AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 29, 2002
REGISTRATION NO. 333-96719
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
AMENDMENT NO. 1
TO
FORM F-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------
MAGNA INTERNATIONAL INC.
(Exact name of registrant as specified in its charter)
PROVINCE OF ONTARIO, CANADA 3714 NOT APPLICABLE
(State or other jurisdiction (Primary Standard (I.R.S. Employer
of Industrial Classification Identification Number)
incorporation or organization) Code Number)
337 MAGNA DRIVE, AURORA, ONTARIO, CANADA L4G 7K1
(905) 726-2462
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
CT CORPORATION SYSTEM
111 EIGHTH AVENUE
NEW YORK, NY 10011
(212) 894-8600
(Name and address, including zip code, of agent for service)
--------------------------
COPIES TO:
SCOTT M. FREEMAN DANIEL C. MOLHOEK
Sidley Austin Brown & Wood LLP Varnum, Riddering, Schmidt & Howlett LLP
787 Seventh Avenue 333 Bridge Street, N.W.
New York, New York 10019 Suite 1700
(212) 839-5300 Grand Rapids, Michigan 49504
(616) 336-6000
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF SECURITIES TO THE PUBLIC:
AS PROMPTLY AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION
STATEMENT AND THE EFFECTIVE TIME OF THE MERGER OF MAGNA MIRRORS ACQUISITION
CORP., A MICHIGAN CORPORATION AND A WHOLLY OWNED SUBSIDIARY OF MAGNA
INTERNATIONAL INC., WITH DONNELLY CORPORATION, A MICHIGAN CORPORATION.
--------------------------
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
--------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON
SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY
DETERMINE.
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[GRAPHIC]
PROSPECTUS/PROXY STATEMENT
To the Shareholders of Donnelly Corporation:
You are cordially invited to attend a special meeting of shareholders of
Donnelly Corporation to be held at 49 West Third Street, Holland, Michigan on
Monday, September 30, 2002, at 9:00 a.m., local time.
At the special meeting, we will ask you to approve a merger agreement that
was entered into on June 25, 2002, among Donnelly, Magna International Inc. and
a wholly owned subsidiary of Magna. The Donnelly board of directors has
unanimously approved the merger agreement and the merger. In the merger, Magna
Mirrors Acquisition Corp. will merge with and into Donnelly Corporation, which
as the surviving corporation will be a wholly owned subsidiary of Magna. You can
find the full text of the merger agreement as Annex A to this prospectus/proxy
statement, and we urge you to read it in its entirety. The Donnelly board of
directors is seeking your vote on this important transaction.
If we complete the merger, you will receive a fraction of a Magna Class A
subordinate voting share for each share of Donnelly Class A common stock and
Donnelly Class B common stock that you hold. The actual fraction will depend on
the average of the daily high and low sales prices for Magna Class A subordinate
voting shares as reported on the New York Stock Exchange Composite Transactions
reporting system for the twenty trading days ending on the second trading day
preceding the effective date of the merger (which effective date is anticipated
to be the day after the special meeting). The fraction of a Magna Class A
subordinate voting share you will receive will be 0.459 if the average price of
Magna Class A subordinate voting shares is $61.00 or less, will range from 0.459
to 0.350, and have a value of $28.00 based on such average price, if the average
price is between $61.00 and $80.00, and will be 0.350 if the average price is
$80.00 or more, subject to adjustment as described in this prospectus/proxy
statement. Following completion of the merger, Donnelly's Class A common stock
will no longer be publicly traded. All outstanding Donnelly preferred stock will
be redeemed by Donnelly prior to the effective time of the merger.
Donnelly Class A common stock is traded on the New York Stock Exchange under
the symbol "DON". Magna Class A subordinate voting shares are traded on the
New York Stock Exchange and The Toronto Stock Exchange under the symbols "MGA"
and "MG.A", respectively. Based on the average trading price of a Magna Class A
subordinate voting share for the twenty trading days ending August 28, 2002, a
holder of one share of Donnelly common stock would receive 0.459 of a Magna
Class A subordinate voting share, which would have a value of approximately
$28.92 based on the closing price on August 28, 2002, of a Magna Class A
subordinate voting share of $63.00. As described in the following pages, there
is a risk that the actual merger consideration will not be equal to this amount.
The merger cannot be completed unless Donnelly shareholders that on the
record date own shares possessing not less than two-thirds of the total number
of votes entitled to be cast by holders of Donnelly Class A common stock and
Class B common stock, voting together as a single class, vote to approve the
merger agreement and the merger. Holders of shares of Donnelly common stock
representing approximately 71% of the votes entitled to be cast by holders of
the Class A common stock and Class B common stock of Donnelly have agreed to
vote to approve the merger agreement and the merger.
FOR A DISCUSSION OF SIGNIFICANT MATTERS THAT SHOULD BE CONSIDERED BEFORE
VOTING AT THE SPECIAL MEETING, SEE "RISK FACTORS" BEGINNING ON PAGE 21.
The board of directors of Donnelly has unanimously determined that the
merger is advantageous and beneficial to Donnelly and in the best interests of
its shareholders and has approved the merger agreement. Donnelly and Magna are
furnishing this document to you to provide you with specific information
concerning the merger. Whether or not you plan to attend the Donnelly special
meeting, please take the time to vote by completing the enclosed proxy card and
returning it in the accompanying postage-paid envelope as described in the
instructions that accompany the enclosed proxy card. Please note that your
failure to vote on this matter will have the same effect as a vote against
approval of the merger agreement and the merger. THE DONNELLY BOARD OF DIRECTORS
RECOMMENDS THAT YOU VOTE FOR THIS PROPOSAL. Your vote is important and your
early response will be greatly appreciated.
Sincerely,
[GRAPHIC]
Dwane Baumgardner
Chairman of the Board,
Chief Executive Officer and President
NEITHER THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE
SECURITIES COMMISSION NOR ANY SECURITIES COMMISSION OR SIMILAR REGULATORY
AUTHORITY IN CANADA HAS APPROVED OR DISAPPROVED THIS PROSPECTUS/PROXY STATEMENT
OR THE SECURITIES TO BE ISSUED IN THE MERGER OR DETERMINED IF THIS DOCUMENT IS
ACCURATE OR ADEQUATE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THIS PROSPECTUS/PROXY STATEMENT IS DATED AUGUST 29, 2002, AND IS FIRST BEING
MAILED TO DONNELLY'S SHAREHOLDERS ON OR ABOUT AUGUST 30, 2002.
This document incorporates important business and financial information
about Magna and Donnelly that is neither included in nor delivered with this
document. Magna will provide you with copies of this information relating to
Magna, without charge, upon written or oral request to:
MAGNA INTERNATIONAL INC.
337 Magna Drive
Aurora, Ontario, Canada L4G 7K1
Attention: Executive Vice-President, Special Projects and Secretary
Telephone: (905) 726-7072
Donnelly will provide you with copies of this information relating to
Donnelly, without charge, upon written or oral request to:
DONNELLY CORPORATION
49 West Third Street
Holland, Michigan 49423-2813
Attention: Corporate Secretary
Telephone: (616) 786-6080
IN ORDER TO RECEIVE TIMELY DELIVERY OF THE DOCUMENTS, YOU SHOULD MAKE YOUR
REQUEST NO LATER THAN SEPTEMBER 25, 2002.
Please also see "Where You Can Find More Information" at page 72 of this
prospectus/proxy statement.
THIS PROSPECTUS/PROXY STATEMENT DOES NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO PURCHASE, THE SECURITIES OFFERED BY THIS
PROSPECTUS/PROXY STATEMENT, OR THE SOLICITATION OF A PROXY, IN ANY JURISDICTION
TO OR FROM ANY PERSON TO WHOM OR FROM WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER,
SOLICITATION OF AN OFFER OR PROXY SOLICITATION IN SUCH JURISDICTION. NEITHER THE
DELIVERY OF THIS PROSPECTUS/PROXY STATEMENT NOR ANY DISTRIBUTION OF SECURITIES
PURSUANT TO THIS PROSPECTUS/PROXY STATEMENT SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE INFORMATION SET
FORTH OR INCORPORATED INTO THIS PROSPECTUS/PROXY STATEMENT BY REFERENCE OR IN
OUR AFFAIRS SINCE THE DATE OF THIS PROSPECTUS/PROXY STATEMENT. THE INFORMATION
CONTAINED IN THIS PROSPECTUS/PROXY STATEMENT WITH RESPECT TO DONNELLY WAS
PROVIDED BY DONNELLY AND THE INFORMATION CONTAINED IN THIS PROSPECTUS/PROXY
STATEMENT WITH RESPECT TO MAGNA AND ITS SUBSIDIARIES WAS PROVIDED BY MAGNA.
[GRAPHIC]
PRINCIPAL CORPORATE OFFICES: PLACE OF MEETING:
Donnelly Corporation
49 West Third Street 49 West Third Street
Holland, Michigan 49423-2813 Holland, Michigan 49423-2813
August 29, 2002
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON MONDAY, SEPTEMBER 30,
2002
TO OUR SHAREHOLDERS:
A Special Meeting of Shareholders of Donnelly Corporation will be held on
Monday, September 30, 2002, at 9:00 a.m. (local time), at the Company's offices
at 49 West Third Street, Holland, Michigan 49423. The purpose of this special
meeting is:
1. To consider and vote on a proposal to approve the merger agreement dated as
of June 25, 2002, among Donnelly, Magna International Inc. and Magna Mirrors
Acquisition Corp., and the merger of Donnelly and Magna Mirrors Acquisition
Corp., pursuant to which you will receive a fraction of a Magna Class A
subordinate voting share for each share of Donnelly Class A common stock and
Donnelly Class B common stock that you hold. The actual fraction will depend
on the average of the daily high and low sales prices for Magna Class A
subordinate voting shares as reported on the New York Stock Exchange
Composite Transactions reporting system for the twenty trading days ending
on the second trading day preceding the effective date of the merger (which
effective date is anticipated to be the day after the special meeting). The
fraction of a Magna Class A subordinate voting share you will receive will
be 0.459 if the average price of Magna Class A subordinate voting shares is
less than $61.00, will range from 0.459 to 0.350, and have a value of $28.00
based on such average price, if the average price is between $61.00 and
$80.00, and will be 0.350 if the average price is greater than $80.00,
subject to adjustment as described in the prospectus/proxy statement. The
merger agreement is attached as Annex A to the accompanying prospectus/proxy
statement; and
2. To consider and act upon any other business properly brought before the
special meeting.
The Board of Directors has fixed the close of business on August 16, 2002,
as the record date for the special meeting. Only shareholders of record at that
time will be entitled to notice of, and to vote at, the special meeting or any
adjournment or postponement thereof.
It is important that your shares be represented at the special meeting, even
if you cannot attend the special meeting and vote your shares in person. Whether
or not you plan to attend the special meeting, you are urged to, as promptly as
practicable, sign, date and return the enclosed form of proxy. If you hold
shares directly in your name and attend the special meeting, you may vote your
shares in person, even if you have previously submitted a proxy card. Your proxy
may be revoked at any time before it is voted by submitting a written revocation
or a proxy bearing a later date to the Corporate Secretary of Donnelly, or by
attending and voting in person at the special meeting. For shares held in
"street name", you may revoke or change your vote by submitting new voting
instructions to your broker or nominee.
By Order of the Board of Directors,
[GRAPHIC]
------------------------------------------------
Lori L. Klokkert
SECRETARY
TABLE OF CONTENTS
PAGE
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QUESTIONS AND ANSWERS ABOUT THE MERGER...................... 1
SUMMARY..................................................... 5
The Special Meeting....................................... 5
Record Date; Shares Entitled to Vote...................... 5
Voting by Donnelly's Directors and Executive Officers..... 5
The Parties............................................... 5
Risk Factors.............................................. 6
The Merger................................................ 6
Votes Required.......................................... 7
Reasons for the Merger.................................. 7
Opinion of Donnelly's Financial Advisor................. 7
The Merger Agreement...................................... 7
What you will receive in the merger..................... 7
Conditions to the merger................................ 8
Antitrust approvals..................................... 9
Material United States federal income tax
consequences........................................... 9
Material Canadian federal income tax consequences....... 9
Accounting treatment.................................... 10
Termination............................................. 10
Effects of the merger on the rights of Donnelly
shareholders........................................... 10
Interests of officers, directors and the controlling
shareholders in the merger............................. 10
No Dissenters' Rights..................................... 11
SELECTED HISTORICAL FINANCIAL INFORMATION................... 12
Donnelly Selected Historical Financial Information........ 12
Magna Selected Historical Financial Information........... 13
Comparative Per Share Data................................ 16
Market Price.............................................. 18
Recent Closing Prices..................................... 19
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING
STATEMENTS................................................ 20
RISK FACTORS................................................ 21
Risks Relating to the Merger.............................. 21
Risks Related to the Automotive Industry.................. 22
Risks Relating to Magna's Business........................ 24
Risks Relating to Magna's Structure....................... 26
THE SPECIAL MEETING......................................... 26
Date, Time and Place of the Special Meeting............... 26
Purpose of the Special Meeting............................ 26
Record Date; Shares Entitled to Vote...................... 26
Quorum.................................................... 26
Votes Required for Approval............................... 27
Voting by Donnelly's Directors and Executive Officers..... 27
Voting of Proxies......................................... 27
Revocability of Proxies................................... 27
Solicitation of Proxies................................... 27
THE MERGER.................................................. 28
General................................................... 28
Background of the Merger.................................. 28
Donnelly's Reasons for the Merger; Approval of the
Donnelly Board.......................................... 31
Magna's Reasons for the Merger............................ 33
Opinion of Donnelly's Financial Advisor................... 33
Interests of Certain Persons in the Merger................ 39
Effective Time of the Merger.............................. 43
Articles of Incorporation and By-laws..................... 44
Material United States Federal Income Tax Consequences.... 44
Material Canadian Federal Income Tax Consequences......... 45
i
PAGE
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Accounting Treatment...................................... 46
Antitrust Approvals....................................... 46
Listing of Magna Class A subordinate voting shares on the
NYSE and the TSX........................................ 46
Resale of Magna Class A subordinate voting shares Issued
in the Merger; Affiliates............................... 46
No Dissenters' Rights..................................... 47
THE MERGER AGREEMENT........................................ 47
The Merger................................................ 47
Consideration to be Received in the Merger; Exchange
Ratio................................................... 47
Procedures for Surrender of Donnelly Certificates;
Fractional Shares....................................... 48
Representations and Warranties............................ 49
Definition of Material Adverse Effect..................... 50
Covenants................................................. 51
Conditions................................................ 56
Termination............................................... 58
Amendments................................................ 59
Extension; Waiver......................................... 59
SHAREHOLDERS' AGREEMENT..................................... 60
DESCRIPTION OF MAGNA SHARE CAPITAL AND CORPORATE
CONSTITUTION.............................................. 61
COMPARISON OF DONNELLY AND MAGNA CLASS A SUBORDINATE VOTING
SHAREHOLDER RIGHTS........................................ 62
Summary of Material Differences Between Current Rights of
Donnelly Shareholders and Rights Those Shareholders Will
Have as Magna Class A Subordinate Voting Shareholders
Immediately Following the Merger........................ 63
Approval of Mergers, Extraordinary Transactions........... 63
Amendment to Governing Documents.......................... 63
Dissenter's Rights........................................ 64
Minority Shareholder Rights............................... 65
Derivative Actions........................................ 65
Shareholder Consent Instead of a Meeting.................. 66
Quorum of Shareholders.................................... 66
Payment of Dividends...................................... 67
Director Qualification.................................... 67
Fiduciary Duties of Directors............................. 67
Call of Special Shareholders' Meeting..................... 67
Indemnification of Directors and Officers................. 67
Director Liability........................................ 68
Access to Corporate Records............................... 69
Director Requirements..................................... 69
Vacancy on Board of Directors............................. 69
Removal of Directors...................................... 70
Transactions with Interested Directors.................... 70
Takeover Legislation...................................... 71
EXPERTS..................................................... 72
LEGAL MATTERS............................................... 72
WHERE YOU CAN FIND MORE INFORMATION......................... 72
ANNEX A--Merger Agreement................................... A-1
ANNEX B--Shareholders' Agreement............................ B-1
ANNEX C--Opinion of Salomon Smith Barney Inc................ C-1
ii
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q. WHAT IS THE PROPOSED TRANSACTION?
A. Donnelly will merge with a subsidiary of Magna. As a result, Donnelly, as the
surviving corporation in the merger, will become a wholly owned subsidiary
of Magna, and Donnelly shareholders will receive for each of their shares of
Donnelly common stock a fraction of a Class A subordinate voting share of
Magna.
Q. WHAT WILL I RECEIVE IN THE MERGER?
A. Each share of Donnelly Class A common stock and Donnelly Class B common stock
that you own will be exchanged for a fraction of a Class A subordinate
voting share of Magna equal to an exchange ratio that will provide each
Donnelly shareholder with Magna Class A subordinate voting shares valued at
approximately $28.00 for each share of Donnelly common stock exchanged, so
long as the average price of a Magna Class A subordinate voting share during
a twenty trading day period is between $61.00 and $80.00. The exchange ratio
is based on the average of the high and low prices for each trading day of
Magna Class A subordinate voting shares on the New York Stock Exchange over
a twenty trading day period ending on the second trading day preceding the
date of the merger. The exchange ratio will be calculated as follows:
- if the average trading price of Magna Class A subordinate voting shares
as calculated above is between $61.00 and $80.00, inclusive, the
exchange ratio will equal $28.00 divided by such average trading price;
- if the average trading price is less than $61.00, the exchange ratio
will be fixed at .459 (except to the extent the ratio may be increased
in the limited circumstances described below in the answer to the
fourth question); and
- if the average trading price is greater than $80.00, the exchange ratio
will be fixed at .350.
This means that the fraction of a Magna Class A subordinate voting share
received as the merger consideration for each share of Donnelly common stock
will be between .350 and .459, except as provided below.
Only whole Magna Class A subordinate voting shares will be issued.
Fractional Magna Class A subordinate voting shares will not be issued. You
will receive a cash payment instead of any fraction of a Magna Class A
subordinate voting share you would have otherwise received. This amount will
be calculated by multiplying the fractional interest to which you would
otherwise be entitled by the average of the daily high and low prices of a
Magna Class A subordinate voting share during the twenty trading day period
ending on the second trading day preceding the date of the merger.
On August 28, 2002, the last day for which this information could be
calculated before the date of this prospectus/proxy statement, Magna
Class A subordinate voting shares closed at $63.00, and the average trading
price of Magna Class A subordinate voting shares as calculated above for the
twenty trading day period ending on that date was $59.86. If this latter
price were the average trading price of Magna Class A subordinate voting
shares on the second trading day preceding the date of the merger, the
exchange ratio would be equal to 0.459 and Donnelly shareholders would
receive 0.459 Magna Class A subordinate voting shares in exchange for each
share of Donnelly common stock. Based on a value of Magna Class A
subordinate voting shares equal to $63.00, the closing price on August 28,
2002, this exchange ratio would result in Donnelly shareholders receiving
Magna Class A subordinate voting shares with a total value of approximately
$28.92 per share of Donnelly common stock. This calculation is intended
solely to illustrate the calculation of the exchange ratio. THE ACTUAL VALUE
OF THE MAGNA CLASS A SUBORDINATE VOTING SHARES RECEIVED IN THE MERGER MAY
VARY SIGNIFICANTLY FROM THIS VALUE BASED ON THE AVERAGE TRADING PRICE USED
TO DETERMINE THE EXCHANGE RATIO AND THE CLOSING PRICE OF MAGNA CLASS A
SUBORDINATE VOTING SHARES ON THE DATE OF THE MERGER.
Q. WILL THE NUMBER OF MAGNA CLASS A SUBORDINATE VOTING SHARES THAT I RECEIVE OR
THE VALUE OF THE TRANSACTION CHANGE BETWEEN NOW AND THE TIME THE MERGER IS
COMPLETED?
A. The number of Magna Class A subordinate voting shares that you will receive
in the merger is determined by the exchange ratio, which will change based
on the average trading price of Magna Class A subordinate voting shares over
a twenty trading day period, but will not be less than .350 nor greater than
.459 (except as discussed in the next answer).
If the average trading price of Magna Class A subordinate voting shares over
a twenty trading day period ending with the second trading day immediately
preceding the day of the merger is less than $61.00, the exchange ratio will
be .459, except as discussed in the next answer. If the average trading
price of Magna Class A subordinate voting shares over the twenty trading day
period is more than $80.00, the exchange ratio will be .350. If the average
trading price of Magna Class A subordinate voting shares over the twenty
trading day period is between $61.00 and $80.00, then the exchange ratio
will be between .350 and .459, and will be equal to $28.00 divided by the
twenty trading day average trading price.
You can obtain current information on the exchange ratio by calling
toll-free 1-800-245-7630.
The value of the transaction will fluctuate between the date of this
prospectus/proxy statement and the completion of the merger, based upon the
market price for Magna Class A subordinate voting shares. The exchange ratio
is calculated in a manner designed to provide each Donnelly shareholder with
approximately $28.00 in Magna Class A subordinate voting shares for each
share of Donnelly common stock owned, so long as the average trading price
of a Magna Class A subordinate voting share over the twenty trading day
period is between $61.00 and $80.00, inclusive. The value of the Magna
Class A subordinate voting shares received will be more or less than $28.00
if the average trading value of the Magna Class A subordinate voting shares,
determined as described above, exceeds $80.00 or is less than $61.00 or if
the value of Magna Class A subordinate voting shares at the time you receive
them is different from the average trading price.
Q. IF THE AVERAGE TRADING PRICE OF MAGNA CLASS A SUBORDINATE VOTING SHARES IS
LESS THAN $61.00, WILL THE MAGNA CLASS A SUBORDINATE VOTING SHARES I RECEIVE
FOR EACH SHARE OF DONNELLY COMMON STOCK HAVE A VALUE LESS THAN $28.00?
A. Yes, unless the value of Magna Class A subordinate voting shares at the time
you receive them is significantly higher than the average value. However,
Donnelly has the right to terminate the merger agreement if the average
trading price of Magna Class A subordinate voting shares is less than
$52.28. This right to terminate is subject to a five business-day notice
period during which Magna may prevent Donnelly from terminating the merger
agreement pursuant to this specific provision by Magna agreeing to increase
the exchange ratio above .459, which otherwise would be the highest exchange
ratio, to the quotient of $24.00 divided by the average trading price of
Magna Class A subordinate voting shares.
Q. IF THE AVERAGE TRADING PRICE OF MAGNA CLASS A SUBORDINATE VOTING SHARES IS
MORE THAN $80.00, WILL THE MAGNA CLASS A SUBORDINATE VOTING SHARES I RECEIVE
FOR EACH SHARE OF DONNELLY COMMON STOCK HAVE A VALUE OF MORE THAN $28.00?
A. Yes, unless the value of Magna Class A subordinate voting shares at the time
you receive them is lower than the average value.
Q. WHAT WILL THE CONTROLLING SHAREHOLDERS WHO ENTERED INTO A SHAREHOLDERS'
AGREEMENT RECEIVE IN THE MERGER AND WHAT WILL THEY BE REQUIRED TO DO?
A. Even though those controlling shareholders hold Donnelly shares representing
approximately 71% of the votes entitled to be cast at the special meeting,
they will not receive a "control premium" for their shares. The controlling
shareholders will exchange their shares of Donnelly common stock for Magna
Class A subordinate voting shares in the same per share amount and at the
same exchange ratio as all other Donnelly shareholders.
In a shareholders' agreement entered into at the same time as the merger
agreement, these shareholders agreed to vote at the special meeting to
approve the merger agreement and the merger, to take additional action in
furtherance of the merger, and to abide by certain restrictions on their
future activities with respect to nonsolicitation provisions set forth in
that agreement. Please see pages 60 through 61 for more information
concerning that agreement.
Certain members of Donnelly's management team and Donnelly's board of
directors have interests in the merger that are in addition to their general
interests as Donnelly shareholders. As described below, the merger will
constitute a change in control of Donnelly for purposes of determining the
entitlement of some of Donnelly's executive officers to severance and other
benefits. In addition, each member of Donnelly's board of directors will
have the right to receive accelerated deferred compensation and accelerated
pension
2
benefits as a result of the merger. Please see pages 39 through 43 for more
information concerning these benefits.
Q. AM I ENTITLED TO APPRAISAL RIGHTS?
A. Under Michigan law, which governs the merger, you are not entitled to
appraisal rights.
Q. WILL DONNELLY CLASS A COMMON STOCK CONTINUE TO BE TRADED ON THE NYSE AFTER
THE MERGER?
A. No. In the merger, Donnelly will merge with a subsidiary of Magna, with
Donnelly as the surviving corporation being a wholly owned subsidiary of
Magna. Donnelly Class A common stock will not thereafter be listed on any
exchange or otherwise be publicly traded.
Q. WHAT DONNELLY SHAREHOLDER VOTE IS NECESSARY TO APPROVE THE MERGER AGREEMENT
AND THE MERGER?
A. Holders of Donnelly Class A common stock and Donnelly Class B common stock
are entitled to vote on the merger. Holders of Donnelly common stock will
vote on a proposal to approve the merger agreement and the merger at the
Donnelly special meeting to be held on Monday, September 30, 2002. The
merger cannot be completed unless Donnelly shareholders that on the record
date own shares possessing not less than two-thirds of the total number of
votes entitled to be cast by holders of Donnelly Class A common stock and
Donnelly Class B common stock, voting together as a single class, vote to
approve the merger agreement and the merger. Under the shareholders'
agreement and related irrevocable proxies, Donnelly shareholders who own or
control shares of Donnelly common stock representing in the aggregate
approximately 71% of the votes entitled to be cast by the holders of
outstanding Donnelly common stock at the record date have agreed to vote for
the approval of the merger agreement and the merger.
Q. WHAT DO I NEED TO DO NOW?
A. You should carefully read and consider the information contained in this
prospectus/proxy statement. You should then complete, sign and date your
proxy card and return it in the enclosed return envelope as soon as possible
so that your shares of Donnelly common stock may be represented at the
special meeting. Your proxy is important. Whether or not you plan to attend
the special meeting, please submit your proxy promptly.
Q. SHOULD I SEND IN MY STOCK CERTIFICATES NOW?
A. No. After the merger is completed, you will receive a letter of transmittal
and written instructions for exchanging your stock certificates.
Q. CAN I CHANGE MY VOTE AFTER I HAVE SUBMITTED MY PROXY?
A. Yes. You can change your vote at any time before your proxy is voted at the
special meeting. You can do this in a number of ways. First, you may send in
a later-dated, signed proxy card to the Corporate Secretary of Donnelly so
that it arrives before the special meeting. Second, you can send a written
notice to the Corporate Secretary of Donnelly stating that you are revoking
your proxy. Third, you may attend the Donnelly special meeting and vote in
person.
Q. IF MY SHARES OF DONNELLY COMMON STOCK ARE HELD IN STREET NAME BY MY BROKER,
WILL MY BROKER VOTE MY SHARES FOR ME?
A. A broker will vote the shares held by you only if you provide instructions to
your broker on how to vote. Without instructions, those shares will not be
voted. Donnelly shareholders should instruct their brokers to vote their
shares by following the directions that they provide. If you do not instruct
your broker to vote your shares, this will have the effect of a vote against
the proposal relating to the merger agreement and merger.
Q. WHEN DO MAGNA AND DONNELLY EXPECT TO COMPLETE THE MERGER?
A. We are working toward completing the merger as quickly as possible. It is
anticipated that the merger will close the day after the special meeting. We
must still obtain certain foreign antitrust approvals and satisfy certain
other conditions before we can close, but we hope to complete the merger by
October of this year. However, delays in obtaining antitrust approvals could
delay the merger. In addition, it is possible that the
3
merger agreement will be terminated if its required conditions have not been
satisfied or waived, including completion of the merger by December 31,
2002.
Q. WHO CAN HELP ANSWER MY QUESTIONS?
A. Donnelly shareholders who would like additional copies, without charge, of
this prospectus/proxy statement or have additional questions about the
transaction, including the procedures for voting Donnelly shares, should
contact:
Donnelly Corporation
49 West Third Street
Holland, Michigan 49423-2813
Attention: Corporate Secretary
Telephone: (616) 786-6080
Q. WHERE CAN I FIND MORE INFORMATION ABOUT DONNELLY AND MAGNA?
A. More information about Donnelly and Magna is available from various sources
described under "Where You Can Find More Information" on page 72 of this
prospectus/proxy statement.
To obtain Magna Class A subordinate voting share quotations and the exchange
ratio, call toll free
1-800-245-7630.
4
SUMMARY
THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION FROM THIS PROSPECTUS/PROXY
STATEMENT AND MAY NOT CONTAIN ALL THE INFORMATION THAT IS IMPORTANT TO YOU. TO
BETTER UNDERSTAND THE MERGER AND FOR A MORE COMPLETE DESCRIPTION OF THE LEGAL
TERMS OF THE MERGER, YOU SHOULD READ CAREFULLY THIS ENTIRE PROSPECTUS/PROXY
STATEMENT AND THE DOCUMENTS TO WHICH WE HAVE REFERRED YOU. SEE "WHERE YOU CAN
FIND MORE INFORMATION" BEGINNING ON PAGE 72. WE HAVE INCLUDED PAGE REFERENCES
PARENTHETICALLY TO DIRECT YOU TO A MORE COMPLETE DESCRIPTION OF THE TOPICS
PRESENTED IN THIS SUMMARY. ALL REFERENCES IN THIS PROSPECTUS/PROXY STATEMENT TO
"$" OR DOLLARS ARE TO U.S. DOLLARS. IN THIS PROSPECTUS/PROXY STATEMENT, THE
TERMS "WE", "US" AND "OUR", REFER TO MAGNA AND DONNELLY COLLECTIVELY.
THE SPECIAL MEETING
A special meeting of Donnelly shareholders will be held on Monday,
September 30, 2002, at 9:00 a.m., local time, at 49 West Third Street, Holland,
Michigan, 49423. At the special meeting, Donnelly shareholders will be asked:
- to consider and vote upon a proposal to approve the merger agreement and
the merger described in this prospectus/proxy statement; and
- to consider and act upon any other business properly brought before the
special meeting.
RECORD DATE; SHARES ENTITLED TO VOTE
Shareholders of Donnelly are entitled to vote at the special meeting if they
owned shares of Donnelly common stock as of the close of business on August 16,
2002, the record date. On the record date, there were 7,163,140 shares of
Donnelly Class A common stock and 4,038,623 shares of Donnelly Class B common
stock entitled to vote at the special meeting. Donnelly shareholders will have
one vote at the special meeting for each share of Class A common stock and ten
votes for each share of Class B common stock that they owned on the
record date.
VOTING BY DONNELLY'S DIRECTORS AND EXECUTIVE OFFICERS
At the close of business on the record date, directors and executive
officers of Donnelly and their affiliates owned and were entitled to vote
approximately 844,839 shares of Donnelly Class A common stock and
1,070,384 shares of Donnelly Class B common stock, representing approximately
17% of the aggregate number of outstanding shares of Donnelly Class A common
stock and Class B common stock and representing approximately 24% of the votes
entitled to be cast at the meeting. THE DIRECTORS AND EXECUTIVE OFFICERS OF
DONNELLY HAVE INDICATED THAT THEY INTEND TO VOTE THE DONNELLY COMMON STOCK THAT
THEY OWN "FOR" APPROVAL OF THE MERGER AGREEMENT AND THE MERGER. MOREOVER,
DONNELLY SHAREHOLDERS WHO OWN OR CONTROL SHARES OF DONNELLY COMMON STOCK
REPRESENTING IN THE AGGREGATE APPROXIMATELY 71% OF THE VOTES ENTITLED TO BE CAST
BY HOLDERS OF DONNELLY COMMON STOCK AT THE RECORD DATE HAVE AGREED TO VOTE FOR
THE APPROVAL OF THE MERGER AGREEMENT AND THE MERGER.
THE PARTIES
DONNELLY CORPORATION
49 WEST THIRD STREET
HOLLAND, MICHIGAN 49423-2813
TELEPHONE: 616-786-7000
Donnelly, incorporated in Michigan in 1936, is a technology-driven, customer
focused, growth oriented, global supplier to the automotive and information
display industries through manufacturing operations and various joint ventures
in North and South America, Europe and Asia. Donnelly primarily supplies
automotive customers around the world with rear vision systems, modular window
systems, and door handle products, which increasingly incorporate electronic
capabilities. Donnelly believes that it is one of the largest exterior rearview
mirror manufacturers in the world and has the largest market share in the United
States for interior rearview prismatic mirrors. It also considers itself one of
the largest manufacturers of modular window systems in North
5
America. At December 31, 2001, Donnelly employed more than 6,000 employees in
facilities worldwide, of whom approximately 3,000 work in its North American
operations in the United States and Mexico. Its non-North American employees are
primarily located in Germany, Ireland, France, Spain, Brazil and Malaysia.
Donnelly's growth strategy focuses on developing value-added features and
technologies around its core products, including complete exterior mirrors,
modular encapsulated windows, interior mirrors and door handles, and around
newer products and technologies, including electrochromic mirrors and bonded
hardware modular window systems.
MAGNA INTERNATIONAL INC.
337 MAGNA DRIVE
AURORA, ONTARIO, CANADA L4G 7K1
TELEPHONE: (905) 726-2462
Magna is one of the most diversified automotive suppliers in the world. It
designs, develops and manufactures a complete range of automotive systems,
assemblies, modules and components, and engineers and assembles complete
vehicles. Magna's products and services are sold primarily to manufacturers of
cars and light trucks in North America, Europe, South America and Asia. At
June 30, 2002, Magna employed approximately 65,000 automotive employees and
operated 176 automotive manufacturing facilities and 43 product
development/engineering facilities, in 19 countries. Magna's manufacturing,
product development and engineering facilities are organized as autonomous
operating divisions under one of five automotive systems groups, three of which
are public companies in which Magna retains a controlling equity stake and two
of which are wholly owned.
In addition to its automotive operations, Magna conducts certain
non-automotive operations through Magna Entertainment Corp., which is the
leading owner and operator of thoroughbred racetracks in the United States,
based on revenue, and a leading supplier, via simulcasting, of live racing
content to inter-track, off-track and account wagering markets. As of June 30,
2002 MEC operated eight thoroughbred racetracks, one standardbred racetrack and
one greyhound racetrack, as well as the simulcast wagering venues at these
tracks. MEC has also agreed to acquire controlling interests in entities owning
two additional U.S. racetracks and has entered into an agreement to acquire one
Canadian racetrack. In addition, MEC operates off-track betting facilities and a
national account wagering business named XpressBet-TM- which permits customers
to place wagers by telephone and over the Internet on horse races at up to 65
racetracks in North America. As of June 30, 2002 MEC employed approximately
3,300 employees.
Magna was incorporated under the laws of the Province of Ontario, Canada on
November 16, 1961.
MAGNA MIRRORS ACQUISITION CORP.
337 MAGNA DRIVE
AURORA, ONTARIO, CANADA L4G 7K1
TELEPHONE: (905) 726-2462
Magna Mirrors Acquisition Corp., the merger subsidiary, is a Michigan
corporation and a wholly owned subsidiary of Magna that was recently formed
solely for the purpose of effecting the merger with Donnelly.
RISK FACTORS
Before making any decision in connection with the merger, you should
consider carefully the matters described under "Risk Factors" beginning on
page 21.
THE MERGER
The merger agreement provides for the merger of Magna Mirrors Acquisition
Corp., the merger subsidiary, with and into Donnelly, with Donnelly continuing
as the surviving corporation. As a result of the merger, Donnelly will be a
wholly owned subsidiary of Magna.
6
VOTES REQUIRED (SEE PAGE 27)
Pursuant to the terms of Donnelly's Second Restated and Amended Articles of
Incorporation, the merger cannot be completed unless Donnelly shareholders that
on the record date own shares of Donnelly common stock representing not less
than two-thirds of the total number of votes entitled to be cast by holders of
Donnelly Class A common stock and Class B common stock, voting together as a
single class, vote to approve the merger agreement and the merger. Under the
shareholders' agreement and related irrevocable proxies, Donnelly shareholders
who own or control shares of Donnelly common stock representing in the aggregate
approximately 71% of the votes entitled to be cast by holders of Donnelly common
stock at the record date have agreed to vote for the approval of the merger
agreement and the merger.
REASONS FOR THE MERGER (SEE PAGE 31)
The Donnelly board of directors has unanimously approved the merger
agreement, determined that the merger upon the terms and subject to the
conditions of the merger agreement would be advantageous and beneficial to
Donnelly, is consistent with and in the furtherance of Donnelly's long-term
business strategies, is fair to and in the best interests of Donnelly's
shareholders, is beneficial to Donnelly's employees, vendors and the communities
in which its operations are located and unanimously recommends that Donnelly
shareholders vote for the approval and adoption of the merger agreement and
approval of the merger. In making its decision, the board of directors consulted
Donnelly's management and its legal and financial advisors and considered a
number of factors, including those discussed below.
The board of directors of Magna believes that the merger is in the best
interests of Magna and its shareholders and is consistent with Magna's stated
aim of completing acquisitions which complement its portfolio of automotive
technologies and assets. The merger is expected to result in operating
synergies, increased vertical integration, increased customer diversification
and penetration, geographic expansion and access to significant technology on a
global basis.
Please note that achieving these benefits is subject to important factors
that could adversely affect the future results of Magna and Donnelly. For a
discussion of these factors, please see "Risk Factors" beginning on page 21.
OPINION OF DONNELLY'S FINANCIAL ADVISOR (SEE PAGE 33)
In connection with the merger, the Donnelly board of directors received a
written opinion from Salomon Smith Barney Inc., Donnelly's financial advisor, as
to the fairness, from a financial point of view, of the exchange ratio to the
holders of Donnelly Class A common stock (other than holders who have executed
the shareholders' agreement and their respective affiliates). The full text of
Salomon Smith Barney's written opinion dated June 24, 2002 is attached to this
prospectus/proxy statement as Annex C. We encourage you to read this opinion
carefully in its entirety for a description of the assumptions made, procedures
followed, matters considered and limitations on the review undertaken. SALOMON
SMITH BARNEY'S OPINION IS DIRECTED TO THE DONNELLY BOARD OF DIRECTORS AND DOES
NOT CONSTITUTE A RECOMMENDATION TO ANY SHAREHOLDER AS TO HOW SUCH SHAREHOLDER
SHOULD VOTE OR ACT ON ANY MATTERS RELATING TO THE PROPOSED MERGER.
THE MERGER AGREEMENT
The merger agreement is the legal document that governs the merger. It is
attached as Annex A to this prospectus/proxy statement, and we encourage you to
read it carefully. The following is only a summary of the terms of the merger
agreement and omits numerous details.
WHAT YOU WILL RECEIVE IN THE MERGER. (SEE PAGE 47)
Each share of Donnelly Class A common stock and Class B common stock that
you own will be exchanged for a fraction of a Class A subordinate voting share
of Magna equal to an exchange ratio that will provide each Donnelly shareholder
with Magna Class A subordinate voting shares valued at approximately $28.00 for
each share of Donnelly common stock exchanged, so long as the average price of a
Magna Class A subordinate voting
7
share during a twenty trading day period is between $61.00 and $80.00. The
exchange ratio is based on the average of the high and low prices for each
trading day of Magna Class A subordinate voting shares on the New York Stock
Exchange over a twenty trading day period ending on the second trading day
preceding the date of the merger. The exchange ratio will be calculated as
follows:
- if the average trading price of Magna Class A subordinate voting shares as
calculated above is between $61.00 and $80.00, inclusive, the exchange
ratio will equal $28.00 divided by such average trading price;
- if the average trading price is less than $61.00, the exchange ratio will
be fixed at .459 (except to the extent the ratio may be increased in the
limited circumstances described below); and
- if the average trading price is greater than $80.00, the exchange ratio
will be fixed at .350.
The following table gives you illustrative examples of the exchange ratio
and the corresponding value of consideration per share of Donnelly common stock
at various average trading prices for Magna Class A subordinate voting shares.
AVERAGE TRADING PRICE OF APPROXIMATE VALUE OF MERGER
MAGNA CLASS A SUBORDINATE CONSIDERATION PER SHARE OF
VOTING SHARES* EXCHANGE RATIO DONNELLY COMMON STOCK
-------------------------- -------------- ---------------------------
$90.00 .350 $31.50
80.00 .350 28.00
70.00 .400 28.00
61.00 .459 28.00
60.00 .459 27.54
52.28 .459 24.00
50.00**(1) .459**(1) 22.95**(1)
50.00**(2) .480**(2) 24.00**(2)
---------------
* The average trading price for Magna Class A subordinate voting shares will
be calculated based on the average of the high and low prices for each
trading day of Magna Class A subordinate voting shares on the New York Stock
Exchange over a twenty trading day period ending on the second trading day
preceding the date of the merger.
