933,
as amended (the "Act") may be permitted to directors, officers and controlling
persons of the Company pursuant of the foregoing provisions, or otherwise, the
Company has been advised that, in the opinion of the Securities and Exchange
Commission such indemnification is against the public policy as expressed in
the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Company in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Company will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue.
The undersigned Company hereby undertakes that: (1) For purposes of
determining any liability under the Securities Act of 1933, the information
omitted from the form of prospectus filed as part of this Registration
Statement in reliance upon Rule 430A and contained in a form of prospectus
filed by the Company pursuant to Rule 424(b)(1) or (4) or 497(h) under the
Securities Act shall be deemed to be part of this Registration Statement as of
the time it was declared effective; and (2) For the purpose of determining any
liability under the Securities Act of 1933, each post-effective amendment that
contains a form of prospectus shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
II-2
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE
REQUIREMENTS FOR FILING ON FORM S-2 AND HAS DULY CAUSED THIS REGISTRATION
STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY
AUTHORIZED, IN THE CITY OF HOLLAND, STATE OF MICHIGAN, ON APRIL 30, 1997.
Donnelly Corporation
/s/ J. Dwane Baumgardner
By __________________________________
Chairman, Chief Executive Officer,
and President
KNOW ALL MEN BY THESE PRESENTS, THAT EACH PERSON WHOSE SIGNATURE APPEARS
BELOW CONSTITUTES AND APPOINTS J. DWANE BAUMGARDNER AND WILLIAM R. JELLISON,
AND EACH OF THEM, HIS TRUE AND LAWFUL ATTORNEY-IN-FACT AND AGENT, WITH FULL
POWER OF SUBSTITUTION AND RESUBSTITUTION FOR HIM AND IN HIS NAME, PLACE AND
STEAD, IN ANY AND ALL CAPACITIES, TO SIGN ANY AND ALL AMENDMENTS (INCLUDING
POST-EFFECTIVE AMENDMENTS) TO THIS REGISTRATION STATEMENT, AND TO FILE THE
SAME, WITH ALL EXHIBITS THERETO, AND OTHER DOCUMENTS IN CONNECTION THEREWITH,
WITH THE SECURITIES AND EXCHANGE COMMISSION, GRANTING UNTO SAID ATTORNEYS-IN-
FACT AND AGENTS, AND EACH OF THEM, FULL POWER AND AUTHORITY TO DO AND PERFORM
EACH AND EVERY ACT AND THING REQUISITE AND NECESSARY TO BE DONE IN AND ABOUT
THE PREMISES, AS FULLY TO ALL INTENTS AND PURPOSES AS HE MIGHT OR COULD DO IN
PERSON, HEREBY RATIFYING AND CONFIRMING ALL THAT SAID ATTORNEYS-IN-FACT AND
AGENTS OR HIS SUBSTITUTE MAY LAWFULLY DO OR CAUSE TO BE DONE BY VIRTUE HEREOF.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE DATE
--------- ----
<S> <C>
/s/ J. Dwane Baumgardner April 30, 1997
___________________________________________
J. Dwane Baumgardner,
Principal Executive Officer and Director
/s/ William R. Jellison April 30, 1997
___________________________________________
William R. Jellison,
Principal Financial and Accounting Officer
/s/ John A. Borden April 30, 1997
___________________________________________
John A. Borden, Director
/s/ Arnold F. Brookstone April 30, 1997
___________________________________________
Arnold F. Brookstone, Director
/s/ Joan E. Donnelly April 30, 1997
___________________________________________
Joan E. Donnelly, Director
/s/ Thomas E. Leonard April 30, 1997
___________________________________________
Thomas E. Leonard, Director
/s/ Rudolph B. Pruden April 30, 1997
___________________________________________
Rudolph B. Pruden, Director
</TABLE>
II-3
<PAGE>
<TABLE>
<S> <C>
/s/ B. Patrick Donnelly, III April 30, 1997
___________________________________________
B. Patrick Donnelly, III, Director
/s/ R. Eugene Goodson April 30, 1997
___________________________________________
R. Eugene Goodson, Director
/s/ Gerald T. McNeive April 30, 1997
___________________________________________
Gerald T. McNeive, Director
/s/ Donald R. Uhlmann April 30, 1997
___________________________________________
Donald R. Uhlmann, Director
</TABLE>
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
------- ----------- ------------
<C> <S> <C>
1* Form of Underwriting Agreement.
4 A specimen stock certificate of the Class A Common
Stock.
5* Form of Opinion of Varnum, Riddering, Schmidt &
Howlett LLP as to the validity of the issuance of the
Class A Common Stock.
10.1 Amended and Restated First Chicago Revolving Credit
Loan Agreement filed as part of Form 10-K for the
fiscal year ending June 29, 1996, as Exhibit 10.1 and
is hereby incorporated herein by reference.
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, was filed as Exhibit 2 to a Form 8-K dated
June 9, 1995, which has been subsequently amended and
is 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 28.1, and the same is hereby incorporated
herein by reference.
10.11 The Donnelly Corporation Executive Compensation Plan.
10.12 The Donnelly Corporation Unfunded Deferred Director
Fee Plan.
10.13 The Donnelly Corporation Pension Plan for Outside
Directors.
10.14 The Donnelly Corporation Supplemental Retirement
Plan.
10.15 The Donnelly Corporation Deferred Compensation Plan.
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
------- ----------- ------------
<C> <S> <C>
10.16 Consolidated balance sheets of Hohe GmbH & Co. KG as
of March 31, 1996 and May 31, 1996, and the related
consolidated statements of income and cash flows for
the periods then ended which were filed as Item 7a to
the registrant's current report on Form 8-K dated
October 28, 1996, as amended by the registrant's Form
8-K/A filed with the Commission on November 27, 1996,
which is incorporated herein by reference.
10.17 Letter from Donnelly Corporation to Mr. Donn Viola
dated July 12, 1996, as modified on July 22, 1996.
10.18 Letter from Donnelly Corporation to Mr. Robert C.
Hange dated March 26, 1996.
10.19 Letter from Donnelly Corporation to Mr. Russ Scaffede
dated September 15, 1995.
10.20* An English language summary of the Pooling Agreement
written in German between the Registrant and Donnelly
Hohe GmbH & Co. KG dated .
10.21** Receivables Purchase Agreement among Donnelly
Receivables Corporation, Falcon Asset Securitization
Corporation and the First National Bank of Chicago
dated as of November 14, 1996.
23.1 Consent of BDO Seidman, LLP, independent public
accountants.
23.2 Consent of BDO BINDER GmbH, independent public
accountants.
23.3* Consent of Varnum, Riddering, Schmidt & Howlett LLP
(to be included in their opinion filed herewith as
Exhibit 5).
24 Power of Attorney (included on the signature page).
27 Financial Data Schedules, incorporated by reference
to previously filed Form 10-K for year ended June 29,
1996 and 10-Q for quarter ended December 28, 1996.
</TABLE>
- --------
*To be filed by amendment.
**Certain confidential information has been omitted pursuant to a request for
confidential treatment.
II-6
<PAGE>
EXHIBIT 4
48658
SHARES
NUMBER
DCA DONNELLY /(R)/ INCORPORATED UNDER THE LAWS OF THE STATE OF MICHIGAN
CUSIP 257870 10 5
SEE REVERSE FOR CERTAIN DEFINITIONS
DONNELLY CORPORATION CLASS A COMMON STOCK
THIS CERTIFIES THAT
IS THE OWNER OF
FULLY PAID AND NON-ASSESSABLE SHARES OF $.10 PAR VALUE CLASS A COMMON STOCK OF
Donnelly Corporation transferable on the books of the Corporation in person or
by duly authorized attorney upon surrender of this certificate properly
endorsed. This certificate and the shares represented hereby are issued and
shall be held subject to all of the provisions of the Articles of Incorporation
and of any amendments thereto (copies of which are on file with, and are
available from, the Transfer Agent and the Corporation), to all of which the
holder by acceptance hereof, assents.
This certificate is not valid until countersigned by the Transfer Agent and
registered by the Registrar.
Witness the facsimile seal of the Corporation and the facsimile signatures
of its duly authorized officers.
[DONNELLY CORPORATION SEAL]
Dated
/s/ Duane Baumgardner
CHAIRMAN OF THE BOARD [PHOTO]
/S/ Maryam Komejan
SECRETARY
COUNTERSIGNED AND REGISTERED:
THE BANK OF NEW YORK
TRANSFER AGENT
AND REGISTRAR
BY:
AUTHORIZED SIGNATURE
<PAGE>
DONNELLY CORPORATION
THE CORPORATION WILL FURNISH WITHOUT CHARGE TO EACH SHAREHOLDER WHO SO REQUESTS,
A FULL STATEMENT OF THE DESIGNATION, RELATIVE RIGHTS, PREFERENCES AND LIMITATION
OF THE SHARES OF EACH CLASS AUTHORIZED TO BE ISSUED, THE DESIGNATION, RELATIVE
RIGHTS, PREFERENCES AND LIMITATIONS OF EACH SERIES OF SHARES SO FAR AS THE SAME
HAVE BEEN PRESCRIBED AND THE AUTHORITY OF THE BOARD TO DESIGNATE AND PRESCRIBE
THE RELATIVE RIGHTS, PREFERENCES AND LIMITATION OF OTHER SERIES.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common UNIF GIFT MIN ACT ______Custodian______
TEN ENT - as tenants by the entireties (Cust) (Minor)
JT TEN - as joint tenants with right
of survivorship and not as Under Uniform Gifts to Minors
tenants in common Act_____________________________
(State)
Additional abbreviations may also be used though not in the above list.
For value received, _______________hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
INDENTIFYING NUMBER OF ASSIGNEE
__________________________________________
________________________________________________________________________________
________________________________________________________________________________
Please print or typewrite name and address including postal zip code of
assignee.
________________________________________________________________________________
________________________________________________________________________________
_________________________________________________________________________ Shares
of the Common Stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint______________________________________________
________________________________________________________________________________
Attorney to transfer the said stock on the books of the within-named Corporation
with full power of substitution in the premises.
Dated, ___________________
_________________________________________
NOTICE: The signature to this assignment must correspond with the name as
written upon the face of the Certificate, in every particular, without
alteration or enlargement, or any change whatever.
<PAGE>
Exhibit 10.11
Executive Compensation Plan
August 29, 1994
TABLE OF CONTENTS
PAGE
ARTICLE I CONCEPT AND OBJECTIVES....................................... 1
ARTICLE 11 DEFINITIONS.................................................. 3
ARTICLE III ELIGIBILITY.................................................. 5
ARTICLE IV INDIVIDUAL ANNUAL INCENTIVE AWARD OPPORTUNITIES.............. 6
ARTICLE V ANNUAL INCENTIVE AWARD PAYMENTS..............................12
ARTICLE VI MEASUREMENT OF PERFORMANCE UNITS.............................13
ARTICLE VII PERFORMANCE UNIT GRANTS......................................14
ARTICLE VIII PERFORMANCE UNIT AWARD PAYOUTS...............................16
ARTICLE IX ADMINISTRATION OF THE PLAN...................................17
<PAGE>
DONNELLY CORPORATION
EXECUTIVE COMPENSATION PLAN
ARTICLE I
CONCEPT AND OBJECTIVES
SECTION 1:01 This incentive compensation Plan is intended (in combination
with the organization's Stock Option Plan) to reward key executives and other
designated members of management for increasing the value of the Company long
ten-n and for the profitable growth of the Company on an annual basis. There are
two parts of this cash-based Plan:
(a) ANNUAL INCENTIVE AWARDS. Provide annual cash payments in recognition of
the profitable growth of Donnelly and reward successful controllable
performance on an annual basis. Participating executives will be
rewarded for performance based on financial results, measured by
Earnings per Share, Business Unit BGI, and Business Unit BGI-ROA and
strategy implementation.
Cash awards will be paid following year-end based on actual results
measured against performance standards established prior to the
beginning of each Plan Year.
Participation in the annual incentive part of the Plan is intended to
include members of senior management and may be expanded in scope over
time.
(b) LONG-TERM INCENTIVE AWARDS.. Reward executive for sustainable Company
performance improvements, serve to link executive and shareholder
interests, focus attention on long-term profitability and planning, and
provide the primary retention mechanism among all compensation elements.
Participating executives will be granted a specific number of
Performance Units which will be converted to a cash payment at the end
of a five-year Performance Period. The value of the Performance Units at
the time of grant IS zero. Monetary value is accrued over the five year
Performance Period based on 5 year cumulative average appreciation in
share value. The ultimate size of an executive's long-term award payment
depends on the number of Performance Units granted and the appreciation
in share value over the Performance Period.
Units will be granted annually and without cost to participating
executives. Following the first five-year Performance Period, award
payments will be made annually.
Participation in the long-term part of the overall executive incentive
program is limited to the most senior management team members.
<PAGE>
SECTION 1:02 This Executive Compensation Plan is designed and adopted to
achieve the following objectives:
(a) ALIGN STRATEGY WITH PAY. To encourage executives to exercise the type of
judgment that supports Donnelley's strategy while actin in the spirit of
Donnelley's culture and values.
(b) ENCOURAGE PROFITABLE GROWTH. To provide financial recognition to
Participants for their contribution to the profitable growth of the
Company.
(c) BUILD COMMITMENT. To promote commitment to Donnelley long-term by
providing equitable and competitive compensation, and the potential for
substantial cash awards.
(d) LINK PAY AND PERFORMANCE. To reinforce and motivate actions that will
ensure Donnelley's best interests are served by linking pay to long-term
value creation and performance improvement.
<PAGE>
ARTICLE II
DEFINITIONS
SECTION 2:01 As used in this document, the following words and phrases
will have the meanings specified below:
(a) BASE SALARY means the annual rate of base pay in effect for the Plan
Year.
(b) CAUSE means failure to satisfactorily perform assigned responsibilities,
or other conduct, leading to termination of employment.
(c) COMMITTEE means the Committee (Compensation Committee of the Board of
Directors) formed to oversee the administration of the Plan.
(d) COMPANY means Donnelley Corporation including all wholly owned
subsidiaries of Donnelley Corporation.
(e) DISABILITY OR DISABLED means a Participant is disabled within the meaning
of the Company's long-term disability plan.
(f) EARNINGS PER SHARE means the dollars of earnings generated in the Plan
Year divided by the average number of shares of outstanding stock for the
same period.
(g) GRANT YEAR means the first year of a 5 year Performance Period in which
the number of performance units per Participant are determined for that
Performance Period.
(h) PARTICIPANT means a full-time employee of the Company fulfilling the
eligibility requirements defined in Article M.
(i) PERFORMANCE PERIOD means a period of 5 consecutive fiscal years,
beginning on the first day of the first fiscal year and ending on the
last day of the fifth fiscal year, over which performance units are
measured.
(j) PERFORMANCE UNIT OR UNITS means the form in which long-term cash awards
are granted to Participants. Each Performance Unit has monetary value as
determined by this Plan. Performance Units do not represent any actual
ownership interest in the Company.
<PAGE>
(k) PLAN means the Executive Compensation Plan described in this document and
any amendments to the Plan.
(1) PLAN YEAR means the Company's fiscal year.
(m) PRETAX measures the income of the business group before adjustments for
income taxes and minority interests.
(n) PRETAX-ROA measures return on assets for the business group based on the
Pretax calculation divided by average assets deployed for the business
group.
(o) RETIREMENT OR RETIRE means a Participant is receiving retirement benefits
under the United States Social Security Act or any similar program or
act, or Donnelley pension, and is not in active employment.
SECTION 2:02 Tables contained in this Plan documentation are conceptual
illustrations and not intended to specify actual or specific opportunities.
Specific opportunities will be communicated on an annual basis.
<PAGE>
ARTICLE III
ELIGIBILITY
SECTION 3:01 Those eligible to be selected for participation will
consist of executives who are full-time employees of the Company who are
selected by the Committee on the basis of Plan objectives described in Article
1.
(a) Executives who are selected to be Participants in this Plan will
be notified by the Committee at the beginning of each Plan
Year/Performance Period.
(b) The Committee may, from time to time, select additional
executives to become Participants during a Plan Year/Performance
Period from the eligible group of employees.
(c) The Committee may select executives to participate in the annual
incentive portion of this Plan only or in combination with the
long-term incentive portion of this Plan.
SECTION 3:02 Any employees of the Company who becomes eligible for
participation and is selected as a Participant after the beginning of the Plan
Year/Performance Period will participate on a pro rata basis.
SECTION 3:03 A Participant will cease to be eligible for participation in
the Plan due to voluntary or involuntary termination of full-time employment,
death, Disability or Retirement.
SECTION 3:04 If a Participant dies, retires, becomes disabled, or is
granted a leave of absence during the Plan Year/Performance Period, the
Committee, at its discretion, may award partial incentive on a pro-rata basis.
SECTION 3:05 In no case, will any award be paid under the Plan to any
Participant who is terminated at any time for Cause including cases in which
termination occurs after the end of the Plan Year/Performance Period, but before
incentive awards are paid.
<PAGE>
ARTICLE IV
INDIVIDUAL ANNUAL INCENTIVE AWARD OPPORTUNITIES
SECTION 4:01 Annual incentive award opportunities will be determined by
the Committee in consideration of the following:
(a) The degree to which a Participant may impact Company performance.
(b) The magnitude of award opportunity that will affordably allow
Donnelley to reward Participants competitively when expected
results are achieved.
SECTION 4:02 A range of annual incentive opportunity will be provided
to:
(a) Reward controllable achievements above expected levels.
(b) Encourage and recognize efforts that are above minimum
acceptable levels of performance.
TABLE I
RANGE OF ANNUAL INCENTIVE OPPORTUNITY
Table I shows the correlation between award size and performance results. An
example of threshold for Corporate performance achievement might be in the
neighborhood of 80% of planned results and an appropriate Maximum limit for
Corporate performance achievement might be in the 140% range.
(TABLES CONTAINED IN THIS REPORT ARE CONCEPTUAL ILLUSTRATIONS ONLY AND NOT
INTENDED TO SPECIFY ACTUAL OR SPECIFIC OPPORTUNITIES.)
(Table 1)
<PAGE>
SECTION 4:03 Payment of annual incentive awards to Participants will be
contingent on performance measured in two broad categories. Financial
performance will be measured by Earnings Per Share for the organization and by
Pretax and Pretax-ROA for business units. Strategic/Operational performance will
be measured on accomplishment against pre-established goals.
TABLE 2
FINANCIAL MEASURES CALCULATION
Table 2 illustrates the method to be used for Earnings per Share calculation,
Pretax income calculation for each business unit, and Pretax-ROA calculation for
each business unit.
(TABLES CONTAINED IN THIS REPORT ARE CONCEPTUAL ILLUSTRATIONS ONLY AND NOT
INTENDED TO SPECIFY ACTUAL OR SPECIFIC OPPORTUNITIES.)
(Table 2)
<PAGE>
TABLE 3
ILLUSTRATION OF STRATEGIC/OPERATIONAL GOALS
Table 3 illustrate an example of what a strategic/operational imperative may be
for a business unit head and how accomplishment of that imperative may be
measured.
(TABLES CONTAINED IN THIS REPORT ARE CONCEPTUAL ILLUSTRATIONS ONLY AND NOT
INTENDED TO SPECIFY ACTUAL OR SPECIFIC OPPORTUNITIES.)
(Table 3)
STRATEGIC/OPERATIONAL Performance will be measured against milestones
established in context of long-term strategy implementation. Strategic
milestones will be determined prior to the beginning of each Plan Year.
SECTION 4:04 The amount of the emphasis placed on achieving results in
each performance category can vary by Participant and will be determined by the
Committee in consideration of the following and as shown for illustrative
purposes only in Table 4:
(a) The Participant's responsibilities.
(b) Areas of performance where results can have the most significant
contribution.
<PAGE>
TABLE 4
ILLUSTRATION OF WEIGHTING OF AWARD OPPORTUNITIES
Table 4 illustrates that I 00% of the CEO's performance weighting will be based
on Corporate Financial performance. It also shows that Business Unit Heads will
typically have three components of performance categories, and that Corporate
Staff will typically have two components of performance categories with a range
possible (e.g.- A-13%) in each.
(TABLES CONTAINED IN THIS REPORT ARE CONCEPTUAL ILLUSTRATIONS ONLY AND NOT
INTENDED TO SPECIFY ACTUAL OR SPECIFIC OPPORTUNITIES.)
(Table 4)
SECTION 4:05 For each financial performance measure, awards will be paid
based on performance results achieved relative to predetermined, expected
levels. Minimum acceptable and maximum controllable achievement will also be
specified by the Committee prior to the beginning of the Plan Year. No awards
will be paid for performance that falls below minimum acceptable levels
(Threshold) and no additional incentive payments will be made for performance
that exceed maximum controllable levels. Awards for performance between
specified levels will be interpolated.
SECTION 4:06 Prior to the beginning of each Plan Year the Committee will
decide and communicate expected levels of financial performance for which Awards
will be Paid, as well as minimum acceptable and maximum controllable financial
performance.
Specified threshold, expected and maximum levels of financial
performance may vary by business group or for the Company at the discretion of
the Committee in consideration of the following:
(a) The sensitivity of financial results to Participant performance.
(b) The level of effort required to attain desired results.
(c) The Company's pay philosophy and compensations principles.
<PAGE>
TABLE 5
ILLUSTRATION OF RANGE OF ANNUAL INCENTIVE OPPORTUNITY
Table 5 provides an illustration of potential award size versus level of
performance achievement. The numbers is this table provide an example of what
might be expected for a business unit head. The potential also exist to
establish awards that are flat dollar amounts instead of awards that represent a
percent of base salary.
(TABLES CONTAINED IN THIS REPORT ARE CONCEPTUAL ILLUSTRATIONS ONLY AND NOT
INTENDED TO SPECIFY ACTUAL OR SPECIFIC OPPORTUNITIES.)
(Table 5)
SECTION 4:07 The award portion based on strategy implementation will be
discretionary based on an evaluation of achievement of one to three
predetermined strategic milestones. The emphasis will be placed on whether or
not all of the milestones were attained during the Plan Year rather than on
degrees of fulfillment.
SECTION 4:08 When position and/or responsibility changes occur within
the year, awards will be paid on a pro rata basis based on the discretion of the
Committee.
<PAGE>
SECTION 4:09 While the Committee has overall accountability for
administering this Plan, the process for setting expectations, evaluating and
communicating results is participatory as designated below:
TABLE 6
PARTICIPATORY PROCESS FOR SETTING EXPECTATIONS
AND EVALUATING AND COMMUNICATING RESULTS
(TABLES CONTAINED IN THIS REPORT ARE CONCEPTUAL ILLUSTRATIONS ONLY AND NOT
INTENDED TO SPECIFY ACTUAL OR SPECIFIC OPPORTUNITIES.)
(Table 6)
<PAGE>
ARTICLE V
ANNUAL INCENTIVE AWARD PAYMENTS
SECTION 5:01 Annual incentive awards will be paid in cash to
Participants as soon as possible following finalization of audited financials
for the Plan Year.
SECTION 5:02 Payments of awards will be reduced by the amount paid out
in other bonuses paid to the Participant for the Plan year.
SECTION 5:03 Payment of awards is contingent upon the company's ability
to pay.
<PAGE>
ARTICLE VI
MEASUREMENT OF PERFORMANCE UNITS
SECTION 6:01 Performance units will be valued based on a 5 year
cumulative average appreciation in share value. Yearly appreciation will be
calculated using the average of the average of the first 3 0 days and the
average of the last 3 0 days of the year stock price.
SECTION 6:02 The Committee will determine the value of a Participant's
Performance Unit as soon as possible after the close of the 5 year Performance
Period.
SECTION 6:03 There is no cap on the maximum value of Performance Units
under this Plan.
<PAGE>
ARTICLE VII
PERFORMANCE UNIT GRANTS
SECTION 7:01 There are an aggregate number of 100,000 Performance Units
available for allocation each year from which grants can be made.
SECTION 7:02 Units will be granted at the beginning of each Plan Year
resulting in overlapping Performance Periods.
TABLE 7
OVERLAPPING FIVE YEAR PERFORMANCE PERIODS
This table illustrates the concept of granting Performance Units at the
beginning of each Plan Year with a five-year Performance Period for those grants
resulting in a potential payout at the end of the five-year Performance Period.
Table 7 also illustrates the concept of overlapping Performance Periods.
(TABLES CONTAINED IN THIS REPORT ARE CONCEPTUAL ILLUSTRATIONS ONLY AND NOT
INTENDED TO SPECIFY ACTUAL OR SPECIFIC OPPORTUNITIES.)
(Table 7)
SECTION 7:03 All Participants will not necessarily receive a grant of
Units each year, and the number of Units granted to the same Participant may
vary from year to year. Not all available units will necessarily be granted in
any given year.
SECTION 7:04 The number of Units granted to a Participant will remain in
effect for the duration of the Performance Period unless the Units are forfeited
as described in Article II or the Participant is transferred as described in
Section 7:07.
<PAGE>
SECTION 7:05 The value of Units at the time of grant is zero. Units will
appreciate in value over the Performance Period based on an amount equal to the
appreciation in share price. The Units do not represent and equity interest in
the Company.
SECTION 7:06 The specific number of Units to be granted to each eligible
Participant will be decided by the Committee. The number of Units granted will
be determined in consideration of the following:
(a) The Participant's current and anticipated ability to contribute
to the long-term success of the organization through actions and
decisions.
(b) The number of Units required to provide long-term compensation
opportunities, in conjunction with Stock Options, which support
Donnelley's pay philosophy and that will help retain
high-performance Participants who fulfill strategic plans.
SECTION 7:07 Units granted to Participants who are transferred from one
position to another during a Performance Period will be handled as follows:
(a) Units already granted from the Performance Period will continue
to appreciate in value to the remainder of the Performance
Period.
(b) Any adjustments due to position/responsibility changes will be
made at the discretion of the Committee in future Grant Years.
<PAGE>
ARTICLE VIII
PERFORMANCE UNIT AWARD PAYOUTS
SECTION 8:01 Cash award payments will be made at the end of the 5 year
Performance Period as soon as possible after the award amount can be calculated
and audited following the close of the Performance Period.
SECTION 8:02 Payment of awards is contingent upon the Company's ability
to pay.
<PAGE>
ARTICLE IX
ADMINISTRATION OF THE PLAN
SECTION 9:01 This Plan is effective July 1, 1994.
SECTION 9:02 The Plan will be administered by the Committee which will
have full responsibility and authority to interpret and administer the Plan. The
Committee will have the following duties and responsibilities in relation to the
administration of the Plan.
(a) To resolve all questions arising in the administration,
interpretation and application of the Plan, including questions
of eligibility and the status and rights of Participants.
(b) To decide any dispute arising in the administration of the Plan.
(c) To correct defects, supply omissions, and reconcile
inconsistencies to the extent necessary to act on the Plan.
(d) To authorize all payments that will be made pursuant to the
provisions of this Plan.
(e) To have all such other powers as may be necessary to discharge
its duties herein.
SECTION 9:03 The Committee may at any time amend, modify, or terminate
the Plan. Written notice of any amendments will be given to each Participant.
SECTION 9:04 All costs and expenses involved in the administration of
this Plan will be borne by the Company.
SECTION 9:05 The Company will deduct from all payments under this Plan
any federal, state and/or local taxes required by law.
SECTION 9:06 Any payments due upon a Participant's death will be paid to
the beneficiary by her/him in writing and filed with the Committee. In the
absence of such a designation, payment will be made to the person(s) entitled by
will or the laws of descent and distribution. Acceptable proof of the
entitlement to payment must be provided by the beneficiary to the Committee.
<PAGE>
SECTION 9:07 Nothing contained in the Plan shall be construed as a
contract of employment between the Company and a Participant, or as a right of a
Participant to continue in the employment of the Company or as a limitation of
the right of the Company to discharge a Participant, with or without Cause.
SECTION 9:08 All determinations by the Committee will be final and
binding upon Participants and are not subject to appeal.
SECTION 9:09 In the event of a change in control in the beneficial
interest of both vote and value of the Company, this Plan will remain in effect
unchanged.
SECTION 9:10 None of the opportunities, payments, or Units under this
Plan will be transferable by the Participant other than by will or the laws of
descent and distribution, or pursuant to a qualified domestic relations order as
defined in Title I of the Employee Retirement Income Security Act of 1974 and
the rules thereunder.
<PAGE>
DONNELLY CORPORATION
UNFUNDED DEFERRED DIRECTOR
--------------------------
FEE PLAN
--------
1. On or before the last day of any quarter, any director may elect to
defer receipt of all or a specified amount of his or her director's fees to be
earned in the succeeding quarter. Any election shall continue from quarter to
quarter until modified by a subsequent election, which subsequent election shall
be effective with respect to the calendar quarters following the election.
2. The Company shall maintain a separate account for each director to
which the fees of such director shall be credited as earned. On the last day of
each of its fiscal quarters, the Company shall also credit to each such account
interest on the average balance in that quarter, at the rate equal to the prime
rate on the last day of that quarter.
3. The plan will be unfunded.
4. Amounts deferred under the Plan, together with accumulated interest,
will be distributed to the director in ten annual installments, the first
installment payable on the first day of the year following such director's
retirement or termination from the Board of Directors. The amount of each
installment shall be the balance of the director's account at that date divided
by the number of unpaid installments. The balance of such director's account
shall continue to be credited with interest as provided above.
5. The Company, by resolution of the Board of Directors, may elect, at
the Company's sole option, to pay any amount standing to the credit of a
director in a lump sum, after such director ceases to be a director of the
Company, in the event the director and thereafter becomes employed by, a
director of or otherwise affiliated with any business that is in competition
with the Company.
6. Upon death of a director or a former director prior to the expiration
of the period during which the deferred amounts are payable, the balance of the
director's fees and interest in his or her account shall be payable in full on
the first day of the calendar year following the year in which he or she dies to
the beneficiary designated in writing to the Company by such director or former
director, or if no beneficiary has been designated, to his or her estate.
December 1993
WL07-23.DOC
<PAGE>
FORM OF ELECTION
----------------
TO: Donnelly Corporation
I hereby elect to defer that portion of my director's fees set forth
below, commencing with fees payable to me after the quarter, following the date
of this election, pursuant to the Donnelly Corporation Unfunded Deferred
Director Fee Plan:
Amount of Fees
Types of Fees to be Deferred to be Deferred
- ---------------------------- --------------
_____ Annual Retainer Fee _____ All
_____ Annual Retainer and Meeting Fees
_____ The first $_________
per year
_____ Percent as earned
In the event of my death, pay the following beneficiary:
- --------------------------------------------------------------------------------
- ----------------------- ---------------------------------------
Date Signature of Director
December 1996
WL07-23.DOC
<PAGE>
EXHIBIT 10.13
THE DONNELLY CORPORATION
PENSION PLAN FOR OUTSIDE DIRECTORS
VARNUM, RIDDERING, SCHMIDT & HOWLETT
Suite 800, 171 Monroe, N.W.
Grand Rapids, Michigan 49503
616/459-4186
9/10/92
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I - PURPOSE................................... 1
ARTICLE II - DEFINITIONS.............................. 1
ARTICLE III - PARTICIPATION AND SERVICE............... 2
ARTICLE IV - FUNDING.................................. 2
ARTICLE V - RETIREMENT BENEFITS....................... 2
ARTICLE VI - SPECIAL RETIREMENT BENEFITS.............. 3
ARTICLE VII - SUSPENSION OF BENEFITS.................. 3
ARTICLE VIII - MISCELLANEOUS.......................... 4
<PAGE>
THE DONNELLY CORPORATION
PENSION PLAN FOR OUTSIDE DIRECTORS
This Pension Plan has been adopted by Donnelly Corporation, a Michigan
corporation (the "Company").
ARTICLE I
PURPOSE
The Company is adopting this plan which will be called the Donnelly
Corporation Pension Plan for Outside Directors (the "Plan") effective July 1,
1992 to provide retirement benefits for the members of its board of directors
who are not officers or employees of the Company.
This Plan will not cover any employees of the Company and will not,
therefore, be subject to the requirements of the Employee Retirement Income
Security Act of 1974. This Plan will apply only to persons who served as
members of the Board of Directors of the Company on or after July 1, 1992 and
are not employees or officers of the Company.
ARTICLE II
DEFINITIONS
The masculine gender is used throughout this Plan for purposes of
simplicity only and is intended to refer to persons of both the masculine and
feminine gender. The following words or phrases, when used in this Plan, will
have the following meanings:
2.1 Board: The board of directors of the Company.
2.2 Beneficiary: The person or persons designated by the participant to
receive any death benefit payable under the Plan.
2.3 Committee: The compensation committee established by the board. The
committee may act on behalf of the board on any matter concerning this Plan.
2.4 Company: Donnelly Corporation, a Michigan corporation, or its
successor.
2.5 Outside director: A member of the board who is not an officer or
employee of the Company or any of its subsidiaries.
2.6 Participant: An outside director who is eligible to participate in
the Plan.
2.7 Plan: The Donnelly Corporation Retirement Plan for Outside Directors,
as set forth in this document and any later amendments.
2.8 Service: The period during which a person has served as a member of
the board and computed in accordance with Section 3.2.
<PAGE>
ARTICLE III
PARTICIPATION AND SERVICE
3.1 Eligibility to participate. Each outside director will become a
participant in the Plan on the first day of the month following the month in
which he completes one (1) year of service as a director of the Company.
3.2 Service. An outside director's eligibility to participate in the Plan
and his benefits under the Plan will be based upon his period of service as a
member of the board. An outside director will be credited with a year of
service for each full year between the date on which he became a member of the
board and the date on which he ceased to be a member of the board. An outside
director will also be credited with one quarter of a year of service for each
three months of service as a member of the Board during the period following his
last full year of service. If an outside director becomes an employee of the
Company and continues to serve as a member of the board, he will not be given
credit for service during the period of his employment by the Company as an
employee.
ARTICLE IV
FUNDING
4.1 Funding from General Assets Only. All amounts payable to participants
and beneficiaries under this Plan will be paid in cash from the general assets
of the Company. The Company will not establish any special or separate fund for
purposes of this Plan.
4.2 Status of Participants. Participants and beneficiaries will have a
right to payment of their benefits under this Plan from the general assets of
the Company. They will have the status of unsecured creditors with respect to
their claims for benefits. The establishment of this Plan is not intended to
create a trust or fiduciary relationship between the Company and participants or
beneficiaries.
ARTICLE V
RETIREMENT BENEFITS
5.1 Eligibility. A retirement benefit will be paid to each participant
whose service as a member of the board terminates after he has completed 10 or
more years of service.
5.2 Amount of Benefit. A participant's retirement benefit will be
quarterly payments for a period equal to his years of service on the board or 20
years, whichever number is smaller, in an amount equal to 25% of the annual
retainer that was in effect for participant on the date of termination of his
service on the board.
5.3 Commencement and Duration of Benefit Payments. Payment of the
retirement benefit
-2-
<PAGE>
will begin on the first working day of the next quarter after the participant's
70th birthday or the date of termination of his service on the board, whichever
is later, and will continue on the first working day of each quarter thereafter
for a period equal to the participant's years of service on the board or 20
years, whichever period is shorter.
If a participant's service on the board terminates prior to his 70th
birthday, he may elect to have his retirement benefits commence on the first day
of any quarter after his 55th birthday. If payments commence prior to his 70th
birthday, the quarterly payments will be reduced by the amount required to make
the payments the actuarial equivalent of payments beginning on the first day of
the quarter after his 70th birthday. The actuarial equivalence will be
determined on the basis of the interest assumptions used for determining
actuarially equivalent installment payments under the Donnelly Corporation
Retirement Income Plan.
5.4 Continuation of Benefits After Death. If a participant dies while he
is a member of the board or after he is retired, but before he has received
retirement benefits over the period for which he is eligible, the balance of the
quarterly payments for which the participant was eligible will be continued to
be made to his beneficiary. At the election of the beneficiary, the balance of
the payments may be made in a single lump sum payment equal to the actuarially
equivalent present value of the remaining quarterly payments. The present value
will be determined using the interest assumption specified in Section 5.3.
