<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K/A
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): January 4, 1999
Donnelly Corporation
(Exact name of Registrant as specified in its charter)
Michigan I-9716 38-0493110
(State or other (Commission File No.) (IRS Employer
jurisdiction of Identification No.)
incorporation)
49 West Third Street, Holland, Michigan 49423-2813
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (616) 786-7000
<PAGE>
Item 2. Acquisition or Disposition of Assets
Effective, January 4, 1999, Donnelly Optics Corporation
("Optics"), a wholly-owned subsidiary of the Registrant, was
merged into Optics Acquisition, Inc. ("Acquisition"), a wholly-
owned subsidiary of Applied Image Group, Inc. ("AIG"), a New York
Corporation. The surviving corporation in this merger was Optics
and its name was changed to Applied Optics, Inc. ("AOI").
Donnelly Optics Corporation designed and manufactured injection
molded optical lenses for the automotive, computer and medical
industries. Applied Image Group develops and manufactures opto-
imaging products for the lighting, automotive, optical and
photonics industries.
The transaction was effected pursuant to an Agreement and Plan of
Merger ("Merger Agreement") dated as of December 1, 1998, among
the Registrant, Optics, Acquisition and AIG. The effective date
of the merger was January 4, 1999.
Pursuant to the Merger Agreement, the Registrant received a
$5,000,000 convertible subordinated promissory note ("Note") of
AOI, guaranteed by AIG, and 13% of the outstanding AIG common
stock. The Note provides that interest shall begin to accrue at
6% on January 4, 2002, with interest-only payments due each
quarter beginning April 4, 2002, and the entire principal amount
due January 3, 2009. The Note is convertible at anytime into
shares of AIG common stock. Upon such conversion, in the full
principal amount of the Note, Donnelly would hold approximately
17% of the outstanding common stock of AIG. As a result of this
transaction, the financial results, assets and liabilities of
Optics have been removed from the Registrant's financial
statements as of December 1, 1998, and were replaced on the
Registrant's balance sheet by the 13% equity interest in AIG and
the $5,000,000 Note.
The terms of the Merger Agreement and the establishment of the
merger consideration were arrived at as a result of arm's length
negotiations between the management of the Registrant and the
management of AIG. There are no material relationships between
the Registrant and AIG or any of their respective affiliates,
directors, officers or associates of any such directors or
officers.
Item 7. Financial Statements, Pro Forma Financial Information
and Exhibits
(b) Pro Forma Financial Information
1. Donnelly Corporation and Subsidiaries pro forma
condensed combined consolidated statement of income for the three-
month period ended September 26, 1998.
2. Donnelly Corporation and Subsidiaries pro forma
condensed combined consolidated statement of income for the year
ended June 27, 1998.
3. Donnelly Corporation and Subsidiaries pro forma
condensed combined consolidated balance sheet as of September 26,
1998.
(c) Exhibits
Agreement and Plan of Merger among Applied Image
Group, Inc., Optics Acquisition, Inc. Donnelly Corporation,
Donnelly Optics Corporation and Bruno Glavich.
<PAGE>
Donnelly Corporation and Subsidiaries
Unaudited Pro Forma Condensed Combined Consolidated
Financial Statements
The following Pro Forma Condensed Combined Consolidated Balance
Sheet is derived from the unaudited Condensed Combined
Consolidated Balance Sheet of the Registrant at September 26, 1998
after giving effect to the disposition of the net assets of the
Donnelly Optics Corporation ("Optics"), a wholly-owned subsidiary
of Donnelly Corporation, to Applied Image Group, Inc. as if the
disposition had been completed on September 26, 1998.
Also presented are the Pro Forma Condensed Combined Consolidated
Statements of Income for the fiscal year ended June 27, 1998 and
the three months ended September 26, 1998, which are derived from
the audited Combined Consolidated Statement of Income for the year
ended June 27, 1998, and the unaudited Condensed Combined
Consolidated Statement of Income for the three months ended
September 26, 1998, assuming the disposition had been completed on
June 29, 1997.
The unaudited pro forma data does not purport to be indicative of
the results which would actually have been reported if the
transaction had occurred on such dates or which may be reported in
the future. The pro forma data should be read in conjunction with
the historical financial statements of the Company and the related
notes to such financial statements.
<PAGE>
<TABLE>
<CAPTION>
DONNELLY CORPORATION AND SUBSIDIARIES
PRO FORMA CONDENSED COMBINED CONSOLIDATED STATEMENT OF
INCOME(UNAUDITED)
Three Months Ended September 26, 1998
----------------------------------------
Donnelly
Corporation Assumed
In thousands, and Disposition Pro forma
except share data Subsidiaries of Business Adjusted
------------ ----------- ---------
(A)
<S> <C> <C> <C>
Net Sales $ 189,603 $ (686) $ 188,917
Cost of sales 162,842 (706) 162,136
Gross profit 26,761 20 26,781
Operating expenses:
Selling, general and
administrative 18,588 (552) 18,036
Research and development 9,285 (714) 8,571
Operating Income (loss) (1,112) 1,286 174
Non-operating (income) expenses:
Interest expense 2,010 (25) 1,985
Interest income (171) (171)
Royalty income (107) (107)
Other income, net (172) (3) (175)
Income (loss) before
taxes on income (2,672) 1,314 (1,358)
Taxes on income (1,040) 460 (580)
Income (loss) before
minority interest
and equity earnings (1,632) 854 (778)
Minority interest in net
losses of subsidiaries 233 233
Equity in losses of
affiliated companies (591) (591)
Net income (loss) $ (1,990) $ 854 $ (1,136)
Net earnings (loss) per
share of common stock:
Basic $ (0.20) $ (0.11)
Diluted $ (0.20) $ (0.11)
Weighted average common
shares outstanding:
Basic 10,078 10,078
Diluted 10,078 10,078
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
DONNELLY CORPORATION AND SUBSIDIARIES
PRO FORMA CONDENSED COMBINED CONSOLIDATED STATEMENT OF
INCOME (UNAUDITED)
Year Ended June 27, 1998
----------------------------------------
Donnelly
Corporation Assumed
In thousands, and Disposition Pro forma
except share data Subsidiaries of Business Adjusted
------------ ----------- ---------
(A)
<S> <C> <C> <C>
Net sales $ 763,311 $ (3,994) $ 759,317
Cost of sales 632,679 (1,642) 631,037
Gross profit 130,632 (2,352) 128,280
Operating expenses:
Selling, general and
administrative 70,372 (2,878) 67,494
Research and development 36,418 (2,054) 34,364
Non-recurring charges 3,468 (3,468) 0
Operating income 20,374 6,048 26,422
Non-operating (income) expenses:
Interest expense 8,347 (98) 8,249
Interest income (560) (560)
Royalty income (122) (122)
Gain on sale of equity
Investment (4,598) (4,598)
Other income, net (1,872) (1,872)
Income before taxes
on income 19,179 6,146 25,325
Taxes on income 5,053 2,278 7,331
Income before minority
interest and equity
earnings 14,126 3,868 17,994
Minority interest in net
losses of subsidiaries 381 381
Equity in losses of
affiliated companies (1,498) (1,498)
Net income $ 13,009 $ 3,868 $ 16,877
Net earnings per share
of common stock:
Basic $ 1.30 $ 1.69
Diluted $ 1.29 $ 1.67
Weighted average common
shares outstanding:
Basic 9,961 9,961
Diluted 10,072 10,072
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
DONNELLY CORPORATION AND SUBSIDIARIES
PRO FORMA CONDENSED COMBINED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
September 26, 1998
----------------------------------------
Donnelly
Corporation
In thousands, and
except share data Subsidiaries Adjustments Pro forma
------------ ----------- ---------
(B)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 4,194 $ (45) $ 4,149
Accounts receivable, net 98,530 (705) 97,825
Inventories 47,182 (305) 46,877
Prepaid expenses and other
current assets 26,367 3,532 29,899
Total current assets 176,273 2,477 178,750
Net property, plant and
Equipment 177,294 (9,170) 168,124
Other assets 45,150 7,048 52,198
Total assets $ 398,717 $ 355 $ 399,072
LIABILITIES & SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 86,551 $ (229) $ 86,322
Other current liabilities 35,655 2,364 38,019
Current maturities of
long-term debt 113 (40) 73
Total current
Liabilities 122,319 2,095 124,414
Long-term debt, less
current maturities 135,694 (1,740) 133,954
Deferred income taxes
and other 37,740 37,740
Total liabilities 295,753 355 296,108
Minority interest 803 803
Shareholders' equity:
Preferred stock 531 531
Common stock 1,013 1,013
Other shareholders' equity 100,617 100,617
Total shareholders'
Equity 102,161 102,161
Total liabilities and
shareholders' equity $ 398,717 $ 355 $ 399,072
The accompanying notes are an integral part of these statements
</TABLE>
<PAGE>
Notes to Pro Forma Condensed Combined Consolidated Financial
Statements (unaudited).
(A) To reflect the elimination of the sales, directly allocable
expenses and related tax expense of Donnelly Optics Corporation.
(B) To reflect the following:
- The disposition of operating assets and liabilities related
to Optics, net of related tax effects, and;
- The recording of the convertible promissory note and the
investment in the outstanding common stock of AIG, and related
adjustments, in accordance with the merger agreement.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
DONNELLY CORPORATION
(Registrant)
Date: February 11, 1999 /s/ Scott E. Reed
Scott E. Reed
Senior Vice President, Chief
Financial Officer
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of December 1, 1998, among APPLIED
IMAGE GROUP, INC., a New York corporation ("AIG"), OPTICS ACQUISITION, INC., a
Michigan corporation ("Acquisition"), DONNELLY CORPORATION, a Michigan
corporation ("Donnelly"), DONNELLY OPTICS CORPORATION, a Michigan corporation
("Optics"), and BRUNO GLAVICH ("Glavich").
W I T N E S S E T H :
WHEREAS, the parties desire that Acquisition merge with and into Optics,
upon the terms and conditions set forth herein and in accordance with the
Michigan Business Corporation Act, and that the outstanding shares of common
stock, no par value ("Optics Common Stock"), of Optics, be converted upon such
merger (the "Merger") into 130 shares of Common Stock, $.01 par value, of AIG
("AIG Common Stock") which represents 13% of the outstanding AIG Common Stock
after the Effective Date of the Merger and the outstanding shares of common
stock, no par value ("Acquisition Common Stock"), of Acquisition be converted
upon the Merger into 1,000 shares of Optics common stock (Acquisition and Optics
being hereinafter sometimes referred to as the "Constituent Corporations" and
Optics as the "Surviving Corporation"); and
WHEREAS, it is intended that for federal income tax purposes, the Merger
shall qualify as a reorganization within the meaning of Section 368(a)(1)(A) and
368(a)(2)(E) of the Internal Revenue Code of 1986, as amended and the rules and
regulations promulgated thereunder; and
WHEREAS, Glavich is the owner of a majority of the outstanding stock of
the AIG Entities (as hereinafter defined in Section 5(f)) which will be
exchanged for AIG Common Stock prior to the Merger.
NOW, THEREFORE, in consideration of the mutual representations,
warranties, covenants, agreements and conditions contained herein, and in order
to set forth the terms and conditions of the Merger and the method of carrying
the same into effect, the parties hereto hereby agree as follows:
I
MERGER
01. The Merger. At the Effective Date (as hereinafter defined),
Acquisition shall be merged with and into Optics on the terms and conditions
hereinafter set forth as permitted by and in accordance with the Michigan
Business Corporation Act. Thereupon the separate existence of Acquisition shall
cease, and Optics, as the Surviving Corporation, shall continue to exist under
and be governed by the Michigan Business Corporation Act, with its Articles of
Incorporation, except that Article I of the Articles of Incorporation shall be
amended to read as follows: The name of the corporation is APPLIED OPTICS, INC.
the Bylaws of Optics in effect at the
<PAGE>
Effective Date to remain unchanged (except as provided in Exhibit B) until
further amended in accordance with the provisions thereof and applicable law.
02. Filing. As soon as possible on or after January 4, 1999, Donnelly
and AIG will cause the Certificate of Merger in the form of Exhibit A hereto
(the "Certificate of Merger") to be executed and filed with the Michigan
Department of Consumer and Industry Services as provided in the Michigan
Business Corporation Act.
03. Effective Date of the Merger. The Merger shall become effective
immediately upon the filing of the Certificate of Merger with the Michigan
Department of Consumer and Industry Services which shall be as soon as possible
on or after the date hereof. The date and time of such effectiveness is herein
sometimes referred to as the "Effective Date."
II
BOARD OF DIRECTORS AND OFFICERS
01. Directors. Subject to Donnelly's rights under the Shareholder
Rights Agreement set forth as Exhibit B, from and after the Effective Date, the
members of the Board of Directors of the Surviving Corporation shall consist of
the members specified on Exhibit C and each of the members of such Board of
Directors of the Surviving Corporation to serve until his successor is elected
and is qualified or until his earlier death, resignation or removal.
02. Officers. From and after the Effective Date, the officers of the
Surviving Corporation shall be as set forth on Exhibit D, and each such officer
shall serve until his successor is elected and qualified or until his earlier
death, resignation or removal in accordance with the Bylaws.
III
CONVERSION OF SHARES
01. Conversion. On the Effective Date:
(a) each share of Optics Common Stock issued and outstanding
immediately prior to the Effective Date shall, by virtue of the Merger,
automatically and without any action on the part on the holder thereof, become
and be converted into .0026 shares of AIG Common Stock, and
(b) each share of Acquisition common stock issued and outstanding
immediately prior to the Effective Date shall by virtue of the Merger
automatically and without any action on the part on the holder thereof, become
and be converted into five (5) shares of common stock of the Surviving
Corporation.
02. Certificates. On the Effective Date:
<PAGE>
(a) Donnelly shall surrender the certificate which formerly represented
shares of Optics Common Stock outstanding on the Effective Date to AIG, and
simultaneously therewith AIG shall deliver to Donnelly a certificate
representing such number of shares of AIG Common Stock as are deliverable
pursuant to Section 3.01, and
(b) AIG shall surrender the Certificate which formerly represented
shares of Acquisition common stock outstanding on the Effective Date to the
Surviving Corporation and simultaneously therewith, the Surviving Corporation
shall deliver to AIG a certificate representing such number of shares of the
Surviving Corporation as are deliverable pursuant to Section 3.01.