** The merger agreement may be terminated by Donnelly if the average trading
price of Magna Class A subordinate voting shares during the twenty trading
day period is less than $52.28 (although this right to terminate is subject
to a five business day notice period during which Magna may prevent Donnelly
from terminating if Magna agrees to increase the exchange ratio to the
quotient of $24.00 divided by the average trading price of Magna Class A
subordinate voting shares).
(1) Assumes Donnelly did not attempt to terminate the merger.
(2) Assumes Donnelly attempted to terminate the merger, but Magna increased the
exchange ratio.
CONDITIONS TO THE MERGER. (SEE PAGE 56)
The completion of the merger depends upon satisfaction or waiver of a number
of conditions, including:
- approval by the affirmative vote of holders of Donnelly common stock
representing at least two-thirds of the votes entitled to be cast at the
Donnelly special meeting;
- approvals and consents from United States and foreign antitrust
authorities;
- approval for listing on the New York Stock Exchange and The Toronto Stock
Exchange of the Magna Class A subordinate voting shares issuable in the
merger;
- no court or other governmental entity shall have enacted, issued,
promulgated, enforced or entered any law, rule, regulation, executive
order, decree, injunction or other order which is then in effect and has
the effect of making the merger or any of the transactions contemplated by
the merger agreement illegal;
- receipt of a legal opinion about certain tax consequences of the merger;
- receipt of "comfort letters" from Magna's and Donnelly's independent
accountants;
8
- representations and warranties of each of Magna and Donnelly contained in
the merger agreement remaining true and correct in all material respects
at the closing, except for a breach or failure that does not have a
material adverse effect on the breaching party;
- each of Magna and Donnelly having performed in all material respects each
of their agreements under the merger agreement;
- during the twenty consecutive trading day period used to determine the
trading price of Magna Class A subordinate voting shares and the exchange
ratio, there shall not have occurred a material adverse effect (as defined
in the merger agreement) with respect to Magna or any event or occurrence
that would reasonably be expected to result in such a material adverse
effect; PROVIDED, HOWEVER, that if there were such a material adverse
effect with respect to Magna or such an event or occurrence, then this
condition would be satisfied if Magna gives notice to Donnelly that the
merger will occur on the twenty-second New York Stock Exchange trading day
after Magna publicly announces such material adverse effect;
- neither Magna nor Donnelly shall have been advised by its independent
accountants of any material accounting irregularities that would
reasonably be expected to require it to restate its financial statements
filed with the Securities and Exchange Commission (other than as required
by any change in accounting principles generally accepted in Canada or the
United States); PROVIDED, HOWEVER, that Magna may elect to deem any
failure to satisfy this condition to be a material adverse effect with
respect to Magna for purposes of the immediately preceding condition, in
which case this condition shall be deemed satisfied; and
- since the date of the merger agreement, there shall not have occurred a
material adverse effect (as defined in the merger agreement) with respect
to Donnelly.
The merger will occur, and your shares of Donnelly common stock will be
converted into a right to receive Magna Class A subordinate voting shares, no
later than two business days after Donnelly and Magna satisfy or waive all the
conditions specified in the merger agreement. It is anticipated that the merger
will occur immediately following the special meeting.
ANTITRUST APPROVALS. (SEE PAGE 46)
Under U.S. antitrust laws, Magna and Donnelly may not complete the merger
until Magna and Donnelly have notified the Antitrust Division of the United
States Department of Justice and the Federal Trade Commission of the merger by
filing the necessary report forms and until a required waiting period has ended.
Similar requirements exist with respect to the European Union and Brazil. Magna
and Donnelly have filed the required information and materials to notify the
U.S. Department of Justice and the Federal Trade Commission of the merger and
the required waiting period expired on August 12, 2002. Magna and Donnelly have
also made the necessary foreign filings but await clearance from the European
Union and Brazilian authorities.
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES. (SEE PAGE 44)
It is a condition to the merger that Donnelly receives an opinion of its tax
counsel to the effect that the merger will qualify as a tax-free reorganization
under the Internal Revenue Code of 1986 and that Magna, Magna Mirrors
Acquisition Corp. and Donnelly will each be a party to that reorganization. See
"The Merger--Material United States Federal Income Tax Consequences".
TAX MATTERS MAY BE COMPLICATED AND THE TAX CONSEQUENCES OF THE MERGER TO YOU
WILL DEPEND ON THE FACTS OF YOUR OWN SITUATION. YOU SHOULD CONSULT YOUR TAX
ADVISOR TO UNDERSTAND FULLY THE TAX CONSEQUENCES OF THE MERGER TO YOU.
MATERIAL CANADIAN FEDERAL INCOME TAX CONSEQUENCES. (SEE PAGE 45)
The Canadian INCOME TAX ACT, the Canada-United States Income Tax Convention
and the policies of the Canada Customs and Revenue Agency will apply to a
non-resident holder in connection with the holding and disposition of Magna
Class A subordinate voting shares. Under the Canada-United States Income Tax
Convention, holders of Magna Class A subordinate voting shares resident in the
United States will generally be
9
subject to a 15% Canadian withholding tax in respect of dividends on those
shares. See "The Merger--Material Canadian Federal Income Tax Consequences".
TAX MATTERS MAY BE COMPLICATED AND THE TAX CONSEQUENCES OF THE MERGER TO YOU
WILL DEPEND ON THE FACTS OF YOUR OWN SITUATION. YOU SHOULD CONSULT YOUR TAX
ADVISOR TO UNDERSTAND FULLY THE TAX CONSEQUENCES OF THE MERGER TO YOU.
ACCOUNTING TREATMENT. (SEE PAGE 46)
The merger will be accounted for under the "purchase" method of accounting,
in accordance with United States and Canadian generally accepted accounting
principles. Therefore, the aggregate consideration paid by Magna for the shares
of Donnelly common stock, together with the direct costs of the merger, will be
allocated to Donnelly's assets and liabilities based upon their estimated fair
values, with any excess consideration allocated to goodwill.
TERMINATION. (SEE PAGE 58)
The merger agreement may be terminated, and the merger abandoned, in the
following circumstances:
- if the merger is not completed by December 31, 2002;
- if the merger is not approved by Donnelly's shareholders at the special
meeting;
- if either Magna or Donnelly breaches its representations, warranties,
covenants or agreements and the breach, if curable, is not cured within
twenty business days following receipt of notice of the breach;
- if the parties agree to terminate the merger agreement;
- if United States or European authorities take certain actions under
applicable antitrust laws and regulations;
- if the average trading price of Magna Class A subordinate voting shares is
less than $52.28 (although this right to terminate is subject to a five
business day notice period during which Magna may prevent Donnelly from
terminating the merger agreement by agreeing to increase the exchange
ratio above .459, which would otherwise be the exchange ratio, to the
quotient of $24.00 divided by the average trading price of Magna Class A
subordinate voting shares); or
- if both (i) Magna has given notice to Donnelly of the occurrence of a
material adverse effect with respect to Magna and the closing has been
postponed until the twenty-second trading day following the announcement
of such material adverse effect and (ii) either (a) the average trading
price of Magna Class A subordinate voting shares over twenty trading days
ending on the second trading day preceding the effective date of the
merger, or (b) the average trading price of Magna Class A subordinate
voting shares for the three trading days immediately prior to the date of
the merger, is less than $61.00.
EFFECTS OF THE MERGER ON THE RIGHTS OF DONNELLY SHAREHOLDERS. (SEE PAGE 62)
As a result of the merger, you will become a holder of Magna Class A
subordinate voting shares, which trade on the New York Stock Exchange and The
Toronto Stock Exchange. Magna is organized under the law of Ontario, Canada and
Magna's articles of incorporation and by-laws. Donnelly is organized under
Michigan law and Donnelly's articles of incorporation and by-laws. Your rights
as a shareholder of Magna will differ in certain respects from your rights as a
shareholder of Donnelly.
INTERESTS OF OFFICERS, DIRECTORS AND CONTROLLING SHAREHOLDERS IN THE MERGER.
(SEE PAGE 39)
When considering the Donnelly board of director's recommendation that
Donnelly shareholders vote to approve the merger agreement and the merger, you
should be aware that certain Donnelly directors and officers have interests in
the merger that are in addition to their general interests as Donnelly
shareholders. These interests arise from the rights that these directors and
executive officers have to receive severance payments under the terms of the
Donnelly severance, benefit and compensation plans and various agreements with
10
Donnelly. Some plans provide for accelerated severance and benefit payments. In
addition, the executive officers and directors of Donnelly have stock options
that became immediately exercisable as a result of the execution of the
shareholders' agreement. These interests also arise from provisions of the
merger agreement relating to director and officer indemnification and insurance
and employee benefits after the merger. None of the members of Donnelly's board
of directors will continue to serve as directors upon completion of the merger.
The holders of Donnelly's Class B common stock also own all the outstanding
shares of Donnelly Export Corporation, a shareholder Domestic International
Sales Corporation under the Internal Revenue Code. Section 5.17 of the merger
agreement requires Donnelly to terminate all contracts, agreements and
arrangements between Donnelly Export and Donnelly immediately prior to the
closing of the merger. The holders of Donnelly's Class B common stock will not
derive any financial advantage over the holders of Donnelly's Class A common
stock from the termination of these contracts, agreements and arrangements,
which was required by Magna as a condition to its execution of the merger
agreement.
More information regarding interests in the merger of some of Donnelly's
directors and executive officers is set forth under "The Merger--Interests of
Certain Persons in the Merger".
The members of Donnelly's board of directors were aware of these additional
interests when they approved the merger agreement.
NO DISSENTERS' RIGHTS
Under Michigan law, shareholders of a company whose shares are traded on a
national securities exchange, or who will receive shares traded on a national
securities exchange, are not entitled to appraisal rights in a merger.
Accordingly, holders of Donnelly stock are not entitled to appraisal rights in
connection with the merger because shares of Donnelly Class A common stock and
Magna Class A subordinate voting shares are traded on the NYSE.
11
SELECTED HISTORICAL FINANCIAL INFORMATION
DONNELLY SELECTED HISTORICAL FINANCIAL INFORMATION
The following selected historical financial data for each of the two fiscal
years ended December 31, 2001 and 2000, the six months ended December 31, 1999,
and the three fiscal years ended July 3, 1999, June 27, 1998 and June 28, 1997
has been derived from Donnelly's audited consolidated financial statements. You
should not expect the results for these prior periods to be an indication of the
results to be achieved in future periods. This information is only a summary and
you should read it together with Donnelly's historical financial statements and
related notes contained in the annual reports and other information that
Donnelly has filed with the Securities and Exchange Commission and incorporated
by reference in this prospectus/proxy statement. See "Where You Can Find More
Information".
The selected historical financial data for the six months ended June 30,
2002 and 2001 has been derived from Donnelly's unaudited interim consolidated
financial statements which, in the opinion of Donnelly's management, include all
adjustments, consisting only of normal, recurring adjustments, necessary for a
fair presentation of the information set forth in the consolidated financial
statements. The results of operations for the six months ended June 30, 2002 are
not necessarily indicative of the results for the full fiscal year.
Please read the selected financial data set forth below in conjunction with
"Management's Discussion and Analysis of Results of Operations and Financial
Condition" and Donnelly's financial statements, included in Donnelly's Annual
Report on Form 10-K for the fiscal year ended December 31, 2001 and Donnelly's
Quarterly Report on Form 10-Q for the six months ended June 30, 2002, which are
incorporated by reference in this prospectus/proxy statement.
SIX MONTHS ENDED YEARS ENDED
JUNE 30, DECEMBER 31, SIX MONTHS YEAR ENDED YEAR ENDED YEAR ENDED
------------------- ------------------- ENDED JULY 3, JUNE 27, JUNE 28,
2002(8) 2001 2001(1) 2000(2) DEC. 31, 1999(3) 1999(4) 1998(5) 1997(6)
-------- -------- -------- -------- ----------------- ---------- ---------- ----------
(U.S. DOLLARS IN MILLIONS, EXCEPT PER SHARE FIGURES)
OPERATIONAL DATA
Net sales.................. $ 458 $ 447 $ 848 $ 857 $ 422 $ 905 $ 763 $ 671
Depreciation and
amortization............. 16 16 30 27 13 23 23 22
Income before taxes on
income................... 17 7 4 22 26 9 19 12
Non-operating (income)
expenses................. 1 3 3 4 (16) (1) 1 6
Restructuring and other
charges (credit)......... -- -- 6 (4) -- 9 3 10
Net income................. 12 5 3 11 15 5 12 7
Net income (loss) per share
of common stock:
Basic.................... $ 1.15 $ 0.48 $ 0.25 $ 1.09 $ 1.51 $ 0.49 $ 1.16 $ 0.75
Diluted.................. $ 1.14 $ 0.48 $ 0.25 $ 1.09 $ 1.50 $ 0.49 $ 1.15 $ 0.75
Adjusted net income(7)..... n/a 5 3 12 15 5 11 7
Adjusted net income per
share of common stock:
Basic(7)................. n/a $ 0.50 $ 0.29 $ 1.14 $ 1.52 $ 0.49 $ 1.13 $ 0.76
Diluted(7)............... n/a $ 0.50 $ 0.29 $ 1.14 $ 1.51 $ 0.49 $ 1.12 $ 0.76
Dividends declared per
share of common stock.... $ 0.20 $ 0.20 $ 0.40 $ 0.40 $ 0.20 $ 0.40 $ 0.40 $ 0.36
Average number of shares of
common stock outstanding
(thousands):
Basic.................... 10,553 10,313 10,362 10,168 10,139 10,091 9,961 9,836
Diluted.................. 10,629 10,335 10,379 10,182 10,170 10,119 10,072 9,979
Cash flow from (used in)
operations............... $ 35 $ 41 $ 59 $ 32 $ (8) $ 82 $ 15 $ 68
Capital expenditures....... $ 13 $ 18 $ 29 $ 43 $ 22 $ 58 $ 46 $ 35
12
SIX MONTHS ENDED YEARS ENDED
JUNE 30, DECEMBER 31, SIX MONTHS YEAR ENDED YEAR ENDED YEAR ENDED
------------------- ------------------- ENDED JULY 3, JUNE 27, JUNE 28,
2002(8) 2001 2001(1) 2000(2) DEC. 31, 1999(3) 1999(4) 1998(5) 1997(6)
-------- -------- -------- -------- ----------------- ---------- ---------- ----------
(U.S. DOLLARS IN MILLIONS, EXCEPT PER SHARE FIGURES)
FINANCIAL POSITION
Total assets............... $ 434 $ 461 $ 374 $ 425 $ 402 $ 373 $ 366 $ 350
Fixed assets, net.......... 193 214 190 212 198 189 169 165
Working capital............ 68 39 42 43 25 7 58 37
Debt (less current
maturities).............. 94 117 94 133 107 92 124 123
Shareholders' equity
(total).................. 141 137 112 115 111 99 99 91
Capital stock.............. $ 48 $ 37 $ 39 $ 35 $ 34 $ 33 $ 32 $ 30
Number of shares of common
stock outstanding
(thousands).............. 11,051 10,377 10,466 10,194 10,153 10,135 10,069 9,876
Equity per Class A or
Class B share............ $ 12.72 $ 13.20 $ 10.74 $ 11.24 $ 10.93 $ 9.73 $ 9.85 $ 9.23
---------------
(1) Includes a restructuring charge of $7.9 million, or $5.1 million net of tax,
and a gain of $1.5 million, or $0.9 million net of tax relating to reversals
of previous restructuring charges.
(2) Includes a charge of $3.4 million against net income due to a write down of
German deferred tax assets, a gain of $3.8 million, or $1.6 million net of
tax, relating to reversals of previous restructuring charges, and a gain of
$0.4 million, or $0.2 million net of tax, relating to the divestiture of
Donnelly's interest in KAM Truck Components, Inc.
(3) Includes a gain on sale of an equity investment of $18.5 million, or
$11.1 million net of tax, and cumulative effect of change in accounting
principles net of tax charge of $1.0 million, which decreased both basic and
diluted earnings per share by $0.10.
(4) Includes a European restructuring charge of $8.8 million, or $3.5 million
net of tax, a gain on sale of an equity investment of $5.5 million, or
$3.6 million net of tax, and a gain of $2.0 million, or $1.3 million net of
tax, on the formation of a joint venture.
(5) Includes a non-recurring charge of $3.5 million, or $2.3 million net of tax,
and a gain on sale of an equity investment of $4.6 million, or $2.2 million
net of tax.
(6) Includes a European restructuring charge of $10.0 million, or $4.0 million
net of tax.
(7) Effective January 1, 2002, Donnelly adopted the new accounting standard on
goodwill and other intangible assets and ceased the amortization of
goodwill. The "Adjusted" net income and earnings per share information
presented above for all periods prior to 2002 reflect the results that would
have been reported had goodwill not been amortized.
(8) Includes a cumulative effect of a change in accounting principles net of tax
charge of $0.9 million from impairment of goodwill recognized upon adoption
of the new accounting standard on goodwill and other intangible assets,
which decreased both basic and diluted earnings per share by $0.09.
MAGNA SELECTED HISTORICAL FINANCIAL INFORMATION
The following selected historical financial data for each of the years in
the three-year period ended December 31, 2001, the five-month period ended
December 31, 1998, and the years ended July 31, 1998 and 1997 has been derived
from Magna's audited consolidated financial statements. You should not expect
the results for these prior periods to be an indication of the results that may
be achieved in future periods. This information is only a summary and you should
read it together with Magna's historical financial statements and related notes
contained in the annual reports and other information that Magna has filed with
the Securities and Exchange Commission and incorporated by reference in this
prospectus/proxy statement. See "Where You Can Find More Information".
The selected historical financial data for the six-month periods ended
June 30, 2002 and 2001 has been derived from Magna's unaudited interim
consolidated financial statements which, in the opinion of Magna's management,
reflect all adjustments, which consist only of normal and recurring adjustments,
necessary to present fairly the financial position at June 30, 2002 and the
results of operations and cash flows for the six-month periods ended June 30,
2002 and 2001. The results of operations for the six months ended June 30, 2002
are not necessarily indicative of the results for the full fiscal year.
The selected financial information set forth in the first table below is
prepared in accordance with Canadian generally accepted accounting principles
("Canadian GAAP"), while the selected financial information set forth in the
second table below is prepared in accordance with United States generally
accepted accounting principles
13
("U.S. GAAP"). For a description of significant differences between
Canadian GAAP and U.S. GAAP, see note 24 to Magna's December 31, 2001 audited
consolidated financial statements in Exhibit 3 to Magna's Report on Form 6-K
dated April 4, 2002 and Magna's Report on Form 6-K dated August 29, 2002, both
of which are incorporated by reference in this prospectus/proxy statement. See
"Where You Can Find More Information".
CANADIAN GAAP(1)
FIVE
SIX MONTHS ENDED MONTHS YEARS ENDED
JUNE 30, YEARS ENDED DECEMBER 31, ENDED JULY 31,
------------------- ------------------------------ DEC. 31, -------------------
2002 2001 2001 2000 1999 1998 1998 1997
-------- -------- -------- -------- -------- --------- -------- --------
(U.S. DOLLARS IN MILLIONS, EXCEPT PER SHARE FIGURES)
OPERATIONAL DATA
Total Sales.............................. $ 6,394 $ 5,680 $11,026 $10,513 $ 9,447 $ 3,396 $ 6,006 $ 5,024
Depreciation and amortization............ 202 197 399 372 332 120 192 147
Operating income......................... 557 513 870 808 681 180 407 419
Other income (loss) (2).................. (11) 42 46 161 -- -- 35 124
Net income............................... 312 357 579 596 429 114 292 386
Earnings per Class A subordinate voting
or Class B share:
Basic.................................. $ 3.37 $ 4.24 $ 6.56 $ 7.01 $ 5.07 $ 1.33 $ 3.80 $ 5.32
Diluted................................ $ 3.33 $ 3.81 $ 6.20 $ 6.44 $ 4.65 $ 1.31 $ 3.71 $ 4.98
Adjusted net income(1)................... n/a 366 598 612 441 124 307 394
Adjusted earnings per Class A subordinate
voting or Class B share:
Basic(1)............................... n/a $ 4.35 $ 6.80 $ 7.21 $ 5.23 $ 1.46 $ 4.01 $ 5.43
Diluted(1)............................. n/a $ 3.91 $ 6.41 $ 6.61 $ 4.79 $ 1.42 $ 3.89 $ 5.09
Cash dividends declared and paid per
Class A subordinate voting or Class B
share(3)............................... $ 0.68 $ 0.68 $ 1.36 $ 1.24 $ 1.11 $ 0.22 $ 0.84 $ 0.74
Average number of Class A subordinate
voting and Class B shares outstanding
(thousands):
Basic.................................. 84,491 78,588 80,131 78,546 78,490 78,353 71,909 70,369
Diluted................................ 90,766 91,750 91,363 91,441 91,140 91,027 83,525 79,211
Cash flow from operations................ $ 812 $ 442 $ 1,029 $ 655 $ 713 $ 143 $ 359 $ 453
Capital expenditures..................... $ 274 $ 215 $ 525 $ 653 $ 859 $ 370 $ 638 $ 471
FINANCIAL POSITION
Total assets............................. $ 8,885 $ 7,739 $ 7,901 $ 7,405 $ 7,033 $ 6,102 $ 5,537 $ 3,446
Fixed assets, net........................ 3,795 3,523 3,595 3,589 3,498 2,842 2,417 1,353
Working capital.......................... 1,745 1,372 1,297 1,054 663 564 716 763
Long-term debt........................... 289 427 358 459 461 386 328 163
Shareholders' equity..................... 4,937 4,439 4,482 4,200 3,933 3,324 3,167 2,111
Capital stock............................ 2,188 1,455 1,683 1,443 1,442 1,431 1,431 1,026
Number of Class A subordinate voting and
Class B shares outstanding
(thousands)............................ 90,278 78,813 83,342 78,565 78,536 78,354 78,354 71,183
Equity per Class A subordinate voting or
Class B share.......................... $ 50.93 $ 43.22 $ 44.90 $ 40.59 $ 37.78 $ 34.78 $ 32.95 $ 25.46
---------------
(1) Changes in Accounting Policies
[a] Applied prospectively
As more fully described in note 2[B] to Magna's June 30, 2002 unaudited
interim consolidated financial statements, Magna has prospectively
adopted the new requirements of The Canadian Institute of Chartered
Accountants ("CICA") on business combinations ("CICA 1581") and goodwill
and other intangible assets ("CICA 3062"). CICA 1581 requires that all
business combinations initiated after June 30, 2001 be accounted for
using the purchase method of accounting. CICA 3062 requires the
application of the non-amortization rules and new impairment rules for
existing goodwill and intangible assets which meet the criteria for
indefinite life, beginning with fiscal years starting after
December 15, 2001. Magna completed its initial review of goodwill
impairment in June of 2002. Based on this review, Magna recorded a
goodwill writedown of $51 million, of which $42 million was charged
against January 1, 2002 opening retained earnings and $9 million has
been reflected as a reduction in the opening minority interest. Magna
has performed the required impairment test for indefinite life
intangibles, represented by racing licenses held by Magna Entertainment
Corp., and has determined that no impairment charge is required. For
comparative
14
purposes, Magna has presented adjusted net income and adjusted earnings
per Class A subordinate voting or Class B share for periods prior to
January 1, 2002 assuming that goodwill and indefinite life intangible
assets had not been amortized.
[b] Applied retroactively
(i) As more fully described in note 2[a] to Magna's June 30, 2002
unaudited interim consolidated financial statements, Magna
retroactively adopted new CICA recommendations on foreign currency
translation effective January 1, 2002. For periods prior to
January 1, 2002, amounts have been restated to eliminate the
deferral and amortization method for unrealized translation gains
and losses on long-term monetary assets and liabilities. Unrealized
translation gains and losses on long-term monetary assets and
liabilities are now reflected in income.
(ii) As more fully described in note 2 to Magna's December 31, 2001
audited consolidated financial statements, effective January 1,
2001, Magna adopted new CICA recommendations on earnings per share
on a retroactive basis. The most significant change under the new
recommendations is the use of the "treasury stock method" instead
of the "imputed earnings approach" in computing diluted earnings
per share. For periods prior to January 1, 2001, earnings per share
have been restated to reflect Magna's new accounting policy.
(iii) As more fully described in note 2 to Magna's December 31, 2000
audited consolidated financial statements, effective January 1,
2000, Magna retroactively changed its Canadian GAAP accounting
policy for preproduction costs to be consistent with the United
States Emerging Issues Task Force consensus on Issue 99-5
("EITF 99-5") on accounting for preproduction costs related to
long-term supply agreements and the American Institute of Certified
Public Accountants Statement of Position 98-5 on reporting on the
costs of start up activities. For periods prior to January 1, 2000,
amounts have been restated to reflect Magna's new accounting
policy.
(iv) As more fully described in the significant accounting policies to
Magna's December 31, 1998 audited consolidated financial
statements, Magna changed its fiscal year end from July 31 to
December 31 and changed its reporting currency to the U.S. dollar
effective December 31, 1998. In accordance with Canadian GAAP, for
periods up to and including December 31, 1998, Magna's consolidated
financial statements were restated in U.S. dollars using the
December 31, 1998 exchange rate of Cdn$1.5305 per U.S.$1.00.
(2) Other income includes dilution gains and losses relating to the sale of
shares of Magna's public subsidiaries and gains on the sale of other
investments. See note 4 to Magna's June 30, 2002 unaudited interim
consolidated financial statements, note 3 to Magna's December 31, 2001
audited consolidated financial statements and notes 3 and 4 to Magna's
July 31, 1998 audited consolidated financial statements.
(3) Cash dividends declared and paid per Class A subordinate voting or Class B
share for the year ended December 31, 2000 exclude the special stock
dividend paid by Magna consisting of shares of Magna Entertainment Corp. See
note 5 to Magna's December 31, 2000 audited consolidated financial
statements.
15
U.S. GAAP
The table below presents selected financial information prepared in
accordance with U.S. GAAP.
FIVE
MONTHS
SIX MONTHS ENDED ENDED YEARS ENDED
JUNE 30, YEARS ENDED DECEMBER 31, DEC. 31, JULY 31,
------------------- ------------------------------ --------- -------------------
2002 2001 2001 2000 1999 1998 1998 1997
-------- -------- -------- -------- -------- --------- -------- --------
(U.S. DOLLARS IN MILLIONS, EXCEPT PER SHARE FIGURES)
OPERATIONAL DATA
Total Sales.............................. $ 6,359 $ 5,624 $10,884 $10,452 $ 9,447 $ 3,382 $ 6,432 $ 5,621
Operating income......................... 550 429 703 622 687 171 400 464
Net income before cumulative catch-up
adjustments............................ 307 306 473 545 433 112 295 430
Cumulative catch-up adjustments(1),(2)... (42) -- -- (69) -- -- -- --
Net income............................... 265 306 473 476 433 112 295 430
Earnings per Class A subordinate voting
or Class B share:
Basic.................................. $ 3.14 $ 3.89 $ 5.91 $ 6.06 $ 5.52 $ 1.43 $ 4.10 $ 6.11
Diluted................................ $ 2.85 $ 3.52 $ 5.67 $ 5.64 $ 4.70 $ 1.35 $ 4.03 $ 5.66
Adjusted net income(1)................... n/a 315 492 492 445 122 310 438
Adjusted diluted earnings per Class A
subordinate voting or Class B share:
Basic(1)............................... n/a $ 4.00 $ 6.15 $ 6.26 $ 5.68 $ 1.56 $ 4.31 $ 6.22
Diluted(1)............................. n/a $ 3.62 $ 5.88 $ 5.81 $ 4.84 $ 1.46 $ 4.21 $ 5.76
FINANCIAL POSITION
Total assets............................. $ 8,910 $ 7,770 $ 7,938 $ 7,424 $ 7,168 $ 6,188 $ 5,682 $ 3,865
Working capital.......................... 1,674 1,287 1,201 1,014 654 555 714 843
Long-term debt........................... 612 1,537 1,094 1,568 1,463 1,030 963 513
Shareholders' equity..................... 4,567 3,384 3,708 3,164 3,006 2,763 2,646 2,045
Capital stock............................ 2,347 1,602 1,846 1,583 1,583 1,571 1,571 1,149
Equity per Class A subordinate voting or
Class B share.......................... $ 50.59 $ 42.93 $ 44.49 $ 40.27 $ 38.28 $ 35.25 $ 33.77 $ 28.73
---------------
(1) As more fully described in note 2 of Magna's Report on Form 6-K dated
August 29, 2002 Magna has prospectively adopted the new U.S. GAAP
requirements on business combinations ("FAS 141") and goodwill and other
intangible assets ("FAS 142"). The principles of FAS 141 and 142 are the
same as CICA 1581 and CICA 3062 described previously. Under U.S. GAAP, the
net goodwill writedown of $42 million arising from the initial review of
goodwill impairment under FAS 142 has been applied as a cumulative catch-up
adjustment as of January 1, 2002. In addition, for comparative purposes,
Magna has presented adjusted net income and adjusted earnings per Class A
subordinate voting or Class B share under U.S. GAAP for periods prior to
January 1, 2002 assuming that goodwill and indefinite life intangible assets
had not been amortized.
(2) As more fully described in notes 24(d) and (e) to Magna's December 31, 2001
audited consolidated financial statements, the cumulative catch-up
adjustments as of January 1, 2000 relate to the initial adoption of
EITF 99-5 and Securities and Exchange Commission Staff Accounting Bulletin
No. 101 for U.S. GAAP purposes.
COMPARATIVE PER SHARE DATA
Set forth below are earnings, cash dividends declared and book value per
share data for Magna and Donnelly on a historical basis. In addition, unaudited
pro forma combined and pro forma equivalent information is presented for
illustrative purposes only to aid you in your analysis of the merger and has
been prepared on the basis of presentation described in the footnotes to the
following table. The pro forma combined earnings per Class A subordinate voting
and Class B shares do not include purchase accounting adjustments related to
Magna's acquisition of Donnelly in accordance with U.S. GAAP, and accordingly
are not based on pro forma information prepared in accordance with Article 11 of
Regulation S-X. The unaudited pro forma information is not necessarily
indicative of the results of operations that would have resulted had the merger
taken place at the beginning of the respective periods. The information set
forth below, which is presented in accordance with U.S. GAAP, should be read in
conjunction with the respective audited and unaudited financial statements of
16
Magna and Donnelly and Magna's Form 6-K dated August 29, 2002, incorporated by
reference in this prospectus/proxy statement.
AT OR FOR THE SIX AT OR FOR THE YEAR
MONTHS ENDED ENDED
JUNE 30, 2002 DECEMBER 31, 2001
----------------- ------------------
(U.S. DOLLARS)
DONNELLY--HISTORICAL
Earnings per share of common stock:
Basic..................................................... $ 1.15 $ 0.25
Diluted................................................... 1.14 0.25
Cash dividends declared per share........................... 0.20 0.40
Book value per Donnelly share............................... $12.72 $10.74
MAGNA--HISTORICAL
Earnings per Class A subordinate voting or Class B share:
Basic..................................................... $ 3.14 $ 5.91
Diluted................................................... 2.85 5.67
Cash dividends declared per Class A subordinate voting or
Class B share............................................. 0.68 1.36
Book value per Class A subordinate voting or Class B
share..................................................... $50.59 $44.49
PRO FORMA COMBINED
Earnings per Class A subordinate voting or Class B share:
Basic(1).................................................. $ 3.08 $ 5.57
Diluted(1)................................................ 2.82 5.39
Cash dividends declared per Class A subordinate voting or
Class B share(2).......................................... 0.68 1.36
Book value per Class A subordinate voting or Class B
share(3).................................................. $51.17 $45.48
PRO FORMA EQUIVALENT--DONNELLY(4)
Earnings per common stock:
Basic..................................................... $ 1.41 $ 2.56
Diluted................................................... 1.29 2.47
Cash dividends declared per common stock.................... 0.31 0.62
Book value per common stock................................. $23.49 $20.88
------------
(1) The pro forma combined earnings per Class A subordinate voting or Class B
share represents the sum of the U.S. GAAP earnings of Donnelly and Magna for
the respective periods divided by the sum of the average number of Magna's
Class A subordinate voting and Class B shares outstanding and approximately
5.3 million Magna Class A subordinate voting shares assumed to be issued in
exchange for Donnelly common stock based on the twenty trading day average
trading price of Magna Class A subordinate voting shares ended on
August 28, 2002 of $59.86, and an exchange ratio of 0.459.
(2) Under Magna's Corporate Constitution, Magna is required to distribute, on
average, not less than 20 percent of its annual net profit after tax to
shareholders. Given the level of the Pro Forma Combined net profit after
tax, the cash dividends paid by Magna per Class A subordinate voting or
Class B share for the year ended December 31, 2001 and the six month period
ended June 30, 2002 would not have been affected by the acquisition of
Donnelly.
(3) The pro forma combined book value per Class A subordinate voting or Class B
share represents the sum of the U.S. GAAP net asset value of Magna
attributable to the Class A subordinate voting or Class B shares and the
amount of $322 million ascribed to the Magna Class A subordinate voting
shares assumed to be issued in exchange for Donnelly common stock divided by
the sum of the number of Magna's Class A subordinate voting and Class B
shares and 5.3 million Magna Class A subordinate voting shares to be issued
in exchange for Donnelly common stock.
(4) The pro forma equivalent information represents the pro forma combined
amounts set out above multiplied by the exchange ratio of 0.459 described in
note (1) above.
17
MARKET PRICE
The following table reflects:
- the range of the reported high and low sale prices of Magna Class A
subordinate voting shares on the New York Stock Exchange Composite Tape
and the per share dividends paid thereon and
- the range of the reported high and low sale prices of shares of Donnelly
Class A common stock on the New York Stock Exchange and the per share
dividends paid thereon, in each case for the calendar quarters indicated.
MAGNA DONNELLY
-------------------------------- ------------------------------
CALENDAR PERIOD HIGH LOW DIV. HIGH LOW DIV.
--------------- -------- ---------- -------- -------- -------- --------
1999
First Quarter.............................. 63.0000 55.6875 0.22 15.25 12.13 0.10
Second Quarter............................. 64.9375 56.3750 0.39 17.50 12.88 0.10
Third Quarter.............................. 60.7500 48.4375 0.25 17.25 14.00 0.10
Fourth Quarter............................. 51.1250 40.0625 0.25 15.13 13.00 0.10
2000
First Quarter.............................. 50.3125 38.1875 0.30 14.19 11.75 0.10
Second Quarter............................. 52.8750 39.6250 0.30 15.00 11.75 0.10
Third Quarter.............................. 51.5000 41.7500 0.30 15.90 12.22 0.10
Fourth Quarter............................. 47.0625 37.8125 0.34 15.25 11.55 0.10
2001
First Quarter.............................. 49.4700 40.4375 0.34 14.45 12.55 0.10
Second Quarter............................. 62.3700 44.6400 0.34 14.45 13.06 0.10
Third Quarter.............................. 69.1500 45.5000 0.34 16.20 13.61 0.10
Fourth Quarter............................. 65.8200 50.1400 0.34 14.15 12.80 0.10
2002
First Quarter.............................. 74.5000 59.2200 0.34 18.00 12.75 0.10
Second Quarter............................. 78.0900 64.8100 0.34 27.26 17.80 0.10
Third Quarter (through August 28, 2002).... 68.8000 53.9000 -- 27.60 23.28 --
Magna Class A subordinate voting shares are listed on the NYSE and The
Toronto Stock Exchange under the symbols "MGA" and "MG.A" respectively. On
June 24, 2002, the last full trading day prior to the announcement of the merger
agreement, the closing price per share of Magna Class A subordinate voting
shares was $66.51, as reported on the New York Stock Exchange Composite Tape.
Donnelly common stock is listed on the New York Stock Exchange under the symbol
"DON". On such date, the closing price per share of Donnelly common stock was
$20.22, as reported on the New York Stock Exchange Composite Tape. On
August 28, 2002, the most recent practicable date prior to the mailing of this
prospectus/proxy statement, the closing prices of Magna Class A subordinate
voting shares and Donnelly common stock were $63.00 and $27.12 per share,
respectively, as reported on the New York Stock Exchange Composite Tape.
Donnelly shareholders are encouraged to obtain current market quotations for
Magna Class A subordinate voting shares and Donnelly common stock. To obtain
Magna Class A subordinate voting shares quotations and the exchange ratio, call
toll free 1-800-245-7630.
Magna has applied for the listing on the New York Stock Exchange and The
Toronto Stock Exchange of the Magna Class A subordinate voting shares to be
issued in the merger. The New York Stock Exchange has approved the listing of
these shares and The Toronto Stock Exchange has conditionally approved the
listing of these shares, subject to certain customary conditions.
18
RECENT CLOSING PRICES
The following table sets forth the closing prices per Magna Class A
subordinate voting share and per share of Donnelly Class A common stock as
reported on the NYSE Composite Transaction Tape on June 24, 2002, the last full
trading day prior to the announcement of the merger agreement, and August 28,
2002, the most recent practicable date prior to the mailing of this
prospectus/proxy statement to Donnelly's shareholders. This table also sets
forth the equivalent price per share of Donnelly Class A common stock on those
dates. The equivalent price per share is equal to the closing price of a Magna
Class A subordinate voting share on the applicable date multiplied by the
applicable exchange ratio in the merger, based on the average of the high and
low prices for each trading day of Magna Class A subordinate voting shares on
the NYSE over a twenty trading day period ending on such date. These prices will
fluctuate prior to the special meeting and the merger, and shareholders are
urged to obtain current market quotations prior to making any decision with
respect to the merger.
DONNELLY CLASS A
MAGNA CLASS A COMMON STOCK
SUBORDINATE DONNELLY CLASS A PER SHARE
VOTING SHARES COMMON STOCK EQUIVALENT
-------------- ----------------- -----------------
June 24, 2002......................................... $66.51 $20.22 $27.27(1)
August 28, 2002....................................... $63.00 $27.12 $28.92(2)
------------
(1) Reflects an exchange ratio of .410 multiplied by the closing price of a
Magna Class A subordinate voting share on June 24, 2002.
(2) Reflects an exchange ratio of .459 multiplied by the closing price of a
Magna Class A subordinate voting share on August 28, 2002.
19
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
Certain information included or incorporated by reference in this
prospectus/proxy statement may be deemed to be "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. All statements,
other than statements of historical facts, that address activities, events or
developments that Donnelly or Magna intends, expects, projects, believes or
anticipates will or may occur in the future are forward-looking statements. Such
statements are characterized by terminology such as "believe", "hope",
"anticipate", "should", "intend", "plan", "will", "expect", "estimate",
"project", "positioned", "strategy", and similar expressions. These statements
are based on assumptions and assessments made by Donnelly management or Magna
management in light of their experience and their perception of historical
trends, current conditions, expected future developments and other factors they
believe to be appropriate. Any forward-looking statements are not guarantees of
future performance and are subject to a number of risks and uncertainties, that
could cause actual results, developments and business decisions to differ
materially from those contemplated by such forward-looking statements. Magna and
Donnelly disclaim any duty to update any forward-looking statement. Some of the
factors that may cause actual results, developments and business decisions to
differ materially from those contemplated by such forward-looking statements
include the risk factors set forth below.
20
RISK FACTORS
RISK FACTORS RELATING TO THE MERGER
IF MAGNA CLASS A SUBORDINATE VOTING SHARES TRADE BELOW $61.00, THE VALUE OF THE
CONSIDERATION RECEIVED BY DONNELLY SHAREHOLDERS IN THE MERGER MAY BE BELOW
$28.00 PER SHARE.
If the average of the high and low prices for each trading day of Magna
Class A subordinate voting shares on the NYSE over the twenty trading day period
ending on the second trading day preceding the merger is less than $61.00, then
the Magna Class A subordinate voting shares that you will receive in the merger
would likely have a value of less than $28.00 per share of Donnelly common
stock. The closing price of Magna Class A subordinate voting shares on the NYSE
on August 28, 2002, the last trading day prior to the printing of this
prospectus/proxy statement was $63.00.
THE PRICE PER MAGNA CLASS A SUBORDINATE VOTING SHARE AT THE EFFECTIVE TIME OF
THE MERGER MAY BE LESS THAN THE AVERAGE TRADING PRICE USED TO ESTABLISH THE
EXCHANGE RATIO.
The exchange ratio establishing the fraction of a Magna Class A subordinate
voting share into which each share of Donnelly common stock will be converted
will be determined by the average of the high and low prices for each trading
day of Magna Class A subordinate voting shares on the NYSE over the twenty
trading day period ending on the second trading day immediately preceding the
merger. It is possible that the market price of Magna Class A subordinate voting
shares at the effective time of the merger will be higher or lower than the
average price on which the exchange ratio was based. If this is the case, the
value of the consideration to be received by Donnelly shareholders will be more
or less than the average price on which the exchange ratio was based, depending
on the direction of the price movement. There can be no assurance that the price
of Magna Class A subordinate voting shares will not decline from the prices used
in the calculation of the exchange ratio.