5.5 Designation of Beneficiary. Each participant may designate a
beneficiary or beneficiaries to whom his plan benefits will be paid if he dies
before receipt of all benefits. Each beneficiary designation must be on the
form prescribed by the committee and will be effective only when filed with the
committee during the participant's lifetime. Each beneficiary designation filed
with the committee will cancel all beneficiary designations that were filed
previously. If a participant fails to designate a beneficiary or if the
beneficiary dies before the participant, the death benefit will be paid to the
participant's spouse, if surviving, and if not, to his estate.
ARTICLE VI
SPECIAL RETIREMENT BENEFITS
6.1 Eligibility. The board may grant a special retirement benefit to a
participant whose service on the board will be terminating before he is eligible
for a retirement benefit. The board may grant special retirement benefits only
if it determines that the payment will be in the best interest of the Company.
6.2 Amount of Benefit. The amount and timing of the special retirement
benefit will be determined by the board on the basis of the circumstances of
each special retirement. The actions of the board with respect to any special
retirement will not serve as a precedent for any situation in the future.
ARTICLE VII
-3-
<PAGE>
SUSPENSION OF BENEFITS
7.1 Resumption of Board Membership. If a retired participant returns to
membership on the board, the benefits payable under the Plan will cease for as
long as he continues on the board. Upon subsequent retirement from the board,
the participant's retirement benefits will be resumed and will be redetermined
on the basis of the annual retainer that is in effect for him on the date of the
second retirement.
7.2 Employment as Employee. If a retired participant becomes an employee
of the Company or any of its subsidiaries, retirement benefits payable to him
under the Plan will cease for as long as he remains an employee. Upon
termination of employment, payment of his retirement benefits will be resumed in
the same amount as before the period of employment.
ARTICLE VIII
MISCELLANEOUS
8.1 Amendments. The board reserves the right to amend the Plan at any
time and from time to time, and the right to terminate the Plan at any time.
The board may not, however, by way of amendment or termination of the Plan,
adversely affect the rights of any participant or beneficiary who is receiving
benefits at the time, or the rights of any participant who has 10 or more years
of service.
8.2 Status of Participants. No participant will have any right or claim
to benefits under the Plan except in accordance with the provisions of the Plan.
The adoption of the Plan will not be construed as giving any participant the
right to be continued as a member of the board, to modify or affect the terms of
membership on the board, or to interfere with the right of shareholders of the
Company to elect members of the board.
8.3 Nonalienation of Benefits. No interest, right, or claim to any
benefit payable under the Plan will be assignable, transferable, or subject to
sale, assignment, garnishment, attachment, execution, or levy of any kind. The
Company will not recognize any attempt to transfer, assign, sell, garnish,
attach or execute on benefits except to the extent required by law.
8.4 Facility of Payment. Whenever in the committee's opinion, a person
entitled to receive any benefit is under a legal disability or is incapacitated
in any way so as to be unable to manage his financial affairs, the committee may
direct the Company to make payments to such person or to his legal
representative or to a relative or friend of such person for his benefit, or the
committee may direct the Company to apply the payment for the benefit of such
person in such manner as the committee considers advisable. If a person
entitled to receive benefits is a minor and the value of the benefit exceeds
$5,000, the Company may either delay payment of the benefit until the minor has
attained the age of majority or pay the benefit to a person who has been named
by a court of competent jurisdiction as conservator of the estate of the minor
or to another similar court-appointed fiduciary. Any payment of a benefit in
accordance with the provisions of this Section will discharge all liability for
such benefit under the provisions of the Plan.
-4-
<PAGE>
8.5 Interpretation. The committee will be responsible for the
administration and interpretation of the Plan and will determine the amount, of
benefits payable in the event of any dispute. Any determination or
interpretation by the committee will be final, binding and conclusive on all
persons.
8.6 Governing Law. This Plan will be interpreted, construed and enforced
in accordance with the laws of the State of Michigan.
8.7 Severability of Provisions. If any provision of this Plan is declared
void and unenforceable, the other provisions will be severable and will not be
affected by the invalidation of the unenforceable provision.
IN WITNESS WHEREOF, the Company has adopted this Plan on the _____ day of
_________________, 1992.
DONNELLY CORPORATION
By_______________________________
Its Chief Executive Officer
(Corporate Seal)
Attest:
By__________________________
Its Secretary
-5-
<PAGE>
EXHIBIT 10.14
THE DONNELLY CORPORATION
SUPPLEMENTAL RETIREMENT PLAN
VARNUM, RIDDERING, SCHMIDT & HOWLETT
171 Monroe, N.W., Suite 800
Grand Rapids, MI 49503
(616) 459-4186
8/21/92
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I -- PURPOSE 1
ARTICLE II -- DEFINITIONS 1
2.1 Accrued Benefits 1
2.2 Actuarial Equivalent 1
2.3 Authorized Leave of Absence 1
2.4 Average Monthly Compensation 2
2.5 Code 2
2.6 Committee 2
2.7 Company 2
2.8 Compensation 2
2.9 Covered Compensation 2
2.10 Controlled Group 2
2.11 Employee 2
2.12 ERISA 3
2.13 Normal Retirement Date 3
2.14 Participant 3
2.15 Plan Year 3
2.16 Service 3
2.17 Social Security Retirement Age 3
ARTICLE III -- PARTICIPATION AND SERVICE 3
3.1 Participation 3
3.2 Service 4
3.3 Transfers of Employment Within the Company or
Controlled Group of Corporations 4
ARTICLE IV -- NORMAL RETIREMENT BENEFIT 4
4.1 Eligibility 4
4.2 Amount of Benefit 4
4.3 Suspension of Benefits 5
4.4 Commencement of Benefits 5
ARTICLE V -- EARLY RETIREMENT BENEFIT 5
5.1 Eligibility 5
5.2 Amount of Benefit 5
5.3 Commencement of Benefits 5
-i-
<PAGE>
Page
----
ARTICLE VI -- DEFERRED VESTED BENEFIT 6
6.1 Eligibility 6
6.2 Amount of Benefit 6
6.3 Commencement and Form of Payment 6
ARTICLE VII -- SURVIVING SPOUSE BENEFIT 6
7.1 Eligibility 6
7.2 Amount of Benefit 6
7.3 Commencement, Duration, and Form of Payment 7
ARTICLE VIII -- PAYMENT OF RETIREMENT BENEFITS 7
8.1 Standard Benefit 7
8.2 Post-Retirement Surviving Spouse Benefit 8
8.3 Optional Forms of Benefit 8
8.4 Reduction of Benefits for Previous Payments 8
ARTICLE IX -- RESPONSIBILITIES AND INDEMNIFICATION 8
9.1 Funding 8
9.2 Indemnification 9
ARTICLE X -- ADMINISTRATION 9
10.1 Plan Administrator 9
10.2 Records and Reports 9
10.3 Appointment of Committee 9
10.4 Claims Procedure 9
10.5 Other Committee Powers and Duties 10
10.6 Committee Procedures 10
10.7 Authorization of Benefit Payments 10
10.8 Application and Forms for Benefits 10
10.9 Facility of Payment 10
ARTICLE XI -- AMENDMENT OF PLAN 10
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Page
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11.1 Amendments 10
11.2 Right of Termination 10
ARTICLE XII -- NONALIENATION OF BENEFITS AND DOMESTIC
RELATIONS ORDERS 11
12.1 Nonalienation of Benefits 11
12.2 Procedure for Domestic Relations Orders 11
ARTICLE XIII -- MISCELLANEOUS 11
13.1 Status of Participants 11
13.2 No Interest in Company Affairs 12
13.3 Notices 12
13.4 Governing Law 12
13.5 Severability of Provisions 12
-iii-
<PAGE>
THE DONNELLY CORPORATION
SUPPLEMENTAL RETIREMENT PLAN
This Supplemental Pension Plan has been adopted by Donnelly Corporation, a
Michigan corporation (the "Company").
ARTICLE I
PURPOSE
The Company maintains a pension plan for all of its employees. The plan is
known as the Donnelly Corporation Employees' Retirement Plan and is maintained
as a "qualified plan" under the provisions of Section 401(a) of the Internal
Revenue Code.
This Supplemental Pension Plan (the "Plan") is designed to provide benefits
to certain employees that will be in addition to the benefits that will be paid
under the qualified plan. This Plan is intended to be an "excess benefit plan"
that does not satisfy the requirements of Section 401(a) of the Internal Revenue
Code and is exempt from most of the provisions of ERISA. This Plan will apply
to all employees who are covered by the qualified plan and whose benefits under
the qualified plan are limited by the provisions of Section 415 of the Code and
the limitations on compensation in Section 401(a)(17) of the Code.
This Plan will be effective as of July 1, 1992 and will apply to persons
who were employed by the Company on or after that date.
ARTICLE II
DEFINITIONS
The masculine gender is used throughout this Plan for purposes of
simplicity, but is intended to refer to either gender. The following words or
phrases will have the following meanings:
2.1 Accrued benefit. The portion of a normal retirement benefit earned as
of the date of the computation. It is a monthly benefit commencing at normal
retirement date and equal to the benefit computed in accordance with the normal
retirement benefit formula in Section 4.2 using the participant's average
monthly compensation, covered compensation and service on the date of
computation.
2.2 Actuarial equivalent. Equivalence in the present value of various
forms of payment. Present values will be determined by the actuaries chosen by
the Company based on the 1971 Group Annuity Mortality Table (male lives) with
ages set back two years for employees and four years for joint annuitants, and
interest at the rate of 8% per annum.
2.3 Authorized leave of absence. Any absence authorized by the Company
under its standard personnel policies. All employees under similar
circumstances will be treated alike in the granting of leaves and must return
within the period authorized. An absence due to service in the armed forces of
the United States will be an authorized leave of
<PAGE>
absence provided the employee qualifies for reemployment rights under federal
law (38 USCA (S)(S)2021 or 2024 or other statute of similar import) and returns
to employment with the Company within the period provided by law.
2.4 Average monthly compensation. The greater of the following:
(a) 1/60th of the compensation of the participant during the last 60
consecutive calendar months prior to termination of employment with the
Company; or
(b) 1/60th of his compensation during the five consecutive calendar
years in which his compensation was the highest during the last 10 calendar
years of his employment with the Company.
2.5 Code. The Internal Revenue Code of 1986, as amended from time to
time.
2.6 Committee. The persons appointed to administer the Plan.
2.7 Company. Donnelly Corporation, a Michigan corporation, or its
successor.
2.8 Compensation. The total of salary, wages, and bonuses paid to a
participant by the Company for personal services rendered as an employee, plus
any amounts by which the participant's salary or wages has been reduced pursuant
to any 401(k) or flexible benefit plan salary reduction agreements with the
Company. Amounts shown on the participant's form W-2 for any year as a result
of fringe benefits derived from the Company or benefits paid under this Plan
will not be counted as compensation for purposes of the Plan.
2.9 Covered compensation. One-twelfth (1/12th) of the average for each
participant of the Social Security taxable wage bases in effect for each
calendar year during the 35-year period ending with the last day of the year
preceding the year in which the participant attains or will attain Social
Security retirement age. The taxable wage base for the current year and each
subsequent year will be assumed to be the same as the taxable wage base in
effect as of the beginning of the plan year for which the determination is being
made. If a participant continues working during the plan year in which he
attains Social Security retirement age and thereafter, his covered compensation
will be the amount determined for the year in which he attains Social Security
retirement age. For plan years prior to the 35-year period described in the
first sentence, a participant's covered compensation will be equal to the
taxable wage base for the plan year. Each participant's covered compensation
will be redetermined for each plan year.
2.10 Controlled group. The group consisting of each corporation that is a
member of a controlled group of corporations, as defined in Code Section 414(b),
of which the Company is a member; each trade or business, whether or not
incorporated, under common control, as defined in Code Section 414(c), of or
with the Company; and each member of an affiliated service group, as defined in
Code Section 414(m), of which the Company is a member.
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<PAGE>
2.11 Employee. Any person who is a regular full-time employee of the
Company and receives compensation for personal services rendered to the Company
(or is on lay off status or an authorized leave of absence), but excluding
persons who are classified as temporary contract employees.
2.12 ERISA. The Employee Retirement Income Security Act of 1974, as
amended.
2.13 Normal retirement date. The first day of the month following the
later of the following:
(a) The participant's birthday on which he attains the age that is
three (3) years prior to his Social Security retirement age; or
(b) The fifth anniversary of the date on which he first became a
participant in the Plan.
The relevant birthday for subsection (a) is the 62nd birthday for participants
born before 1938, the 63rd birthday for participants born in the years 1938
through 1954, and the 64th birthday for participants born after 1954.
2.14 Participant. A person who is employed by the Company and is
participating in the Plan in accordance with the provisions of Article III.
2.15 Plan year. The "fiscal year" of the Plan which will be the 12-month
period ending June 30.
2.16 Service. The period of a participant's employment considered in
determining his eligibility for benefits and the amount of his benefits under
the Plan, as computed in accordance with Section 3.2.
2.17 Social Security retirement age. The age at which a participant
becomes eligible for benefits under the federal Social Security Act that are not
reduced on account of age. This will be age 65 for participants born before
1938, age 66 for participants born during the years 1938 through 1954, and age
67 for participants born after 1954.
ARTICLE III
PARTICIPATION AND SERVICE
3.1 Participation. An employee will become a participant in this Plan on
the first day of the next plan year (July 1) after the plan year in which either
of the following occurs:
(a) The employee's compensation exceeds the limit on compensation
that can be considered under the Donnelly Corporation Employees' Retirement
Plan under the provisions of Section 401(a)(17) of the Code. This limit is
$228,860 for
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<PAGE>
the plan year beginning July 1, 1992 and will be adjusted for changes in
the cost of living under the provisions of Section 415(d) of the Code; or
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<PAGE>
(b) The employee's accrued benefit under the Donnelly Corporation
Employees' Retirement Plan exceeds the maximum benefit under Section 4.4(a)
of that plan.
3.2 Service. A Participant's eligibility for benefits and the amount of
his benefits under the Plan will be determined by his period of service which
will be equal to his years of service as calculated under the provisions of
Section 3.2 of the Donnelly Corporation Employees' Retirement Plan.
3.3 Transfers of Employment Within the Company or Controlled Group of
Corporations.
(a) Transfers Resulting in Eligibility to Participate. A person who
becomes an employee as a result of a transfer to employment with the
Company from another corporation that is in a controlled group will be
given credit for purposes of the eligibility requirements of Section 6.1
for prior years of service with the other corporation while it was a member
of the controlled group of corporations. The transferred employee will
earn service credits for purposes of determining his benefit under the Plan
only for his period of employment with the Company.
Notwithstanding the foregoing, a participant who was previously
employed by Donnelly Mirrors, Ltd., an Irish corporation and wholly owned
subsidiary of the Company, will be given credit in accordance with Section
3.2 for prior service with Donnelly Mirrors, Ltd. for purposes of benefits
and eligibility.
(b) Transfers resulting in ineligibility to participate. A
participant who ceases to be an employee as a result of a transfer to
employment with another corporation that is a member of the controlled
group of corporations with the Company will cease to be an active
participant as of the date of transfer. The transferee will continue to
earn service credits for purposes of determining eligibility for a deferred
vested benefit under Section 6.1 for his period of service with any member
of the controlled group, but he will not earn any additional service
credits for purposes of determining benefits after the date of transfer.
ARTICLE IV
NORMAL RETIREMENT BENEFIT
4.1 Eligibility. A normal retirement benefit will be paid to each
participant whose employment terminates on or after his normal retirement date.
4.2 Amount of Benefit.
The normal retirement benefit will be equal to the sum of the amounts
determined under the following subparagraphs (a) and (b) minus the amount of the
participant's normal retirement benefits that are payable under the Donnelly
Corporation Employees'
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<PAGE>
Retirement Plan and the pension plan for Donnelly Mirrors, Ltd., the Company's
Irish subsidiary.
(a) The participant's number of years of service multiplied by 1% of
his average monthly compensation; and
(b) The participant's number of years of service or 35, whichever
number is smaller, multiplied by 0.55% of his average monthly compensation
that is in excess of his covered compensation.
Participants who receive benefits in the form of a joint and survivor
annuity or other optional form of payment will have their benefits adjusted by
an amount necessary to make the optional form of payment the actuarial
equivalent of the benefit provided in this section.
4.3 Suspension of Benefits. Benefits will not be payable with respect to
any month in which an otherwise eligible participant remains in the employ of
the Company or in which a retiree returns to active service with the Company as
an employee and is credited with 40 or more hours of employment.
4.4 Commencement of Benefits. Payment of normal retirement benefits will
commence on the first day of the month after the participant meets all
requirements for eligibility and be payable in accordance with Article VIII.
ARTICLE V
EARLY RETIREMENT BENEFIT
5.1 Eligibility. A participant who has attained age 55, completed five
(5) or more years of service, and thereafter terminates his employment with the
Company will be entitled to receive an early retirement benefit beginning on the
first day of the month following the month of termination.
5.2 Amount of Benefit. The early retirement benefit will be equal to the
participant's accrued benefit. If payment of benefits is to commence prior to
normal retirement date, the benefit will be reduced by six-tenths of one percent
(0.6%) for each month by which the commencement of benefits precedes the
participant's normal retirement date during the period from age 60 to normal
retirement date, and by three-tenths of one percent (0.3%) for each month by
which commencement precedes normal retirement date during the period from age 55
to age 60.
5.3 Commencement of Benefits. Payment of early retirement benefits will
com mence on the first day of the month after the participant meets the
requirements and requests payment, and be payable in accordance with Article
VIII.
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<PAGE>
ARTICLE VI
DEFERRED VESTED BENEFIT
6.1 Eligibility. A participant will be eligible for a deferred vested
benefit if he:
(a) has completed at least five (5) years of service with the
Company;
(b) terminates employment for reasons other than death or retirement;
and
(c) is not receiving or entitled to receive any other benefit under
the Plan.
6.2 Amount of Benefit. The amount of a participant's deferred vested
benefit will be equal to his accrued benefit.
6.3 Commencement and Form of Payment. Payment of the deferred vested
benefit will commence on the former participant's normal retirement date. If
the former Participant satisfied the service requirement for an early retirement
benefit on his date of termination, then at his option the deferred vested
benefit may be payable commencing on the first day of the month following the
birthday on which he would have been eligible for early retirement, but the
payments will be reduced in accordance with the formula in section 5.2.
Payment will be made in accordance with Article VIII. The former
participant must apply in writing for payment of benefits at such date as he
wishes to have benefits commence and no payment will be made until the
application has been received by the committee. If the actuarially equivalent
present value of a deferred vested benefit is $10,000 or less, the benefit will
be paid to the former participant in a single lump sum payment as soon as
administratively practical after the end of the plan year in which employment
terminates.
ARTICLE VII
SURVIVING SPOUSE BENEFIT
7.1 Eligibility. The spouse of a participant will receive a survivor's
benefit if the participant:
(a) dies while employed by the Company and after he is eligible for a
deferred vested benefit, or an early or normal retirement benefit;
(b) is survived by a spouse to whom he has been married for more than
one year at the time of his death; and
(c) has not begun receiving payments in a form other than a joint and
100% survivor annuity.
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<PAGE>
7.2 Amount of Benefit. The survivor's benefit will be computed as if the
participant had retired in the manner for which he was eligible on the day
before his death and elected payment of his retirement benefit in the form of a
joint and 100% survivor annuity with his spouse.
7.3 Commencement, Duration and Form of Payment. The survivor's benefit
will be payable in the form of a monthly pension for the life of the surviving
spouse commencing on the first day of the month following the participant's
death or the date on which the participant would have been eligible to begin
receiving early retirement benefits, whichever date is later, and continuing
every month thereafter to and including the month in which the surviving spouse
dies. If the actuarially equivalent present value of the surviving spouse
benefit is $10,000 or less, the benefit will be paid to the surviving spouse in
a single lump sum payment as soon as administratively practical after the death
of the participant.
ARTICLE VIII
PAYMENT OF RETIREMENT BENEFITS
8.1 Standard Benefit. Benefits will be paid as follows unless an optional
form of benefit is elected:
(a) If the participant is not married at the time benefit payments
begin, the benefit will be payable in monthly installments from the com
mencement date to and including the month in which the participant dies;
and
(b) If the participant is married at the time payments begin,
benefits will be paid in the form of a joint and 100% survivor annuity with
the spouse. Payment in this form may be waived by the participant and his
spouse.
A joint and 100% survivor annuity will provide monthly payments to the
participant from the commencement date to and including the month in which he
dies and, thereafter, monthly payments to the spouse, if surviving, for the
balance of the spouse's life in an amount equal to 100% of the monthly payments
to the participant. The amount of the monthly payments under the joint and 100%
survivor annuity will be adjusted so that the payments to the participant and
spouse will be the actuarial equivalent of payments for the life of the
participant only.
The Company will furnish each participant, within a reasonable period of
time before his benefit commencement date, with a written explanation of the
terms and conditions of the joint and 100% survivor annuity and the other
optional forms of payment provided under this Article. The explanation will
advise the participant of his right to elect a form of payment other than the
joint and 100% survivor annuity and the requirement that the participant's
spouse consent to the election. The explanation will advise the participant that
any elections concerning benefits can be changed or revoked by the participant
and his spouse at any time prior to the date on which benefit payments commence.
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<PAGE>
An election to have benefits paid in any form other than joint and 100%
survivor annuity can be made by the participant and his spouse only during the
period of ninety (90) days prior to the date on which benefits are to commence.
If the participant is married on the date the benefit payments commence, then
the participant's spouse must consent in writing to the payment of the
retirement benefit in any form other than a joint and 100% survivor annuity with
the spouse. The spouse's consent must acknowledge that the spouse understands
the effect of electing another form of benefit, and must be signed in the
presence of a representative of the Company or witnessed by a notary public.
8.2 Post-Retirement Surviving Spouse Benefit. The surviving spouse of a
former participant will be entitled to a benefit if:
(a) the former participant's employment with the company terminated
after he had satisfied the requirements for normal retirement, early
retirement, or deferred vested benefits under the Plan;
(b) the former participant died before he had begun to receive
payment of benefits under the Plan; and
(c) the former participant had been married to his spouse for a
period of at least one year on the date of his death.
The post-retirement surviving spouse benefit will be computed as if the
former participant had elected payment of his retirement benefit in the form of
a joint and 100% survivor annuity with his spouse. Payment will commence as of
the first day of the month following the participant's death or the date on
which the participant would have been eligible to begin receiving early
retirement benefits, whichever date is later, and will continue every month
thereafter to and including the month in which the surviving spouse dies. If the
actuarially equivalent present value of the surviving spouse benefit is $10,000
or less, the benefit will be paid to the surviving spouse in a single lump sum
payment as soon as administratively practical after the death of the
participant.
8.3 Optional Forms of Benefit. At any time during the election period
described in section 8.1, a participant may, with the consent of his spouse if
applicable, elect payment in one of the optional forms described below by filing
a written election with the committee. Upon receipt of a proper election, the
committee will direct the trustee to distribute benefits in any of the following
methods in accordance with the election:
(a) Monthly payments during a period certain (not to exceed 10 years)
during and after the participant's lifetime; or
(b) Monthly payments during the lifetime of the participant only.
8.4 Reduction of Benefits for Previous Payments. If a participant
receives payment of any benefits under the Plan prior to his normal retirement
date and thereafter is employed by the
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<PAGE>
Company, the benefits payable upon any subsequent retirement will be reduced by
the actuarial equivalent of the earlier payments.
ARTICLE IX
RESPONSIBILITIES AND INDEMNIFICATION
9.1 Funding. Benefits payable under this Plan will be paid by the Company
as they become due. Benefits will be paid from the general assets of the
Company.
9.2 Indemnification. The Company will indemnify the members of the
committee and any other employees of the Company and hold them harmless against
any and all liabilities, including legal fees and expenses, arising out of any
act or omission made or suffered in good faith pursuant to the provisions of the
Plan.
ARTICLE X
ADMINISTRATION
10.1 Plan Administrator. The Company will be the plan administrator.
10.2 Records and Reports. The Company will exercise such authority and
respon sibility as it deems appropriate in order to maintain records of
participant's service, and to provide notices and reports to participants.
10.3 Appointment of Committee. The Company will appoint a committee
consisting of at least three persons who will assist in the administration of
the Plan and serve at the pleasure of the Company. All usual and reasonable
expenses of the committee will be paid by the Company.
10.4 Claims Procedure. The committee will make all determinations
concerning benefits. Any denial of benefits by the committee will be stated in
writing and delivered or mailed by certified mail, return receipt requested, to
the participant or beneficiary within 60 days after the denial. The notice will
set forth the reasons for the denial in language that may be understood by the
participant and will specify the Plan provisions upon which the denial was
based. If the denial is based on the failure of the participant or beneficiary
to supply certain materials or information, the notice will so state. The
notice will advise that the denial may be appealed to the committee and will
include an explanation of the appeal procedure.
The committee will adopt a procedure for reviewing appeals of denials of
claim benefits. The procedure will include the following:
(a) The claimant or his duly authorized representative may initiate
an appeal by written request for review delivered to the committee not
later than 60 days after receipt by the claimant of the notice of denial;
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<PAGE>
(b) The claimant or his duly authorized representative may review
documents pertinent to the appeal and may submit written statements of
issues and arguments relevant to the appeal to the committee;
(c) The committee will return its decision on the appeal not later
than 60 days after receipt of the request for review; and
(d) The claimant will be advised in writing of the decision on the
appeal including the reasons for the decision in language that may be
understood by the claimant with references to the Plan provisions upon
which the decision is based.
10.5 Other Committee Powers and Duties. The committee will have such
powers as may be necessary to discharge its duties under the Plan. The
committee may adopt such rules as it deems necessary and appropriate. All rules
and decisions of the committee will be consistently applied to all participants
in similar circumstances. When making a determination or calculation, the
committee will be entitled to rely upon information furnished by a participant
or beneficiary, the Company, or the legal counsel of the Company.
10.6 Committee Procedures. The committee may act at a meeting or by
unanimous written consent without a meeting. The committee may elect one of its
members as chairman and appoint a secretary, who need not be a committee member.
The secretary will keep a record of all meetings and forward all necessary
communications to the Company and the trustee. The committee may adopt such by-
laws and regulations as it deems desirable for the conduct of its affairs. All
decisions of the committee will be made by the vote of the majority.
10.7 Authorization of Benefit Payments. The committee will issue
directions to the Company concerning all benefits which are to be paid pursuant
to the provisions of the Plan.
10.8 Application and Forms for Benefits. The committee may require a
participant to complete and file an application for a benefit and all other
forms approved by the committee, and to furnish all pertinent information
requested by the committee. The committee may rely upon all such information
including the participant's current mailing address.
10.9 Facility of Payment. Whenever, in the committee's opinion, a person
entitled to receive any benefit is under a legal disability or is incapacitated
in any way so as to be unable to manage his financial affairs, the committee may
direct the Company to make payments to such person or to his legal
representative or to a relative or friend of such person for his benefit, or the
committee may direct the Company to apply the payment for the benefit of such
person in such manner as the committee considers advisable. Any payment of a
benefit in accordance with the provisions of this section will discharge all
liability for such benefit under the provisions of the Plan.
ARTICLE XI
AMENDMENT OR TERMINATION OF PLAN
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<PAGE>
11.1 Amendments. The Company reserves the right at any time to amend any
of the provisions of this Plan on a prospective basis, but amendments may not
reduce the accrued benefit that has been earned by any participant prior to the
date of the amend ment.
11.2 Right of Termination. The Plan may be terminated at any time by
action of the board of directors of the Company. Upon termination of the Plan,
the rights of each participant to benefits accrued to the date of termination
will become nonforfeitable.
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<PAGE>
ARTICLE XII
NONALIENATION OF BENEFITS AND
DOMESTIC RELATIONS ORDERS
12.1 Nonalienation of Benefits. No interest, right, or claim in or to any
part of the trust or any benefit will be assignable, transferable, or subject to
sale, assignment, hypothecation, anticipation, garnishment, attachment,
execution, or levy of any kind and the Company will not recognize any attempt to
so transfer, assign, sell, hypothecate, or anticipate the same except to the
extent required by law. This provision will not apply to any domestic relations
order entered by a Court of competent jurisdiction.
12.2 Procedure for Domestic Relations Orders. Whenever the Company is
served with a domestic relations order from a court of competent jurisdiction,
the Company will follow the following procedure in determining whether the order
constitutes a domestic relations order that would be exempt from the general
spendthrift protection of this Article:
(a) The Company will notify the participant and any "alternate
payees" named in the order that the order was served on the Company and
that objec tions concerning the order must be submitted in writing within
15 days;
(b) The Company will determine whether the order is a "qualified
domestic relations order" and notify the participant and each alternate
payee of its determination. If the Company determines that the order is a
qualified domestic relations order, the Company will make payment in
accordance with the order except that payment will not be made until the
participant's employment has terminated;
(c) During the period in which the Company is determining the status
of the order, payment of any benefits in dispute will be deferred. If the
Company determines that the order is not a qualified domestic relations
order, the Company will resume payments to the former participant or begin
payments in accordance with the terms if this Plan as the case may be; and
(d) The Company will notify the participant and all other alternate
payees named in the order of its decision concerning the qualified status
of the order. Payments pursuant to the order will be made as soon as
practicable after the status of the order has been determined or as soon as
the amounts become payable pursuant to this Plan.
ARTICLE XIII
MISCELLANEOUS
13.1 Status of Participants. No participant will have any right or claim
to any benefits under the Plan except in accordance with the provisions of the
Plan. The adoption of the Plan will not be construed as creating any contract
of employment between the Company and any participant
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<PAGE>
or to otherwise confer upon any participant or other person any right to
continuation of employment, nor as limiting or qualifying the right of the
Company to discharge any participant.
13.2 No Interest in Company Affairs. Nothing contained in this Plan will
be construed as giving any participant, employee or beneficiary an equity or
other interest in the assets, business or affairs of the Company, or the right
to examine any of the books and records of the Company.
13.3 Notices. All notices and other designations to be given hereunder
will be in writing and will be deemed to be given when mailed by United States
mail with postage prepaid addressed to the Company at 414 East Fortieth Street,
Holland, Michigan 49423, and to the committee at 414 East Fortieth Street,
Holland, Michigan 49423, or at such other address as the parties may designate
in writing.
13.4 Governing Law. This Plan will be interpreted, construed and enforced
in accordance with the laws of the State of Michigan.
13.5 Severability of Provisions. If any provisions of the Plan will at
any time be declared void and unenforceable, the other provisions will be
severable and will not be affected thereby.
IN WITNESS WHEREOF, the Company has caused this Plan to be executed this
_______ day of ___________________, 1992.
ATTEST: DONNELLY CORPORATION
By____________________________ By____________________________
Its Secretary Its Chief Executive Officer
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<PAGE>
EXHIBIT 10.15
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DONNELLY CORPORATION
DEFERRED COMPENSATION PLAN
PLAN DOCUMENT AND SUMMARY PLAN DESCRIPTION
(Effective January 1, 1997)
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<PAGE>
DONNELLY CORPORATION
DEFERRED COMPENSATION PLAN
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
-----------------
PAGE
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ARTICLE I - Introduction 1
ARTICLE II - Definitions 2
ARTICLE III - Participation by Eligible Employees 3
ARTICLE IV - Annual Incentive Award and Annual Base Salary Deferrals 4
ARTICLE V - Distributions 5
ARTICLE VI - Accounts 7
ARTICLE VII - Funding and Participant's Interest 8
ARTICLE VIII - Administration and Interpretation 9
ARTICLE IX - Amendment and Termination 10
ARTICLE X - Miscellaneous Provision 11
<PAGE>
DONNELLY CORPORATION
DEFERRED COMPENSATION PLAN
(Effective January 1, 1997)
ARTICLE I
INTRODUCTION
1.1 Name: The name of this plan is the Donnelly Corporation Deferred
---------
Compensation Plan ("Plan").
1.2 Effective Date: The effective date of this Plan is January 1, 1997.
-------------------
1.3 Employer: Donnelly Corporation ("Donnelly"), when employing one or
-------------
more Eligible Employees who have become Participants in accordance with
Article III, shall be the employer under this Plan.
1.4 Purpose: This Plan is established effective January 1, 1997 by
------------
Donnelly for the purposes of providing deferred compensation benefits
for a select group of its management and/or highly compensated
employees.
This Plan provides a means whereby Eligible Employees may defer all or a
portion of their annual incentive awards they otherwise would receive
under the Donnelly Corporation Executive Compensation Plan for services
performed for Donnelly. It will also be the means whereby Eligible
Employees may defer a portion of their annual base salary, whether or
not they defer all or a portion of their annual incentive award.
All deferrals under this Plan shall be in the form of unfunded
recordkeeping entries.
<PAGE>
ARTICLE II
DEFINITIONS
Whenever the following initially capitalized words and phases are used in this
Plan, they shall have the meanings specified below unless the context clearly
indicates to the contrary:
2.1 "Administrator" shall mean the Compensation and Benefits Manager of
-------------------
Donnelly Corporation.
2.2 "Beneficiary" shall mean such person or legal entity as may be
-----------------
designated by a Participant under Section 5.6 to receive benefits
hereunder after such Participant's death.
2.3 "Board" shall mean the Board of Directors of Donnelly Corporation,
-----------
as constituted from time to time.
2.4 "Change in Control" shall mean a change in the control of Donnelly
-----------------------
that shall be deemed to have occurred upon the earliest to occur of the
following: (i) the date Donnelly becomes a party to a merger,
consolidation, or sale of substantially all of its assets or any other
corporate reorganization in which Donnelly will not be the surviving
corporation, or in which the holders of Donnelly stock will receive
securities of another corporation, (ii) the purchase by an individual,
or group of individuals acting in concert, of at least 25% of the voting
securities of Donnelly, or (iii) during any 24-month period, individuals
who at the beginning of such period constituted the Board cease for any
reason to constitute a majority thereof.
2.5 "Committee" shall mean the Compensation Committee of the Board.
---------------
2.6 "Deferred Compensation" shall mean that portion of the Participant's
---------------------------
annual incentive awards and/or annual base salary which the Participant
elects to defer pursuant to Sections 4.1 or 4.2 of this Plan in
accordance with a Deferred Compensation Agreement.
2.7 "Deferred Compensation Account" shall mean the recordkeeping account
-----------------------------------
established by the Administrator for each Participant to which the
portion of a Participant's annual incentive award and/or annual base
salary that is voluntarily deferred pursuant to Sections 4.1 or 4.2 is
credited and from which distributions
<PAGE>
to the Participant or to his or her Beneficiary are debited. A
Participant shall at all times be fully vested in the balance of his
Deferred Compensation Account.
2.8 "Deferred Compensation Agreement" shall mean a document (or
-------------------------------------
documents) as made available from time to time by the Administrator,
whereby an Eligible Employee enrolls as a Participant and elects to
defer a portion of his annual incentive award and/or annual base salary
pursuant to Article IV of this Plan.
2.9 "Disability" shall mean a disability qualifying for benefits payable
----------------
under Donnelly's long-term disability plan under which the Participant
is covered.
2.10 "Eligible Employee" shall mean an individual who is employed by
------------------------
Donnelly, and who is a member of the Corporate Senior Management Team
and holds the job title of Chief Executive Officer, Chief Operating
Officer, Chief Financial Officer, Treasurer, Corporate Secretary, or
Senior Vice President.
2.11 "Participant" shall mean an Eligible Employee as designated by the
------------------
Committee and who has amounts standing to his credit under a Deferred
Compensation Account.
2.12 "Plan Year" shall be the 12 consecutive month period between July 1
----------------
and June 30th.
ARTICLE III
PARTICIPATION BY ELIGIBLE EMPLOYEES
3.1 Participation: Participation in this Plan is limited to Eligible
------------------
Employees, who are designated by the Committee as Participants for the
following year.
3.2 Failure to Designate: In the event that the Committee fails to
-------------------------
designate the group of Eligible Employees who shall be eligible to
participate for any year, each Eligible Employee who was designated in
the prior year shall be deemed to have been designated for the next
succeeding Plan Year, provided that any such Eligible Employee shall
participate for purposes of the next succeeding Plan Year only if he or
she is actively employed by Donnelly on the first day of such succeeding
Plan Year and provided he or she is otherwise an Eligible Employee for
such year.