IV
CERTAIN EFFECTS OF MERGER
01. Effect of Merger. Upon and after the Effective Date, the separate
existence of each Constituent Corporation shall cease and the Surviving
Corporation shall possess all the rights, privileges, immunities, powers,
authority and franchises, of a public as well as of a private nature, of each of
the Constituent Corporations; and all property, real, personal and mixed and all
debts due on whatever account, including subscriptions to shares, and all other
chooses in action, and all and every other interest of or belonging to or due to
each of the Constituent Corporations shall be taken and deemed to be transferred
to and vested in the Surviving Corporation without further act or deed; and the
title to any real estate, or any interest therein, vested in either of the
Constituent Corporations shall not revert or be in any way impaired by reason of
the Merger. The Surviving Corporation shall be responsible and liable for all
the liabilities and obligations of each of the Constituent Corporations.
Neither the rights of creditors nor any liens upon the property of either of the
Constituent Corporations shall be impaired by the Merger.
02. Further Assurances. If at any time after the Effective Date the
Surviving Corporation shall consider or be advised that any further deeds,
assignments or assurances in law or any other acts are necessary, desirable or
proper (a) to vest, perfect or confirm, of record or otherwise, in the Surviving
Corporation, the title to any property or right of the Constituent Corporations
acquired or to be acquired or liability assumed to be assumed by reason of, or
as a result of, the Merger, or (b) otherwise to carry out the purposes of this
Agreement, the Constituent Corporations agree that the Surviving Corporation and
its proper officers and directors shall and will execute and deliver all such
further deeds, assignments, assumptions and assurances in law and do all acts
necessary, desirable or proper to vest, perfect or confirm title to such
property or rights in the Surviving Corporation and otherwise to carry out the
purposes of this Agreement, and that the proper officers and directors of the
Constituent Corporations and the proper officers and directors of the Surviving
Corporation are fully authorized in the name of the Constituent Corporations or
otherwise to take any and all such actions.
<PAGE>
V
REPRESENTATIONS AND WARRANTIES
01. Representations and Warranties by AIG. With respect to all
representations made in this Section that are made to the knowledge of AIG,
such knowledge shall be deemed to include the knowledge of Glavich. AIG
represents and warrants to Donnelly and Optics as follows:
(a) Organization and Qualification, etc.
(i) AIG is a corporation duly organized, validly existing and in good
standing under the laws of the State of New York, has corporate power and
authority to own all of its properties and assets and to carry on its business
as it is now being conducted, and is duly qualified to do business and is in
good standing in each jurisdiction where such qualification is required and
where the failure to so qualify would, when taken together with all other such
failures, affect materially and adversely the financial condition of AIG. The
copies of AIG's Certificate of Incorporation and By-Laws, as amended to date,
which have been delivered to Donnelly, are complete and correct, and such
instruments, as so amended, are in full force and effect at the date hereof.
(ii) Acquisition is a corporation duly organized, validly existing and in
good standing under the laws of the State of Michigan, has corporate power and
authority to own all of its properties and assets and to carry on its business
as it is now being conducted, and is duly qualified to do business and is in
good standing in each jurisdiction where such qualification is required and
where the failure to so qualify would, when taken together with all other such
failures, affect materially and adversely the financial condition of
Acquisition.
(b) Capital Stock.
(i) The authorized capital stock of AIG consists of 5,000 shares of AIG
Common Stock and 1,000 shares of Preferred Stock, $1.00 par value ("AIG
Preferred Stock"). There are no shares of AIG Common Stock validly issued and
outstanding, fully paid and nonassessable, and no shares of AIG Common Stock are
held in the treasury of AIG. There are no shares of AIG Preferred Stock
validly issued and outstanding, fully paid and nonassessable, and no shares of
AIG Preferred Stock are held in the treasury of AIG. Immediately prior to the
Effective Date, there will be 870 shares of AIG Common Stock and, if there is no
outstanding Preferred Stock of any of the AIG Entities, 740 shares of 8% AIG
Preferred Stock with a stated value of $1,000 each issued and outstanding. AIG
<PAGE>
has no other commitments to issue or sell any shares of its capital stock or any
securities or obligations convertible into or exchangeable for, or giving any
person any right to subscribe for or acquire from AIG, any shares of its capital
stock and no securities or obligations evidencing any such rights are
outstanding.
(ii) The authorized capital stock of Acquisition consists of 200 shares
of Acquisition common stock. There are 200 shares of Acquisition common stock
validly issued and outstanding, fully paid and non-assessable, all of which are
owned by AIG., Acquisition has no commitments to issue or sell any shares of its
capital stock or any securities or obligations convertible into or exchangeable
for, or giving any person any right to subscribe for or acquire from
Acquisition, any shares of its capital stock and no securities or obligations
evidencing any such rights are outstanding.
(c) Authority Relative to Agreement. AIG and Acquisition have the
corporate power and authority to execute and deliver this Agreement and to
consummate the transactions contemplated on the part of AIG and Acquisition
hereby. The execution and delivery by AIG and Acquisition of this Agreement and
the consummation by AIG and Acquisition of the transactions contemplated on
their part hereby have been duly authorized by their Boards of Directors and
Shareholders. This Agreement has been duly executed and delivered by AIG and
Acquisition and are valid and binding agreements of AIG and Acquisition.
(d) Non-Contravention. The execution and delivery of this Agreement by
AIG and Acquisition do not and, the consummation by AIG of the transactions
contemplated hereby will not violate any provision of the Certificate of
Incorporation or By-Laws of AIG or the Articles of Incorporation or bylaws of
Acquisition, or violate, or result with the giving of notice or the lapse of
time or both in a violation of, any provision of, or result in the acceleration
of or entitle any party to accelerate (whether after the giving of notice or
lapse of time or both) any obligation under, or result in the creation or
imposition of any lien, charge, pledge, security interest or other encumbrance
upon any of the property of AIG or Acquisition pursuant to any provision of, any
mortgage, lien, lease, agreement, license, instrument, law, ordinance,
regulation, order, arbitration award, judgment or decree to which AIG or
Acquisition is a party or by which it is bound and do not and will not violate
or conflict with any other restriction of any kind or character to which AIG or
Acquisition is subject or by which any of their assets may be bound, and the
same does not and will not constitute an event permitting termination of any
mortgage, lien, lease, agreement, license or instrument to which AIG or
Acquisition is a party.
(e) Consents, etc. Except the filing of the Certificate of Merger, no
consent, authorization, order or approval of, or filing or registration with,
any governmental commission, board or other regulatory body is required for or
in connection with the execution and delivery of this Agreement by AIG or
Acquisition and the consummation by AIG or Acquisition of the transactions
contemplated hereby.
<PAGE>
(f) Financial Statements. AIG has previously furnished Donnelly with
true and complete copies of the financial statements of Applied Glasstec-
Buffalo, Inc., Applied Image, Inc. and Applied Coatings, Inc. (the "AIG
Entities") for the year ended December 31, 1997, and the internal financial
statements for the nine months ended September 30, 1998 (the "AIG Financial
Statements"). Except as otherwise specifically required or disclosed under this
Agreement, since September 30, 1998, the AIG Entities have conducted their
business only in and have not engaged in any material transaction other than
according to the ordinary and usual course of business consistent with past
practice except that s-corporation earnings have been distributed, and there
have not been any change in the financial condition, operations, properties,
business or results of operation of the AIG Entities that has had or, to the
best of the AIG's knowledge, is likely to have a material adverse effect. The
AIG Financial Statements have been prepared in conformity with generally
accepted accounting principles consistently applied and present fairly the
financial position of AIG as of such respective dates, provided however that
Applied Glasstec - Buffalo, Inc. and Applied Image, Inc.'s financial statements
have been compiled on an income tax basis of accounting. Attached hereto as
Schedule 5.01(f) is a pro forma consolidated balance sheet of AIG (the "Pro
Forma Balance Sheet") as of October 30, 1998, as if the reorganization under
which AIG will acquire all of the outstanding capital stock of the AIG Entities
in exchange for AIG Common Stock as described in Article VI hereof has occurred
as of October 30, 1998.
(g) Governmental Authorization and Compliance with Laws. To the best
knowledge of AIG, the business of AIG has been operated in compliance with the
laws, orders, regulations, policies and guidelines of all governmental entities.
To the best knowledge of AIG, all AIG Entities have all permits, certificates,
licenses, approvals and other authorizations required in connection with the
operation of their business. No notice has been issued and, to the knowledge of
AIG, no investigation or review is pending or is contemplated or threatened by
any governmental entity (i) with respect to any alleged violation by an AIG
Entity of any law, order, regulation, policy or guideline of any governmental
entity, or (ii) with respect to any alleged failure to have all permits,
certificates, licenses, approvals and other authorizations required in
connection with the operation of the business of any AIG Entity.
(h) Subsidiaries. AIG does not own of record or beneficially, directly
or indirectly (i) any shares of outstanding capital stock or securities
convertible into capital stock of any other corporation or (ii) any
participating interest in any partnership, joint venture or other non-corporate
business enterprise, except that between the date hereof and the Effective Date,
AIG will acquire all of the outstanding stock of the AIG Entities as provided in
Article VI hereof.
(i) Tax Returns. AIG and the AIG Entities (i) have duly and timely
filed or had duly and timely filed on their behalf all Federal, state, local
and foreign tax returns (including, without limitation, consolidated, combined
or unitary tax returns) required to
<PAGE>
be filed by them on or prior to the Effective Date in respect to all periods
for which such a tax return was required to be filed and all such tax returns
were correct in all material respects and, (ii) have paid or fully and properly
accrued on the balance sheets of the AIG Entities as of September 30, 1998 and
on the Pro Forma Balance Sheet for all taxes shown to be due and payable on such
returns and all other taxes, governmental charges, duties, penalties, interest
and fines with respect thereto which are or will be due and payable on or prior
to the Effective Date in respect of all periods for which a tax return was
required to be filed. With respect to any period for which a tax return was
required to be filed, there are no agreements, waivers or other arrangements
providing for an extension of time with respect to the filing of any tax returns
by AIG or any AIG Entity (whether consolidated, combined or separate) or the
payment by, or assessment against, them of any tax, governmental charge, duty or
deficiency which remain unpaid. There are no suits, actions, claims,
investigations, inquiries or proceedings now pending against AIG or any AIG
Entity with respect to any taxes, governmental charges, duties or assessments
of any kind or nature whatsoever nor, to the best knowledge of AIG, are there
any such suits, actions, claims, investigations, inquiries or proceedings
threatened against AIG or an AIG Entity. There are no matters under discussion
between any governmental authority and AIG or an AIG Entity relating to such
taxes, governmental charges, duties or assessments asserted by any such
authority in respect of any period for which a tax return was required to be
filed. All AIG Entities have withheld or collected from each payment made to
each of its employees, the amount of all taxes (including, but not limited to,
Federal income taxes, Federal Insurance Contribution Act taxes, state and local
income and wage taxes, payroll taxes, workers' compensation and unemployment
compensation taxes) required to be withheld or collected therefrom and have
paid the same in respect of their employees, when due, or held for payment
until due, to the proper tax receiving officers.
(j) Title to Properties; Absence of Liens and Encumbrances, etc. AIG
and the AIG Entities have good title to all of the properties and assets, real,
personal and mixed, used in their business, free and clear of any liens,
charges, pledges, security interests or other encumbrances, other than those
granted in favor of Star Bank. All leases under which an AIG Entity is the
lessee of real or personal property that are material to the conduct of their
business, to the best knowledge of AIG, are valid and binding on the lessors
thereunder in accordance with their respective terms and there is not under any
of such leases any existing default, or any condition, event or act which with
notice or lapse of time or both would constitute such a default, which in either
case would affect materially and adversely the financial condition of an AIG
Entity.
(k) Litigation. There is no claim, action, suit or proceeding pending
or, to the knowledge of AIG, contemplated or threatened against AIG or any AIG
Entity which, in the event of a final adverse determination, is reasonably
likely to affect materially and adversely the financial condition or business
prospects of AIG or an AIG Entity, or which seeks damages in connection with
any of the transactions contemplated by this
<PAGE>
Agreement or to prohibit, restrict or delay consummation of the Merger, nor is
there any judgment, decree, injunction, ruling or order of any court,
governmental department, commission, agency or instrumentality, arbitrator or
any other person outstanding against AIG or an AIG Entity having any such
effect; and neither AIG nor any AIG Entity is a party to nor bound by any
judgment, decree, injunction, ruling or order of any court, governmental
department, commission, agency or instrumentality, arbitrator or any other
person against AIG or an AIG Entity.
(l) Environmental Matters.
(i) Definitions. For purposes of this subsection, the following terms
shall have the following meanings:
(a) "Environmental Laws" means all federal, state and local
environmental, statutes, ordinances and codes relating to the protection of the
environment and/or governing the use, storage, treatment, generation,
transportation, processing, handling, production or disposal of Hazardous
Substances and the rules, regulations, policies, guidelines, interpretations,
decisions, orders and directives of federal, state and local governmental
agencies and authorities with respect thereto.
(b) "Environmental Permits" means all permits, licenses, approvals,
authorizations, consents or registrations required by any applicable
Environmental Law in connection with the ownership, use and/or operation of the
Premises for the storage, treatment, generation, transportation, processing,
handling, production or disposal of Hazardous Substances, or the cleanup,
remediation, sale, transfer or conveyance of the Premises.
(c) "Hazardous Substance" means, without limitation, radon, radioactive
materials, asbestos, urea formaldehyde foam insulation, polychlorinated
biphenyls, petroleum and petroleum products, methane, hazardous materials,
hazardous wastes, hazardous or toxic substances or related materials or
chemicals the Release of which poses an unreasonable risk of harm to health or
the environment, as defined in the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended (42 U.S.C. Sections 9601 et
seq.), the Toxic Substances Control Act (15 U.S.C. Sections 2601 et seq.), the
Hazardous Materials Transportation Act, as amended (49 U.S.C. Sections 1801 et
seq.), the Resource Conservation and Recovery Act, as amended (42 U.S.C.
Sections 6901 et seq.), and any other applicable Environmental Law and the
regulations promulgated thereunder.
<PAGE>
(d) "Premises" means all real estate owned or leased by AIG or any AIG
Entity.
(e) "Release" means any spilling, leaking, pumping, pouring, emitting,
emptying, discharging, injecting, escaping, leaching, dumping, or disposing into
the environment (including the abandonment or discarding of barrels, containers,
and other closed receptacles containing any Hazardous Substance) in violation
of any Environmental Law.
(ii) Representations:
(a) Except as otherwise disclosed in writing to Donnelly, no AIG Entity
to its best knowledge has caused or allowed the generation, treatment, storage,
or disposal of any Hazardous Substance at any Premises except in accordance
with all applicable Environmental Laws and/or pursuant to all required
Environmental Permits.
(b) To the best of AIG's knowledge, no AIG Entity has caused or allowed
the Release of any Hazardous Substance at or near the Premises.