AS A MAGNA CLASS A SUBORDINATE VOTING SHAREHOLDER YOU WILL HAVE DIFFERENT
RIGHTS THAN AS A DONNELLY SHAREHOLDER.
Magna is organized under the laws of the Province of Ontario, Canada and
Donnelly is organized under the laws of the State of Michigan. If the merger is
consummated, you will become a holder of Magna Class A subordinate voting shares
and your rights will be governed by Ontario law and the articles and by-laws of
Magna, rather than Michigan law and the charter and by-laws of Donnelly. See
"Comparison of Shareholder Rights".
The enforcement by investors of civil liabilities under the U.S. federal
securities laws or under Ontario laws may be affected adversely by the fact that
Magna is organized under the laws of a foreign country, that substantially all
of Magna's directors and executive officers are residents of a foreign country
and that a substantial portion of the assets of Magna and its directors and
executive officers are located outside the United States.
MAGNA MAY NOT REALIZE ALL THE ANTICIPATED BENEFITS OF THE MERGER.
The success of the merger will depend, in part, on the ability of Magna to
realize the anticipated synergies and growth opportunities from integrating
Donnelly's and Magna's businesses. Magna's success in realizing these benefits
and the timing of this realization depend upon the successful integration of the
operations of Donnelly. We cannot assure you that the merger will result in the
realization of the full benefits we anticipate.
DIRECTORS OF DONNELLY HAVE POTENTIAL CONFLICTS OF INTEREST THAT MAY HAVE
INFLUENCED THEIR RECOMMENDATION.
Certain members of Donnelly's board of directors and executive officers have
interests in the merger that are in addition to their general interests as
Donnelly shareholders. As described below, the merger will constitute a change
in control of Donnelly for purposes of determining the entitlement of certain
Donnelly executive officers to certain severance and other benefits. In
addition, each member of Donnelly's board of directors will have the right to
receive certain accelerated deferred compensation and accelerated pension
benefits as a result of the merger. These interests may have influenced these
directors in making their recommendation that you vote in favor of the merger.
See "The Merger--Interests of Certain Persons in the Merger".
21
A SHAREHOLDER OF DONNELLY HAS INITIATED LEGAL PROCEEDINGS TO STOP OR DELAY
THE MERGER.
An individual who purports to represent the class of Donnelly shareholders
has initiated a class action lawsuit on behalf of all holders of Donnelly common
stock. The lawsuit, which names Donnelly, its directors, Magna and Magna Mirrors
Acquisition Corp., as defendants, alleges that Donnelly's board violated
fiduciary duties to Donnelly's shareholders and that Magna aided and abetted the
breach. The lawsuit also alleges a failure to disclose all material information
about the merger. Both Donnelly and Magna believe that the plaintiff's claims
are completely without merit and intend to defend the action vigorously;
however, the lawsuit could result in the delay or abandonment of the merger.
RISKS RELATED TO THE AUTOMOTIVE INDUSTRY
AN ECONOMIC DOWNTURN COULD REDUCE PROFITABILITY.
Magna's automotive operations are directly related to levels of global
automotive production. The global automotive industry is cyclical and is
sensitive to changes in certain economic conditions such as interest rates and
consumer demand. The rate of overall economic growth in North America slowed
significantly in 2001, partially due to the events of September 11. North
America, Europe and the rest of the world continue to face significant economic
uncertainty. A decline in consumer demand for automobiles as a result of a loss
of confidence in the economy, interest rate increases or other factors could
prompt automobile manufacturers to cut production volumes. Any material decline
in production volumes in either of Magna's North American or European markets
would significantly lower Magna's profit margins.
MAGNA FACES INCREASING PRICE REDUCTION PRESSURES FROM CUSTOMERS THAT COULD
REDUCE PROFIT MARGINS.
Magna has in the past entered into, and will continue to enter into,
long-term supply arrangements with automobile manufacturers which provide for,
among other things, price concessions over the supply term. To date, these
concessions have been largely offset by cost reductions arising principally from
product and process improvements and price reductions from Magna's suppliers.
However, the competitive automotive industry environment in both North America
and Europe has caused these pricing pressures to intensify. From time to time,
some of Magna's largest customers have demanded additional price reductions
which could have an adverse impact on future profit margins, although these
price reductions have not been material to date. In addition, Magna expects that
customers will use various electronic commerce initiatives such as Covisint, an
e-business exchange providing product development, procurement and supply chain
tools to the automotive industry as well as Internet-based auctions, in order to
further reduce their costs. These electronic commerce initiatives are still in
the early stages of implementation and their full effect on the prices of
products and services Magna sells to automobile manufacturers and on the costs
of products and services Magna obtains from suppliers is uncertain. Magna may
not continue to be successful in offsetting price reductions agreed to from time
to time with automobile manufacturers. To the extent that these price reductions
are not offset through cost reductions, future profit margins would be adversely
affected.
MAGNA'S CUSTOMERS INCREASINGLY REQUIRE IT TO ABSORB MORE FIXED COSTS IN UNIT
PRICING, WHICH COULD REDUCE PROFITABILITY.
Magna is under increasing pressure to absorb more costs related to product
design, engineering and tooling as well as other items previously paid for
directly by automobile manufacturers. In particular, some automobile
manufacturers have requested that Magna pay for design, engineering and tooling
costs that are incurred up to the start of production and recover these costs
through amortization in the piece price of the applicable component. Contract
volumes for customer programs not yet in production are based on customers'
estimates of their own future production levels by vehicle body type. However,
actual production volumes may vary significantly from these estimates due to a
reduction in consumer demand or new product launch delays, often without any
compensation to Magna by its customers. Magna does not typically rely solely on
customer estimates, but re-evaluates their estimates based on its own assessment
of future production levels by vehicle body type. For programs currently under
production, Magna is typically not in a position to request price changes when
volumes differ significantly from production estimates used during the quotation
stage. If estimated production volumes are not achieved or programs are
cancelled by the automobile manufacturers, the design, engineering and tooling
costs incurred by Magna may not be fully recovered. Similarly, future pricing
pressure or volume reductions by customers could also reduce the amount of
amortized costs otherwise
22
recoverable in the unit price of Magna's products. Although these factors have
not been material to date, either of these factors could have an adverse effect
on Magna's profitability.
MAGNA IS INCREASINGLY REQUESTED TO ASSUME PRODUCT WARRANTY, RECALL AND PRODUCT
LIABILITY COSTS, WHICH COULD HAVE A NEGATIVE EFFECT ON ITS OPERATIONS AND
FINANCIAL CONDITION.
Automobile manufacturers are increasingly requesting that each of their
suppliers bear the costs of the repair and replacement of defective products
which are either covered under the automobile manufacturer's warranty or are the
subject of a recall by the automobile manufacturer and which were improperly
designed, manufactured or assembled by their suppliers. The obligation to repair
or replace such parts, or a requirement to participate in a product recall,
could have an adverse effect on Magna's operations and financial condition.
Magna is also subject to the risk of exposure to product liability claims in
the event that the failure of Magna's products results in bodily injury and/or
property damage. Magna may experience material product liability losses in the
future and may incur significant costs to defend such claims. Magna currently
has product liability coverage under its insurance policies. This coverage will
continue until August 2002, subject to renewal on an annual basis. In addition,
some of Magna's European subsidiaries maintain product recall insurance, which
is required by law in certain jurisdictions. Magna cannot guarantee that Magna's
coverage will continue to be available at premiums and on other acceptable
terms. A successful claim brought against Magna in excess of its available
insurance coverage may have a material effect on its operations or financial
condition.
MAGNA IS DEPENDENT ON OUTSOURCING BY NORTH AMERICAN AND EUROPEAN AUTOMOBILE
MANUFACTURERS.
Magna is dependent on outsourcing by North American and European automobile
manufacturer customers. The extent of this outsourcing is dependent on a number
of factors, including:
- the cost, quality and timeliness of external production relative to
in-house production by automobile manufacturers;
- relative technological capability;
- the degree of unutilized capacity at automobile manufacturers' facilities;
- collective bargaining agreements between labor unions and automobile
manufacturers; and
- relations between labor unions and automobile manufacturers.
Any significant decrease in outsourcing by automobile manufacturers would
have an adverse effect on Magna's profitability.
TECHNOLOGICAL AND REGULATORY CHANGES MAY ADVERSELY AFFECT MAGNA.
Changes in competitive technologies or regulatory or industry requirements
may render some of Magna's products obsolete. Magna's ability to anticipate
changes in technology and regulatory or industry requirements and to develop and
introduce new and enhanced products successfully on a timely basis will be a
significant factor in its ability to grow and remain competitive. Magna may not
be able to anticipate or achieve the technological advances necessary for, or to
comply with regulatory or industry requirements in a manner which will allow, it
to remain competitive and prevent its products from becoming obsolete. Magna is
also subject to the risks generally associated with new product introductions
and applications, including lack of market acceptance, delays in product
development and failure of products to operate properly. Any of these changes
could have an adverse effect on Magna's operations and financial condition.
CRUDE OIL PRICE INCREASES COULD REDUCE GLOBAL DEMAND FOR AUTOMOBILES AND
INCREASE COSTS, RESULTING IN LOWER PROFITS.
Material increases in the price of crude oil have, historically, been a
contributing factor to the overall reduction in the global demand for
automobiles. A significant increase in the price of crude oil could reduce
global demand for automobiles and shift customer demand away from larger cars
and light trucks (including sports utility vehicles) in which Magna has
relatively higher content. Oil-based products are also critical elements in
various components used by Magna and its suppliers, including resins, colorants
and polymers. Material increases in the price of crude oil, natural gas or in
energy would likely increase the cost of manufacturing or
23
supplying some of Magna's products and it may not be able to pass these
increased costs along to customers, thereby reducing Magna's profits.
RISKS RELATING TO MAGNA'S BUSINESS
DECREASES IN PRODUCTION VOLUMES OF SPECIFIC VEHICLES OR PRODUCTS BY CUSTOMERS
COULD HAVE AN ADVERSE EFFECT ON PROFITABILITY.
Although Magna supplies parts to most of the leading automobile
manufacturers, the majority of its sales are to three automobile manufacturers.
Magna's worldwide sales to DaimlerChrysler, General Motors and Ford represented
approximately 29%, 24% and 19%, respectively, of its total consolidated
automotive sales in calendar 2001. Moreover, while Magna supplies parts for a
wide variety of vehicles produced in North America and Europe, it does not
supply parts for all vehicles produced, nor is the number or value of parts
evenly distributed among the vehicles for which it does supply parts. In
particular, in calendar 2001, approximately 25% of Magna's consolidated
automotive sales were generated by products supplied for inclusion in five
vehicle types. Products supplied for the DaimlerChrysler minivan constituted
approximately 9% of Magna's consolidated automotive sales for that period.
There has been an industry trend toward more "brand hopping" among consumers
in recent years, with consumers' preferences changing relatively quickly and
dramatically in some instances. Shifts in market share among vehicles could have
an adverse effect on Magna's sales and on profit margins. The contracts Magna
has entered into with many of its customers are to supply a customer's
requirements for all the vehicles it produces in a particular model, rather than
for manufacturing a set quantity of products. These contracts range from one
year to the life of a model, usually several years, and do not require the
purchase by the customer of any minimum number of parts.
In addition, the early termination, loss, renegotiation of the terms or
delay in the implementation of any significant production contract with any of
Magna's customers could reduce its profitability. Any changes in the anticipated
production volume of Magna's products, particularly those supplied for the
DaimlerChrysler minivan, as a result of any of the above factors could reduce
profitability.
RECENT UNIONIZATION DRIVES AT SOME OF MAGNA'S PLANTS MAY INCREASE COSTS.
The CAW and UAW have in the past mounted a number of major organizing drives
at certain Magna facilities. As a result of the most recent organizing drives,
Magna's Intier Automotive Inc. subsidiary concluded collective bargaining
agreements covering employees of Intier's Integram Windsor division in Ontario
and its Ontegra Brighton division in Michigan. These collective bargaining
agreements recognize Magna's operating principles, including its Employee
Charter. If Magna is successful in operating these plants with these forms of
collective bargaining agreements it will examine whether to extend these forms
of agreements to any other plants in Ontario and Michigan if employees at these
plants vote in favor of unionization in the future. Magna is unable to predict
what impact unionization will have on costs. In addition, the CAW and the UAW
have in the past attempted to pressure some of Magna's automobile manufacturer
customers to encourage their suppliers to assume a neutral position with respect
to unionization at their plants. Currently, the employees of one of Magna's
divisions in Canada and three of its divisions in the United States are
represented by unions.
MAGNA'S OPERATIONS MAY BE ADVERSELY IMPACTED BY WORK STOPPAGES AND OTHER LABOR
RELATIONS MATTERS.
If Magna's hourly workforce becomes more unionized in the future, it may be
subject to work stoppages and may be affected by other labor disputes. To date,
Magna has not experienced any work stoppages, nor has it experienced any
disputes with unions that have had a material adverse effect on its operations.
However, future disputes with labor unions may not be resolved in Magna's favor
and it may experience significant work stoppages in the future, causing it to
incur significant expenses.
24
MAGNA MAY NOT BE ABLE TO COMPETE SUCCESSFULLY WITH SOME COMPETITORS THAT HAVE
SUBSTANTIALLY GREATER MARKET SHARE.
The automotive parts supply market is highly competitive. Magna faces
competition from a number of sources, including:
- its automobile manufacturing customers (and their related parts
manufacturing organizations);
- existing and new suppliers to these manufacturers; and
- manufacturers of product alternatives.
Some of Magna's competitors have substantially greater market shares than it
and are dominant in the markets in which Magna operates. Magna may not be able
to compete successfully with existing competitors or with any new competitors.
PROGRAM CANCELLATIONS, DELAYS IN PROGRAM LAUNCHES OR DELAYS IN THE CONSTRUCTION
OF NEW FACILITIES REQUIRED FOR PROGRAM LAUNCHES COULD REDUCE PROFITABILITY.
From time to time, Magna expands its production capacity through the
construction of new manufacturing facilities. New facilities are often required
to accommodate the award of new business from customers or to facilitate the
introduction of new manufacturing processes or technologies. However, the
construction of new facilities involves a number of areas of operational and
financial risks. For example, construction delays associated with poor weather,
labor disruptions, cost overruns, shortages of construction materials and delays
associated with the installation, testing and start-up of new production
equipment or manufacturing processes could reduce profitability. In addition,
new production programs may be cancelled at any time by automobile
manufacturers, including during construction of a new facility or soon after
program launch. Since many new facilities are constructed to accommodate the
launch of new customer production programs, the cancellation of a new program,
the customer's inability to launch a new program, or the inability of Magna or
any other supplier to support the launch of a new program, could negatively
impact Magna's customer and/or supplier relationships as well as expose it to
reimbursement claims by customers and/or suppliers for costs arising out of such
delays and could adversely affect Magna's operations and future profitability.
CHANGES IN LAWS AND GOVERNMENTAL REGULATIONS COULD HAVE AN ADVERSE EFFECT ON
MAGNA'S OPERATIONS.
A significant change in the current regulatory environment in which Magna
carries on business could adversely affect its operations. Magna's operations
could be adversely impacted by significant changes in tariffs and duties imposed
on its products, particularly significant changes to the North American Free
Trade Agreement.
MAGNA MAY BE ADVERSELY AFFECTED BY THE ENVIRONMENTAL AND SAFETY REGULATIONS TO
WHICH IT IS SUBJECT.
Magna is subject to a wide range of environmental laws and regulations
relating to air emissions, wastewater discharge, waste management and storage of
hazardous substances. It is also subject to environmental laws requiring
investigation and clean-up of environmental contamination and is in various
stages of investigation and clean-up at its manufacturing facilities where
contamination has been alleged. Estimating environmental clean-up liabilities is
complex and heavily dependent on the nature and extent of historical information
and physical data relating to the contaminated site, the complexity of the
contamination, the uncertainty of which remedy to apply and the outcome of
discussions with regulatory authorities relating to the contamination. In
addition, these environmental laws and regulations are complex, change
frequently and have tended to become more stringent and expensive over time.
Therefore, Magna may not have been, and in the future may not be, in complete
compliance with all such laws and regulations, and Magna may incur material
costs or liabilities as a result of such laws and regulations significantly in
excess of amounts it has reserved.
FLUCTUATIONS IN RELATIVE CURRENCY VALUES COULD ADVERSELY AFFECT MAGNA'S
PROFITABILITY.
Although Magna's financial results are reported in U.S. dollars, a
significant portion of its sales and operating costs are realized in Canadian
dollars, Euros, the British Pound and other currencies. Significant long-term
fluctuations in relative currency values may adversely affect Magna's
profitability. In particular, profitability may be adversely affected by a
significant strengthening of the U.S. dollar against the Canadian dollar, the
Euro, the British Pound or other currencies in which Magna generates revenues.
25
RISKS RELATING TO MAGNA'S STRUCTURE
MAGNA IS CONTROLLED BY A CONTROLLING SHAREHOLDER.
Holders of Magna Class A subordinate voting shares and Class B shares
generally vote together as a single class, with the holders of Magna Class A
subordinate voting shares entitled to one vote per share and the holders of
Magna Class B shares entitled to 500 votes per share. Based on the number of
shares outstanding as of July 31, 2002, the Magna Class B shares carry in the
aggregate approximately 86% of the total votes attaching to the Class A
subordinate voting shares and Class B shares and, accordingly, holders of the
Magna Class B shares control Magna. The Stronach Trust controls Magna through
the right to direct the votes attaching to Magna Class B shares carrying a
majority of the votes attaching to the outstanding voting shares of Magna.
Mr. Frank Stronach, founder and Chairman of Magna, Ms. Belinda Stronach,
President and Chief Executive Officer of Magna and two other members of the
Stronach family are the trustees of the Stronach Trust. Frank Stronach and
Belinda Stronach are also members of the class of potential beneficiaries of the
Stronach Trust.
Under current law and the attributes of the Magna Class B shares and the
Magna Class A subordinate voting shares, neither a tender offer to holders of
Magna Class B shares nor a private contract to purchase Magna Class B shares
(regardless of the price paid therefor) would necessarily result in an offer to
purchase Magna Class A subordinate voting shares.
See "Description of Magna Share Capital and Corporate Constitution".
THE SPECIAL MEETING
Donnelly is furnishing this prospectus/proxy statement to Donnelly's
shareholders as part of the solicitation of proxies by Donnelly's board of
directors for use at Donnelly's special meeting of shareholders.
DATE, TIME AND PLACE OF THE SPECIAL MEETING
The special shareholders' meeting will be held on Monday, September 30,
2002, at 9:00 a.m., local time, at 49 West Third Street, Holland, Michigan
49423.
PURPOSE OF THE SPECIAL MEETING
At the special meeting, Donnelly's shareholders will be asked:
- to consider and vote upon a proposal to approve the merger agreement and
the merger described in this prospectus/proxy statement; and
- to consider and act upon any other business properly brought before the
special meeting.
RECORD DATE; SHARES ENTITLED TO VOTE
Shareholders of Donnelly are entitled to vote at the special meeting if they
owned shares of Donnelly common stock as of the close of business on August 16,
2002, the record date. On the record date, there were 7,163,140 shares of
Donnelly Class A common stock and 4,038,623 shares of Donnelly Class B common
stock entitled to vote at the special meeting. Donnelly shareholders will have
one vote at the special meeting for each share of Class A common stock and ten
votes for each share of Class B common stock that they owned on the
record date.
QUORUM
A quorum will be present at the special meeting if holders of shares of
Donnelly common stock entitled to cast 23,774,685 votes, representing a majority
of the votes eligible to be cast, are represented in person or by proxy at the
special meeting. If a quorum is not present at the special meeting, Donnelly
expects to adjourn or postpone the meeting to solicit additional proxies.
Abstentions are considered as shares present and entitled to vote for the
purposes of determining the presence of a quorum.
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VOTES REQUIRED FOR APPROVAL
Pursuant to the terms of Donnelly's Second Restated and Amended Articles of
Incorporation, the merger cannot be completed unless Donnelly shareholders that
on the record date own shares entitled to cast not less than two-thirds of the
total number of votes entitled to be cast by holders of Donnelly Class A common
stock and Class B common stock, voting together as a single class, vote to
approve the merger agreement and the merger. Under the shareholders' agreement
and related irrevocable proxies, Donnelly shareholders who own or control shares
of Donnelly common stock representing in the aggregate approximately 71% of the
votes entitled to be cast by holders of Donnelly common stock at the record date
have agreed to vote for the approval of the merger agreement and the merger.
VOTING BY DONNELLY'S DIRECTORS AND EXECUTIVE OFFICERS
At the close of business on the record date, directors and executive
officers of Donnelly and their affiliates owned and were entitled to vote
approximately 844,839 shares of Donnelly Class A common stock and
1,070,384 shares of Donnelly Class B common stock, representing approximately
12% of the aggregate number of shares of Donnelly Class A common stock and
approximately 27% of the aggregate number of shares of Donnelly Class B common
stock outstanding on that date. THE DIRECTORS AND EXECUTIVE OFFICERS OF DONNELLY
HAVE INDICATED THAT THEY INTEND TO VOTE THE DONNELLY COMMON STOCK THAT THEY OWN
"FOR" APPROVAL OF THE MERGER AGREEMENT AND THE MERGER.
VOTING OF PROXIES
All shares of Donnelly common stock represented by properly executed proxies
received in time for the special meeting will be voted at the special meeting in
the manner specified by the holders of those shares. Proxies that are properly
executed by the record holder but do not contain voting instructions will be
voted as follows:
- "FOR" the approval of the merger agreement and the merger; and
- in accordance with the recommendation of Donnelly's board of directors,
"FOR" or "AGAINST" all other proposals that may properly come before the
special meeting.
Shares of Donnelly common stock represented at the special meeting but not
voted, including shares of Donnelly common stock for which proxies have been
received but for which holders of those shares have abstained, will be treated
as present at the special meeting for the purposes of determining the presence
or absence of a quorum for the transaction of all business.
Brokers who hold shares of Donnelly common stock in street name for
customers who are the beneficial owners of such shares may not give a proxy to
vote those customers' shares in the absence of specific instructions from those
customers. These non-voted shares are referred to as broker non-votes and will
be treated as present for the purpose of determining whether a quorum exists but
will be voted as an abstention.
REVOCABILITY OF PROXIES
The grant of a proxy on the enclosed proxy card does not preclude a
shareholder from voting in person at the special meeting. A shareholder may
revoke a proxy at any time prior to its exercise by filing with Donnelly's
Corporate Secretary a duly executed revocation of proxy, by submitting a duly
executed proxy to Donnelly's Corporate Secretary bearing a later date or by
appearing at the special meeting and voting in person. Attendance at the special
meeting will not itself constitute revocation of a proxy.
SOLICITATION OF PROXIES
Donnelly will bear the cost of the solicitation of proxies from its
shareholders. In addition to solicitations by mail, Donnelly directors, officers
and employees, and those of its subsidiaries and affiliates, may solicit proxies
from shareholders by telephone or other electronic means or in person. Donnelly
will cause brokerage houses and other custodians, nominees and fiduciaries to
forward solicitation materials to the beneficial owners of Donnelly common stock
held of record by such custodians, nominees and fiduciaries. Donnelly will
reimburse such custodians, nominees and fiduciaries for their reasonable
out-of-pocket expenses in doing so.
27
THE MERGER
GENERAL
We are furnishing this prospectus/proxy statement to you in connection with
the proposed merger of Donnelly with Magna Mirrors Acquisition Corp., a Michigan
corporation and wholly owned subsidiary of Magna formed for the purpose of
effecting the merger (referred to in this prospectus/proxy statement as the
"merger subsidiary"), with Donnelly surviving the merger as a wholly owned
subsidiary of Magna. This merger will be carried out as provided in the
Agreement and Plan of Merger dated as of June 25, 2002, among Magna, the merger
subsidiary and Donnelly (referred to as the "merger agreement"). A copy of the
merger agreement is attached as Annex A to this prospectus/proxy statement and
is incorporated by reference in this prospectus/ proxy statement. This
prospectus/proxy statement has been sent to you because you were a holder of
Donnelly Class A common stock or Class B common stock, par value $.10 per share,
on August 16, 2002, the record date set by the Donnelly board of directors for a
special meeting of shareholders of Donnelly to consider a proposal to approve
the merger agreement and the merger.
In the merger, each outstanding share of Donnelly common stock will be
converted into a fraction of a Magna Class A subordinate voting share equal to
the exchange ratio (as described below under "The Merger
Agreement--Consideration to be Received in the Merger; Exchange Ratio"). If the
number of Magna Class A subordinate voting shares that you would receive in the
merger includes a fraction of a Magna Class A subordinate voting share, then
rather than give you a fractional Magna Class A subordinate voting share, Magna
will instead pay you an amount in cash equal to the approximate value on the
date of the merger of that fractional interest.
This prospectus/proxy statement also constitutes a prospectus of Magna,
which is a part of the Registration Statement on Form F-4 filed by Magna with
the Securities and Exchange Commission (the "SEC") under the Securities Act of
1933, as amended, in order to register the Magna Class A subordinate voting
shares to be issued to Donnelly shareholders in the merger.
BACKGROUND OF THE MERGER
Over the last several years, Donnelly's board of directors has periodically
reviewed Donnelly's strategic alternatives for enhancing profitability and
maximizing shareholder value, giving consideration to the changes and ongoing
consolidation in the automotive supplier industry. In June 2001, Donnelly
retained Salomon Smith Barney Inc. as its exclusive financial advisor to assist
Donnelly in evaluating strategic alternatives.
On December 20, 2001, John Donnelly, Senior Vice President of Sales and
Marketing at Donnelly, and Donald Auch, Vice President Tier 1 and Engineered
Glass Systems at Donnelly, met with Volker Rudnitzki, Vice-President of Magna
Mirror Systems. At the meeting, the Donnelly representatives indicated that
Donnelly was interested in Magna switching its purchases of electrochromic cells
for its exterior automotive mirrors to Donnelly from one of Donnelly's
competitors. During the course of the meeting, Mr. Rudnitzki indicated that
Magna was evaluating its mirror business and would be interested in exploring
the possibility of a strategic relationship with Donnelly. The Donnelly
representatives arranged a meeting at Magna's office in Grand Rapids, Michigan,
to discuss possible strategic transactions between the companies. That meeting,
which was on January 28, 2002, was attended by Dwane Baumgardner, Chairman,
President and CEO of Donnelly, Mr. Donnelly, Mr. Rudnitzki and Manfred Gingl,
Executive Vice-Chairman of Magna. A wide range of possible transactions were
discussed, including the sale of electrochromic cells to Magna for its exterior
mirrors, a joint venture involving electrochromic mirrors, a joint venture of
the exterior mirror business of both companies and the possibility of Donnelly
acquiring Magna's mirror business in exchange for Donnelly stock.
Donnelly's regular Board meeting was held on February 15, 2002. The Board
was given background material on Magna and held a discussion regarding possible
strategic relationships with Magna.
On February 28, 2002, William Biggar, Executive Vice-President of Magna, and
Mr. Gingl met with Mr. Baumgardner at Donnelly's facilities in Holland,
Michigan. The discussion initially centered on a possible purchase of Magna's
mirror division by Donnelly in exchange for shares of Donnelly common stock
which could give Magna a minority ownership interest in Donnelly. The Magna
representatives indicated that Magna would need to be in a position to
eventually acquire control of Donnelly and discussed having a right to obtain a
class
28
of multiple voting stock. The Magna representatives then asked whether the
Donnelly family shareholders would consider selling some or all of their shares
or the entire company. The Donnelly representatives indicated that they would
raise this inquiry with the family shareholders.
On March 5, 2002, Mr. Baumgardner, Donn Viola, the former Chief Operating
Officer of Donnelly and now a consultant to Donnelly, and Kevin Brown,
Donnelly's Senior Vice President and Chief Financial Officer, met with
representatives of a leveraged buyout group (the "LBO Group") to discuss the
possibility of a leveraged buyout of Donnelly.
Throughout early and mid March 2002, Donnelly officers, including
Messrs. Baumgardner, Donnelly and Brown, discussed with Donnelly's financial
advisor possible strategic alternatives for Donnelly, including various
transactions with Magna, divesting certain of Donnelly's businesses and
expanding other Donnelly businesses. Donnelly's objectives were defined to
include: (i) enhancing shareholder value, including through increased liquidity;
and/or (ii) establishing a leading business base with employee and shareholder
stability.
On March 19, 2002, Mr. Baumgardner of Donnelly met with Mr. Gingl,
Mr. Biggar and Frank Stronach, Chairman of Magna, at Magna's corporate
headquarters in Aurora, Ontario. The discussion initially related to a number of
joint venture possibilities that previously had been discussed, including the
acquisition of Magna's mirror division by Donnelly in exchange for shares of
Donnelly common stock, with Magna becoming a major shareholder of Donnelly. A
transaction using different classes of stock was discussed which would provide
Magna substantial voting power and the ability to elect directors. Mr. Stronach
then proposed that Magna acquire Donnelly. Mr. Baumgardner responded that
Donnelly was not for sale and emphasized that Donnelly was positioned to be a
strong, independent company; accordingly, if Magna were interested in acquiring
Donnelly it would have to be at a significant premium. Mr. Stronach then
inquired whether the Donnelly family members would be interested in a
transaction. He suggested that based on a preliminary review of public data and
subject to financial and legal due diligence, Magna could pay up to $28.00 per
share in a stock transaction and $24.00 per share in a cash transaction or an
amount between the two figures in a combined cash and stock transaction.
Mr. Stronach noted that Magna's stock was widely traded and paid a dividend
equal to at least 20% of after-tax profits. Mr. Baumgardner indicated he would
inform the board and family shareholders of Magna's preliminary proposal and
would inquire whether there was any interest in proceeding with further
discussions.
Donnelly and Magna entered into a mutual confidentiality agreement on
March 21, 2002 so that confidential information concerning each company could be
exchanged.
Mr. Baumgardner then spoke with Mr. Biggar of Magna. In the course of
providing background information about Magna to Mr. Baumgardner for review at an
upcoming Donnelly board meeting, Mr. Biggar indicated that Magna desired to move
forward with an acquisition of Donnelly if the Donnelly family shareholders
would agree to support a transaction.
On April 19, 2002, the Donnelly board held its annual strategic planning
meeting with management. Present at a part of this meeting was Donnelly's
financial advisor. At this meeting, the board discussed Magna's preliminary
proposal and other alternatives, including operating as a stand-alone company, a
possible leveraged buyout transaction, and other strategic possibilities. The
board authorized management to make presentations to Magna and to the LBO Group.
Donnelly's management made a presentation to Magna on April 29, 2002.
Present for Donnelly were Messrs. Baumgardner, Donnelly, Brown and Niall Lynam,
Senior Vice President of Technology. Present for Magna were Messrs. Biggar and
Gingl, Mr. Jeffrey Palmer, Executive Vice-President of Magna, and
Darren Spears, Director of Financial Planning of Magna. Donnelly's management
reviewed with Magna's representatives Donnelly's current business, customers and
markets, financial performance, technology and major litigation. Magna indicated
that it was interested in exploring the possibility of a transaction
expeditiously and indicated its desire to complete preliminary due diligence in
certain areas, including pension and benefits, environmental, litigation and
intellectual property. The parties agreed that they would first provide limited
information to one another to determine the feasibility of a transaction and to
consult with their respective antitrust counsel.
29
During late April and early May 2002, Magna and Donnelly held discussions
regarding Donnelly's key technologies and the feasibility of a transaction. The
parties then agreed to exchange financial and other information.
On May 8, 2002, subsequent to the LBO Group's execution of a confidentiality
agreement, Donnelly reviewed with the LBO Group similar information relating to
Donnelly that was reviewed with Magna at Donnelly's April 29, 2002 meeting with
Magna.
On May 16, 2002, Mr. Baumgardner spoke with Mr. Biggar who stated that,
having reviewed the data provided, Magna would pay a price of $26.00 per
Donnelly share in an all-stock transaction with a fixed exchange ratio on the
date of signing, or $24.00 per Donnelly share in a cash and stock transaction
(80% stock and 20% cash). On the same date, the LBO Group informed
Mr. Baumgardner that it was interested in a leveraged buyout transaction and
that $22.00 would be its maximum offer.
Donnelly's board met again on May 17, 2002. At the meeting, Mr. Baumgardner
reviewed the proposals from Magna and the LBO Group with Donnelly's management
and legal and financial advisors. The Donnelly board, and the family directors
on behalf of their families, determined that Magna's proposal appeared to be
superior to that of the LBO Group, and authorized management to continue
discussions with Magna. Donnelly family board members agreed that they would
consult with their families regarding Magna's proposal. Confidentiality letters
to be executed by family members were provided prior to those family
discussions.
On May 24, 2002, Mr. Baumgardner and Mr. Gingl participated in a brief
telephone conversation to discuss the proposed pricing. Mr. Baumgardner
indicated that the Donnelly board and family considered the proposed $26.00 in
stock or $24.00 in cash and stock to be insufficient. During mid to late
May 2002, Donnelly's legal counsel continued its review of regulatory matters,
and began evaluating the structure of the transaction and conducting due
diligence, and Donnelly's management and financial advisor discussed with
Mr. Biggar and others at Magna the offer and general terms relating to the
proposed merger.
Mr. Biggar called Mr. Baumgardner on May 30, 2002 to indicate that Magna was
willing to increase its proposal to $28.00 per share in stock based on a
floating exchange ratio to be determined using the twenty consecutive trading
days ending shortly prior to the effective date. On May 31, 2002, Magna
presented a draft merger agreement and a draft shareholders' agreement to
Donnelly.
From May 31, 2002 to June 4, 2002, attorneys for both Magna and Donnelly
reviewed and discussed various legal matters and transaction documents.
On June 4, 2002, a special meeting of the Donnelly board of directors was
held. At this meeting, the merger agreement and major open issues were reviewed,
including the price and exchange ratio mechanism. Also at this meeting,
Donnelly's financial advisor reviewed with the board financial aspects of the
proposed merger. The board noted that the major shareholders had interest in a
possible transaction with Magna, depending on, among other things, the price and
exchange ratio mechanism. The board, including family representatives on behalf
of the family shareholders, authorized management to proceed with the ongoing
discussions with Magna.
The attorneys for both parties continued negotiating the documents
throughout early June.
On June 10 and 11, 2002, Donnelly's management and legal and financial
advisors and Magna's management and legal advisor met in Aurora, Ontario.
Donnelly's management received a management presentation from Magna regarding
its business. The parties continued negotiating the transaction documents as
well as the price and the exchange ratio, including the exchange ratio collar
mechanism.
From June 11 to June 13, 2002, after the Donnelly board of directors'
discussions with Donnelly's management and legal and financial advisors and at
the Donnelly board's direction, Donnelly's financial advisor contacted two
transaction candidates that were considered by the board to be likely strategic
purchasers to determine their interest in acquiring Donnelly. One candidate was
a company with which Donnelly's management held serious discussions concerning a
possible transaction within the prior year. Both candidates indicated they had
no interest in making an offer to acquire Donnelly.
From June 12 to 24, 2002, the parties continued to negotiate the transaction
documents and terms of the transaction.
30
Donnelly's board held two telephone conference call meetings on June 13,
2002 and June 17, 2002 to update the board on the status of the open issues and
to provide input to Donnelly's management and advisors.
On June 18, 2002, the shareholders' agreement, powers of attorney, a draft
of the proposed merger agreement and other background information and a
confidentiality letter were sent to Donnelly family shareholders with
significant holdings. Between June 20 and 24, 2002, executed signature pages of
the shareholders' agreement and powers of attorney were received from Donnelly
family shareholders controlling approximately 71% of the eligible votes.
The Donnelly board of directors met again on June 21, 2002. The legal and
financial terms of the proposed merger were reviewed in detail with Donnelly's
management and legal and financial advisors.
On June 24, 2002, the Donnelly board met telephonically and final
transaction details were discussed. Donnelly's legal advisor reviewed with the
Donnelly board the material terms of the proposed merger. Donnelly's financial
advisor reviewed with the Donnelly board its financial analysis of the exchange
ratio provided for in the merger agreement and delivered to the board its oral
opinion, which opinion was confirmed by delivery of a written opinion dated
June 24, 2002, as to the fairness, from a financial point of view, of the
exchange ratio provided for in the merger to the holders of Donnelly Class A
common stock (other than holders who have executed the shareholders' agreement
and their respective affiliates). After full discussions, the board of directors
of Donnelly determined that the merger, upon the terms and subject to the
conditions of the merger agreement, would be advantageous and beneficial to
Donnelly and its shareholders and that such transaction is consistent with and
in the furtherance of Donnelly's long-term business strategies.
Early in the morning on June 25, 2002, the merger agreement was executed. A
joint press release regarding the merger was issued prior to the opening of
trading on June 25, 2002.
DONNELLY'S REASONS FOR THE MERGER; APPROVAL OF THE DONNELLY BOARD
The Donnelly board of directors has unanimously approved the merger
agreement, determined that the merger upon the terms and subject to the
conditions of the merger agreement would be advantageous and beneficial to
Donnelly, is consistent with and in the furtherance of Donnelly's long-term
business strategies, and is fair from a financial point of view to and in the
best interests of, Donnelly's shareholders, and unanimously recommends that
Donnelly shareholders vote for the approval and adoption of the merger agreement
and approval of the merger. In the course of its deliberations, the board of
directors consulted with Donnelly's management and legal and financial advisors
and considered a number of factors, including those discussed below.
The board's decision to approve the merger agreement and the merger was
based in significant part upon the commitment of Donnelly shareholders owning
approximately 71% of the voting power to vote in favor of the merger and against
any other similar transaction, the board's evaluation of Magna, its assessment
of the strategic benefits of a merger between Donnelly and Magna, its belief
that the consideration to be received by Donnelly shareholders in the
transaction was fair from a financial point of view and the increased liquidity
for Donnelly shareholders.
Strategic benefits of the merger that the Donnelly board of directors
believes will contribute to the success of the combined entity include:
- cost reductions and operating efficiencies that may be realized by the
combined company as a result of the merger which, if realized, should
serve to make the combined company more competitive;
- utilization of the technology of both Magna and Donnelly; and
- the opportunity for improved revenue prospects with the addition of new
customers and the likelihood of obtaining greater revenue from existing
customers.
The Donnelly board of directors also considered the following factors with
respect to increasing Donnelly shareholder value:
- the fact that the merger will provide Donnelly shareholders approximately
a 38% premium compared to the closing price of Donnelly common stock on
June 24, 2002, the last trading day before the board
31
meeting at which the proposed merger was approved, so long as the value of
a Magna Class A subordinate voting share, calculated as described in "The
Merger Agreement--Consideration to be Received in the Merger; Exchange
Ratio", is not less than $61.00;
- the exchange ratio was considered fair by the board in light of the
financial condition, results of operations, businesses, prospects,
relative contribution and stock price performance of Donnelly and Magna
and the historical relationship of the ratio of stock prices;
- the value of Magna stock to be received per share of Donnelly stock
compares favorably to the value of Donnelly stock measured in comparison
to other public companies' stock prices and to the amount paid in similar
transactions, in each case based on various performance metrics; and
- the likelihood of not realizing higher value through alternative business
strategies, including remaining an independent company and continuing to
execute Donnelly's existing business plan or disposing of Donnelly to
another buyer or buyers.
The Donnelly board of directors further evaluated the merits of Magna and
concluded that Magna Class A subordinate voting shares, following the merger:
- have appreciation potential in the long-term; and
- represent part of a greater market capitalization with greater trading
volume and greater liquidity as compared to that of Donnelly common stock.
In the course of its deliberations, the Donnelly board of directors also
considered a number of additional factors that were significant to its decision,
including:
- the terms of the shareholders' agreement and powers of attorney under
which holders of Donnelly's outstanding common stock representing
approximately 72%, at that time, of the aggregate voting power of all
Donnelly's outstanding common stock have committed, and have granted
irrevocable rights to Magna, to vote in favor of the merger agreement and
the merger;
- historical information concerning Magna's business, prospects, financial
performance and condition, operations, technology, management and
competitive position;
- Donnelly management's view of the financial condition, results of
operations, business and prospects of Magna before and after giving effect
to the merger;
- current financial market conditions and historical market prices,
volatility and trading information with respect to Donnelly Class A common
stock and Magna Class A subordinate voting shares and analysts' reports on
Magna;
- the opinion, dated June 24, 2002, of Salomon Smith Barney to the Donnelly
board as to the fairness, from a financial point of view and as of the
date of the opinion, of the exchange ratio provided for in the merger to
the holders of Donnelly Class A common stock (other than holders who have
executed the shareholders' agreement and their respective affiliates);
- that Magna anticipates that it will continue to operate and expand
Donnelly's business as a separate entity within the Magna group;
- the expected tax treatment of the merger permits Donnelly shareholders who
desire a long-term investment to retain Magna Class A subordinate voting
shares with no U.S. federal income tax effect. See "The Merger--Material
United States Federal Income Tax Consequences";
- the potential impact of the merger on Donnelly's customers, employees and
communities; and
- discussions with Donnelly's management and legal and financial advisors as
to the results of their due diligence investigation of Magna's business.