<PAGE>
3.3 Continuity of Participation: A Participant who separates from
--------------------------------
service with Donnelly will cease active participation hereunder.
3.4 Immediate Cash-Out of Ineligible Employee: This Plan is intended to
----------------------------------------------
be an unfunded "top-hat" plan, maintained primarily for the purposes of
providing deferred compensation for a select group of management or
highly compensated employees. Accordingly, if the Committee determines
that any Participant does not qualify as a member of the select group,
one hundred percent (100%) of such Participant's Deferred Compensation
Account shall be paid to the Participant immediately.
ARTICLE IV
ANNUAL INCENTIVE AWARD AND BASE SALARY DEFERRALS
4.1 Annual Incentive Award Deferral Election: No later than March 15 of
---------------------------------------------
the Plan Year in which the annual incentive award under the Donnelly
Corporation Executive Compensation Plan is earned, each Eligible
Employee may irrevocably elect, by completing and executing a Deferred
Compensation Agreement and filing it with the Administrator, to defer
any portion up to one hundred percent (100%) of his annual incentive
award to be earned for that year.
4.2 Deferral of Annual Base Salary: An Eligible Employee may elect to
-----------------------------------
defer up to twenty-five percent (25%) of his future annual base salary
by completing and executing a Deferred Compensation Agreement which
specifies the amount of annual base salary to be deferred and filing it
with the Administrator. Such election may be modified or revoked once
each quarter by executing and filing with the Administrator a new
Deferred Compensation Agreement at least 15 days before the end of the
quarter. Any election, modification or revocation shall be effective as
of the first payroll of the next quarter after being received by the
Administrator. No election, modification or revocation is permissible
with respect to annual base salary paid prior to the execution of a
Deferred Compensation Agreement.
4.3 Period for Which Deferral Election is Effective: A Participant's
----------------------------------------------------
deferral election under Section 4.1 with respect to annual incentive
award shall be effective only for the Plan Year specified in the
Deferred Compensation Agreement. A Participant must file a separate
Deferred Compensation Agreement by March 15 of each subsequent Plan Year
in order to make annual incentive award deferrals for that Plan Year. A
Participant's election to defer
<PAGE>
annual base salary shall remain in effect until modified or revoked as
provided in Section 4.2.
ARTICLE V
DISTRIBUTIONS
5.1 Election of Distribution Date: At the time a Participant makes an
----------------------------------
election to defer a portion of his annual incentive award and/or annual
base salary under Article IV, such Participant shall also specify in
writing in the Deferred Compensation Agreement the date or event on
which the cash payment of the Participant's Deferred Compensation
Account shall be made. Such date may be any of the following:
(i) The fifth December 31st immediately following the year in which a
portion of the annual base salary and annual incentive award were
initially deferred. However, a Participant's termination of
employment for any reason shall accelerate the payment of any
deferral under this Section 5.1(i); or
(ii) The earlier of the Participant's death, disability, or
termination of employment for any reason.
5.2 Distribution May Be Extended: If the Participant has made an
---------------------------------
election to defer a portion of his annual incentive award and/or annual
base salary for any Plan Year for the five-year period provided under
Section 5.1(i) above, the period of deferral with respect to such
compensation may be mutually extended for another five-year period or
until the Participant's death, disability or termination of employment
for any reason. An extended deferral under this section shall be
effective only by mutual agreement reached at least 90 (ninety) days
before the original deferral is to be distributed between the
Participant and Donnelly. This agreement shall be in the written format
specified by Donnelly.
5.3 Method of Payment:
----------------------
(i) Distributions resulting from retirement or disability of the
Participant shall be paid in cash in the form of either a single
lump sum or, annual installments for a period not to exceed five
years as elected by the Participant and approved by Donnelly.
<PAGE>
(ii) Distributions resulting from termination of employment for any
reason other than retirement or disability of the Participant
shall be paid in cash in the form of a single lump sum.
5.4 Special Election for Early Distribution: A Participant may apply to
--------------------------------------------
the Administrator for early distribution of all or any part of his
Deferred Compensation Account. Such early distribution shall be made in
a single lump sum and in cash, provided that 10% of the amount withdrawn
in such early distribution shall be forfeited from the payment of the
early distribution amount to the Participant. In the event a
Participant's early distribution is submitted within one year after a
Change in Control the forfeiture penalty shall be reduced to 5%.
5.5 Financial Hardship. The Committee shall have the authority to
-----------------------
determine, in its sole discretion, that payments should be made in any
manner the Committee deems appropriate, in whole or in part, on any
other date or dates in order to alleviate a financial hardship of a
Participant. "Financial hardship" shall mean a severe financial hardship
resulting from a sudden and unexpected illness or accident of the
Participant, or of a dependent (as defined in Section 152(a) of the
Internal Revenue Code) of the Participant, loss of the Participant's
property due to casualty, or other similar extraordinary and
unforeseeable emergencies arising as a result of events beyond the
control of the Participant. The circumstances that will constitute a
financial hardship will depend on the facts of each case, but, in any
case, payment may not be made to the extent that such hardship is or may
be relieved (i) through reimbursement or compensation by insurance or
otherwise, (ii) by liquidation of the Participant's assets, to the
extent such liquidation would not itself cause severe financial
hardship, and (iii) by cessation of deferrals under the Plan. Any
financial hardship distribution approved by the Committee shall be
limited to the amount necessary to meet the financial hardship and shall
be made solely from the Participant's Deferred Compensation Account.
5.6 Distribution on Death. In the event of a Participant's death before
--------------------------
his Deferred Compensation Account has been distributed, distribution(s)
shall be made to the Beneficiary selected by the Participant, in a
single lump sum cash payment within 60 days after the date of death (of,
if later, after the proper Beneficiary has been identified). A
Participant may from time to time change his designated Beneficiary
without the consent of such Beneficiary by filing a new designation in
writing with the Administrator. If no Beneficiary designation is in
effect at the time of the Participant's death, or if the designated
Beneficiary is missing or has predeceased the Participant, distribution
shall be made to the Participant's surviving spouse, or if none, to his
surviving children per stirpes, and if none, to his estate.
<PAGE>
5.7 Valuation of Distributions. All distributions under this Plan shall
-------------------------------
be annual based upon the amount credited to a Participant's Deferred
Compensation Account as of the last quarterly valuation immediately
preceding the date of the distribution. The amount of installment
payable to a Participant electing such method of payment shall be
determined by dividing the amount credited to the Participant's Deferred
Compensation Account by the remaining number of installments, including
the current installment, to be paid. It is understood that
administrative requirements may lead to a delay between such valuation
date and the date of distribution, not to exceed twenty business days.
ARTICLE VI
ACCOUNTS
6.1 Deferred Compensation Account: The Administrator shall establish and
----------------------------------
maintain, or cause to be established and maintained, a separate Deferred
Compensation Account for each Participant hereunder who executes an
election pursuant to Section 4.1 or Section 4.2. Each such Participant's
annual incentive awards and/or annual base salary deferred pursuant to a
Deferred Compensation Agreement under Section 4.1 or Section 4.2 shall
be separately accounted for and credited with earnings, for
recordkeeping purposes only, to his Deferred Compensation Account. A
Participant's Deferred Compensation Account shall be solely for the
purpose of measuring the amounts to be paid under the Plan. Donnelly
shall not be required to fund or secure the Deferred Compensation
Account, in any way, Donnelly's obligation to Participants hereunder
being purely contractual. All assets of the Plan will at all times
remain the property of Donnelly and will be subject to Donnelly's
creditors.
6.2 Crediting of Earnings and Statement of Account: The Participant's
---------------------------------------------------
Deferred Compensation Account shall be credited with interest quarterly.
The amount of interest to be credited each quarter shall be equal to the
prime rate of interest in effect as of the last day of the preceding
each quarter. Interest will be credited for whole quarters only. As soon
as practicable after the end of each quarter (and at such additional
times as the Administrator may determine), the Administrator shall
furnish each Participant with a statement of the balance credited to the
Participant's Deferred Compensation Account.
6.3 Investment to Facilitate Payment of Benefits: Although Donnelly is
-------------------------------------------------
not obligated to invest in any specific asset or fund, or purchase any
insurance
<PAGE>
contract in order to provide the means for the payment of any
liabilities under this Plan, the Committee may elect to do so.
ARTICLE VII
FUNDING AND PARTICIPANT'S INTEREST
7.1 Deferred Compensation Plan Unfunded: This Plan shall be unfunded and
----------------------------------------
no trust shall be created by the Plan. The crediting to each
Participant's Deferred Compensation Account, as the case may be, shall
be made through recordkeeping entries. No actual funds shall be set
aside; provided, however, that nothing herein shall prevent Donnelly
from establishing one or more grantor trusts from which benefits due
under this Plan may be paid in certain instances. All distributions
shall be paid by Donnelly from its general assets and a Participant or
his or her Beneficiary shall have the rights of a general, unsecured
creditor against Donnelly for any distributions due hereunder. The Plan
constitutes a mere promise by Donnelly to make benefit payments in the
future.
7.2 Participant's Interest in Plan: A Participant has an interest only
-----------------------------------
in the cash value of the amount credited to his Deferred Compensation
Account. A Participant has no rights or interests in any specific funds,
stock or securities.
ARTICLE VIII
ADMINISTRATION AND INTERPRETATION
8.1 Administration: Except where certain duties are delegated to the
-------------------
Administrator, the Committee shall be in charge of the operation and
demonstration of this Plan. The Committee has, to the extent appropriate
and in addition to the powers described elsewhere in this Plan, full
discretionary authority to construe and interpret the terms and
provision of the Plan; to adopt, alter and repeal administrative rules,
guidelines and practices governing the Plan; to perform all acts,
including the delegation of its administrative responsibilities to
advisors or other persons who may or may not be employees of Donnelly;
and to rely upon the information or opinions of legal counsel or experts
selected to render advice with respect to the Plan, as it shall deem
advisable, with respect to the administration of the Plan.
<PAGE>
8.2 Interpretation: The Committee may take any action, correct any
-------------------
defect, supply any omission or reconcile any inconsistency in the Plan,
or in any election hereunder, in the manner and to the extent it shall
deem necessary to carry the Plan into effect or to carry out the Board's
purposes in adopting the Plan. Any decision, interpretation or other
action made or taken in good faith by or at the direction of Donnelly,
the Board, the Committee, or the Administrator arising out of or in
connection with the Plan, shall be within the absolute discretion of all
and each of them, as the case may be, and shall be final, binding and
conclusive on Donnelly, and all Participants and Beneficiaries and their
respective heirs, executors, administrators, successors and assigns. The
Committee's determinations hereunder need not be uniform, and may be
made selectively among Eligible Employees, whether or not they are
similarly situated. Any actions to be taken by the Committee will
require the consent of a majority of the Committee members. If a member
of the Committee is a Participant in this Plan, such member may not
decide or determine any matter or question concerning his benefits under
this Plan that such member would not have the right to decide or
determine if he were not a member.
8.3 Records and Reports: The Administrator shall keep a record of
------------------------
proceedings and actions and shall maintain or cause to be maintained all
such books of account, records, and other data as shall be necessary for
the proper administration of the Plan. Such records shall contain all
relevant data pertaining to individual Participants and their rights
under the Plan. The Administrator shall have the duty to carry into
effect all rights or benefits provided hereunder to the extent assets of
Donnelly are properly available.
8.4 Payment of Expenses: Donnelly shall bear all expenses incurred
------------------------
by it and by the Committee in administering this Plan.
8.5 Indemnification for Liability: Donnelly shall indemnify the
----------------------------------
Administrator, the members of the Committee, and the employees of
Donnelly to whom the Administrator delegates duties under this Plan
against any and all claims, losses, damages, expenses and liabilities
arising from their responsibilities in connection with the Plan, unless
the same is determined to be due to gross negligence or willful
misconduct.
8.6 Claims Procedure: If a claim for benefits or for participation under
---------------------
this Plan is denied in whole or in part, a Participant will receive
written notification. The notification will include specific reasons for
the denial, specific reference to pertinent provisions of this Plan, a
description of any additional material or information necessary to
process the claim and why such material or information is
<PAGE>
necessary, and an explanation of the claims review procedure. If the
Committee fails to respond within 90 days, the claim is treated as
denied.
8.7 Review Procedure. Within 60 days after the claim is denied or, if
---------------------
the claim is deemed denied, within 150 days after the claim is filed, a
Participant (or his duly authorized representative) may file a written
request with the Committee for a review of his denied claim. The
Participant may review pertinent documents that were used in processing
his claim, submit pertinent documents, and address issues and comments
in writing to the Committee. The Committee will notify the Participant
of its final decision in writing. In its response, the Committee will
explain the reason for the decision, with specific references to
pertinent Plan provision on which the decision was annual based. If the
Committee fails to respond to the request for review within 60 days, the
claim is treated as denied.
ARTICLE IX
AMENDMENT AND TERMINATION
9.1 Amendment and Termination: The Company may at any time amend or
------------------------------
terminate any or all of the provisions of the Plan, subject to the
following limitations:
(a) The amendment will not be effective unless the Plan
will continue to operate for the exclusive benefit of
employees.
(b) The amendment or termination will not
adversely affect the right of any Participant or
Beneficiary to a payment under the Plan on the basis of
compensation allocated to the Participant's Deferred
Compensation Account.
If the Plan is discontinued with respect to future deferrals,
Participants' Deferred Compensation Accounts shall be distributed on the
distribution dates elected in accordance with Section 5.1, unless the
Committee designates that distributions shall be made on an earlier
date. If the Committee designates such earlier date, each Participant
shall receive distribution of his entire Deferred Compensation Account,
as specified by the Committee. If the Plan is completely terminated,
each participant shall receive distribution of his entire Deferred
Compensation
<PAGE>
Account in a single lump sum cash payment as of the date of the Plan
termination designated by the Board.
ARTICLE X
MISCELLANEOUS PROVISION
10.1 Right of Donnelly to Take Employment Actions: The adoption and
--------------------------------------------------
maintenance of this Plan shall not be deemed to constitute a contract
between Donnelly and any Eligible Employee, or to be a consideration
for, or an inducement or condition of, the employment of any person.
Nothing herein contained, or any action taken hereunder, shall be deemed
to give an Eligible Employee the right to be retained in the employ of
Donnelly or to interfere with the right of Donnelly to discharge an
Eligible Employee at any time, nor shall it be deemed to give to
Donnelly the right to require the Eligible Employee to remain in its
employ, nor shall it interfere with the Eligible Employee's right to
terminate his or her employment at any time. Nothing in this Plan shall
prevent Donnelly from amending, modifying, or terminating any other
benefit plan, including the Donnelly Corporation Executive Compensation
Plan.
10.2 Alienation of Assignment of Benefits: A Participant's rights and
------------------------------------------
interest under the Plan shall not be assigned or transferred except as
otherwise provided herein, and the Participant's rights to benefit
payments under the Plan shall not be subject to alienation, pledge or
garnishment by or on behalf of creditors (including heirs,
beneficiaries, or dependents) of the Participant or of a Beneficiary.
10.3 Right to Withhold: To the extent required by law in effect at the
-----------------------
time a distribution is made from the Plan, Donnelly or its agents shall
have the right to withhold or deduct from any distributions or payments
any taxes required to be withheld by federal, state or local
governments.
10.4 Construction: All legal questions pertaining to the Plan shall be
------------------
determined in accordance with the laws of the State of Michigan, to the
extent such laws are not superseded by the Employee Retirement Income
Security Act of 1974, as amended, or any other federal law.
10.5 Headings: The headings of the Articles and Sections of this Plan
--------------
are for reference only. In the event of a conflict between a heading and
the contents of an Article or Section, the contents of the Article or
Section shall control.
<PAGE>
10.6 Number and Gender: Whenever any words used herein are in the
-----------------------
singular form, they shall be construed as though they were also used in
the plural form in all cases where they would so apply, and references
to the male gender shall be construed as applicable to the female gender
where applicable, and vice versa.
IN WITNESS WHEREOF, the Company has caused this Plan to be executed this
23rd day of August , 1996.
- -------------------- --------------------
DONNELLY CORPORATION
By: /s/ William R. Jellison
----------------------------
William R. Jellison
Chief Financial Officer
CORPORATE SEAL
Attest:
By: /s/ Maryam Komejan
-------------------
Maryam Komejan
Corporate Secretary
<PAGE>
EXHIBIT 10.17
July 22, 1996
Mr. Donn Viola
7405 Parkwood Drive
Fenton, MI 48430
Dear Donn:
This letter will amend your original offer letter dated July 12, 1996, based on
our conversation of July 19, 1996. Our discussions centered on three major
areas of concern:
1. Regarding Performance Shares, you questioned whether or not those would
be carried forward on a rolling basis after your retirement. In other
words, would you receive the value of the performance shares that were
awarded to you before retirement after retiring from the company.
This is the first year that we have used Performance Shares at Donnelly
and that issue is not addressed in our plan. However, I believe it is
the intent of the plan to provide the value of performance shares that
were granted prior to retirement after retirement. I will clarify this
issue with the Board at the upcoming meeting in July.
2. On the issue of retirement income, we both understand that the
assumptions being used to project the benefits could vary considerably
based on the performance of the company and how that performance
affects stock value. However, you expressed a strong need to have your
compensation package be structured so as to provide a somewhat stronger
income opportunity for retirement than is currently assumed to be the
case.
In order to provide additional support in this area, the company will
increase the amount to be deposited in your deferred compensation plan
to $75,000 rather than the $50,000 originally offered. A new worksheet
from Towers Perrin is attached to illustrate the effect of that change.
As stated in your original letter, this amount will be deposited in
such an account on your behalf within one year of employment. This
amendment affects item 4.a. in your offer letter of July 12, 1996.
3. The third area of concern dealt with your relocation package. Since you
have concerns about selling your house in the near-term, due to its
uniqueness, you inquired whether Donnelly could provide you with cash
flow assistance in the purchase of a home in West Michigan.
<PAGE>
Donn Viola
July 22, 1996
Page 2
Donnelly has already agreed to pay for the real estate fees and closing
costs on the sale of your existing home in Pennsylvania. To assist you
in purchasing a home in West Michigan, we will pay you $30,000 in lieu
of those closing costs in Pennsylvania upon having made an offer and
having it accepted on the home of your choice in West Michigan. This
payment will be grossed up for taxes. In addition, Donnelly will cover
closing costs on a new home in West Michigan and those costs will be
grossed up for taxes. This modification will replace section 7.a. in
your original offer letter of July 12, 1996.
We are very pleased with the prospect of having you join our organization and
look forward to working with you. This offer, as amended here, remains open
until the close of business on Tuesday, July 23, 1996 and is subject the
contingencies #11 and 12 in your original offer letter. I will assume, based on
our earlier conversations, that you remain highly interested in joining Donnelly
and will attend the Board meeting on July 30, 1996 in Chicago to finalize these
agreements. Please notify me today, by telephone your intention to proceed with
our plans for a meeting in Chicago.
As always, feel free to contact me with questions if I can be of service.
Sincerely,
DONNELLY CORPORATION
Maryann Komejan
Senior Vice President
/jvb
<PAGE>
July 12, 1996
Mr. Donn Viola
7405 Parkwood Drive
Fenton, MI 48430
Dear Donn:
I am very pleased to extend to you Donnelly's offer of employment to fill the
new position of Chief Operating Officer for Donnelly North American Operations.
We believe you bring outstanding skills to our company and that you will find
Donnelly an excellent environment in which to invest your career. We are
looking forward to working with you.
You will report to the CEO of Donnelly and will work from our home office
located in Holland, Michigan. The details of your offer include:
1. A base salary of $27,083 per month. This equates to an annual salary of
$325,000. This base compensation falls in the neighborhood of the 75th
percentile based on national executive compensation survey data for an
operation the size of our North American Operations, and as such
represents a strong expression of interest for you to join Donnelly.
Our policy is to review salaries for all officers annually after the
close of our fiscal year. You will be eligible for review in
August/September, 1997 and the Board takes action regarding officer
salaries in October of each year.
2. An annual bonus incentive will be provided which is linked to the
achievement of specific business and individual goals. Achieving plan
performance would result in a bonus of approximately 50% of base
salary. Exceptional performance over plan goals can earn a bonus of up
to 100% of base salary. Shortly after you begin work at Donnelly, I
will meet with you to establish specific goals for the upcoming year.
Bonus awards are typically paid in September, after the close of our
fiscal year. This program will begin for you in fiscal 1997 (June '96 -
June '97). Two-thirds of the first year's plan annual incentive for
achieving plan (or $108,000) will be guaranteed since you were not part
of the planning process for this year and will not have the full year
to influence performance. This annual incentive will be paid in the
August - October period of 1997.
3. It is customary for Donnelly to consider stock options for executives
annually, based on competitive market comparisons and on individual
contributions made to the business. Long-term incentive compensation
for your position would typically consist of annual stock option grants
and performance unit grants. The initial stock option grants and
performance unit grants will be priced at the date of your acceptance
of the employment offer made to you. Subsequent grants will be
<PAGE>
Donn Viola
July 12, 1996
Page 2
priced as of the date granted. Stock options are exercisable after one
year of receiving them and no later than ten years of receiving them.
Performance unit grants are paid out in cash five years after they are
granted.
4. A special one-time consideration is being offered to recognize the
adjustments that will be required in making a transition to Donnelly.
This one-time consideration will include two components:
a. A $50,000 deposit into a deferred compensation program. While
Donnelly does not have a deferred compensation plan in place for
executives now, we will commit to having such a plan in place
within one year of your employment and we will deposit $50,000 into
this account on your behalf at the time the plan is adopted.
b. Donnelly is offering you a stock option for 10,000 shares and
10,000 performance unit shares upon your employment with Donnelly.
These grants are subject to approval by the Donnelly Stock Option
Committee and will be governed by the terms of Donnelly plans for
these programs.
5. You will receive a company car valued at between $40,000 - $50,000. Car
expenses will be covered for insurance, maintenance, and business fuel
expense.
6. Donnelly offers a very comprehensive package of group health insurance,
group life insurance, 401K, employee stock purchase, and retirement
plans. Vacation is six weeks. You will be provided with descriptions of
all plans and I believe you will find our flexible benefit options very
strong in protecting you and your family.
7. Our relocation package will include:
a. Closing costs on a new home in West Michigan and real estate fees
and closing costs on the sale of your existing home. These costs
will be "grossed up" for taxes.
b. Moving expenses for you, your family, and personal belongings (per
company policy). We will select a mover for you or reimburse a
mover of your choice upon receiving two estimates.
c. Temporary living expenses to cover an appropriate apartment, or
equivalent temporary condo/house as available, for six months in
West Michigan if required. Of course, we assume that you will be
interested in locating more permanent living arrangements as soon
as possible after
<PAGE>
Donn Viola
July 12, 1996
Page 3
accepting a position with Donnelly. If you haven't made permanent
arrangements at the end of six months, we can discuss an extension.
The objective is to achieve a transition as soon as possible.
d. If you are unable to sell your home within nine (9) months of
beginning work at Donnelly, we will purchase your home at fair
market value (based on the average value established by two
independent appraisals). If the amount that you paid for your home
exceeds the appraised value, Donnelly will pay the difference, but
the total price paid by Donnelly will not exceed 100% of the
average appraised value.
8. In the event that you are separated from Donnelly for any reason other
than cause, we will provide a severance plan that provides 18 months of
base salary and benefits, subject to a noncompete agreement in our
specific area of business and closure on a separation agreement.
9. In the event that you choose to leave Donnelly, you will receive all
benefits for which you are vested per plan descriptions.
10. In the event that there is a change in control regarding ownership of
the company, all stock options and performance units will be vested
consistent with the applicable plan descriptions.
11. This offer is contingent on appropriate references being completed and
that those references are positive. We have already begun this process
and do not anticipate problems in this area.
12. You have expressed an interest to meet with some of our Directors, and
as a courtesy to our Directors, I feel this is also important to do
before everything is totally final. I do not anticipate any issues, and
expect that both you and they will feel positive about moving forward.
Therefore, while I hope that you and I can reach agreement regarding
this offer as soon as possible, we will wait until July 30th to totally
finalize everything. I will schedule an opportunity for you to meet
with our Human Resource Committee of the Board at a meeting previously
scheduled in Chicago on the 30th to deal with a number of other issues.
I plan to be in Europe and Asia for the next two weeks, which makes
this the earliest time we can do this.
We will also invite all Directors to attend, but due to their
schedules, we cannot predict how many will be able to make it.
<PAGE>
Donn Viola
July 12, 1996
Page 4
We are pleased to extend this to offer you. In an effort to be helpful, we have
enclosed a comparative summary of Donnelly's offer to your previous annual
compensation package, as we understand it. This comparative summary was prepared
after discussions between you and Jeff Bacher from Towers Perrin. In both the
current year and over the course of your career with Donnelly, we feel this
package offers substantial advantages for you and your family. Based on the
Towers Perrin comparison, your total direct compensation is estimated to be
equivalent to that at Mack, and the potential for the long-term (or non-direct)
compensation is more favorable for you in joining Donnelly.
As the company continues to grow and develop, part of our corporate mission is
to double shareholder value every five years, and our current five-year outlook
is consistent with achieving this level of performance. Donnelly has grown at a
compounded annual rate in excess of 15% during the past 15 years, and we believe
the company is positioned for strong growth in the future. With your proven
skills to shape strong operations and improve earnings, the prospects for the
growth of your estate through the stock options and performance share plans
should be strong. Our program for deferred compensation should also prove to be
an attractive tool for enhancing your long-term financial position.
All matters not specified here will be handled in accordance with company
policy. We will provide you with all appropriate policies and plan descriptions
forthrightly. I believe that you will find all of them very competitive and
supportive.
Of course, we understand that you will need time to assess the financial
implications of this opportunity. This offer will remain open until the close
of business on Friday, July 18, 1996, although the offer and your acceptance are
subject to the contingencies discussed in paragraphs 11 and 12.
On behalf of myself, the Board of Directors, and the senior management team at
Donnelly, we are looking forward to having you and Barbara join our company. I
am convinced that you will help us make this an even stronger company and I am
personally looking forward to working with you.
Sincerely,
DONNELLY CORPORATION
Dwane Baumgardner
Chairman of the Board
<PAGE>
Exhibit 10.18
March 26, 1996
Mr. Robert C. Hange
29 Puritan Drive
Bedford, NH 03110
Dear Bob:
This letter will document final details of your offer of employment with
Donnelly Corporation as they have been amended in discussions since our initial
offer. You will fill the new position of Chief Operating Officer for Donnelly
European Operations. We are very enthusiastic regarding your joining our company
and believe that you will find Donnelly an excellent environment in which to
invest your career.
Our offer to you is based on the assumption that you will work for Donnelly as a
permanent German resident rather than an expatriate, however, we are including
certain features in your package to help you make the transition in the first
year. You will report to me as the CEO of Donnelly and will work (at least
initially) from an office located in Collenberg, Germany. The details of your
offer include:
1. A base salary of 30,583.00 DM month. This equate to an annual salary of
367,000 DM. Our policy is to review salaries for all officers annually
after the close of our fiscal year. You will be eligible for review in
August/September and the Board takes action regarding officer salaries
in October of each year.
2. In order to make an adjustment in your earnings power to compensate for
a different tax structure in Germany, Donnelly will provide an
additional $35,000 annually ($248,000 of base salary in U.S. dollars x
14% tax tax differential). This amount will remain fixed each year and
will be paid to you during the year through the normal payroll process.
3. An annual bonus will be provided which is linked to the achievement of
specific business and individual goals. Achieving plan performance
would result in a bonus of approximately 35% of base salary.
Exceptional performance over plan goals can earn a bonus of up to 60%
of base salary. Should you accept this offer, I will meet with you
shortly after you begin work at Donnelly to establish specific goals
for the upcoming year. Bonus awards are typically paid in September,
after the close of our fiscal year. This program will begin for you in
fiscal 1997. Note: this item will not be adjusted for taxes in that
this bonus range is already significantly higher than the competitive
market in Europe.
This combination of your bonus and base salary will position your
annual cash compensation well above the 75th percentile of German
executives who have broad responsibilities for operations throughout
Europe.
<PAGE>
B. Hange
March 26, 1996
Page 2
4. It is customary for Donnelly to consider long-term compensation awards
for executives annually, based on competitive market comparisons and on
individual contributions made to the business. Long-term incentive
compensation would typically consist of annual stock options grants and
performance unit grants. The initial stock options grants and
performance unit grants (referenced below) will be priced at fair
market value on the date of your acceptance of the employment offer
made to you. Subsequent grants will be priced as of the date given.
Stock options are exercisable after one year of receiving them and no
later than ten years of receiving them. Performance unit grants are
paid out in cash five years after they are granted.
5. A special one-time consideration is being offered to recognize the
adjustments that will be required in making a transition to Donnelly.
This one-time consideration will include four components:
a. Donnelly will establish an executive deferred compensation plan
within one year of your date of hire. After completion of your
first and second year of work, Donnelly will deposit $25,000
(each year) into this plan on your behalf. Following that, all
deposits to your deferred compensation plan will be at your
discretion.
b. Donnelly is offering you a stock option for 7,500 shares and
7,500 performance unit shares upon your employment with
Donnelly. These grants will be confirmed at the time of your
acceptance of this offer and will be governed by the terms of
Donnelly plans for these programs.
c. To support the transition of living in a new country and
becoming an efficient buyer of services, we will provide two
months of salary to you in the form of a two year loan that
will be forgiven in equal amounts over that period of time. If
you choose to leave Donnelly prior to two years, you will repay
Donnelly on a prorated basis for the remainder of the loan. If
you are separated for reasons other than cause, the loan will
be forgiven.
d. To support the integration of your son into the German school
system, we will provide $10,000/year for two years after your
date of hire to help defray expenses associated with his
education. In the event that you leave Donnelly during this
time (for any reason), Donnelly will carry these costs for 30
days following separation to allow time for other arrangements
to be made.
<PAGE>
B. Hange
March 26, 1996
Page 3
e. To provide assistance in learning how to manage your finances
in Germany, Donnelly will provide a tax advisor at company
expense during your first year of residency.
f. Donnelly will provide one paid visit for you and your family to
visit family members in the United States during your first
eighteen months of residency in Germany. This will be in
addition to your twelve trips to Europe to conclude business
associated with moving.
6. You will receive a company car valued at between 60-70,000 DM which
equates to a BMW 535i. Car expenses will be covered for insurance,
maintenance, and fuel expense.
7. Donnelly offers a comprehensive package of health insurance and pension
which are consistent with legislative requirements for Germany.
Vacation is six weeks. You will be provided with descriptions of all
plans and I believe you will find our benefit options to be strong in
protecting you and your family. In addition, Donnelly will assume
annual premiums on your life insurance policy which was purchased by
Freudenberg-NOK for an annual cost of $6,324.
8. Our relocation package will include:
a. Administrative costs associated with purchasing a home in
Germany and real estate fees and closing costs on the sale of
your existing home. These costs will be "grossed up" for taxes.
b. Moving expenses for you, your family, and personal belongings
(per company policy). We will select a mover for you or
reimburse a mover of your choice upon receiving two estimates.
We have agreed also to move your wine collection valued at
$10,000 (please provide an appraisal for this item) and to
transport one vehicle to Europe for you. All other items have
been described to us as normal household furnishings.
c. Temporary living expenses in Germany for six months if
required. Of course, we assume that you will be interested in
locating more permanent living arrangements as soon as possible
after accepting a position with Donnelly.
d. Travel expenses for twelve trips between the US and Germany to
conclude all necessary arrangements for moving you and your
<PAGE>
B. Hange
March 26, 1996
Page 4
family. If two of you travel together, that will be considered
two trips.
e. In the event that you are unable to sell your home by July 4,
1996, Donnelly will facilitate your move by purchasing your
home for its appraised value. We will establish the appraised
value of your home by taking the average of two independent
appraisals.
9. In the event that you are involuntarily separated from Donnelly for any
reason other than cause, we will provide a severance plan that provides
12 months of base salary and benefits, subject to a noncompete
agreement in our specific area of business and closure on a separation
agreement. In this event, Donnelly will cover the costs of moving you
and your family back to the United States. Any special considerations
that have not been paid (in item number 5 of this offer) will be
forfeited.
10. In the event that you choose to leave Donnelly, you will receive all
benefits for which you are vested per plan descriptions. Special
considerations that have not been paid (in item number 5 of this offer)
will be forfeited.
11. In the event that there is a change in control regarding ownership of
the company, all stock options and performance units will be vested
consistent with the applicable plan descriptions. Also, a change in
control or ownership of the company will obligate Donnelly to provide
you with the cost of moving expenses for you and your family back to
the United States within the first six months of the change of control.
We are very pleased to offer you a very strong and competitive package. As you
know, it is also a very unusual package in that you are being provided with a
solid transition package to help you make the adjustment from being a U.S.
executive to being a European one.
In an effort to be helpful, we will make our advisors at Towers Perrin available
to you to respond to any questions that you may have. Based on analysis that
has been done by our staff in conjunction with Towers Perrin, your annual
compensation would be increased substantially by joining Donnelly compared to
your previous employment and is very strong compared to other European
executives. While this is not a full expatriate package, since we consider you
to be a national for this position, it is a hybrid package that is more
comparable to an expatriate package than a national one. We hope you see the
same potential that we do to steadily increase your compensation in the future.
<PAGE>
B. Hange
March 26, 1996
Page 5
All matters not specified here will be handled in accordance with company
policy. We will provide you with all appropriate policies and plan descriptions
promptly. I believe that you will find all of them very competitive and
supportive.
Of course, we understand that you will need time to assess the financial
implications of this opportunity. This offer will remain open until the close
of business on March 27, 1996.
On behalf of myself, the Board of Directors, and the senior management team at
Donnelly, we are looking forward to having you and your family join our company.
I am convinced that you will help us make this an even stronger company and I am
personally looking forward to working with you.
Sincerely,
DONNELLY CORPORATION
Dwane Baumgardner
Chairman of the Board
DB/mk
Enclosure
<PAGE>
Exhibit 10.19
September 15, 1995
Mr. Russ Scaffede
102 Clubhouse Drive
Nicholasville, KY 40356
Dear Russ:
I am very pleased to extend to you Donnelly's offer of at will employment for
the position of Vice President, Manufacturing. We believe you bring outstanding
skills to our company and that you will find Donnelly an excellent environment
in which to invest your career. We are all looking forward to working with you.
You will report to the C.O.O. of Donnelly North America and be located here in
Holland. Until that position is filled, you will report directly to me. Your
annual base salary will be $180,000 paid in 52 equal installments of $3,461.64
paid each week. Our policy is to review salaries at the end of each fiscal
year. We offer a management bonus based on attainment of mutually agreed upon
objectives targeted at 25% of base salary for reaching those objectives, and
with a potential to reach a total of 35% for exceeding them. This is paid
yearly at the closing of the accounting records. You will be eligible to
participate in the plan, on a prorated basis, for the balance of fiscal year
1996.
Our long term incentive plan, also based on attainment of mutually agreed upon
personal objectives and company performance, is targeted at 35% of annual base
salary. This is awarded in stock options and/or performance units. This bonus
is also awarded at the time of closing of accounting records for the previous
year. You will be eligible for participation in this plan, on a prorated basis,
for the balance of fiscal 1996.
We will provide you with a company car with an approximate value of $30,000 and
car expenses to include insurance, maintenance and business use fuel expense.
I have included, for your information, information on our various health, life,
stock purchase and pension plans. Vacation is six weeks. Rick will be happy to
provide any further information you may require on these plans. I think you
will agree that our flexible benefit approach allows you to select a very
generous array of protection for you and your family.
Our relocation policy includes the following:
All closing costs including real estate fees.
Moving expenses for you, your family and your property.
<PAGE>
Mr. Russ Scaffede
September 15, 1995
page 2
Two trips for Barb to visit the area and look at housing.
One time relocation expense of $7,500.