(c) To the best of AIG's knowledge, the AIG Entities are in compliance
with all applicable Environmental Laws regarding the handling of Hazardous
Substances.
(d) To the best of AIG's knowledge, all AIG Entities have secured all
necessary Environmental Permits necessary to their operations at the Premises,
and are in compliance with such Environmental Permits.
(e) No AIG Entity has received notice of any proceedings, claims, or
lawsuits brought under any Environmental Laws, nor any citations, notices of
investigation, or inquiry letters from any state or federal agency or
potentially responsible party relative to enforcement of Environmental Laws
arising out of its operations at their Premises.
(f) The Premises, to AIG's best knowledge, are not, nor have they ever
been, subject to the Release of any Hazardous Substance.
(g) There are no underground fuel or Hazardous Substance storage tanks
on the Premises.
(m) Year 2000 Compliance.
(i) The computer systems, software, and equipment owned or licensed by
AIG and all AIG Entities accurately process date/time data (including, but not
limited to, calculating, comparing and sequencing) from, into and between the
<PAGE>
twentieth and twenty-first centuries, and the years 1999 and 2000 and leap year
calculations, to the extent that other information technology, used in
combination with the information technology operated by AIG or any AIG Entity,
properly exchanges date/time data with it, the failure of which would adversely
affect the operations of the AIG Entities.
(ii) "Year 2000 Problem" means a date-handling problem relating to the
Year 2000 date change that would cause a computer system, software or equipment
to fail to correctly perform, process and handle date-related data for the
dates within and between the twentieth and twenty-first centuries and all other
centuries. AIG has no specific knowledge that any of AIG Entity's suppliers
or customers will experience a Year 2000 Problem that would affect business
of any AIG Entity as currently conducted.
(n) ERISA.
(i) Definitions. For purposes of this subsection, the following terms
shall have the following meanings:
"ERISA Affiliate" means any entity with which the AIG is a member of any
group of entities within the meaning of Sections 414(b)(c) or (m) of the Code.
"Benefit Arrangement" means any contract, agreement, arrangement or
practice providing for insurance coverage (including any self-insured
arrangement), unemployment benefits, deferred compensation, bonuses, stock
options, stock purchases, "parachute payments" (within the meaning of Section
280G of the Code), or other form of incentive or post-employment compensation
or benefits, that (1) is not a Plan, (2) is now or has been maintained by AIG,
an AIG Entity or an ERISA Affiliate, or covers or has covered an employee or
director of the AIG or an ERISA Affiliate, and (3) from which any current or
former employee of AIG, or an AIG Entity (or his spouse or beneficiary) is or
may be entitled to benefits, or with respect to which AIG or an AIG Entity has
or may have any liability, now or in the future.
"Code" means the Internal Revenue Code of 1986, as amended.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Pension Plan" means any "employee pension benefit plan" (as such term is
defined in Section 3(2) of ERISA), including, but not limited to a profit
sharing plan, 401(k) plan, stock bonus plan, employee stock ownership plan, and
any other "individual account plan" as defined in Section 3(34) of ERISA, that
(1) is now or has been maintained by AIG, an AIG Entity or an ERISA Affiliate,
or covers or has covered an employee of AIG, an AIG Entity or an ERISA
Affiliate,
<PAGE>
and (2) from which any current or former employee of AIG, or an AIG Entity (or
his spouse or beneficiary) is or may be entitled to benefits, or with respect
t0 which AIG or an AIG Entity has or may have any liability, now or in the
future.
"Plan" means a Pension Plan or Welfare Plan.
"Welfare Plan" means any "employee welfare benefit plan," as such term is
defined in Section 3(1) of ERISA, that (1) is now or has been maintained by AIG
or an AIG Entity or an ERISA Affiliate, or covers or has covered an employee of
AIG or an AIG Entity or an ERISA Affiliate, and (2) from which any current or
former employee of AIG or an AIG Entity (or his spouse or beneficiary) is or
may be entitled to benefits, or with respect to which AIG or an AIG Entity has
or may have any liability, now or in the future.
(ii) Representations
(a) Each Plan and Benefit Arrangement is now and has operated in
material compliance with all applicable provisions of ERISA, the Code, and all
other applicable laws, orders, rules and regulations, as well as the terms and
provisions of such Plan or Benefit Arrangement that are not inconsistent with
such laws, orders, rules and regulations. No Pension Plan is (i) a
"multiemployer plan," as defined in Section 3(37)(A) of ERISA, or (ii) a
Pension Plan otherwise subject to the minimum funding requirements of Section
412 of the Code. No Welfare Plan is a "voluntary employees' beneficiary
association," within the meaning of Section 501(c)(9) of the Code.
(b) All forms, reports and documents that have been required to be filed
with the Internal Revenue Service, the United States Department of Labor, the
Pension Benefit Guaranty Corporation, or the Securities and Exchange
Commission and/or distributed to participants, beneficiaries or employees, with
respect to each Plan and Benefit Arrangement, including complete annual reports
(Form 5500), summary annual reports and summary plan descriptions, have been
timely filed and/or distributed, as the case may be.
(c) There is no action, suit, investigation, arbitration or other
proceeding pending or threatened against, or otherwise affecting or involving,
any Plan or Benefit Arrangement, any fiduciary thereof, or the assets of any
trust, insurance or annuity contract thereunder, at law or in equity, by or
before any court, government department, commission, agency, instrumentality or
arbitrator. There is presently no outstanding judgment, decree, injunction or
order of any court, governmental department, commission, agency, instrumental-
ity or arbitrator against, or otherwise affecting or involving, any Plan or
Benefit Arrangement, any
<PAGE>
fiduciary thereof, or the assets of any trust, insurance or annuity contract
thereunder.
(d) No Plan, nor any trust created thereunder, nor any trustee,
administrator or other fiduciary thereof, has engaged in a "prohibited
transaction" within the meaning of Section 4975 of the Code or any transaction
which could give rise to any civil penalty imposed by Section 502 of ERISA. No
event has occurred and no condition exists with respect to any Plan that could
give rise to any tax liability under Section 4971, 4972, 4977, 4979, 4980B or
6652 of the Code, or to a penalty under Section 502(c) of ERISA.
(e) A favorable determination letter has been issued by the Internal
Revenue Service with respect to the qualified status of each Pension Plan (as
amended to comply with the Tax Reform Act of 1986) under Section 401(a) of the
Code, and there has been no occurrence, whether by action or inaction, which
could adversely affect the qualified status of any such Pension Plan. All
contributions to each Pension Plan that are required to be paid prior to the
Effective Date have been paid or will be paid prior to the Effective Date.
(f) Each Welfare Plan that is (or is in part) a "group health plan"
within the meaning of Section 607 of ERISA has materially complied with the
provisions of Section 601 of ERISA and Section 4980B of the Code, relating to
continuation coverage requirements.
(o) Compliance with Law. Neither AIG nor any AIG Entity is in default
with respect to any order of any court, governmental authority or arbitration
board or tribunal to which it is a party or is subject or which applies to its
business and has not been notified that it is in violation of any laws,
ordinances, governmental rules or regulations to which it is subject and none
has failed to obtain any licenses, permits, franchises or other governmental
authorizations necessary to the ownership of its assets and properties or to
the conduct of its business.
(p) Other Information. None of the information furnished by Glavich,
AIG or any AIG Entity to Donnelly in this Agreement, the exhibits hereto, the
schedules identified herein, or in any certificate or other document to be
executed or delivered pursuant hereto by AIG is materially false or misleading,
or contains any misstatement of material fact, or omits to state any material
fact required to be stated in order to make the statements therein not
misleading.
02. Representations and Warranties by Donnelly. Donnelly represents and
warrants to AIG as follows:
<PAGE>
(a) Organization and Qualification, etc Donnelly is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Michigan, has corporate power and authority to own all of its properties and
assets and to carry on its business as it is now being conducted.
(b) Authority Relative to Agreement and Financing Arrangements.
Donnelly has the corporate power and authority to execute and deliver this
Agreement and to consummate the transactions contemplated on the part of
Donnelly hereby and thereby. The execution and delivery by Donnelly of this
Agreement and the consummation by Donnelly of the transactions contemplated on
its part hereby and thereby have been or duly authorized by its Board of
Directors. No other corporate proceedings on the part of Donnelly are
necessary to authorize the execution and delivery of this Agreement by Donnelly
or the consummation by Donnelly of the transactions contemplated hereby. This
Agreement has been duly executed and delivered by Donnelly and is a valid and
binding agreement of Donnelly.
(c) Non-Contravention. The execution and delivery of this Agreement by
Donnelly do not, and the consummation by Donnelly of the transactions
contemplated hereby will not violate any provision of the Certificate of
Incorporation or By-Laws of Donnelly, or violate, or result with the giving of
notice or the lapse of time or both in a violation of, any provision of, or
result in the acceleration of or entitle any party to accelerate (whether after
the giving of notice or lapse of time or both) any obligation under, or result
in the creation or imposition of any lien, charge, pledge, security interest or
other encumbrance upon any of the property of Donnelly pursuant to any
provision of, any mortgage, lien, lease, agreement, license, instrument, law,
ordinance, regulation, order, arbitration award, judgment or decree to which
Donnelly is a party or by which it is bound and do not and will not violate or
conflict with any other restriction of any kind or character to which Donnelly
is subject or by which its assets may be bound, and the same does not and will
not constitute an event permitting termination of any mortgage, lien, lease,
agreement, license or instrument to which Donnelly is a party.
(d) Consents, etc. Except the filing of the Certificate of Merger, no
consent, authorization, order or approval of, or filing or registration with,
any governmental commission, board or other regulatory body is required for or
in connection with the execution and delivery of this Agreement and the
consummation by Donnelly of the transactions contemplated hereby.
03. Representations and Warranties with respect to Optics. Any
representations made to the knowledge of Optics shall be deemed to include the
knowledge of Dan Joseph. Any representations made to the knowledge of Donnelly
shall be deemed to include the knowledge of Scott Reed. Optics and Donnelly
represent and warrant to AIG as follows:
(a) Organization and Qualification, etc. Optics is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Michigan, has corporate power and authority to own all of its properties and
assets and to carry on
<PAGE>
its business as it is now being conducted, and is duly qualified to do business
and is in good standing in each jurisdiction where such qualification is
required and where the failure to so qualify would, when taken together with
all other such failures, affect materially and adversely the financial
condition of Optics. The copies of Optics' Articles of Incorporation and
By-Laws as amended to date, which have been delivered to AIG, are complete and
correct, and such instruments, as so amended, are in full force and effect at
the date hereof.
(b) Capital Stock. The authorized capital stock of Optics consists of
60,000 shares of Optics Common Stock, of which 50,000 shares of Optics Common
Stock are validly issued and outstanding, fully paid and nonassessable, all of
which are issued to Donnelly, and no shares of Optics Common Stock are held in
the treasury of Optics. Except for an option granted to Daniel Joseph to
purchase 1800 shares of Optics Common Stock. Optics has no commitments to
issue or sell any shares of its capital stock or any securities or obligations
convertible into or exchangeable for, or giving any person any right to
subscribe for or acquire from Optics, any shares of its capital stock and no
securities or obligations evidencing any such rights are outstanding.
(c) Authority Relative to Agreement. Optics has the corporate power and
authority to execute and deliver this Agreement and, to consummate the
transactions contemplated on the part of Optics hereby. The execution and
delivery by Optics of this Agreement and the consummation by Optics of the
transactions contemplated on its part hereby have been duly authorized by its
Board of Directors and Shareholder. This Agreement has been duly executed and
delivered by Optics and is a valid and binding agreement of Optics.
(d) Non-Contravention. The execution and delivery of this Agreement by
Optics do not and, the consummation by Optics of the transactions contemplated
hereby will not violate any provision of the Certificate of Incorporation or By-
Laws of Optics, or violate, or result with the giving of notice or the lapse of
time or both in a violation of, any provision of, or result in the acceleration
of or entitle any party to accelerate (whether after the giving of notice or
lapse of time or both) any obligation under, or result in the creation or
imposition of any lien, charge, pledge, security interest or other encumbrance
upon any of the property of Optics pursuant to any provision of, any mortgage,
lien, lease, agreement, license, instrument, law, ordinance, regulation, order,
arbitration award, judgment or decree to which Optics is a party or by which it
is bound and do not and will not violate or conflict with any other restriction
of any kind or character to which Optics is subject or by which any of its
assets may be bound, and the same does not and will not constitute an event
permitting termination of any mortgage, lien, lease, agreement, license or
instrument to which Optics is a party.
(e) Consents, etc. Except the filing of the Certificate of Merger, no
consent, authorization, order or approval of, or filing or registration with,
any governmental commission, board or other regulatory body is required for or
in connection with the
<PAGE>
execution and delivery of this Agreement by Optics and the consummation by
Optics of the transactions contemplated hereby.
(f) Subsidiaries. Except for 18,250 shares of common stock of Quantech,
Ltd. issued to Optics, Optics does not own of record or beneficially, directly
or indirectly (i) any shares of outstanding capital stock or securities
convertible into capital stock of any other corporation or (ii) any
participating interest in any partnership, joint venture or other non-corporate
business enterprise.
(g) Financial Statements. Donnelly has previously furnished AIG with a
true and complete copy of financial statements of Optics from its inception
through June 28, 1997, and for the year ended June 27, 1998, the internal
financial statements of Optics for the quarter ended October 3, 1998, and a
balance sheet of Optics as of October 31, 1998 (the "Optics Financial
Statements"). Except as otherwise specifically required or disclosed under
this Agreement, since June 28, 1998, Optics has conducted its business only in
and has not engaged in any material transaction other than according to the
ordinary and usual course of business consistent with past practice and there
has not been (i) any change in the financial condition, operations, properties,
business or results of operation of Optics that has had or, to the best of
Optics' and Donnelly's knowledge, is likely to have a material adverse effect;
(ii) any material damage, destruction, or other casualty loss with respect to
any asset or property owned, leased or otherwise used by Optics; or (iii) any
declaration, setting aside or payment of any dividend or other distribution in
respect of the stock of Optics. The Optics Financial Statements have been
prepared in conformity with generally accepted accounting principles
consistently applied and present fairly the consolidated financial position of
Optics as of such respective dates.
(h) Governmental Authorization and Compliance with Laws. To the best
knowledge of Optics and Donnelly, the business of Optics has been operated in
compliance with the laws, orders, regulations, policies and guidelines of all
governmental entities. To the best knowledge of Optics and Donnelly, Optics
has all permits, certificates, licenses, approvals and other authorizations
required in connection with the operation of its business. No notice has been
issued and, to the knowledge of Optics and Donnelly, no investigation or review
is pending or is contemplated or threatened by any governmental entity (i) with
respect to any alleged violation by Optics of any law, order, regulation,
policy or guideline of any governmental entity, or (ii) with respect to any
alleged failure to have all permits, certificates, licenses, approvals and
other authorizations required in connection with the operation of the business
of Optics.