The Donnelly board of directors also considered risks arising in connection
with the merger, including:
- the conditions to effecting the merger, as described under "The Merger
Agreement--Conditions", and the possibility that the merger might not be
completed;
32
- the potential disruption of Donnelly's business that might result from
employee and customer uncertainty and lack of focus following announcement
of the merger;
- the effects of the public announcement of the merger on Donnelly's ability
to attract and retain key management, marketing and technical personnel
prior to the effective time;
- the risk associated with Magna Class A subordinate voting shares,
including the risk that their value might diminish prior or subsequent to
closing;
- the risk that no superior competing offer can be accepted or approved
based on certain provisions required by Magna to be included in the
shareholders' agreement and the merger agreement; and
- other risks described under the caption "Risk Factors".
In the view of the Donnelly board of directors, these risks were not
sufficient, either individually or in the aggregate, to outweigh the advantages
of the merger. Donnelly's board of directors concluded that all the foregoing
factors considered by the board, including the board's review of the terms of
the merger agreement, supported the board's recommendation of the merger.
The above discussion of the information and factors considered by the
Donnelly board of directors is not intended to be exhaustive, but is believed to
include all material factors considered by the Donnelly board of directors. In
view of the wide variety of factors, both positive and negative, considered by
the Donnelly board of directors, the Donnelly board of directors did not find it
practical to, and did not, quantify or otherwise assign relative weights to the
specific factors considered or necessarily reach a conclusion as to these
factors. Based on the totality of the information and factors considered, the
Donnelly board of directors believed and continues to believe that the merger is
in the best interests of Donnelly and its shareholders and continues to
recommend approval and adoption of the merger agreement and the merger.
MAGNA'S REASONS FOR THE MERGER
The board of directors of Magna believes that the merger is in the best
interest of Magna and its shareholders and is consistent with Magna's stated aim
of completing acquisitions that complement its portfolio of automotive
technologies and assets. The merger is expected to result in significant
operating synergies, increased vertical integration, increased customer
diversification and penetration, geographic expansion and access to significant
technology on a global basis.
OPINION OF DONNELLY'S FINANCIAL ADVISOR
Donnelly retained Salomon Smith Barney to act as its exclusive financial
advisor in connection with the proposed merger. In connection with this
engagement, Donnelly requested that Salomon Smith Barney evaluate the fairness,
from a financial point of view, of the exchange ratio provided for in the merger
to the holders of Donnelly Class A common stock (other than holders who have
executed the shareholders' agreement and their respective affiliates). On
June 24, 2002, at a meeting of the board of directors held to evaluate the
proposed merger, Salomon Smith Barney delivered to the Donnelly board of
directors an oral opinion, which opinion was confirmed by delivery of a written
opinion dated June 24, 2002, to the effect that, as of that date and based on
and subject to the matters described in the opinion, the exchange ratio was
fair, from a financial point of view, to the holders of Donnelly Class A common
stock (other than holders who have executed the shareholders' agreement and
their respective affiliates).
In arriving at its opinion, Salomon Smith Barney:
- reviewed a draft dated June 24, 2002 of the merger agreement;
- held discussions with senior officers, directors and other representatives
and advisors of Donnelly and senior officers and other representatives of
Magna concerning the businesses, operations and prospects of Donnelly and
Magna;
- examined publicly available business and financial information relating to
Donnelly and Magna;
33
- examined financial forecasts and other information and data relating to
Donnelly and publicly available financial forecasts relating to Magna,
which were provided to or otherwise discussed with Salomon Smith Barney by
the managements of Donnelly and Magna;
- reviewed the financial terms of the merger as described in the merger
agreement in relation to, among other things, current and historical
market prices and trading volumes of Donnelly Class A common stock and
Magna Class A subordinate voting shares, the financial condition and
historical and projected earnings and other operating data of Donnelly and
Magna, and the capitalization of Donnelly and Magna;
- considered, to the extent publicly available, the financial terms of other
transactions effected which Salomon Smith Barney considered relevant in
evaluating the merger;
- analyzed financial, stock market and other publicly available information
relating to the businesses of other companies whose operations Salomon
Smith Barney considered relevant in evaluating Donnelly and Magna;
- evaluated the potential pro forma financial impact of the merger on Magna;
and
- conducted other analyses and examinations and considered other financial,
economic and market criteria as Salomon Smith Barney deemed appropriate in
arriving at its opinion.
In rendering its opinion, Salomon Smith Barney assumed and relied, without
independent verification, on the accuracy and completeness of all financial and
other information and data publicly available or furnished to or otherwise
reviewed by or discussed with it. With respect to the publicly available
financial forecasts relating to Magna discussed with Magna's management, Salomon
Smith Barney assumed that those forecasts reflected reasonable estimates and
judgments as to the future financial performance of Magna. With respect to the
financial forecasts and other information and data relating to Donnelly provided
to or otherwise reviewed by or discussed with Salomon Smith Barney, Donnelly's
management advised Salomon Smith Barney that those forecasts and other
information and data were reasonably prepared on bases reflecting the best
currently available estimates and judgments of Donnelly's management as to the
future financial performance of Donnelly. Salomon Smith Barney assumed, with
Donnelly's consent, that any consummation of the merger will be effected in
accordance with its terms, without waiver, modification or amendment of any
material term, condition or agreement and that, in the course of obtaining the
necessary regulatory or third party approvals and consents for the merger, no
delay, limitation, restriction or condition will be imposed that would have an
adverse effect on Donnelly, Magna or the contemplated benefits of the merger.
Salomon Smith Barney also assumed, with Donnelly's consent, that the merger will
be treated as a tax-free reorganization for U.S. federal income tax purposes. In
addition, representatives of Donnelly advised Salomon Smith Barney, and Salomon
Smith Barney therefore assumed, that the final terms of the merger agreement
would not vary materially from those set forth in the draft merger agreement
reviewed by Salomon Smith Barney.
Salomon Smith Barney's opinion relates to the relative values of Donnelly
and Magna. Salomon Smith Barney did not express any opinion as to what the value
of the Magna Class A subordinate voting shares actually will be when issued in
the merger or the prices at which the Magna Class A subordinate voting shares
will trade or otherwise be transferable at any time. Salomon Smith Barney did
not make and was not provided with an independent evaluation or appraisal of the
assets or liabilities (contingent or otherwise) of Donnelly or Magna and did not
make any physical inspection of the properties or assets of Donnelly or Magna.
In connection with its engagement, Salomon Smith Barney was requested to
solicit, and it held discussions with, selected third parties regarding the
possible acquisition of all or a part of Donnelly. Salomon Smith Barney
expressed no view as to, and its opinion does not address, the relative merits
of the merger as compared to any alternative business strategies that might
exist for Donnelly or the effect of any other transaction in which Donnelly
might engage. Salomon Smith Barney's opinion is necessarily based on information
available, and financial, stock market and other conditions and circumstances
existing and disclosed, to Salomon Smith Barney as of the date of its opinion.
Donnelly imposed no other instructions or limitations on Salomon Smith Barney
with respect to the investigations made or procedures followed by Salomon Smith
Barney in rendering its opinion.
THE FULL TEXT OF SALOMON SMITH BARNEY'S WRITTEN OPINION DATED JUNE 24, 2002,
WHICH DESCRIBES THE ASSUMPTIONS MADE, PROCEDURES FOLLOWED, MATTERS CONSIDERED
AND LIMITATIONS ON THE REVIEW UNDERTAKEN, IS
34
ATTACHED TO THIS PROSPECTUS/PROXY STATEMENT AS ANNEX C AND IS INCORPORATED INTO
THIS PROSPECTUS/PROXY STATEMENT BY REFERENCE. SALOMON SMITH BARNEY'S OPINION IS
ADDRESSED TO THE DONNELLY BOARD OF DIRECTORS AND RELATES ONLY TO THE FAIRNESS OF
THE EXCHANGE RATIO FROM A FINANCIAL POINT OF VIEW, DOES NOT ADDRESS ANY OTHER
ASPECT OF THE MERGER AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY SHAREHOLDER
AS TO HOW SUCH SHAREHOLDER SHOULD VOTE OR ACT ON ANY MATTERS RELATING TO THE
MERGER.
In preparing its opinion, Salomon Smith Barney performed a variety of
financial and comparative analyses, including those described below. The summary
of these analyses is not a complete description of the analyses underlying
Salomon Smith Barney's opinion. The preparation of a fairness opinion is a
complex analytical process involving various determinations as to the most
appropriate and relevant methods of financial analysis and the application of
those methods to the particular circumstances and, therefore, a fairness opinion
is not readily susceptible to summary description. Accordingly, Salomon Smith
Barney believes that its analyses must be considered as a whole and that
selecting portions of its analyses and factors or focusing on information
presented in tabular format, without considering all analyses and factors or the
narrative description of the analyses, could create a misleading or incomplete
view of the processes underlying its analyses and opinion.
In its analyses, Salomon Smith Barney considered industry performance,
general business, economic, market and financial conditions and other matters
existing as of the date of its opinion, many of which are beyond the control of
Donnelly and Magna. No company, transaction or business used in those analyses
as a comparison is identical to Donnelly and Magna or the proposed merger, and
an evaluation of those analyses is not entirely mathematical. Rather, the
analyses involve complex considerations and judgments concerning financial and
operating characteristics and other factors that could affect the acquisition,
public trading or other values of the companies, business segments or
transactions analyzed.
The estimates contained in Salomon Smith Barney's analyses and the valuation
ranges resulting from any particular analysis are not necessarily indicative of
actual values or predictive of future results or values, which may be
significantly more or less favorable than those suggested by its analyses. In
addition, analyses relating to the value of businesses or securities do not
necessarily purport to be appraisals or to reflect the prices at which
businesses or securities actually may be sold. Accordingly, Salomon Smith
Barney's analyses and estimates are inherently subject to substantial
uncertainty.
Salomon Smith Barney's opinion and analyses were only one of many factors
considered by the Donnelly board of directors in its evaluation of the merger
and should not be viewed as determinative of the views of the Donnelly board or
management with respect to the exchange ratio or the proposed merger.
The following is a summary of the material financial analyses performed by
Salomon Smith Barney in connection with the rendering of its opinion dated
June 24, 2002 to the Donnelly board of directors. THE FINANCIAL ANALYSES
SUMMARIZED BELOW INCLUDE INFORMATION PRESENTED IN TABULAR FORMAT. IN ORDER TO
FULLY UNDERSTAND SALOMON SMITH BARNEY'S FINANCIAL ANALYSES, THE TABLES MUST BE
READ TOGETHER WITH THE TEXT OF EACH SUMMARY. THE TABLES ALONE DO NOT CONSTITUTE
A COMPLETE DESCRIPTION OF THE FINANCIAL ANALYSES. CONSIDERING THE DATA BELOW
WITHOUT CONSIDERING THE FULL NARRATIVE DESCRIPTION OF THE FINANCIAL ANALYSES,
INCLUDING THE METHODOLOGIES AND ASSUMPTIONS UNDERLYING THE ANALYSES, COULD
CREATE A MISLEADING OR INCOMPLETE VIEW OF SALOMON SMITH BARNEY'S FINANCIAL
ANALYSES.
SELECTED COMPANIES ANALYSIS
Salomon Smith Barney compared financial and stock market information for
Donnelly and the following nine selected publicly traded companies with market
capitalizations of less than $1.0 billion in the original equipment
manufacturer, or OEM, supply sector of the automotive industry and the following
six publicly traded
35
companies with market capitalizations of less than $1.0 billion, with the
exception of Gentex Corporation, in the OEM electronics supply sector of the
automotive industry:
OEM SUPPLY SECTOR OEM ELECTRONICS SUPPLY SECTOR
--------------------------------------- ---------------------------------------
- Collins & Aikman Corporation - BEI Technologies, Inc.
- Decoma International Inc. - CTS Corporation
- Dura Automotive Systems, Inc. - Gentex Corporation
- INTERMET Corporation - Littlefuse, Inc.
- Intier Automotive Inc. - Methode Electronics, Inc.
- Linamar Corp. - Stoneridge, Inc.
- Tesma International Inc.
- Tower Automotive, Inc.
- Wescast Industries Inc.
Salomon Smith Barney reviewed enterprise values, calculated as equity value,
plus debt, minority interest, preferred stock and out-of-the-money convertible
securities, less cash and investments in affiliates, as multiples of latest
12 months revenues, earnings before interest, taxes, depreciation and
amortization, commonly referred to as EBITDA, and earnings before interest and
taxes, commonly referred to as EBIT, and calendar year 2002 estimated EBITDA.
Salomon Smith Barney reviewed equity values as a multiple of calendar years 2002
and 2003 estimated earnings per share, commonly referred to as EPS. Estimated
financial data were based on publicly available research analysts' estimates in
the case of the selected companies and internal estimates of Donnelly's
management in the case of Donnelly. All multiples were based on closing stock
prices on June 21, 2002. Salomon Smith Barney then applied a range of selected
multiples derived from the financial data described above for the selected
companies to corresponding financial data of Donnelly. This analysis indicated
an implied equity reference range for Donnelly of approximately $18.50 to $23.50
per share.
Salomon Smith Barney also compared financial and stock market information
for Magna and the following six selected publicly held companies with market
capitalizations in excess of $1.5 billion in the OEM supply sector of the
automotive industry:
OEM SUPPLY SECTOR
-------------------------------
- Dana Corporation
- Delphi Corporation
- Johnson Controls, Inc.
- Lear Corporation
- Visteon Corporation
- Valeo S.A.
Salomon Smith Barney reviewed enterprise values as a multiple of latest
12 months EBITDA and calendar year 2002 estimated EBITDA and equity values as a
multiple of calendar years 2002 and 2003 estimated EPS. Estimated financial data
for the selected companies and Magna were based on publicly available research
analysts' estimates. All multiples were based on closing stock prices on
June 21, 2002. Salomon Smith Barney then applied a range of selected multiples
derived from the financial data described above for the selected companies to
corresponding financial data of Magna. This analysis indicated an implied equity
reference range for Magna of approximately $69.00 to $85.00 per share.
Using the implied equity reference ranges derived for Donnelly and Magna
based on this "Selected Companies Analysis", Salomon Smith Barney then
calculated the following implied exchange ratio reference range, as compared to
the exchange ratio implied in the merger based on the average of the daily
average of high
36
and low prices of Magna Class A subordinate voting shares for the twenty
consecutive trading days ended June 21, 2002 of $68.71 per share:
EXCHANGE RATIO IMPLIED IN THE MERGER
IMPLIED EXCHANGE RATIO BASED ON AVERAGE MAGNA STOCK PRICE
REFERENCE RANGE OVER 20 TRADING DAY PERIOD ENDED JUNE 21, 2002
---------------------- -----------------------------------------------
0.218x - 0.341x 0.408x
PRECEDENT TRANSACTIONS ANALYSIS
Salomon Smith Barney reviewed the purchase prices and implied transaction
multiples in 29 selected transactions in the OEM supply sector of the automotive
industry. Salomon Smith Barney reviewed enterprise values in the selected
transactions as a multiple of latest 12 months EBITDA. All multiples for the
selected transactions were based on publicly available information at the time
of announcement of the relevant transaction. Estimated financial data for
Donnelly were based on internal estimates of Donnelly's management. Salomon
Smith Barney then applied ranges of selected multiples of latest 12 months
EBITDA derived from the selected transactions to Donnelly's latest 12 months and
estimated calendar year 2002 EBITDA. This analysis indicated an implied equity
reference range for Donnelly of approximately $22.00 to $27.00 per share.
Using the implied equity reference ranges derived for Donnelly based on this
"Precedent Transactions Analysis" and for Magna based on the "Selected Companies
Analysis" described above, Salomon Smith Barney then calculated the following
implied exchange ratio reference range, as compared to the exchange ratio
implied in the merger based on the average of the daily average of high and low
prices of Magna Class A subordinate voting shares for the twenty consecutive
trading days ended June 21, 2002 of $68.71 per share:
EXCHANGE RATIO IMPLIED IN THE MERGER
IMPLIED EXCHANGE RATIO BASED ON AVERAGE MAGNA STOCK PRICE
REFERENCE RANGE OVER 20 TRADING DAY PERIOD ENDED JUNE 21, 2002
---------------------- -----------------------------------------------
0.259x - 0.391x 0.408x
CONTRIBUTION ANALYSIS
Salomon Smith Barney compared the relative contributions of Donnelly and
Magna to the combined company's revenues, EBITDA, EBIT, net income, funds from
operations, cash flow from operations, capital expenditures, free cash flow,
total assets, shareholders' equity and tangible book value for calendar year
2001 and the combined company's estimated net income for calendar year 2002.
Estimated financial data were based on internal estimates of Donnelly's
management in the case of Donnelly and publicly available research analysts'
estimates in the case of Magna. Salomon Smith Barney then derived implied
exchange ratios based on the relative contributions of each of Donnelly and
Magna. This analysis indicated the following implied exchange ratio reference
range, as compared to the exchange ratio implied in the merger based on the
average of the daily average of high and low prices of Magna Class A subordinate
voting shares for the twenty consecutive trading days ended June 21, 2002 of
$68.71 per share:
EXCHANGE RATIO IMPLIED IN THE MERGER
IMPLIED EXCHANGE RATIO BASED ON AVERAGE MAGNA STOCK PRICE
REFERENCE RANGE OVER 20 TRADING DAY PERIOD ENDED JUNE 21, 2002
---------------------- -----------------------------------------------
0.159x - 0.367x 0.408x
DISCOUNTED CASH FLOW ANALYSIS
Salomon Smith Barney performed a discounted cash flow analysis of Donnelly
to calculate the estimated present value of the unlevered, after-tax free cash
flows that Donnelly could generate over fiscal years 2002 through 2006.
Estimated financial data for Donnelly were based on internal estimates of
Donnelly's management. Salomon Smith Barney calculated a range of estimated
EBITDA terminal values by applying terminal value multiples ranging from 6.0x to
7.0x to Donnelly's fiscal year 2006 estimated EBITDA. The present value of the
cash flows and terminal values were calculated using discount rates ranging from
12.0% to
37
13.0%. This analysis indicated an implied equity reference range for Donnelly of
approximately $37.99 to $46.13 per share.
Salomon Smith Barney also performed a discounted cash flow analysis of Magna
to calculate the estimated present value of the unlevered, after-tax free cash
flows that Magna could generate over fiscal years 2002 through 2005. Estimated
financial data for Magna were based on publicly available research analysts'
estimates. Salomon Smith Barney calculated a range of estimated EBITDA terminal
values by applying terminal value multiples ranging from 6.0x to 7.0x to Magna's
estimated fiscal year 2005 EBITDA. The present value of the cash flows and
terminal values were calculated using discount rates ranging from 7.5% to 8.5%.
This analysis indicated an implied equity reference range for Magna of
approximately $103.68 to $123.99 per share.
Using the implied equity reference ranges derived for Donnelly and Magna
based on this "Discounted Cash Flow Analysis", Salomon Smith Barney then
calculated the following implied exchange ratio reference range, as compared to
the exchange ratio implied in the merger based on the average of the daily
average of the high and low prices of Magna Class A subordinate voting shares
for the twenty consecutive trading days ended June 21, 2002 of $68.71 per share:
EXCHANGE RATIO IMPLIED IN THE MERGER
IMPLIED EXCHANGE RATIO BASED ON AVERAGE MAGNA STOCK PRICE
REFERENCE RANGE OVER 20 TRADING DAY PERIOD ENDED JUNE 21, 2002
---------------------- -----------------------------------------------
0.306x - 0.445x 0.408x
HISTORICAL EXCHANGE RATIO ANALYSIS
Salomon Smith Barney reviewed the ratio of the closing price of Donnelly
Class A common stock to the closing price of Magna Class A subordinate voting
shares on June 21, 2002 and the ratios implied by the average closing prices of
Donnelly Class A common stock to Magna Class A subordinate voting shares over
the one-month, three-month, six-month, 12-month, 24-month and 36-month periods
ended June 21, 2002. This analysis indicated an implied exchange ratio reference
range of 0.24x to 0.30x, as indicated in the following table, as compared to the
exchange ratio implied in the merger of 0.408x based on the average of the daily
average of the high and low prices of Magna Class A subordinate voting shares
for the twenty consecutive trading days ended June 21, 2002 of $68.71 per share:
PERIODS IMPLIED EXCHANGE RATIO
--------------------- ----------------------
June 21, 2002 0.30x
One month 0.28
Three months 0.27
Six months 0.25
12 months 0.24
24 months 0.26
36 months 0.27
PRO FORMA MERGER ANALYSIS
Salomon Smith Barney reviewed the potential pro forma effect of the merger
on Magna's estimated EPS for calendar years 2002 and 2003, without giving effect
to potential cost savings or other synergies that could result from the merger.
Estimated financial data were based on publicly available research analysts'
estimates in the case of Magna and internal estimates of Donnelly's management
in the case of Donnelly. Based on the exchange ratio of 0.408x implied in the
merger based on the average of the daily average of the high and low prices of
Magna Class A subordinate voting shares for the twenty consecutive trading days
ended June 21, 2002 of $68.71 per share and without taking into account
potential cost savings or other synergies that could result from the merger,
this analysis indicated that the merger could be dilutive to Magna's estimated
EPS in each of the periods reviewed. The actual results achieved by the combined
company may vary from projected results and the variations may be material.
38
OTHER FACTORS
In rendering its opinion, Salomon Smith Barney also reviewed and considered
other factors, including:
- historical trading prices and trading volumes for Donnelly Class A common
stock and Magna Class A subordinate voting shares, including the trading
price ranges for Donnelly Class A common stock and Magna Class A
subordinate voting shares during the 12-month period preceding June 21,
2002;
- the relationship between movements in Magna Class A subordinate voting
shares, movements in the common stock of the selected companies in the OEM
supply sector of the automotive industry and movements in the large-cap
auto supplier and S&P 500 indexes;
- the high and low exchange ratios implied in the merger based on the collar
mechanism provided for in the merger;
- the resulting implied equity reference range for Donnelly based on a
hypothetical leveraged buyout of Donnelly; and
- selected research analysts' reports on Donnelly and Magna, including a
comparison of Donnelly's historical EPS and publicly available research
analysts' EPS estimates for Donnelly and the EPS estimates for Magna of
selected research analysts.
MISCELLANEOUS
Under the terms of its engagement, Donnelly has agreed to pay Salomon Smith
Barney for its financial advisory services in connection with the merger a
retainer fee of $250,000 and, upon completion of the merger, an additional fee
equal to 1% of the transaction value. No portion of Salomon Smith Barney's fees
was contingent upon it delivering its opinion. Donnelly also has agreed to
reimburse Salomon Smith Barney for reasonable travel and other expenses incurred
by Salomon Smith Barney in performing its services, including reasonable fees
and expenses of its legal counsel, and to indemnify Salomon Smith Barney and
related persons against liabilities, including liabilities under the federal
securities laws, arising out of its engagement.
In the ordinary course of business, Salomon Smith Barney and its affiliates
may actively trade or hold the securities of Donnelly and Magna for their own
account or for the account of customers and, accordingly, may at any time hold a
long or short position in those securities. An affiliate of Salomon Smith Barney
currently has lending arrangements with Magna for which such affiliate has
received, and will receive, customary fees. In addition, Salomon Smith Barney
and its affiliates, including Citigroup Inc. and its affiliates, may maintain
relationships with Donnelly and Magna and their respective affiliates.
Salomon Smith Barney is an internationally recognized investment banking
firm and was selected by Donnelly based on its reputation, experience and
familiarity with Donnelly and its businesses. Salomon Smith Barney regularly
engages in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, competitive bids, secondary
distributions of listed and unlisted securities, private placements and
valuations for estate, corporate and other purposes.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain members of Donnelly's management team and Donnelly's board of
directors have interests in the merger that are in addition to their general
interests as Donnelly shareholders. As described below, the merger will
constitute a change in control of Donnelly for purposes of determining the
entitlement of some of Donnelly's executive officers to certain severance and
other benefits. In addition, each member of Donnelly's board of directors will
have the right to receive certain accelerated deferred compensation and
accelerated pension benefits.
None of the members of Donnelly's board of directors will continue to serve
as directors upon completion of the merger.
The members of Donnelly's board of directors were aware of these additional
interests when they approved the merger agreement.
39
EXECUTIVE SEVERANCE AGREEMENTS. Donnelly has severance agreements with 18
executive officers and certain other employees, providing for a severance
payment in the event of termination of employment under certain circumstances in
connection with a change in control of Donnelly. The merger will constitute a
change in control for purposes of those agreements. The agreements provide that,
upon termination, each executive officer will receive a lump sum payment of one,
one and a half or two times his or her highest annual rate of base salary in
effect within the three years up to and including the date of termination, plus
one, one and a half or two times his or her average earned bonus over the two
full fiscal years prior to the change in control. If the executive has not been
eligible for an earned bonus for two fiscal years, the average earned bonus
shall be deemed to be the executive's target bonus for the current fiscal year
multiplied by the average percentage of target bonus paid to Donnelly's
corporate management team in the last two fiscal years. If the executive has
been eligible for an earned bonus for the last full fiscal year but not for the
last two full fiscal years, the average earned bonus will be the average of the
executive's actual earned bonus for the last full fiscal year and the
executive's target bonus for the current fiscal year multiplied by the average
percentage of target bonus paid to Donnelly's corporate management team in the
penultimate full fiscal year prior to the change in control. Any amount
received, as described above, shall be reduced by the amount of any other
severance relating to salary or bonus continuation to be received by the
executive upon the executive's termination of employment under any salary or
bonus continuation guideline, plan, agreement, policy or arrangement of Donnelly
and any severance payments Donnelly is required to make pursuant to the
requirements of any United States or foreign law or regulation.
The severance agreements also provide that upon termination the employee
will receive an additional cash payment equal to the sum of the employee's
unpaid base salary and accrued vacation pay through the date of termination and
the employee's average earned bonus over the two full fiscal years prior to the
change in control, prorated for the number of days completed in the fiscal year
in which the change of control occurs. If the executive has not been eligible
for an earned bonus for two fiscal years or the executive has been eligible for
an earned bonus for the last full fiscal year but not for the last two full
fiscal years, the average earned bonus shall be adjusted in the same manner as
the earned bonus as discussed in the preceding paragraph. The employee will also
receive any earned bonus for the fiscal year prior to the change in control,
plus any compensation previously deferred by the employee other than pursuant to
any deferred stock plan or any tax qualified plan to the extent not previously
paid.
In addition, each eligible executive will be entitled to continuation of
health care, life, accidental death and dismemberment, and disability insurance
coverage for one, one and a half or two years after the date of termination.
These benefits will be provided at the same premium cost and coverage level as
in effect at the date of termination, subject to adjustment for changes in the
premium costs or coverage for continuing employees. The continuation of these
welfare benefits will terminate if the executive is entitled to significantly
similar benefits from a subsequent employer. The agreements also require
Donnelly to pay the cost of outplacement services for each executive during the
two-year period following termination in an amount not to exceed the lesser of
15% of the executive's base salary as of the date of termination or $25,000.
To the extent not previously paid or provided, Donnelly must timely pay or
provide to the executive any other amounts or benefits, including any automobile
allowance, required to be paid or provided or which the executive is eligible to
receive under any plan, program, policy or practice or contract or agreement of
Donnelly and its affiliated companies through the date of termination, and the
payments received and the time period over which benefits are payable shall be
included for purposes of determining participation eligibility, vesting and the
amount of any benefit.
Also, for those executives who are provided a company-owned or leased
vehicle, Donnelly must timely deliver to the executive ownership of the
executive's then-provided company vehicle and pay any amounts then owing
thereon.
Each severance agreement provides that if payments to the executive are
subjected to the excise tax imposed under Section 4999 of the Internal Revenue
Code, Donnelly will pay the executive an amount equal to the excise tax plus all
taxes on such payment.
The aggregate amounts that would be payable as severance to those
18 executive officers of Donnelly, if they were all terminated on the effective
date of the merger in a manner that required severance payments, are estimated
to be approximately $6.7 million, based on certain assumptions and currently
available information.
40
EMPLOYEES' SEVERANCE AT SEPARATION PLAN. Upon termination of employment
after a change in control of Donnelly (including the merger), any eligible
employee (excludes officers with severance agreements) under the Employees'
Severance at Separation Plan is entitled to receive a financial severance
benefit equal to one week of the employee's gross base rate for each year of
completed service, plus one week of gross base rate of pay for every $5,000 by
which the employee's annual gross base rate of pay exceeds $10,000, rounded down
to the nearest whole number. This financial severance benefit will be at least
six weeks, but no more than 52 weeks, of the employee's gross base rate. Upon
separation from Donnelly, the employee will receive the financial severance
benefit in a lump sum payment on the date of separation. An employee age 55 or
older who has completed five or more years of service on the date of separation
may elect to receive the financial severance benefit either in a lump sum
payment or in equal, weekly installments as salary continuation for up to a
two-year period. By electing this latter option, the employee will be placed on
an authorized, paid leave of absence and will continue to earn service credits
for Donnelly's Employees' Retirement Plan and Retiree Medical Plan during this
time.
Furthermore, for an eligible employee that also participates in Donnelly's
Flexible Benefits Program, Donnelly, or its successor, will waive the premium
for continuation of the standard flexible benefits package of medical and dental
coverage for the number of weeks of severance the employee receives. For an
employee age 55 or older who has completed five or more years of service on the
date of separation, Donnelly will waive the weekly premium for continuation of
the standard flexible benefits package of medical and dental coverage for the
number of weeks of severance the employee would have received if the lump sum
payment option had been elected.
Donnelly, or its successor, may provide an eligible employee with external
employment assistance. If the employee elects not to accept these services, the
employee will not receive any cash or other benefits in lieu of employment
assistance.
To be an eligible employee under the plan, an employee must have completed
one year of service and be a regular employee of Donnelly or any of Donnelly's
United States subsidiaries which is at least 80% owned by Donnelly, other than
an officer of Donnelly or any of such subsidiaries that has entered into a
separate Severance Agreement with Donnelly.
DONNELLY STOCK OPTIONS. All unvested Donnelly employee stock options vested
in accordance with their terms by reason of the deemed "change in control" of
Donnelly that occurred for purposes of the options upon the execution and
delivery of the shareholders' agreement. Options to acquire approximately
69,552 shares, at August 27, 2002, of Donnelly Class A common stock will expire
by their terms at the effective time of the merger unless exercised prior to the
effective time of the merger. Each holder of the remaining employee stock
options, to acquire in the aggregate approximately 131,304 shares, at
August 27, 2002, of Donnelly common stock, has entered into a binding,
unconditional agreement obligating such holder to exercise, not later than
immediately prior to the effective time of the merger, all such options.
Donnelly has delivered copies of such agreements to Magna.
In addition, the vesting periods for certain stock options for certain
members of Donnelly's board of directors were accelerated pursuant to the change
in control provisions under Donnelly's Nonemployee Director Option Plan. The
aggregate amount of Donnelly Class A common stock subject to these options is
18,000 shares, and the options are exercisable at an option price of $13.45 per
share, for an estimated pre-tax benefit of $261,900 assuming $28.00 per share of
Donnelly Class A common stock.
PENSION PLAN PAYMENTS FOR OUTSIDE DIRECTORS. Donnelly's Pension Plan for
Outside Directors provides that a participant's quarterly retirement benefit
will be an amount equal to 25% of the participant's annual retainer and
committee retainers in effect for the participant on the date of termination of
service on the board. This plan was amended on June 13, 2002, to provide that
upon a change in control of Donnelly (including the merger), all participants
will be eligible for payment of their retirement benefits when they cease to be
directors after a change of control, irrespective of their age or number of
years of service. Payment of the retirement benefit will begin on the first
working day of the next quarter after the change in control and will continue on
the first working day of each quarter thereafter for a period equal to the
participant's years of service on the board prior to 1999. The June 13, 2002
amendment also permitted participants to elect to have the balance of the
41
installment payments then remaining paid in a single lump sum payment on the
first working day of January of any year after the year in which the change in
control occurs. Installment payments will continue to be made until the date on
which the lump sum payment is due. The lump sum payment will be equal to the
quarterly payment for the participant multiplied by the number of installments
then remaining. There will not be any reduction to present value of such
payments. All the outside directors have elected to receive a lump sum payment.
If a participant retired prior to a change in control and is receiving
installment payments under this Plan, the installment payments will be continued
as in effect prior to the change in control; PROVIDED, HOWEVER, that the
participant may elect to be paid the balance of the installments then
outstanding in a single lump sum payment on the first working day of January of
any year following the year in which the change in control occurs if the
participant files a written election to this effect with Donnelly within
30 days after June 13, 2002, the date on which the amendment was adopted. The
only retired director entitled to payment has elected to receive a lump sum
payment. The lump sum payment will be equal to the quarterly installments
multiplied by the number of installments then remaining. There will not be any
reduction to present value of such payments.
Upon a change in control (including the merger), Donnelly, or its successor,
must establish a trust in a form known as a "rabbi trust" and must fund the
trust with an amount equal to the present value of the amounts payable under the
Pension Plan for Outside Directors to participants who have not elected lump sum
payments. Once the trust is established and funded, the corpus of the trust
would remain subject to the claims of Donnelly's or its successor's creditors.
The aggregate amounts that would be payable to Donnelly's ten current and
former outside directors under the Pension Plan for Outside Directors, as
amended, upon a change in control are estimated to be approximately
$3.7 million.
DEFERRED DIRECTOR FEE PLAN. The Deferred Director Fee Plan, as amended on
June 13, 2002, provides that on or before the last day of any year, any director
may elect to defer receipt of all or any portion of the director's fees to be
earned in succeeding years. Based upon the change of control of Donnelly, each
director whose service is terminated within two years of the change of control,
shall be entitled to receive the director's deferred fees, plus interest, in 10
annual installments, payable beginning on the first day of the year following
the director's termination from the board of directors. Each installment will be
the balance of the director's account divided by the number of unpaid
installments, with the balance of the director's account continuing to be
credited with interest; PROVIDED, HOWEVER, that a director may elect to have the
balance of the director's account paid in a single lump sum payment on the first
working day of January of any year after the year in which the change in control
occurs, if the director files a written election to this effect within 30 days
after the date on which the amendment was adopted. Prior to the amendment,
payment of deferred compensation occurred in a lump sum in the January following
a change in control.
Upon a change in control (including the merger), Donnelly, or its successor,
must establish a trust in a form known as a "rabbi trust" and must fund the
trust with an amount equal to the present value of the amounts payable under the
Deferred Director Fee Plan to participants who have not elected lump sum
payments.
The aggregate amounts that would be payable under the Deferred Director Fee
Plan, as amended, upon a change in control are estimated to be approximately
$2.5 million based on certain assumptions and currently available information.
DEFERRED COMPENSATION PLAN. The Deferred Compensation Plan, as amended and
restated, provides that on or before September 15 of any year in which an annual
incentive award under the Donnelly Corporation Executive Compensation Plan is
earned by an eligible employee, the eligible employee may elect to defer any
amount up to 100% of the annual incentive award to be earned for that year. In
addition, an eligible employee may elect to defer up to 25% of future base
salary. If an eligible employee's employment is terminated within two years
after a change in control, the entire amount in the employee's account will be
paid to the employee on January 15 of the year following the year in which
employment terminates.
42
Upon a change in control (including the merger), Donnelly, or its successor,
must establish a trust in a form known as a "rabbi trust" and must fund the
trust with an amount equal to the present value of the amounts payable under the
Deferred Compensation Plan to participants who have not elected lump sum
payments.
As of July 11, 2002, the aggregate amounts that would be payable under the
Deferred Compensation Plan, as amended and restated, upon a change in control
are estimated to be approximately $2.7 million based on certain assumptions and
currently available information.
SUPPLEMENTAL RETIREMENT PLAN. The Supplemental Retirement Plan is
maintained for a select group of Donnelly employees whose benefits under the
Donnelly Corporation Employees' Retirement Plan are limited by the Qualified
Retirement Plan rules under the Internal Revenue Code.
The Supplemental Retirement Plan, as amended by an amendment approved by the
board on June 13, 2002, provides that upon a change in control (including the
merger), all participants will be 100% vested in their accrued benefit under
this plan, regardless of the number of years of service, and if a participant's
employment is terminated within two years after the change in control, the
actuarial equivalent present value of the participant's accrued benefit will be
paid to the participant in a single lump sum payment on January 2 of the year
following the year in which the change of control occurs if the participant has
filed a written election within thirty days of the date of the amendment.
Upon a change in control (including the merger), Donnelly, or its successor,
must establish a trust known as a "rabbi trust" and must fund the trust with an
amount equal to the present value of the amounts payable under the Supplemental
Retirement Plan to participants who have not elected lump sum payments.
NO MODIFICATION OF BENEFIT PLANS. Pursuant to the merger agreement, the
surviving corporation may not, and Magna may not cause the surviving corporation
to, make any changes, amendments or revisions to Donnelly's Pension Plan for
Outside Directors, Deferred Director Fee Plan, Deferred Compensation Plan or
Supplemental Retirement Plan, that would adversely affect the amounts or the
payment terms with respect to benefits accrued as of the effective time of the
merger to be paid to any participant of the plans as of the effective time of
the merger. Magna's obligation to refrain from causing the surviving corporation
to make any changes, amendments or revisions to these plans is an absolute and
unconditional obligation, without regard to the financial ability of the
surviving corporation to take such action and, in the case of any obligation of
the surviving corporation to make any payment, Magna must make or cause to be
made such payment when due in the event that the surviving corporation fails to
make such payment for any reason.
INDEMNIFICATION AND LIABILITY INSURANCE. If the merger is consummated,
Magna has agreed to cause the surviving corporation to indemnify the directors
and officers of Donnelly as discussed under "The Merger
Agreement--Covenants--Indemnification, Directors and Officers Insurance".
DONNELLY EXPORT CORPORATION. The holders of Donnelly's Class B Common Stock
also own all the outstanding shares of Donnelly Export Corporation, a
shareholder Domestic International Sales Corporation under the Internal Revenue
Code. Section 5.17 of the merger agreement requires Donnelly to terminate all
contracts, agreements and arrangements between Donnelly Export and Donnelly
immediately prior to the closing of the merger. The holders of Donnelly's
Class B Common Stock will not derive any financial advantage over the holders of
Donnelly's Class A Common Stock from the termination of these contracts,
agreements and arrangements, which was required by Magna as a condition to its
execution of the merger agreement.
EFFECTIVE TIME OF THE MERGER
On the day of the closing of the merger, which will occur no later than the
business day after satisfaction or waiver of all the conditions to the merger,
the merger will become effective upon filing of a certificate of merger with the
Department of Consumer and Industry Services, Bureau of Corporations Securities
and Land Development, of the State of Michigan (or on such later date and time
as may be specified in the articles of merger). It is anticipated that the
merger will close on the date of the special meeting.
43
ARTICLES OF INCORPORATION AND BY-LAWS
At the effective time of the merger, the articles of incorporation of
Donnelly as in effect immediately prior to the effective time will be the
articles of incorporation of the surviving corporation (except that the articles
of incorporation shall be amended at the effective time to provide that they are
identical to the articles of incorporation of the merger subsidiary and except
that the name of the corporation will be Donnelly Corporation) until thereafter
changed or amended as provided in the articles of incorporation or by applicable
law. The by-laws of the merger subsidiary as in effect immediately prior to the
effective time will be the by-laws of the surviving corporation until thereafter
changed or amended. The directors and officers of the merger subsidiary will be
the directors and officers of the surviving corporation, until the earlier of
their resignation or removal or until their respective successors are duly
elected or appointed, as applicable, and qualified.
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes the material United States federal
income tax consequences of the merger. The discussion that follows is based on
and subject to the Internal Revenue Code, Treasury Regulations under the
Internal Revenue Code, existing administrative interpretations and court
decisions as of the date of this proxy statement/prospectus, all of which are
subject to change (possibly with retroactive effect) and all of which are
subject to differing interpretation. The following discussion does not address
the effects of the merger under any state, local or foreign tax laws.
The tax treatment of a Donnelly shareholder may vary depending upon the
shareholder's particular situation, and certain Donnelly shareholders (including
insurance companies, tax-exempt organizations, financial institutions,
broker-dealers, persons who do not hold Donnelly stock as capital assets,
employees of Donnelly and individuals who hold Donnelly stock as part of a
straddle, conversion or other integrated transaction) may be subject to special
rules not discussed below. This discussion assumes that shareholders of Donnelly
hold their shares as capital assets within the meaning of Section 1221 of the
Internal Revenue Code. Each Donnelly shareholder is urged to consult its tax
advisor with respect to the specific tax consequences of the merger, including
the effect of United States federal, state, local, foreign and other tax rules,
and the effect of possible changes in tax laws.