Away from home expenses for yourself for a period of 90 days and five trips back
to Nicholasville.
In the event that we elect your separation from the company for any reason other
than cause, we will provide severance in the form of base salary and benefit
coverage for a period of 12 months or until you find other employment of any
kind whichever occurs first. This consideration will be subject to a noncompete
agreement in our specific area of business.
Our Board of Directors has been strongly supportive of bringing someone of your
caliber to our company. While I anticipate no reservations on their part about
your selection for this key position, this offer is subject to their
confirmation.
Russ, we are looking forward to having you and Barb join our family here at
Donnelly. I am convinced you can help us make this a great company and am
personally looking forward to working with you with great anticipation.
Sincerely,
DONNELLY CORPORATION
Dwane Baumgardner
Chairman of the Board
<PAGE>
EXHIBIT 10.21
FALCON AGREEMENT
Note: Certain information has been omitted pursuant to a request for
confidential treatment, and such confidential information has been filed
separately with the United States Securities and Exchange Commission.
DONNELLY RECEIVABLES CORPORATION
RECEIVABLES PURCHASE AGREEMENT
This Receivables Purchase Agreement dated as of November 14, 1996 is among
Donnelly Receivables Corporation, a Michigan corporation (the "Seller"), the
Investors, Falcon Asset Securitization Corporation ("Falcon") and The First
National Bank of Chicago, as Administrative Agent. Unless defined elsewhere
herein, capitalized terms used in this Agreement shall have the meanings
assigned to such terms in Exhibit I hereto.
PRELIMINARY STATEMENTS
The Seller desires to transfer and assign Receivable Interests to the
Purchasers from time to time.
Falcon may, in its absolute and sole discretion, purchase Receivable
Interests from the Seller from time to time.
The Investors shall, at the request of the Seller, purchase Receivable
Interests from time to time. In addition, the Investors have agreed to provide
a liquidity facility to Falcon.
The First National Bank of Chicago has been requested and is willing to act
as Administrative Agent on behalf of Falcon and the Investors in accordance with
the terms hereof.
ARTICLE I
AMOUNTS AND TERMS OF THE PURCHASES
Section 1.1. Purchase Facility. (a) Upon the terms and subject to the
conditions hereof, the Seller may, at its option, sell and assign Receivable
Interests to the Administrative Agent for the benefit of the Purchasers. Falcon
may, at its option, instruct the Administrative Agent to purchase on behalf of
Falcon, or if Falcon shall decline to purchase, the Administrative Agent shall
purchase on behalf of the Investors, Receivable Interests from time to time
during the period from the date hereof to but not including the Facility
Termination Date. The Seller hereby assigns, transfers and conveys to the
Administrative Agent for the benefit of the relevant Purchaser or Purchasers,
and the Administrative Agent hereby acquires all of the Seller's right, title
and interest in and to the Receivable Interests.
(b) The Seller may, upon at least five days' notice to the Administrative
Agent, terminate in whole or reduce in part ratably among the Investors the
unused portion of the
<PAGE>
Purchase Limit; provided that each partial reduction of the Purchase Limit shall
be in an amount equal to $5,000,000 or an integral multiple thereof.
Section 1.2. Making Purchases. (a) The Seller shall provide the
Administrative Agent with a purchase notice, in substantially the form of
Exhibit IX hereto (each a "Purchase Notice"), at least three Business Days prior
to the date (the "Purchase Date") of each Incremental Purchase. A Purchase Date
may occur, in the case of a Dollar Purchase, on any Business Day prior to the
Facility Termination Date and, in the case of any DM Purchase, on the tenth
Business Day of any month prior to the Facility Termination Date. Each Purchase
Notice shall, except as set forth below, be irrevocable and shall specify the
requested (i) Purchase Price (which shall not be less than $2,000,000, or the
Dollar Equivalent thereof in the case of any DM Purchase), (ii) currency of such
Purchase Price, whether Dollars or Deutsche Marks, (iii) Purchase Date and (iv)
in the case of a Dollar Purchase, the duration of the initial Tranche Period and
the initial Discount Rate related thereto. Following receipt of a Purchase
Notice, the Administrative Agent will determine whether Falcon agrees to make
the purchase. If Falcon declines to make a proposed purchase, the Seller may
cancel the Purchase Notice or the Incremental Purchase of the Receivable
Interests will be made by the Investors.
(b) On the date of each Incremental Purchase, upon satisfaction of the
applicable conditions precedent set forth in Article IV, Falcon or each
Investor, as applicable, shall deposit to the Facility Account, in immediately
available funds and in the applicable currency, no later than 12:00 noon
(Chicago time), an amount equal to (i) in the case of Falcon, the aggregate
Purchase Price of each Receivable Interests Falcon is then purchasing or (ii) in
the case of an Investor, such Investor's Pro Rata Share of the aggregate
Purchase Price of each of the Receivable Interests the Investors are purchasing.
Section 1.3. Selection of Tranche Periods and Discount Rates. (a) Each
Receivable Interest shall at all times have an associated currency (whether
Dollars or Deutsche Marks), amount of Capital (in the applicable currency),
Discount Rate and Tranche Period applicable to it. Not less than $2,000,000 (or
the Dollar Equivalent thereof in the case of a Receivable Interest arising from
a DM Purchase) of Capital may be allocated to any single Receivable Interest.
(b) In the case of each Receivable Interest that shall have arisen by
reason of a Dollar Purchase, the Seller shall request Discount Rates and Tranche
Periods for such Receivable Interest in the manner described in this subsection
(b). The Seller may select the CP Rate, with the concurrence of the
Administrative Agent, or the Base Rate for the Receivable Interests of Falcon
and the LIBO Rate or the Base Rate for the Receivable Interests of the
Investors. With respect to each expiring Tranche Period, the Seller shall give
the Administrative Agent irrevocable notice of the new Tranche Period and
Discount Rate for the Receivable Interest associated with such expiring Tranche
Period, by 9:00 a.m. (Chicago time), (i) at least three Business Days prior to
the expiration of any then existing Tranche Period with respect to which the
LIBO Rate is being requested as a new Discount Rate, (ii) at least two Business
Days prior to the expiration of any then existing Tranche Period with respect to
which the CP Rate
Page 2
<PAGE>
is being requested as a new Discount Rate and (iii) at least one Business Day
prior to the expiration of any Tranche Period with respect to which the Base
Rate is being requested as a new Discount Rate. The Administrative Agent shall
advise the Seller in any instance if the Tranche Period selected by the Seller
at any time is not acceptable to Falcon or the Investors, as applicable. If the
Seller fails to request timely a Discount Rate and/or a Tranche Period for any
Receivable Interest pursuant to the terms of this Section 1.3(b), or the Seller
and the Administrative Agent fail to agree on an acceptable duration for any
Tranche Period, the Discount Rate shall be the CP Rate (if Falcon is the
applicable Purchaser) or the Base Rate, in the Administrative Agent's sole
discretion, and the applicable Tranche Period shall be a period of one day
commencing on the day requested in the Purchase Notice or the last day of the
then expiring Tranche Period for such Receivable Interest, as applicable. Until
the Seller gives notice to the Administrative Agent of another Discount Rate,
the initial Discount Rate for any Receivable Interest transferred to the
Investors pursuant to Section 2.1 shall be the Base Rate.
(c) In the case of each Receivable Interest that shall have arisen by
reason of a DM Purchase, the applicable Tranche Periods and Discount Rates shall
be determined in accordance with this subsection (c). Each Tranche Period for
each such Receivable Interest shall be coextensive with a Fixed Exchange Period
unless the Administrative Agent shall otherwise agree. The Discount Rate in
respect of each Tranche Period shall be a rate per annum determined by the
Administrative Agent on or prior to the first day of such Tranche Period on the
basis of (i) the cost of Dollar funds procured by the Purchaser(s) to fund and
maintain such Receivable Interest and (ii) the currency hedging and exchange
arrangements procured by such Purchaser(s) in order to maintain such Receivable
Interest in Deutsche Marks.
(d) If any Investor notifies the Administrative Agent that it has
determined that (i) funding its Pro Rata Share of the Receivable Interests of
the Investors at a LIBO Rate or maintaining an appropriate currency hedge or
exchange arrangement for the purpose of maintaining any Receivable Interest that
shall have arisen by reason of a DM Purchase would violate any applicable law,
rule, regulation, or directive, whether or not having the force of law, (ii)
deposits of a type and maturity appropriate to match fund its Receivable
Interests at such LIBO Rate are not available or (iii) such LIBO Rate does not
accurately reflect the cost of acquiring or maintaining a Receivable Interest at
such LIBO Rate, then the Administrative Agent shall suspend the availability of
such LIBO Rate and require the Seller to select a new Discount Rate for any
Receivable Interest accruing Discount at such LIBO Rate.
(e) If any Purchaser notifies the Administrative Agent that it shall not
be able to make or participate in the making of any DM Purchase then being
requested hereunder, or to maintain an appropriate currency hedge or exchange
arrangement for the purpose of maintaining any Receivable Interest that shall
have arisen from a DM Purchase or for the purpose of converting any Collections
denominated in Deutsche Marks into Dollars, in any such case whether because (i)
the introduction of or any change in or in the interpretation of any law or
regulation makes it unlawful, or any central bank or other governmental
authority asserts that it is unlawful, for such Purchaser to do so or to convert
Dollar funds into Deutsche Marks in order to do so, (ii) any material disruption
shall have occurred in the credit, currency or foreign exchange markets
Page 3
<PAGE>
in the United States or Germany (whether by reason of act of God, war,
governmental intervention, strike, power or communications system failure or
natural disaster) or (iii) any other event or condition beyond the reasonable
control of the Purchaser, then the Administrative Agent shall suspend the
availability of DM Purchases and in any such event the Purchasers shall
thereafter not have any obligation to make or fund any DM Purchase. Upon its
receipt of any such notice, the Administrative Agent shall declare the
Liquidation Day in respect of all Receivable Interests that shall have arisen by
reason of a DM Purchase.
Section 1.4. Percentage Evidenced by Receivable Interests. Each Receivable
Interest and its corresponding Currency Allocation Percentage shall be initially
computed on its date of purchase. Thereafter, until its Liquidation Day, each
Receivable Interest and Currency Allocation Percentage shall be automatically
recomputed (or deemed to be recomputed) on each day prior to its Liquidation
Day. The variable percentage represented by any Receivable Interest and its
corresponding Currency Allocation Percentage, in each case as computed (or
deemed recomputed) as of the close of business on the day immediately preceding
its Liquidation Day, shall remain constant at all times after such Liquidation
Day.
Section 1.5. Dividing or Combining Receivable Interests. The Seller or
the Administrative Agent may, upon notice to and consent by the other received
at least three Business Days prior to the end of a Tranche Period for any
Receivable Interest, take any of the following actions with respect to such
Receivable Interest: (i) divide the Receivable Interest into two or more
Receivable Interests having aggregate Capital equal to the Capital of such
divided Receivable Interest, (ii) combine the Receivable Interest with another
Receivable Interest with a Tranche Period ending on the same day, creating a new
Receivable Interest having Capital equal to the Capital of the two Receivable
Interests combined or (iii) combine the Receivable Interest with a Receivable
Interest to be purchased on such day by such Purchaser, creating a new
Receivable Interest having Capital equal to the Capital of the two Receivable
Interests combined, provided that, a Receivable Interest of Falcon may not be
combined with a Receivable Interest of the Investors and a Receivable Interest
that shall have arisen from a Dollar Purchase shall not be combined with a
Receivable Interest that shall have arisen from a DM Purchase.
Section 1.6. Reinvestment Purchases. At any time that any Collection or
Collections are received by the Servicer after the initial purchase of a
Receivable Interest hereunder and on or prior to the Liquidation Day of such
Receivable Interest, the Seller hereby requests and, upon the terms and subject
to the conditions hereof, the Purchasers hereby agree to make, simultaneously
with such receipt, a reinvestment (each a "Reinvestment") with that portion of
each and every Collection received by the Servicer that is part of such
Receivable Interest, such reinvestment being in Receivables that shall have been
acquired by the Seller pursuant to the Donnelly Transfer Agreement since the
date of the last purchase or Reinvestment hereunder. Until the Administrative
Agent shall otherwise direct, Collections denominated in Dollars shall be
applied to a Reinvestment in respect of a Receivable Interest the Capital of
which is denominated in Dollars and Collections denominated in Deutsche Marks
shall be applied to a Reinvestment in respect of a Receivable Interest
denominated in Deutsche Marks. The making of a Reinvestment shall not, of
itself, cause any increase or decrease in, or otherwise affect, the
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<PAGE>
Capital associated with any Receivable Interest. If, and to the extent, on any
day the Seller shall have insufficient Receivables for the purpose of
accommodating the Reinvestment of all Collections received on such day in the
applicable currency, the Servicer shall set aside and hold in trust for the
holder of each Receivable Interest such Collections until the earlier of (i) the
next date on which the Seller shall acquire Receivables in such currency and
shall be capable of accommodating a Reinvestment of such Collections and (ii)
the next following date that is the last day of any Tranche Period for a
Receivable Interest in such currency.
Section 1.7. Liquidation Settlement Procedures. (a) On the Liquidation
Day of a Receivable Interest and on each day thereafter, the Servicer shall set
aside and hold in trust for the holder of such Receivable Interest all
Collections received on such day that shall be denominated in the currency in
which the Capital of such Receivable Interest is denominated; provided that if
there shall be more than one Receivable Interest at such time the Capital of
which is denominated in such currency, then the Servicer shall set aside and
hold in trust for the holder or holders of the Receivable Interest that are then
liquidating their respective Currency Allocation Percentage of such Collections
received on such day. On the last day of each Tranche Period of a Receivable
Interest after the occurrence of its Liquidation Day, the Servicer shall remit
to the Administrative Agent's account the amounts set aside pursuant to the
preceding sentence, together with any remaining amounts set aside pursuant to
Section 1.8 prior to such day, in each case (unless the Administrative Agent
shall otherwise agree) in the currency in which such Collections shall have been
received or deemed received; provided that the aggregate amount remitted on any
day in respect of any Receivable Interest shall not exceed the sum of (i) the
accrued Discount for such Receivable Interest, (ii) the Capital of such
Receivable Interest, and (iii) the aggregate of all other amounts then owed
hereunder by Seller to the Purchasers.
(b) If there shall be insufficient funds on deposit for the Servicer
to distribute funds in payment in full of the aforementioned amounts, the
Servicer shall distribute funds first, to reimbursement of the Administrative
Agent's costs of collection and enforcement of this Agreement, second, in
payment of all accrued Discount for the Receivable Interests, third, in
reduction of the Capital of the Receivable Interests, and fourth, in payment of
all other amounts payable to the Purchasers. Notwithstanding any rule pertaining
to the application of Collections set forth in this Section 1.7, the
Administrative Agent may, at any time and in its discretion, allocate
Collections in one currency to a Receivable Interest denominated in another
currency. Collections allocated to the Receivable Interests of the Investors
shall be shared ratably by the Investors in accordance with their Pro Rata
Shares. Collections applied to the payment of fees, expenses, Discount and all
other amounts payable by the Seller to the Administrative Agent and the
Purchasers hereunder shall be allocated ratably among the Administrative Agent
and the Purchasers in accordance with such amounts owing to each of them.
Following the date on which the Aggregate Unpaids are reduced to zero, the
Servicer shall pay to Seller any remaining Collections set aside and held by the
Servicer pursuant to this Section 1.7.
Section 1.8. Deemed Collections. If on any day the Outstanding Balance of a
Receivable is either (x) reduced as a result of any defective or rejected goods
or services, any cash discount or any adjustment by the Seller, any Designated
Servicer or either Originator, or (y) reduced
Page 5
<PAGE>
or cancelled as a result of a setoff in respect of any claim by any Person
(whether such claim arises out of the same or a related transaction or an
unrelated transaction), the Seller shall be deemed to have received on such day
a Collection of such Receivable in the amount of such reduction or cancellation
and in the currency of such Receivable. If on any day any of the representations
or warranties in Article III are no longer true with respect to a Receivable,
the Seller shall be deemed to have received on such day a Collection of such
Receivable in full in the applicable currency. If the Seller receives any
Collections or is deemed to receive Collections pursuant to this Section 1.8 or
otherwise, the Seller shall immediately pay such Collections or deemed
Collections to the Servicer and, at all times prior to such payment, such
Collections shall be held in trust by the Seller for the exclusive benefit of
the Purchasers and the Administrative Agent.
Section 1.9. Discount; Payments and Computations, Etc. (a) Discount shall
accrue for each Receivable Interest for each day occurring during the Tranche
Period for such Receivable Interest. On the last day of each Tranche Period the
Seller shall pay to the Administrative Agent an amount equal to the accrued and
unpaid Discount for such Tranche Period.
(b) Notwithstanding any limitation on recourse contained in this Agreement,
the Seller shall pay to the Administrative Agent, for the account of the
relevant Purchasers, such fees as set forth in the Fee Letter (which fees shall
be sufficient to pay the Investor Fees), all amounts payable as Discount, all
amounts payable pursuant to Article VIII, if any, all Servicer costs, if any,
payable pursuant to Section 6.2 and on demand therefor, any Early Collection
Fee. If any Person fails to pay any amount when due hereunder, such Person
agrees to pay, on demand, the Default Fee.
(c) All amounts to be paid or deposited by any Person hereunder shall be
paid or deposited in accordance with the terms hereof no later than 12:00 noon
(Chicago time) on the day when due in immediately available funds; if such
amounts are payable to a Purchaser they shall be paid to the Administrative
Agent, for the account of such Purchaser, at (i) in the case of any Dollar-
denominated amount, One First National Plaza, Chicago, Illinois 60670 and (ii)
in the case of any Deutsche Mark-denominated amount, Niederlassung, Frankfurt,
Germany, BLZ 503 304 00, in each case until otherwise notified by the
Administrative Agent. Upon notice to the Seller, the Administrative Agent may
debit the Facility Account for all amounts due and payable hereunder. Except as
otherwise provided herein, all computations of Discount and per annum fees
hereunder and under the Fee Letter shall be made on the basis of a year of 360
days for the actual number of days elapsed (including the first but excluding
the last day). All per annum fees shall be payable monthly in arrears. If any
amount hereunder shall be payable on a day which is not a Business Day, such
amount shall be payable on the next succeeding Business Day.
(d) Where appropriate, the Administrative Agent may designate whether any
of the foregoing fees or other amounts shall be payable in Dollars or Deutsche
Marks. In the event, for any reason, (i) payment on any obligation shall be
remitted to the Administrative Agent or any Purchaser in a currency other than
the currency designated by the Administrative Agent or
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(ii) Collections in one currency are allocated to a Receivable Interest
denominated in another currency pursuant to Section 1.7(b), then the
Administrative Agent shall convert such payment or such Collections into such
other currency using such hedging arrangements and markets as shall then be
available to the Administrative Agent and as shall have been selected by the
Administrative Agent in its sole discretion and the payment of such obligation
or the application of such Collections to such Receivable Interest shall be
deemed to have occurred only to the extent of the amount of such other currency
received by the Administrative Agent or the applicable Purchaser after giving
effect to such conversion.
Section 1.10. Capital Limit. The Seller shall ensure that the Aggregate
Capital at no time exceeds the Capital Limit. If on the Liquidation Day of a
Receivable Interest or on any day on which the Coverage Exchange Rate is to be
determined in accordance with the definition thereof, the Aggregate Capital
exceeds the Capital Limit, the Seller shall immediately pay to the
Administrative Agent an amount in Dollars or Deutsche Marks (as the
Administrative Agent may direct) to be applied to reduce the Capital of the
Receivable Interests, such that after giving effect to such payment the
Aggregate Capital does not exceed the Capital Limit. Such amount shall be
applied to the reduction of the Capital of the Receivable Interests in the
applicable currency. Any amounts received by the Investors pursuant to the
preceding sentence shall be applied ratably in accordance with their Pro Rata
Shares.
Section 1.11. Seller's Extinguishment. The Seller shall have the right,
on three (3) Business Days' written notice to the Administrative Agent, at any
time following the Facility Termination Date and the reduction of the Aggregate
Capital to a level that is less than ten percent (10%) of the Purchase Limit in
effect on the date hereof, to repurchase from the Purchasers all, and not part,
of the then outstanding Receivable Interests. The purchase price in respect
thereof shall be an amount equal to the Aggregate Unpaids (which amount shall
include, without limitation, any Early Collection Fee that shall arise in
connection with such repurchase) through the date of such repurchase, payable in
immediately available funds. Such repurchase shall be without representation,
warranty or recourse of any kind by, on the part of or against any Purchaser or
the Administrative Agent.
Section 1.12. Extensions of the Liquidity Termination Date. The Seller
may, by written notice (an "Extension Request") given to the Administrative
Agent not later than sixty days prior to the Liquidity Termination Date then in
effect, request that such Liquidity Termination Date be extended. Each such
Extension Request shall contemplate an extension of the Liquidity Termination
Date then in effect to a date that is a Business Day not more than 364 days
after such Liquidity Termination Date. The Administrative Agent shall promptly
advise each Purchaser of its receipt of any Extension Request. Each Purchaser
may, in its sole discretion, consent to a requested extension by giving written
notice thereof to the Administrative Agent by not later than the date that is 30
days prior to the Liquidity Termination Date then in effect. Failure on the
part of any Purchaser to respond to an Extension Request by such date shall be
deemed to be a denial of such request by such Purchaser. If all of the
Purchasers shall consent in writing to a requested extension, such request shall
be granted and the requested
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extension shall become effective on the Liquidity Termination Date then
otherwise in effect. No extension granted under this Section 1.12 shall exceed a
period of 364 days.
ARTICLE II
LIQUIDITY FACILITY
Section 2.1. Transfer to Investors. Each Investor hereby agrees, subject
to Section 2.4, that immediately upon written notice from Falcon delivered on or
prior to the Liquidity Termination Date, it shall acquire by assignment from
Falcon, without recourse or warranty, its Pro Rata Share of one or more of the
Receivable Interests of Falcon as specified by Falcon. Each Investor shall
promptly pay to the Administrative Agent at an account designated by the
Administrative Agent, for the benefit of Falcon, its Acquisition Amount in
Dollars. Unless an Investor has notified the Administrative Agent that it does
not intend to pay its Acquisition Amount, the Administrative Agent may assume
that such payment has been made and may, but shall not be obligated to, make the
amount of such payment available to Falcon in reliance upon such assumption.
Falcon hereby sells and assigns to the Administrative Agent for the ratable
benefit of the Investors, and the Administrative Agent hereby purchases and
assumes from Falcon, effective upon the receipt by Falcon of the Falcon Transfer
Price, the Receivable Interests of Falcon which are the subject of any transfer
pursuant to this Article II.
Section 2.2. Transfer Price Reduction Discount. If the Adjusted
Liquidity Price is included in the calculation of the Falcon Transfer Price for
any Receivable Interest, each Investor agrees that the Administrative Agent
shall pay to Falcon the Reduction Percentage of any Discount received by the
Administrative Agent with respect to such Receivable Interest.
Section 2.3. Payments to Falcon. In consideration for the reduction of
the Falcon Transfer Prices by the Falcon Transfer Price Reductions, effective
only at such time as the aggregate amount of the Capital of the Receivable
Interests of the Investors equals the Falcon Residual, each Investor hereby
agrees that the Administrative Agent shall not distribute to the Investors and
shall immediately remit to Falcon any Discount, Collections or other payments
received by it to be applied pursuant to the terms hereof or otherwise to reduce
the Capital of the Receivable Interests of the Investors.
Section 2.4. Limitation on Commitment to Purchase from Falcon.
Notwithstanding anything to the contrary in this Agreement, no Investor shall
have any obligation to purchase any Receivable Interest from Falcon, pursuant to
Section 2.1 or otherwise, if:
(i) Falcon shall have voluntarily commenced any proceeding or filed
any petition under any bankruptcy, insolvency or similar law seeking the
dissolution, liquidation or reorganization of Falcon or taken any corporate
action for the purpose of effectuating any of the foregoing; or
(ii) involuntary proceedings or an involuntary petition shall have
been commenced or filed against Falcon by any Person under any bankruptcy,
insolvency or similar law
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seeking the dissolution, liquidation or reorganization of Falcon and such
proceeding or petition shall have not been dismissed.
Section 2.5. Defaulting Investors. If one or more Investors defaults in
its obligation to pay its Acquisition Amount pursuant to Section 2.1 (each such
Investor shall be called a "Defaulting Investor" and the aggregate amount of
such defaulted obligations being herein called the "Falcon Transfer Price
Deficit"), then upon notice from the Administrative Agent, each Investor other
than the Defaulting Investors (a "Non-Defaulting Investor") shall promptly pay
to the Administrative Agent, in immediately available Dollar funds, an amount
equal to the lesser of (x) such Non-Defaulting Investor's proportionate share
(based upon the relative Commitments of the Non-Defaulting Investors) of the
Falcon Transfer Price Deficit and (y) the unused portion of such Non-Defaulting
Investor's Commitment. A Defaulting Investor shall forthwith upon demand pay to
the Administrative Agent for the account of the Non-Defaulting Investors all
amounts paid by each Non-Defaulting Investor on behalf of such Defaulting
Investor, together with interest thereon, for each day from the date a payment
was made by a Non-Defaulting Investor until the date such Non-Defaulting
Investor has been paid such amounts in full, at a rate per annum equal to the
Federal Funds Effective Rate plus 2%. In addition, without prejudice to any
other rights that Falcon may have under applicable law, each Defaulting Investor
shall pay to Falcon forthwith upon demand, the difference between such
Defaulting Investor's unpaid Acquisition Amount and the amount paid with respect
thereto by the non-Defaulting Investors, together with interest thereon, for
each day from the date of the Administrative Agent's request for such Defaulting
Investor's Acquisition Amount pursuant to Section 2.1 until the date the
requisite amount is paid to Falcon in full, at a rate per annum equal to the
Federal Funds Effective Rate plus 2%.
Section 2.6. Hedging Arrangements. The Administrative Agent and Falcon
shall take such actions as are reasonably necessary to cause Falcon's rights and
interest in each hedging or exchange arrangement entered into in connection with
a Receivable Interest to be transferred to the Investors upon the transfer by
Falcon of such Receivable Interest to the Investors. Following the purchase by
the Investors of any Receivable Interest hereunder, whether under Section 1.2 or
2.1, the Administrative Agent shall facilitate the procurement by the Investors
of hedging and exchange arrangements in connection with the funding and
maintenance of Receivable Interests by the Investors.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
Section 3.1. Seller Representations and Warranties. The Seller hereby
represents and warrants to the Purchasers that:
(a) Corporate Existence and Power. The Seller is a corporation duly
organized, validly existing and in good standing under the laws of its state of
incorporation, and has all corporate
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power and all governmental licenses, authorizations, consents and approvals
required to carry on its business in each jurisdiction in which its business is
conducted.
(b) No Conflict. The execution, delivery and performance by the Seller of
this Agreement and each other Transaction Document to which it is a party, and
the Seller's use of the proceeds of purchases made hereunder, are within its
corporate powers, have been duly authorized by all necessary corporate action,
do not contravene or violate (i) its certificate or articles of incorporation or
by-laws, (ii) any law, rule or regulation applicable to it, (iii) any
restrictions under any agreement, contract or instrument to which it is a party
or by which it or any of its property is bound, or (iv) any order, writ,
judgment, award, injunction or decree binding on or affecting it or its
property, and do not result in the creation or imposition of any Adverse Claim
on assets of the Seller (except created hereunder); and no transaction
contemplated hereby requires compliance with any bulk sales act or similar law.
This Agreement and each other Transaction Document has been duly authorized,
executed and delivered by the Seller.
(c) Governmental Authorization. Other than the filing of the financing
statements required hereunder, no authorization or approval or other action by,
and no notice to or filing with, any governmental authority or regulatory body
is required for the due execution, delivery and performance by the Seller of the
Transaction Documents.
(d) Binding Effect. The Transaction Documents to which the Seller is a
party constitute the legal, valid and binding obligations of the Seller
enforceable against the Seller in accordance with their respective terms, except
as such enforcement may be limited by applicable bankruptcy, insolvency,
reorganization or other similar laws relating to or limiting creditors' rights
generally.
(e) Accuracy of Information. All information heretofore furnished by the
Seller or any of its Affiliates to the Administrative Agent or the Purchasers
for purposes of or in connection with this Agreement, any of the other
Transaction Documents, or any transaction contemplated hereby or thereby is, and
all such information hereafter furnished by the Seller to the Purchasers will
be, true and accurate in every material respect, on the date such information is
stated or certified and does not and will not contain any material misstatement
of fact or omit to state a material fact or any fact necessary to make the
statements contained therein not misleading.
(f) Use of Proceeds. No proceeds of any purchase hereunder will be used
(i) for a purpose which violates, or would be inconsistent with, Regulation G,
T, U or X promulgated by the Board of Governors of the Federal Reserve System
from time to time or (ii) to acquire any security in any transaction which is
subject to Section 13 or 14 of the Securities Exchange Act of 1934, as amended.
(g) Title to Receivables Purchased from Originators. Each Receivable
transferred (i) by Hohe to Donnelly has been purchased by Donnelly from Hohe in
accordance with the terms of the Hohe Transfer Agreement, and Donnelly has
thereby irrevocably obtained all legal and
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equitable title to, and has the legal right to sell, such Receivable and the
Related Security to the Seller, and (ii) by Donnelly to the Seller has been
purchased by the Seller from Donnelly in accordance with the terms of the
Donnelly Transfer Agreement, and the Seller has thereby irrevocably obtained all
legal and equitable title to, and has the legal right to sell, such Receivable,
the Related Security and the Hohe Discount. Each such Receivable has been
transferred to Donnelly and to the Seller, as applicable, free and clear of any
Adverse Claim. Without limiting the foregoing, there has been duly filed all
financing statements or other similar instruments or documents, and there has
been duly taken all other actions, necessary under the UCC (and any comparable
law in the United States, Germany, Canada, Belgium, Spain, Sweden or any other
country in which an Obligor of an Eligible Receivable may be located) of all
applicable jurisdictions to perfect Donnelly's and the Seller's, as applicable,
ownership interest in such Receivable, the Related Security and the Hohe
Discount.
(h) Good Title; Perfection. Immediately prior to each purchase hereunder,
the Seller shall be the legal and beneficial owner of the Receivables, Related
Security with respect thereto and the Hohe Discount, free and clear of any
Adverse Claim, except as created by the Transaction Documents. This Agreement is
effective to, and shall, upon each purchase hereunder, transfer to the relevant
Purchaser or Purchasers (and such Purchaser or Purchasers shall acquire from the
Seller) a valid and perfected first priority undivided percentage ownership
interest in each Receivable existing or hereafter arising and in the Related
Security, the Hohe Discount and Collections with respect thereto, free and clear
of any Adverse Claim, except as created by the Transactions Documents.
(i) Places of Business. The principal places of business and chief
executive office of the Seller and the offices where the Seller keeps all its
Records are located at the address(es) listed on Exhibit II or such other
locations notified to the Administrative Agent in accordance with Section 5.2(a)
in jurisdictions where all action required by Section 5.2(a) has been taken and
completed. The Seller's Federal Employer Identification Number is correctly set
forth on Exhibit II.
(j) Collection Banks; etc. Except as otherwise notified to the
Administrative Agent in accordance with Section 5.2(b), (i) the Seller has
instructed, or has caused the Originators to instruct, all Obligors to pay all
Collections directly to a lock-box listed on Exhibit III or, in the case of
wire-transfers on Deutsche Mark-denominated Receivables, to the concentration
account therefor specified on Exhibit III, (ii) proceeds from any such lock-
boxes are deposited directly by a Collection Bank into a concentration account
or a depository account listed on Exhibit III, (iii) the names and addresses of
all Collection Banks, together with the account numbers of the Collection
Accounts of the Seller at each Collection Bank, are listed on Exhibit III, and
(iv) each lock-box and Collection Account to which Collections are remitted is
subject to a Collection Account Agreement that is in full force and effect. In
the case of lock-boxes and Collection Accounts identified on Exhibit III which
were established by an Originator or by any Person other than the Seller,
exclusive dominion and control thereof has been transferred to the Seller. The
Seller has not granted any Person, other than the Administrative Agent as
contemplated by this Agreement, dominion and control of any lock-box or
Collection Account, or the right to
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take dominion and control of any lock-box or Collection Account at a future time
or upon the occurrence of a future event.
(k) Material Adverse Effect. Since June 29, 1996, no event has occurred
which would have a Material Adverse Effect.
(l) Names. In the past five years, the Seller has not used any corporate
names, trade names or assumed names other than those listed on Exhibit II.
(m) Actions, Suits. There are no actions, suits or proceedings pending,
or to the knowledge of the Seller threatened, against or affecting the Seller or
either Originator, or any of the respective properties of the Seller or either
Originator, in or before any court, arbitrator or other body, which are
reasonably likely to (i) adversely affect the collectibility of a material
portion of the Receivables, (ii) materially adversely affect the financial
condition of the Seller or such Originator or (iii) materially adversely affect
the ability of the Seller or such Originator to perform its obligations under
the Transaction Documents. Neither the Seller nor either Originator is in
default with respect to any order of any court, arbitrator or governmental body.
(n) Coverage. The Aggregate Capital does not exceed the Capital Limit.
(o) Credit and Collection Policies. With respect to each Receivable, each
of the applicable Originator, the Seller and the Designated Servicer has
complied in all material respects with the Credit and Collection Policy. Except
as otherwise permitted under this Agreement, the Credit and Collection Policy
has not been amended or modified in any material respect since the date of this
Agreement.
(p) Payments to Originator. With respect to (i) each Receivable
transferred to Donnelly under the Hohe Transfer Agreement, and (ii) each
Receivable transferred to the Seller under the Donnelly Transfer Agreement,
Donnelly or the Seller, as applicable, has given reasonably equivalent value to
the applicable Originator in consideration for such transfer of such Receivable
and the Related Security with respect thereto and the Hohe Discount under the
applicable Transfer Agreement and such transfer was not made for or on account
of an antecedent debt. No transfer by either Originator of any Receivable is or
may be voidable under any Section of the Bankruptcy Reform Act of 1978 (11
U.S.C. (S)(S) 101 et seq.), as amended or under any law, rule or regulation in
effect in Germany or any other country in which any Obligor on any Receivable
may be located, or any political subdivision thereof or jurisdiction therein,
whether relating to bankruptcy, insolvency, reorganization, creditors' rights or
otherwise.
(q) Ownership of the Seller. Donnelly owns, directly or indirectly, one
hundred percent (100%) of the issued and outstanding capital stock of the
Seller. Such capital stock is validly issued, fully paid and nonassessable and
there are no options, warrants or other rights to acquire securities of the
Seller.
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(r) Subsidiaries. The Seller has no Subsidiaries.
(s) Not an Investment Company. The Seller is not an "investment company"
within the meaning of the Investment Company Act of 1940, as amended from time
to time, or any successor statute.
Section 3.2. Investor Representations and Warranties. Each Investor
hereby represents and warrants to the Administrative Agent and Falcon that:
(a) Existence and Power. Such Investor is a corporation or a banking
association duly organized, validly existing and in good standing under the laws
of its jurisdiction of incorporation or organization, and has all corporate
power to perform its obligations hereunder.
(b) No Conflict. The execution, delivery and performance by such Investor
of this Agreement are within its corporate powers, have been duly authorized by
all necessary corporate action, do not contravene or violate (i) its certificate
or articles of incorporation or association or by-laws, (ii) any law, rule or
regulation applicable to it, (iii) any restrictions under any agreement,
contract or instrument to which it is a party or any of its property is bound,
or (iv) any order, writ, judgment, award, injunction or decree binding on or
affecting it or its property, and do not result in the creation or imposition of
any Adverse Claim on its assets. This Agreement has been duly authorized,
executed and delivered by such Investor.
(c) Governmental Authorization. No authorization or approval or other
action by, and no notice to or filing with, any governmental authority or
regulatory body is required for the due execution, delivery and performance by
such Investor of this Agreement.