(i) Tax Returns. Optics (i) has duly and timely filed or had duly and
timely filed on its behalf all Federal, state, local and foreign tax returns
(including, without limitation, consolidated, combined or unitary tax returns)
required to be filed by it or on or prior to the Effective Date in respect to
all periods for which such a tax return was required to be filed and all such
tax returns were correct in all material respects and (ii) has paid or fully
and properly accrued on the balance sheet of Optics as of October 3, 1998 for
all taxes shown to be due and payable on such returns and all other taxes,
<PAGE>
governmental charges, duties, penalties, interest and fines with respect
thereto which are or will be due and payable on or prior to the Effective Date
in respect of all periods for which a tax return was required to be filed.
With respect to any period for which a tax return was required to be filed,
there are no agreements, waivers or other arrangements providing for the payment
by, or assessment against, them of any tax, governmental charge, duty or
deficiency which remain unpaid. There are no suits, actions, claims,
investigations, inquiries or proceedings now pending against Optics with
respect to any taxes, governmental charges, duties or assessments of any kind or
nature whatsoever nor, to the best knowledge of Optics and Donnelly, are there
any such suits, actions, claims, investigations, inquiries or proceedings
threatened against Optics. There are no matters under discussion between any
governmental authority and Optics relating to such taxes, governmental charges,
duties or assessments asserted by any such authority in respect of any period
for which a tax return was required to be filed. Donnelly or Optics has
withheld or collected from each payment made to each of the employees who
performs or performed services for Optics, the amount of all taxes (including,
but not limited to, Federal income taxes, Federal Insurance Contribution Act
taxes, state and local income and wage taxes, payroll taxes, workers'
compensation and unemployment compensation taxes) required to be withheld or
collected therefrom and Donnelly or Optics has paid the same in respect of such
employees, when due, or held for payment until due, to the proper tax receiving
officers.
(j) Title to Properties; Absence of Liens and Encumbrances, etc. Optics
has good title to all of its properties and assets, real, personal and mixed,
used in their business, free and clear of any liens, charges, pledges, security
interests or other encumbrances except encumbrances described on the Optics
Financial Statements described on Schedule 5.02(j)(i) hereto. All leases under
which Optics is the lessee of real or personal property that are material to
the conduct of the business of Optics, to the best knowledge of Optics and
Donnelly, are valid and binding on the lessors thereunder in accordance with
their respective terms and there is not under any of such leases any existing
default, or any condition, event or act which with notice or lapse of time or
both would constitute such a default, which in either case would affect
materially and adversely the financial condition of Optics. The properties and
assets of Optics constitute all properties and assets required to operate
Optics' business in the same manner as it was operated prior to the Merger.
Schedule 5.02(j)(ii) is a list of all real estate owned or leased by Optics.
(k) List of Contracts and Other Data. Annexed hereto as Schedule
5.02(k) s a list setting forth the following:
(i) all leases of real or personal property which are material to the
business of Optics and to which Optics is a party, either as lessee or lessor,
with a brief description of the property to which each such lease relates;
<PAGE>
(ii) all collective bargaining agreements, employment and consulting
agreements, executive compensation plans, bonus plans, deferred compensation
agreements, and employee stock purchase and stock option plans,
(iii) all contracts, agreements, leases, licenses and commitments to which
Optics is a party, or to which it or any of its assets or properties are
subject and which are material to the business of Optics and which are not
specifically referred to in (i) or (ii) above, except purchase orders, sales
orders, and non-disclosure agreements entered into in the ordinary course of
business.
To the best knowledge of Optics and Donnelly, true and complete copies of all
documents and descriptions complete in all material respects of all material
oral understandings (if any) referred to in (i) through (iii) above have been
provided or made available to AIG or its counsel, except as specifically set
forth in Schedule 5.02(k) Except as disclosed in such Schedule, Optics has not
been notified of any claim that any contract referred to in such Schedule is
not valid and enforceable in accordance with its terms for the periods stated
therein, or that there is under any such contract any existing default or event
of default or event which would constitute such a default.
(l) Litigation. There is no claim, action, suit or proceeding pending
or, to the knowledge of Optics and Donnelly, contemplated or threatened against
Optics which, in the event of a final adverse determination, is reasonably
likely to affect materially and adversely the financial condition or business
prospects of Optics, or which seeks damages in connection with any of the
transactions contemplated by this Agreement or to prohibit, restrict or delay
consummation of the Merger, nor is there any judgment, decree, injunction,
ruling or order of any court, governmental department, commission, agency or
instrumentality, arbitrator or any other person outstanding against Optics
having any such effect. There is no claim, action, suit or proceeding pending
or, to the knowledge of Optics or Donnelly, contemplated or threatened against
Optics by any employees of Optics or Donnelly who perform or have performed
services for Optics with respect to such employment.
(m) Employee Matters. Schedule 5.02(m)(i) sets forth a list of Optics'
employees on Donnelly's payroll who perform services for Optics as of the
Effective Date. There are no controversies pending between Donnelly and any of
its employees who perform services for Optics, which controversies may
reasonably be expected to affect materially and adversely the financial
condition of Optics. Any costs and expenses related to the termination or
transfer of any such employees who perform or performed services for Optics is
either accurately reflected on the Optics Financial Statements or has been
assumed by Donnelly or will be assumed by Donnelly, provided that the Surviving
Corporation offers employment to all such employees listed on Schedule
5.02(m)(ii) and to at least 4 of such employees listed on Schedule 5.02(m)
(iii), all but 4 of whom will be on substantially the same compensation and
provided further that a representative of Donnelly participates in all meetings
and discussions with all such employees concerning their initial employment.
<PAGE>
(n) Patents, Trade Names, Trademarks, etc. Schedule 5.02(n) sets forth
a list of all United States and foreign patents, trademarks, trade names,
service marks, copyrights and applications therefor owned or licensed by Optics
(the "Optics Patent and Trademark Rights"). The Optics Patent and Trademark
Rights are all those rights that are material to the operation of the business
of Optics as currently being conducted, and there are no claims or proceedings
pending or, to the knowledge of Optics and Donnelly, threatened against Optics
asserting that its use of any of the Optics Patent and Trademark Rights
infringes the rights of any other person or that Optics is in violation of any
other proprietary rights of any other person.
(o) Insurance. Donnelly has insurance contracts or self-insurance in
full force and effect with respect to Optics which, to the best knowledge and
belief of Optics and Donnelly, provide for coverages which are usual and
customary in the business of Optics as to amount and scope.
(p) Use of Real Property. To the best knowledge of Optics and
Donnelly, the real properties listed in Schedule 5.02(j)(ii) hereto are used
and operated in compliance and conformity with all applicable leases,
contracts, commitments, licenses and permits. Optics has no notice of violation
of any applicable zoning or building regulation, ordinance or other law, order,
regulation or requirement relating to the operations of Optics. If so
requested by AIG, Donnelly agrees to provide a certification to a title company
that it has no actual knowledge of any adverse title matters not of record.
(q) Environmental Matters.
(i) Definitions. For purposes of this subsection, the following terms
shall have the following meanings:
(a) "Environmental Laws" means all federal, state and local
environmental, statutes, ordinances and codes relating to the protection of the
environment and/or governing the use, storage, treatment, generation,
transportation, processing, handling, production or disposal of Hazardous
Substances and the rules, regulations, policies, guidelines, interpretations,
decisions, orders and directives of federal, state and local governmental
agencies and authorities with respect thereto.
(b) "Environmental Permits" means all permits, licenses, approvals,
authorizations, consents or registrations required by any applicable
Environmental Law in connection with the ownership, use and/or operation of the
Premises for the storage, treatment, generation, transportation, processing,
handling, production or disposal of Hazardous Substances, or the cleanup,
remediation, sale, transfer or conveyance of the Premises.
<PAGE>
(c) "Hazardous Substance" means, without limitation, radon, radioactive
materials, asbestos, urea formaldehyde foam insulation, polychlorinated
biphenyls, petroleum and petroleum products, methane, hazardous materials,
hazardous wastes, hazardous or toxic substances or related materials or
chemicals the Release of which poses an unreasonable risk of harm to health or
the environment, as defined in the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended (42 U.S.C. Sections 9601 et
seq.), the Toxic Substances Control Act (15 U.S.C. Sections 2601 et seq.), the
Hazardous Materials Transportation Act, as amended (49 U.S.C. Sections 1801 et
seq.), the Resource Conservation and Recovery Act, as amended (42 U.S.C.
Sections 6901 et seq.), and any other applicable Environmental Law and the
regulations promulgated thereunder.
(d) "Premises" means all real estate owned or leased by Optics.
(e) "Release" means any spilling, leaking, pumping, pouring, emitting,
emptying, discharging, injecting, escaping, leaching, dumping, or disposing
into the environment (including the abandonment or discarding of barrels,
containers, and other closed receptacles containing any Hazardous Substance) in
violation of any Environmental Law.
(iii) Representations. Except as otherwise disclosed in writing to AIG:
(a) Optics to its best knowledge has not caused or allowed the
generation, treatment, storage, or disposal of any Hazardous Substance at the
Premises except in accordance with all applicable Environmental Laws and/or
pursuant to all required Environmental Permits.
(b) To the best of Optics' and Donnelly's knowledge, Optics has not
caused or allowed the Release of any Hazardous Substance at or near the
Premises.
(c) Optics is to its best knowledge in compliance with all applicable
Environmental Laws regarding the handling of Hazardous Substances.
(d) To the best of Optics' and Donnelly's knowledge, Optics has secured
all necessary Environmental Permits necessary to its operations at the
Premises, and is in compliance with such Environmental Permits.
(e) Optics has not received notice of any proceedings, claims, or
lawsuits brought under any Environmental Laws, nor any citations, notices of
investigation, or inquiry letters from any state or federal agency
<PAGE>
or potentially responsible party relative to enforcement of Environmental Laws
arising out of its operations at the Premises.
(f) The Premises, to Optics' best knowledge, is not, nor has it ever
been, subject to the Release of any Hazardous Substance.
(g) There are no underground fuel or Hazardous Substance storage tanks
on the Premises.
(r) Condition of Assets. All tangible personal property, fixtures and
equipment owned or leased by Optics are in a good state of repair (ordinary
wear and tear expected) and operating condition and are suitable for the
purposes for which they are being used, except for tooling in connection with
the EL400 lens.
(s) Accounts Receivable. The accounts receivable reflected on the
unaudited balance sheet of Optics as of October 31, 1998, and all accounts
receivable arising between that date and the date hereof, arose from bona fide
transactions in the ordinary course of business, and the goods and services
involved have been sold and delivered to or performed for the account obligors,
and no further goods or services are required to be provided in order to
complete the sales and to entitle Optics to collect the accounts receivable.
No such account has been assigned or pledged to any other person, firm or
corporation, and no defense or setoff to any such account has been asserted by
the account obligor or, to the best knowledge of Optics and Donnelly, exists.
(t) Compliance with Law. Optics is not in default with respect to any
order of any court, governmental authority or arbitration board or tribunal to
which it is a party or is subject or which applies to its business and has not
been notified that it is in violation of any laws, ordinances, governmental
rules or regulations to which it is subject and has not failed to obtain any
licenses, permits, franchises or other governmental authorizations necessary to
the ownership of its assets and properties or to the conduct of the business.
(u) Year 2000 Compliance.
(i) Except as described on Schedule 5.02(u), the computer systems,
software, and equipment owned or licensed by Optics accurately process
date/time data (including, but not limited to, calculating, comparing and
sequencing) from, into and between the twentieth and twenty-first centuries,
and the years 1999 and 2000 and leap year calculations, to the extent that
other information technology, used in combination with the information
technology operated by Optics, properly exchanges date/time data with it,
the failure of which would adversely affect the operations of Optics.
(ii) "Year 2000 Problem" means a date-handling problem relating to the
Year 2000 date change that would cause a computer system, software or equipment
to fail to correctly perform, process and handle date-related data for the
<PAGE>
dates within and between the twentieth and twenty-first centuries and all other
centuries. Optics and Donnelly have no specific knowledge that any of its
suppliers or customers will experience a Year 2000 Problem that would affect
Optics' business as currently conducted.
(v) ERISA.
(i) Definitions. "ERISA Affiliate" means any entity with which Optics or
Donnelly is or was a member of any group of entities within the meaning of
Sections 414(b)(c) or (m) of the Code.
"ERISA Plan" means an "employee welfare benefit plan" or "employee pension
benefit plan," as defined in Section 3(1) or 3(2) of ERISA.
"Benefit Arrangement" means any contract, agreement, arrangement,
understanding or practice providing the employees or directors of a corporation
with deferred compensation, bonuses, stock options, stock purchases, insurance,
or any other form of compensation or benefit, and which is not an ERISA Plan.
"Code" means the Internal Revenue Code of 1986, as amended.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
(ii) Representations.
(a) Optics does not now and has never had any employee on its own
payroll; rather, the pay and benefits for all such employees were provided by
Donnelly. "Employee," as such term is construed for purposes of any provision
of ERISA Code.
(b) Optics does not now and has never maintained, contributed to, or
been the plan administrator of, any ERISA Plan or Benefit Arrangement. Optics
has no liability or obligation with respect to any ERISA Plan or Benefit
Arrangement maintained by Donnelly or any ERISA Affiliate, or to which any
Donnelly or ERISA Affiliate has made contributions, or which is or was
administered by any Donnelly or ERISA Affiliate.
(c) There is no claim that can be made, or any penalty, award or other
liability that can be assessed, against Optics (either now or anytime in the
future) under ERISA, the Code or any other law, regulation, rule or order
relating to employees or employee benefits, by reason of (i) any ERISA Plan or
Benefit Arrangement maintained by Donnelly or any ERISA Affiliate or to which
any Donnelly or ERISA Affiliate has made
<PAGE>
contributions, or which is or was administered by any Donnelly or ERISA
Affiliate prior to the date hereof, or (ii) any act, omission or other
occurrence prior to the date hereof.
(d) Neither the Merger, nor any other transaction, act or event
contemplated herein, can, directly or indirectly, give rise to or be the basis
of, any claim, penalty, award or other liability against Optics (either at the
time of the Merger, transaction, act or event or anytime in the future) under
ERISA, the Code, or any other law, regulation, rule or order relating to
employees or employee benefits with respect to periods prior to the date
hereof.