The closing of the merger is conditional upon Donnelly receiving an opinion
from its counsel, Varnum, Riddering, Schmidt & Howlett LLP, to the effect that
the merger constitutes a reorganization within the meaning of Section 368(a) of
the Internal Revenue Code for federal income tax purposes, and that Magna, the
merger subsidiary and Donnelly will each be a party to that reorganization
within the meaning of Section 368(b) of the Internal Revenue Code. Based on
those conclusions, the United States federal income tax consequences of the
merger will be as follows:
TAX CONSEQUENCES TO MAGNA, MERGER SUBSIDIARY AND DONNELLY. For United
States federal income tax purposes, no gain or loss will be recognized by Magna,
the merger subsidiary or Donnelly as a result of the merger.
TAX CONSEQUENCES TO DONNELLY SHAREHOLDERS. For United States federal income
tax purposes, (i) no gain or loss will be recognized by a shareholder of
Donnelly upon the surrender of the shareholder's shares of Donnelly stock and
the issuance from treasury of Magna Class A subordinate voting shares pursuant
to the merger, except with respect to cash, if any, received in lieu of a
fractional Magna Class A subordinate voting share, (ii) the aggregate tax basis
of the Magna Class A subordinate voting shares received in exchange for shares
of Donnelly stock pursuant to the merger (including a fractional Magna Class A
subordinate voting share for which cash is received) will be the same as the
aggregate tax basis of the shares of Donnelly stock exchanged, (iii) the holding
period for Magna Class A subordinate voting shares received in exchange for
shares of Donnelly stock will include the shareholder's holding period for the
shares of Donnelly stock, provided the shares of Donnelly stock were held as
capital assets by the holder at the effective time of the merger, and (iv) a
shareholder of Donnelly who receives cash in lieu of a fractional Magna Class A
subordinate voting share will recognize gain or loss equal to the difference, if
any, between the shareholder's tax basis in the fractional share (determined
under clause (ii) above) and the amount of cash received.
44
The opinions described above will be based on certain assumptions, and
Varnum, Riddering, Schmidt & Howlett LLP will receive and rely upon
representations contained in certificates of officers of Magna and Donnelly. The
inaccuracy or incompleteness of any of those assumptions or representations
might jeopardize the validity of the opinions rendered. An opinion of counsel
will neither bind the Internal Revenue Service nor preclude the Internal Revenue
Service from adopting positions contrary to those expressed above, and no
assurance can be given that a contrary position will not be asserted
successfully by the Internal Revenue Service or adopted by a court if the issues
were litigated. Neither Magna nor Donnelly intends to obtain a ruling from the
Internal Revenue Service with respect to the tax consequences of the merger.
The tax consequences of the merger described above may not apply to
individuals who received Donnelly stock as compensation or to Donnelly
shareholders who, for United States federal income tax purposes, are nonresident
aliens, foreign corporations, foreign partnerships, foreign trusts or foreign
estates.
WE INTEND THIS DISCUSSION TO PROVIDE ONLY A SUMMARY OF THE MATERIAL UNITED
STATES FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER. WE DO NOT INTEND THAT THIS
DISCUSSION BE A COMPLETE ANALYSIS OR DESCRIPTION OF ALL POTENTIAL UNITED STATES
FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER. IN ADDITION, AS NOTED ABOVE, WE
DO NOT ADDRESS TAX CONSEQUENCES THAT MAY VARY WITH, OR ARE CONTINGENT UPON,
INDIVIDUAL CIRCUMSTANCES. WE STRONGLY URGE YOU TO CONSULT YOUR TAX ADVISOR TO
DETERMINE YOUR PARTICULAR UNITED STATES FEDERAL, STATE, LOCAL OR FOREIGN INCOME
OR OTHER TAX CONSEQUENCES RESULTING FROM THE MERGER, IN LIGHT OF YOUR INDIVIDUAL
CIRCUMSTANCES.
MATERIAL CANADIAN FEDERAL INCOME TAX CONSEQUENCES
The following summary fairly represents the material Canadian federal income
tax consequences generally applicable to non-resident holders in respect of the
holding and disposition of Magna Class A subordinate voting shares. For purposes
of the Canadian INCOME TAX ACT and any applicable income tax treaty or
convention, a non-resident holder is a holder who, at all relevant times, is
neither resident nor deemed to be resident in Canada at any time, does not use
or hold, and is not deemed to use or hold, the Magna Class A subordinate voting
shares in connection with a trade or business that the holder carries on, or is
deemed to carry on, in Canada at any time, and who for purposes of the Canadian
INCOME TAX ACT holds the Magna Class A subordinate voting shares as capital
property, deals at arm's length with Magna and Donnelly and is not affiliated
with Magna and Donnelly. Special rules, which are not addressed in this
discussion, may apply to a holder that is an insurer that carries on business in
Canada or elsewhere.
This summary is based on the current provisions of the Canadian INCOME
TAX ACT and the regulations thereunder, the current provisions of the
CANADA-UNITED STATES INCOME TAX CONVENTION (1980) (THE "CANADA-U.S. TAX
CONVENTION"), counsel's understanding of the current administrative and
assessing policies and practices published by the Canada Customs and Revenue
Agency and all specific proposals to amend the Canadian INCOME TAX ACT and the
regulations thereunder that have been publicly announced by or on behalf of the
Canadian Minister of Finance prior to the date hereof. This summary is not
exhaustive of all possible Canadian federal income tax consequences and does not
otherwise take into account or anticipate any other changes in the law or
administrative and assessing policies or practices, whether by judicial,
governmental or legislative decision or action, nor does it take into account
provincial, territorial or foreign tax legislation or considerations. This
summary assumes that Magna Class A subordinate voting shares will at all
relevant times be listed on a prescribed stock exchange for purposes of the
Canadian INCOME TAX ACT (which currently includes the TSX and the NYSE).
THIS SUMMARY IS OF A GENERAL NATURE ONLY AND IS NOT INTENDED TO BE, AND
SHOULD NOT BE CONSTRUED TO BE, LEGAL OR TAX ADVICE TO ANY PARTICULAR HOLDER AND
NO REPRESENTATION WITH RESPECT TO THE TAX CONSEQUENCES TO ANY PARTICULAR HOLDER
IS MADE. PROSPECTIVE HOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS WITH RESPECT
TO THE INCOME TAX CONSIDERATIONS RELEVANT TO THEM, HAVING REGARD TO THEIR
PARTICULAR CIRCUMSTANCES.
DIVIDENDS. Dividends, including stock dividends, paid or credited or deemed
to be paid or credited to a non-resident holder of Class A subordinate voting
shares will be subject to Canadian non-resident withholding tax at a rate of 25%
of the gross amount of such dividends under the Canadian INCOME TAX ACT. This
rate may be reduced under an applicable income tax treaty or convention between
Canada and such non-resident holder's country of residence. In the case of a
non-resident holder which is the beneficial owner of such dividends and a
resident of the United States for the purposes of the CANADA-U.S. TAX
CONVENTION, the rate of non-resident
45
withholding tax in respect of dividends on the Magna Class A subordinate voting
shares will generally be reduced to a rate of 15% of the gross amount of such
dividends (except that where such beneficial owner is a corporation and owns at
least 10% of our voting stock, the rate of withholding tax is reduced to 5%).
Under the CANADA-U.S. TAX CONVENTION, dividends paid or credited to a
non-resident holder that is a United States tax exempt organization as described
in Article XXI of the CANADA-U.S. TAX CONVENTION that has complied with certain
administrative procedures will generally not be subject to Canadian withholding
tax.
DISPOSITIONS. A non-resident holder will not be subject to tax under the
Canadian INCOME TAX ACT in respect of capital gains realized on the disposition
or deemed disposition (including on the death of the non-resident holder) of
Magna Class A subordinate voting shares unless such shares are "taxable Canadian
property" (within the meaning of the Canadian INCOME TAX ACT) to the holder at
the time of the disposition. Magna Class A subordinate voting shares will
generally not constitute taxable Canadian property to a non-resident holder
provided such shares are listed on a prescribed stock exchange for purposes of
the Canadian INCOME TAX ACT (which currently includes the TSX and the NYSE) on
the date of disposition and, at any time during the five-year period immediately
preceding the disposition or deemed disposition of the Magna Class A subordinate
voting shares, the non-resident holder, persons with whom such holder did not
deal at arm's length, or the non-resident holder together with such persons has
not owned 25% or more of the issued shares of any class or series of Magna's
capital stock. For this purpose, it is the position of the Canada Customs and
Revenue Agency that a non-resident holder of an interest in or option to acquire
Magna Class A subordinate voting shares will be considered to hold the Magna
Class A subordinate voting shares to which such interest or option relate.
Non-resident holders' Magna Class A subordinate voting shares may be deemed to
be taxable Canadian property in certain circumstances.
In any event, under the CANADA-U.S. TAX CONVENTION, capital gains realized
by a resident of the United States for purposes of the CANADA-U.S. TAX
CONVENTION on the disposition of Magna Class A subordinate voting shares will
generally not be taxable under the Canadian INCOME TAX ACT unless the value of
the Magna Class A subordinate voting shares is derived principally from real
property situated in Canada.
ACCOUNTING TREATMENT
The merger will be accounted for under the purchase method of accounting, in
accordance with United States and Canadian generally accepted accounting
principles. Under the purchase method of accounting, the aggregate consideration
paid by Magna for the shares of Donnelly common stock, together with the direct
costs of the merger, will be allocated to the assets acquired and liabilities
assumed based upon their estimated fair values, with the excess consideration
allocated to goodwill. The results of Magna's operations will include the
results of operations of Donnelly from the date of completion of the merger.
ANTITRUST APPROVALS
Under U.S. antitrust laws, Magna and Donnelly may not complete the merger
until Magna and Donnelly have notified the Antitrust Division of the United
States Department of Justice and the Federal Trade Commission of the merger by
filing the necessary report forms and until a required waiting period has ended.
Similar requirements exist with respect to the European Union and Brazil. Magna
and Donnelly have filed the required information and materials to notify the
U.S. Department of Justice and the Federal Trade Commission of the merger and
the required waiting period expired on August 12, 2002. Magna and Donnelly have
also made the necessary foreign filings but await clearance from the European
Union and Brazilian authorities.
LISTING OF MAGNA CLASS A SUBORDINATE VOTING SHARES ON THE NYSE AND THE TSX
In the merger agreement, Magna has agreed to use its best efforts to list
for trading on the NYSE and the TSX the Magna Class A subordinate voting shares
to be issued in connection with the merger. Such authorization for listing is a
condition to the obligations of Magna, the merger subsidiary and Donnelly to
consummate the merger. See "The Merger--Material Canadian Federal Income Tax
Consequences".
RESALE OF MAGNA CLASS A SUBORDINATE VOTING SHARES ISSUED IN THE MERGER;
AFFILIATES
The Magna Class A subordinate voting shares to be issued to Donnelly
shareholders in connection with the merger will be freely transferable under the
Securities Act of 1933, as amended, except for Magna Class A subordinate voting
shares issued to any person deemed to be an affiliate of Donnelly for purposes
of Rule 145 under the Securities Act of 1933, as amended, at the effective time.
Those affiliates may not sell their Magna Class A subordinate voting shares
acquired in connection with the merger except pursuant to an effective
registration statement under the Securities Act of 1933, as amended, covering
such shares, or in compliance with Rule 145 promulgated under the Securities Act
of 1933, as amended, or another applicable exemption from the registration
requirements of the Securities Act of 1933, as amended.
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Pursuant to the merger agreement, Donnelly has agreed to use all reasonable
efforts to cause each person who is an affiliate of Donnelly as that term is
used in Rule 145 under the Securities Act to deliver to Magna on or prior to the
effective time of the merger a written agreement that such affiliate will not
sell, pledge, transfer or otherwise dispose of any Magna Class A subordinate
voting shares received in the merger in violation of the Securities Act of 1933,
as amended.
NO DISSENTERS' RIGHTS
Under Michigan law, shareholders of a company whose shares are traded on a
national securities exchange, or who will receive shares traded on a national
securities exchange, are not entitled to appraisal rights in a merger.
Accordingly, holders of Donnelly stock are not entitled to appraisal rights in
connection with the merger because shares of Donnelly Class A common stock and
Magna Class A subordinate voting shares are traded on the NYSE.
THE MERGER AGREEMENT
In this section of the prospectus/proxy statement, we describe the material
provisions of the merger agreement. We have attached a copy of the merger
agreement as Annex A to this prospectus/proxy statement and incorporate the
merger agreement into this prospectus/proxy statement by reference. The summary
of the merger agreement we provide below is qualified in its entirety by
reference to the merger agreement. We encourage you to read the merger agreement
because it is the legal document that governs the merger.
THE MERGER
Under the terms and subject to the conditions set forth in the merger
agreement, the merger subsidiary will merge with and into Donnelly, with
Donnelly continuing as the surviving corporation. The surviving corporation will
be a wholly owned subsidiary of Magna after the merger, will have the name
"Donnelly Corporation", and will do business under the name "Magna Donnelly
Corporation".
CONSIDERATION TO BE RECEIVED IN THE MERGER; EXCHANGE RATIO
Each share of Donnelly common stock that you own will be exchanged for a
fraction of a Class A subordinate voting share of Magna equal to the exchange
ratio that would provide each Donnelly shareholder with Magna Class A
subordinate voting shares valued at approximately $28.00 for each share of
Donnelly common stock exchanged, so long as the average price of a Magna
Class A subordinate voting share during a twenty trading day period is between
$61.00 and $80.00. The exchange ratio is based on the average of the high and
low prices for each trading day of Magna Class A subordinate voting shares on
the NYSE over a twenty trading day period ending with the second trading day
preceding the date of the merger. The exchange ratio will be calculated as
follows:
- if the average trading price of Magna Class A subordinate voting shares as
calculated above is between $61.00 and $80.00, inclusive, the exchange
ratio will equal $28.00 divided by such average trading price;
- if the average trading price is less than $61.00, the exchange ratio will
be fixed at .459 (except to the extent the ratio may be increased in the
limited circumstances described under "Termination" below); and
- if the average trading price is greater than $80.00, the exchange ratio
will be fixed at .350.
This means that the fraction of a Magna Class A subordinate voting share
received as the merger consideration for each share of Donnelly common stock
will be between .350 and .459, except as provided below.
If the average trading price of Magna Class A subordinate voting shares over
the twenty trading day period ending on the second trading day preceding the
date of the merger is less than $52.28, Donnelly has the right to terminate the
merger agreement (although this right to terminate is subject to a five
business-day notice period during which Magna may prevent Donnelly from
terminating the merger agreement pursuant to this right by agreeing to increase
the exchange ratio above .459, which otherwise would be the exchange ratio, to
the quotient
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of $24.00 divided by the average trading price of Magna Class A subordinate
voting shares over the twenty NYSE trading days ending on the second trading day
immediately prior to the date of the merger). Under such circumstances the
exchange ratio could be higher than .459.
On August 28, 2002, the last day for which this information could be
calculated before the date of this prospectus/proxy statement, Magna Class A
subordinate voting shares closed at $63.00, and the average trading price of
Magna Class A subordinate voting shares as calculated above for the twenty
trading day period ending with that date was $59.86. If this latter amount was
the average trading price of Magna Class A subordinate voting shares for the
twenty trading day period ending with the second trading day preceding the
effective date of the merger, the exchange ratio would be equal to 0.459 and
Donnelly shareholders would receive 0.459 Magna Class A subordinate voting
shares in exchange for each share of Donnelly common stock. Based on a value of
Magna Class A subordinate voting shares equal to $63.00, their closing price on
August 28, 2002, this exchange ratio would result in Donnelly shareholders
receiving Magna Class A subordinate voting shares with a total value of $28.92
per share of Donnelly common stock. This calculation is intended solely to
illustrate the calculation of the exchange ratio.
TREATMENT OF DONNELLY STOCK HELD BY MAGNA AND THE MERGER SUBSIDIARY OR ANY
WHOLLY OWNED SUBSIDIARY OF DONNELLY. Any shares of Donnelly common stock held by
Magna, by the merger subsidiary or by any wholly owned subsidiary of Magna,
Donnelly or the merger subsidiary shall be canceled and no Magna Class A
subordinate voting shares or other consideration shall be delivered in exchange
for any such shares.
PROCEDURES FOR SURRENDER OF DONNELLY CERTIFICATES; FRACTIONAL SHARES
SURRENDER OF DONNELLY CERTIFICATES. As soon as practicable after the
effective time of the merger, Computershare Trust Company of New York, Magna's
exchange agent for the merger, will send a letter of transmittal and
instructions with respect to the surrender by shareholders of their Donnelly
stock certificates to each former Donnelly shareholder. Magna will deposit with
Computershare Trust Company of New York certificates representing the Magna
Class A subordinate voting shares to be issued in the merger and cash payable in
lieu of fractional Magna Class A subordinate voting shares. The certificates and
cash remaining after one year will be returned to Magna, and the former holders
of Donnelly stock shall thereafter look only to Magna, and not to Computershare
Trust Company of New York, for payment of their claim for Magna Class A
subordinate voting shares.
Upon surrender by Donnelly shareholders of their certificates representing
shares of Donnelly common stock, together with a duly executed letter of
transmittal and other documents, the shareholders will be entitled to receive
stock certificates representing the whole Magna Class A subordinate voting
shares which such holder has the right to receive pursuant to the merger
agreement in respect of the shares of Donnelly common stock formerly evidenced
by such certificates, together with a cash payment in lieu of fractional Magna
Class A subordinate voting shares, if any, and dividends with a record date
following the effective time of the merger.
After the merger, until so surrendered to the exchange agent, each
certificate that previously represented shares of Donnelly stock will represent
only the right to receive upon surrender a certificate evidencing the whole
Magna Class A subordinate voting shares into which such shares of Donnelly
common stock were converted in the merger and cash in lieu of fractional Magna
Class A subordinate voting shares, if any, and any dividends with a record date
following the effective time of the merger.
Holders of certificates previously representing shares of Donnelly stock
will not be paid cash in lieu of fractional Magna Class A subordinate voting
shares or dividends or other distributions payable to holders of record of Magna
Class A subordinate voting shares as of any record date after the effective
time, until their certificates are surrendered to the exchange agent. When such
certificates are surrendered, any cash in lieu of fractional Magna Class A
subordinate voting shares and any unpaid dividends with a record date after the
effective time but prior to such surrender with respect to whole Magna Class A
subordinate voting shares will be paid without interest (however such unpaid
dividends will be paid on the payment date for such dividends, if later than the
time when the certificates are surrendered).
Donnelly's stock transfer books will be closed at the effective time of the
merger, and no further transfers of shares of Donnelly common stock will be
recorded on its stock transfer books. If a transfer of ownership of
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Donnelly common stock that is not registered in the transfer records of Donnelly
has occurred, a certificate representing the proper number of Magna Class A
subordinate voting shares will be issued to a person other than the person in
whose name the certificate so surrendered is registered, together with a cash
payment in lieu of fractional Magna Class A subordinate voting shares, if any,
and payment of dividends or distributions, if any, so long as the Donnelly stock
certificates are accompanied by all documents required to evidence and effect
the transfer and the person requesting such payment pays any transfer or other
taxes required by reason of the transfer or the issuance of Magna Class A
subordinate voting shares or establishes to Magna's satisfaction that such taxes
have been paid.
FRACTIONAL SHARES. No fractional shares of Magna stock will be issued to
any Donnelly shareholder upon surrender of certificates previously representing
Donnelly stock. Instead, the exchange agent will pay to each of those
shareholders an amount in cash determined by multiplying the fractional share
interest to which the holder would otherwise be entitled by the average trading
price of a Magna Class A subordinate voting share during the twenty trading day
period ending on the second trading day preceding the date of the merger.
REPRESENTATIONS AND WARRANTIES
Magna, the merger subsidiary and Donnelly have respectively made
representations and warranties in the merger agreement with respect to
themselves relating to, among other things:
- their corporate organization, standing and power;
- their capital structures;
- the authorization, execution, delivery, and enforceability of the merger
agreement and related matters, including approval of the merger agreement
and the merger by the Magna board and the Donnelly board and, in the case
of Donnelly, its required shareholder vote, and in the case of Magna, the
fact that no approval of its shareholders is required;
- required consents, approvals, orders and authorizations of governmental
authorities relating to, and non-contravention of certain agreements as a
result of, the merger agreement;
- documents filed by each of Magna and Donnelly with the SEC and the
accuracy of the information contained in such documents;
- absence of certain material changes or events with respect to Magna and
Donnelly since December 31, 2001;
- actions and omissions related to the qualification of the merger as a
reorganization for tax purposes;
- engagement of and payment of fees to brokers, investment bankers, finders
and financial advisors in connection with the merger agreement;
- accuracy of information included in this prospectus/proxy statement;
- internal accounting controls and the accuracy of financial statements; and
- the absence of litigation and other proceedings which would prevent or
materially delay the performance of the parties' obligations under the
merger agreement or which seek damages in connection with the merger.
The merger agreement also contains certain additional representations and
warranties of Donnelly, relating to, among other things:
- compliance with applicable laws, permits and licensing requirements;
- taxes and tax returns;
- the absence of litigation and judgments which have had or would reasonably
be expected to have a material adverse effect with respect to Donnelly;
49
- employee benefit plans and compliance with the Employee Retirement Income
Security Act of 1974;
- the absence of certain undisclosed liabilities;
- intellectual property;
- properties, title to properties and related matters;
- customer warranties;
- environmental matters;
- insurance;
- related party transactions;
- excess parachute payments;
- the opinion of its financial advisor;
- exemption of the merger from the requirements of Section 780 and
Chapter 7B of the Michigan Business Corporation Act, and the
inapplicability of other state takeover laws;
- disclosure of material facts;
- labor and union matters;
- vesting and termination of certain stock options; and
- subsidiaries and joint ventures.
The representations and warranties made by the parties to the merger
agreement will not survive the effective time, but they impact conditions to
closing regarding the obligations of Magna and the merger subsidiary, on the one
hand, and Donnelly, on the other hand.
DEFINITION OF MATERIAL ADVERSE EFFECT
The merger agreement defines a material adverse effect with respect to
Donnelly as a material adverse effect on the assets, liabilities, equity,
business, operations, results of operations, condition (financial or otherwise)
or prospects of Donnelly and its subsidiaries, taken as a whole, excluding
(i) such effects resulting from events or occurrences related to general
economic or market conditions or conditions affecting the automotive industry in
general and (ii) any development, related claims or other event solely to the
extent arising out of any facts expressly disclosed (including those disclosed
in any pleadings) to Magna by Donnelly prior to the date of the merger agreement
in respect of any lawsuit, potential claim or agreement specified in the
disclosure letter accompanying the merger agreement (called the "Company
Letter"); PROVIDED that, for all purposes of the merger agreement, and without
limiting the generality of the foregoing, a material adverse effect with respect
to Donnelly shall be deemed to have occurred in the event of any liability of,
effect on or claim against Donnelly or any of its subsidiaries that,
individually or in the aggregate, has had or would reasonably be expected to
have a pre-tax effect of $30 million or greater, net of any insurance or similar
recovery, on the consolidated assets, liabilities, equity, earnings before
interest, taxes, depreciation and amortization ("EBITDA") or net income of
Donnelly in any one or more fiscal quarters or other financial periods (with any
such expected effect in any financial period prior to 2006 to be added to any
such expected effect in any other financial period prior to 2006 for purpose of
determining whether such $30 million threshold has been reached); PROVIDED
FURTHER that (i) any individual liabilities, effects or claims with such a
pre-tax effect of $100,000 or less and (ii) any failure, as a result of ordinary
competitive pressures, by Donnelly or any of its subsidiaries to obtain new
business after the date of the merger agreement, regardless of whether such
business was included in the business plan of Donnelly previously delivered to
Magna, shall be disregarded for purposes of determining whether a material
adverse effect has occurred or will occur.
The merger agreement defines a material adverse effect with respect to Magna
as a material adverse effect on the assets, liabilities, equity, business,
operations, results of operations, condition (financial or otherwise) or
50
prospects of Magna and its subsidiaries, taken as a whole, excluding such
effects resulting from events or occurrences related to general economic or
market conditions or conditions affecting the automotive industry in general;
PROVIDED that, for all purposes of the merger agreement, and without limiting
the generality of the foregoing, a material adverse effect with respect to Magna
shall be deemed to have occurred in the event of any liability of, effect on or
claim against Magna or any of its subsidiaries that, individually or in the
aggregate, has had or would reasonably be expected to have a pre-tax effect of
(i) in the case of any one-time effect, $500 million or greater, and (ii) in the
case of any recurring effect, an average of $100 million or greater per fiscal
year for two or more years, in either case on the consolidated assets,
liabilities, equity, earnings before interest, taxes, depreciation and
amortization (EBITDA) or net income of Magna in any one or more fiscal quarters
or other financial periods.
COVENANTS
CONDUCT OF BUSINESS PENDING THE MERGER. The merger agreement provides that,
except as contemplated by the merger agreement or unless Magna agrees in
writing, Donnelly and its subsidiaries will carry on their business in the
ordinary course in substantially the same manner as conducted in the past, and,
except as expressly required by the merger agreement, will not (except for
various exceptions provided in the merger agreement), among other things,
without the written consent of Magna:
- amend its articles of incorporation or by-laws;
- issue, deliver, sell, pledge, dispose of or otherwise encumber any shares
of its capital stock, including options or warrants (other than the
issuance of shares of capital stock upon the exercise of employee stock
options outstanding on the date the merger agreement was executed);
- declare, set aside or pay any dividends (other than Donnelly's regular
quarterly cash dividends) or make any other distributions with respect to,
or purchase or redeem any shares of capital stock (including options) or
other securities;
- acquire or agree to acquire (i) by merging or consolidating with, or by
purchasing a substantial portion of the assets or properties of or equity
in, any business for more than $2 million or (ii) any material assets or
properties other than purchases of raw materials or equipment in the
ordinary course of business;
- make any capital contributions to, or other investments in, any person
that is not a majority owned subsidiary of Donnelly, other than additional
capital contributions or investments aggregating less than $500,000 that
are in respect of Donnelly's existing investments;
- sell, lease, license, mortgage or otherwise encumber or dispose of any of
its assets, except in the ordinary course of business consistent with past
practice or in connection with the liquidation of a specified joint
venture;
- incur, assume, issue or guarantee any indebtedness for borrowed money,
other than (i) indebtedness incurred in the financing of customer
contracts and accounts receivables in the ordinary course of business,
consistent with past practices, (ii) indebtedness or other loans among
Donnelly and its wholly owned subsidiaries or between such wholly owned
subsidiaries, (iii) other indebtedness in a maximum aggregate principal
amount not exceeding $5 million or (iv) in connection with refinancing
existing indebtedness;
- alter the corporate structure or ownership of Donnelly or any of its
non-wholly owned subsidiaries;
- enter into or adopt any, or amend any existing, severance plan, agreement
or arrangement or enter into or amend any benefit plan or employment or
consulting agreement, except as set forth in the Company Letter;
- increase the compensation payable or to become payable to its officers or
other employees, except for increases required by employment agreements
existing on the date the merger agreement and increases in the ordinary
course of business consistent with past practice in salaries or wages of
such officers or other employees and except as set forth in the Company
Letter;
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- grant or award or amend any stock options, restricted stock, performance
shares, stock appreciation rights or other equity-based incentive awards;
- change or modify its accounting policies (except as required by changes in
United States generally accepted accounting principles);
- except as provided in the Company Letter, make or agree to make any
capital expenditure other than (i) in the ordinary course of business to
support takeover work or other contracts awarded by an OEM after the date
of the business plan of Donnelly previously provided to Magna, (ii) as
specified in such business plan, or (iii) to the extent not specified in
such business plan, capital expenditures not in excess of $1 million
individually or $5 million in the aggregate;
- settle or compromise any suit, proceeding or claim or threatened suit,
proceeding or claim not covered by insurance and in excess of $1 million
in the aggregate;
- settle or compromise any liability under any tax law or environmental law
in excess of $1 million or that would cause a material restraint on
Donnelly's business operations;
- make any material tax election not required by law;
- except as provided in the Company Letter, make any material amendment or
waive any material provision of any contract, arrangement or understanding
requiring the lease or purchase of equipment, materials, supplies or
services in excess of $1 million individually or $5 million in the
aggregate that is not cancelable without a penalty on ninety (90) or fewer
days' notice;
- knowingly violate or fail to perform any material obligations imposed by
any applicable federal, state or local law, rule, regulation, guideline or
ordinance;
- make any payment of any nature to Donnelly Export Corporation except to
allow it to make regular quarterly cash dividends in the ordinary course
of business consistent with past practice;
- take or agree to take any action, or fail to take any action, that would
cause any representation or warranty set forth in the merger agreement to
be untrue or incorrect in any material respect or result in any conditions
set forth in the merger agreement not being satisfied; or
- authorize, recommend, propose or announce an intention to do, or enter
into any agreement or arrangement to do, any of the foregoing.
NO SOLICITATION. The merger agreement provides that until the merger
agreement is terminated in accordance with its terms, neither Donnelly nor its
officers, directors, employees, advisors or agents shall (i) solicit, initiate
or encourage the submission of any proposal for a merger, sale of substantially
all the assets of or other business combination involving Donnelly or any of its
subsidiaries or any proposal or offer to acquire an equity interest in excess of
5% in Donnelly or any of its subsidiaries (any such proposal is referred to as a
"Takeover Proposal"), (ii) enter into any agreement with respect to or approve
or recommend any Takeover Proposal or (iii) participate in any discussions or
negotiations regarding, or furnish to any person any non-public information with
respect to, or take any other action to facilitate any inquiries or the making
of any proposal that constitutes, or may reasonably be expected to lead to, any
Takeover Proposal.
The merger agreement requires Donnelly to promptly advise Magna of any
Takeover Proposal or any inquiry which could reasonably be expected to lead to a
Takeover Proposal and to keep Magna advised of the material terms of such
Takeover Proposal and the identity of the person making such Takeover Proposal.
Donnelly must also keep Magna promptly and fully informed of the status, changes
in and details of any such Takeover Proposal, inquiry or communication.
The merger agreement prohibits Donnelly from terminating, amending,
modifying or waiving the provisions of any confidentiality, standstill or
similar agreement to which it or its subsidiaries is a party. Donnelly must also
enforce, to the fullest extent permitted by law, the provisions of any such
agreements.
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REORGANIZATION. The merger agreement provides that neither Magna, Donnelly
nor any of their respective subsidiaries will take any action, or fail to take
any action, that would jeopardize the qualification of the merger as a
reorganization under Section 368(a) of the Internal Revenue Code.
REDEMPTION OF PREFERRED STOCK. Prior to the effective time, Donnelly must
duly call for redemption and, immediately prior to the effective time, duly
redeem all outstanding shares of Donnelly's 7 1/2% Cumulative Preferred Stock.
EMPLOYEE BENEFITS. With respect to any employee benefit plans of Magna in
which the employees of Donnelly or any of its wholly owned subsidiaries
participate subsequent to the effective time of the merger, Magna will, or will
cause the surviving corporation to, (i) waive all limitations as to pre-existing
conditions, exclusions and waiting periods with respect to participation and
coverage requirements applicable to the employees under any such employee
benefit plan that is a welfare plan (as defined in Section 3(1) of ERISA), in
which such employees may be eligible to participate, to the same extent that
such limitations are or would be waived or satisfied with respect to any
particular employee under a comparable benefit plan of Donnelly or its
affiliates as in effect immediately prior to the effective time, and
(ii) recognize all service of the employees of Donnelly and its wholly owned
subsidiaries for all purposes (excluding benefit accruals under any defined
benefit pension plan, deferred profit sharing plans and eligibility for benefits
under any post-retirement medical plans) in any employee benefit plan of Magna
in which such employees are eligible to participate, to the same extent that
such service is or would be recognized under a comparable plan of Donnelly or
its affiliates as in effect immediately prior to the effective time of the
merger.
The merger agreement provides that the surviving corporation shall not and
Magna shall cause the surviving corporation to not make any changes, amendments
or revisions to (i) the Donnelly Pension Plan for Outside Directors, (ii) the
Donnelly Deferred Director Fee Plan, (iii) the Donnelly Deferred Compensation
Plan or (iv) the Donnelly Supplemental Retirement Plan, that would adversely
affect the amounts or the payment terms with respect to benefits accrued as of
the effective time of the merger and to be paid to the participants therein as
of the effective time. Notwithstanding the foregoing, the surviving corporation
may make any other changes, amendments or revisions to the foregoing plans as
permitted by the terms of such plans and applicable law. As of the effective
time, the surviving corporation will terminate Donnelly's 2002 management bonus
plan and each participant in such plan shall be entitled to such participant's
benefits thereunder as disclosed in the Company Letter, prorated through the
effective time of the merger.
The merger agreement provides that the surviving corporation will and Magna
will cause the surviving corporation to provide retiree medical benefits after
the effective time of the merger as follows: (i) with respect to each current
retiree at the effective time who receives medical benefits that are fully paid
for by Donnelly or one of its wholly owned subsidiaries, the surviving
corporation will continue after the effective time to provide medical benefits
substantially similar to those that the surviving corporation provides from time
to time to its employees to such retiree (at no cost or expense to such
retiree); (ii) with respect to each current retiree at the effective time who
receives medical benefits that are partially paid for by Donnelly or one of its
wholly owned subsidiaries and partially paid for by the retiree, the surviving
corporation will continue after the effective time to provide medical benefits
and pay a percentage of the cost of medical benefits for such retiree that is
equal to the percentage of the cost of medical benefits, subject to existing
Donnelly maximum contribution amounts, for such retiree that is paid by Donnelly
or one of its wholly owned subsidiaries immediately prior to the effective time;
(iii) with respect to each current employee of Donnelly or one of its wholly
owned subsidiaries at the effective time who (A) commenced employment with
Donnelly or one of its wholly owned subsidiaries on or before July 1, 1998, and
(B) retires after the effective time with both ten or more years of service to
Donnelly or one of its wholly owned subsidiaries or successors and at an age of
fifty-five years or older, the surviving corporation will provide medical
benefits and pay a percentage of the cost of medical benefits for such person
that is equal to the percentage of the cost of medical benefits, subject to
existing Donnelly maximum contribution amounts, that would have been required to
be paid by Donnelly or one of its wholly owned subsidiaries upon such retirement
immediately prior to the effective time with respect to the retirees referenced
in (ii) above; provided that for purposes of the foregoing, the surviving
corporation shall take account of the greater of actual years of service and
ten years; (iv) with respect to each current employee of Donnelly or one of its
wholly owned subsidiaries at the effective time who (A) commenced employment
with Donnelly or one of its
53
wholly owned subsidiaries after July 1, 1998, and (B) retires after the
effective time, such person shall be entitled to participate in such retiree
medical programs and receive such medical benefits as may be offered by the
surviving corporation to its employees in accordance with the terms of such
programs. For purposes of determining an employee's eligibility under such
retiree medical programs, the surviving corporation shall take account of the
combined service of such employee with Donnelly or one of its wholly owned
subsidiaries and the surviving corporation.
DONNELLY STOCK OPTIONS. Prior to the effective time, Donnelly will use all
reasonable efforts to cause the holders of certain company stock options to
exercise all such options.
SPECIAL MEETING OF DONNELLY SHAREHOLDERS. The merger agreement provides
that Donnelly shall duly call a special meeting of its shareholders for the
purpose of voting upon the merger agreement, the merger and related matters and
use its best efforts duly to give notice of, convene and hold such special
meeting. Through its board of directors, Donnelly must recommend to its
shareholders approval and adoption of the merger agreement and approval of the
merger, unless Donnelly has received a superior proposal or unless Magna has
delivered a material adverse effect notice. Notwithstanding the foregoing or any
other provision of the merger agreement, Donnelly shall adjourn the special
meeting from time to time until certain of the conditions set forth in the
merger agreement have been satisfied or waived. "Superior proposal" means any
bona fide written Takeover Proposal that the board of directors of Donnelly
determines in good faith after consultation with Donnelly's legal and financial
advisors, and taking into account all the terms and conditions of the Takeover
Proposal, including the likelihood of consummation of such proposal, is more
favorable to Donnelly's shareholders than the merger and for which financing, to
the extent required, is then fully committed or reasonably determined by the
board of directors of Donnelly to be available.
INDEMNIFICATION; DIRECTORS AND OFFICERS INSURANCE. If the merger is
consummated, Magna has agreed to cause the surviving corporation to indemnify
the directors and officers of Donnelly for a period of six years to the same
extent such persons are indemnified under Donnelly's articles of incorporation
and by-laws and certain existing indemnity agreements including against claims
arising from or related to acts or omissions occurring in connection with the
merger agreement, the negotiations and approval of the merger agreement, and the
consummation of the transaction contemplated by the merger agreement, and to
maintain (except to the extent the merger agreement allows the substitution of
other insurance) for a period of six years Donnelly's existing directors and
officers insurance.
TERMINATION OF CERTAIN AFFILIATE ARRANGEMENTS. Prior to the effective time,
Donnelly will terminate all contracts, agreements and arrangements with Donnelly
Export Corporation.
FEES AND EXPENSES. Except as provided below, all fees and expenses incurred
in connection with the merger and the merger agreement, including the fees and
disbursements of counsel, financial advisors and accountants, shall be paid by
the party incurring such fees or expenses, whether or not the merger is
consummated; provided that all expenses incurred in connection with (i) the fees
of counsel incurred pursuant to a certain joint retainer agreement in connection
with any filings made pursuant to Council Regulation No. 4064/89 of the European
Community, as amended, and antitrust statutes of countries other than the United
States and (ii) the printing of the registration statement and this
prospectus/proxy statement shall be divided equally between Magna and the
Donnelly.
Donnelly shall pay to Magna upon demand, in same day funds, a termination
fee of $8 million if Magna terminates the merger agreement because (i) Donnelly
shall have failed to comply in any material respect with any of its covenants or
agreements contained in the merger agreement required to be complied with prior
to the date of such termination, which failure to comply, if curable, has not
been cured within twenty business days following receipt of written notice of
such failure to comply, or (ii) Donnelly has breached (which breach, if curable,
has not been cured within twenty business days following receipt by the
breaching party of written notice of the breach) any representation or warranty
such that Magna's condition to closing with respect to the accuracy of
Donnelly's representations and warranties would not be satisfied if the
effective time occurred on such 20th business day.
54
Magna shall pay to Donnelly upon demand, in same day funds, a termination
fee of $8 million if Donnelly terminates the merger agreement because (i) Magna
shall have failed to comply in any material respect with any of its covenants or
agreements contained in the merger agreement required to be complied with prior
to the date of such termination, which failure to comply, if curable, has not
been cured within twenty business days following receipt of written notice of
such failure to comply, or (ii) Magna or merger subsidiary has breached (which
breach, if curable, has not been cured within twenty business days following
receipt by the breaching party of written notice of the breach) any
representation or warranty such that Donnelly's condition to closing with
respect to the accuracy of Magna's representations and warranties would not be
satisfied if the effective time occurred on such twentieth business day.
If Donnelly or Magna fails promptly to pay any fees or expenses due and, in
order to obtain such payment, Donnelly, Magna or the merger subsidiary commences
a suit that results in a judgment against such other party for any such amount,
such other party shall pay to the commencing party its costs and expenses
(including attorneys' fees) in connection with such suit, together with interest
on the amount of the fee from the date such payment was due. Payment of the
termination fee shall be the sole and exclusive damages remedy which Magna or
Donnelly, as the case may be, shall be entitled against the other.
STOCK EXCHANGE LISTING. Magna will use its best efforts to list on the NYSE
and the TSX the Magna Class A subordinate voting shares to be issued in the
merger.
PUBLIC ANNOUNCEMENTS. Magna and Donnelly have agreed not to issue any press
release or other written public statement with respect to the transactions
contemplated by the merger agreement without prior consultation with the other
party, except as required by applicable law, or pursuant to any listing
agreement with a national securities exchange or the TSX.
EXERCISE OF HOHE CALL OPTIONS. Donnelly shall use all reasonable efforts,
including negotiations with, among other parties, Paul Hohe, Elisabeth Hohe,
Peter Hohe, Dr. Maria Hohe-Schramm and Margarete Meyer, to exercise certain
outstanding call options with respect to certain shares and economic interests
in Donnelly Hohe GmbH & Co. K.G. and Donnelly Hohe Verwaltungs GmbH such that
the closings of the share and economic interest transfers shall occur
immediately prior to the effective time, but shall be conditioned on the
satisfaction or waiver of the conditions to the merger. If Donnelly is unable to
exercise such call options on this basis, then upon Magna's request to Donnelly,
delivered at least ten business days prior to the date of the effective time,
Donnelly shall exercise such call options pursuant to their terms on a date
specified by Magna. If Magna has made such request to exercise such call options
on such conditional basis, then, at the time the call options are exercised and
transferred, Magna shall loan or cause to be loaned to Donnelly all amounts
necessary to permit such exercise and such closings.