(d) Binding Effect. This Agreement constitutes the legal, valid and
binding obligation of such Investor enforceable against such Investor in
accordance with its terms, except as such enforcement may be limited by
applicable bankruptcy, insolvency, reorganization or other similar laws relating
to or limiting creditors' rights generally.
ARTICLE IV
CONDITIONS OF PURCHASES
Section 4.1. Conditions Precedent to Initial Purchase. The initial
purchase of a Receivable Interest under this Agreement is subject to the
conditions precedent that the Administrative Agent shall have received on or
before the date of such purchase those documents listed on Schedule A hereto.
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Section 4.2. Conditions Precedent to All Purchases and Reinvestments.
Each purchase of a Receivable Interest (other than pursuant to Section 2.1) and
each Reinvestment shall be subject to the further conditions precedent that (a)
in the case of each such purchase, the Servicer shall have delivered to the
Administrative Agent on or prior to the date of such purchase, in form and
substance satisfactory to the Administrative Agent, all Settlement Reports as
and when due under Section 6.5; (b) on the date of each such purchase or
Reinvestment, the following statements shall be true both before and after
giving effect to such Reinvestment (and acceptance of the proceeds of such
purchase or Reinvestment shall be deemed a representation and warranty by the
Seller that such statements are then true):
(i) the representations and warranties set forth in Article III are
correct on and as of the date of such purchase or Reinvestment
as though made on and as of such date;
(ii) no event has occurred, or would result from such purchase or
Reinvestment, that will constitute a Servicer Default, and no
event has occurred and is continuing, or would result from such
purchase or Reinvestment, that would constitute a Potential
Servicer Default;
(iii) the Liquidity Termination Date shall not have occurred, the
Aggregate Capital shall not exceed the Purchase Limit, and the
Aggregate Capital shall not exceed the Capital Limit; and
(iv) in the case of any DM Purchase or any Reinvestment for a
Receivable Interest that shall have arisen from a DM Purchase,
the applicable Purchaser(s) shall have obtained hedging and
currency arrangements in connection therewith reasonably
satisfactory to such Purchaser(s).
and (c) the Administrative Agent shall have received such other approvals,
opinions or documents as it may reasonably request.
ARTICLE V
COVENANTS
Section 5.1. Affirmative Covenants of Seller. Until the date on which
the Aggregate Unpaids have been indefeasibly paid in full, the Seller hereby
covenants, individually and in its capacity as Servicer, that:
(a) Financial Reporting. The Seller will maintain a system of accounting
established and administered in accordance with generally accepted accounting
principles, and furnish to the Administrative Agent:
(i) Annual Reporting. Within 90 days after the close of each of its
fiscal years, financial statements for such fiscal year certified in a
manner acceptable to the Administrative Agent by the chief financial
officer of the Seller.
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(ii) Quarterly Reporting. If so requested by the Administrative
Agent, within 45 days after the close of the first three quarterly periods
of each of its fiscal years, balance sheets as at the close of each such
period and statements of income and retained earnings and a statement of
cash flows for the period from the beginning of such fiscal year to the end
of such quarter, all certified by its chief financial officer.
(iii) Compliance Certificate. Together with the financial statements
required hereunder, a compliance certificate in substantially the form of
Exhibit IV signed by the Seller's corporate comptroller or chief financial
officer and dated the date of such annual financial statement or such
quarterly financial statement, as the case may be.
(iv) Shareholders Statements and Reports. Promptly upon the
furnishing thereof to the shareholders of the Seller, copies of all
financial statements, reports and proxy statements so furnished.
(v) Change in Credit and Collection Policy. At least 30 days prior
to the effectiveness of any material change in or amendment to the Credit
and Collection Policy, a copy of the Credit and Collection Policy then in
effect and a notice indicating such change or amendment.
(vi) Notices under Transaction Documents. Forthwith upon its receipt
of any notice, request for consent, financial statements, certification,
report or other communication under or in connection with any Transaction
Document from any Person other than the Administrative Agent or any
Purchaser, copies of the same.
(vii) Other Information. Such other information (including non-
financial information) as the Administrative Agent or any Purchaser may
from time to time reasonably request.
(b) Notices. The Seller will notify the Administrative Agent in writing of
any of the following immediately upon learning of the occurrence thereof,
describing the same and, if applicable, the steps being taken with respect
thereto:
(i) Servicer Defaults or Potential Servicer Defaults. The occurrence
of each Servicer Default or each Potential Servicer Default, by a statement
of the corporate comptroller or senior financial officer of the Seller.
(ii) Judgment. The entry of any judgment or decree against the
Seller.
(iii) Litigation. The institution of any litigation, arbitration
proceeding or governmental proceeding against the Seller or to which the
Seller becomes party.
(iv) Donnelly Credit Rating. The introduction of, or any change in,
any publicly announced or privately issued indicative credit rating by
Standard & Poor's Ratings
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Services, a division of the McGraw-Hill Companies, Inc., Moody's Investors
Service, Inc., the National Association of Insurance Commissioners or any
other nationally recognized rating agency or similar organization with
respect to any indebtedness or obligations of Donnelly at any time that
Donnelly is performing any servicing responsibilities in respect of the
Receivables.
(c) Compliance with Laws. The Seller will comply in all material respects
with all applicable laws, rules, regulations, orders writs, judgments,
injunctions, decrees or awards to which it may be subject.
(d) Audits. The Seller will furnish to the Administrative Agent from time
to time such information with respect to it and the Receivables as the
Administrative Agent may reasonably request. The Seller shall, from time to time
during regular business hours as requested by the Administrative Agent upon
reasonable notice, permit the Administrative Agent, or its agents or
representatives (and shall cause each Originator to permit the Administrative
Agent or its agents or representatives), (i) to examine and make copies of and
abstracts from all Records in the possession or under the control of the Seller
or such Originator relating to Receivables and the Related Security, including,
without limitation, the related Contracts, and (ii) to visit the offices and
properties of the Seller or such Originator for the purpose of examining such
materials described in clause (i) above, and to discuss matters relating to the
Seller's or such Originator's financial condition or the Receivables and the
Related Security or the Seller's performance hereunder, or such Originator's
performance under any of the other Transaction Documents, or the Seller's or
such Originator's performance under the Contracts with any of the officers or
employees of the Seller or such Originator having knowledge of such matters.
(e) Keeping and Marking of Records and Books; Notation in Financial
Statements.
(i) The Seller will, and will cause each Originator to, maintain and
implement administrative and operating procedures (including, without
limitation, an ability to recreate records evidencing Receivables in the
event of the destruction of the originals thereof), and keep and maintain
all documents, books, records and other information reasonably necessary or
advisable for the collection of all Receivables (including, without
limitation, records adequate to permit the immediate identification of each
new Receivable and all Collections of and adjustments to each existing
Receivable). The Seller will, and will cause each Originator to, give the
Administrative Agent notice of any material change in the administrative
and operating procedures referred to in the previous sentence.
(ii) The Seller will, and will cause each Originator to, (a) on or
prior to the date hereof, mark its master data processing records and other
books and records relating to the Receivable Interests with a legend,
acceptable to the Administrative Agent, describing the Receivable Interests
or, in the case of Hohe, the ownership interest of Donnelly and the Seller
in the "Purchased Receivables" under and as defined in the Hohe Transfer
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Agreement and (b) upon the request of the Administrative Agent at any time
following the replacement of the Seller as the Servicer hereunder, deliver
to the Administrative Agent all Contracts (including, without limitation,
all multiple originals of any such Contract) relating to the Receivables.
(iii) The Seller will note in its financial statements that
Receivable Interests have been sold to the Purchasers hereunder, and will
cause (a) Donnelly to note in its financial statements that its Receivables
have been sold to the Seller and (b) Hohe to note in its financial
statements that the "Purchased Receivables" under and as defined in the
Hohe Transfer Agreement have been sold to Donnelly.
(f) Compliance with Contracts and Credit and Collection Policy. The
Seller will, and will cause each Originator to, timely and fully (i) perform and
comply in all material respects with all provisions, covenants and other
promises required to be observed by it under the Contracts related to the
Receivables, and (ii) comply in all material respects with the Credit and
Collection Policy in regard to each Receivable and the related Contract. The
Seller will, and will cause each Originator to, pay when due any taxes payable
in connection with the Receivables.
(g) Purchase of Receivables from Originators. With respect to each
Receivable purchased under a Transfer Agreement, the Seller shall take (or shall
cause the applicable Originator to take) all actions necessary to vest legal and
equitable title to such Receivable, the Related Security and the Hohe Discount
irrevocably in the Seller, including, without limitation, the filing of all
financing statements or other similar instruments or documents necessary under
the UCC (and any comparable law in the United States, Germany, Canada, Belgium,
Spain, Sweden or any other country in which an Obligor of an Eligible Receivable
may be located) of all applicable jurisdictions to perfect the Seller's interest
in such Receivable and such other action to perfect, protect or more fully
evidence the interest of the Seller as the Administrative Agent may reasonably
request.
(h) Ownership Interest. The Seller shall take all necessary action to
establish and maintain a valid and perfected first priority undivided percentage
ownership interest in the Receivables, the Related Security, the Hohe Discount
and Collections with respect to any of the foregoing, to the full extent
contemplated herein, in favor of the Administrative Agent and the Purchasers,
including, without limitation, taking such action to perfect, protect or more
fully evidence the interest of the Administrative Agent and the Purchasers
hereunder as the Administrative Agent may reasonably request.
(i) Payment to the Originators. With respect to any Receivable purchased
by the Seller from Donnelly, such sale shall be effected under, and in strict
compliance with the terms of, the Donnelly Transfer Agreement, including,
without limitation, the terms relating to the amount and timing of payments to
be made to Donnelly in respect of the purchase price for such Receivable. With
respect to any Receivable purchased by Donnelly from Hohe, the Seller shall
cause Donnelly to effect such sale under, and in strict compliance with the
terms of, the Hohe
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Transfer Agreement, including, without limitation, the terms relating to the
amount and timing of payments to be made to Hohe in respect of the purchase
price for such Receivable.
(j) Performance and Enforcement of Transfer Agreements. The Seller shall
timely perform the obligations required to be performed by the Seller, and shall
vigorously enforce the rights and remedies accorded to the Seller, under each
Transfer Agreement. The Seller shall take all actions to perfect and enforce its
rights and interests (and the rights and interests of the Purchasers and the
Administrative Agent, as assignees of the Seller) under each Transfer Agreement
as the Administrative Agent may from time to time reasonably request, including,
without limitation, making claims to which it may be entitled under any
indemnity, reimbursement or similar provision contained in either Transfer
Agreement.
(k) Purchasers' Reliance. The Seller acknowledges that the Purchasers are
entering into the transactions contemplated by this Agreement in reliance upon
the Seller's identity as a legal entity that is separate from Donnelly, Hohe and
other Affiliates of the Seller. Therefore, from and after the date of execution
and delivery of this Agreement, the Seller shall take all reasonable steps
including, without limitation, all steps that the Administrative Agent or any
Purchaser may from time to time reasonably request to maintain the Seller's
identity as a separate legal entity and to make it manifest to third parties
that the Seller is an entity with assets and liabilities distinct from those of
its Affiliates and not just a division of any such Affiliate. Without limiting
the generality of the foregoing and in addition to the other covenants set forth
herein, the Seller shall:
(i) conduct its own business in its own name and require that all
full-time employees of the Seller identify themselves as such and not as
employees of any of its Affiliates (including, without limitation, by means
of providing appropriate employees with business or identification cards
identifying such employees as the Seller's employees);
(ii) compensate all employees, consultants and agents directly, from
the Seller's bank accounts, for services provided to the Seller by such
employees, consultants and agents and, to the extent any employee,
consultant or agent of the Seller is also an employee, consultant or agent
of an Affiliate of the Seller, allocate the compensation of such employee,
consultant or agent between the Seller and such Affiliate on a basis which
reflects the services rendered to the Seller and such Affiliate; provided,
however, that the Seller may enter into written agreements with any
Affiliate which allow such Affiliate to pay any employee, consultant or
agent on behalf of the Seller provided the Seller agrees to reimburse such
Affiliate for its allocable share of such payment;
(iii) (A) maintain office space separate and apart from that of any of
its Affiliates (even if such office space is subleased from or is on or
near premises occupied by any of its Affiliates), (B) clearly identify its
offices (by signage or otherwise) as its offices, (C) own or lease pursuant
to written leases all office furniture and equipment necessary
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to operate its business and (D) have a separate telephone number, which
will be answered only in its name and separate stationery, invoices and
checks in its own name;
(iv) conduct all transactions with each of its Affiliates (including,
without limitation, any delegation of its obligations hereunder as
Servicer) strictly on an arm's-length basis, and allocate all overhead
expenses (including, without limitation, telephone and other utility
charges) for items shared between the Seller and such Affiliate on the
basis of actual use to the extent practicable and, to the extent such
allocation is not practicable, on a basis reasonably related to actual use;
(v) at all times have at least one member of its Board of Directors
and one officer who (A) meets the qualifications set forth in the Michigan
Compiled Laws Annotated (S) 450.1107(3), as in effect on the date hereof,
(B) is not a customer or supplier of the Seller or any of its Affiliates
and (C) is not a shareholder (whether direct, indirect or beneficial)
holding more than 1% of the oustanding stock of any Affiliate;
(vi) observe all corporate formalities as a distinct entity, ensure
that all corporate actions are duly authorized by unanimous vote of its
Board of Directors, and maintain the Seller's books and records separate
from those of each of its Affiliates and otherwise readily identifiable as
its own assets rather than assets of any of its Affiliates;
(vii) prepare its financial statements separately from those of its
Affiliates and ensure that any consolidated financial statements of either
Originator or any Affiliate thereof that include the Seller have detailed
notes clearly stating that the Seller is a separate corporate entity and
that its assets will be available first and foremost to satisfy the claims
of the creditors of the Seller;
(viii) except as herein specifically otherwise provided, not
commingle funds or other assets of the Seller with those of any of its
Affiliates and not maintain bank accounts or other depository accounts to
which any of its Affiliates is an account party, into which any of its
Affiliates makes deposits or from which any of its Affiliates has the power
to make withdrawals;
(ix) not permit any of its Affiliates to pay any of its operating
expenses (except pursuant to allocation arrangements that comply with the
requirements of this Section 5.1(k));
(x) refrain from paying dividends or making distributions, loans or
other advances to any of its Affiliates (except that, commencing after
October 15, 1997, dividends which are duly authorized by its Board of
Directors and are in compliance with applicable law may be payable no more
than once each calendar year so long as (i) such dividend is payable after
October 15 of such year and (ii) no event has occurred and is continuing,
or would result from such dividend, which constitutes a Servicer Default or
Potential Servicer Default);
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(xi) refrain from filing or otherwise initiating or supporting the
filing of a motion in any bankruptcy or other insolvency proceedings
involving the Seller, Donnelly, Hohe, or any other Affiliate of Seller, to
substantively consolidate the Seller with any such Affiliate;
(xii) refrain from (A) guaranteeing any obligation of any of its
Affiliates (B) having its obligations guaranteed by any of its Affiliates,
(C) holding itself out as responsible for debts of any of its Affiliates or
for the decisions or actions with respect to the affairs of any of its
Affiliates, and (D) being directly or indirectly named as a direct or
contingent beneficiary or loss payee on any insurance policy covering the
property of any Affiliate; and
(xiii) maintain in place all policies and procedures, and take and
continue to take all action, described in the facts and assumptions set
forth in the opinion letter issued by Varnum Riddering Schmidt and Howlett
LLP of even date herewith relating to true sale and substantive
consolidation issues, and in any certificates accompanying such opinion
letter.
(l) Collections. The Seller shall instruct (or cause the applicable
Originators to instruct) all Obligors to pay all Collections directly to a lock-
box listed on Exhibit III or, in the case of wire-transfers on Deutsche Mark-
denominated Receivables, to the concentration account therefor specified on
Exhibit III. In the case of payments remitted to any such lock-box, the Seller
shall cause all proceeds from such lock-box to be deposited directly by a
Collection Bank into a concentration account or a depositary account listed on
Exhibit III. The Seller shall maintain exclusive dominion and control (subject
to the terms of this Agreement) to each such lock-box, concentration account and
depositary account. In the case of any Collections received by the Seller or an
Originator, the Seller shall remit (or shall cause such Originator to remit)
such Collections to a Collection Account not later than the Business Day
immediately following the date of receipt of such Collections, and, at all times
prior to such remittance, the Seller shall itself hold (or, if applicable, shall
cause such Originator to hold) such Collections in trust, for the exclusive
benefit of the Purchasers and the Administrative Agent.
(m) Minimum Net Worth. The Seller shall at all times maintain a net
worth of not less than $2,850,000.
(n) German Credit and Collection Policy. By no later than the date
which is 90 days from the date hereof, the Seller shall deliver to the
Administrative Agent a written credit and collection policy, in form and
substance satisfactory to the Administrative Agent, summarizing its credit and
collection policies and practices relating to Deutsche Mark-denominated
Receivables and Contracts related thereto.
Section 5.2. Negative Covenants of Seller. Until the date on which the
Aggregate Unpaids have been indefeasibly paid in full, the Seller hereby
covenants, individually and in its capacity as Servicer, that:
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(a) Name Change, Offices, Records and Books of Accounts. The Seller will
not change its name, identity or corporate structure (within the meaning of
Section 9-402(7) of any applicable enactment of the UCC) or relocate its chief
executive office or any office where Records are kept unless it shall have: (i)
given the Administrative Agent at least 45 days prior notice thereof and (ii)
delivered to the Administrative Agent all financing statements, instruments and
other documents reasonably requested by the Administrative Agent in connection
with such change or relocation.
(b) Change in Payment Instructions to Obligors. The Seller will not add
or terminate any bank as a Collection Bank from those listed in Exhibit III, or
make any change in its instructions to Obligors regarding payments to be made to
the Seller or payments to be made to any lock-box, Collection Account or
Collection Bank, unless the Administrative Agent shall have received, at least
10 days before the proposed effective date therefor, (i) written notice of such
addition, termination or change and (ii) with respect to the addition of a lock-
box, Collection Account or Collection Bank, an executed account agreement and an
executed Collection Account Agreement from such Collection Bank relating
thereto; provided, however, that the Seller may make changes in instructions to
Obligors regarding payments if such new instructions require such Obligor to
make payments to another existing lock-box or Collection Account that is subject
to a Collection Account Agreement then in effect.
(c) Modifications to Contracts and Credit and Collection Policy. The
Seller will not make any change to the Credit and Collection Policy which would
be reasonably likely to adversely affect the collectibility of any material
portion of the Receivables or decrease the credit quality of any newly created
Receivables. Except as provided in Section 6.2(c), the Seller, acting as
Servicer or otherwise, will not extend, amend or otherwise modify the terms of
any Receivable or any Contract related thereto other than in accordance with the
Credit and Collection Policy.
(d) Sales, Liens, Etc. The Seller shall not sell, assign (by operation of
law or otherwise) or otherwise dispose of, or grant any option with respect to,
or create or suffer to exist any Adverse Claim upon (including, without
limitation, the filing of any financing statement) or with respect to, any
Receivable, Related Security, Hohe Discount or Collections in respect thereof,
or upon or with respect to any Contract under which any Receivable arises, or
any lock-box or Collection Account or assign any right to receive income in
respect thereof (other than, in each case, the creation of the interests therein
in favor of the Administrative Agent and the Purchasers provided for herein),
and the Seller shall defend the right, title and interest of the Administrative
Agent and the Purchasers in, to and under any of the foregoing property, against
all claims of third parties claiming through or under the Seller or either
Originator.
(e) Nature of Business; Other Agreements; Other Indebtedness. The Seller
shall not engage in any business or activity of any kind or enter into any
transaction or indenture, mortgage, instrument, agreement, contract, lease or
other undertaking other than the transactions contemplated and authorized by
this Agreement and the Transfer Agreements. Without limiting the generality of
the foregoing, the Seller shall not create, incur, guarantee, assume or suffer
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to exist any indebtedness or other liabilities, whether direct or contingent,
other than (i) as a result of the endorsement of negotiable instruments for
deposit or collection or similar transactions in the ordinary course of
business, (ii) the incurrence of obligations under this Agreement or as
expressly contemplated in the Donnelly Transfer Agreement to make payment to
Donnelly for the purchase of Receivables thereunder and (iii) the incurrence of
operating expenses in the ordinary course of business of the type otherwise
contemplated in Section 5.1(k) of this Agreement.
(f) Amendments to Transfer Agreements. The Seller shall not, without the
prior written consent of the Administrative Agent, (i) cancel or terminate
either Transfer Agreement, (ii) give any consent, waiver, directive or approval
under either Transfer Agreement, (iii) waive any default, action, omission or
breach under either Transfer Agreement, or otherwise grant any indulgence
thereunder, or (iv) amend, supplement or otherwise modify any of the terms of
either Transfer Agreement.
(g) Amendments to Corporate Documents. The Seller shall not amend its
Certificate of Incorporation or By-Laws in any respect that would impair its
ability to comply with the terms or provisions of any of the Transaction
Documents, including, without limitation, Section 5.1(k) of this Agreement.
(h) Merger. The Seller shall not merge or consolidate with or into, or
convey, transfer, lease or otherwise dispose of (whether in one transaction or
in a series of transactions, and except as otherwise contemplated herein) all or
substantially all of its assets (whether now owned or hereafter acquired) to, or
acquire all or substantially all of the assets of, any Person.
(i) Subsidiaries. The Seller shall not establish, create, acquire or
permit to exist any Subsidiary.
(j) Deposits. The Seller shall not deposit or otherwise credit, and shall
not permit an Originator or any other Person to deposit or otherwise credit, to
any lock-box or Collection Account any cash or payment item other than
Collections. Notwithstanding the foregoing, Hohe may, from time to time until
the Administrative Agent shall otherwise direct in a written notice to the
Seller, instruct its Obligors to remit payments on receivables, including
receivables that do not constitute "Receivables" under this Agreement, to one or
more of the lock-boxes or concentration accounts identified on Exhibit III;
provided that (i) each such lock-box and concentration account shall be in the
name of, and under the exclusive dominion and control of, the Seller, and (ii)
at all such times a written agreement among the Seller and the Originators,
satisfactory in form and substance to the Administrative Agent, shall be in
effect setting forth the procedures implemented for the identification and
allocation of collections on such receivables as among the Seller and the
Originators.
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ARTICLE VI
ADMINISTRATION AND COLLECTION
Section 6.1. Designation of Servicer. (a) The servicing, administration
and collection of the Receivables shall be conducted by such Person (the
"Servicer") so designated from time to time in accordance with this Section 6.1.
The Seller is hereby designated as, and hereby agrees to perform the duties and
obligations of, the Servicer pursuant to the terms of this Agreement. The
Administrative Agent may, and at the direction of the Required Investors shall,
at any time following the occurrence of a Servicer Default, designate as
Servicer any Person to succeed the Seller or any successor Servicer.
(b) The Seller is permitted to delegate, and the Seller hereby advises the
Purchasers and the Administrative Agent that it has delegated, to each
Originator, as a subservicer of the Servicer, certain of its duties and
responsibilities as Servicer hereunder in respect of the Receivables transferred
by such Originator to Donnelly or the Seller, as applicable. Notwithstanding the
foregoing, (i) the Seller shall be and remain primarily liable to the
Administrative Agent and the Purchasers for the full and prompt performance of
all duties and responsibilities of the Servicer hereunder and (ii) the
Administrative Agent and the Purchasers shall be entitled to deal exclusively
with the Seller in matters relating to the discharge by the Servicer of its
duties and responsibilities hereunder, and the Administrative Agent and the
Purchasers shall not be required to give notice, demand or other communication
to any Person other than the Seller in order for communication to the Servicer
and its respective delegates and subservicers in respect thereof to be
accomplished. The Seller, at all times that it is the Servicer, shall be
responsible for providing its delegates and subservicers with any notice given
under this Agreement.
(c) Without the prior written consent of the Required Investors, (i) the
Seller shall not be permitted to delegate any of its duties or responsibilities
as Servicer to any Person other than an Originator, and then such delegation
shall be limited to the activities of Servicer hereunder as the same may relate
to the Receivables originated by such Originator, and (ii) no Originator shall
be permitted to further delegate to any other Person any of the duties or
responsibilities of the Servicer delegated to it by the Seller. If at any time
the Administrative Agent shall designate as Servicer any Person other than the
Seller, all duties and responsibilities theretofore delegated by the Seller to
either Originator may, at the discretion of the Administrative Agent, be
terminated forthwith on notice given by the Administrative Agent to the Seller.
Section 6.2. Duties of Servicer. (a) The Servicer shall take or cause to
be taken all such actions as may be necessary or advisable to collect each
Receivable from time to time, all in accordance with applicable laws, rules and
regulations, with reasonable care and diligence, and in accordance with the
Credit and Collection Policy.
(b) The Servicer shall administer the Collections in accordance with the
procedures described herein and in Article I. The Servicer shall set aside and
hold in trust for the account of the Seller and the Purchasers their respective
shares of the Collections of Receivables in
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accordance with Section 1.7. The Servicer shall upon the request of the
Administrative Agent after the occurrence of a Liquidation Day, segregate, in a
manner acceptable to the Administrative Agent, all cash, checks and other
instruments received by it from time to time constituting Collections from the
general funds of the Servicer or the Seller prior to the remittance thereof in
accordance with Section 1.7. If the Servicer shall be required to segregate
Collections pursuant to the preceding sentence, the Servicer shall segregate and
deposit with a bank designated by the Administrative Agent such allocable share
of Collections of Receivables set aside for the Purchasers on the first Business
Day following receipt by the Servicer of such Collections, duly endorsed or with
duly executed instruments of transfer.
(c) The Servicer, may, in accordance with the Credit and Collection
Policy, extend the maturity of any Receivable or adjust the Outstanding Balance
of any Receivable as the Servicer may determine to be appropriate to maximize
Collections thereof; provided, however, that such extension or adjustment shall
not alter the status of such Receivable as a Delinquent Receivable or Defaulted
Receivable or limit the rights of the Administrative Agent or the Purchasers
under this Agreement. Notwithstanding anything to the contrary contained herein,
the Administrative Agent shall have the absolute and unlimited right to direct
the Servicer to commence or settle any legal action with respect to any
Receivable or to foreclose upon or repossess any Related Security.
(d) The Servicer shall hold in trust for the Seller and the Purchasers, in
accordance with their respective Receivable Interests, all Records that evidence
or relate to the Receivables, the related Contracts and Related Security or that
are otherwise necessary or desirable to collect the Receivables and shall, as
soon as practicable upon demand of the Administrative Agent, deliver or make
available to the Administrative Agent all such Records, at a place selected by
the Administrative Agent. The Servicer shall, as soon as practicable following
receipt thereof, turn over to the Seller (i) that portion of Collections of
Receivables representing the Seller's undivided fractional ownership interest
therein, less, in the event the Seller is not the Servicer, all reasonable out-
of-pocket costs and expenses of the Servicer of servicing, administering and
collecting the Receivables, and (ii) any cash collections or other cash proceeds
received with respect to Indebtedness not constituting Receivables. The Servicer
shall, from time to time at the request of any Purchaser, furnish to the
Purchasers (promptly after any such request) a calculation of the amounts set
aside for the Purchasers pursuant to Section 1.7.
(e) Any payment by an Obligor in respect of any indebtedness owed by it to
the Seller shall, except as otherwise specified by such Obligor or otherwise
required by contract or law and unless otherwise instructed by the
Administrative Agent, be applied as a Collection of any Receivable of such
Obligor (starting with the oldest such Receivable) to the extent of any amounts
then due and payable thereunder before being applied to any other receivable or
other obligation of such Obligor.
Section 6.3. Collection Notices. The Administrative Agent is authorized
at any time to date and to deliver (and, at the direction of the Required
Investors, the Administrative Agent shall date and deliver) to the Collection
Banks, a Collection Notice under any Collection
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Account Agreement. The Seller hereby transfers to the Administrative Agent for
the benefit of the Purchasers, effective when the Administrative Agent delivers
such notice, the exclusive ownership and control of the Collection Accounts. In
case any authorized signatory of the Seller whose signature appears on a
Collection Account Agreement shall cease to have such authority before the
delivery of such Collection Notice, such Collection Notice shall nevertheless be
valid as if such authority had remained in force. The Seller hereby authorizes
the Administrative Agent, and agrees that the Administrative Agent shall be
entitled to (i) endorse the Seller's (or, under authority granted to the Seller
under either Transfer Agreement, an Originator's) name on checks and other
instruments representing Collections, (ii) enforce the Receivables, the related
Contracts and the Related Security and (iii) take such action as shall be
necessary or desirable to cause all cash, checks and other instruments
constituting Collections of Receivables to come into the possession of the
Administrative Agent rather than the Seller or an Originator.
Section 6.4. Responsibilities of the Seller. Anything herein to the
contrary notwithstanding, the exercise by the Administrative Agent and the
Purchasers of their rights hereunder shall not release the Servicer or the
Seller from any of their duties or obligations with respect to any Receivables
or under the related Contracts. The Purchasers shall have no obligation or
liability with respect to any Receivables or related Contracts, nor shall any of
them be obligated to perform the obligations of the Seller.
Section 6.5. Reports. On or before the seventh Business Day of each month
and at such other times as the Administrative Agent shall reasonably request,
the Servicer shall prepare and forward to the Administrative Agent (i) a
Settlement Report as of the end of the immediately preceding fiscal month of
Donnelly and (ii) if requested by the Administrative Agent, a listing by Obligor
of all Receivables together with an aging of such Receivables.
ARTICLE VII
SERVICER DEFAULTS
The occurrence of any one or more of the following events shall constitute
a Servicer Default:
(a) Any Designated Servicer or the Seller shall fail (i) to make any
payment or deposit required hereunder when due and such failure shall remain
unremedied for one Business Day, (ii) to perform or observe in any material
respect any term, covenant or agreement hereunder relating to the Receivables,
the Related Security, the Hohe Discount or the Collections or (iii) to perform
or observe in any material respect any term, covenant or agreement hereunder
(other than as referred to in clause (i) or (ii) of this paragraph (a)) and such
failure shall remain unremedied for five Business Days.
(b) Any representation, warranty, certification or statement made by the
Seller, any Designated Servicer or either Originator in this Agreement, any
other Transaction Document or
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in any other document delivered pursuant hereto shall prove to have been
incorrect in any material respect when made or deemed made.
(c)(i) The Seller, any Designated Servicer or either Originator shall
generally not pay its debts as such debts 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 (ii) any proceeding shall be instituted by or
against the Seller, any Designated Servicer (other than Donnelly) or Hohe
seeking to adjudicate it 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 of debtors, or seeking the entry of an order for relief
or the appointment of a receiver, trustee or other similar official for it or
any substantial part of its property; or (iii) any proceeding shall be
instituted by or against Donnelly seeking to adjudicate it 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 of debtors, or
seeking the entry of an order for relief or the appointment of a receiver,
trustee or other similar official for it or any substantial part of its property
unless (A) such proceeding is instituted against Donnelly and is being contested
by Donnelly in good faith and by appropriate proceedings, (B) within two
Michigan business days of the institution of such proceeding Donnelly shall have
obtained a court order (which may include an interim order) satisfactory to the
Administrative Agent and the Required Investors authorizing the continued
transfer of "Receivables", "Related Assets" and "Collections" under the Donnelly
Transfer Agreement and Receivable Interests hereunder in the manner (and with
the effect) contemplated herein following commencement of such proceeding and
granting protection to the Seller and the Purchasers against subsequent
avoidance or subordination of such transfers by the trustee or any other Person
in connection with such proceeding and (C) such proceeding shall be dismissed
within 30 days of the institution thereof; or (iv) the Seller, any Designated
Servicer or either Originator shall take any corporate action to authorize any
of the actions set forth in clause (i) or (iii) above in this subsection (c);
(d) As at the end of any calendar month, the Delinquency Ratio shall have
exceeded 10% for two consecutive months.
(e) As at the end of any calendar month, the Loss-to-Liquidation Ratio
shall exceed 1%.
(f) Either Originator (i) shall fail to perform or observe in any material
respect any term, covenant or agreement contained in any other Transaction
Document, after giving effect to any grace period therefor, or (ii) shall for
any reason cease to transfer, or cease to have the legal capacity or otherwise
be incapable of transferring, Receivables to the applicable transferee under any
Transfer Agreement to which it is party, any "Termination Event" or "Potential
Termination Event" shall occur under the Donnelly Transfer Agreement, or any
"German Servicer Default" or "Potential German Servicer Default" shall occur
under the Hohe Transfer Agreement.
(g) A Change of Control shall occur.
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ARTICLE VIII
INDEMNIFICATION
Section 8.1. Indemnities by the Seller. Without limiting any other
rights which the Administrative Agent or any Purchaser may have hereunder or
under applicable law, the Seller hereby agrees to indemnify the Administrative
Agent and each Purchaser and their respective officers, directors, agents and
employees (each an "Indemnified Party") from and against any and all damages,
losses, claims, taxes, liabilities, costs, expenses and for all other amounts
payable, including reasonable attorneys' fees (which attorneys may be employees
of the Administrative Agent or such Purchaser) and reasonable disbursements (all
of the foregoing being collectively referred to as "Indemnified Amounts")
awarded against or incurred by any of them arising out of or as a result of this
Agreement or the acquisition, either directly or indirectly, by a Purchaser of
an interest in the Receivables, excluding, however:
(i) Indemnified Amounts to the extent final judgment of a court of
competent jurisdiction holds such Indemnified Amounts resulted from gross
negligence or willful misconduct on the part of the Indemnified Party
seeking indemnification;
(ii) Indemnified Amounts to the extent the same includes losses in
respect of Eligible Receivables which are uncollectible on account of the
insolvency, bankruptcy or lack of creditworthiness of the related Obligor;
or
(iii) taxes imposed by the jurisdiction in which such Indemnified
Party's principal executive office is located, on or measured by the
overall net income of such Indemnified Party to the extent that the
computation of such taxes is consistent with the Intended Characterization;
provided, however, that nothing contained in this sentence shall limit the
liability of the Seller or the Servicer or limit the recourse of the Purchasers
to the Seller or Servicer for amounts otherwise specifically provided to be paid
by the Seller or the Servicer under the terms of this Agreement. Without
limiting the generality of the foregoing indemnification, the Seller shall
indemnify the Administrative Agent and the Purchasers for Indemnified Amounts
(including, without limitation, losses in respect of uncollectible receivables,
regardless of whether reimbursement therefor would constitute recourse to the
Seller or the Servicer) relating to or resulting from:
(i) any representation or warranty made by the Seller, either
Originator or the Servicer (or any officers of the Seller,
either Originator or the Servicer) under or in connection with
this Agreement, any other Transaction Document, any Settlement
Report or any other information or report delivered by the
Seller, either Originator or the Servicer pursuant hereto or
thereto, which shall have been false or incorrect when made or
deemed made;
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(ii) the failure by the Seller, either Originator or the Servicer
to comply with any applicable law, rule or regulation with
respect to any Receivable or Contract related thereto, or the
nonconformity of any Receivable or Contract included therein
with any such applicable law, rule or regulation or the
failure of the Seller, either Originator or the Servicer to
timely and fully comply with any provision, covenant or other
promise required to be observed by it under any Contract;
(iii) any failure of the Seller, either Originator or the Servicer
to perform its duties or obligations in accordance with the
provisions of this Agreement or any other Transaction
Document;
(iv) any products liability or similar claim arising out of or in
connection with merchandise, insurance or services which are
the subject of any Contract;
(v) any dispute, claim, offset or defense (other than discharge in
bankruptcy of the Obligor) of any Obligor to the payment of
any Receivable (including, without limitation, a defense based
on such Receivable or the related Contract not being a legal,
valid and binding obligation of such Obligor enforceable
against it in accordance with its terms), or any other claim
resulting from the sale of the merchandise or service related
to such Receivable or the furnishing or failure to furnish
such merchandise or services;
(vi) the commingling of Collections of Receivables at any time
with other funds;
(vii) any investigation, litigation or proceeding related to or
arising from this Agreement or any other Transaction Document,
the transactions contemplated hereby or thereby, the use of
the proceeds of a purchase, the ownership of the Receivable
Interests or any other investigation, litigation or proceeding
relating to the Seller or either Originator in which any
Indemnified Party becomes involved as a result of any of the
transactions contemplated hereby or thereby;
(viii) any inability to litigate any claim against any Obligor in
respect of any Receivable as a result of such Obligor being
immune from civil and commercial law and suit on the grounds
of sovereignty or otherwise from any legal action, suit or
proceeding;
(ix) any Servicer Default described in paragraph (c) of Article
VII;
(x) the failure to vest and maintain vested in the Administrative
Agent and the Purchasers, or to transfer to the Administrative
Agent and the Purchasers,
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legal and equitable title to, and ownership of, a first
priority perfected undivided percentage ownership (to the
extent of the Receivable Interests contemplated hereunder) in
the Receivables, the Related Security, the Hohe Discount and
the Collections, free and clear of any Adverse Claim; or the
failure of the Seller or any Originator to cause Collections
to be transferable to any location outside of Germany without
any set-off, deduction or other charge or encumbrance; or the
failure of the Seller or any Originator to deliver Collections
to the Servicer at any time;and
(xi) any failure of the Seller or Donnelly to give reasonably
equivalent value to an Originator under a Transfer Agreement
in consideration of the transfer by such Originator of any
Receivable, or any attempt by any Person to void any such
transfer under statutory provisions or common law or equitable
action, including, without limitation, any provision of the
Bankruptcy Code.