(w) Other Information. None of the information furnished by Optics
and/or Donnelly to AIG in this Agreement, the exhibits hereto, the schedules
identified herein, or in any certificate or other document to be executed or
delivered pursuant hereto by Optics and/or Donnelly is materially false or
misleading, or contains any misstatement of material fact, or omits to state
any material fact required to be stated in order to make the statements therein
not misleading.
VI
REORGANIZATION OF AIG
AND AIG ENTITIES
AIG and Glavich hereby agree that each will take such action as is
required to reorganize AIG and the AIG Entities in a merger qualifying as a tax-
free reorganization under Section 368 of the Internal Revenue Code of 1986, as
amended, and the rules and regulations thereunder pursuant to which AIG
acquires all of the issued and outstanding shares of common stock of all of the
AIG Entities in exchange for 870 shares of AIG Common Stock. The closing under
such reorganization shall be effective no later than the opening of business on
January 4, 1999. Immediately after the consummation of the transaction, the
consolidated balance sheet of AIG shall be substantially the same as the Pro
Forma Balance Sheet, excepting only changes resulting from the operations of
the AIG Entities between the date hereof and January 4, 1999, and any capital
expenditures incurred during that period.
VII
CLOSING DELIVERIES
01. By AIG. At the Effective Date, AIG shall deliver to Donnelly the
following:
(a) A certificate of the Secretaries of State of the State of New York
and Michigan dated as of a recent date as to the due incorporation and good
standing of AIG and Acquisition, respectively.
<PAGE>
(b) A certificate of the Secretary or an Assistant Secretary of AIG
dated the Effective Date and certifying (1) that attached thereto is a true and
complete copy of the Certificate of Incorporation and By-laws of AIG as in
effect on the date of the adoption of the resolutions referred to in clause 2
below and as of the date of such certification; (2) that attached thereto is a
true and complete copy of resolutions adopted by the Board of Directors of AIG
authorizing the execution, delivery and performance of this Agreement and all
documents ancillary hereto, including the Shareholder Rights Agreement and the
Assignment and Assumption of Convertible Promissory Note described below, the
execution and filing of the Certificates of Merger and the issuance and
delivery of the AIG Common Stock and that all such resolutions are still in
full force and effect and are all the resolutions adopted by the Board in
connection with the transactions contemplated by this Agreement; (3) that the
Certificate of Incorporation of AIG has not been amended since the date of the
last amendment referred to in the certificate pursuant to clause (a) above; and
(4) as to the incumbency and specimen signature of each officer of AIG
executing this Agreement and such agreements, certificates or instruments as
are to be delivered or furnished pursuant hereto, and a certification by
another officer of AIG as to the incumbency and signature of the officer
signing the certificate referred to in this paragraph (b); and (5) that AIG
has acquired all of the outstanding stock of the AIG Entities in the manner
outlined in Article VI.
(c) A certificate of the Secretary or an Assistant Secretary of
Acquisition, dated the Effective Date, and certified (1) that attached thereto
is a true and complete copy of the Articles of Incorporation and Bylaws of
Acquisition as in effect on the date of adoption of that resolution referred to
clause 2 below and as of the date of such certification; (2) that attached
thereto is a true and complete copy of resolutions adopted by the Board of
Directors of Acquisition authorizing the execution, delivery, and performance
of this Agreement and all documentation ancillary hereto, including the
execution and filing of the certificate of merger and that all such resolutions
are still in full force and effect and are all the resolutions adopted by the
Board of Acquisition in connection with the transactions contemplated by this
Agreement; (3) that the Articles of Incorporation of Acquisition have not been
amended since the date of the last amendment referred to in the certificate
pursuant to clause a above; and (4) as to the incumbency and specimen signature
of each officer of Acquisition executing this Agreement and such other
agreement, certificate or instruments as are to be delivered or furnished
pursuant hereto by Acquisition, and a certification by another officer of
Acquisition as to the incumbency and signature of the officer signing the
certificate referred to in this paragraph (c).
(d) An opinion of Boylan, Brown, Code, Fowler, Vigdor & Wilson, LLP,
counsel to AIG, substantially in the form of Exhibit E attached hereto.
(e) A Ratification, Modification and Guaranty of Promissory Note in the
principal amount of $5,000,000, substantially in the form of Exhibit F attached
hereto.
02. By Donnelly. At the Effective Date, Donnelly shall deliver to AIG
the following:
<PAGE>
(a) A certificate of the Secretary of State of the State of Michigan
dated as of a recent date as to the due incorporation and good standing of
Optics and Donnelly.
(b) A certificate of the Secretary or an Assistant Secretary of Optics
and Donnelly dated the Effective Date and certifying (1) that attached thereto
is a true and complete copy of the Articles of Incorporation and By-laws of
Optics as in effect on the date of the adoption of the resolutions referred to
in clause 2 below and as of the date of such certification; (2) that attached
thereto is a true and complete copy of resolutions adopted by the Board of
Directors of Optics and Donnelly authorizing the execution, delivery and
performance of this Agreement and all documents ancillary hereto, including the
Shareholder Rights Agreement, the execution and filing of the Certificate of
Merger and the delivery of the Optics Common Stock and that all such
resolutions are still in full force and effect and are all the resolutions
adopted by the Board in connection with the transactions contemplated by this
Agreement; (3) that the Articles of Incorporation of Optics and Donnelly have
not been amended since the date of the last amendment referred to in the
certificate pursuant to clause (a) above; (4) as to the incumbency and specimen
signature of each officer of Optics and Donnelly executing this Agreement and
such agreements, certificates or instruments as are to be delivered or
furnished pursuant hereto, and a certification by another officer of Optics and
Donnelly as to the incumbency and signature of the officer signing the
certificate referred to in this paragraph (b).
(c) An opinion of Varnum, Riddering, Schmidt & Howlett LLP, counsel to
Optics and Donnelly, substantially in the form of Exhibit G attached hereto.
(d) Evidence satisfactory to AIG of the discharge of all indebtedness
due to Donnelly from Optics, except for a $5,000,000 Convertible Promissory
Note with interest thereon at the rate of 6% per year.
(e) Assumption by Donnelly of all restructuring charges of Optics shown
on the October 31, 1998 Balance Sheet and all post-retirement benefits of
Optics accruing through January 3, 1999.
(f) The Amendment to Technology Transfer and License Agreement in the
form attached as Exhibit H hereto.
VIII
SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION
01. Survival of Representations. The representations and warranties
made by any party hereto in this Agreement or pursuant hereto shall survive the
Effective Date for 18 months following the Effective Date.
02. General Indemnity.
<PAGE>
(a) Subject to the terms and conditions of this Article, Donnelly hereby
agrees to indemnify, defend and hold AIG and the Surviving Corporation harmless
from and against all demands, claims, actions or causes of action, assessments,
losses, damages, liabilities, costs and expenses, including without limitation
interest, penalties and reasonable attorneys' fees and expenses, asserted
against, resulting to, imposed upon or incurred by AIG or the Surviving
Corporation by reason of or resulting from:
(i) a breach of any representation, warranty or covenant of Optics or
Donnelly contained in or made pursuant to this Agreement, or
(ii) the failure of Optics or Donnelly, as the case may be, duly to
perform or observe any term, provision or covenant or agreement to be performed
or observed pursuant to this Agreement except as waived by AIG.
(b) Subject to the terms and conditions of this Article, AIG hereby
agrees to indemnify, defend and hold Donnelly harmless from and against all
demands, claims, actions or causes of action, assessments, losses, damages,
liabilities, costs and expenses, including without limitation interest,
penalties and reasonable attorneys' fees and expenses, asserted against,
resulting to, imposed upon or incurred by Donnelly by reason of or resulting
from:
(i) a breach of any representation, warranty or covenant by AIG
contained in or made pursuant to this Agreement or;
(ii) any failure of AIG or Glavich to perform or observe any term,
provision, covenant or agreement to be performed or observed by AIG pursuant to
this Agreement, except as waived by Donnelly.
03. Third Party Claims. If a claim by a third party is made against an
indemnified party, and if the indemnified party intends to seek indemnity with
respect thereto under this Article, the indemnified party shall promptly notify
the indemnifying party in writing of such claim. The indemnifying party shall
have thirty days after receipt of such notice to undertake, conduct and
control, through counsel of its own choosing and at its expense, the settlement
or defense thereof, and the indemnified party shall cooperate with it in
connection therewith; provided, that:
(i) the indemnifying party shall permit the indemnified party to
participate in such settlement or defense through counsel chosen by the
indemnified party, provided that the fees and expenses of such counsel shall be
borne by the indemnified party and shall not be reimbursed by the indemnifying
party;
(ii) the indemnifying party shall promptly reimburse the indemnified
party for the full amount of any loss resulting from such claim and all related
<PAGE>
expenses (other than the fees and expenses of counsel as aforesaid) incurred by
the indemnified party within the limits of this Article;
(iii) the indemnifying party shall not, without prior written consent of
the indemnified party, which consent shall not be unreasonably withheld, settle
or compromise any claim or consent to the entry of any judgment which does not
include as an unconditional term thereof the giving by the claimant or the
plaintiff to the indemnified party and the indemnifying party a release from
all liability in respect of such claim and;
(iv) nothing herein shall require any indemnified party to consent to the
entry of any order, injunction or consent decree materially impairing its
ability to conduct its business operations after the date thereof. So long as
the indemnifying party is reasonably contesting any such claim in good faith,
the indemnified party shall not pay or settle any such claim. Notwithstanding
the foregoing, the indemnified party shall have the right to pay or settle any
such claim, provided that in such event it shall waive any right to indemnify
therefor by the indemnifying party. If the indemnifying party does not notify
the indemnified party within thirty days after the receipt of the indemnified
party's notice of a claim of indemnity hereunder that it elects to undertake
the defense thereof, the indemnified party shall have the right to consent,
settle or compromise the claim in the exercise of its reasonable judgment at
the expense of the indemnifying party, upon the approval of the indemnifying
party, which approval shall not be unreasonably withheld. The parties hereto
agree to cooperate fully with each other in connection with the defense,
negotiations and settlement of any such claim.
04. Limitations on Indemnification Obligations. Neither party shall
have any obligations under this Section, except indemnification obligations of
Donnelly with respect to any claims relating to employees who perform or
performed services for Optics, unless the aggregate of all damages for which
such party would, but for this sentence, be liable exceeds $50,000 on a
cumulative basis. Under no circumstances shall either party be entitled to
indemnification for damages under this Section for an amount in excess of
$3,000,000, except for indemnification obligations of Donnelly with respect to
any claims relating to employees who perform or performed services for Optics.
05. Payment of Claims. Any claim for indemnification required to be
paid hereunder may, at the option of the indemnifying party, be paid in cash or
in AIG Common Stock, valued at $63,654 per share, the price per share used in
determining the value of the transactions contemplated herein. In the event
Donnelly is the indemnifying party, Donnelly shall submit to AIG a certificate
or certificates representing sufficient shares of AIG Common Stock to satisfy
its indemnity obligation if Donnelly elects to satisfy that obligation with AIG
Common Stock. AIG shall then cancel the number of shares required to satisfy
such indemnity and issue to Donnelly a new certificate representing the
difference between the number of shares of AIG
<PAGE>
Common Stock represented by the certificate delivered by Donnelly and the
number of AIG Common Stock required to satisfy Donnelly indemnity obligation.
In the event AIG is required to indemnify Donnelly, it shall issue
to Donnelly that number of shares of AIG Common Stock having a total value
equal to the amount of its indemnity obligation if it wishes to pay the
indemnity obligation in AIG Common Stock.
06. Remedies. Except as expressly herein provided, the remedies
provided herein shall be cumulative and shall not preclude assertion by any
party hereto of any other rights or the seeking of any other remedies against
the other party hereto.
VIX
ARBITRATION
Except in cases where the parties are entitled to injunctive relief, any
dispute that may hereafter arise in connection with the construction,
performance or breach of this Agreement shall be settled by final binding
arbitration in Cleveland, Ohio in accordance with the commercial rules of the
American Arbitration Association provided that the parties will use one
arbitrator agreed upon by the parties, or if they cannot agree on an arbitrator
within thirty (30) days after any party requests arbitration, will use A panel
of three arbitrators selected as follows: Donnelly and AIG shall each appoint
an independent arbitrator within the next thirty (30) days, and within the
thirty (30) days thereafter, those two arbitrators shall appoint the third
arbitrator. If either party fails to appoint an independent arbitrator within
such thirty (30) day period, the arbitrator appointed by the other party shall
be the sole arbitrator. The parties shall be entitled to conduct discovery
proceedings in accordance with the provisions of the Federal Rules of Civil
Procedure, subject to any limitation imposed by the arbitrator(s). Upon the
conclusion of any arbitration proceedings hereunder, the arbitrator(s) shall
render findings of fact and conclusions of law and a written opinion setting
forth the basis and reasons for any decision reached by him, her or them and
shall deliver such documents to each party to this Agreement along with a
signed copy of the award. The arbitration award shall be binding on all
parties and enforceable in any court of competent jurisdiction.
X
MISCELLANEOUS
01. Expenses; Certain Payments. All costs and expenses incurred in
connection with this Agreement and the transactions contemplated hereby and
thereby shall be paid by the party incurring such expenses, except that
Donnelly agrees to pay AIG's accounting, legal, environmental, investment
banking, and banking transaction closing costs, including the cost of a
year-end 1998 (stub period) audit (if any), up to a maximum of $200,000.
02. Notices. Any notice to be given hereunder by any party to the
others shall be in writing and delivered personally or sent my registered or
certified mail, postage pre-paid, or by national overnight courier:
<PAGE>
If to AIG to:
1653 East Main Street
Rochester, New York 14609
ATTENTION: President
With a copy to:
Boylan, Brown, Code, Fowler, Vigdor & Wilson, LLP
2400 Chase Square
Rochester, New York 14604
ATTENTION: Justin L. Vigdor, Esq.
If to Donnelly, to:
49 West Third Street
Holland, MI 49423
Attention: Scott Reed
With a copy to:
Daniel C. Molhoek, Esq.
Varnum, Riddering, Schmidt & Howlett LLP
Bridgewater Place, P.O. Box 352
Grand Rapids, Michigan 49501
or to such other addresses as may be designated in writing by the party to
receive such notice as provided above.
03. Brokers. AIG represents and warrants that no broker or finder is
entitled to any brokerage or finder's fee or other commission from AIG based on
agreements, arrangements or undertakings made by AIG in connection with the
transactions contemplated hereby except that upon consummation of the
transactions contemplated hereby a fee of $100,000 shall be payable by AIG to
Capital Formation Group of Rochester L.P., AIG's investment bankers. Donnelly
and Optics represent and warrant that no broker or finder is entitled to any
brokerage or finder's fee or other commission from Donnelly or Optics based on
agreements, arrangements or undertakings made by Donnelly or Optics in
connection with the transactions contemplated hereby.
04. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
<PAGE>
05. Headings. The headings herein are for convenience of reference
only, do not constitute a part of this Agreement, and shall not be deemed to
limit or affect any of the provisions hereof.
06. Schedules. Any matter described or included in any Schedule
delivered herewith in response to any disclosure obligation hereunder shall be
deemed disclosed for all other purposes of this Agreement.
07. Entire Agreement; No Assignment; Governing Law. This Agreement (a)
constitutes the entire agreement and supersedes all prior agreements and
understandings, both written and oral, among the parties, with respect to the
subject matter hereof; (b) is not intended to confer upon any other person any
rights or remedies hereunder; (c) shall not be assigned, by operation of law or
otherwise; and (d) shall be governed in all respects, including validity,
interpretation and effect, by the laws of the State of New York.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
APPLIED IMAGE GROUP, INC.
By: /s/ Bruno B. Glavich
Title: President
DONNELLY CORPORATION
By: /s/ Scott E. Reed
Title: Sr. VP & CFO
DONNELLY OPTICS CORPORATION
By: /s/ Dwane Baumgardner
Title: Chairman
/s/ Bruno B. Glavich
Bruno B. Glavich, agreeing solely to be
bound by Article VI
<PAGE>
EXHIBIT B
SHAREHOLDER RIGHTS AGREEMENT
This Agreement is made as of the 4th day of January, 1999 by and among
Applied Image Group, Inc. a New York corporation ("AIG"), Bruno Glavich
("Glavich") and Donnelly Corporation, a Michigan corporation ("Donnelly").
R E C I T A L S
WHEREAS, Donnelly has acquired 130 shares (the "Donnelly Shares") of AIG's
Common Stock, $.01 par value (the "AIG Shares");
WHEREAS, Glavich is the holder of the majority of the AIG Shares; and
WHEREAS, all capitalized terms used in this Agreement but not defined
herein shall have the meanings ascribed to them in the Amendment to Technology
Transfer and License Agreement between Donnelly and Applied Optics, Inc. (the
"Amendment"), dated the date hereof.
NOW THEREFORE, the parties hereby agree as follows:
1. Notice of Proposed Transfer.
a. By Glavich If Glavich proposes to sell, assign, encumber, pledge,
hypothecate, give away or in any other manner dispose of or transfer for value
(a "Transfer") any AIG Shares owned or controlled by Glavich either
privately or publicly, Glavich shall promptly give written notice (the "Notice")
to Donnelly. The Notice shall describe the number of AIG Shares proposed to be
transferred and the minimum consideration that will be accepted.
b. By AIG. If AIG proposes to transfer all or substantially all of its
assets, fifty percent (50%) or more of the stock of Applied Optics, Inc.
("Applied Optics"), or all or substantially all of its molded optics business,
or proposes to enter into a merger or consolidation with any other party (a
"Transfer"), AIG shall promptly give written notice (the "Notice") to Donnelly.
The Notice shall describe the assets proposed to be transferred and the minimum
consideration that will be accepted.
2. Right of First Offer. Upon receipt of a Notice from Glavich or AIG
pursuant to paragraph l:
a. If the Notice is from Glavich, Donnelly shall have the right to
purchase from Glavich the AIG shares which Glavich proposes to Transfer, or
<PAGE>
b. If the Notice is from AIG, Donnelly shall have the right to purchase
the assets proposed to be sold by AIG or to merge with AIG, in either case on
the same price and at the same terms and conditions set forth in the Notice,
provided that Donnelly must provide Glavich or AIG notice of its intent to do
so within fifteen (15) days after receipt of the Notice.
3. Tag-Along/Bring-Along. In the event Donnelly does not exercise its right
of first offer in paragraph 2, AIG or Glavich shall have up to six months to
complete the Transfer described in the Notice on terms no less favorable to AIG
or Glavich than the terms described in the Notice, in which case AIG and
Glavich agree to provide at least 20 days notice (the "Notice of Sale") to
Donnelly of the Transfer. The Notice of Sale shall contain the name of the
proposed purchaser and the terms and conditions and nature of the Transfer.
a. If the Transfer is a Transfer involving less than all of the shares
of common stock of AIG, Donnelly shall have the right to participate in the
Transfer of AIG shares on the same terms and conditions set forth in the Notice
by providing notice of its intent to do so within ten (10) days after receiving
the Notice on the following basis:
(i) Donnelly will, to the extent specified in its notice, participate in
such Transfer of AIG Shares on the same terms and conditions as set forth in
the Notice.
(ii) Donnelly will have the right to transfer up to that number of shares
of AIG equal to the product obtained by multiplying (i) the aggregate number of
AIG Shares covered by the Notice by (ii) a fraction of the numerator of which
is the number of AIG Shares owned or under option to by Donnelly at the time
of the Notice and the denominator of which is the total number of shares of AIG
Shares (i) owned by Glavich and (ii) owned or under option to Donnelly and
(iii) owned by CFG Capital Management, LLC or its assignee and proposed to be
transferred, at the time of the Notice. Unless a different number (or
allocation) of AIG Shares is specified in Donnelly's notice to Glavich,
Donnelly will be presumed to have elected that maximum number of its AIG Shares
be sold.
b. If the Transfer involves Transfer of all the stock of AIG, Donnelly
agrees that it will participate in the Transfer on the same terms and
conditions that apply to the other shareholders, provided, however, that Glavich
agrees he will not cause the per share purchase price to be reduced by
allocating more than a commercially reasonable portion of the total
consideration received to payments that will only benefit him at the expense of
the other shareholders, such as through a consulting agreement, a covenant not
to compete, or an employment agreement.
c. Donnelly shall effect its participation in the Transfer by promptly
delivering to Glavich for transfer to the prospective purchaser one or more
certificates, properly
<PAGE>
endorsed for transfer, which represent the number of AIG Shares which Donnelly
elects or agrees to Transfer.
d. The stock certificate or certificates that Donnelly delivers to
Glavich pursuant to paragraph c shall be transferred to the prospective
purchaser in consummation of the sale of AIG Shares pursuant to the terms and
conditions specified in the Notice, and such purchaser shall concurrently
therewith remit to Donnelly, by wired funds or bank draft, or by acceptable
commercial means for non-cash consideration that portion of the sale proceeds
to which it is entitled by reason of its participation in such sale.
e. Notwithstanding anything to the contrary contained in this Section,
the provisions of this Section and the right of co-sale shall not apply to a
transfer of AIG Shares to Glavich's spouse, children, grandchildren or parents,
to a trust or other estate planning entity for the benefit of the foregoing, to
the heirs, executors, administrators or other legal representatives of Glavich,
or to any other entity controlled by Glavich, but all AIG shares transferred to
such persons or entities shall be deemed to be AIG shares owned by Glavich and
subject to paragraphs 2 and 3 of this Agreement.
4. Transfer to Competitors. In the event the prospective purchaser named in
the Notice of Sale given under Section 3 is in the business of developing,
manufacturing or selling any automotive vision systems (including rear vision)
or is an integrator of automotive interior trim (the "Donnelly Fields"),
Donnelly may provide notice to Glavich and AIG within fifteen (15) days of
receipt of the Notice of Sale from Glavich or AIG under Section 3, that such
prospective purchaser is engaged in the Donnelly Fields setting forth in
reasonable detail the nature of its activity in the Donnelly Fields. If the
prospective purchaser participates in the Donnelly Fields and if so required
by Donnelly, Glavich agrees with Donnelly that he will not Transfer the AIG
Shares and AIG agrees that it will not transfer the assets to or merge with the
prospective purchaser without first offering to Donnelly the following options,
one of which shall be elected by Donnelly within 15 days of receipt of notice
thereof or shall be deemed waived:
a. Donnelly may enter into an exclusive license from AIG, on terms and
conditions reasonably agreeable to Donnelly and AIG, for all AIG's Intellectual
Property Rights, for exclusive use in the Automotive Vision Field, and the
purchaser and all of its Affiliates will agree to be bound to the terms of such
license and the terms of the Technology Transfer and License Agreement between
Donnelly and Applied Optics and the Amendment (with respect to the
non-exclusive license), or
b. If Donnelly shall so elect, or if the parties are not able to agree
upon terms for the license described in subsection (a) above, AIG agrees that
any Transfer shall exclude any right to use the Intellectual Property Rights in
the Automotive Vision Field, and Glavich agrees that he will not transfer any
AIG Common Stock unless AIG has first transferred the right to use the
Intellectual Property Rights in the Automotive Vision Field to another entity
which is not in the Donnelly Fields.
<PAGE>
5. Pre-emptive Right. AIG hereby grants to Donnelly the right of first
refusal to purchase a pro rata share of New Securities (as defined in this
Section) which AIG may, from time to time, propose to sell and issue.
Donnelly's pro rata share, for purposes of this right of first refusal, is the
ratio of the number of AIG Shares owned by Donnelly, plus the number of options
for AIG Shares held by Donnelly immediately prior to the issuance of New
Securities, to the total number of AIG Shares, plus the number of options for
AIG Shares held by Donnelly outstanding immediately prior to the issuance of
New Securities. This right of first refusal shall be subject to the following
provisions:
a. "New Securities" shall mean any capital stock (including common
stock and/or preferred stock) of AIG whether now authorized or not, and rights,
options or warrants to purchase such capital stock, and securities of any type
whatsoever that are, or may become, convertible into capital stock; provided
that the term "New Securities" does not include (i) securities issued pursuant
to the acquisition of another business entity or business segment of any such
entity by AIG by merger, purchase of substantially all the assets or other
reorganization whereby AIG will own more than fifty percent (50%) of the voting
power of such business entity or business segment of any such entity and where
such acquisition was not from an affiliate of AIG as defined under the
Securities Act of 1933 (the "Act"), and rules and regulations promulgated
thereunder ("Affiliate"); (ii) any borrowings, direct or indirect, from
financial institutions by AIG, whether or not presently authorized, including
any type of loan or payment evidenced by any type of debt instrument, provided
such borrowings do not have any equity features including warrants, options or
other rights to purchase capital stock and are not convertible into capital
stock of AIG; (iii) securities issued to employees, consultants, officers or
directors of AIG pursuant to any stock option, stock purchase or stock bonus
plan, agreement or arrangement approved by the Board of Directors; (iv)
securities issued in connection with obtaining lease financing from parties
other than Affiliates; whether issued to a lessor, guarantor or other person;
(v) securities issued in a public offering pursuant to a registration under the
Act; (vi) securities issued in connection with any stock split, stock dividend
or recapitalization of AIG; and (vii) any right, option or warrant to acquire
any security convertible into the securities excluded from the definition of
New Securities pursuant to subsections (i) through (vi) above.
b. In the event AIG proposes to undertake an issuance of New
Securities, it shall give Donnelly written notice of its intention, describing
the type of New Securities, and their price and the general terms upon which
AIG proposes to issue the same. Donnelly shall have twenty (20) days after
such notice is effective to agree to purchase Donnelly's pro rata share of such
New Securities for the price and upon the terms specified in the notice by
giving written notice to AIG and stating therein the quantity of New Securities
to be purchased.
<PAGE>
c. In the event Donnelly fails to exercise fully the right of first
refusal within said twenty (20) day period, AIG shall have one hundred twenty
(120)days thereafter to sell or enter into an agreement (pursuant to which the
sale of New Securities covered thereby shall be closed, if at all, within
thirty (30) days from the date of said agreement) to sell the New Securities
respecting which Donnelly's right of first refusal option set forth in this
Section was not exercised, at a price and upon terms no more favorable to the
purchasers thereof than specified in AIG's notice to Donnelly. In the event
AIG has not sold within said 150-day period, AIG shall not thereafter issue or
sell any New Securities, without first again offering such securities to the
Holders in the manner provided herein.
6. Registration Rights.
a. Piggy-back Registration Rights. In the event AIG proposes to file a
registration statement under the Act with respect to any shares of capital
stock of the AIG on any form, AIG shall give written notice of its intention to
file a registration statement to Donnelly no later than such notice is given to
any other shareholder in AIG, and in any event at least forty-five (45) days
before the anticipated filing date, and such notice shall offer to Donnelly the
opportunity to include in such registration statement the number of shares
(which may be all shares of Donnelly) that Donnelly may request. If Donnelly
desires to exercise its rights provided for hereunder, it shall give notice to
that effect to AIG within thirty (30) days after its receipt of the notice of
registration from AIG. AIG shall cause the managing underwriter of the
proposed offering to offer all of Donnelly's shares of AIG on the same terms
and conditions as the other shares to be included therein, unless any such
managing underwriter shall determine, in good faith and by written notice to
AIG, Donnelly and each other shareholder proposing to offer shares in such
offering that the distribution of the Shares requested by AIG, Donnelly and
such shareholder(s) to be included in the registration would have an adverse
economic effect on the distribution of such shares by AIG, then AIG shall only
be obligated to register AIG shares proposed for registration by Donnelly on a
pro rata basis, based on ownership, with those shares registered for other
shareholders in AIG, and if the managing underwriter recommends exclusion of
less than all of the AIG shares sought to be registered by Donnelly, then the
number of AIG shares permitted to be registered by the managing underwriter
shall be registered. In no event shall Donnelly be required to forgo the
registration of AIG shares in connection with any proposed offering including
more than a de minimus number of shares by AIG's directors or officers.
b. Cooperation. If at any time AIG shall include AIG Shares owned by
Donnelly in a registration pursuant to this paragraph 6, Donnelly shall
promptly provide to AIG
<PAGE>
such information relating to Donnelly as AIG shall reasonably request for use
in or in the preparation of such registration statement.
c. Additional Obligations of AIG. Whenever AIG registers its shares
and includes AIG shares of Donnelly pursuant to a request of Donnelly under
this paragraph 6, AIG shall:
(i) Prepare for filing with the Securities and Exchange Commission such
amendment and supplements to such registration statement and the prospectus
used in connection therewith as may be necessary to keep such registration
statement effective and to comply with the provision of the Act with respect to
then sales of securities covered by such registration statement for the period
necessary (but in no event more than one hundred eighty (180) days) to complete
the proposed public offering;
(ii) Furnish to Donnelly such copies of the preliminary and final
prospectus and such other documents as Donnelly may reasonably request to
facilitate the public offering of its Shares;
(iii) Permit Donnelly or its counsel or other representatives to inspect
and copy such corporate documents and records as may reasonably be requested by
them;
(iv) Furnish to Donnelly a copy of all documents filed and all
correspondence from or to the Securities and Exchange commission in connection
with any such offering; and
(v) Pay all expenses in connection with such registration and offering
other than any underwriting commissions attributable to the registration of
Donnelly's shares of AIG so registered, except that the fees and expenses of
Donnelly's special counsel, if any, shall be paid by Donnelly.