ALL REASONABLE EFFORTS. Upon the terms and subject to the conditions of the
merger agreement, each party has agreed to use all reasonable efforts to take or
cause to be taken all actions necessary, proper or advisable to consummate and
make effective, in the most expeditious manner possible, the merger and other
transactions contemplated by the merger agreement including:
- making all necessary registrations and filings with all third parties and
governmental entities;
- obtaining all necessary consents, approvals or waivers from third parties;
- defending any lawsuits or other legal proceedings challenging the merger
agreement or the consummation of the transactions contemplated by the
merger agreement; and
- executing and delivering all additional instruments necessary to complete
the transactions contemplated by, and to carry out the purpose of, the
merger agreement.
These obligations of the parties shall not, however, require (i) either
party to make any divestiture or consent to any divestiture in order to fulfill
any condition or obtain any consent, authorization or approval or to appeal an
injunction or order, or to post a bond in respect of such appeal or (ii) Magna
to comply with any request for additional information from any governmental
entity which would be unduly burdensome or expensive.
55
ADDITIONAL COVENANTS. The merger agreement provides for additional
covenants relating to, among other things:
- the preparation and filing of this prospectus/proxy statement and the
registration statement on Form F-4 of which it is a part;
- the filing and other actions required under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended, and Council Regulation
No. 4064/89 of the European Community, as amended;
- obtaining comfort letters from the independent accountants of both Magna
and Donnelly;
- access to information and confidentiality;
- payment of real estate transfer taxes;
- actions with respect to state takeover statutes;
- notifying the other parties of certain breaches of representations and
warranties, certain failures to comply with the covenants of the merger
agreement and any event that would reasonably be expected to have a
material adverse effect on Magna or Donnelly;
- conduct of any shareholder litigation;
- the commitment or refinancing of debt agreements of Donnelly; and
- the compliance of Donnelly affiliates with certain securities laws.
CONDITIONS
MUTUAL CONDITIONS. The obligations of Magna and Donnelly to effect the
merger are subject to the satisfaction or waiver of the following conditions:
- the Magna Class A subordinate voting shares issuable in the merger shall
have been authorized for listing on the NYSE and the TSX, subject to
official notice of issuance;
- the waiting period applicable to the consummation of the merger under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, shall
have expired or been terminated and any required approval of the merger
shall have been obtained pursuant to any other applicable antitrust
statute (see "The Merger-Antitrust Approvals");
- the merger (i) shall have been cleared by the European Commission,
(ii) shall be deemed to have been cleared by the European Commission due
to expiry of the time limit pursuant to the Council Regulation
No. 4064/89 of the European Community, or (iii) may be consummated due to
a derogation from the suspension obligation granted by the European
Commission in accordance with Council Regulation No. 4064/89 of the
European Community (see "The Merger-Antitrust Approvals");
- the registration statement covering the Magna Class A subordinate voting
shares to be issued in the merger (of which this prospectus/proxy
statement is a part) shall have become effective in accordance with the
provisions of the Securities Act of 1933, as amended, and no stop order or
certain other SEC proceedings related to the registration statement shall
have been issued, remain in effect, been initiated or, to the parties'
knowledge, been threatened by the SEC and not dismissed;
- no court or other governmental entity shall have enacted or issued any
law, rule, regulation or order making the merger and of the transactions
contemplated by the merger agreement illegal; and
- at least 30 days shall have passed between the mailing date of this
prospectus/proxy statement and the date of the special meeting at which
the required vote approving the merger agreement and the merger shall have
been duly obtained.
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CONDITIONS OF DONNELLY'S OBLIGATION TO EFFECT THE MERGER. The obligations
of Donnelly to effect the merger will be subject to the satisfaction or waiver
of the following additional conditions:
- Magna and the merger subsidiary shall have performed in all material
respects each of their agreements contained in the merger agreement and
each of the representations and warranties of Magna and the merger
subsidiary contained in the merger agreement shall be true and correct at
the effective time and each of the representations and warranties that is
not so qualified shall be true and correct in all material respects at the
effective time; PROVIDED, HOWEVER, this condition shall be deemed (i) not
to have been satisfied if the cumulative effect of all inaccuracies in
such representations and warranties (without regard to any qualification
in any particular representation or warranty as to materiality or material
adverse effect with respect to Magna) has had or would reasonably be
expected to have a material adverse effect on Magna and (ii) to have been
satisfied if the cumulative effect of all inaccuracies in such
representations and warranties has not had and would not reasonably be
expected to have a material adverse effect on Magna;
- Donnelly shall have received a "comfort letter" from Magna's independent
accountant;
- Donnelly shall have received an opinion from Varnum, Riddering, Schmidt
and Howlett LLP to the effect that, for federal income tax purposes, the
merger will constitute a "reorganization" within the meaning of
Section 368 of the Internal Revenue Code of 1986, as amended and Donnelly,
the merger subsidiary and Magna will each be a party to that
reorganization, all within the meaning of Section 368(b) of the Code;
- during the twenty consecutive trading day period used to determine the
trading price of Magna Class A subordinate voting shares there shall be no
event or occurrence that would cause a material adverse effect with
respect to Magna; PROVIDED, HOWEVER, that if there is such an event or
occurrence that would reasonably cause such a material adverse effect with
respect to Magna, then this condition will be satisfied if Magna gives
notice to Donnelly that the merger will occur on the twenty-second trading
day after Magna publicly announces such material adverse effect; and
- Magna shall not have been advised by its independent accountant of any
material accounting irregularities that would require it to restate its
financial statements filed with the SEC, and to Magna's knowledge, Magna
shall not be subject to any material pending or threatened investigation
by the SEC concerning such financial statements; PROVIDED, HOWEVER, that
Magna may elect to deem any failure to satisfy this condition to be a
material adverse effect with respect to Magna for purposes of the
immediately preceding condition, in which case this condition shall be
deemed satisfied.
CONDITIONS OF MAGNA'S OBLIGATION TO EFFECT THE MERGER. The obligations of
Magna to effect the merger will be subject to the satisfaction or waiver of the
following additional conditions:
- Donnelly shall have performed in all material respects each of its
agreements contained in the merger agreement and each of the
representations and warranties of Donnelly contained in the merger
agreement shall be true and correct at the effective time and each of the
representations and warranties that is not so qualified shall be true and
correct in all material respects at the effective time; however, this
condition shall be deemed (i) not to have been satisfied if the cumulative
effect of all inaccuracies in such representations and warranties (without
regard to any qualification in any particular representation or warranty
as to materiality or material adverse effect with respect to Donnelly) has
had or would reasonably be expected to have a material adverse effect on
Donnelly and (ii) to have been satisfied if the cumulative effect of all
inaccuracies in such representations and warranties has not had and would
not reasonably be expected to have a material adverse effect on Donnelly;
- Donnelly shall have obtained the consent or approval of each person that
is not a governmental entity whose consent or approval is specified in the
Company Letter;
- all authorizations, consents, orders, declarations or approvals of, or
registrations, declarations of filings with, or expirations of waiting
periods imposed by, any governmental entity specified in the Company
Letter shall have been obtained and shall be in full force and effect;
- Magna shall have received a "comfort letter" from Donnelly's independent
accountant;
57
- since the date of the merger agreement, there shall have been no material
adverse effect with respect to Donnelly or any event that would reasonably
be expected to result in a material adverse effect on Donnelly;
- Donnelly shall not have been advised by its independent accountants of any
accounting irregularities that would require Donnelly to restate its
financial statements filed with the SEC and, to Donnelly's knowledge,
there shall not be any pending or threatened investigation by the SEC
concerning such financial statements;
- prior to the effective time Donnelly shall have received from each holder
of certain Donnelly stock options a binding agreement to exercise all such
options held by such holder and Donnelly shall have delivered to Magna
copies of such agreements prior to August 1, 2002; and
- if Magna has requested that Donnelly exercise the Hohe call options, the
closing of the purchase transactions resulting from such exercise shall
have occurred.
TERMINATION
The merger agreement may be terminated at any time prior to the effective
time:
- by mutual written consent;
- by either Magna or Donnelly if the required approval of the merger by the
shareholders of Donnelly is not obtained at the special meeting or any
adjournment thereof;
- by either Magna or Donnelly if the other of them shall have failed to
comply in any material respect with any of its covenants or agreements
contained in the merger agreement, which failure, if curable, has not been
cured within twenty business days following receipt of written notice;
- by either Magna or Donnelly if there has been a breach by the other of
them of any representation, warranty, covenant or agreement and the
breach, if curable, has not been cured within 20 business days following
receipt of written notice and such breach results in a failure of the
condition to close related to the breaching party's representations and
warranties being accurate;
- by either Magna or Donnelly if: (i) the merger has not been effected on or
prior to the close of business on December 31, 2002 (however the right to
terminate pursuant to this provision is not available to a party whose
failure to fulfill any of its obligations contained in the merger
agreement is the proximate cause of the failure of the merger to have
occurred on or prior to such date); or (ii) any court or other
governmental entity shall have issued an order, decree or ruling
permanently enjoining or otherwise prohibiting the transactions
contemplated by the merger agreement and such order, decree or ruling
shall have become final and non-appealable;
- by Magna if Magna or the merger subsidiary shall have received a notice or
request from any United States or European antitrust authority, or certain
requests for additional information from certain regulatory authorities,
the compliance with which would be, after Magna's good faith efforts to
narrow the scope of such notice or request, unduly burdensome or
expensive;
- by Donnelly if the twenty day average of the high and low trading prices
of a Magna Class A subordinate voting share on the second trading day
preceding the closing date is less than $52.28; PROVIDED, HOWEVER,
Donnelly may not terminate the merger agreement pursuant to this provision
unless both (i) Donnelly shall have (a) provided notice to Magna prior to
the date of the Donnelly shareholders meeting of its intention to
terminate the merger agreement and (b) duly called, given notice of and
convened the special meeting and immediately thereafter duly adjourned the
meeting to the date that is five business days thereafter and (ii) Magna
shall have not, on or prior to 5:00 p.m., Holland, Michigan time, on the
business day next preceding the date of such adjourned special meeting,
provided notice to Donnelly that the exchange ratio shall be increased to
equal the quotient of $24.00 divided by the average of the high and low
trading prices of Magna Class A subordinate voting shares for the 20
consecutive NYSE trading
58
days immediately preceding the second NYSE trading day preceding the
effective time of the merger, provided that Magna shall have no obligation
to increase the exchange ratio; or
- by Donnelly if both (i) Magna has given notice to Donnelly of the
occurrence of a material adverse effect and the closing has been postponed
until the twenty-second trading day following the announcement of such
material adverse effect with respect to Magna and (ii) either (a) the
average of the high and low trading prices of Magna Class A subordinate
voting shares over twenty trading days ending on the second trading day
preceding the effective date of the merger, or (b) the average of the
average high and low trading prices of Magna Class A subordinate voting
shares for the three trading days immediately prior to the date of the
merger, is less than $61.00.
Upon termination, the merger agreement will become void and there will be no
liability on the part of Donnelly, Magna or the merger subsidiary, or their
respective officers or directors (except for provisions relating to
confidentiality, brokers, fees and expenses, and general provisions), however
nothing contained in the merger agreement will relieve any party from any
liability for any breach of a representation or warranty, or any breach of a
covenant, in the merger agreement.
AMENDMENTS
The parties to the merger agreement may amend the merger agreement, but any
amendment that, by law or in accordance with the rules of any relevant stock
exchange, requires further approval by the Donnelly shareholders will not be
made without the further approval of those shareholders. To the extent such
Donnelly shareholder approval is required, the shareholders party to the
shareholders' agreement have the voting power to approve any such amendment. Any
amendment must be in writing.
EXTENSION; WAIVER
The merger agreement permits Donnelly and Magna each to extend the time for
performance of any of the obligations of the other party, to waive any
inaccuracies in the representations and warranties of the other party and waive
compliance with any of the agreements or conditions contained in the merger
agreement. Any extension or waiver is valid only if set forth in a written
instrument duly executed by the party making such extension or waiver.
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SHAREHOLDERS' AGREEMENT
The description of the shareholders' agreement set forth below does not
purport to be complete and is qualified in its entirety by reference to the
agreement. A copy of the shareholders' agreement is attached as Annex B to this
prospectus/proxy statement and is incorporated by reference herein. As an
inducement for Magna and merger subsidiary to enter into the merger agreement,
certain Donnelly shareholders and Donnelly Export Corporation entered into the
shareholders' agreement. The shareholders party to the shareholders' agreement
own in the aggregate 1,841,449 shares of Donnelly Class B common stock and
665,692 shares of Donnelly Class A common stock, and otherwise control the vote
of 1,408,200 shares of Donnelly Class B common stock and 637,730 shares of
Donnelly Class A common stock, which represented, in the aggregate,
(i) approximately 79.62% of the outstanding Donnelly Class B common stock and
(ii) approximately 19.33% of the outstanding Donnelly Class A common stock, as
of June 7, 2002, and on that date represented in the aggregate approximately 72%
of the votes entitled to be cast by holders of Class B common stock and Class A
common stock, voting together as a class, at any duly held meeting of Donnelly's
shareholders. The current percentage of votes represented by shares owned by
persons who are party to the shareholders' agreement is approximately 71%. Set
forth below is a brief summary of the principal terms of the shareholders'
agreement.
REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS. The shareholders made
representations and warranties in the shareholders' agreement relating to, among
other things, their authority to enter into the shareholders' agreement, their
ownership of Donnelly common stock and, to their knowledge, the accuracy of
Donnelly's representations and warranties contained in the merger agreement.
REPRESENTATIONS AND WARRANTIES OF DONNELLY EXPORT CORPORATION. Donnelly
Export Corporation made representations and warranties relating to, among other
things, that it has no assets and that its capital stock has a fair market value
not greater than $100,000, and that all contracts, agreements or arrangements
between it and Donnelly may be terminated prior to the effective time without
any liability on the part of Donnelly.
REPRESENTATIONS AND WARRANTIES OF MAGNA AND THE MERGER SUBSIDIARY. Magna
and the merger subsidiary made representations and warranties relating to, among
other things, their authority to enter into the shareholders' agreement.
SURVIVAL OF REPRESENTATIONS. None of the representations or warranties will
survive the merger.
COVENANTS; IRREVOCABLE PROXY. The shareholders' agreement provides that
(except as otherwise permitted in the shareholders' agreement) until the earlier
of (i) the effective time of the merger or (ii) the termination of the
shareholders' agreement in accordance with its terms:
- the shareholders will vote all shares of Donnelly common stock they own or
have voting control over in favor of the merger and the approval of the
merger agreement and each of the other transactions contemplated by the
merger agreement;
- the shareholders will vote against (i) any other Takeover Proposal,
(ii) certain other amendments to Donnelly's articles of incorporation or
by-laws, and certain proposals or transactions that would in any manner
impede the merger and (iii) any action or agreement which would result in
a breach of the merger agreement;
- the shareholders will not (i) sell, transfer, convert or otherwise dispose
of any shares of Donnelly common stock they own or have voting control
over at the time the merger agreement is executed or (ii) enter into any
voting arrangement;
- the shareholders will not (i) solicit, initiate or actively encourage the
submission of any Takeover Proposal, (ii) enter into any agreement with
respect to or approve or recommend any Takeover Proposal,
(iii) participate in any discussions or negotiations regarding, or furnish
to any person any nonpublic information with respect to any Takeover
Proposal or (iv) take any other action or facilitate any inquiries or the
making of any Takeover Proposal;
- the shareholders will promptly advise Magna of (i) any Takeover Proposal
or any inquiry or communication that could reasonably be expected to lead
to any Takeover Proposal, (ii) the material
60
terms of any Takeover Proposal and (iii) the identity of the person or
persons making any such Takeover Proposal inquiry or communication;
- the shareholders irrevocably appoint Magna as their attorney and proxy to
vote all shares of Donnelly common stock that the shareholders own or are
entitled to vote in favor of the merger and the approval of the merger
agreement, the merger, and each of the other transactions contemplated by
the merger agreement; and
- Donnelly Export Corporation agreed to terminate all agreements and
arrangements with Donnelly, effective as of the closing of the merger.
In addition, the shareholders agreed to certain restrictions on their
ability to transfer Magna Class A subordinate voting shares following the
merger.
TERMINATION. The shareholders' agreement will terminate only upon
termination of the merger agreement pursuant to its terms.
DESCRIPTION OF MAGNA SHARE CAPITAL AND
CORPORATE CONSTITUTION
The authorized share capital of Magna consists of 99,760,000 preference
shares issuable in series, an unlimited number of Class A subordinate voting
shares and 1,412,341 Class B shares. Holders of Class B shares are entitled, at
any time and from time to time, to convert each Class B share into a Class A
subordinate voting share. As at June 30, 2002 there were issued and outstanding
89,181,398 Class A subordinate voting shares and 1,096,509 Class B shares. There
are no preference shares of Magna outstanding. Donnelly shareholders will
receive Class A subordinate voting shares in the merger.
Holders of Class A subordinate voting shares and Class B shares of Magna
generally vote together as a single class, with the holders of Class A
subordinate voting shares entitled to one vote per share and the holders of
Class B shares entitled to 500 votes per share. Under applicable law, a separate
class vote of the holders of Class A subordinate voting shares is required in
certain circumstances. Holders of Class A subordinate voting shares also have
the special voting rights afforded under Magna's Corporate Constitution as
described below. Based on the number of shares outstanding as of June 30, 2002,
Class B shares carry in the aggregate approximately 86% of the total votes
attaching to the Class A subordinate voting shares and the Class B shares;
accordingly, holders of Class B shares currently control Magna.
Under current law and the attributes of the Class B shares and the Class A
subordinate voting shares, neither a tender offer to holders of Class B shares
nor a private contract to purchase Class B shares (regardless of the price paid
therefor) would necessarily result in an offer to purchase Class A subordinate
voting shares.
The holders of Class A subordinate voting shares and Class B shares are
entitled on a pro rata basis to (i) any dividends (except for certain stock
dividends, as described below) that may be declared by the board of directors
and (ii) the remaining assets of Magna, in the event of Magna's liquidation,
dissolution or winding up, after the satisfaction of all obligations of Magna
and its subsidiaries, subject in each case to the preferential rights attaching
to shares ranking in priority to the Class A subordinate voting shares and
Class B shares.
Under Magna's articles of incorporation, the board of directors may declare
a simultaneous dividend payable in Class A subordinate voting shares on the
Class A subordinate voting shares and in Class A subordinate voting shares or
Class B shares on the Class B shares, but no dividend payable in Class B shares
may be declared on the Class A subordinate voting shares.
Neither the Class A subordinate voting shares nor the Class B shares may be
subdivided, consolidated, reclassified, or otherwise changed unless
contemporaneously therewith the other class of shares is subdivided,
consolidated, reclassified or otherwise changed in the same proportion and in
the same manner.
The Corporate Constitution set out in Magna's articles of incorporation (the
"Corporate Constitution") provides for the declaration and payment of certain
minimum annual dividends on the Class A subordinate voting shares and Class B
shares. Unless otherwise approved by ordinary resolution of the holders of each
of the Class A subordinate voting shares and the Class B shares, voting as
separate classes, holders of Class A
61
subordinate voting shares and Class B shares shall be entitled to receive, and
Magna shall pay, as and when declared by the board of directors out of funds
properly applicable to the payment of dividends, non-cumulative dividends in
respect of each fiscal year such that the aggregate of the dividends paid or
payable in respect of such year is (i) equal to at least 10% of Magna's
after-tax profits after providing for dividends on outstanding preference
shares, if any, for such year and (ii) on average, equal to at least 20% of
Magna's "after-tax profits" as defined in the Corporate Constitution after
providing for dividends on outstanding preference shares, if any, for such
fiscal year and the two immediately preceding fiscal years.
In addition to the entitlements described above, the holders of Class A
subordinate voting shares have certain voting rights under Magna's articles of
incorporation. If at any time Magna's after-tax profits are less than 4% of its
"share capital" (defined as the average of the stated capital attributable to
the Class A subordinate voting shares and the Class B shares at the beginning
and at the end of the fiscal year in question) for two consecutive fiscal years
or Magna fails to pay the required dividends referred to above for a period of
two consecutive fiscal years, the holders of Class A subordinate voting shares
shall, until such 4% return is achieved in a succeeding fiscal year and all
required dividends are paid, have the exclusive right, voting separately as a
class, to nominate and elect two directors at the next meeting of shareholders
at which directors are elected. If the 4% return is not achieved or the required
dividends are not paid for any two consecutive fiscal years following the
initial two consecutive fiscal years, then holders of Class A subordinate voting
shares shall, until the 4% return is achieved in a succeeding fiscal year and
all required dividends are paid, have the exclusive right, voting separately as
a class, to nominate and elect two additional directors at the next meeting of
shareholders at which directors are to be elected, and such right to elect an
increasing number of directors shall continue for each consecutive two-year
period. Neither the Corporate Constitution nor the Business Corporations Act
(Ontario) prevents the holders of the Class B shares or Magna's directors from
increasing the size of the board of directors without the approval of the
holders of the Class A subordinate voting shares.
Magna has achieved after-tax profits in excess of 4% of its share capital,
as defined in the Corporate Constitution, in each of its fiscal years since the
adoption of the Corporate Constitution in January 1985 with the exception of
fiscal 1990.
The Corporate Constitution also requires the approval of holders of a
majority of the outstanding Class A subordinate voting shares and holders of a
majority of the outstanding Class B shares, each voting separately as a class:
(a) in addition to any other approval required by the Business Corporations
Act (Ontario), for any increase in the maximum number of authorized
shares of any class of shares of Magna;
(b) in addition to any other approval required by the Business Corporations
Act (Ontario), for the creation of a new class or series of shares having
voting rights of any kind (other than on default of payment of dividends)
or having rights to participate in the profits of Magna in any manner
(other than a class or series convertible into existing classes of shares
or a class or series having a fixed dividend or dividend determined
without regard to profits);
(c) for the making of an investment by Magna in an "unrelated business", as
defined in the Corporate Constitution, where such investment together
with the aggregate of all other investments in unrelated businesses on
the date thereof exceeds 20% of the "available equity", as defined in the
Corporate Constitution, of Magna at the end of the fiscal quarter
immediately preceding the date of the investment; or
(d) for any deviations by Magna from the requirements set forth in the
Corporate Constitution that certain portions of Magna's pre-tax profits
will be distributed or used as specified therein.
COMPARISON OF DONNELLY AND MAGNA CLASS A SUBORDINATE VOTING
SHAREHOLDER RIGHTS
The rights of holders of Donnelly Class A common stock and Class B common
stock are currently governed by the laws of the state of Michigan, including the
Michigan Business Corporation Act ("MBCA"), Donnelly's Second Restated and
Amended Articles of Incorporation and Donnelly's by-laws. As a result of the
merger, holders of Donnelly common stock will receive Magna Class A subordinate
voting shares, the rights and
62
privileges of which are governed by the Business Corporations Act (Ontario)
("OBCA"), Magna's Amended and Restated Articles of Incorporation, Magna's
by-laws, the securities laws applicable in Canada and by the securities laws of
the United States applicable to Canadian corporations. While the rights and
privileges of shareholders of an OBCA corporation such as Magna are, in many
instances, comparable to those of shareholders of a Michigan corporation such as
Donnelly, there are material differences.
The following is a summary of the material differences between the rights of
holders of Donnelly common stock and those of holders of Magna Class A
subordinate voting shares. These differences arise from differences between the
MBCA and the OBCA and between Donnelly's articles and by-laws and Magna's
articles and by-laws.
This summary does not purport to be complete and is qualified in its
entirety by reference to the MBCA and the OBCA and the respective articles and
by-laws of Donnelly and Magna. Copies of the Magna and Donnelly articles and
by-laws are hereby incorporated herein by reference and will be sent to Donnelly
Shareholders upon request.
SUMMARY OF MATERIAL DIFFERENCES BETWEEN CURRENT RIGHTS OF DONNELLY SHAREHOLDERS
AND RIGHTS THOSE SHAREHOLDERS WILL HAVE AS MAGNA CLASS A SUBORDINATE VOTING
SHAREHOLDERS IMMEDIATELY FOLLOWING THE MERGER
DONNELLY COMMON STOCK MAGNA CLASS A SUBORDINATE VOTING SHARES
--------------------- ---------------------------------------
APPROVAL OF MERGERS, EXTRAORDINARY TRANSACTIONS
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Under the MBCA and Donnelly's articles, a merger Under the OBCA, extraordinary corporate actions,
(other than a merger between a parent and such as an amalgamation with another corporation
subsidiary) or share exchange generally must be (other than an amalgamation between a parent
approved by shareholders entitled to cast at least corporation and one or more of its wholly owned
two-thirds of the total number of votes entitled to subsidiaries or between two or more of such
be cast on the plan at a meeting of shareholders subsidiaries), a continuance under the laws of
called to consider the merger or share exchange. If another jurisdiction, a sale, lease or exchange of
the plan of merger contains a provision which, if all or substantially all the property of the
contained in a proposed amendment to the articles of corporation other than in the ordinary course of
incorporation of the corporation, would entitle a business, and other extraordinary corporate actions,
class or series of shares to vote as a class, then such as the winding-up or dissolution of the
the merger or share exchange must also be approved corporation, are required to be approved by special
by a majority of shareholders of such class or resolution. A special resolution is a resolution
series entitled to vote on the merger or share passed by at least two-thirds of the votes cast at
exchange. A class or series of shares is not the special meeting of the shareholders to which the
entitled to vote separately as a class or series if resolution is submitted. A special resolution to
the board of directors determines on a reasonable approve an extraordinary corporate action is also
basis that the class or series is to receive required in some cases to be approved separately by
consideration under the plan of merger or share the holders of a class or series of shares,
exchange that has a fair value that is not less than including a class or series that does not otherwise
the fair value of the shares of the class or series carry the right to vote (generally if such class or
on the date of adoption of the plan. series is affected differently from other shares by
Other extraordinary transactions such as the sale, such action). A corporation may also apply to a
lease, exchange or other disposition of all the court for an order approving an arrangement, which
assets and property of the corporation (other than can be any form of corporate reorganization,
in the usual and regular course of its business) including one or more amendments to the articles of
require approval by shareholders entitled to cast at incorporation, an exchange of the corporation's
least two-thirds of the total number of votes securities for securities, cash or property of
entitled to be cast thereon. another corporation, an amalgamation, a transfer of
all or substantially all the property of the
corporation to another corporation in exchange for
securities, money or other property of such other
corporation, a liquidation or a dissolution. The
court may make such order as it considers
appropriate with respect to such proposed
arrangement.
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AMENDMENT TO GOVERNING DOCUMENTS
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Under the MBCA, an amendment to a corporation's Under the OBCA, an amendment to a corporation's
articles generally requires shareholder approval articles generally requires shareholder approval by
by a majority of the outstanding shares entitled to special resolution. In addition, if certain
vote thereon (although amendments to the articles
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DONNELLY COMMON STOCK MAGNA CLASS A SUBORDINATE VOTING SHARES
--------------------- ---------------------------------------
approval by two-thirds of the votes entitled to be of incorporation directly or indirectly affect the
cast is required to amend certain provisions of rights of a particular class or series of shares,
Donnelly's articles). If any class or series of that class or series is entitled to vote separately
shares is entitled to vote on the amendment as a on the amendment as a class, whether or not that
class, the amendment must be approved by a majority class or series otherwise carries the right to vote.
of the outstanding shares of such class or series of Under the OBCA, unless the articles or by-laws
shares. The shareholders or board of directors may otherwise provide, the directors may, by resolution,
amend or repeal the corporation's by-laws unless the make, amend or repeal any by-law that regulates the
articles of incorporation or by-laws specifically business or affairs of a corporation. Where the
provide that the power to adopt new by-laws is directors make, amend or repeal a by-law, they are
reserved exclusively to the shareholders or that the required to submit the by-law, amendment or repeal
by-laws or any particular by-law may not be altered to the shareholders at the next meeting of
or repealed by the board. shareholders, and the shareholders may, by an
ordinary resolution, which is a resolution passed by
at least a majority of the votes cast by
shareholders who voted in respect of the resolution,
confirm, reject or amend the by-law, amendment or
repeal.
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DISSENTER'S RIGHTS
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The MBCA provides that shareholders are generally The OBCA provides that shareholders entitled to vote
entitled to dissent from and obtain payment of the on certain matters are entitled to exercise
fair value of their shares in the event of any of dissenter rights and to be paid the fair value of
the following actions: their shares. The OBCA does not distinguish for this
- consummation of a plan of merger to which the purpose between listed and unlisted shares. Such
corporation is a party and which requires matters include the following:
shareholder approval under the MBCA or the - any amalgamation (other than with one or more
articles of incorporation and the shareholder is wholly- owned subsidiaries, or between one or more
entitled to vote on the merger, or the such subsidiaries);
corporation is a subsidiary that is merged with - an amendment to the articles to add, remove or
its parent under the MBCA; change restrictions on the issue, transfer or
- consummation of a plan of share exchange to which ownership of shares;
the corporation is a party as the corporation - an amendment to the articles to add, remove or
whose shares will be acquired, if the shareholder change any restriction upon the business or
is entitled to vote on the plan; businesses that the corporation may carry on or
- consummation of a sale or exchange of all, or upon the powers the corporation may exercise;
substantially all, of the property of the - a continuance under the laws of another
corporation other than in the usual and regular jurisdiction;
course of business, if the shareholder is - a sale, lease or exchange of all or substantially
entitled to vote on the sale or exchange, all of the property of the corporation other than in
including a sale in a dissolution, but excluding the ordinary course of business;
a sale pursuant to a court order; - an arrangement proposed by the corporation if the
- an amendment to the articles of incorporation applicable court order permits a shareholder to
which materially alters or abolishes a dissent in connection with that arrangement; or
preferential right of shares having preferences - amendments to the articles of the corporation
or which creates, alters or abolishes a material which require a separate vote by class or series.
provision or right in respect of the redemption
of the shares or a sinking fund for the
redemption or purchase of the shares if the
shareholder does not vote for or consent to the
amendment;
- the corporation proposes to issue, directly or
through a subsidiary, its securities in
connection with a merger, acquisition of shares
or interests of another entity or an acquisition
of assets, provided that the securities to be
issued are or may be converted into common stock
of the acquiring corporation and the number of
shares to be issued in the transaction will
exceed 100% of the number of common shares
outstanding immediately prior to the acquisition
plus the number of shares issuable on conversion
or exchange of any shares then outstanding;
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DONNELLY COMMON STOCK MAGNA CLASS A SUBORDINATE VOTING SHARES
--------------------- ---------------------------------------
- any corporate action taken pursuant to a
shareholder vote to the extent that the articles,
by-laws or a board resolution provide that
shareholders are entitled to dissent and obtain
payment for their shares; and
- the approval of certain acquisitions resulting in
a change of control.
Shareholders may not dissent from the first five of
the foregoing types of corporate actions to the
extent the shares are listed on a national
securities exchange, to the extent shareholders
receive cash or listed shares in the first two of
the foregoing types of corporate actions or to the
extent the shareholders receive, within one year of
the date of the transaction, cash or listed shares
in the third of the foregoing types of corporate
action pursuant to a plan of dissolution.
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MINORITY SHAREHOLDER RIGHTS
----------------------------------------------------------------------------------------------------------
The MBCA allows a shareholder to bring an action to The OBCA provides an oppression remedy that enables
establish that the acts of the directors or those in a complainant to apply to a court for relief against
control of the corporation are illegal, fraudulent certain corporate conduct. The court may make any
or willfully unfair and oppressive to the order it thinks fit to rectify the matters
corporation or the shareholder. The term "willfully complained of, if the court is satisfied that:
unfair and oppressive" means a continuing course of - any act or omission of the corporation or an
conduct or a significant action or series of actions affiliate effects or threatens to effect a result;
that substantially interferes with the interests of - the business or affairs of the corporation or an
the shareholder as a shareholder. If the shareholder affiliate are, have been or are threatened to be
establishes grounds for relief, the court may make carried on or conducted in a manner; or
any order or grant relief as it considers - the powers of the directors of the corporation or
appropriate. A shareholder cannot bring an an affiliate are, have been or are threatened to be
oppression action if its shares are listed on a exercised in a manner,
national securities exchange. that is oppressive or unfairly prejudicial to, or
that unfairly disregards the interests of, any
security holder, creditor, director or officer of
the corporation.
A complainant entitled to apply for an oppression
remedy can be:
- a present or former registered holder or
beneficial owner of securities of a corporation or
any of its affiliates;
- a present or former director or officer of a
corporation or any of its affiliates; or
- any other person who, in the discretion of the
court, is a proper person to make such an
application.
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DERIVATIVE ACTIONS
----------------------------------------------------------------------------------------------------------
Under the MBCA, a shareholder may bring a derivative Under the OBCA, a complainant (defined in the same
action provided that: manner as for the purposes of the oppression remedy,
- the shareholder was a shareholder at the time of as set out above) may apply to the court for leave
the act or omission complained of or became a to bring an action in the name and on behalf of a
holder through transfer by operation of law from corporation or any subsidiary, or to intervene in an
one who was a shareholder at such time; existing action to which any such corporation or
subsidiary is a party, for the purpose of
prosecuting, defending or discontinuing the action
on behalf
65
DONNELLY COMMON STOCK MAGNA CLASS A SUBORDINATE VOTING SHARES
--------------------- ---------------------------------------
- the shareholder fairly and adequately represents of such corporation or subsidiary. No action may be
the interests of the corporation in enforcing the brought and no intervention in an action may be made
right of the corporation; and unless the complainant has given 14 days' notice to
- the shareholder continues to be a shareholder the directors of the corporation or its subsidiary
until the time of the judgment, unless the of the complainant's intention to apply to the court
failure to remain a shareholder resulted from a and the court is satisfied that:
corporate action which the shareholder did not - the directors of the corporation or its
acquiesce to and the proceeding was commenced subsidiary will not bring, diligently prosecute or
prior to termination of the shareholder's status defend or discontinue the action;
as a shareholder. - the complainant is acting in good faith; and
Furthermore a shareholder cannot commence a - it appears to be in the interests of the
derivative action unless all the following corporation or its subsidiary that the action be
conditions have been met: brought, prosecuted, defended or discontinued.
- a written demand has been made on the corporation The court in connection with a derivative action may
to take suitable action; make any order it thinks fit.
- 90-days have expired from the date the demand was A court may require a complainant to pursue a claim
made, unless the shareholder was notified earlier in respect of a wrong to the corporation by way of a
that the corporation rejected the demand prior to derivative action and a claim in respect of a wrong
the expiry of the 90-days or irreparable harm to the complainant personally by way of the
would occur to the corporation by waiting for the oppression remedy.
expiration of the 90-day period.
A court may, on a motion of the corporation, dismiss
a derivative action if the court finds that a
determination has been made by certain combinations
of disinterested directors that such group has made
a determination in good faith after reasonable
investigation of the facts on which its conclusions
are based, that the derivative proceeding is not in
the best interests of the corporation.
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SHAREHOLDER CONSENT INSTEAD OF A MEETING
----------------------------------------------------------------------------------------------------------
Under the MBCA, the articles of incorporation of a Under the OBCA, shareholder action without a meeting
corporation may provide that any action required or may be taken only by written resolution signed by
permitted to be taken at an annual or special all shareholders who would be entitled to vote
meeting of shareholders may be taken without a thereon at a meeting.
meeting, without prior notice, and without a vote,
if consents in writing setting forth the action to
be taken are signed by shareholders of outstanding
shares having not less than the minimum number of
votes that would be necessary to authorize or take
the action at a meeting at which all shares entitled
to vote on the action were present and voted. If the
articles of incorporation do not permit shareholder
action to be taken in such a manner, as Donnelly's
do not, then such action may be taken without a
meeting, without prior notice and without a vote
only if all shareholders consent in writing.
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QUORUM OF SHAREHOLDERS
----------------------------------------------------------------------------------------------------------
Under the MBCA, unless specified otherwise in a Magna's by-laws provide that a quorum for any
corporation's articles of incorporation or by-laws, meeting of shareholders shall be at least 2 persons
shareholders holding a majority of shares entitled present in person, each being a shareholder entitled
to be cast at the meeting constitute a quorum for to vote thereat or a duly appointed proxy for an
such meeting. Donnelly's by-laws currently provide absent shareholder so entitled. Since not otherwise
that shares entitled to cast a majority of the votes provided in Magna's by-laws, the OBCA requires those
present at any meeting constitute a quorum. present or represented by proxy to hold a majority
of shares entitled to vote at the meeting.
66
DONNELLY COMMON STOCK MAGNA CLASS A SUBORDINATE VOTING SHARES
--------------------- ---------------------------------------
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PAYMENT OF DIVIDENDS
----------------------------------------------------------------------------------------------------------
Under the MBCA, the board may authorize the Under the OBCA, a corporation may pay a dividend by
corporation to make a distribution to its issuing fully paid shares of the corporation or
shareholders of money or other property, other than options or rights to acquire such shares. A
the corporation's shares, however, such distribution corporation may also pay a dividend in money or
cannot be made if, after giving effect to the property unless there are reasonable grounds for
distribution, the corporation would not be able to believing that (1) the corporation is, or would
pay its debts as they become due in the usual course after the payment be, unable to pay its liabilities
of business, or the corporation's total assets would as they become due; or (2) the realizable value of
be less than the sum of its total liabilities plus, the corporation's assets would thereby be less than
unless the articles provide otherwise, the amount the aggregate of its liabilities and stated capital
that would be needed, if the corporation were of all classes. A repurchase or redemption by the
dissolved at the time of the distribution, to corporation of its shares, or other reduction of
satisfy the preferential rights upon dissolution of capital, is generally subject to solvency tests
shareholders whose preferential rights are superior similar to those applicable to the payment of
to those receiving the distribution. dividends. Magna's Corporate Constitution provides
for the declaration and payment of certain minimum
annual dividends as described in "Description of
Magna Share Capital and Corporate Constitution".
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DIRECTOR QUALIFICATION
----------------------------------------------------------------------------------------------------------
The MBCA does not contain specific director A majority of the directors of an OBCA corporation
qualifications or residency requirements; provided generally must be resident Canadians and a majority
that the articles of incorporation or by-laws may of resident Canadian directors must be present at a
prescribe qualifications for directors. Neither meeting in order to transact business. Certain
Donnelly's articles nor its by-laws contain any persons are disqualified by the OBCA from being
director qualifications or residency requirements. directors, such as bankrupts or persons under
18 years of age or of unsound mind.
----------------------------------------------------------------------------------------------------------
FIDUCIARY DUTIES OF DIRECTORS
----------------------------------------------------------------------------------------------------------
Pursuant to the MBCA, directors and officers are Pursuant to the OBCA, the duty of loyalty requires
required to act in good faith, with the care an directors to act honestly and in good faith with a
ordinarily prudent person would exercise under view to the best interests of the corporation, and
similar circumstances and in a manner he or she the duty of care requires that the directors
believes to be in the best interests of the exercise the care, diligence and skill that a
corporation. reasonably prudent person would exercise in
comparable circumstances.
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CALL OF SPECIAL SHAREHOLDERS' MEETING
----------------------------------------------------------------------------------------------------------
The MBCA provides that a special meeting of The OBCA provides that shareholder meetings may be
shareholders may be called by the board, or by called by the board of directors, and must be called
officers, directors or shareholders as provided in by the board of directors, when so requisitioned by
the corporation's by-laws. In addition, a court may, holders of not less than 5% of the issued shares of
upon the application of the holders of not less than the corporation that carry the right to vote at the
10% of all the shares entitled to vote at a meeting, meeting sought. A court may also order, in its
order a special shareholders' meeting to be held. discretion, the calling of a meeting upon the
Under Donnelly's by-laws, special meetings of application of a director or a shareholder entitled
shareholders may be called by the chairman of the to vote at the meeting.
board, the president or the secretary pursuant to a
board resolution, or upon written request signed by
any five of Donnelly's directors.