If any claim which may give rise to a claim for indemnity under this
Section 8.1 is asserted against any Indemnified Party, such Indemnified Party
shall give the Seller written notice of that claim. In the event any third party
brings an action or proceeding against any Indemnified Party in respect of which
indemnity may be sought under this Section 8.1, such Indemnified Party promptly
shall give notice of that action or proceeding to the Seller and upon receipt of
any such notice the Seller shall have the right and, if so requested by such
Indemnified Party, the obligation to assume the defense of the action or
proceeding; provided, that (i) failure of a party to give such notice shall not
relieve the Seller from any of its obligations under this Section 8.1 unless
that failure prejudices the defense of the action or proceeding by the Seller
and (ii) the Seller shall not have the right to assume the defense of any such
action or proceeding unless (a) no Servicer Default has occurred and is
continuing and (b) the Seller has acknowledged to such Indemnified Party in
writing its obligation to pay any indemnity claim hereunder arising in
connection with such action or proceeding and has paid any Indemnified Amounts
already incurred by the applicable Indemnified Parties in connection with such
action or proceeding. At its own expense, an Indemnified Party may employ
separate counsel and participate in any defense assumed by the Seller. Each
Indemnified Party shall obtain the Seller's prior written consent to any
settlement or compromise of any action or proceeding in respect of which
indemnity may be sought hereunder.
Section 8.2. Increased Cost and Reduced Return. If after the date
hereof, any Funding Source shall be charged any fee, expense or increased cost
on account of the adoption of any applicable law, rule or regulation (including
any applicable law, rule or regulation regarding capital adequacy) or any change
therein, or any change in the interpretation or administration thereof by any
governmental authority, central bank or comparable agency charged with the
interpretation or administration thereof, or compliance with any request or
directive (whether or not having the force of law) of any such authority,
central bank or comparable agency (a "Regulatory Change"): (i) which subjects
any Funding Source to any charge or withholding on or with respect to any
Funding Agreement or a Funding Source's obligations under a Funding
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Agreement, or on or with respect to the Receivables, or changes the basis of
taxation of payments to any Funding Source of any amounts payable under any
Funding Agreement (except for changes in the rate of tax on the overall net
income of a Funding Source) or (ii) which imposes, modifies or deems applicable
any reserve, assessment, insurance charge, special deposit or similar
requirement against assets of, deposits with or for the account of a Funding
Source, or credit extended by a Funding Source pursuant to a Funding Agreement
or (iii) which imposes any other condition the result of which is to increase
the cost to a Funding Source of performing its obligations under a Funding
Agreement, or to reduce the rate of return on a Funding Source's capital as a
consequence of its obligations under a Funding Agreement, or to reduce the
amount of any sum received or receivable by a Funding Source under a Funding
Agreement or to require any payment calculated by reference to the amount of
interests or loans held or interest received by it and such cost described in
clause (i), (ii) or (iii) arises in connection with any of the transactions
contemplated in this Agreement, then, upon demand by the Administrative Agent,
the Seller shall pay to the Administrative Agent, for the benefit of the
relevant Funding Source, a reasonable allocation of the aggregate of such
amounts charged to such Funding Source or compensate such Funding Source for a
reasonable allocation of the aggregate of such reduction. A statement as to such
amount, prepared in good faith and in reasonable detail by the Administrative
Agent and submitted by the Administrative Agent to the Seller, shall be
conclusive and binding for all purposes absent manifest error in computation.
Section 8.3. Other Costs and Expenses. The Seller shall pay to the
Administrative Agent and Falcon on demand all reasonable costs and reasonable
out-of-pocket expenses in connection with the preparation, execution, delivery
and administration of this Agreement, the transactions contemplated hereby and
the other documents to be delivered hereunder, including without limitation, the
reasonable cost of Falcon's auditors auditing the books, records and procedures
of the Seller, reasonable fees and reasonable out-of-pocket expenses of legal
counsel for Falcon and the Administrative Agent (which such counsel may be
employees of Falcon or the Administrative Agent) with respect thereto and with
respect to advising Falcon and the Administrative Agent as to their respective
rights and remedies under this Agreement. The Seller shall pay to the
Administrative Agent on demand any and all reasonable costs and expenses of the
Administrative Agent and the Purchasers, if any, including reasonable counsel
fees and expenses in connection with the enforcement of this Agreement and the
other documents delivered hereunder and in connection with any restructuring or
workout of this Agreement or such documents, or the administration of this
Agreement following a Servicer Default. The Seller shall reimburse Falcon on
demand for all other reasonable costs and expenses incurred by Falcon or any
shareholder of Falcon ("Other Costs"), including, without limitation, the
reasonable cost of auditing Falcon's books by certified public accountants, the
cost of rating the Commercial Paper by independent financial rating agencies,
and the reasonable fees and out-of-pocket expenses of counsel for Falcon or any
counsel for any shareholder of Falcon with respect to advising Falcon or such
shareholder as to matters relating to Falcon's operations.
Section 8.4. Allocations. Falcon shall allocate the liability for Other
Costs among the Seller and other Persons with whom Falcon has entered into
agreements to purchase interests in receivables ("Other Sellers") on the basis
of the relation that the Aggregate Capital hereunder
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bears to the aggregate "Capital" or similar investment under all such
agreements, or on such other reasonable basis as Falcon may use for such purpose
in accordance with its customary practice. If any Other Costs are attributable
to the Seller and not attributable to any Other Seller, the Seller shall be
solely liable for such Other Costs. However, if Other Costs are attributable to
Other Sellers and not attributable to the Seller, such Other Sellers shall be
solely liable for such Other Costs. All allocations to be made pursuant to the
foregoing provisions of this Article VIII shall be made by Falcon in its sole
discretion and shall be binding on the Seller and the Servicer.
ARTICLE IX
THE ADMINISTRATIVE AGENT
Section 9.1. Authorization and Action. Each Purchaser hereby designates
and appoints First Chicago to act as its agent hereunder and under each other
Transaction Document, and authorizes the Administrative Agent to take such
actions as agent on its behalf and to exercise such powers as are delegated to
the Administrative Agent by the terms of this Agreement and the other
Transaction Documents together with such powers as are reasonably incidental
thereto. The Administrative Agent shall not have any duties or responsibilities,
except those expressly set forth herein or in any other Transaction Document, or
any fiduciary relationship with any Purchaser, and no implied covenants,
functions, responsibilities, duties, obligations or liabilities on the part of
the Administrative Agent shall be read into this Agreement or any other
Transaction Document or otherwise exist for the Administrative Agent. In
performing its functions and duties hereunder and under the other Transaction
Documents, the Administrative Agent shall act solely as agent for the Purchasers
and does not assume nor shall be deemed to have assumed any obligation or
relationship of trust or agency with or for the Seller or any of its successors
or assigns. The Administrative Agent shall not be required to take any action
which exposes the Administrative Agent to personal liability or which is
contrary to this Agreement, any other Transaction Document or applicable law.
The appointment and authority of the Administrative Agent hereunder shall
terminate upon the indefeasible payment in full of all Aggregate Unpaids. Each
Purchaser hereby authorizes the Administrative Agent to execute on behalf of
such Purchaser (the terms of which shall be binding on such Purchaser) each of
the Uniform Commercial Code financing statements, together with such other
instruments or documents determined by the Administrative Agent to be necessary
or desirable in order to perfect, evidence or more fully protect the interest of
the Purchasers contemplated hereunder.
Section 9.2. Delegation of Duties. The Administrative Agent may execute
any of its duties under this Agreement and each other Transaction Document by or
through agents or attorneys-in-fact and shall be entitled to advice of counsel
concerning all matters pertaining to such duties. As between the Administrative
Agent and each Purchaser, the Administrative Agent shall not be responsible for
the negligence or misconduct of any agents or attorneys-in-fact selected by it
with reasonable care.
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Section 9.3. Exculpatory Provisions. Neither the Administrative Agent nor
any of its directors, officers, agents or employees shall be (i) liable for any
action lawfully taken or omitted to be taken by it or them under or in
connection with this Agreement or any other Transaction Document (except for
its, their or such Person's own gross negligence or willful misconduct), or (ii)
responsible in any manner to any of the Purchasers for any recitals, statements,
representations or warranties made by the Seller contained in this Agreement,
any other Transaction Document or any certificate, report, statement or other
document referred to or provided for in, or received under or in connection
with, this Agreement, or any other Transaction Document or for the value,
validity, effectiveness, genuineness, enforceability or sufficiency of this
Agreement, or any other Transaction Document or any other document furnished in
connection herewith or therewith, or for any failure of the Seller to perform
its obligations hereunder or thereunder, or for the satisfaction of any
condition specified in Article IV, or for the perfection, priority, condition,
value or sufficiency or any collateral pledged in connection herewith. The
Administrative Agent shall not be under any obligation to any Purchaser to
ascertain or to inquire as to the observance or performance of any of the
agreements or covenants contained in, or conditions of, this Agreement or any
other Transaction Document, or to inspect the properties, books or records of
the Seller. The Administrative Agent shall not be deemed to have knowledge of
any Servicer Default or Potential Servicer Default unless the Administrative
Agent has received notice from the Seller or a Purchaser.
Section 9.4. Reliance by Administrative Agent. The Administrative Agent
shall in all cases be entitled to rely, and shall be fully protected in relying,
upon any document or conversation believed by it to be genuine and correct and
to have been signed, sent or made by the proper Person or Persons and upon
advice and statements of legal counsel (including, without limitation, counsel
to the Seller), independent accountants and other experts selected by the
Administrative Agent. The Administrative Agent shall in all cases be fully
justified in failing or refusing to take any action under this Agreement or any
other Transaction Document unless it shall first receive such advice or
concurrence of Falcon or the Required Investors or all of the Purchasers, as
applicable, as it deems appropriate and it shall first be indemnified to its
satisfaction by the Purchasers, provided that unless and until the
Administrative Agent shall have received such advice, the Administrative Agent
may take or refrain from taking any action, as the Administrative Agent shall
deem advisable and in the best interests of the Purchasers. The Administrative
Agent shall in all cases be fully protected in acting, or in refraining from
acting, in accordance with a request of Falcon or the Required Investors or all
of the Purchasers, as applicable, and such request and any action taken or
failure to act pursuant thereto shall be binding upon all the Purchasers.
Section 9.5. Non-Reliance on Administrative Agent and Other Purchasers.
Each Purchaser expressly acknowledges that neither the Administrative Agent, nor
any of its officers, directors, employees, agents, attorneys-in-fact or
affiliates has made any representations or warranties to it and that no act by
the Administrative Agent hereafter taken, including, without limitation, any
review of the affairs of the Seller, shall be deemed to constitute any
representation or warranty by the Administrative Agent. Each Purchaser
represents and warrants to the Administrative Agent that it has and will,
independently and without reliance upon the
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Administrative Agent or any other Purchaser and based on such documents and
information as it has deemed appropriate, made its own appraisal of and
investigation into the business, operations, property, prospects, financial and
other conditions and creditworthiness of the Seller and made its own decision to
enter into this Agreement, the other Transaction Documents and all other
documents related hereto or thereto.
Section 9.6. Reimbursement and Indemnification. The Investors agree to
reimburse and indemnify the Administrative Agent and its officers, directors,
employees, representatives and agents ratably according to their Pro Rata
Shares, to the extent not paid or reimbursed by the Seller (i) for any amounts
for which the Administrative Agent, acting in its capacity as Administrative
Agent, is entitled to reimbursement by the Seller hereunder and (ii) for any
other expenses incurred by the Administrative Agent, in its capacity as
Administrative Agent and acting on behalf of the Purchasers, in connection with
the administration and enforcement of this Agreement and the other Transaction
Documents, but excluding any such expenses to the extent the final judgment of a
court of competent jurisdiction holds that such expenses resulted from gross
negligence or willful misconduct on the part of the Administrative Agent.
Section 9.7. Administrative Agent in its Individual Capacity. The
Administrative Agent and its Affiliates may make loans to, accept deposits from
and generally engage in any kind of business with the Seller or any Affiliate of
the Seller as though the Administrative Agent were not the Administrative Agent
hereunder. With respect to the acquisition of Receivable Interests pursuant to
this Agreement, the Administrative Agent shall have the same rights and powers
under this Agreement as any Purchaser and may exercise the same as though it
were not the Administrative Agent, and the terms "Investor," "Purchaser,"
"Investors" and "Purchasers" shall include the Administrative Agent in its
individual capacity.
Section 9.8. Successor Administrative Agent. The Administrative Agent may,
upon five days' notice to the Seller and the Purchasers, and the Administrative
Agent will, upon the direction of all of the Purchasers resign as Administrative
Agent. If the Administrative Agent shall resign, then the Required Investors
during such five-day period shall either (i) appoint from among the Purchasers a
successor agent or (ii) with the consent of the Seller, appoint a Person other
than a Purchaser as the successor agent. If for any reason no successor
Administrative Agent is appointed by the Required Investors during such five-day
period, then effective upon the termination of such five day period, the
Purchasers shall perform all of the duties of the Administrative Agent hereunder
and under the other Transaction Documents and the Seller shall make all payments
in respect of the Aggregate Unpaids directly to the applicable Purchasers and
for all purposes shall deal directly with the Purchasers. After the
effectiveness of any retiring Administrative Agent's resignation hereunder as
Administrative Agent, the retiring Administrative Agent shall be discharged from
its duties and obligations hereunder and under the other Transaction Documents
and the provisions of this Article IX and Article VIII shall continue in effect
for its benefit with respect to any actions taken or omitted to be taken by it
while it was Administrative Agent under this Agreement and under the other
Transaction Documents.
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ARTICLE X
ASSIGNMENTS; PARTICIPATIONS
Section 10.1. Assignments. (a) The Seller and each Investor hereby agree
and consent to the complete or partial assignment by Falcon of all of its rights
under, interest in, title to and obligations under this Agreement to (i) the
Investors pursuant to Section 2.1, (ii) any Person that is a special purpose
corporation in respect of which First Chicago is then serving as administrative
or managing agent or in any similar capacity or (iii) with the prior written
consent of the Seller (which consent shall not be unreasonably withheld), any
other Person. In each case, upon such assignment, Falcon shall be released from
its obligations so assigned. Further, the Seller and each Investor hereby agree
that any assignee of Falcon of this Agreement or all or any of the Receivable
Interests of Falcon shall have all of the rights and benefits under this
Agreement as if the term "Falcon" explicitly referred to such party, and no such
assignment shall in any way impair the rights and benefits of Falcon hereunder.
The Seller shall not have the right to assign its rights or obligations under
this Agreement.
(b) Any Investor may at any time and from time to time assign to one or
more Persons ("Purchasing Investors") all or any part of its rights and
obligations under this Agreement pursuant to an assignment agreement, in a form
and substance satisfactory to the Administrative Agent (the "Assignment
Agreement"), executed by such Purchasing Investor and such selling Investor.
The consent of Falcon, the Administrative Agent and the Seller (the Seller's
consent not to be unreasonably withheld) shall be required prior to the
effectiveness of any such assignment. Each assignee of an Investor must have a
short-term debt rating of A-1 or better by Standard & Poor's Ratings Group and
P-1 by Moody's Investors Service, Inc. and must agree to deliver to the
Administrative Agent, promptly following any request therefor by the
Administrative Agent or Falcon, an enforceability opinion in form and substance
satisfactory to the Administrative Agent and Falcon. Upon delivery of the
executed Assignment Agreement to the Administrative Agent, such selling Investor
shall be released from its obligations hereunder to the extent of such
assignment. Thereafter the Purchasing Investor shall for all purposes be an
Investor party to this Agreement and shall have all the rights and obligations
of an Investor under this Agreement to the same extent as if it were an original
party hereto and no further consent or action by the Seller, the Purchasers or
the Administrative Agent shall be required.
(c) Each of the Investors agrees that in the event that it shall cease to
have a short-term debt rating of A-1 or better by Standard & Poor's Corporation
and P-1 by Moody's Investors Service, Inc. (an "Affected Investor"), such
Affected Investor shall be obliged, at the request of Falcon or the
Administrative Agent, to assign all of its rights and obligations hereunder to
(x) another Investor or (y) another financial institution nominated by the
Administrative Agent and acceptable to Falcon and the Seller (the Seller's
consent not to be unreasonably withheld), and willing to participate in this
Agreement through the Liquidity Termination Date in the place of such Affected
Investor; provided that the Affected Investor receives payment in full, pursuant
to an Assignment Agreement, of an amount equal to such Investor's Pro Rata Share
of the
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Capital and Discount owing to the Investors and all accruing but unpaid fees and
other costs and expenses payable in respect of its Pro Rata Share of the
Receivable Interests.
Section 10.2. Participations. Any Investor may, in the ordinary course of
its business at any time sell to one or more Persons (each a "Participant")
participating interests in its Pro Rata Share of the Receivable Interests of the
Investors, its obligation to pay Falcon its Acquisition Amounts or any other
interest of such Investor hereunder. Notwithstanding any such sale by an
Investor of a participating interest to a Participant, such Investor's rights
and obligations under this Agreement shall remain unchanged, such Investor shall
remain solely responsible for the performance of its obligations hereunder, and
the Seller, Falcon and the Administrative Agent shall continue to deal solely
and directly with such Investor in connection with such Investor's rights and
obligations under this Agreement. Each Investor agrees that any agreement
between such Investor and any such Participant in respect of such participating
interest shall not restrict such Investor's right to agree to any amendment,
supplement, waiver or modification to this Agreement, except for any amendment,
supplement, waiver or modification described in clause (i) of Section 11.1(b).
ARTICLE XI
MISCELLANEOUS
Section 11.1. Waivers and Amendments. (a) No failure or delay on the part
of the Administrative Agent or any Purchaser in exercising any power, right or
remedy under this Agreement shall operate as a waiver thereof, nor shall any
single or partial exercise of any such power, right or remedy preclude any other
further exercise thereof or the exercise of any other power, right or remedy.
The rights and remedies herein provided shall be cumulative and nonexclusive of
any rights or remedies provided by law. Any waiver of this Agreement shall be
effective only in the specific instance and for the specific purpose for which
given.
(b) No provision of this Agreement may be amended, supplemented, modified
or waived except in writing in accordance with the provisions of this Section
11.1(b). Falcon, the Seller and the Administrative Agent, at the direction of
the Required Investors, may enter into written modifications or waivers of any
provisions of this Agreement, provided, however, that no such modification or
waiver shall:
(i) without the consent of each affected Purchaser, (A) extend the
Liquidity Termination Date or the date of any payment or deposit of
Collections by the Seller or the Servicer, (B) reduce the rate or extend
the time of payment of Discount (or any component thereof), (C) reduce any
fee payable to the Administrative Agent for the benefit of the Purchasers,
(D) except pursuant to Article X hereof, change the amount of the Capital
of any Purchaser, an Investor's Pro Rata Share or an Investor's Commitment,
(E) amend, modify or waive any provision of the definition of Required
Investors or this Section 11.1(b), (F) consent to or permit the assignment
or transfer by the Seller of any of its rights and obligations under this
Agreement, (G) change the definition of "Eligible Receivable" or "Aggregate
Reserve" (H) amend any hedging or
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currency exchange arrangement that shall have been entered into in
connection with any DM Purchase hereunder, or (I) amend or modify any
defined term (or any defined term used directly or indirectly in such
defined term) used in clauses (A) through (H) above in a manner which would
circumvent the intention of the restrictions set forth in such clauses; or
(ii) without the written consent of the then Administrative Agent,
amend, modify or waive any provision of this Agreement if the effect
thereof is to affect the rights or duties of such Administrative Agent.
Notwithstanding the foregoing, (i) without the consent of the Investors, the
Administrative Agent may, with the consent of the Seller, amend this Agreement
solely to add additional Persons as Investors hereunder and (ii) without the
consent of the Seller, the Administrative Agent, each Investor and Falcon may
enter into amendments to modify any of the terms or provisions of Article II,
Article IX, Article X, Section 11.13 or any other provision of this Agreement,
provided that such amendment has no negative impact upon the Seller. Any
modification or waiver made in accordance with this Section 11.1 shall apply to
each of the Purchasers equally and shall be binding upon the Seller, the
Purchasers and the Administrative Agent.
Section 11.2 Notices. (a) Except as provided in subsection (b) below, all
communications and notices provided for hereunder shall be in writing (including
bank wire, telecopy or electronic facsimile transmission or similar writing) and
shall be given to the other parties hereto at their respective addresses or
telecopy numbers set forth on the signature pages hereof. All such
communications and notices shall, when mailed, telecopied, telegraphed, telexed
or cabled, be effective when received through the mails, transmitted by
telecopy, delivered to the telegraph company, confirmed by telex answerback or
delivered to the cable company, respectively, except that communications and
notices to the Administrative Agent or any Purchaser pursuant to Article I or II
shall not be effective until received by the intended recipient.
(b) The Seller hereby authorizes the Administrative Agent to effect
purchases and Tranche Period and Discount Rate selections based on telephonic
notices made by any Person whom the Administrative Agent in good faith believes
to be acting on behalf of the Seller. The Seller agrees to deliver promptly to
the Administrative Agent a written confirmation of each telephonic notice signed
by an authorized officer of the Seller. However, the absence of such
confirmation shall not affect the validity of such notice. If the written
confirmation differs from the action taken by the Administrative Agent, the
records of the Administrative Agent shall govern absent manifest error.
Section 11.3. Ratable Payments. If any Purchaser, whether by setoff or
otherwise, has payment made to it with respect to any portion of the Aggregate
Unpaids owing to such Purchaser (other than payments received pursuant to
Section 8.2 or 8.3) in a greater proportion than that received by any other
Purchaser entitled to receive a ratable share of such Aggregate Unpaids, such
Purchaser agrees, promptly upon demand, to purchase for cash without recourse
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or warranty a portion of the Aggregate Unpaids held by the other Purchasers so
that after such purchase each Purchaser will hold its ratable proportion of the
Aggregate Unpaids; provided that if all or any portion of such excess amount is
thereafter recovered from such Purchaser, such purchase shall be rescinded and
the purchase price restored to the extent of such recovery, but without
interest.
Section 11.4. Protection of Ownership Interests of the Purchasers. (a)
The Seller agrees that from time to time, at its expense, it will promptly
execute and deliver all instruments and documents, and take all actions, that
may be necessary or desirable, or that the Administrative Agent may request, to
perfect, protect or more fully evidence the Receivable Interests, or to enable
the Administrative Agent or the Purchasers to exercise and enforce their rights
and remedies hereunder. At any time following the occurrence of a Servicer
Default, the Administrative Agent may, or the Administrative Agent may direct
the Seller to (and the Seller thereupon shall), notify the Obligors of
Receivables, at any time and at the Seller's expense, of the ownership interests
of the Purchasers under this Agreement and may also direct that payments of all
amounts due or that become due under any or all Receivables be made directly to
the Administrative Agent or its designee; provided that in the case of any
Receivables denominated in Deutsche Marks, the Administrative Agent may direct
the Seller to (and the Seller thereupon shall) notify the Obligors of such
Receivables, at any time and at the Seller's expense, of the Seller's and the
Purchasers' interest therein to the extent determined by the Administrative
Agent to be necessary or desirable in accordance with Section 5.1(h). The Seller
shall, at any Purchaser's request, withhold the identity of such Purchaser in
any such notification.
(b) If the Seller or the Servicer fails to perform any of its obligations
hereunder, the Administrative Agent or any Purchaser may (but shall not be
required to) perform, or cause performance of, such obligation; and the
Administrative Agent's or such Purchaser's reasonable costs and expenses
incurred in connection therewith shall be payable by the Seller (if the Servicer
that fails to so perform is the Seller or an Affiliate thereof) as provided in
Section 8.3, as applicable. The Seller and the Servicer each irrevocably
authorizes the Administrative Agent at any time and from time to time in the
sole discretion of the Administrative Agent, and appoints the Administrative
Agent as its attorney-in-fact, to act on behalf of the Seller and the Servicer
(i) to execute on behalf of the Seller as debtor and to file financing
statements necessary or desirable in the Administrative Agent's sole discretion
to perfect and to maintain the perfection and priority of the interest of the
Purchasers in the Receivables and (ii) to file a carbon, photographic or other
reproduction of this Agreement or any financing statement with respect to the
Receivables as a financing statement in such offices as the Administrative Agent
in its sole discretion deems necessary or desirable to perfect and to maintain
the perfection and priority of the interests of the Purchasers in the
Receivables. This appointment is coupled with an interest and is irrevocable.
Section 11.5. Confidentiality. (a) The Seller and each Investor shall
maintain and shall cause each of their respective employees and officers to
maintain the confidentiality of this Agreement and the other confidential
proprietary information with respect to the Administrative
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Agent and Falcon and their respective businesses obtained by any of them in
connection with the structuring, negotiating and execution of the transactions
contemplated herein, except that the Seller, each Investor and their respective
officers and employees may disclose such information to their respective
external accountants and attorneys and as required by any applicable law or
order of any judicial or administrative proceeding.
(b) Anything herein to the contrary notwithstanding, the Seller hereby
consents to the disclosure of any nonpublic information with respect to it (i)
to the Administrative Agent, the Investors or Falcon by each other, (ii) by the
Administrative Agent or the Purchasers to any prospective or actual assignee or
participant of any of them or (iii) by the Administrative Agent to any rating
agency, Commercial Paper dealer or provider of a surety, guaranty or credit or
liquidity enhancement to Falcon or any entity organized for the purpose of
purchasing, or making loans secured by, financial assets for which First Chicago
acts as the administrative agent and to any officers, directors, employees,
outside accountants and attorneys of any of the foregoing, provided each such
Person is informed of the confidential nature of such information. In addition,
the Purchasers and the Administrative Agent may disclose any such nonpublic
information pursuant to any law, rule, regulation, direction, request or order
of any judicial, administrative or regulatory authority or proceedings (whether
or not having the force or effect of law).
Section 11.6. Bankruptcy Petition. The Seller, the Administrative Agent
and each Investor hereby covenants and agrees that, prior to the date which is
one year and one day after the payment in full of all outstanding senior
Indebtedness of Falcon, it will not institute against, or join any other Person
in instituting against, Falcon any bankruptcy, reorganization, arrangement,
insolvency or liquidation proceedings or other similar proceeding under the laws
of the United States or any state of the United States.
Section 11.7. Limitation of Liability. Except with respect to any claim
arising out of the willful misconduct or gross negligence of Falcon, the
Administrative Agent or any Investor, no claim may be made by the Seller, the
Servicer or any other Person against Falcon, the Administrative Agent or any
Investor or their respective Affiliates, directors, officers, employees,
attorneys or agents for any special, indirect, consequential or punitive damages
in respect of any claim for breach of contract or any other theory of liability
arising out of or related to the transactions contemplated by this Agreement, or
any act, omission or event occurring in connection therewith; and the Seller
hereby waives, releases, and agrees not to sue upon any claim for any such
damages, whether or not accrued and whether or not known or suspected to exist
in its favor.
SECTION 11.8. CHOICE OF LAW. THIS AGREEMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH THE INTERNAL LAWS (AND NOT THE LAW OF CONFLICTS) OF THE STATE OF
ILLINOIS.
SECTION 11.9. CONSENT TO JURISDICTION. THE SELLER HEREBY IRREVOCABLY
SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF ANY
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UNITED STATES FEDERAL OR ILLINOIS STATE COURT SITTING IN CHICAGO IN ANY ACTION
OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY DOCUMENT
EXECUTED BY THE SELLER PURSUANT TO THIS AGREEMENT AND THE SELLER HEREBY
IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING MAY
BE HEARD AND DETERMINED IN ANY SUCH COURT AND IRREVOCABLY WAIVES ANY OBJECTION
IT MAY NOW OR HEREAFTER HAVE AS TO THE VENUE OF ANY SUCH SUIT, ACTION OR
PROCEEDING BROUGHT IN SUCH A COURT OR THAT SUCH COURT IS AN INCONVENIENT FORUM.
NOTHING HEREIN SHALL LIMIT THE RIGHT OF THE ADMINISTRATIVE AGENT OR ANY
PURCHASER TO BRING PROCEEDINGS AGAINST THE SELLER IN THE COURTS OF ANY OTHER
JURISDICTION. ANY JUDICIAL PROCEEDING BY THE SELLER AGAINST THE ADMINISTRATIVE
AGENT OR ANY PURCHASER OR ANY AFFILIATE OF THE ADMINISTRATIVE AGENT OR A
PURCHASER INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER IN ANY WAY ARISING OUT
OF, RELATED TO, OR CONNECTED WITH THIS AGREEMENT OR ANY DOCUMENT EXECUTED BY THE
SELLER PURSUANT TO THIS AGREEMENT SHALL BE BROUGHT ONLY IN A COURT IN CHICAGO,
ILLINOIS.
SECTION 11.10. WAIVER OF JURY TRIAL. THE ADMINISTRATIVE AGENT, THE SELLER
AND EACH PURCHASER HEREBY WAIVES TRIAL BY JURY IN ANY JUDICIAL PROCEEDING
INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER (WHETHER SOUNDING IN TORT,
CONTRACT OR OTHERWISE) IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH
THIS AGREEMENT, ANY DOCUMENT EXECUTED BY THE SELLER PURSUANT TO THIS AGREEMENT
OR THE RELATIONSHIP ESTABLISHED HEREUNDER OR THEREUNDER.
Section 11.11. Integration; Survival of Terms.
(a) This Agreement, the Collection Account Agreements and the Fee Letter
contain the final and complete integration of all prior expressions by
the parties hereto with respect to the subject matter hereof and shall
constitute the entire agreement among the parties hereto with respect
to the subject matter hereof superseding all prior oral or written
understandings.
(b) The provisions of Article VIII and Section 11.6 shall survive any
termination of this Agreement.
Section 11.12. Counterparts; Severability. This Agreement may be
executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed shall be deemed to be an
original and all of which when taken together shall constitute one and the same
Agreement. Any provisions of this Agreement which are prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and
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any such prohibition or unenforceability in any jurisdiction shall not
invalidate or render unenforceable such provision in any other jurisdiction.
Section 11.13. First Chicago Roles. Each of the Investors acknowledges
that First Chicago acts, or may in the future act, (i) as administrative agent
for Falcon, (ii) as issuing and paying agent for the Commercial Paper, (iii) to
provide credit or liquidity enhancement for the timely payment for the
Commercial Paper and (iv) to provide other services from time to time for Falcon
(collectively, the "First Chicago Roles"). Without limiting the generality of
this Section 11.13, each Investor hereby acknowledges and consents to any and
all First Chicago Roles and agrees that in connection with any First Chicago
Role, First Chicago may take, or refrain from taking, any action which it, in
its discretion, deems appropriate, including, without limitation, in its role as
administrative agent for Falcon, the giving of notice to the Administrative
Agent of a mandatory purchase pursuant to Section 2.1.
Section 11.14. Characterization. (a) It is the intention of the parties
hereto that each purchase hereunder shall constitute an absolute and irrevocable
sale, which purchase shall provide the applicable Purchaser with the full
benefits of ownership of the applicable Receivable Interest. Except as
specifically provided in this Agreement, each sale of a Receivable Interest
hereunder is made without recourse to the Seller; provided, however, that (i)
the Seller shall be liable to each Purchaser and the Administrative Agent for
all representations, warranties and covenants made by the Seller pursuant to the
terms of this Agreement, and (ii) such sale does not constitute and is not
intended to result in an assumption by any Purchaser or the Administrative Agent
or any assignee thereof of any obligation of the Seller or either Originator or
any other person arising in connection with the Receivables, the Related
Security, or the related Contracts, or any other obligations of the Seller or
either Originator.
(b) If the conveyance by the Seller to the Purchasers of interests in
Receivables hereunder shall be characterized as a secured loan and not a sale,
it is the intention of the parties hereto that this Agreement shall constitute a
security agreement under applicable law, and that the Seller shall be deemed to
have granted to the Administrative Agent for the ratable benefit of the
Purchasers a duly perfected security interest in all of the Seller's right,
title and interest in, to and under the Receivables, the Collections, each
Collection Account, all Related Security, all payments on or with respect to
such Receivables, all Hohe Discount, all other rights relating to and payments
made in respect of the Receivables, and all proceeds of any thereof prior to all
other liens on and security interests therein. After a Servicer Default, the
Administrative Agent and the Purchasers shall have, in addition to the rights
and remedies which they may have under this Agreement, all other rights and
remedies provided to a secured creditor after default under the UCC and other
applicable law, which rights and remedies shall be cumulative.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered by their duly authorized officers as of the date hereof.
DONNELLY RECEIVABLES CORPORATION
By:/s/ William R. Jellison
---------------------------
William R. Jellison
President
414 E. 40th Street
Holland, Michigan 49423
FALCON ASSET SECURITIZATION CORPORATION
By: /s/ Signature
-----------------------------------
Authorized Signatory
c/o The First National Bank
of Chicago, as Administrative Agent
Suite 0596, 1-21
One First National Plaza
Chicago, Illinois 60670
Fax: (312) 732-4487
THE FIRST NATIONAL BANK OF CHICAGO, as
Administrative Agent
By:/s/ Signature
---------------------------------------
Title: Authorized Agent
-----------------------------------
The First National Bank of Chicago
Suite 0596, 1-21
One First National Plaza
Chicago, Illinois 60670
Fax: (312) 732-4487
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COMMITMENTS INVESTORS
----------- ---------
$25,000,000 THE FIRST NATIONAL BANK OF CHICAGO
By: /s/ Signature
------------------------------
Title: Authorized Agent
---------------------------
The First National Bank of Chicago
Suite 0596, 1-21
One First National Plaza
Chicago, Illinois 60670
Fax: (312) 732-4487
$25,000,000 DRESDNER BANK AG NEW YORK AND
GRAND CAYMAN BRANCHES
By: /s/ Signature
------------------------------
Title: Vice President
---------------------------
By: /s/ Signature
-------------------------------
Title: Executive Vice President
----------------------------
190 S. LaSalle Street
Suite 2700
Chicago, Illinois 60603
Fax: (312) 444-1305
_____________
_____________
$50,000,000 PURCHASE LIMIT
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<PAGE>
EXHIBITS AND SCHEDULES
EXHIBIT I DEFINITIONS
EXHIBIT II PRINCIPAL PLACE OF BUSINESS OF THE SELLER; LOCATION(S)
OF RECORDS; FEDERAL EMPLOYER IDENTIFICATION NUMBERS; NAMES
EXHIBIT III LOCK-BOXES; CONCENTRATION ACCOUNTS; DEPOSITARY ACCOUNTS
EXHIBIT IV FORM OF COMPLIANCE CERTIFICATE
EXHIBIT V FORM OF COLLECTION ACCOUNT AGREEMENT
EXHIBIT VI CREDIT AND COLLECTION POLICY
EXHIBIT VII FORM OF CONTRACT(S)
EXHIBIT VIII FORM OF SETTLEMENT REPORT
EXHIBIT IX FORM OF PURCHASE NOTICE
EXHIBIT X FORM OF LEGEND
EXHIBIT XI ELIGIBLE DM OBLIGORS
EXHIBIT XII FORM OF OBLIGOR NOTIFICATION
SCHEDULE A LIST OF DOCUMENTS TO BE DELIVERED TO THE ADMINISTRATIVE AGENT
PRIOR TO THE INITIAL PURCHASE
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EXHIBIT I
DEFINITIONS
As used in this Agreement, the following terms shall have the following
meanings (such meanings to be equally applicable to both the singular and plural
forms of the terms defined):
"Acquisition Amount" means, on the date of any purchase from Falcon of
Receivable Interests pursuant to Section 2.1, (i) with respect to each Investor
other than First Chicago, the lesser of (a) such Investor's Pro Rata Share of
the Falcon Transfer Price and (b) such Investor's unused Commitment and (ii)
with respect to First Chicago, the difference between (a) the Falcon Transfer
Price and (b) the aggregate amount payable by all other Investors on such date
pursuant to clause (i) above.