(d) Notwithstanding the foregoing provisions, AIG may withdraw any
registration statement referred to in this Section without thereby incurring
any liability to Donnelly.
7. The Board of Directors.
a. Glavich agrees with AIG and with Donnelly to vote all AIG Shares now
or hereafter owned by Glavich and otherwise to use his best efforts as a
shareholder and as a director of AIG, to nominate and elect a Board of
Directors of AIG which shall include one person designated by Donnelly as a
director of AIG.
b. Donnelly may, prior to any election of the Board of Directors of
AIG, furnish to Glavich a written notice identifying its director designee. If
Donnelly shall for
<PAGE>
any reason fail or refuse to give any such written notice, the director (if
any) then serving on the Board of Directors of AIG and previously designated by
Donnelly shall be re-elected by Glavich.
c. Glavich shall not vote to remove any member of the Board of
Directors of AIG designated by Donnelly in accordance with the foregoing
provisions of this Section 4, except for cause or unless Donnelly shall so vote
or otherwise consent, and if Donnelly shall so vote or otherwise consent, then
Glavich shall likewise so vote.
d. Any vacancy on the Board of Directors of AIG created by the
resignation, removal, incapacity or death of any person designated by Donnelly
under the foregoing provisions of this Section 4 may be filled by another
person designated by Donnelly. Glavich shall vote all AIG Shares owned or
controlled by Glavich and shall vote as a director in accordance with each such
new designation by Donnelly, and no such vacancy shall be filled in the absence
of a new designation by Donnelly.
8. Bylaws. AIG's Bylaws will provide, and Glavich agrees that he will at all
times, vote all AIG shares owned or controlled by him in favor of adopting or
retaining, provisions of AIG's Bylaws requiring consent of Donnelly, which
consent shall not be unreasonably withheld, for any of the following matters:
a. Amendment to the Articles of Incorporation or bylaws of AIG which
has an adverse effect on (i) the rights of or participation by directors or by
the director designated by Donnelly on the Board of Directors or (ii) the
capitalization of AIG.
b. Any agreement or transaction of AIG contrary to the terms of this
Agreement.
c. Any material amendments to the agreement between AIG and Glavich or
any Affiliate of Glavich including any agreement, with respect to Glavich's
compensation, provided, Donnelly hereby consents to terms of employment of
Glavich as set forth on Schedule 1.
9. Legend. Each certificate representing AIG Shares now or hereafter owned
by Glavich shall be endorsed with the following legend:
THE SALE, PLEDGE, HYPOTHECATION OR TRANSFER OF THE SECURITIES REPRESENTED BY
THIS CERTIFICATE IS SUBJECT TO THE TERMS AND CONDITIONS OF A CERTAIN
SHAREHOLDER RIGHTS AGREEMENT BY AND AMONG APPLIED IMAGE GROUP, INC., BRUNO
GLAVICH, AND DONNELLY CORPORATION. COPIES OF SUCH AGREEMENT MAY BE OBTAINED
UPON WRITTEN REQUEST TO THE SECRETARY OF APPLIED IMAGE GROUP, INC.
<PAGE>
10. Miscellaneous.
a. Entire Agreement; No Assignment; Governing Law. This Agreement (a)
constitutes the entire agreement and supersedes all prior agreements and
understandings, both written and oral, among the parties, with respect to the
subject matter hereof; (b) is not intended to confer upon any other person any
rights or remedies hereunder; (c) shall not be assigned, by operation of law or
otherwise; and (d) shall be governed in all respects, including validity,
interpretation and effect, by the laws of the State of New York.
b. Amendment. Any provision may be amended and the observance thereof
may be waived (either generally or in a particular instance and either
retroactively or prospectively), only by the written consent of the parties
hereto.
c. Term. This Agreement shall terminate upon the earlier of (i) the
closing of a firm commitment underwritten public offering pursuant to an
effective registration statement under the Securities Act of 1933, as amended,
covering the offer and sale of the Donnelly Shares, and (ii) the closing of
AIG's sale of all or substantially all of is assets or the acquisition of AIG by
another entity by means of merger or consolidation resulting in the exchange of
the outstanding shares of AIG's capital stock or securities or consideration
issued, or caused to be issued, by the acquiring entity or its subsidiary.
d. Arbitration. Any dispute that may hereafter arise in connection
with the construction, performance or breach of this Agreement shall be settled
by final binding arbitration in Cleveland, Ohio, in accordance with the
commercial rules of the American Arbitration Association, provided that the
parties will use one arbitrator agreed upon by the parties, or if they cannot
agree on an arbitrator within thirty (30) days after any party requests
arbitration, will use a panel of three arbitrators selected as follows:
Donnelly and AIG shall each appoint an independent arbitrator within the next
thirty (30) days, and within the thirty (30) days thereafter, those two
arbitrators shall appoint the third arbitrator. If either party fails to
appoint an independent arbitrator within such thirty (30) day period, the
arbitrator appointed by the other party shall be the sole arbitrator. The
parties shall be entitled to conduct discovery proceedings in accordance with
the provisions of the Federal Rules of Civil Procedure, subject to any
limitation imposed by the arbitrator(s). Upon the conclusion of any
arbitration proceedings hereunder, the arbitrator(s) shall render findings of
fact and conclusions of law and a written opinion setting forth the basis and
reasons for any decision reached by him, her or them and shall deliver such
documents to each party to this Agreement along with a signed copy of the
award. The arbitration award shall be binding on all parties and enforceable
in any court of competent jurisdiction.
<PAGE>
e. Notices. Any notice to be given hereunder by any party to the others
shall be in writing and delivered personally or sent my registered or certified
mail, postage pre-paid, or by national overnight courier:
If to AIG or Glavich to:
1653 East Main Street
Rochester, New York 14609
ATTENTION: President
With a copy to:
Boylan, Brown, Code, Fowler, Vigdor & Wilson, LLP
2400 Chase Square
Rochester, New York 14604
ATTENTION: Justin L. Vigdor, Esq.
If to Donnelly, to:
49 West Third Street
Holland, MI 49423
Attention: Scott Reed
With a copy to:
Daniel C. Molhoek, Esq.
Varnum, Riddering, Schmidt & Howlett LLP
Bridgewater Place, P.O. Box 352
Grand Rapids, Michigan 49501
or to such other addresses as may be designated in writing by the party to
receive such notice as provided above.
f. Counterparts; Facsimile Signatures. This Agreement may be signed in
one or more counterparts, each of which, taken together, shall constitute a
complete execution of the document. Facsimile signatures shall be deemed to be
originals.
<PAGE>
The foregoing Agreement is hereby executed as of the date first above written.
Applied Image Group, Inc.
By /s/ Bruno B. Glavich
Bruno B. Glavich, President
/s/ Bruno B. Glavich
Bruno B. Glavich
Donnelly Corporation
By /s/ Scott Reed
Scott Reed, Sr. Vice President and CFO
<PAGE>
EXHIBIT F
RATIFICATION, MODIFICATION AND GUARANTY
OF PROMISSORY NOTE
This Ratification, Modification and Guaranty of Promissory Note is entered into
effective as of January 4, 1999 by and between Donnelly Corporation, a Michigan
corporation ("Donnelly" or "Lender"), Applied Optics, Inc., a Michigan
corporation formerly called Donnelly Optics Corporation ("Optics") and Applied
Image Group, Inc., a New York corporation ("AIG").
RECITALS
WHEREAS, Donnelly and Optics (sometimes called "Borrower") entered into a
Promissory Note (the "Note") as of January 3, 1999, a copy of which is attached
hereto as Exhibit A, pursuant to which Optics is obligated to pay the principal
sum of $5,000,000 and interest thereon in accordance with the terms thereof to
Donnelly; and
WHEREAS, as of the date hereof Optics is the successor corporation in a merger
with Optics Acquisition, Inc. ("Acquisition"), as more fully described in the
Plan and Agreement of Merger (the "Merger Agreement") dated as of December 1,
1998 by and among Donnelly, Optics, Acquisition, AIG and Bruno Glavich; and
WHEREAS, AIG owns all of the outstanding stock of Optics; and
WHEREAS, under the Merger Agreement, the parties have agreed to the
modifications contained herein;
NOW, THEREFORE, in consideration of the mutual covenants, agreements and
conditions contained herein and in the Merger Agreement, the parties hereto
hereby agree as follows:
1. Ratification. Optics hereby ratifies the obligation under the Note and
agrees to perform all other obligations under the Note.
2. Modifications. The parties hereby agree that the Note is amended to add
the following provisions:
a. Conversion.
Lender shall have the right at any time to convert all or a portion of the
principal balance of this Note into shares of the common stock, $.01 par value,
of AIG ("AIG Common Stock") at the rate of one common share for each $95,000 of
principal so converted (the "Conversion Price"). The conversion right may be
exercised by delivering written notice of exercise to AIG, specifying the
dollar amount to be so converted.
AIG shall give the Lender notice at least twenty (20) days prior to any
proposed (i) sale of all or substantially all of the assets
<PAGE>
of AIG, (ii) recommendation by the Board of Directors that the shareholders of
AIG accept the tender of cash or other securities for their shares in AIG,
(iii) merger or consolidation of AIG with or into any other entity, or (iv)
dissolution, liquidation, or other distribution of the assets of AIG to its
shareholders. Upon such notice, the Lender may exercise its option to convert
the principal balance of and accrued interest on this Note to common shares by
delivering written notice of exercise to AIG within such 20 day notice period.
In addition, the right to exercise such option shall become effective
immediately if Bruno Glavich proposes to transfer any AIG Common Stock in a
manner creating first refusal or tag-along rights for Donnelly under that
certain Shareholder Rights Agreement between AIG, Donnelly and Bruno Glavich
dated of even date herewith ("Shareholder Rights Agreement").
b. Subordination.
This Note, including the Principal hereof and interest hereon, is subordinate
and junior in right of payment to the senior indebtedness of AIG to Star Bank
and of Optics to the Industrial Development Authority of the County of Pima,
whether now outstanding or hereafter incurred, or to any other financial
institution for the refinancing thereof, in that, in the case of any
bankruptcy, insolvency, receivership, conservatorship, reorganization, or
arrangement with, or assignment for the benefit of creditors, readjustment of
debt, marshaling of assets and liabilities or similar proceeding or any
liquidation or winding-up of, or relating to, AIG or Optics, whether voluntary
or involuntary, all such obligations and rights, including post-default
interest, shall be entitled to be paid in full before any payment shall be made
on account of the principal of, or interest or premium, if any, on this Note.
Donnelly agrees to execute agreements requested by AIG's lenders with respect
to the subordination of this Note.
c. Adjustment on Certain Events.
In the event of any (i) consolidation or merger of AIG (other than a
consolidation or merger in which AIG is the surviving entity), (ii)
reclassification, capital reorganization or change in AIG's common stock (other
than solely a change in par value, or from par value to no par value), or (iii)
consolidation or merger of another entity into AIG and in which there is a
reclassification or change of AIG's common stock, then and in each such event
the Lender shall have the right thereafter to convert this Note into the kind
and amount of shares of stock and other securities and property receivable upon
such reorganization, reclassification, merger or other change, by holders of
the number of shares of common stock into which this Note might have been
converted immediately prior to the occurrence of any such event.
d. Reservation of Shares
AIG covenants that it will at all times reserve and keep available, solely for
the purpose of issuance or delivery upon conversion of this Note as herein
provided, such number of shares of common stock of AIG as shall be issuable
upon the conversion of this Note. AIG covenants that all shares of common
stock, so reserved, shall upon issuance, be duly and validly issued and fully
paid and non-assessable.
<PAGE>
e. Events of Default
The following shall also constitute an event of default:
(v) The breach by AIG or Bruno Glavich under the Shareholder Rights Agreement
if such default continues for ten (10) days after written notice by the holder
of the Note to AIG.
f. Prepayment
This Note may not be prepaid in whole or in part without the prior written
consent of the holder of the Note.
3. Guaranty. AIG hereby unconditionally and absolutely guarantees payment of
any and all amounts due under the Note to Donnelly and the performance of all
obligations of Optics under the Note. AIG hereby waives notice of non-payment,
demand, presentment, protest, notice of protest, and notice of dishonor.
IN WITNESS WHEREOF, the parties hereto have executed this Assumption and
Modification as of the date first written above.
APPLIED IMAGE GROUP, INC.
By: /s/ Bruno B. Glavich
Bruno B. Glavich, President
APPLIED OPTICS, INC.
By: /s/ Bruno B. Glavich
Title: President
DONNELLY CORPORATION
By: /s/ Scott E. Reed
Title: Sr. VP & CFO
<PAGE>
EXHIBIT A
CONVERTIBLE SUBORDINATED PROMISSORY NOTE
$5,000,000 January 3, 1999
Donnelly Optics Corporation, a Michigan corporation ("Borrower"), hereby
promises to pay to Donnelly Corporation ("Lender"), at 49 West Third Street,
Holland, Michigan 49423, or order, the principal sum of $5,000,000. Interest
shall not accrue until January 4, 2002, at which time interest shall begin
accruing at the rate of 6% per year (the "Borrowing Rate"). Borrower shall pay
accrued interest only quarterly on each April 4, July 4, October 4, and January
4, beginning on April 4, 2002, and shall pay the entire outstanding balance of
principal plus accrued but unpaid interest on the tenth anniversary date
hereof.