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INDEMNIFICATION OF DIRECTORS AND OFFICERS
----------------------------------------------------------------------------------------------------------
Under the MBCA, a corporation has the power to Under the OBCA, a corporation may indemnify a
indemnify a person who was or is a party, or is director or officer, a former director or officer or
threatened to be made a party, to a threatened, a person who acts or acted at the corporation's
pending, or completed action, suit, or proceeding, request as a director or officer of another
whether civil, criminal, administrative, or corporation of which the corporation is or was a
investigative and whether formal or informal, other shareholder or creditor, and his or her heirs and
than a legal
67
DONNELLY COMMON STOCK MAGNA CLASS A SUBORDINATE VOTING SHARES
--------------------- ---------------------------------------
derivative action, by reason of the fact that he or representatives, against all costs, charges and
she is or was a director, officer, employee, or expenses, including an amount paid to settle an
agent of the corporation, or is or was serving at action or satisfy a judgment, reasonably incurred by
the request of the corporation as a director, him or her in respect of any civil, criminal or
officer, partner, trustee, employee, or agent of administrative action or proceeding to which he or
another foreign or domestic corporation or other she is made a party by reason of being or having
entity. This indemnification extends to expenses, been a director or officer of the corporation or
including attorneys' fees, judgments, penalties, such other corporation, if:
fines, and amounts paid in settlement, actually and - he or she acted honestly and in good faith with a
reasonably incurred by the indemnified person in view to the best interests of the corporation; and
connection with the action, suit, or proceeding, if: - in the case of a criminal or administrative
- the person acted in good faith and in a manner he action or proceeding that is enforced by a monetary
or she reasonably believed to be in or not penalty, he or she had reasonable grounds to
opposed to the best interests of the corporation believe that his or her conduct was lawful.
or its shareholders; and Any such person is entitled to such indemnity from
- with respect to a criminal action or proceeding, the corporation if he or she was substantially
if the person had no reasonable cause to believe successful on the merits in his or her defense of
his or her conduct was unlawful. the action or proceeding and fulfilled the
A corporation may pay or reimburse the reasonable conditions set out in (1) and (2) above. A
expenses incurred by an indemnified person in corporation may, with the approval of a court, also
advance of final disposition of the proceeding if indemnify any such person in respect of an action by
the person undertakes in writing to repay the or on behalf of the corporation or such other
advance if it is ultimately determined that he or corporation to procure a judgment in its favor, to
she did not meet the applicable standard of conduct which such person is made a party by reason of being
required by the MBCA for the indemnification of a or having been a director or officer of the
person under the circumstances. corporation or such other corporation, if he or she
Under Donnelly's articles, directors and officers of fulfills the conditions set out in (1) and
Donnelly are to be indemnified to the fullest extent (2) above. Magna's by-laws require Magna to
permitted by law in connection with any actual or indemnify the persons permitted to be indemnified by
threatened civil, criminal, administrative or the provisions of the OBCA summarized above and
investigative action, suit or proceeding arising out authorize Magna to execute indemnity agreements in
of their service to Donnelly or one of its favor of such persons, to the fullest extent
subsidiaries. Donnelly is permitted to purchase permitted by the OBCA, as well as to maintain
insurance to protect itself and indemnified persons insurance against the risk of liability.
against any liability asserted against such person
or incurred by such person, whether or not Donnelly
would have the power to indemnify such person by law
or under the articles.
For a description of the indemnification provisions
included in the merger agreement, see "The Merger
Agreement--Covenants--Indemnification, Directors and
Officers Insurance".
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DIRECTOR LIABILITY
----------------------------------------------------------------------------------------------------------
Under the MBCA, the articles of incorporation may The OBCA provides that no provision in a contract,
contain provisions eliminating or limiting the the articles, the by-laws or a resolution relieves a
liability of a director to the corporation or its director or officer from the duty to act in
shareholders for money damages for any action taken accordance with the OBCA or relieves him or her from
or any failure to take any action as a director, liability for a breach thereof.
except liability for:
- the amount of a financial benefit received by a
director to which he or she is not entitled;
- intentional infliction of harm on the corporation
or its shareholders;
- declaration of an improper distribution or share
dividend, making a distribution to shareholders
without providing for debts, obligations or
liabilities of the corporation and making an
improper loan to a director,
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DONNELLY COMMON STOCK MAGNA CLASS A SUBORDINATE VOTING SHARES
--------------------- ---------------------------------------
officer or employee of the corporation; and
- an intentional criminal act.
Donnelly's articles provide that directors will not
be personally liable to Donnelly or its shareholders
for monetary damages for a breach of a fiduciary
duty as a director, except for liability:
- for any breach of the director's duty of loyalty
to Donnelly or its shareholders;
- for acts or omissions not in good faith or which
involve intentional misconduct or a knowing
violation of law;
- resulting from a violation of certain sections of
the MBCA;
- for any transaction from which the director
derived improper personal benefits; or
- for any act or omission occurring prior to
March 1, 1987.
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ACCESS TO CORPORATE RECORDS
----------------------------------------------------------------------------------------------------------
Under the MBCA, any shareholder of record in person Under the OBCA, shareholders, creditors, their
or by attorney or other agent, may, during the agents and legal representatives may examine the
usual hours of business, inspect for any proper articles, by-laws, minutes of meetings and
purpose the corporation's stock ledger, a list of resolutions of shareholders, register of directors
its shareholders, and its other books and records, and securities register of the corporation during
if the shareholder gives the corporation written usual business hours and take extracts therefrom,
demand describing with reasonable particularity his free of charge. Shareholders and others have the
or her purpose and the records he or she desires to right to obtain a shareholder list, upon payment of
inspect, and the records sought are directly a reasonable fee, as long as such list is used only
connected with the purpose. A proper purpose shall in connection with an effort to influence voting by
mean a purpose reasonably related to such person's shareholders of the corporation, an offer to acquire
interest as a shareholder. shares of the corporation or any other matter
relating to the affairs of the corporation.
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DIRECTOR REQUIREMENTS
----------------------------------------------------------------------------------------------------------
Under the MBCA the number of directors shall be Under the OBCA, the number of directors is set out
fixed by, or in the manner provided in, the in the articles of the corporation. The OBCA
by-laws, unless the articles fix the number. If the requires, however, that a corporation whose
articles of incorporation specifies the number of securities are publicly traded have not fewer than
directors, the number of directors can only be three directors, at least one-third of whom are not
changed by amending the articles of incorporation. officers or employees of the corporation or any of
Donnelly's articles permit the board to consist of its affiliates. However, where the articles provide
between eight and twelve members, the exact number for a minimum and maximum number of directors, the
to be determined by board resolution. Donnelly shareholders may authorize the directors by special
currently has 10 directors. resolution to determine the number of directors from
time to time. The articles of Magna provide for a
minimum of 2 and a maximum of 15 directors. The
directors of Magna have been authorized by special
resolution to set the number of directors from time
to time and such number has currently been set at
13.
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VACANCY ON BOARD OF DIRECTORS
----------------------------------------------------------------------------------------------------------
Under the MBCA, unless otherwise limited by the Generally, under the OBCA, if a vacancy occurs in
articles of incorporation, a vacancy in the board the board of directors, the remaining directors, if
of directors may be filled by the shareholders or constituting a quorum, may appoint a qualified
the directors. If the directors remaining in office person to fill the vacancy for the remainder of the
do not constitute a quorum of directors, the vacancy vacating director's term. In the absence of a
may be filled by affirmative vote of a majority of quorum, the remaining directors shall call a
69
DONNELLY COMMON STOCK MAGNA CLASS A SUBORDINATE VOTING SHARES
--------------------- ---------------------------------------
the directors remaining in office. Under Donnelly's meeting of shareholders to fill the vacancy. If the
articles, a vacancy shall be filled by a vote of a shareholders have authorized the directors by
majority of the directors then in office and any special resolution to determine the number of
directors chosen shall hold office until the next directors (the directors of Magna have such
annual meeting of shareholders. authority), the directors may not appoint additional
directors between meetings of shareholders to fill
vacancies created by increasing the number of
directors if the total number of directors would
thereby exceed by more than one-third the number of
directors required to have been elected at the last
annual meeting.
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REMOVAL OF DIRECTORS
----------------------------------------------------------------------------------------------------------
Under the MBCA, the shareholders of a corporation Under the OBCA, the shareholders of a corporation
may, by resolution passed by a majority of the may, by resolution passed by a majority of the votes
shares entitled to vote thereon at a meeting of cast thereon at a meeting of shareholders, remove
shareholders, remove a director with or without any director from office and may elect any qualified
cause unless the corporation's articles provide that person to fill the resulting vacancy.
a director may only be removed for cause. The
articles of a corporation may specify a higher vote
to remove a director without cause. Donnelly's
articles provide for removal with or without cause.
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TRANSACTIONS WITH INTERESTED DIRECTORS
----------------------------------------------------------------------------------------------------------
Under the MBCA, a transaction in which a director or The OBCA requires that a director or officer of a
officer has an interest will not be enjoined, set corporation who is (1) a party to a material
aside or give rise to an award of damages or other contract or transaction or proposed material
sanctions if the interested director or officer contract or transaction with the corporation, or
establishes that (1) the transaction was fair to (2) a director or an officer of, or has a material
the corporation at the time it was entered into, interest in, any person who is a party to a material
(2) the material facts of the transaction and the contract or transaction or proposed material
director or officer's interest were disclosed or contract or transaction with the corporation shall
known to the board, a committee of the board or the disclose in writing to the corporation or request to
independent director or directors, and the board, have entered in the minutes of meetings of directors
committee or independent director or directors the nature and extent of his or her interest. An
authorized, approved or ratified the transaction, or interested director is prohibited from voting on a
(3) the material facts of the transaction and the resolution to approve the contract or transaction
director or officer's interest were disclosed or except in specific circumstances, such as a contract
known to the shareholders entitled to vote and they or transaction relating primarily to his or her
authorized, approved or ratified the transaction. remuneration, a contract or transaction for
indemnification or liability insurance of the
director, or a contract or transaction with an
affiliate of the corporation. If a director or
officer has disclosed his or her interest in
accordance with the OBCA and the contract or
transaction was reasonable and fair to the
corporation at the time it was approved, the
director or officer is not accountable to the
corporation or its shareholders for any profit or
gain realized from the contract or transaction and
the contract or transaction is neither void nor
voidable by reason only of the interest of the
director or officer or that the director is present
at or is counted to determine the presence of a
quorum at the meeting of directors that authorized
the contract or transaction. The OBCA further
provides that even if a director or officer does not
disclose his or her interest in accordance with the
OBCA, or (in the case of a director) votes in
respect of a resolution on a contract or transaction
in which he or she is interested contrary to the
OBCA, if the director or officer acted honestly and
in good faith and the contract or transaction was
reasonable and fair to the corporation at the time
it was
70
DONNELLY COMMON STOCK MAGNA CLASS A SUBORDINATE VOTING SHARES
--------------------- ---------------------------------------
approved, the director or officer is not accountable
to the corporation or to its shareholders for any
profit or gain realized from the contract or
transaction by reason only of his or her holding the
office of director or officer and the contract or
transaction is not by reason only of the director's
or officer's interest therein void or voidable, if
the contract or transaction has been confirmed or
approved by the shareholders by special resolution,
on the basis of disclosure in reasonable detail of
the nature and extent of the director's or officer's
interest in the notice of meeting or management
proxy circular.
----------------------------------------------------------------------------------------------------------
TAKEOVER LEGISLATION
----------------------------------------------------------------------------------------------------------
Chapters 7A and 7B of the MBCA affect attempts to The OBCA does not contain any provisions comparable
acquire control of Michigan corporations. In to Chapters 7A and 7B of the MBCA.
general, under Chapter 7A, "business combinations"
(defined to include, among other transactions,
certain mergers, dispositions of assets or shares
and recapitalizations) between covered Michigan
business corporations or their subsidiaries and an
"interested shareholder" (defined as the direct or
indirect beneficial owner of at least 10% of the
voting power of a covered corporation's outstanding
shares) can be consummated only if approved by at
least 90% of the votes of each class of the
corporation's shares entitled to vote and by at
least two-thirds of such voting shares not held by
the interested shareholder or such shareholder's
affiliates, unless five years have elapsed after the
person involved became an "interested shareholder"
and unless certain price and other conditions are
satisfied. The board may exempt "business
combinations" with a particular "interested
shareholder" by resolution adopted prior to the time
the "interested shareholder" attained the status.
Chapter 7A of the MBCA does not apply to the merger
of Donnelly and the merger subsidiary, since the
merger does not involve any "interested
shareholders".
In general, under Chapter 7B of the MBCA, an entity
that acquires "control shares" of a corporation may
vote the control shares on any matter only if a
majority of all shares, and of all non-"interested
shares", of each class of shares entitled to vote as
a class, approve such voting rights. Interested
shares are shares owned by officers, employees or
directors of the corporation the entity making the
control share acquisition. Control shares are shares
that, when added to shares already owned by an
entity, would give the entity voting power in the
election of directors over any of three thresholds:
one-fifth, one-third and a majority. The effect of
the statute is to condition the acquisitions of
voting control of a corporation on the approval of a
majority of the pre-existing disinterested
shareholders. The board has the option of choosing
to amend the corporation's by-laws before a control
share acquisition occurs to provide that Chapter 7B
does not apply to the corporation.
71
EXPERTS
The consolidated balance sheets of Magna as of December 31, 2001 and 2000
and the consolidated statements of income, retained earnings and cash flows for
each of the years in the three-year period ended December 31, 2001, incorporated
by reference in this prospectus/proxy statement, have been incorporated in
reliance on the report of Ernst & Young LLP, independent public accountants,
given on the authority of that firm as experts in accounting and auditing.
The financial statements and schedule of Donnelly incorporated by reference
in this prospectus/proxy statement have been audited by BDO Seidman, LLP,
independent certified public accountants, to the extent and for the periods set
forth in their reports incorporated herein by reference, and are incorporated
herein in reliance upon such reports given upon the authority of said firm as
experts in accounting and auditing.
LEGAL MATTERS
The validity of the Magna Class A subordinate voting shares to be issued in
the merger will be passed upon for Magna by J. Brian Colburn, Executive
Vice-President, Special Projects and Secretary of Magna. Certain legal matters
with respect to the federal income tax consequences of the merger to Donnelly
shareholders will be passed upon by Varnum, Riddering, Schmidt & Howlett LLP,
Grand Rapids, Michigan.
WHERE YOU CAN FIND MORE INFORMATION
You can obtain current information on the exchange ratio by calling
toll-free 1-800-245-7630.
Donnelly and Magna file annual, quarterly and special reports, proxy
statements and other information with the SEC. You may read and copy any
reports, statements or other information that we have filed at the SEC's public
reference rooms. Please call the SEC at 1-800-SEC-0330 for information on the
public reference rooms or visit the following locations of the SEC:
Public Reference Room Northeast Regional Office Midwest Regional Office
450 Fifth Street, Woolworth Building Citicorp Center
N.W.
Room 1024 233 Broadway 500 West Madison Street
Washington, DC 20549 New York, NY 10279 Suite 1400
Chicago, Illinois 60661-2511
You may also obtain copies of this information by mail from the Public
Reference Section of the SEC, 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549, at prescribed rates. Magna's and Donnelly's SEC filings
are also available to the public from commercial document retrieval services and
certain of Magna's filings and all of Donnelly's filings are available at the
web site maintained by the SEC at http://www.sec.gov.
Magna filed a registration statement on Form F-4 to register with the SEC
the Magna Class A subordinate voting shares that will be issued to Donnelly
shareholders in the merger. This prospectus/proxy statement is a part of that
registration statement and constitutes a prospectus of Magna in addition to
being a proxy statement of Donnelly. As allowed by SEC rules, this
prospectus/proxy statement does not contain all the information you can find in
the registration statement or the exhibits to the registration statement.
The SEC allows Donnelly and Magna to "incorporate by reference" information
into this prospectus/proxy statement, which means important information may be
disclosed to you by referring you to another document filed separately with the
SEC. The information incorporated by reference is deemed to be part of this
prospectus/proxy statement, except for any information superseded by information
in (or incorporated by reference in) this prospectus/proxy statement. This
prospectus/proxy statement incorporates by reference the
72
documents set forth below that have been previously filed with the SEC. These
documents contain important information about our companies and their financial
condition.
DONNELLY'S SEC FILINGS (FILE NO. 001-09716) DESCRIPTION OR PERIOD/AS OF DATE
------------------------------------------- -----------------------------------------------
Annual Report on Form 10-K..................... Year ended December 31, 2001, filed on
March 28, 2002.
Quarterly Report on Form 10-Q.................. Quarter ended March 31, 2002, filed on
May 15, 2002.
Quarterly Report on Form 10-Q.................. Quarter ended June 30, 2002, filed on
August 13, 2002.
Current Report on Form 8-K..................... Filed on May 21, 2002.
Current Report on Form 8-K..................... Filed on June 27, 2002.
Proxy Statement on Schedule 14A................ For the Annual Meeting of Shareholders held on
May 17, 2002, filed on April 5, 2002.
Registration Statement of Form 8-A............. Description of Donnelly common stock contained
in its Registration Statement on Form 8-A filed
on February 18, 1997, and any amendment or
report filed for the purpose of updating the
description.
MAGNA SEC FILINGS (FILE NO. 001-11444) DESCRIPTION OR PERIOD/AS OF DATE
-------------------------------------- -----------------------------------------------
Annual Report on Form 40-F..................... Year ended December 31, 2001, filed on
May 5, 2002.
Report on Form 6-K............................. Filed on February 19, 2002.
Report on Form 6-K............................. Filed on March 14, 2002.
Report on Form 6-K............................. Filed on April 8, 2002.
Report on Form 6-K............................. Filed on May 6, 2002.
Report on Form 6-K............................. Filed on May 13, 2002.
Report on Form 6-K............................. Filed on May 31, 2002.
Report on Form 6-K............................. Filed on June 10, 2002.
Report on Form 6-K............................. Filed on June 26, 2002.
Report on Form 6-K............................. Filed on July 16, 2002.
Report on Form 6-K............................. Filed on July 19, 2002.
Report on Form 6-K............................. Filed on July 22, 2002.
Report on Form 6-K............................. Filed on August 8, 2002.
Report on Form 6-K............................. Filed on August 14, 2002.
Report on Form 6-K............................. Filed on August 28, 2002.
Report on Form 6-K............................. Filed on August 29, 2002.
Donnelly and Magna are also incorporating by reference additional documents
that either company may file with the SEC pursuant to the Securities Exchange
Act of 1934 and the rules and regulations promulgated thereunder, between the
date of this prospectus/proxy statement and the effective time. These include
periodic reports, such as annual reports on Form 10-K or Form 40-F, quarterly
reports on Form 10-Q, current reports on Form 8-K, and reports on Form 6-K, as
well as proxy statements.
Magna has supplied all information contained or incorporated by reference in
this prospectus/proxy statement relating to Magna, and Donnelly has supplied all
such information relating to Donnelly.
If you are a shareholder, Magna and Donnelly may have sent you some of the
documents incorporated by reference, but you can obtain any of them through us,
the SEC, or the SEC Internet worldwide web site as described above. In addition,
information about Magna, including the documents which form the subject of
Magna's SEC filings listed above, can be obtained at http://www.sedar.com.
Documents incorporated by reference are available from us without charge,
excluding all exhibits unless we have specifically incorporated by reference an
exhibit in this prospectus/proxy statement. Shareholders may obtain documents
incorporated by
73
reference in this prospectus/proxy statement by requesting them in writing or by
telephone from the appropriate party at the following address:
Donnelly Corporation Magna International Inc.
49 East Third Street 337 Magna Drive
Holland, Michigan 49423 Aurora, Ontario
(616) 786-6080 Canada L4G 7K1
Attn: Corporate Secretary (905) 726-7072
Attn: Executive Vice-President,
Special Projects and Secretary
If you would like to request documents from us, please do so by
September 25, 2002 to receive them before the special meeting. If you request
any incorporated documents from us, we will mail them to you by first class
mail, or another equally prompt means, within one business day after we receive
your request.
WE HAVE AUTHORIZED NO ONE TO GIVE YOU ANY INFORMATION OR TO MAKE ANY
REPRESENTATION ABOUT THE PROPOSED MERGER INVOLVING OUR COMPANIES THAT DIFFERS
FROM OR ADDS TO THE INFORMATION CONTAINED IN THIS PROSPECTUS/PROXY STATEMENT OR
IN THE DOCUMENTS OUR COMPANIES HAVE PUBLICLY FILED WITH THE SEC. THEREFORE, IF
ANYONE SHOULD GIVE YOU ANY DIFFERENT OR ADDITIONAL INFORMATION, YOU SHOULD NOT
RELY ON IT.
IF YOU LIVE IN A JURISDICTION WHERE IT IS UNLAWFUL TO OFFER TO EXCHANGE OR
SELL, OR TO ASK FOR OFFERS TO EXCHANGE OR BUY, THE SECURITIES OFFERED BY THIS
PROSPECTUS/PROXY STATEMENT OR IF YOU ARE A PERSON TO WHOM IT IS UNLAWFUL TO
DIRECT SUCH ACTIVITIES, THEN THE OFFER PRESENTED BY THIS INFORMATION
STATEMENT/PROSPECTUS DOES NOT EXTEND TO YOU.
THE INFORMATION CONTAINED IN THIS DOCUMENT SPEAKS ONLY AS OF THE DATE
INDICATED ON THE COVER OF THIS DOCUMENT UNLESS THE INFORMATION SPECIFICALLY
INDICATES THAT ANOTHER DATE APPLIES.
74
ANNEX A
AGREEMENT AND PLAN OF MERGER
AMONG
MAGNA INTERNATIONAL INC.,
MAGNA MIRRORS ACQUISITION CORP.
AND
DONNELLY CORPORATION
DATED AS OF JUNE 25, 2002
TABLE OF CONTENTS
PAGE
--------
ARTICLE I
THE MERGER
Section 1.1 The Merger.................................................. A-8
Section 1.2 Effective Time.............................................. A-8
Section 1.3 Effects of the Merger....................................... A-9
Section 1.4 Charter and By-laws; Directors; Officers.................... A-9
Conversion of Securities and Issuance of Surviving
Section 1.5 Corporation Stock......................................... A-9
Parent to Make Certificates and Cash Available; Transfer
Section 1.6 Taxes; Withholding........................................ A-10
Section 1.7 Dividends................................................... A-11
Section 1.8 No Fractional Securities.................................... A-11
Section 1.9 Return of Exchange Fund..................................... A-11
Section 1.10 Adjustment of Exchange Ratio................................ A-12
No Further Ownership Rights in Company Common Stock; Company
Section 1.11 Stock Options............................................. A-12
Section 1.12 Closing of Company Transfer Books........................... A-12
Section 1.13 Lost Certificates........................................... A-12
Section 1.14 Further Assurances.......................................... A-12
Section 1.15 Closing..................................................... A-12
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB
Section 2.1 Organization, Standing and Power. A-13
Section 2.2 Capital Structure........................................... A-13
Section 2.3 Authority................................................... A-13
Section 2.4 Consents and Approvals; No Violation........................ A-14
Section 2.5 Registration Statement and Proxy Statement/Prospectus....... A-14
Section 2.6 Absence of Certain Changes or Events........................ A-15
Section 2.7 No Required Vote of Parent Shareholders..................... A-15
Section 2.8 Reorganization.............................................. A-15
Section 2.9 Brokers..................................................... A-15
Section 2.10 Accounting Controls; Financial Statements................... A-15
Section 2.11 Accounting Matters.......................................... A-15
Section 2.12 Litigation.................................................. A-15
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Section 3.1 Organization, Standing and Power. A-16
Section 3.2 Capital Structure........................................... A-17
Section 3.3 Authority................................................... A-17
Section 3.4 Consents and Approvals; No Violation........................ A-18
Section 3.5 SEC Documents and Other Reports............................. A-18
Section 3.6 Registration Statement and Proxy Statement/Prospectus....... A-19
Section 3.7 Absence of Certain Changes or Events........................ A-19
Section 3.8 Permits and Compliance...................................... A-19
Section 3.9 Tax Matters................................................. A-20
Section 3.10 Actions and Proceedings..................................... A-21
Section 3.11 Certain Agreements.......................................... A-21
Section 3.12 ERISA....................................................... A-22
Section 3.13 Certain Liabilities......................................... A-23
Section 3.14 Intellectual Property....................................... A-24
A-2
Section 3.15 Properties, Title and Related Matters....................... A-24
Section 3.16 Customer Warranties......................................... A-25
Section 3.17 Environmental Matters....................................... A-25
Section 3.18 Insurance................................................... A-26
Section 3.19 Related Party Transactions.................................. A-26
Section 3.20 Parachute Payments to Disqualified Individuals.............. A-27
Section 3.21 Opinion of Financial Advisor................................ A-27
Section 3.22 State Takeover Statutes..................................... A-27
Section 3.23 Reorganization.............................................. A-27
Section 3.24 Brokers..................................................... A-27
Section 3.25 Votes Required.............................................. A-27
Section 3.26 Disclosure.................................................. A-27
Section 3.27 Accounting Controls......................................... A-27
Section 3.28 Accounting Matters.......................................... A-28
Section 3.29 Labor Matters............................................... A-28
Section 3.30 Old Company Stock Options................................... A-28
Section 3.31 Subsidiaries and Joint Ventures............................. A-28
ARTICLE IV
COVENANTS RELATING TO CONDUCT OF BUSINESS
Section 4.1 Conduct of Business by the Company Pending the Merger. A-29
Section 4.2 No Solicitation; Third Party Standstill Agreements.......... A-31
Section 4.3 Reorganization.............................................. A-31
Section 4.4 Redemption of Company 7 1/2% Preferred...................... A-31
ARTICLE V
ADDITIONAL AGREEMENTS
Section 5.1 Special Meeting of Shareholders. A-31
Section 5.2 Filings; Other Actions...................................... A-32
Section 5.3 Comfort Letters............................................. A-32
Section 5.4 Access to Information....................................... A-33
Section 5.5 Compliance with the Securities Act.......................... A-33
Section 5.6 Stock Exchange Listings..................................... A-33
Section 5.7 Fees and Expenses........................................... A-33
Section 5.8 Reasonable Efforts.......................................... A-34
Section 5.9 Public Announcements........................................ A-34
Section 5.10 Real Estate Transfer and Gains Tax.......................... A-34
Section 5.11 State Takeover Laws......................................... A-35
Section 5.12 Indemnification; Directors and Officers Insurance........... A-35
Section 5.13 Notification of Certain Matters............................. A-35
Section 5.14 Shareholder Litigation...................................... A-35
Section 5.15 Company Debt Agreements..................................... A-36
Section 5.16 Company Stock Options....................................... A-36
Section 5.17 Donnelly Export............................................. A-36
Section 5.18 Benefit Plans............................................... A-36
Section 5.19 Exercise of Hohe Call Options............................... A-37
ARTICLE VI
CONDITIONS PRECEDENT TO THE MERGER
Section 6.1 Conditions to Each Party's Obligation to Effect the Merger. A-38
Conditions to Obligation of the Company to Effect the
Section 6.2 Merger.................................................... A-38
Conditions to Obligations of Parent and Sub to Effect the
Section 6.3 Merger.................................................... A-39
A-3
Section 7.2 Effect of Termination....................................... A-42
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
Section 7.1 Termination. A-41
Section 7.3 Amendment................................................... A-42
Section 7.4 Waiver...................................................... A-42
ARTICLE VIII
GENERAL PROVISIONS
Section 8.1 Non-Survival of Representations and Warranties. A-43
Section 8.2 Notices..................................................... A-43
Section 8.3 Interpretation.............................................. A-43
Section 8.4 Counterparts................................................ A-44
Section 8.5 Entire Agreement; No Third-Party Beneficiaries.............. A-44
Section 8.6 Governing Law............................................... A-44
Section 8.7 Assignment.................................................. A-44
Section 8.8 Severability................................................ A-44
Section 8.9 Enforcement of this Agreement............................... A-45
A-4
LOCATION OF DEFINED TERMS
DEFINED TERM SECTION
------------ -----------
Agreement................................................... Recitals
Average Price............................................... 1.5(c)
Blue Sky Laws............................................... 2.4
Certificate of Merger....................................... 1.2
Certificates................................................ 1.6(b)
Chinese Joint Ventures...................................... 8.3
Closing..................................................... 1.15
Closing Date................................................ 1.15
Code........................................................ Recitals
Commitments................................................. 3.8
Company..................................................... Recitals
Company Annual Report....................................... 3.2
Company Articles of Incorporation........................... 1.4(a)
Company Class A Common Stock................................ Recitals
Company Class B Common Stock................................ Recitals
Company Closing Certificate................................. 6.3(a)
Company Common Stock........................................ Recitals
Company Debt................................................ 5.15
Company Letter.............................................. Article III
Company Liability Policies.................................. 3.18
Company Material Adverse Effect............................. 3.1(a)
Company Permits............................................. 3.8
Company Plan................................................ 3.12(h)
Company Policies............................................ 3.18
Company Preferred Stock..................................... 3.2
Company Required Vote....................................... 3.25
Company SEC Documents....................................... 3.5
Company 7 1/2% Preferred.................................... 3.2
Company Stock Options....................................... 3.2
Company Stock Plans......................................... 3.2
Confidentiality Agreement................................... 5.4
Constituent Corporations.................................... Recitals
DOL......................................................... 3.12(a)
Donnelly Export............................................. Recitals
EBITDA...................................................... 2.1
EC Merger Regulation........................................ 2.4
Effective Time.............................................. 1.2
Encumbrances................................................ 3.15(b)
Environmental Laws.......................................... 3.17
Environmental Permits....................................... 3.17
ERISA....................................................... 3.12(a)
ERISA Affiliate............................................. 3.12(h)
Exchange Act................................................ 2.4
Exchange Agent.............................................. 1.6(a)
Exchange Fund............................................... 1.6(a)
Exchange Ratio.............................................. 1.5(c)
Filing Office............................................... 1.2
Financial Statements........................................ 3.5
GAAP........................................................ 3.5
Gains Taxes................................................. 5.10
A-5
DEFINED TERM SECTION
------------ -----------
Governmental Entity......................................... 2.4
Hazardous Substances........................................ 3.17
Hohe........................................................ 3.31
Hohe Call Options........................................... 3.31
Hohe Call Option Closings................................... 5.19
Hohe Holders................................................ 3.31
HSR Act..................................................... 2.4
IRS......................................................... 3.9
Indemnified Parties......................................... 5.12
Intellectual Property....................................... 3.14(b)
Joint Venture............................................... 3.31
Lien........................................................ 2.4
Mailing Date................................................ 5.2(a)
MBCA........................................................ 1.1
Market Price................................................ 1.5(c)
Marks....................................................... 3.14(a)
Medical Benefits............................................ 5.18(d)
Merger...................................................... Recitals
Merger Consolidation Increase Notice........................ 7.1(g)
Multiemployer Plan.......................................... 3.12(h)
Multiple Employer Plan...................................... 3.12(h)
New Company Stock Options................................... 3.2
Non-Controlled Subsidiaries................................. 8.3
non-wholly owned Subsidiary................................. 3.31
NYSE........................................................ 1.5(c)
Old Company Stock Options................................... 3.2
Other Plans................................................. 3.2
Parent...................................................... Recitals
Parent Class B Stock........................................ 2.2
Parent Closing Certificate.................................. 6.2(a)
Parent Common Stock......................................... Recitals
Parent Hohe Request......................................... 5.19
Parent Letter............................................... Article II
Parent MAE Notice........................................... 6.2(d)
Parent Material Adverse Effect.............................. 2.1
Parent Preferred Stock...................................... 2.2
Parent SEC Documents........................................ Article II
Parent Stock................................................ 2.2
Parent Stock Price.......................................... 1.5(c)
PBGC........................................................ 3.12(a)
Permits..................................................... 3.17
Principal Shareholders...................................... Recitals
Proxy Statement/Prospectus.................................. 2.5
Registration Statement...................................... 2.3
Rule 145 Affiliates......................................... 5.5
Salomon Smith Barney........................................ 3.21
SEC......................................................... Article II
Securities Act.............................................. 2.3
Shareholders' Agreement..................................... Recitals
Special Meeting............................................. Recitals
Special Meeting Resumption Date............................. 7.1(g)
Sub......................................................... Recitals
A-6
DEFINED TERM SECTION
------------ -----------
Sub Common Stock............................................ 1.5(a)
Sub Preferred Stock......................................... 1.5(d)
Subsidiary.................................................. 8.3
Subsidiary and Joint Venture Agreements..................... 3.31
Superior Proposal........................................... 5.1
Surviving Corporation....................................... 1.1
Takeover Proposal........................................... 4.2(a)
Taxes....................................................... 3.9
Tax Return.................................................. 3.9
Termination Fee............................................. 5.7(b)
TSE......................................................... 2.4
wholly owned Subsidiary..................................... 8.3
1998 Plan................................................... 3.2
A-7
ANNEX A
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER dated as of June 25, 2002 (this "Agreement"),
among Magna International Inc., an Ontario corporation ("Parent"), Magna Mirrors
Acquisition Corp., a Michigan corporation and a wholly owned subsidiary of
Parent ("Sub"), and Donnelly Corporation, a Michigan corporation (the "Company"
and, together with Sub, the "Constituent Corporations").
W I T N E S S E T H:
WHEREAS the respective Boards of Directors of Parent, Sub and the Company
have approved the merger of Sub with and into the Company (the "Merger"), upon
the terms and subject to the conditions set forth herein, whereby each issued
and outstanding share of (a) Class A Common Stock, par value $.10 per share, of
the Company ("Company Class A Common Stock") and (b) Class B Common Stock, par
value $.10 per share, of the Company ("Company Class B Common Stock" and,
together with the Company Class A Common Stock, the "Company Common Stock"), not
owned by Parent, the Company or their respective wholly owned Subsidiaries (as
hereinafter defined) will be converted into the right to receive a fraction of a
Class A Subordinate Voting Share, without par value, of Parent ("Parent Common
Stock");
WHEREAS the Board of Directors of the Company has unanimously approved this
Agreement and intends to submit this Agreement to the holders of the Company
Common Stock for their consideration at a special meeting of shareholders (the
"Special Meeting") for the purpose of approving this Agreement and the Merger;
WHEREAS Parent, Sub, Donnelly Export Corporation, a Michigan corporation
("Donnelly Export"), and certain of the holders of the Company Class B Common
Stock (collectively, the "Principal Shareholders") have entered into a
Shareholders' Agreement (including an irrevocable proxy) of even date herewith
(the "Shareholders' Agreement"), pursuant to which, among other things, each
Principal Shareholder has agreed to vote the shares held or controlled by it in
favor of the Merger and this Agreement;
WHEREAS the Principal Shareholders in the aggregate hold or control shares
of Company Common Stock that, as of June 7, 2002, represented an aggregate of
approximately 72% of the total voting power of all currently outstanding shares
of voting stock of the Company with respect to approval of the Merger;
WHEREAS the respective Boards of Directors of each of Parent, Sub and, as of
the date hereof, the Company have determined that the Merger upon the terms and
subject to the conditions of this Agreement would be advantageous and beneficial
to their respective corporations and that such transaction is consistent with
and in furtherance of such entities' respective long-term business strategies;
and
WHEREAS, for federal income tax purposes, it is intended that the Merger
shall qualify as a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code").
NOW, THEREFORE, in consideration of the premises, representations,
warranties and agreements herein contained, the parties agree as follows:
ARTICLE I
THE MERGER
Section 1.1 THE MERGER. Upon the terms and subject to the conditions hereof,
and in accordance with the Michigan Business Corporation Act (the "MBCA"), Sub
shall be merged with and into the Company at the Effective Time (as defined in
Section 1.2). Following the Merger, the separate corporate existence of Sub
shall cease and the Company shall continue as the surviving corporation (the
"Surviving Corporation") and shall succeed to and assume all the rights and
obligations of Sub in accordance with the MBCA.
Section 1.2 EFFECTIVE TIME. Upon the terms and subject to the conditions
hereof, a Certificate of Merger (the "Certificate of Merger") shall be duly
prepared and executed by the Company and Sub and thereafter delivered to the
Department of Consumer and Industry Services, Bureau of Corporations, Securities
and Land Development of the State of Michigan (the "Filing Office") for filing
as provided in the MBCA as soon as practicable on the Closing Date (as defined
in Section 1.15). The Merger shall become effective upon the filing
A-8
of the Certificate of Merger with the Filing Office or at such other later date
or time as the Constituent Corporations shall agree as specified in the
Certificate of Merger (the time the Merger becomes effective being the
"Effective Time").
Section 1.3 EFFECTS OF THE MERGER. The Merger will have the effects set
forth in this Agreement and the MBCA. Without limiting the generality of the
foregoing, and subject thereto, at the Effective Time, all the rights,
privileges, immunities, powers and franchises of the Company and of Sub and all
the property (real, personal and mixed) of the Company and of Sub and all debts
due to either the Company or Sub on any account, and all choses in action, and
every other interest of or belonging to or due to either the Company or Sub,
will vest in the Surviving Corporation, and all debts, liabilities, obligations,
restrictions, disabilities and duties of the Company and Sub shall become the
debts, liabilities, obligations, restrictions, disabilities and duties of the
Surviving Corporation and may be enforced against the Surviving Corporation to
the same extent as if such debts, liabilities, obligations, restrictions,
disabilities and duties had been incurred or contracted by the Surviving
Corporation. The title to any real estate or any interest therein vested, by
deed or otherwise, in the Company or Sub shall not revert or in any way become
impaired by reason of the Merger.
Section 1.4 CHARTER AND BY-LAWS; DIRECTORS; OFFICERS.
(a) At the Effective Time, the Second Restated and Amended Articles of
Incorporation of the Company, as amended (the "Company Articles of
Incorporation"), shall be amended to be identical to the Articles of
Incorporation of Sub, as in effect immediately prior to the Effective Time, and
shall be the Articles of Incorporation of the Surviving Corporation until
thereafter changed or amended as provided therein or by applicable law;
PROVIDED, HOWEVER, that, at the Effective Time, Article I of the Company
Articles of Incorporation shall be amended to read in its entirety as follows:
"The name of the corporation is Donnelly Corporation." At the Effective Time,
the By-laws of Sub, as in effect immediately prior to the Effective Time, shall
be the By-laws of the Surviving Corporation until thereafter changed or amended
as provided therein or in the Articles of Incorporation of the Surviving
Corporation or by applicable law.
(b) The directors of Sub at the Effective Time shall be the directors of the
Surviving Corporation, each to hold office from the Effective Time in accordance
with the Articles of Incorporation and By-laws of the Surviving Corporation
until his or her successor is duly elected and qualified.
(c) The officers of Sub at the Effective Time shall be the officers of the
Surviving Corporation, each to hold office from the Effective Time in accordance
with the Articles of Incorporation and By-laws of the Surviving Corporation and
until his or her successor is duly appointed and qualified.
(d) At the Effective Time, the Surviving Corporation will file with the
Filing Office a certificate to do business as Magna Donnelly Corporation.
Section 1.5 CONVERSION OF SECURITIES AND ISSUANCE OF SURVIVING CORPORATION
STOCK. As of the Effective Time, by virtue of the Merger and without any action
on the part of the holders of any securities of the Constituent Corporations:
(a) Each share of Common Stock of Sub ("Sub Common Stock") issued and
outstanding immediately prior to the Effective Time shall be converted into one
newly issued, fully paid and nonassessable share of Preferred Stock of the
Surviving Corporation.
(b) All shares of Company Common Stock that are held by Parent, Sub or any
wholly owned subsidiary of the Company, Parent or Sub shall be cancelled and no
cash, capital stock of Parent or other consideration shall be delivered in
exchange therefor.
(c) Subject to Sections 1.8 and 1.10, each share of Company Common Stock
issued and outstanding immediately prior to the Effective Time (other than
shares to be cancelled as set forth in Section 1.5(b)) shall be converted into
the right to receive the Exchange Ratio (as hereinafter defined) of validly
issued, fully paid and nonassessable shares of Parent Common Stock. The
"Exchange Ratio" shall be a number equal to the quotient, rounded to the nearest
thousandth, or if there shall not be a nearest thousandth, the next higher
thousandth, of (x) $28.00 divided by (y) the Market Price (as hereinafter
defined) of a share of Parent Common Stock on the New York Stock Exchange, Inc.
("NYSE") trading day immediately preceding the date of the Effective Time (the
"Parent Stock Price"); PROVIDED, HOWEVER, that in no event (except as set forth
in the next two provisos to this
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sentence) shall the Exchange Ratio be (A) less than an amount equal to the
quotient of $28.00 divided by $80.00 or (B) greater than an amount equal to the
quotient of $28.00 divided by $61.00; PROVIDED, HOWEVER, that in the event that
Parent delivers to the Company the Merger Consideration Increase Notice pursuant
to Section 7.1(g), the Exchange Ratio shall instead be as set forth therein; and
PROVIDED FURTHER, that, in the event of any adjustment of the Exchange Ratio
pursuant to Section 1.10, all such dollar amounts shall be commensurately
adjusted, as mutually agreed by Parent and the Company, each acting reasonably
and in good faith. All such shares of Company Common Stock, when so converted,
shall no longer be outstanding and shall automatically cease to exist and each
holder thereof or of a Certificate (as hereinafter defined) representing any
such shares shall cease to have any rights with respect thereto, except that
each holder of such a Certificate shall have the right to receive (i) any
dividends and other distributions (paid with respect to shares of Parent Common
Stock) in accordance with Section 1.7, (ii) certificates representing the shares
of Parent Common Stock into which such shares are converted and (iii) any cash
(without interest) in lieu of fractional shares of Parent Common Stock to be
issued or paid in consideration therefor in accordance with Section 1.8, all
upon the surrender of such Certificate in accordance with Section 1.6. The
"Market Price" on any date means the average of the Average Prices (as
hereinafter defined) for the 20 consecutive NYSE trading days immediately
preceding such date. The "Average Price" for any date means the average of the
daily high and low prices per share of Parent Common Stock as reported on the
NYSE Composite Transactions reporting system (as published in The Wall Street
Journal or, if not published therein, in another authoritative source reasonably
selected by Parent).