"Adjusted Liquidity Price" means, in determining the Falcon Transfer Price
for any Receivable Interest, an amount equal to
[ NDR ]
(i) DC + (ii) RI [-------------- ]
[1 + (.50 X .25)]
where:
RI = the undivided percentage interest evidenced by such Receivable
Interest.
DC = the Deemed Collections.
NDR = the Outstanding Balance of all non-Defaulted Receivables.
Each of the foregoing shall be determined from the most recent Settlement Report
received from the Servicer. For this purpose, "Deemed Collections" shall be an
amount equal to the sum of the aggregate amount of all Dollar-denominated Deemed
Collections and the aggregate Dollar Equivalent of all Deutsche Mark-denominated
Deemed Collections.
"Administrative Agent" means First Chicago in its capacity as
administrative agent for the Purchasers pursuant to Article IX, and not in its
individual capacity as an Investor, and any successor Administrative Agent
appointed pursuant to Article IX.
"Adverse Claim" means a lien, security interest, charge or encumbrance, or
other right or claim in, of or on any Person's assets or properties in favor of
any other Person.
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"Affiliate" means any Person directly or indirectly controlling, controlled
by, or under direct or indirect common control with, another Person or any
Subsidiary of such other Person. A Person shall be deemed to control another
Person if the controlling Person owns 10% or more of any class of voting
securities of the controlled Person or possesses, directly or indirectly, the
power to direct or cause the direction of the management or policies of the
controlled Person, whether through ownership of stock, by contract or otherwise.
"Aggregate Capital" means, at any time, the sum at such time of (i) the
Dollar amount of all Capital associated with Receivable Interests that shall
have arisen by reason of Dollar Purchases and (ii) the Dollar Equivalent amount
of all Capital associated with Receivable Interests that shall have arisen by
reason of DM Purchases.
"Aggregate Reserve" means, [____________].
"Aggregate Unpaids" means, at any time, an amount equal to the sum of all
accrued and unpaid Discount, Capital and all other amounts owed (whether due or
accrued) hereunder or under the Fee Letter to the Administrative Agent and the
Purchasers at such time.
"Agreement" means this Receivables Purchase Agreement, as it may be amended
or modified and in effect from time to time.
"Average Collection Period" means at any time that period of days equal to
the average maturity of the Receivables calculated by the Servicer in the then
most recent Settlement Report; provided that if the Administrative Agent shall
disagree with any such calculation, the Administrative Agent may recalculate the
Average Collection Period.
"Bankruptcy Code" means Title 11 of the United States Code, as it may be
amended from time to time.
"Base Rate" means, (i) prior to the occurrence of a Servicer Default, a
Dollar rate per annum equal to the corporate base rate, prime rate or base rate
of interest, as applicable, announced by the Reference Bank from time to time,
changing when and as such rate changes, and (ii) at all times after the
occurrence of a Servicer Default, such rate plus [__]% per annum.
"Business Day" means any day on which banks are not authorized or required
to close in New York, New York or Chicago, Illinois and The Depository Trust
Company of New York is open for business, and (i) if the applicable Business Day
relates to any computation or payment to be made with respect to the LIBO Rate,
any day on which dealings in Dollar deposits are carried on in the London
interbank market and (ii) if the applicable Business Day relates to any payment
or deposit to be made in Deutsche Marks, any DM Purchase or a Receivable
Interest arising therefrom, the delivery of any Settlement Report under Section
6.5, or any conversion of Dollars into Deutsche Marks or Deutsche Marks into
Dollars, any day on which dealings in Dollars and Deutsche Marks are carried on
in the London interbank market
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and on which banks are not authorized or required to close in London, England,
Frankfurt, Germany or Munich, Germany.
"Capital" of any Receivable Interest means, at any time, (a)(i) in the case
of any Receivable Interest arising from a Dollar Purchase, the Purchase Price in
Dollars of such Receivable Interest, and (ii) in the case of any Receivable
Interest arising from a DM Purchase, the Purchase Price in Deutsche Marks of
such Receivable Interest, minus (b) the sum of the aggregate amount of
Collections and other payments received by the Administrative Agent which in
each case are applied to reduce such Capital; provided that such Capital shall
be restored in the amount of any Collections or payments so received and applied
if at any time the distribution of such Collections or payments are rescinded or
must otherwise be returned for any reason.
"Capital Limit" means, at any time, the amount of Aggregate Capital at
such time that would cause the following calculation to equal 1.00:
C
--------
NRB - AR
where:
C = the Aggregate Capital of in respect of all Receivable
Interests at such time.
NRB = the Net Receivables Balance.
AR = the Aggregate Reserve.
"Change of Control" means (i) the acquisition by any Person, or two or
more Persons acting in concert, of beneficial ownership (within the meaning of
Rule 13d-3 of the Securities and Exchange Commission under the Securities
Exchange Act of 1934) of 20% or more of the outstanding shares of voting stock
of Donnelly; (ii) Donnelly shall cease to own, free and clear of all Adverse
Claims, at least 66 2/3% of the outstanding shares of voting stock (or
comparable equity interest) of Hohe on a fully diluted basis; or (iii) Donnelly
shall cease to own, free and clear of all Adverse Claims, all of the outstanding
shares of voting stock of the Seller on a fully diluted basis.
"Charged-Off Receivable" means a Receivable: (i) as to which the Obligor
thereof has taken any action, or suffered any event to occur, of the type
described in paragraph (c) of Article VII (as if references to the Seller
therein refer to such Obligor); (ii) as to which the Obligor thereof, if a
natural person, is deceased, (iii) which, consistent with the Credit and
Collection Policy, would be written off the Seller's books as uncollectible,
(iv) which has been
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identified by the Seller as uncollectible or (v) as to which any payment, or
part thereof, remains unpaid for 365 days or more from the original due date for
such payment.
"Collection Account" means each concentration account, depositary account,
lock-box account or similar account in which any Collections are collected or
deposited.
"Collection Account Agreement" means, in relation to any actual or proposed
Collection Account, an agreement in substantially the form of Exhibit V hereto.
"Collection Bank" means, at any time, any of the banks or other financial
institutions holding one or more Collection Accounts.
"Collection Notice" means a notice, in substantially the form of Collection
Notice contained in Exhibit V hereto, from the Administrative Agent to a
Collection Bank.
"Collections" means, with respect to any Receivable or any Hohe Discount,
all cash collections and other cash proceeds in respect of such Receivable or
such Hohe Discount, including, without limitation, all cash proceeds of Related
Security with respect thereto, and all amounts payable to the Purchasers by the
Seller pursuant to Section 1.8.
"Commercial Paper" means promissory notes of Falcon issued by Falcon in the
commercial paper market.
"Commitment" means, for each Investor, the commitment of such Investor to
purchase its Pro Rata Share of Receivable Interests from (i) the Seller and (ii)
Falcon, such Pro Rata Share not to exceed, in the aggregate, the Dollar amount
set forth opposite such Investor's name on the signature pages of this
Agreement, as such amount may be modified in accordance with the terms hereof.
"Concentration Limit" means, at any time, for any Obligor, an amount equal
to [___]% of the Outstanding Balance of all Eligible Receivables at such time,
or such other amount (a "Special Concentration Limit") for such Obligor
designated by the Administrative Agent with the consent of the Required
Investors; provided that, in the case of an Obligor and any Affiliate of such
Obligor, the Concentration Limit shall be calculated as if such Obligor and such
Affiliate are one Obligor; and provided, further, that Falcon or the Required
Investors may, upon not less than three Business Days' notice to the Seller,
cancel any Special Concentration Limit. As of the date of this Agreement, and
subject to the foregoing, each of the following Obligors (together in each case
with its respective Affiliates) shall have a Special Concentration Limit at all
times equal to the lesser of (i) an amount equal to [__]% of the Outstanding
Balance of all Eligible Receivables at such time and (ii) the respective amount
set forth below:
[TABLE]
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"Contingent Obligation" of a Person means any agreement, undertaking or
arrangement by which such Person assumes, guarantees, endorses, contingently
agrees to purchase or provide funds for the payment of, or otherwise becomes or
is contingently liable upon, the obligation or liability of any other Person, or
agrees to maintain the net worth or working capital or other financial condition
of any other Person, or otherwise assures any creditor of such other Person
against loss, including, without limitation, any comfort letter, operating
agreement, take-or-pay contract or application for a letter of credit.
"Contract" means, with respect to any Receivable, any and all instruments,
agreements, leases, invoices, shipping releases, general terms or conditions or
other writings pursuant to which such Receivable arises or which evidences such
Receivable.
"Coverage Exchange Rate" means, with respect to an amount of Deutsche Marks
during any Fixed Exchange Period, the forward rate of exchange quoted by the
Administrative Agent for the amount in question in the London interbank foreign
exchange market at or about 11:00 a.m. London time two Business Days prior to
the first day of such Fixed Exchange Period for the purchase of Deutsche Marks
with Dollars on the last day of such Fixed Exchange Period.
"CP Rate" means, the rate, requested by the Seller and agreed to by Falcon,
equivalent to the rate (or if more than one rate, the weighted average of the
rates) at which Commercial Paper having a term equal to the relevant Tranche
Period may be sold by any placement agent or commercial paper dealer reasonably
selected by Falcon, as agreed between each such dealer or agent and Falcon plus
any and all applicable issuing and paying agent fees and commissions of
placement agents and commercial paper dealers in respect of such Commercial
Paper; provided, however, that if the rate (or rates) as agreed between any such
agent or dealer and Falcon is a discount rate (or rates), the "CP Rate" for such
Tranche Period shall be the rate (or if more than one rate, the weighted average
of the rates) resulting from Falcon's converting such discount rate (or rates)
to an interest-bearing equivalent rate per annum.
"Credit and Collection Policy" means the Seller's credit and collection
policies and practices relating to Contracts and Receivables existing on the
date hereof, which policies and practices (i) in the case of Dollar-denominated
Receivables, are summarized in Exhibit VI hereto and (ii) in the case of
Deutsche Mark-denominated Receivables, shall be summarized in the written credit
and collection policy delivered to the Administrative Agent by the Seller in
accordance with Section 5.1(n), in each case as such policies and practices may
be modified from time to time in accordance with this Agreement.
"Currency Allocation Percentage" means, at any time, with respect to any
Receivable Interest, a ratio (expressed as a percentage) equal to (i) the
Capital of such Receivable Interest, divided by (ii) the aggregate Capital of
all Receivable Interests (including such Receivable Interest) denominated in the
same currency as such Receivable Interest.
"Deemed Collections" means the aggregate of all amounts owing to Falcon
pursuant to Sections 1.8 and 8.1.
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"Default Fee" means with respect to any amount due and payable by the
Seller hereunder or under the Fee Letter, an amount equal to interest on any
such amount at a rate per annum equal to 2% above the Base Rate, together with
any loss, cost or expense incurred by the Administrative Agent or any Purchaser
in connection with the extension or delay of settlement on any foreign exchange
contract related to such due and payable amount, provided, however, that such
interest rate will not at any time exceed the maximum rate permitted by
applicable law.
"Defaulted Receivable" means a Receivable as to which any payment, or part
thereof, remains unpaid for 90 days or more from the original due date for such
payment.
"Delinquency Ratio" means, at any time, a percentage equal to (i) the
aggregate Outstanding Balance of all Receivables that were Delinquent
Receivables at such time divided by (ii) the aggregate Outstanding Balance of
all Receivables (other than Receivables owed by an Affiliate of the applicable
Originator) at such time.
"Delinquent Receivable" means a Receivable (other than a Receivable owed by
an Affiliate of the applicable Originator) as to which any payment, or part
thereof, remains unpaid for 60 days or more from the original due date for such
payment.
"Designated Obligor" means an Obligor indicated by the Administrative Agent
to the Seller in writing.
"Designated Servicer" means, at any time, each of the following: (i) the
Servicer, if other than the Administrative Agent or a Purchaser at such time,
and (ii) each Originator, if any responsibility of the Servicer hereunder shall
have been delegated to such Originator.
"Deutsche Marks" means the lawful currency of Germany.
"Dilution Ratio" means, as of the last day of any calendar month, a
percentage equal to (i) the aggregate amount (in Dollars or Dollar Equivalents)
of Dilutions which shall have occurred during such month, divided by (ii) the
aggregate amount of new Receivables (in Dollars or Dollar Equivalents) arising
during such month.
"Dilution Factor" means, at any time, a percentage equal to the product of
(a) two, multiplied by (b) the highest average of the Dilution Ratios for any
three month period during the immediately preceding twelve months.
"Dilutions" means, at any time, the aggregate amount of reductions in the
Outstanding Balances of the Receivables as a result of any setoff, discount,
return, pricing or warranty adjustment or otherwise, other than cash Collections
on account of such Receivables.
"Discount" means, for each Receivable Interest for any Tranche Period:
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AD
DR x C x --
yr
where:
DR = the Discount Rate for such Receivable Interest for such
Tranche Period;
C = the Capital of such Receivable Interest during such Tranche
Period;
AD = the actual number of days elapsed during such Tranche
Period;
yr = (i) in the case of any Receivable Interest arising from a
Dollar Purchase, 360, and (ii) in the case of any Receivable
Interest arising from a DM Purchase, such number of days as
shall apply to the applicable Discount Rate as derived from
the hedging or exchange arrangements that the applicable
Purchaser shall have entered into to fund and maintain such
Receivable Interest during such Tranche Period;
provided, that no provision of this Agreement shall require the payment or
permit the collection of Discount in excess of the maximum permitted by
applicable law; and provided, further, that Discount for any Tranche Period
shall not be considered paid by any distribution to the extent that at any time
all or a portion of such distribution is rescinded or must otherwise be returned
for any reason.
"Discount Rate" means for any Tranche Period, (i) in the case of any
Receivable Interest that shall have arisen from a Dollar Purchase, the LIBO
Rate, the CP Rate or the Base Rate, as applicable, and (ii) in the case of any
Receivable Interest that shall have arisen by reason of any DM Purchase, such
rate per annum as shall have been notified to the Seller by the Administrative
Agent on or prior to the first day of such Tranche Period in accordance with
Section 1.3(c); provided in each case that from and after the occurrence of a
Servicer Default, the Discount Rate in respect of each Receivable Interest and
Tranche Period shall be the Base Rate.
"Discount Factor" means [__]%.
"DM Purchase" means a Purchase in respect of which the Purchase Price is
payable in Deutsche Marks.
"Dollars" and the sign "$" each means lawful money of the United States.
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"Dollar Equivalent" means, at any time in relation to an amount denominated
in Deutsche Marks, the amount of Dollars required to purchase such amount
denominated in Deutsche Marks at the Applicable Exchange Rate. "Applicable
Exchange Rate" means, at any time, (i) for purposes of calculating the
"Dilution Ratio", the "Loss-to-Liquidation Ratio", the "Aggregate Capital", or
the "Outstanding Balance" of any Receivable, the Spot Exchange Rate in effect
at such time and (ii) for all other purposes, the Coverage Exchange Rate in
effect at such time.
"Dollar Purchase" means a Purchase in respect of which the Purchase Price
is payable in Dollars.
"Donnelly" means Donnelly Corporation, a Michigan corporation.
"Donnelly Transfer Agreement" means that certain Receivables Purchase
Agreement of even date herewith between the Seller, as purchaser, and Donnelly,
as seller, as the same may be amended, restated, supplemented or otherwise
modified from time to time.
"Early Collection Fee" means, for any Receivable Interest which has its
Capital reduced, or its Tranche Period terminated prior to the date on which it
was originally scheduled to end, the sum of (a) the excess, if any, of (i) the
Discount that would have accrued during the remainder of the Tranche Period
subsequent to the date of such reduction or termination on the Capital of such
Receivable Interest if such reduction or termination had not occurred, over (ii)
the sum of (A) to the extent all or a portion of such Capital is allocated to
another Receivable Interest, the Discount actually accrued during such period on
such Capital for the new Receivable Interest, and (B) to the extent such Capital
is not allocated to another Receivable Interest, the income, if any, actually
received during such period by the holder of such Receivable Interest from
investing the portion of such Capital not so allocated and (b) if applicable,
the cost associated with the early reduction or termination of any foreign
currency of exchange transaction that shall have been entered into by the
Administrative Agent or any Purchaser in connection with the funding or
maintenance of such Receivable Interest.
"Eligible DM Obligor" means each of the Persons listed on Exhibit XI
hereto, and any other Person as the Seller may from time to time request and as
the Administrative Agent, in its sole discretion, may agree in writing.
"Eligible Receivable" means, at any time, a Receivable:
(i) the Obligor of which (a) is a corporation or other business
organization, organized under the laws of the United States or Germany or
any political subdivision thereof and has its chief executive office in the
United States or Germany; provided that (A) in the case of any Dollar-
denominated Receivables, such Obligor may be organized under the laws of,
and have its chief executive office in, Canada, and (B) in the case of any
Deutsche Mark-denominated Receivables, such Obligor may be organized under
the laws of, and have its chief executive office in, Belgium, Spain, Sweden
or any other country as may be approved in writing by the Administrative
Agent with the consent of
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the Required Investors, such approval and consent to be given by the
Administrative Agent and the Required Investors, respectively, in their
sole discretion; (b) is not an Affiliate of any of the parties hereto; (c)
is not a Designated Obligor; and (d) is not a government or a governmental
subdivision or agency,
(ii) the Obligor of which is not the Obligor of any Charged-Off
Receivable and, if such Obligor is the Obligor of any Defaulted
Receivables, the aggregate Outstanding Balance of such Defaulted
Receivables does not exceed an amount equal to 30% of the Outstanding
Balance of all Receivables of such Obligor at such time,
(iii) which is not a Defaulted Receivable, a Charged-Off Receivable or
Delinquent Receivable,
(iv) which by its terms is due and payable within 60 days of the
original billing date therefor and has not had its payment terms extended,
(v) which is an account receivable representing all or part of the
sales price of merchandise, insurance and services within the meaning of
Section 3(c)(5) of the Investment Company Act of 1940, as amended,
(vi) a purchase of which with the proceeds of notes would constitute a
"current transaction" within the meaning of Section 3(a)(3) of the
Securities Act of 1933, as amended,
(vii) which is an "account" within the meaning of Section 9-106 of the
UCC of all applicable jurisdictions,
(viii) which is denominated and payable only in Dollars in the United
States or Deutsche Marks in Germany,
(ix) which arises under a Contract in substantially the form of one
of the form contracts or, in the case of a Deutsche Mark-denominated
Receivable, Standard Terms set forth on Exhibit VII hereto or otherwise
approved by the Administrative Agent in writing, which, together with such
Receivable, is in full force and effect and constitutes the legal, valid
and binding obligation of the related Obligor enforceable by the Seller and
its assignees against such Obligor in accordance with its terms and, in the
case of a Deutsche Mark-denominated Receivable, has not been amended,
supplemented or superseded in any material respect, or in any respect
whatsoever which could affect the collectibility, transferability or
ownership of such Receivable by any other agreements or communications
between such Obligor and the Seller other than the relevant Obligor
Notification,
(x) which arises under a Contract which (A) does not require the
Obligor under such Contract to consent to the transfer, sale or assignment
of the rights and duties of
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the applicable Originator or any of its assignees under such Contract or,
if any such consent is required, the Obligor shall have duly executed and
delivered either (x) a consent to such transfer, sale or assignment or (y)
a valid waiver of such requirement, and (B) does not contain a
confidentiality provision that would have the effect of restricting the
ability of the Administrative Agent or any Purchaser to exercise its rights
under this Agreement, including, without limitation, its right to review
the Contract,
(xi) which arises under a Contract that contains an obligation to
pay a specified sum of money, contingent only upon the sale of goods or the
provision of services by an Originator,
(xii) which is not subject to any right of rescission, set-off,
counterclaim, any other defense (including defenses arising out of
violations of usury laws) of the applicable Obligor or the applicable
Originator or any other Adverse Claim, and the Obligor thereon holds no
right as against such Originator to cause such Originator to repurchase the
goods or merchandise the sale of which shall have given rise to such
Receivable,
(xiii) as to which the applicable Originator of such Receivable has
satisfied and fully performed all obligations on its part with respect to
such Receivable required to be fulfilled by it, and no further action is
required to be performed by any Person with respect thereto other than
payment thereon by the applicable Obligor,
(xiv) all right, title and interest to and in which has been validly
transferred by the applicable Originator directly or indirectly to the
Seller under and in accordance with the applicable Transfer Agreement, and
the Seller has good and marketable title thereto free and clear of any
Adverse Claim, including but not limited to, any Adverse Claim arising
pursuant to a retention of title arrangement (verlangerter
Eigentumsvorbehalt) or global security assignment (kreditsicherende
Globalzession),
(xv) which, together with the Contract related thereto, was created
in compliance with each, and does not contravene any, law, rule or
regulation applicable thereto (including, without limitation, any law, rule
and regulation relating to truth in lending, fair credit billing, fair
credit reporting, equal credit opportunity, fair debt collection practices
and privacy) and with respect to which no part of the Contract related
thereto is in violation of any such law, rule or regulation,
(xvi) which satisfies all applicable requirements of the Credit and
Collection Policy,
(xvii) which was generated in the ordinary course of the applicable
Originator's business in connection with the purchase of goods or services
by the applicable Obligor from such Originator,
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(xviii) which arises solely from the sale or the provision of services
to the related Obligor by the Originator that shall have transferred such
Receivable directly or indirectly to the Seller, and not by any other
Person (in whole or in part),
(xix) in the case of any Receivable other than a Dollar-denominated
Receivable,
(a) such Receivable shall have arisen pursuant to a commercial
transaction (Handelsgeschaft) between Hohe and the relevant
Obligor and is not included in any current account arrangement
(Kontokorrentabrede) between Donnelly and the related Obligor,
(b) such Obligor is an Eligible DM Obligor,
(c) the shipping release in respect of which, if the related
Obligor is organized under, or has its chief executive office in,
any country other than Germany contains the legend set forth in
Exhibit X hereto in the relevant language of the jurisdiction
where such Obligor is resident (or, if different, into the
language (or languages) in which such Obligor conducts its
business with Hohe), an d
(d) in respect of which either (1) Hohe has delivered an Obligor
Notification to the related Obligor and such Obligor Notification
has been duly signed by Hohe, the Seller and a duly authorized
signatory on behalf of such Obligor, and has been returned to
Hohe not later than December 20, 1996, or (2) the related Obligor
has confirmed in writing that it will pay all amounts in respect
of such Receivable directly into the German Collection Account,
and (in either case) the relevant Obligor in respect of which is
in compliance with any obligation to make payments into the
German Collection Account with respect to other Eligible
Receivables of such Obligor, and
(xx) as to which the Administrative Agent has not notified the Seller
that the Administrative Agent has determined that such Receivable or class
of Receivables is not acceptable as an Eligible Receivable, including,
without limitation, because such Receivable arises under a Contract that is
not acceptable to the Administrative Agent.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time.
"Facility Account" means the Seller's Account No. 549-0286 at First Chicago
or, in the case of any DM Purchase, such other account as the Administrative
Agent may from time to time advise the Seller.
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"Facility Termination Date" means the earliest of (i) the Liquidity
Termination Date, (ii) the date the Seller shall exercise its right to
repurchase the outstanding Receivable Interests pursuant to Section 1.11, (iii)
any date selected by the Seller on not less than 30 days' prior written notice
to the Administrative Agent, (iv) the date of the occurrence of any Servicer
Default involving the Seller and of the type described in paragraph (c) of
Article VII, and (v) any date following the occurrence, and during the
continuance, of any Servicer Default which the Required Investors declare to be
the Facility Termination Date.
"Falcon Residual" means the sum of the Falcon Transfer Price Reductions.
"Falcon Transfer Price" means, with respect to the assignment by Falcon of
one or more Receivable Interests to the Administrative Agent for the benefit of
the Investors pursuant to Section 2.1, the sum of (i) the lesser of (a) the
aggregate Dollar and Dollar Equivalent amount of the Capital of each Receivable
Interest and (b) the Adjusted Liquidity Price of each Receivable Interest and
(ii) the aggregate Dollar and Dollar Equivalent amount of all accrued and unpaid
Discount for such Receivable Interests.
"Falcon Transfer Price Reduction" means in connection with the assignment
of a Receivable Interest by Falcon to the Administrative Agent for the benefit
of the Investors, the positive difference between (i) the Capital of such
Receivable Interest and (ii) the Adjusted Liquidity Price for such Receivable
Interest.
"Federal Funds Effective Rate" means, for any period, a fluctuating
interest rate per annum equal for each day during such period equal to (a) the
weighted average of the rates on overnight federal funds transactions with
members of the Federal Reserve System arranged by federal funds brokers, as
published for such day (or, if such day is not a Business Day, for the preceding
Business Day) by the Federal Reserve Bank of New York in the Composite Closing
Quotations for U.S. Governments Securities; or (b) if such rate is not so
published for any day which is a Business Day, the average of the quotations at
approximately 10:30 a.m. (Chicago time) for such day on such transactions
received by the Reference Bank from three federal funds brokers of recognized
standing selected by it.
"Fee Letter" means that certain letter agreement dated as of the date
hereof between the Seller and the Administrative Agent, as it may be amended or
modified and in effect from time to time.
"Finance Charges" means, with respect to a Contract, any finance, interest,
late payment charges or similar charges owing by an Obligor pursuant to such
Contract.
"First Chicago" means The First National Bank of Chicago in its individual
capacity and its successors.
"Fixed Exchange Period" means a period commencing on the date in any
calendar month on which a DM Purchase may be made and ending on the date in the
next following calendar
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month on which a DM Purchase may be made, in each case such date being
determined in accordance with the terms of Section 1.2 (and whether or not a
purchase is in fact being made on such date or the Facility Termination Date has
occurred on or prior to such date); provided that (i) if at any time a Fixed
Exchange Period would otherwise be of a duration that is less than 30 days, the
Administrative Agent may direct that such Fixed Exchange Period have a longer
duration not to exceed 60 days, as the Administrative Agent may elect, and (ii)
the Administrative Agent may at any time, on written notice given to the Seller,
direct that the Fixed Exchange Periods in effect be of a duration shorter than
one calendar month (and may be as short as a period of one day). Fixed Exchange
Periods shall occur sequentially, with each Fixed Exchange Period commencing on
the expiration of the immediately preceding Fixed Exchange Period and ending on
the commencement of the immediately next following Fixed Exchange Period.
"Funding Agreement" means this Agreement and any agreement or instrument
executed by any Funding Source with or for the benefit of Falcon.
"Funding Source" means (i) any Investor or (ii) any insurance company, bank
or other financial institution providing liquidity, credit enhancement or back-
up purchase support or facilities to, or currency hedging or exchange
arrangement for the benefit of, Falcon.
"German Collection Account" has the meaning assigned to that term in the
Hohe Transfer Agreement.
"Germany" means the Federal Republic of Germany.
"Hedge Factor" means, at any time, [__________].
"Hohe" means Donnelly Hohe GmbH & Co. KG, a company organized under the
laws of Germany.
"Hohe Discount" means all "Discount" now or at any time hereafter payable
by Hohe under the Hohe Transfer Agreement, together with any "Default Fee"
payable by Hohe in respect thereof.
"Hohe Transfer Agreement" means that certain Receivables Purchase Agreement
of even date herewith between Donnelly, as purchaser, and Hohe, as Seller, as
the same may be amended, restated, supplemented or otherwise modified from time
to time.
"Incremental Purchase" means a purchase of one or more Receivable Interests
which increases the total outstanding Capital hereunder.
"Indebtedness" of a Person means such Person's (i) obligations for borrowed
money, (ii) obligations representing the deferred purchase price of property or
services (other than accounts payable arising in the ordinary course of such
Person's business payable on terms customary in
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the trade), (iii) obligations, whether or not assumed, secured by liens or
payable out of the proceeds or production from property now or hereafter owned
or acquired by such Person, (iv) obligations which are evidenced by notes,
acceptances, or other instruments, (v) capitalized lease obligations, (vi) net
liabilities under interest rate swap, exchange or cap agreements, (vii)
Contingent Obligations and (viii) liabilities in respect of unfunded vested
benefits under plans covered by Title IV of ERISA.
"Intended Characterization" means, for income tax purposes, the
characterization of the acquisition by the Purchasers of Receivable Interests as
a loan or loans by the Purchasers to the Seller secured by the Receivables, the
Related Security, the Hohe Discount and the Collections.
"Investor Fee" means, for each Investor, a fee agreed to in writing by the
Administrative Agent or Falcon and such Investor.
"Investors" means the financial institutions listed on the signature pages
of this Agreement under the heading "Investors" and their respective successors
and assigns.
"LIBO Rate" means the rate per annum equal to the sum of (i) (a) the rate
at which deposits in U.S. Dollars are offered by the Reference Bank to first-
class banks in the London interbank market at approximately 11:00 a.m. (London
time) two Business Days prior to the first day of the relevant Tranche Period,
such deposits being in the approximate amount of the Capital of the Receivable
Interest to be funded or maintained, divided by (b) one minus the Reserve
Requirement (expressed as a decimal) applicable to such Tranche Period plus (ii)
[_____]% per annum. The LIBO Rate shall be rounded, if necessary, to the next
higher 1/16 of 1%.
"Liquidation Day" means, for any Receivable Interest, the earliest to occur
of (i) any Business Day so designated by the Administrative Agent or the
Required Investors on or at any time following any day on which the conditions
precedent set forth in Section 4.2 are not satisfied, (ii) any Business Day so
designated by the Seller or Falcon after the occurrence of the Termination Date,
(iii) the Business Day immediately prior to the occurrence of a Servicer Default
set forth in paragraph (c) of Article VII and (iv) in the case of any Receivable
Interest that shall have arisen by reason of a DM Purchase, declaration of the
Liquidation Day therefor by the Administrative Agent in accordance with Section
1.3(e).
"Liquidity Termination Date" means November 13, 1997, or such later date as
shall then be in effect in accordance with Section 1.12.
"Loss-to-Liquidation Ratio" means, as at the last day of any calendar
month, a percentage equal to (i) the amount (in Dollars and Dollar Equivalents)
of Charged-Off Receivables which became Charged-Off Receivables during the three
calendar months then most recently ended, divided by (ii) the aggregate amount
(in Dollars and Dollar Equivalents) of Collections in respect of Receivables
during such three month period.
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"Material Adverse Effect" means a material adverse effect on (i) the
financial condition, business or operations of the Seller or either Originator,
(ii) the ability of the Seller or either Originator to perform its obligations
under any Transaction Document, (iii) the legality, validity or enforceability
of this Agreement, any Transaction Document or any Collection Account Agreement
or Collection Notice relating to a Collection Account into which a material
portion of Collections are deposited, (iv) the Seller's or any Purchaser's
interest in the Receivables generally or in any significant portion of the
Receivables, the Related Security, the Hohe Discount or the Collections with
respect thereto, or (v) the collectibility of the Receivables generally or of
any material portion of the Receivables.
"Net Receivables Balance" means, at any time, the Outstanding Balance of
Eligible Receivables at such time reduced by the aggregate amount by which the
Outstanding Balance of all Eligible Receivables of each Obligor and its
Affiliates exceeds the Concentration Limit for such Obligor.
"Obligor" means a Person obligated to make payments pursuant to a Contract.
"Obligor Notification" means a notification in the form of Exhibit XII
attached hereto.
"Originator" means either of Donnelly or Hohe.
"Outstanding Balance" of any Receivable at any time means (i) in the case
of any Receivable denominated in Dollars, the then outstanding principal balance
thereof and (b) in the case of any Receivable denominated in Deutsche Marks, the
Dollar Equivalent of the then outstanding principal balance thereof.
"Person" means an individual, partnership, corporation (including a
business trust), joint stock company, trust, unincorporated association, joint
venture or other entity, or a government or any political subdivision or agency
thereof.
"Potential Servicer Default" means an event which, with the passage of time
or the giving of notice, or both, would constitute a Servicer Default.
"Pro Rata Share" means, for each Investor, the Commitment of such Investor
divided by the Purchase Limit, adjusted as necessary to give affect to the
application of the terms of Section 2.5.
"Purchase Date" has the meaning specified in Section 1.2.
"Purchase Limit" means the aggregate of the Commitments of the Investors
hereunder.
"Purchase Price" means, with respect to any Incremental Purchase of a
Receivable Interest, the amount paid to the Seller for such Receivable Interest.
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"Purchaser" means Falcon or an Investor, as applicable.
"Receivable" means the indebtedness and other obligations owed (at the time
it arises) to an Originator and owned, transferred to or otherwise held by the
Seller, whether constituting an account, chattel paper, instrument or general
intangible, arising in connection with the sale of goods or the rendering of
services by such Originator, and includes, without limitation, the obligation to
pay any Finance Charges with respect thereto. Indebtedness and other rights and
obligations arising from any one transaction, including, without limitation,
indebtedness and other rights and obligations represented by an individual
invoice, shall constitute a Receivable separate from a Receivable consisting of
the indebtedness and other rights and obligations arising from any other
transaction.
"Receivable Interest" means, at any time, an undivided percentage ownership
interest associated with a designated amount of Capital, Discount Rate and
Tranche Period selected pursuant to Section 1.3 in (i) all Receivables arising
prior to the time of the most recent computation or recomputation of such
undivided interest pursuant to Section 1.4, (ii) all Related Security with
respect to such Receivables, (iii) all Hohe Discount, and (iv) all Collections
with respect to, and other proceeds of, any of the foregoing. From and after
the date of the initial purchase hereunder, the aggregate Receivable Interests
hereunder shall at all times equal 100%. As among Purchasers, any allocation
of Collections in respect of any Receivable Interests (other than in the
circumstances when the applicable Currency Allocation Percentage is required to
be applied) shall be made ratably such that the percentage allocated to each
such Receivable Interest is equal to (i) the Dollar or Dollar Equivalent amount
of Capital assigned to such Receivable Interest, divided by (ii) the aggregate
Capital (in Dollars and Dollar Equivalents) assigned to all Receivable Interests
at such time.
"Records" means, with respect to any Receivable, all Contracts and other
documents, books, records and other information (including, without limitation,
computer programs, tapes, disks, punch cards, data processing software and
related property and rights) relating to such Receivable, any Related Security
therefor and the related Obligor.
"Reduction Percentage" means, for any Receivable Interest acquired by the
Investors from Falcon for less than the Dollar or Dollar Equivalent amount of
Capital of such Receivable Interest, a percentage equal to a fraction the
numerator of which is the Falcon Transfer Price Reduction for such Receivable
Interest and the denominator of which is the Dollar or Dollar Equivalent amount
of Capital of such Receivable Interest.
"Reference Bank" means First Chicago or such other bank as the
Administrative Agent shall designate with the consent of the Seller.
"Required Investors" means, (i) at any time that a Servicer Default has
occurred and is continuing, Investors with Commitments in excess of 66-2/3% of
the Purchase Limit and (ii) at any other time, the Investor then acting as
Administrative Agent.