Events of Default. If any of the following events ("Events of Default")
shall occur and be continuing:
(i) The Borrower shall fail to pay any principal or interest under the Note
when due and such failure shall continue for ten (10) business days after
written notice thereof to the Borrower by any holder of the Note; or
(ii) The Borrower shall be in default under the terms of any indebtedness which
this Note is or becomes subordinated to (other than as evidenced by the Note)
owing by the Borrower, unless in such case such failure to pay or perform shall
be waived by the holder or holders of such indebtedness or such trustee or
trustees and such failure shall continue for ten (10) business days after
written notice thereof to the Borrower by any registered holder of the Note; or
(iii) The (i) commencement by the Borrower of a voluntary case under Title 11
of the United States Code as from time to time in effect, or by its authorizing,
by appropriate proceedings of its Board of Directors or other governing body,
the commencement of such a voluntary case; (ii) Borrower filing an answer or
other pleading admitting or failing to deny the material allegations of a
petition filed against it commencing an involuntary case under said Title 11,
or seeking, consenting to or acquiescing in the relief therein provided, or by
its failing to controvert timely the material allegations of any such petition;
(iii) entry of an order for relief in any involuntary case commenced under said
Title 11; (iv) Borrower seeking relief as a debtor under any applicable law,
other than said Title 11, of any jurisdiction relating to the liquidation or
reorganization of debtors or to the modification or alteration of the rights of
creditors, or by its consenting to or acquiescing in such relief; (v) entry of
an order by a court of competent jurisdiction (a) finding it to be bankrupt or
insolvent, (b) ordering or approving its liquidation , reorganization or any
modification or alteration of the rights of its creditors, or (c) assuming
custody of, or appointing a receiver other than a custodian for, all or a
substantial part of its property; or (vi) Borrower making an assignment for the
benefit of, or entering into a composition with, its creditors, or
<PAGE>
appointing or consenting to the appointment of a receiver or other custodian
for all or a substantial part of its property, which such case, judgment, order
or decree shall continue unstayed and in effect for any period of 60 days, or
(iv) Any judgment, writ, warrant of attachment or execution or similar process
shall be issued or levied against a substantial part of the property of the
Borrower and such judgment, writ, or similar process shall not be released,
vacated or fully bonded within sixty (60) days after its issue or levy,
then, and in any such event, the Lender may declare the entire unpaid principal
amount of the Note and all interest accrued and unpaid thereon to be forthwith
due and payable, whereupon the Note, and all such accrued interest shall become
due and be forthwith due and payable, without presentment, demand, protest or
further notice of any kind, all of which are hereby expressly waived by the
Borrower.
This Note shall be interpreted under, the laws of the State of New York
without giving effect to any choice or conflict rule or provision that would
result in the application of the domestic substantive law of any other
jurisdiction.
In the event Lender incurs any expense, including attorney's fees, to
enforce its rights hereunder, upon which Lender is successful, Borrower will
fully indemnify and hold Lender harmless for all such costs by reimbursement
upon presentation by Lender of a written statement itemizing such costs whether
already paid or simply accrued for payment by Lender.
Borrower represents and warrants that the issuance and delivery of this
Note and performance of the terms hereof are each duly authorized by all
necessary corporate action and do not and will not violate the terms or
provisions of any material contract or instrument to which it is a party or by
which it is bound.
DONNELLY OPTICS CORPORATION
By: ____________________________
Title: _____________________________
ATTEST:
____________________
Secretary
<PAGE>
EXHIBIT H
AMENDMENT TO TECHNOLOGY TRANSFER
AND LICENSE AGREEMENT
This Amendment to Technology Transfer and License Agreement is entered into as
of the 4th day of January, 1999, by and between Donnelly Corporation, a
Michigan corporation ("Donnelly"), and Applied Optics, Inc., a Michigan
corporation formerly known as Donnelly Optics Corporation ("Applied Optics").
RECITALS
WHEREAS, Donnelly and Applied Optics (then Donnelly Optics Corporation) entered
into a Technology Transfer and License Agreement (the "Agreement") as of
January 31, 1997, a copy of which is attached hereto as Exhibit A, pursuant to
which Donnelly transferred to Applied Optics the Technology and Intellectual
Property Rights and Applied Optics granted back to Donnelly a license to certain
rights in the Technology and Intellectual Property Rights, as those terms are
defined in the Agreement; and
WHEREAS, as of the date hereof Applied Optics' name was changed as the result
of a merger with Optics, as more fully described in the Plan and Agreement of
Merger (the "Merger Agreement") dated as of December 1, 1998 by and among
Donnelly, Applied Optics, AIG Acquisition, Inc., and Applied Image Group, Inc.
("AIG"); and
WHEREAS, as a condition to enter into the Merger Agreement, AIG has required
this Amendment to the Agreement;
NOW, THEREFORE, in consideration of the mutual covenants, agreements and
conditions contained herein and in the Merger Agreement, the parties hereto
hereby agree that the Agreement is hereby amended as follows:
1. Definitions. All terms used herein and defined in the Agreement shall
have the meanings ascribed to them in the Agreement.
2. Section 1.3 is hereby deleted in its entirety and replaced with the
following:
1.3 "Intellectual Property Rights" shall mean United States
international and foreign patents and patent applications (including United
States provisional applications and all PCT patent applications) listed on
exhibit A attached hereto, any and all patents issuing therefrom or otherwise
corresponding thereto, and all divisionals, continuations, continuations-in-
part, reissues, reexamination certificates and extensions thereof, and any
improvements thereon and further developments with respect thereto, describing
and/or claiming Technology, and all copyrights, mask works, industrial design
registrations and applications for registrations, trade
<PAGE>
secrets, and all other proprietary rights listed on Exhibit A covering or
otherwise related to Technology and/or processes for manufacture and/or use of
products embodying Technology.
3. Section 1.6 is deleted in its entirety and new Sections 1.6, 1.7, 1.8,
1.9 and 1.10 are added to read as follows:
1.6 "Automotive Vision Field" shall mean any diffractive optical digital
image capture based camera device which permits the driver or a passenger of an
automobile or a light truck to view an object either inside or outside the
vehicle.
1.7 "Automotive Detectors and Sensors Field" shall mean any device using
diffractive optics used inside or outside of a vehicle to sense, control or
detect the existence, operation or location of an object or function through
visual or optical means.
1.8 "Non-exclusive Donnelly Field" shall mean the Automotive Detectors
and Sensors Field.
1.9 "Exclusive Donnelly Field" shall mean the Automotive Vision Field.
1.10 "Donnelly Fields" shall mean Exclusive Donnelly Field and Non-
exclusive Donnelly Field.
4. Article III is hereby deleted in its entirety and replaced with the
following:
3.1 Applied Optics hereby grants to Donnelly a nonexclusive worldwide
paid-up license under the Technology and Intellectual Property Rights, with the
right to make, use, sell, and have made any products solely in the
Non-Exclusive Donnelly Field. Donnelly shall not have the right to sublicense
the Intellectual Property Rights without the prior written consent of Applied
Optics, which consent may be granted or withheld in the sole and absolute
discretion of Applied Optics; provided however, that Donnelly shall have the
right to have third parties manufacture products in the Non-Exclusive Donnelly
Field for Donnelly using the Technology and Intellectual Property Rights,
subject to Donnelly's obligations under Article VI.
<PAGE>
3.2 In addition, Assignee hereby grants to Assignor an exclusive
worldwide, paid-up license, under the Technology and Intellectual Property
Rights, with the right to make, use, sell, and have made any products or
components thereof solely in the Exclusive Donnelly Field. Assignor shall not
have the right to sublicense the Intellectual Property Rights without the prior
written consent of Assignee, which consent may be granted or withheld in the
sole and absolute discretion of Assignee; provided, however, that Assignor
shall have the right to have third parties manufacture products in the
Exclusive Donnelly Field for Assignor using the Technology and Intellectual
Property Rights, subject to Donnelly's obligations under Article VI.
3.3 In the event Assignor has exercised its right to have third parties
manufacture products utilizing the Technology ("Products") in the Exclusive
Donnelly Field such that at least 50% of Products utilized by Donnelly in such
Field are manufactured by parties other than Assignee during any 6 month period
after commencement of manufacture of Products using production tooling,
Assignor agrees that the license granted under Section 3.2 shall become, with
no further action by Assignee, nonexclusive. This provision shall not be
effective if Assignee refuses to manufacture Products for Assignor or provides
prices or terms contrary to Section 6.2 of this Agreement.
3.4 Each party agrees promptly to disclose to and share with the other
party information concerning all future developments and improvements
concerning Technology and Intellectual Property Rights conceived or developed
by such party relating to Donnelly Exclusive Field.
3.5 The Assignee shall not knowingly, directly or indirectly, sell or
attempt to sell products in the Exclusive Donnelly Field or manufacture
products in the Exclusive Donnelly Field for third parties other than Assignor.
3.5 Nothing in this Article III shall be construed as permitting
Assignor to abrogate its obligations of confidentiality under Article XII.
5. Section 6.2 is hereby amended to insert the underlined language so that
such section shall read as follows:
Assignee agrees it will manufacture all of Assignor's requirements of Donnelly
Products at prices and on terms no less favorable than products manufactured
for other parties
<PAGE>
ordering products of similar quality and similar quantity and on a similar
delivery schedule and other terms, at the quotations provided pursuant to
Section 6.1.
6. Section 11.1 is hereby amended to provide that arbitration shall take
place in Cleveland, Ohio.
7. Exhibit A is amended and restated to be the attached Exhibit A.
8. All other terms of the Agreement shall remain in full force and effect and
shall not be amended hereby.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the
date first written above.
APPLIED OPTICS, INC.
By: /s/ Bruno B. Glavich
Bruno B. Glavich, President
DONNELLY CORPORATION
By: /s/ Scott E. Reed
Title: Sr. VP & CFO
<PAGE>
EXHIBIT A
FCH&S Matter Title
Docket
- ---------- ------------------------- ---------------------------------
2201.1 U.S. Patent No. 5,538,674 Method For Reproducing Holograms,
Kinoforms, Diffractive Optical
Elements And Microstructures
2201.1 DI U.S. Patent Appln. No.
08/656,424 Method For Reproducing Holograms,
Kinoforms, Diffractive Optical
Elements And Microstructures And
A Plastic Binary Optical Element
Produced by Such A Method
2201.1 Australian "
Australia Appln. No. 12098/95
2201.1 Canadian "
Canada Appln. No. 2,177,040
2201.1 European Appln. "
EPO No. 95 903 122
2201.1 Israel Appln. "
Isreal No. 111695
2201.1 Japanese Appln. "
Japan No. 514587/1995
2201.1 Korean Appln. "
Korea No. 96-702658
<PAGE>
INDEMNIFICATION AGREEMENT WITH RESPECT TO OPTIONS
This Agreement, dated as of December 1, 1998, between APPLIED IMAGE GROUP,
INC., a New York corporation ("AIG") and DONNELLY CORPORATION, a Michigan
corporation ("Donnelly").
W I T N E S S E T H :
Whereas, Applied Image Group, Inc, a New York corporation ("AIG") and
Donnelly have entered into an agreement pursuant to which Donnelly Optics
Corporation Optics ("Optics"), a wholly owned subsidiary of Donnelly, will
merge with Optics Acquisition, Inc., a wholly owned subsidiary of AIG effective
on January 4, 1999, and
Whereas, Optics has granted an incentive stock option to Daniel Joseph
("Joseph") to purchase up to 1800 shares of Optics common stock (the "Options")
pursuant to an Option Agreement dated as of December 7, 1997;
NOW, THEREFORE, in consideration of executing the Agreement and Plan of
Merger dated the date hereof, and other good and valuable consideration,
receipt of which is hereby acknowledged, the parties hereto agree as follows:
Donnelly agrees to indemnify, defend and hold Optics and AIG harmless from and
against all demands, claims, actions or causes of action, assessments, losses,
damages, liabilities, costs and expenses, including without limitation
interest, penalties and reasonable attorneys' fees and expenses, asserted
against, resulting to, imposed upon or incurred by AIG or Optics by reason of
or resulting from the Option, provided that if any claim is asserted, Optics
and AIG shall promptly notify Donnelly and tender to Donnelly the defense and
management of any claim. Any damages of AIG or Optics will be offset by any
pay or benefits that Optics or AIG offered Joseph in lieu of the Options which
was rejected by Joseph.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed as of the date first above written.
APPLIED IMAGE GROUP, INC.
By: /s/ Bruno B. Glavich
Title: President
DONNELLY CORPORATION
By: /s/ Scott E. Reed
Title: Sr. VP & CFO
<PAGE>
TRANSITION FUNDING AND REIMBURSEMENT AGREEMENT
Agreement made this first day of December, 1998, by and between Applied
Coatings, Inc., a New York corporation ("Applied") and Donnelly Corporation, a
Michigan corporation ("Donnelly").
RECITALS
Whereas, the Applied Image Group, Inc, a New York corporation ("AIG") and
Donnelly have entered into an agreement pursuant to which Donnelly Optics
Corporation ("Optics"), a wholly owned subsidiary of Donnelly, will merge with
Optics Acquisition, Inc., a wholly owned subsidiary of AIG effective on January
4, 1999, and
Whereas, Applied will, prior to the effective date of the above merger,
become a wholly owned subsidiary of AIG, and
Whereas, although the closing of the merger will occur on the effective
date for technical reasons, the parties have agreed that the financial
responsibilities of the parties to the merger will be determined as of December
1, 1998, that all gains and losses of Optics after December 1, 1998, shall
inure to the benefit of or shall be charged to AIG and that all expenditures of
Optics between December 1, 1998 and the Effective Date, shall be the
responsibility of Applied, except as otherwise provided in the Agreement and
Plan of Merger or in this Agreement.
NOW, THEREFORE, in consideration of executing the Agreement and Plan of
Merger dated the date hereof, and other good and valuable consideration,
receipt of which is hereby acknowledged, the parties hereto agree as follows:
1. Funding of Expenditures. Applied agrees to pay all payments
required by Optics (in excess of all accounts receivable or other income
collected by Optics) after the date hereof for any reason, including operating
funds or capital, except for the payment of the tooling referenced in paragraph
4 and except as otherwise set forth herein.
2. Guaranty of Employment Obligations. Donnelly currently makes all
payroll payments and provides certain benefits for Optics' employees, and
Optics reimburses Donnelly for all of Donnelly's costs in connection with such
employees. Donnelly agrees to keep those persons on the attached Sheet 1 and at
least 4 persons (who shall be selected by Applied) on the attached Sheet 2 on
its payroll through December 31, 1998 (unless otherwise requested by Applied) at
which time such employees shall be transferred to the payroll of Optics or
Applied. Applied hereby unconditionally guarantees the obligations of Optics to
pay Donnelly for all costs incurred by Donnelly with respect to such employees
from and after December 1, 1998, except as otherwise provided in the Agreement
and Plan of Merger. The amount of the costs shall be computed in accordance
with Donnelly's past practice, and paid within ten days after Donnelly presents
its statement.
<PAGE>
3. Control of Expenditures. From and after December 1, 1998, Optics
shall not incur any obligations or pay any expenditures in any manner other
than in accordance with the terms under which they are due, without the prior
consent of Applied or Bruno Glavich.
4. Tooling for EL 400. The parties agree that Donnelly will loan to
Optics up to $177,000 for the tooling expense for the EL 400 tooling, when the
payment for such tooling is due. Such loan shall be repaid by AIG, without
interest, on January 4, 2000, if, and only if, such tooling is being or has
been used by Optics in the production of products or on such later date as
Optics uses such tools. If the loan is not repaid, Optics will transfer the
tooling to Donnelly.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date set forth above.
APPLIED COATINGS, INC.
By: /s/ Bruno B. Glavich
Bruno B. Glavich, President
DONNELLY CORPORATION
By: /s/ Scott Reed
Scott Reed, Senior Vice President
And Chief Financial Officer