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"Related Security" means, with respect to any Receivable:
(i) all of the Seller's present or future interest in the
inventory and goods (including returned or repossessed inventory or goods),
if any, the financing or lease of which gave rise to such Receivable, and
all insurance contracts with respect thereto, including, but not limited
to, all of the Seller's present or future claims for re-delivery and/or
return of such inventory and or goods,
(ii) all other security interests or liens and property subject
thereto from time to time, if any, purporting to secure payment of such
Receivable, whether pursuant to the Contract related to such Receivable or
otherwise, together with all financing statements and security agreements
describing any collateral securing such Receivable,
(iii) all guaranties, insurance and other agreements or
arrangements of whatever character from time to time supporting or securing
payment of such Receivable whether pursuant to the Contract related to such
Receivable or otherwise,
(iv) all service contracts and other contracts and agreements
associated with such Receivables,
(v) all Records related to such Receivables,
(vi) all of the Seller's right, title and interest in, to and
under each Transfer Agreement, the Servicing Agreement and each instrument,
document or agreement executed in connection the foregoing in favor of or
otherwise for the benefit of the Seller (or, if different, the applicable
transferee thereunder);
(vii) all of the Seller's retention of title rights relating to
such Receivable; and
(viii) all proceeds of any of the foregoing.
"Reserve Requirement" means the maximum aggregate reserve requirement
(including all basic, supplemental, marginal and other reserves) which is
imposed against the Reference Bank in respect of Eurocurrency liabilities, as
defined in Regulation D of the Board of Governors of the Federal Reserve System
as in effect from time to time.
"Section" means a numbered section of this Agreement, unless another
document is specifically referenced.
"Servicer" means at any time the Person (which may be the Administrative
Agent) then authorized pursuant to Article VI to service, administer and collect
Receivables.
"Servicer Default" has the meaning specified in Article VII.
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"Servicing Agreement" means that certain Servicing Agreement of even date
herewith between the Seller and Donnelly, as the same may be amended, restated,
supplemented or otherwise modified from time to time.
"Settlement Report" means a report, in substantially the form of Exhibit
VIII hereto (appropriately completed), furnished by the Servicer to the
Administrative Agent pursuant to Section 6.5.
"Spot Exchange Rate" means, with respect to an amount of Deutsche Marks on
any date, the spot rate of exchange at which Deutsche Marks may be converted
into Dollars on such date, as determined by reference to the selling exchange
rate published in the Wall Street Journal on such date (or, if such date is not
a Business Day, on the next preceding Business Day); provided, that in the
event such rate is not so published, the "Spot Exchange Rate" for such date
shall be the rate of exchange quoted by the Administrative Agent in the London
interbank foreign exchange market at or about 11:00 a.m. London time on such
date (or, if such date is not a Business Day, on the next preceding Business
Day) for the spot purchase of such amount of Deutsche Marks with Dollars.
"Standard Terms" means any standard terms and conditions which govern the
sale of any products or provision of any services by Hohe to an Eligible DM
Obligor.
"Subsidiary" of a Person means (i) any corporation more than 50% of the
outstanding securities having ordinary voting power of which shall at the time
be owned or controlled, directly or indirectly, by such Person or by one or more
of its Subsidiaries or by such Person and one or more of its Subsidiaries, or
(ii) any partnership, association, joint venture or similar business
organization more than 50% of the ownership interests having ordinary voting
power of which shall at the time be so owned or controlled. Unless otherwise
expressly provided, all references herein to a "Subsidiary" shall mean a
Subsidiary of the Seller.
"Termination Date" means, for any Receivable Interest, the Facility
Termination Date, and, solely with respect to a Receivable Interest of Falcon,
that Business Day so designated by the Seller or Falcon by notice to the other.
"Tranche Period" means (a) with respect to any Receivable Interest that
shall have arisen from a Dollar Purchase:
(i) if Discount for such Receivable Interest is calculated with
respect to the CP Rate, a period of days not to exceed 270 days commencing
on a Business Day requested by the Seller and agreed to by Falcon;
(ii) if Discount for such Receivable Interest is calculated on the
basis of the LIBO Rate, a period of one, two or three months, or such other
period as may be mutually agreeable to the Administrative Agent and the
Seller, commencing on a Business Day selected by the Seller or the
Administrative Agent pursuant to this Agreement. Such Tranche Period shall
end on the day in the applicable succeeding calendar month which
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corresponds numerically to the beginning day of such Tranche Period,
provided, however, that if there is no such numerically corresponding day
in such succeeding month, such Tranche Period shall end on the last
Business Day of such succeeding month; and
(iii) if Discount for such Receivable Interest is calculated on the
basis of the Base Rate, a period of 30 days commencing on a Business Day
selected by the Seller;
(b) with respect to any Receivable Interest that shall have arisen from a
DM Purchase:
(i) a Fixed Exchange Period, or
(ii) such other period of time as the Seller may, with the prior
consent of the Administrative Agent, select.
If any Tranche Period would end on a day which is not a Business Day, such
Tranche Period shall end on the next succeeding Business Day, provided, however,
that in the case of Tranche Periods corresponding to the LIBO Rate, if such next
succeeding Business Day falls in a new month, such Tranche Period shall end on
the immediately preceding Business Day. In the case of any Tranche Period for
any Receivable Interest of which commences before the Termination Date and would
otherwise end on a date occurring after the Termination Date, such Tranche
Period shall end on the Termination Date. The duration of each Tranche Period
which commences after the Termination Date shall be of such duration as selected
by the Administrative Agent.
"Transaction Documents" means, collectively, this Agreement, the Transfer
Agreements, the Servicing Agreement, each Collections Account Agreement, and all
other instruments, documents and agreements executed and delivered by the Seller
or either Originator in connection herewith.
"Transfer Agreement" means either the Donnelly Transfer Agreement or the
Hohe Transfer Agreement.
"UCC" means the Uniform Commercial Code as from time to time in effect in
the specified jurisdiction.
All accounting terms not specifically defined herein shall be construed in
accordance with generally accepted accounting principles. All terms used in
Article 9 of the UCC in the State of Illinois, and not specifically defined
herein, are used herein as defined in such Article 9.
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EXHIBIT II
PLACES OF BUSINESS OF THE SELLER; LOCATIONS OF RECORDS;
FEDERAL EMPLOYER IDENTIFICATION NUMBER(S); NAME(S)
Principal Place of Business; Chief Executive Office
None, except: 414 East Fortieth Street
Holland, Michigan 49423
Location of Records:
None, except: 414 East Fortieth Street
Holland, Michigan 49423
Haupstrabe 36, D-97903
Collenberg, Germany
Federal Employer Identification Number:
38-3314469
Corporate Names, Trade Names, Assumed Names:
None, except: Donnelly Receivables Corporation
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EXHIBIT III
LOCK-BOXES;
CONCENTRATION ACCOUNTS; AND DEPOSITARY ACCOUNTS
None, except:
a. NBD Bank
611 Woodward Avenue
Detroit, MI 48226
Lock-Box No. 78066
Account No. 964-733
b. Bank One, Columbus, NA
100 E. Broad
Columbus, OH 43271-0391
Lock-Box No. 432710938
Checking Account No. 931296050
c. The First National Bank of Chicago, Frankfurt branch
Niederlassung Frankfurt
BLZ 503 304 00
Account No. 100-7173
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EXHIBIT IV
[On Letterhead of Seller]
FORM OF COMPLIANCE CERTIFICATE
To: The First National Bank of Chicago, as Administrative Agent
This Compliance Certificate is furnished pursuant to that certain
Receivables Purchase Agreement dated as of November 14, 1996, among Donnelly
Receivables Corporation (the "Seller"), the Purchasers party thereto and The
First National Bank of Chicago, as Administrative Agent for such Purchasers (the
"Agreement").
THE UNDERSIGNED HEREBY CERTIFIES THAT:
1. I am the duly elected _____________________ of the Seller;
2. I have reviewed the terms of the Agreement and I have made, or have
caused to be made under my supervision, a detailed review of the transactions
and conditions of the Seller during the accounting period covered by the
attached financial statements;
3. The examinations described in paragraph 2 did not disclose, and I have
no knowledge of, the existence of any condition or event which constitutes a
Servicer Default or Potential Servicer Default, as each such term is defined
under the Agreement, during or at the end of the accounting period covered by
the attached financial statements or as of the date of this Certificate, except
as set forth below; and
4. Schedule I attached hereto sets forth financial data and computations
evidencing the compliance with certain covenants of the Purchase Agreement, all
of which data and computations are true, complete and correct.
Described below are the exceptions, if any, to paragraph 3 by listing, in
detail, the nature of the condition or event, the period during which it has
existed and the action which the Seller has taken, is taking, or proposes to
take with respect to each such condition or event:
The foregoing certifications, together with the computations set forth in
Schedule I hereto and the financial statements delivered with this Certificate
in support hereof, are made and delivered this ____ day of ______________,
19___.
- ---------------------------
SCHEDULE I TO COMPLIANCE REPORT
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A. Schedule of Compliance as of __________, 19____ with Section [5.1(m)] of
the Agreement. Unless otherwise defined herein, the terms used in this
Compliance Certificate have the meanings ascribed thereto in the Purchase
Agreement.
This schedule relates to the month ended: _______________
Minimum Net Worth:
-----------------
1. Total assets: _________.
2. Total liabilities: ________.
3. Net Worth (item 1- item 2): _______________.
4. Net Worth [equals or exceeds] [is less than] $2,850,000.
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EXHIBIT V-A
FORM OF COLLECTION ACCOUNT AGREEMENT
FOR COLLECTION ACCOUNTS
LOCATED IN THE UNITED STATES
[On letterhead of Seller]
__________ 19__
[Lock-Box Bank/Concentration Bank/Depositary Bank]
Re: Donnelly Receivables Corporation
[and name of applicable Originator]
Ladies and Gentlemen:
You have exclusive control of P.O. Box #_____________ in [city, state, zip
code] (the "Lock-Box") for the purpose of receiving mail and processing payments
therefrom pursuant to that certain [name of lock-box agreement] between you and
_______ [Name of Originator] dated _________ (the "Agreement"). You hereby
confirm your agreement to perform the services described therein. Among the
services you have agreed to perform therein, is to endorse all checks and other
evidences of payment, and credit such payments to our checking account no.
__________ maintained with you in the name of [Originator] (the "Lock-Box
Account").
[Originator] hereby transfers and assigns all of its right, title and
interest in and to, and exclusive ownership and control over, the Lock-Box and
the Lock-Box Account to Donnelly Receivables Corporation (the "Seller"). We
hereby request that the name of the Lock-Box Account be changed to Donnelly
Receivables Corporation, as "Collection Agent" for the benefit of The First
National Bank of Chicago ("FNBC"), as Administrative Agent under that certain
Receivables Purchase Agreement (the "Receivables Purchase Agreement") dated as
of November 14, 1996 among the Seller, Falcon Asset Securitization Corporation,
certain financial institutions parties thereto and FNBC.
The Seller hereby irrevocably instructs you, and you hereby agree, that
upon receiving notice from FNBC in the form attached hereto as Annex A: (i) the
name of the Lock-Box Account will be changed to FNBC for itself and as agent (or
any designee of FNBC) and FNBC will have exclusive ownership of and access to
such Lock-Box Account, and neither we nor any of our affiliates will have any
control of such Lock-Box Account or any access thereto, (ii) you will either
continue to send the funds from the Lock-Box to the Lock-Box Account, or will
redirect the funds as FNBC may otherwise request, (iii) you will transfer monies
on deposit in the Lock-Box Account, at any time, as directed by FNBC, (iv) all
services to be performed by you under the Agreement will be performed on behalf
of FNBC, and (v) copies of all
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correspondence or other mail which you have agreed to send us will also be sent
to FNBC at the following address:
The First National Bank of Chicago
Suite 0596, 21st Floor
One First National Plaza
Chicago, Illinois 60670
Attention: Credit Manager, Asset Backed
Securities Division
Moreover, upon such notice, FNBC for itself and as agent will have all
rights and remedies given to us under the Agreement. We agree, however, to
continue to pay all fees and other assessments due thereunder at any time.
You hereby acknowledge that monies deposited in the Lock-Box Account or any
other account established with you by FNBC for the purpose of receiving funds
from the Lock-Box are subject to the liens of FNBC for itself and as agent under
the Receivables Purchase Agreement, and will not be subject to deduction, set-
off, banker's lien or any other right you or any other party may have against
us, except that you may debit the Lock-Box Account for any items deposited
therein that are returned or otherwise not collected and for all charges, fees,
commissions and expenses incurred by you in providing services hereunder, all in
accordance with your customary practices for the charge back of returned items
and expenses.
This letter agreement and the rights and obligations of the parties
hereunder will be governed by and construed and interpreted in accordance with
the laws of the State of Illinois. This letter agreement may be executed in any
number of counterparts and all of such counterparts taken together will be
deemed to constitute one and the same instrument. All references herein to "we"
or "us" refer to [Originator] and Donnelly Receivables Corporation.
This letter agreement contains the entire agreement between the parties,
and may not be altered, modified, terminated or amended in any respect, nor may
any right, power or privilege of any party hereunder be waived or released or
discharged, except upon execution by all parties hereto of a written instrument
so providing. In the event that any provision in this letter agreement is in
conflict with, or inconsistent with, any provision of the Agreement, this letter
agreement will exclusively govern and control. Each party agrees to take all
actions reasonably requested by any other party to carry out the purposes of
this letter agreement or to preserve and protect the rights of each party
hereunder.
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<PAGE>
Please indicate your agreement to the terms of this letter agreement by
signing in the space provided below. This letter agreement' will become
effective immediately upon execution of a counterpart of this letter agreement
by all parties hereto.
Very truly yours,
[ORIGINATOR]
By
---------------------------------------
Title
-------------------------------------
DONNELLY RECEIVABLES CORPORATION
By
----------------------------------------
Title
-------------------------------------
Acknowledged and agreed to
this ____ day of _______, 1996
[COLLECTION BANK]
By:
Title:
Acknowledged and agreed to
this ____ day of _______, 1996
THE FIRST NATIONAL BANK OF
CHICAGO (as Administrative Agent)
By
--------------------------------
Title
-----------------------------
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<PAGE>
ANNEX A
FORM OF COLLECTION NOTICE
[On letterhead of FNBC]
_____________________, 19__
[Collection Bank/Depositary Bank/Concentration Bank]
Re: Donnelly Receivables Corporation
Ladies and Gentlemen:
We hereby notify you that we are exercising our rights pursuant to that
certain letter agreement among [Originator], Donnelly Receivables Corporation,
you and us, to have the name of, and to have exclusive ownership and control of,
account number ____________ (the "Lock-Box Account") maintained with you,
transferred to us. [Lock-Box Account will henceforth be a zero-balance account,
and funds deposited in the Lock-Box Account should be sent at the end of each
day to _______________.] You have further agreed to perform all other services
you are performing under that certain agreement dated ____________ between you
and [Originator] on our behalf.
We appreciate your cooperation in this matter.
Very truly yours,
THE FIRST NATIONAL BANK OF CHICAGO
(as Administrative Agent)
By:
---------------------------------
Title:
-----------------------------
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<PAGE>
EXHIBIT V-B
FORM OF COLLECTION ACCOUNT AGREEMENT
FOR COLLECTION ACCOUNTS LOCATED IN GERMANY
[LETTERHEAD OF DONNELLY RECEIVABLES CORPORATION]
[Date]
[Name and Address of Bank]
Dear Sirs,
Account No. [____________]
We refer to Account No. 1007173 (the "Account") opened with your bank in the
name of Donnelly Receivables Corporation ("DRC"), on trust for the benefit of
The First National Bank of Chicago (in its capacity as administrative agent of
Falcon Asset Securitization Corporation ("Falcon"), the "Administrative Agent")
acting on behalf of Falcon and certain other persons. We hereby notify you that,
in connection with certain transactions involving certain of the trade account
receivables (the "Receivables") of Donnelly Hohe GmbH & Co. KG ("Hohe"), Hohe
has sold and assigned to its parent company, Donnelly Corporation, the
Receivables, together with all payments of all amounts due with respect to the
Receivables. Donnelly Corporation has resold and reassigned or will resell and
reassign the Receivables, together with all payments of all amounts due with
respect thereto, to its wholly-owned subsidiary, DRC. DRC will in turn sell
interests in the Receivables to Falcon and certain other persons.
The obligors of the Receivables have been notified of the sale of the
Receivables to Donnelly Corporation and to DRC. Nevertheless, the obligors may
make payments in respect of the Receivables in the name of Hohe, although such
payments will be made to the Account.
In connection with the foregoing, we hereby instruct you, as of the date of this
Agreement: (i) to collect the monies, checks, instruments and other items of
payment mailed to or otherwise paid to the Account including, for the avoidance
of doubt, any monies, checks, instruments and other items of payment with Hohe
as the named payee; and (ii) endorse all checks and other evidences of payment,
deposit into or otherwise credit to the Account all such monies, checks,
instruments and other items of payment including, for the avoidance of doubt,
any monies, checks, instruments and other items of payment with Hohe as the
named payee. In respect of any monies, checks, instruments and other items of
payment with Hohe as the named payee, Hohe, by its signature below,
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<PAGE>
acknowledges and consents to your acting in accordance with the foregoing
instructions in the name of Hohe and on its behalf, and undertakes to ratify and
confirm any actions taken by you in the name of Hohe in accordance with the
foregoing instructions.
In addition, we hereby request that the following terms and conditions shall
apply with respect to the Account:
1. The Administrative Agent shall be granted a revocable power of attorney
(widerrufliche Kontovollmacht), pursuant to which the Administrative Agent
shall be entitled to operate the Account and withdraw any and all monies on
deposit in the Account from time to time pursuant to your normal withdrawal
procedures and the mandate signed by us in relation to the Account. The
Administrative Agent may operate the Account as our agent only on the
signatures of certain duly authorized officers of the Administrative
Agent. As at the date of this letter, those duly authorized officers
are: [ ]. The signature of any one of the aforesaid
persons is required to authorize any transaction related to the Account.
The specimen signature of each of the aforesaid authorized signatories is
set out in Annex A to this letter. Any change in the list of authorized
signatories of the Administrative Agent will not be binding on you until
notified to you in writing, signed by an existing authorized signatory of
the Administrative Agent.
2. Hohe, shall, until you have received the Notification (as defined below)
from the Administrative Agent, be granted a revocable power of attorney
(widerrufliche Kontovollmacht) (the "Hohe Power of Attorney"), pursuant to
which Hohe shall be entitled to operate the Account and withdraw any and
all monies on deposit in the Account from time to time pursuant to your
normal withdrawal procedures and the mandate signed by us in relation to
the Account. Hohe may operate the Account as our agent only on the
signatures of certain duly authorized officers of Hohe. As at the date of
this letter, those duly authorized officers are: [ ].
[The signatures of any [two] of the aforesaid persons are required to
authorize any transaction related to the Account.]/1/ The specimen
signature of each of the aforesaid authorized signatories is set out in
Annex A to this letter. Any change in the list of authorized signatories of
Hohe will not be binding on you until notified to you in writing, signed by
an officer of each of DRC, the Administrative Agent and Hohe.
3. If at any time the Administrative Agent delivers to you a written notice in
the form of Annex B to this letter (which may be in the form of a facsimile
and which shall be signed by an officer or director of the Administrative
Agent) (the "Notification"), then the Hohe Power of Attorney shall
terminate and (i) you shall no longer permit Hohe or any authorized
signatory on the Account who is an officer of Hohe to make any further
withdrawals of monies from the Account or otherwise deal with the Account
or authorize any transactions relating to the Account, (ii) the name of the
Account will be changed to the name of the
- ------------
/1/ Complete information in square brackets as appropriate
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Administrative Agent and the Administrative Agent will have exclusive
ownership and access to the Account, including the rights to make
withdrawals therefrom, (iii) you will transfer monies on deposit in the
Account, at any time, as directed by the Administrative Agent and (iv)
copies of all correspondence or other mail which you have agreed to send us
will also be sent to the Administrative Agent at the following address:
The First National Bank of Chicago
Suite 0956, 1-21
One First National Plaza
Chicago, Illinois 60670
USA
Fax: 1 312-732-4487
4. We hereby agree that you shall in no event be held liable for any
transactions relating to the Account that were authorized by an authorized
signatory of Hohe prior to your receipt of the Notification.
5. Hohe has no authority to withdraw more monies from the Account than are on
deposit therein at such time, and you are expressly requested to
countermand any withdrawals that would so overdraw the Account.
6. You hereby represent and warrant to us that, as of the date of your
signature below, you are not aware of any liens, security interests,
charges, encumbrances or other rights or claims of any persons or entities
to the Account other than ourselves, the Administrative Agent and the
rights of Hohe created pursuant to this letter. You hereby agree that you
will notify us immediately upon your becoming aware of any such liens,
security interests, charges, encumbrances or other rights or claims of any
third persons or entities arising on or with respect to the Account.
7. You hereby agree that you will not exercise, and you hereby waive, any
right of combination, consolidation, merger, set-off, lien, security
interest, charge or encumbrance whatsoever which you may have in respect of
any monies standing or accruing to the credit of the Account. You further
acknowledge and agree that the terms and conditions of this letter shall
prevail in the event of any conflict between such terms and conditions and
your standard terms and conditions applicable to the opening, operating and
holding of the Account (including any standard account mandate).
Please acknowledge your consent and agreement to the terms and conditions set-
forth in this letter by signing where indicated below and returning one of the
signed originals of this letter to DRC at [ ] and to
the Administrative Agent at [ ].
Yours faithfully,
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<PAGE>
DONNELLY RECEIVABLES CORPORATION
By: ______________________
Title: ___________________
ACKNOWLEDGED AND AGREED:
[Relevant Bank]
By:_____________________________
Title:____________________________
Date:____________________________
THE FIRST NATIONAL BANK
OF CHICAGO, as Administrative Agent
By:_____________________________
Title:____________________________
Date:____________________________
DONNELLY HOHE GmbH & CO. KG
By:_____________________________
Title:____________________________
Date:____________________________
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<PAGE>
DONNELLY CORPORATION
By:_____________________________
Title:____________________________
Date:____________________________
FALCON ASSET SECURITIZATION CORPORATION
By:_____________________________
Title:____________________________
Date:____________________________
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ANNEX A
AUTHORIZED SIGNATORIES
HOHE
- ----
Name Specimen Signature
- ---- ------------------
[ ] ______________________________
[ ] ______________________________
[ ] ______________________________
[ ] ______________________________
ADMINISTRATIVE AGENT
- --------------------
Name Specimen Signature
- ---- ------------------
[ ] ______________________________
[ ] ______________________________
[ ] ______________________________
[ ] ______________________________
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<PAGE>
ANNEX B
FORM OF NOTIFICATION
[On letterhead of FNBC]
_____________________, 19__
[Collection Bank]
Re: Donnelly Receivables Corporation
Ladies and Gentlemen:
We hereby notify you that we are exercising our rights pursuant to that
certain letter agreement among Donnelly Receivables Corporation, you and us, to
instruct you that (i) you shall no longer permit Donnelly Hohe GmbH & Co. KG
("Hohe") or any authorized signatory on account number ____________ (the
"Account") who is an officer of Hohe to make any further withdrawals of monies
from the Account or otherwise deal with the Account or authorize any
transactions relating to the Account and (ii) we are exercising our rights to
have the name of, and to have exclusive ownership and control of, the Account
transferred to us. The Account will henceforth be a zero-balance account, and
funds deposited in the Account should be sent at the end of each day to
_______________.
We appreciate your cooperation in this matter.
Very truly yours,
THE FIRST NATIONAL BANK OF CHICAGO
(as Administrative Agent)
By:___________________________________
Title:__________________
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EXHIBIT VI
CREDIT AND COLLECTION POLICY
(Attached)
Page 78
<PAGE>
EXHIBIT VII
FORM OF CONTRACT(S)
(Attached)
Page 79
<PAGE>
EXHIBIT VIII
FORM OF SETTLEMENT REPORT
(Attached)
Page 80
<PAGE>
EXHIBIT IX
FORM OF PURCHASE NOTICE
[On Letterhead of Seller]
[Date]
The First National Bank of Chicago,
as Administrative Agent for the Purchasers parties
to the Receivables Purchase Agreement
referred to below
Suite 0596, 1-21
One First National Plaza
Chicago, Illinois 60670
Attention: Asset-Backed Markets
Gentlemen:
The undersigned, DONNELLY RECEIVABLES CORPORATION, refers to the
Receivables Purchase Agreement, dated as of November 14, 1996 (the "Receivables
Purchase Agreement", the terms defined therein being used herein as therein
defined), among the undersigned, Falcon Asset Securitization Corporation
("Falcon"), certain Investors parties thereto and The First National Bank of
Chicago, as Administrative Agent for Falcon and such Investors, and hereby gives
you notice, irrevocably, pursuant to Section 1.2 of the Receivables Purchase
Agreement that the undersigned hereby requests a Purchase under the Receivables
Purchase Agreement, and in that connection sets forth below the information
relating to such Purchase (the "Proposed Purchase") as required by Section 1.2
of the Receivables Purchase Agreement:
(i) The Business Day of the Proposed Purchase is ___________, 19__.
(ii) The requested Purchase Price in respect of the Proposed
Purchase is [$_____________] [DM___________].
(iii) The requested Purchaser[s] in respect of the Proposed Purchase
[is Falcon] [are the Investors].
(iii) The duration of the initial Tranche Period for the Proposed
Purchase is ____________ [days] [months].
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(iv) The Discount Rate related to such initial Tranche Period is
requested to be the [CP] [LIBO] [Base] Rate.
The undersigned hereby certifies that the following statements are
true on the date hereof, and will be true on the date of the Proposed Purchase
(before and after giving effect to the Proposed Purchase):
(A) the representations and warranties set forth in Article III of
the Receivables Purchase Agreement are correct on and as of
such date, as though made on and as of such date;
(B) no event has occurred, or would result from the Proposed
Purchase that will constitute a Servicer Default, and no event
has occurred and is continuing, or would result from such
Proposed Purchase, that would constitute a Potential Servicer
Default; and
(iii) the Liquidity Termination Date shall not have occurred, the
Aggregate Capital shall not exceed the Purchase Limit and the
Aggregate Capital shall not exceed the Capital Limit.
[A Settlement Report is attached hereto and made a part hereof.]/2/
Very truly yours,
DONNELLY RECEIVABLES CORPORATION
By__________________________________
Title:
- ------------
/2/ If requested by the Administrative Agent.
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EXHIBIT X
FORM OF LEGEND
The Receivable evidenced by this Invoice/shipping documentation has been sold
and assigned to Donnelly Corporation and resold and reassigned by Donnelly
Corporation to Donnelly Receivables Corporation and the amount payable in
respect hereof should be paid in accordance with our letter to you dated [date
of relevant Obligor Notification].
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EXHIBIT XI
LIST OF ELIGIBLE DM OBLIGORS
Name of
Eligible Obligor Address
- ---------------- -------
Audi AG 85045 Ingolstadt, Germany
Bayerische Motorenwerke AG Postfach 40 02 01
80788 Munchen, Germany
Ford Werke AG Henry-Ford-Strasse 1
50735 Koln, Germany
Karmann Wilhelm GmbH Postfach 2609
49016 Osnabruck, Germany
Evobus GmbH Postfach 2660
89016 Ulm, Germany
Opel Adam AG Postfach 17 10
65423 Russelsheim, Germany
Porsche Dr. Ing. H.C.F. AG Postfach 40 06 40
70406 Stuttgart, Germany
Rowenta Werke GmbH Postfach 10 16 64
63016 Offenbach, Germany
B10-3 Erad
Saab Automobile AB 46180 Trollhaettan, Sweden
Saechsische Automobilbau GmbH Postfach 200
08125 Mosel, Germany
- --------------------------------------------------------------------
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Volkswagenwerk AG Postfach
38436 Wolfsburg, Germany
Volkswagenwerk Bruxelles S.A. 201, Boulevard de la Deuxieme Armee
1190 Bruxelles, Belgium
Volvo Car Corporation 40508 Goteborg, Sweden
Volvo Cars Europe Industry Postfach 2 73
9000 Gent, Belgium
Alfi Zitzmann GmbH Postfach 16 16
97866 Wertheim, Germany
Page 85
<PAGE>
EXHIBIT XII
FORM OF OBLIGOR NOTIFICATION
(Attached)
Page 86
<PAGE>
SCHEDULE A
DOCUMENTS TO BE DELIVERED TO THE ADMINISTRATIVE AGENT
ON OR PRIOR TO THE INITIAL PURCHASE
(Attached)
Page 87
<PAGE>
================================================================================
================================================================================
RECEIVABLES PURCHASE AGREEMENT
Dated as of November 14, 1996
Among
DONNELLY RECEIVABLES CORPORATION
as Seller
and
FALCON ASSET SECURITIZATION CORPORATION
and
THE FINANCIAL INSTITUTIONS PARTY HERETO,
as Investors
and
THE FIRST NATIONAL BANK OF CHICAGO,
as Administrative Agent
================================================================================
================================================================================
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I
AMOUNTS AND TERMS OF THE PURCHASES................................. Page 1
Section 1.1. Purchase Facility................................... Page 2
Section 1.2. Making Purchases.................................... Page 2
Section 1.3. Selection of Tranche Periods and Discount Rates..... Page 2
Section 1.4. Percentage Evidenced by Receivable Interests........ Page 4
Section 1.5. Dividing or Combining Receivable Interests.......... Page 4
Section 1.6. Reinvestment Purchases.............................. Page 4
Section 1.7. Liquidation Settlement Procedures................... Page 5
Section 1.8. Deemed Collections.................................. Page 6
Section 1.9. Discount; Payments and Computations, Etc............ Page 6
Section 1.10. Capital Limit....................................... Page 7
Section 1.11. Seller's Extinguishment............................. Page 7
Section 1.12. Extensions of the Liquidity Termination Date........ Page 7
ARTICLE II
LIQUIDITY FACILITY................................................. Page 8
Section 2.1. Transfer to Investors............................... Page 8
Section 2.2. Transfer Price Reduction Discount................... Page 8
Section 2.3. Payments to Falcon.................................. Page 8
Section 2.4. Limitation on Commitment to Purchase from Falcon.... Page 8
Section 2.5. Defaulting Investors................................ Page 9
Section 2.6. Hedging Arrangements................................ Page 9
ARTICLE III
REPRESENTATIONS AND WARRANTIES..................................... Page 9
Section 3.1. Seller Representations and Warranties............... Page 9
Section 3.2. Investor Representations and Warranties............. Page 13
ARTICLE IV
CONDITIONS OF PURCHASES............................................ Page 14
Section 4.1. Conditions Precedent to Initial Purchase............ Page 14
Section 4.2. Conditions Precedent to All Purchases and
Reinvestments....................................... Page 14
ARTICLE V
COVENANTS.......................................................... Page 15
Section 5.1. Affirmative Covenants of Seller..................... Page 15
Section 5.2. Negative Covenants of Seller........................ Page 21
ARTICLE VI
ADMINISTRATION AND COLLECTION...................................... Page 23
</TABLE>
-i-
<PAGE>
<TABLE>
<S> <C>
Section 6.1. Designation of Servicer............................. Page 23
Section 6.2. Duties of Servicer.................................. Page 24
Section 6.3. Collection Notices.................................. Page 25
Section 6.4. Responsibilities of the Seller...................... Page 25
Section 6.5. Reports............................................. Page 25
ARTICLE VII
SERVICER DEFAULTS.................................................. Page 26
ARTICLE VIII
INDEMNIFICATION.................................................... Page 27
Section 8.1. Indemnities by the Seller........................... Page 27
Section 8.2. Increased Cost and Reduced Return................... Page 30
Section 8.3. Other Costs and Expenses............................ Page 30
Section 8.4. Allocations......................................... Page 31
ARTICLE IX
THE ADMINISTRATIVE AGENT........................................... Page 31
Section 9.1. Authorization and Action............................ Page 31
Section 9.2. Delegation of Duties................................ Page 32
Section 9.3. Exculpatory Provisions.............................. Page 32
Section 9.4. Reliance by Administrative Agent.................... Page 32
Section 9.5. Non-Reliance on Administrative Agent and
Other Purchasers.................................... Page 33
Section 9.6. Reimbursement and Indemnification................... Page 33
Section 9.7. Administrative Agent in its Individual Capacity..... Page 33
Section 9.8. Successor Administrative Agent...................... Page 34
ARTICLE X
ASSIGNMENTS; PARTICIPATIONS........................................ Page 34
Section 10.1. Assignments......................................... Page 34
Section 10.2. Participations...................................... Page 35
ARTICLE XI
MISCELLANEOUS...................................................... Page 35
Section 11.1. Waivers and Amendments.............................. Page 35
Section 11.2 Notices............................................. Page 36
Section 11.3. Ratable Payments.................................... Page 37
Section 11.4. Protection of Ownership Interests of the
Purchasers.......................................... Page 37
Section 11.5. Confidentiality..................................... Page 38
Section 11.6. Bankruptcy Petition................................. Page 38
Section 11.7. Limitation of Liability............................. Page 39
SECTION 11.8. CHOICE OF LAW....................................... Page 39
SECTION 11.9. CONSENT TO JURISDICTION............................. Page 39
SECTION 11.10. WAIVER OF JURY TRIAL................................ Page 39
</TABLE>
-ii-
<PAGE>
<TABLE>
<S> <C>
Section 11.11. Integration; Survival of Terms...................... Page 40
Section 11.12. Counterparts; Severability.......................... Page 40
Section 11.13. First Chicago Roles................................. Page 40
Section 11.14. Characterization.................................... Page 40
</TABLE>
-iii-
<PAGE>
EXHIBITS AND SCHEDULES
EXHIBIT I DEFINITIONS
EXHIBIT II PRINCIPAL PLACE OF BUSINESS OF THE SELLER; LOCATION(S) OF
RECORDS; FEDERAL EMPLOYER IDENTIFICATION NUMBERS; NAMES
EXHIBIT III LOCK-BOXES; CONCENTRATION ACCOUNTS; DEPOSITARY ACCOUNTS
EXHIBIT IV FORM OF COMPLIANCE CERTIFICATE
EXHIBIT V FORM OF COLLECTION ACCOUNT AGREEMENT
EXHIBIT VI CREDIT AND COLLECTION POLICY
EXHIBIT VII FORM OF CONTRACT(S)
EXHIBIT VIII FORM OF SETTLEMENT REPORT
EXHIBIT IX FORM OF PURCHASE NOTICE
EXHIBIT X FORM OF LEGEND
EXHIBIT XI ELIGIBLE DM OBLIGORS
EXHIBIT XII FORM OF OBLIGOR NOTIFICATION
SCHEDULE A LIST OF DOCUMENTS TO BE DELIVERED TO THE ADMINISTRATIVE AGENT
PRIOR TO THE INITIAL PURCHASE
-iv-
<PAGE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Donnelly Corporation
Holland, Michigan
We hereby consent to the use in the Prospectus constituting a part of this
Registration Statement of our report dated August 2, 1996, relating to the
combined consolidated financial statements of Donnelly Corporation, which is
contained in that Prospectus, and to the incorporation in the Prospectus by
reference to our reports dated August 2, 1996, relating to the combined
consolidated financial statements and schedules of Donnelly Corporation
appearing in the Company's Annual Report on Form 10-K for the year ended June
29, 1996.
We also consent to the reference to us under the caption "Experts" in the
Prospectus.
BDO SEIDMAN, LLP
Grand Rapids, Michigan
May 5, 1997
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CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Donnelly Corporation
Holland, Michigan
We hereby consent to the incorporation by reference in the Prospectus
constituting a part of this Registration Statement of our report dated July
12, 1996, relating to the consolidated financial statements of Hohe GmbH & Co.
KG as of March 31, 1996 and May 31, 1996 and for the periods then ended
appearing in the Company's Form 8-K/A filing on November 27, 1996.
We also consent to the reference to us under the caption "Experts" in the
Prospectus.
BDO BINDER GmbH
Frankfurt am Main
May 5, 1997