(d) The Surviving Corporation shall issue at the Effective Time to Parent
1,000 shares of Common Stock of the Surviving Corporation in consideration for
the issuance by Parent of Parent Common Stock contemplated by Section 1.5(c)
and payment by Parent of cash as contemplated by Section 1.8.
Section 1.6 PARENT TO MAKE CERTIFICATES AND CASH AVAILABLE; TRANSFER TAXES;
WITHHOLDING.
(a) Parent shall authorize such person or persons as shall be reasonably
acceptable to the Company to act as Exchange Agent hereunder (the "Exchange
Agent"). As soon as practicable after the Effective Time, Parent shall deposit
with the Exchange Agent, in trust for the holders of shares of Company Common
Stock converted in the Merger, certificates representing the shares of Parent
Common Stock issuable and the cash then payable pursuant to Sections 1.7
and 1.8 (such shares of Parent Common Stock and cash, together with any
dividends or distributions with respect thereto, being hereinafter referred to
as the "Exchange Fund"). The Exchange Agent shall invest any cash included in
the Exchange Fund, as directed by Parent, on a daily basis. Any interest or
other income resulting from such investments shall be paid to Parent.
(b) As soon as practicable after the Effective Time, the Exchange Agent
shall mail to each record holder of a certificate or certificates, which
immediately prior to the Effective Time represented outstanding shares of
Company Common Stock converted in the Merger (the "Certificates"), a letter of
transmittal in form reasonably acceptable to Parent (which shall specify that
delivery shall be effected, and risk of loss and title to the Certificates shall
pass, only upon actual delivery of the Certificates to the Exchange Agent, and
shall contain instructions for use in effecting the surrender of the
Certificates in exchange for certificates representing shares of Parent Common
Stock). Upon surrender for cancellation to the Exchange Agent of all
Certificates held by any record holder of a Certificate, together with such
letter of transmittal, duly executed, the holder of such Certificate shall be
entitled to receive in exchange therefor a certificate representing that number
of whole shares of Parent Common Stock into which the shares represented by the
surrendered Certificate shall have been converted at the Effective Time pursuant
to this Article I, and cash in lieu of any fractional shares of Parent Common
Stock in accordance with Section 1.8 and any dividends or other distributions in
accordance with Section 1.7, and any Certificate so surrendered shall forthwith
be cancelled by the Exchange Agent. No interest shall be paid or shall accrue on
any cash payable upon surrender of any Certificate.
(c) Each share of Parent Common Stock into which a share of Company Common
Stock shall be converted shall be validly issued, fully paid and nonassessable,
and shall be deemed to have been issued at the Effective Time. All shares of
Parent Common Stock shall be issued directly by Parent and no shares of Parent
Common Stock shall at any time be held by the Surviving Corporation. If any
certificate representing shares of Parent Common Stock or cash or other property
is to be issued or delivered in a name other than that in which the Certificate
surrendered in exchange therefor is registered, it shall be a condition of such
exchange that the Certificate so surrendered shall be properly endorsed and
otherwise in proper form for transfer and that the
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person requesting such exchange shall pay to the Exchange Agent any transfer or
other taxes required by reason of the issuance of certificates for such shares
of Parent Common Stock in a name other than that of the registered holder of the
Certificate surrendered, or shall establish to the satisfaction of the Exchange
Agent that such tax has been paid or is not applicable. Parent or the Exchange
Agent shall be entitled to deduct and withhold from the consideration otherwise
payable pursuant to this Agreement to any holder of shares of Company Common
Stock such amounts as Parent or the Exchange Agent is required to deduct and
withhold with respect to the making of such payment under the Code or under any
provision of state, local or foreign tax law. To the extent that amounts are so
withheld by Parent or the Exchange Agent, such withheld amounts shall be treated
for all purposes of this Agreement as having been paid to the holder of the
shares of Company Common Stock in respect of which such deduction and
withholding was made by Parent or the Exchange Agent. The valuation of any such
deductions and withholdings shall be effected by the Exchange Agent in a manner
consistent with Section 1.8.
Section 1.7 DIVIDENDS. No dividends or other distributions that are declared
on or after the Effective Time on the shares of Parent Common Stock, or are
payable to the holders of record thereof on or after the Effective Time, will be
paid to any person entitled by reason of the Merger to receive a certificate
representing shares of Parent Common Stock until such person surrenders the
related Certificate or Certificates, as provided in this Article I. Subject to
the effect of applicable law, there shall be paid to each record holder of a new
certificate representing such shares of Parent Common Stock: (i) at the time of
such surrender or as promptly as practicable thereafter, the amount, if any, of
any dividends or other distributions theretofore paid with respect to the shares
of Parent Common Stock represented by such new certificate and having a record
date on or after the Effective Time and a payment date prior to such surrender
and (ii) at the appropriate payment date or as promptly as practicable
thereafter, the amount, if any, of any dividends or other distributions payable
with respect to such shares of Parent Common Stock and having a record date on
or after the Effective Time but prior to such surrender and a payment date on or
subsequent to such surrender. In no event shall the person entitled to receive
such dividends or other distributions be entitled to receive interest on such
dividends or other distributions.
Section 1.8 NO FRACTIONAL SECURITIES. No certificates or scrip representing
fractional shares of Parent Common Stock shall be issued upon the surrender for
exchange of Certificates pursuant to this Article I, and no Parent dividend or
other distribution, stock split or reclassification shall relate to any
fractional share, and no fractional share shall entitle the owner thereof to
vote or to any other rights of a security holder of Parent. In lieu of any such
fractional share, each holder of Company Common Stock who would otherwise have
been entitled to a fraction of a share of Parent Common Stock upon surrender of
Certificates for exchange pursuant to this Article I will be paid an amount in
cash (without interest), rounded to the nearest cent, determined by multiplying
(i) the Market Price of a share of Parent Common Stock on the NYSE trading day
immediately prior to the date of the Effective Time by (ii) the fractional
interest to which such holder would otherwise be entitled. As promptly as
practicable after the determination of the amount of cash to be paid to holders
of fractional share interests, the Exchange Agent shall so notify Parent, and
Parent shall deposit such amount with the Exchange Agent and shall cause the
Exchange Agent to forward payments to such holders of fractional share interests
subject to and in accordance with the terms of this Article I. For purposes of
paying such cash in lieu of fractional shares, all Certificates surrendered for
exchange by a Company shareholder shall be aggregated, and no such Company
shareholder will receive cash in lieu of fractional shares in an amount equal to
or greater than the value as so determined of one full share of Parent Common
Stock with respect to such Certificates surrendered.
Section 1.9 RETURN OF EXCHANGE FUND. Any portion of the Exchange Fund that
remains undistributed to the former shareholders of the Company for one year
after the Effective Time shall be delivered to Parent and any such former
shareholders who have not theretofore complied with this Article I shall
thereafter look only to Parent for payment of their claim for shares of Parent
Common Stock into which such shares of Company Common Stock are convertible, any
cash in lieu of fractional shares of Parent Common Stock and any dividends or
distributions with respect to shares of Parent Common Stock. Neither Parent nor
Surviving Corporation shall be liable to any former holder of Company Common
Stock for any such shares of Parent Common Stock, dividends and distributions
held in the Exchange Fund which is delivered to a public official pursuant to
any applicable abandoned property, escheat or similar law.
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Section 1.10 ADJUSTMENT OF EXCHANGE RATIO. In the event that, prior to the
Effective Time, Parent effects any reclassification, reorganization, stock
split, reverse stock split, combination, stock dividend or other similar event
with respect to shares of Parent Common Stock, any change or conversion of
Parent Common Stock into other securities or any cash dividend (other than
regular quarterly cash dividends of Parent) or other distribution with respect
to the shares of Parent Common Stock, appropriate and proportionate adjustments
shall be made to the Exchange Ratio (or, in the case of such a reclassification,
reorganization, combination, change, conversion or other distribution, an
equitable adjustment shall be made to the consideration to be received by
holders of Company Common Stock in the Merger), as mutually agreed by Parent and
the Company, each acting reasonably and in good faith, and all references to the
Exchange Ratio in this Agreement shall be deemed to be to the Exchange Ratio as
so adjusted.
Section 1.11 NO FURTHER OWNERSHIP RIGHTS IN COMPANY COMMON STOCK; OLD
COMPANY STOCK OPTIONS. All shares of Parent Common Stock and cash issued or paid
upon the surrender for exchange of Certificates in accordance with the terms
hereof (including any cash or other property paid pursuant to Sections 1.7
and 1.8) shall be deemed to have been issued in full satisfaction of all rights
pertaining to the shares of Company Common Stock represented by such
Certificates, subject, however, to the Surviving Corporation's obligation to pay
any dividends or make any other distributions with a record date prior to the
Effective Time which may have been declared or made by the Company on such
shares of Company Common Stock in accordance with the terms of this Agreement or
prior to the date of this Agreement and which remain unpaid at the Effective
Time. As contemplated by Section 3.30, all Old Company Stock Options (as defined
in Section 3.2) that are not duly exercised by the holders thereof prior to the
Effective Time shall terminate and be of no further force and effect and shall
not give rise to any claim against the Surviving Corporation by such holders.
Section 1.12 CLOSING OF COMPANY TRANSFER BOOKS. At the Effective Time, the
stock transfer books of the Company shall be closed and no transfer of shares of
Company Common Stock shall thereafter be made on the records of the Company. If,
after the Effective Time, Certificates are presented to the Surviving
Corporation, the Exchange Agent or Parent, such Certificates shall be cancelled
and exchanged as provided in this Article I.
Section 1.13 LOST CERTIFICATES. If any Certificate shall have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the person
claiming such Certificate to be lost, stolen or destroyed and the posting by
such person of a bond, in such reasonable amount as Parent or the Exchange Agent
may direct (but consistent with the practices Parent applies to its own
shareholders) as indemnity against any claim that may be made against them with
respect to such Certificate, the Exchange Agent will issue in exchange for such
lost, stolen or destroyed Certificate the shares of Parent Common Stock and/or
cash or other property payable pursuant to this Article I.
Section 1.14 FURTHER ASSURANCES. If at any time after the Effective Time the
Surviving Corporation shall consider or be advised that any deeds, bills of
sale, assignments or assurances or any other acts or things are necessary,
desirable or proper (a) to vest, perfect or confirm, of record or otherwise, in
the Surviving Corporation its right, title or interest in, to or under any of
the rights, privileges, powers, franchises, properties or assets of either of
the Constituent Corporations, or (b) otherwise to carry out the purposes of this
Agreement, the Surviving Corporation and its proper officers and directors or
their designees shall be authorized to execute and deliver, in the name and on
behalf of either of the Constituent Corporations, all such deeds, bills of sale,
assignments and assurances and to do, in the name and on behalf of either
Constituent Corporation, all such other acts and things as may be necessary,
desirable or proper to vest, perfect or confirm the Surviving Corporation's
right, title or interest in, to or under any of the rights, privileges, powers,
franchises, properties or assets of such Constituent Corporation and otherwise
to carry out the purposes of this Agreement.
Section 1.15 CLOSING. The closing of the Merger (the "Closing") and all
actions contemplated by this Agreement to occur at the Closing shall take place
at the offices of Sidley Austin Brown & Wood LLP, 787 Seventh Avenue, New York,
New York, at 10:00 a.m., New York City time, on a date to be specified by the
parties, which (subject to fulfillment or waiver of the conditions set forth in
Article VI) shall (subject to Sections 6.2(d) and (e)) be no later than the
business day following the day on which the last of the conditions set forth in
Article VI shall have been fulfilled or waived (other than those that this
Agreement contemplates will be satisfied at or immediately prior to the
Effective Time) or at such other time and place as Parent and the Company shall
agree (the "Closing Date").
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ARTICLE II
REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB
Except as disclosed in Parent's Annual Report on Form 40-F for the year
ended December 31, 2001 or Parent's Report on Form 6-K dated April 4, 2002, in
each case in the form filed by Parent with the Securities and Exchange
Commission (the "SEC"), including the exhibits thereto (the "Parent SEC
Documents"), or in the letter dated the date hereof and delivered on the date
hereof by Parent to the Company, which letter relates to this Agreement and is
designated therein as the Parent Letter (the "Parent Letter"), each of Parent
and Sub represents and warrants to the Company as follows:
Section 2.1 ORGANIZATION, STANDING AND POWER. Each of Parent and Sub is a
corporation duly organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation and has all requisite corporate power
and authority to own, lease and operate its properties and to carry on its
business as now being conducted, except where the failure to be so organized,
existing or in good standing or to have such power and authority, individually
or in the aggregate, has not had and would not reasonably be expected to have a
Parent Material Adverse Effect. For all purposes of this Agreement, a "Parent
Material Adverse Effect" shall mean a material adverse effect on the assets,
liabilities, equity, business, operations, results of operations, condition
(financial or otherwise) or prospects of Parent and its Subsidiaries, taken as a
whole, excluding such effects resulting from events or occurrences related to
general economic or market conditions or conditions affecting the automotive
industry in general; PROVIDED that, for all purposes of this Agreement, and
without limiting the generality of the foregoing, a Parent Material Adverse
Effect shall be deemed to have occurred in the event of any liability of, effect
on or claim against Parent or any of its Subsidiaries that, individually or in
the aggregate, has had or would reasonably be expected to have a pre-tax effect
of (i) in the case of any one-time effect, $500 million or greater, and (ii) in
the case of any recurring effect, an average of $100 million or greater per
fiscal year for two or more years, in either case on the consolidated assets,
liabilities, equity, earnings before interest, taxes, depreciation and
amortization ("EBITDA") or net income of Parent in any one or more fiscal
quarters or other financial periods.
Section 2.2 CAPITAL STRUCTURE. At the date hereof, the authorized stock of
Parent consists of (i) an unlimited number of shares of Parent Common Stock,
(ii) 1,412,341 Class B Shares, without par value ("Parent Class B Stock" and,
together with the Parent Common Stock, the "Parent Stock"), and
(iii) 99,760,000 preference shares, without par value (the "Parent Preferred
Stock"). At the close of business on May 21, 2002, 82,633,675 shares of Parent
Common Stock, 1,096,509 shares of Parent Class B Stock and no shares of Parent
Preferred Stock were issued and outstanding. As of the close of business on
June 21, 2002, except as set forth in Section 2.2 of the Parent Letter or as
disclosed in the Parent SEC Documents, there are no options, warrants, calls,
rights, securities or agreements to which Parent is a party or by which it is
bound obligating Parent to issue, deliver or sell, or cause to be issued,
delivered or sold, additional shares of capital stock of Parent or obligating
Parent to grant, extend or enter into any such option, warrant, call, right,
security or agreement. At the date hereof, the capital stock of Sub consists of
1,000 shares of Sub Common Stock and 1,000 shares of Preferred Stock, par value
$.01 per share, of Sub ("Sub Preferred Stock"), of which, as of the date of this
Agreement, 1,000 shares of Sub Common Stock were issued and outstanding, all of
which shares were owned directly by Parent and no shares of Sub Preferred Stock
were outstanding.
Section 2.3 AUTHORITY. Each of Parent and Sub has the requisite corporate
power and authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The execution, delivery and performance of
this Agreement by each of Parent and Sub and the consummation of the Merger and
of the other transactions contemplated hereby have been duly authorized by all
necessary corporate action on the part of each of Parent and Sub. This Agreement
has been duly executed and delivered by each of Parent and Sub and, assuming the
due authorization, execution and delivery hereof by the Company, constitutes a
valid and binding obligation of Parent and Sub, enforceable against Parent and
Sub in accordance with its terms, except to the extent enforceability may be
limited by applicable bankruptcy, insolvency, moratorium or other similar laws
affecting creditors' rights generally or by general principles governing the
availability of equitable remedies. The filing of a registration statement on
Form F-4 with the SEC by Parent under the Securities Act of 1933, as amended
(together with the rules and regulations promulgated thereunder, the "Securities
Act"), for the purpose of registering the Parent Common Stock to be issued in
connection with the Merger as contemplated by this Agreement (together with any
amendments or supplements thereto, whether prior to or after the effective
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date thereof, and including all information incorporated by reference therein,
the "Registration Statement") has been duly authorized by Parent's Board of
Directors.
Section 2.4 CONSENTS AND APPROVALS; NO VIOLATION. No filing or registration
with, or authorization, consent or approval of, any domestic (federal, state or
local), foreign (federal, state, provincial, territorial or local) or
supranational court, governmental body, regulatory agency, authority,
commission, tribunal or securities exchange (a "Governmental Entity") is
required by or with respect to Parent, Sub or any of their respective
Subsidiaries in connection with the execution and delivery of this Agreement by
Parent or Sub or is necessary for the consummation of the Merger and the other
transactions contemplated by this Agreement, except (i) the filing of a
premerger notification and report form by Parent under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act"), and such filings
as are required under Council Regulation No. 4064/89 of the European Community,
as amended (the "EC Merger Regulation"), and under the respective antitrust
statutes in Brazil and Mexico, (ii) the filing of the Certificate of Merger with
the Filing Office and appropriate documents with the relevant authorities of
other states, if any, specified in Section 2.4 of the Parent Letter in which
Parent or any of its Subsidiaries is qualified to do business, (iii) such
filings as may be required in connection with the taxes described in
Section 5.11, (iv) pursuant to applicable requirements, if any, of state
securities or "blue sky" laws ("Blue Sky Laws") and the NYSE, (v) the filing
with the SEC by Parent of the Registration Statement under the Securities Act
and of such reports as may be required by Sections 13 and 16(a) of the
Securities Exchange Act of 1934, as amended (together with the rules and
regulations promulgated thereunder, the "Exchange Act"), or by The Toronto Stock
Exchange (the "TSE") or Canadian federal or provincial securities laws or
regulations in connection with this Agreement and the transactions contemplated
hereby and (vi) such other filings, approvals, orders, notices, registrations,
declarations and consents as may be required under any applicable state takeover
or similar laws, and any applicable state environmental laws or laws with
respect to the ownership by a foreign entity of real property, but with respect
to this clause (vi), only as specified in Section 2.4 of the Parent Letter.
Neither the execution, delivery or performance of this Agreement nor the
consummation of the transactions contemplated hereby will (with or without due
notice or lapse of time or both) result in any violation of, or default or the
loss of a material benefit under, or give to others a right of termination,
cancellation or acceleration of any obligation under, or result in the creation
of any security interests, liens, claims, pledges, mortgages, options, rights of
first refusal, agreements, limitations on voting rights, charges and other
encumbrances of any nature whatsoever (each, a "Lien") upon, any property or
asset of Parent or any of its Subsidiaries under any provision of (i) the
respective certificates or articles of incorporation or bylaws or comparable
organizational documents of Parent or Sub, (ii) any loan or credit agreement,
note, bond, mortgage, indenture, license, lease, contract, agreement or other
instrument, permit, concession, franchise or obligation to which Parent or any
of its Subsidiaries is a party or by which any of them or any of their
respective properties or assets may be bound or affected or (iii) any judgment,
order, writ, injunction, decree, law, statute, rule or regulation applicable to
Parent or any of its Subsidiaries or any of their respective properties, assets
or operations, other than, in the case of clause (ii) or (iii), for violations,
defaults, losses, rights or Liens that would not, individually or in the
aggregate, prevent, delay or impair the consummation of the Merger in any
respect and would not have a Parent Material Adverse Effect or materially impact
the ability of Parent and Sub to perform their respective obligations under this
Agreement.
Section 2.5 REGISTRATION STATEMENT AND PROXY STATEMENT/PROSPECTUS. None of
the information to be supplied by Parent or Sub specifically for inclusion or
incorporation by reference in the Registration Statement or the proxy
statement/prospectus included therein (together with any amendments or
supplements thereto, and including all information incorporated by reference
therein, the "Proxy Statement/Prospectus") relating to this Agreement will
(i) in the case of the Registration Statement, at the time it becomes effective,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein not misleading or (ii) in the case of the Proxy Statement/Prospectus, at
the time of the mailing of the Proxy Statement/Prospectus to the Company's
shareholders, at the time of the Special Meeting and at the Effective Time,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading. If at any time prior to the Effective Time any event with respect to
Parent, its officers and directors or any of its Subsidiaries shall occur that
is required to be described in the Proxy Statement/Prospectus or the
Registration Statement, such event shall be so described and promptly disclosed
to the Company, and an appropriate amendment or supplement shall be promptly
filed with the SEC and, as
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required by law, disseminated to the shareholders of the Company. The
Registration Statement and the Proxy Statement/Prospectus will comply (with
respect to Parent) as to form in all material respects with the provisions of
the Securities Act.
Section 2.6 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as disclosed in
Section 2.6 of the Parent Letter, from December 31, 2001 through the date of
this Agreement, (a) Parent and its Subsidiaries have not incurred any material
liability or obligation (indirect, direct or contingent), or entered into any
material oral or written agreement or other transaction, that is not in the
ordinary course of business or that has resulted in or would reasonably be
expected to result in a Parent Material Adverse Effect, (b) Parent and its
Subsidiaries have not sustained any loss or interference with their business or
properties from fire, flood, windstorm, accident or other calamity (whether or
not covered by insurance) that has had or would reasonably be expected to have a
Parent Material Adverse Effect, (c) there has been no change in the capital
stock of Parent and no dividend or distribution of any kind declared, paid or
made by Parent on any class of its stock, except for regular quarterly cash
dividends declared or paid on Parent Stock, and (d) there has been no other
event causing a Parent Material Adverse Effect, nor any development that,
individually or in the aggregate, has had or would reasonably be expected to
have a Parent Material Adverse Effect.
Section 2.7 NO REQUIRED VOTE OF PARENT SHAREHOLDERS. No vote of the
shareholders of Parent is required by law, the organization documents of Parent
or otherwise in order for Parent to consummate the Merger and the transactions
contemplated hereby.
Section 2.8 REORGANIZATION. To the knowledge of Parent, neither Parent nor
any of its Subsidiaries has taken any action or failed to take any action which
action or failure would jeopardize the qualification of the Merger as a
reorganization within the meaning of Section 368(a) of the Code.
Section 2.9 BROKERS. No broker, investment banker or other person is
entitled to any broker's, finder's or other similar fee or commission in
connection with the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of Parent.
Section 2.10 ACCOUNTING CONTROLS; FINANCIAL STATEMENTS. In all material
respects, Parent maintains a system of internal accounting controls sufficient
to provide reasonable assurances, to the extent required by Section 13(b)(2)(B)
of the Exchange Act, that (a) transactions are executed in accordance with
management's general or specific authorization; (b) transactions are recorded as
necessary to permit preparation of financial statements in conformity with
generally accepted accounting principles and to maintain accountability for
assets; (c) access to assets is permitted only in accordance with management's
general or specific authorization; and (d) the recorded accountability for
assets is compared with existing assets at reasonable intervals and appropriate
action is taken with respect to any differences. The consolidated financial
statements (including, in each case, any notes thereto) of the Company included
in the Parent SEC Documents complied as to form in all material respects with
applicable accounting requirements and the published rules and regulations of
the SEC with respect thereto as of their respective dates of filing, were
prepared in accordance with accounting principles generally accepted in Canada
(except, in the case of the unaudited statements, as permitted by
Regulation S-X of the SEC) applied on a consistent basis during the periods
involved (except as may be indicated therein or in the notes thereto) and fairly
presented in all material respects the consolidated financial position of the
Company and its consolidated Subsidiaries as at the respective dates thereof and
the consolidated results of their operations and their consolidated cash flows
for the periods then ended (subject, in the case of unaudited statements, to
normal year-end audit adjustments and to any other adjustments described
therein).
Section 2.11 ACCOUNTING MATTERS. Parent has not been advised by its
independent accountants of any material accounting irregularities that would
reasonably be expected to require Parent to restate its consolidated financial
statements included in the Parent SEC Documents (other than as required by any
change in accounting principles generally accepted in Canada or the United
States). To Parent's knowledge, Parent is not subject to any material pending or
threatened investigation by the SEC concerning such consolidated financial
statements.
Section 2.12 LITIGATION. As of the date of this Agreement, there is no
action, suit or proceeding pending or, to Parent's knowledge, threatened before
any Governmental Entity involving Parent or Sub (i) which, if adversely
determined, would prevent or materially delay the performance by Parent and Sub
of their obligations under this Agreement or (ii) which seeks to enjoin or
obtain damages in respect of the consummation of the transactions contemplated
hereby. As of the date of this Agreement, none of Parent, Sub or any of their
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respective Subsidiaries or their assets is subject to any outstanding orders,
rulings, judgments or decrees which would prevent or materially delay the
performance by Parent and Sub of their obligations under this Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as disclosed in the Company's Annual Report on Form 10-K for the year
ended December 31, 2001, its Quarterly Report on Form 10-Q for the quarter ended
March 31, 2002, its Current Report on Form 8-K dated May 20, 2002, or its Proxy
Statement dated April 5, 2002, in each case, in the form filed by the Company
with the SEC, or in the letter dated the date hereof and delivered on the date
hereof by the Company to Parent, which letter relates to this Agreement and is
designated therein as the Company Letter (the "Company Letter"), the Company
represents and warrants to each of Parent and Sub as follows:
Section 3.1 ORGANIZATION, STANDING AND POWER.
(a) The Company is a corporation duly organized, validly existing and in
good standing under the laws of the State of Michigan and has all
requisite corporate power and authority to own, lease and operate its
properties and to carry on its business as now being conducted, except
where the failure to be so organized, existing or in good standing or to
have such power and authority, individually or in the aggregate, has not
had and would not reasonably be expected to have a Company Material
Adverse Effect. For all purposes of this Agreement (including
Section 6.3(a)), a "Company Material Adverse Effect" shall mean a
material adverse effect on the assets, liabilities, equity, business,
operations, results of operations, condition (financial or otherwise) or
prospects of the Company and its Subsidiaries, taken as a whole,
excluding (i) such effects resulting from events or occurrences related
to general economic or market conditions or conditions affecting the
automotive industry in general and (ii) any development, related claims
or other event solely to the extent arising out of any facts expressly
disclosed (including those disclosed in any pleadings) to Parent by the
Company prior to the date hereof in respect of any lawsuit, potential
claim or agreement specified in Section 3.1(a) of the Company Letter;
provided that, for all purposes of this Agreement (including
Section 6.3(a)), and without limiting the generality of the foregoing, a
Company Material Adverse Effect shall be deemed to have occurred in the
event of any liability of, effect on or claim against the Company or any
of its Subsidiaries that, individually or in the aggregate, has had or
would reasonably be expected to have a pre-tax effect of $30 million or
greater, net of any insurance or similar recovery, on the consolidated
assets, liabilities, equity, EBITDA or net income of the Company in any
one or more fiscal quarters or other financial periods (with any such
expected effect in any financial period prior to 2006 to be added to any
such expected effect in any other financial period prior to 2006 for
purpose of determining whether such $30 million threshold has been
reached); provided further that (i) any individual liabilities, effects
or claims with such a pre-tax effect of $100,000 or less and (ii) any
failure, as a result of ordinary competitive pressures, by the Company or
any of its Subsidiaries to obtain new business after the date hereof,
regardless of whether such business was included in the business plan of
the Company previously delivered to Parent, shall be disregarded for
purposes of determining whether a Company Material Adverse Effect has
occurred or will occur.
(b) Each Subsidiary of the Company is duly organized, validly existing and
in good standing under the laws of the jurisdiction in which it is
organized and has the requisite corporate (in the case of a Subsidiary
that is a corporation) or other power and authority to carry on its
business as now being conducted, except where the failure to be so
organized, existing or in good standing or to have such power or
authority, individually and in the aggregate, has not had and would not
reasonably be expected to have a Company Material Adverse Effect. The
Company and each of its Subsidiaries are duly qualified to do business,
and are in good standing, in each jurisdiction where the character of
their properties owned or held under lease or the nature of their
activities makes such qualification necessary, except where the failure
to be so qualified, individually and in the aggregate, has not had and
would not reasonably be expected to have a Company Material Adverse
Effect. Except as specified in Section 3.1(b) of the Company Letter, the
Company has heretofore made available to Parent a complete and correct
copy of the charter and by-laws or comparable organization documents,
each as amended to date, of the Company and each of its Subsidiaries
(other than its wholly owned Subsidiaries). The respective
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charters, by-laws and comparable organizational documents of the Company
and its Subsidiaries are in full force and effect.
Section 3.2 CAPITAL STRUCTURE. At the date hereof, the authorized capital
stock of the Company consists of 30,000,000 shares of Company Class A Common
Stock, 15,000,000 shares of Company Class B Common Stock, 250,000 shares of
7 1/2% Cumulative Preferred Stock, par value $10 per share (the "Company 7 1/2%
Preferred") and 1,000,000 shares of preferred stock, no par value ("Company
Preferred Stock"). At the close of business on June 7, 2002, (i) 6,563,493
shares of Company Class A Common Stock, 4,081,321 shares of Company Class B
Common Stock, 53,112 shares of Company 7 1/2% Preferred and no shares of Company
Preferred Stock were issued and outstanding, (ii) no shares of Company Common
Stock or other securities of the Company were held in the treasury of the
Company or by its Subsidiaries and (iii) 442,962 shares and 408,953 shares of
Company Common Stock were reserved for issuance pursuant to options
("New Company Stock Options") granted under the Company's 1998 Employee Stock
Option Plan (the "1998 Plan") and pursuant to options (the "Old Company Stock
Options" and, together with the New Company Stock Options, the "Company Stock
Options") granted under the Company's other stock option plans (the "Other
Plans" and, together with the 1998 Plan, the "Company Stock Plans"),
respectively. Each Company Stock Plan is listed in Section 3.2 of the Company
Letter. Except as specified in Section 3.2 of the Company Letter, true and
complete copies of each contract, agreement, instrument or document listed or
referred to in any Section of the Company Letter have been furnished by the
Company to Parent. Except as set forth above, no shares of capital stock or
other voting securities of the Company are issued, reserved for issuance or
outstanding. All the outstanding shares of Company Common Stock are validly
issued, fully paid and nonassessable and free of preemptive rights. Except for
Company Stock Options issued pursuant to the Company Stock Plans covering not in
excess of 851,915 shares of Company Common Stock or as set forth in Section 3.2
of the Company Letter, there are no options, warrants, calls, rights, securities
or agreements to which the Company or any of its Subsidiaries is a party or by
which any of them is bound obligating the Company or any of its Subsidiaries to
issue, deliver or sell, or cause to be issued, delivered or sold, additional
shares of capital stock or other securities of the Company or any of its
Subsidiaries or obligating the Company or any of its Subsidiaries to grant,
extend or enter into any such option, warrant, call, right, security or
agreement. Each outstanding share of capital stock of each Subsidiary of the
Company that is a corporation is duly authorized, validly issued, fully paid and
nonassessable and, except as disclosed in Section 3.2 of the Company Letter,
each such share is owned by the Company or another Subsidiary of the Company,
free and clear of all Liens, except that each outstanding share of capital stock
of Donnelly Export is owned by a holder of Company Class B Common Stock, free
and clear of all Liens. The Company does not have outstanding any bonds,
debentures, notes or other indebtedness of the Company having the right to vote
(or convertible into, or exchangeable for, securities having the right to vote)
on any matters on which shareholders of the Company may vote. Except as
disclosed in Section 3.2 of the Company Letter, there are no outstanding
contractual obligations of the Company or any of its Subsidiaries to repurchase,
redeem or otherwise acquire any shares of capital stock of the Company or any of
its Subsidiaries. Except as set forth in Section 3.2 of the Company Letter,
Exhibit 21.1 to the Company's Annual Report on Form 10-K for the year ended
December 31, 2001, as filed with the SEC (the "Company Annual Report"), is a
true and correct statement of all the information required to be set forth
therein by the rules and regulations of the SEC.
Section 3.3 AUTHORITY. The Company has the requisite corporate power and
authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby, subject to, with respect to the Merger, the
approval and adoption of this Agreement and the Merger by the affirmative vote
by the holders of Company Common Stock entitled to vote not less than two-thirds
of the total number of votes entitled to be cast by holders of Company Common
Stock, with the holders of Company Class A Common Stock and Company Class B
Common Stock voting together as a single class. The Board of Directors of the
Company has approved and adopted this Agreement and, subject to the provisions
of Section 5.1, recommends this Agreement to the Company's shareholders. The
execution, delivery and performance of this Agreement by the Company and the
consummation by the Company of the Merger and of the other transactions
contemplated hereby have been duly authorized by all necessary corporate action
on the part of the Company and no other corporate proceedings on the part of the
Company are necessary to authorize this Agreement or to consummate the
transactions contemplated hereby, other than, with respect to the Merger, the
approval and adoption of this Agreement and the Merger by the Company's
shareholders as described above and the filing of the Certificate of Merger with
the Filing Office. This Agreement has been duly executed and delivered by the
Company and, assuming the due authorization, execution and delivery hereof by
Parent and Sub, constitutes a valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms, except to the
extent enforceability may be limited by applicable bankruptcy, insolvency,
moratorium or other similar laws affecting creditors' rights generally or by
general principles governing the availability of equitable remedies. The filing
of the Proxy Statement/Prospectus with the SEC (with respect to the Company) has
been duly authorized by the Company's Board of Directors.
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Section 3.4 CONSENTS AND APPROVALS; NO VIOLATION. No filing or registration
with, or authorization, consent or approval of, any Governmental Entity is
required by or with respect to the Company or any of its Subsidiaries in
connection with the execution and delivery of this Agreement by the Company, is
necessary for the consummation of the Merger and the other transactions
contemplated by this Agreement or will be necessary to allow the Surviving
Corporation and its Subsidiaries to operate the business of the Company and its
Subsidiaries in substantially the same manner as operated immediately prior to
the Merger, except (i) the filing of a premerger notification and report form by
Parent under the HSR Act and such filings as are required under the EC Merger
Regulation, and under the respective antitrust statutes in Brazil and Mexico and
other applicable jurisdictions, (ii) the filing of the Certificate of Merger
with the Filing Office and appropriate documents with the relevant authorities
of other states, if any, specified in Section 3.4 of the Company Letter in which
the Company or any of its Subsidiaries is qualified to do business, (iii) such
filings as may be required in connection with the taxes described in
Section 5.10, (iv) pursuant to applicable requirements, if any, of Blue Sky Laws
and the NYSE, (v) the filing with the SEC by the Company of the Proxy
Statement/Prospectus and of such reports as may be required by the Exchange Act
in connection with this Agreement and the transactions contemplated hereby and
(vi) such other filings, approvals, orders, notices, registrations, declarations
and consents under applicable state takeover or similar laws, and any applicable
state environmental laws or laws with respect to the ownership by a foreign
entity of real property, but with respect to this clause (vi), only as specified
in Section 3.4 of the Company Letter. Neither the execution, delivery and
performance of this Agreement nor the consummation of the transactions
contemplated hereby will (with or without notice or lapse of time, or both)
result in any violation of, or default or the loss of a material benefit under,
or give to others a right of termination, cancellation or acceleration of any
obligation under, or result in the creation of any Lien upon, any of the
properties, assets or operations of the Company or any of its Subsidiaries under
any provision of (i) the Company Articles of Incorporation or Bylaws of the
Company, (ii) any provision of the comparable charter or organization documents
of any Subsidiary of the Company, (iii) any loan or credit agreement, note,
bond, mortgage, indenture, license, lease, contract, agreement (other than stock
option agreements under the Company Stock Plans, which provide for accelerated
vesting of the underlying options upon the Effective Time, the Pension Plan for
Outside Directors, the Deferred Compensation Plan, the Supplemental Retirement
Plan and the Deferred Director Fee Plan, each of which plans accelerates or
could accelerate payment after the Effective Time) or other instrument, permit,
concession, franchise or obligation to which the Company or any of its
Subsidiaries is a party or by which any of them or any of their respective
properties or assets may be bound or affected or (iv) any judgment, order, writ,
injunction, decree, law, statute, rule or regulation applicable to the Company
or any of its Subsidiaries or any of their respective properties, assets or
operations, other than, in the case of clauses (iii) or (iv), for violations,
defaults, losses, rights (including rights of acceleration of payments or
vesting) or Liens that are specified in Section 3.4 of the Company Letter and
that, individually and in the aggregate, would not prevent, delay or impair the
consummation of the Merger in any respect and would not have a Company Material
Adverse Effect or materially impact the ability of the Company to perform its
obligations under this Agreement.
Section 3.5 SEC DOCUMENTS AND OTHER REPORTS. The Company has filed all
required documents with the SEC since January 1, 1999 (the "Company SEC
Documents"). As of their respective dates, the Company SEC Documents, when taken
together with any amendment thereto filed prior to the date hereof, complied in
all material respects with the requirements of the Securities Act or the
Exchange Act, as the case may be, and, at the respective times they were filed,
none of the Company SEC Documents contained any untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, except as set forth in subsequent Company
SEC Documents filed prior to the date hereof, in this Agreement or in
Section 3.5 of the Company Letter. The combined consolidated financial
statements (including, in each case, any notes thereto) of the Company included
in the Company SEC Documents (the "Financial Statements") complied as to form in
all material respects with applicable accounting requirements and the published
rules and regulations of the SEC with respect thereto as of their respective
dates of filing, were prepared in accordance with accounting principles
generally accepted in the United States ("GAAP") (except, in the case of the
unaudited statements, as permitted by Regulation S-X of the SEC) applied on a
consistent basis during the periods involved (except as may be indicated therein
or in the notes thereto) and fairly presented in all material respects the
consolidated financial position of the Company and its consolidated Subsidiaries
as at the respective dates thereof and the
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consolidated results of their operations and their consolidated cash flows for
the periods then ended (subject, in the case of unaudited statements, to normal
year-end audit adjustments and to any other adjustments described therein),
except as set forth in subsequent Company SEC Documents filed prior to the date
hereof, in this Agreement or in Section 3.5 of the Company Letter. Except as
disclosed in the Company SEC Documents, the Company has not, since December 31,
2001, made any material change in the accounting policies applied in the
preparation of its financial statements.
Section 3.6 REGISTRATION STATEMENT AND PROXY STATEMENT/PROSPECTUS. None of
the information to be supplied by the Company for inclusion or incorporation by
reference in the Registration Statement or the Proxy Statement/ Prospectus will
(i) in the case of the Registration Statement, at the time it becomes effective,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein not misleading or (ii) in the case of the Proxy Statement/Prospectus, at
the time of the mailing of the Proxy Statement/Prospectus to the Company's
shareholders, at the time of the Special Meeting and at the Effective Time,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading. If at any time prior to the Effective Time any event with respect to
the Company, its officers and directors or any of its Subsidiaries shall occur
that is required to be described in the Proxy Statement/Prospectus or the
Registration Statement, such event shall be so described and promptly disclosed
to Parent, and an appropriate amendment or supplement shall be promptly filed
with the SEC and, as required by law, disseminated to the shareholders of the
Company. The Registration Statement and the Proxy Statement/Prospectus will
comply (with respect to the Company and its Subsidiaries) as to form in all
material respects with the provisions of the Securities Act and the Exchange
Act.
Section 3.7 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as disclosed in
Section 3.7 of the Company Letter, from December 31, 2001 through the date of
this Agreement, (a) the Company and its Subsidiaries have not incurred any
material liability or obligation (indirect, direct or contingent), or entered
into any material oral or written agreement or other transaction, that is not in
the ordinary course of business or that would reasonably be expected to result
in a Company Material Adverse Effect, (b) the Company and its Subsidiaries have
not sustained any loss or interference with their business or properties from
fire, flood, windstorm, accident or other calamity (whether or not covered by
insurance) that has had or that would reasonably be expected to have a Company
Material Adverse Effect, (c) there has been no change in the capital stock of
the Company and no dividend or distribution of any kind declared, paid or made
by the Company or by Donnelly Export on any class of its stock, except for
regular quarterly cash dividends declared or paid on Company Common Stock,
Company 7 1/2% Preferred or the common stock of Donnelly Export, (d) there has
not been (i) any payment or agreement to pay any compensation of any nature
whatsoever (other than pursuant to any agreement as in effect on the date hereof
or otherwise in the ordinary course of business consistent with past practice),
or any award or grant under any Company Plan (as defined in Section 3.12(h)) as
in effect on the date hereof, to any officer or key employee of the Company or
of any of its Subsidiaries, (ii) any granting by the Company or any of its
Subsidiaries to any such officer or key employee of any severance or termination
award or (iii) any entry by the Company or any of its Subsidiaries into any
employment, severance or termination agreement with any such officer or key
employee, (e) there would have been no breach by the Company of Section 4.1,
assuming that such Section and this Agreement had been in effect since such date
in accordance with their respective terms and (f) there has been no other event
causing a Company Material Adverse Effect, nor any development that,
individually or in the aggregate, has resulted in or would reasonably be
expected to result in a Company Material Adverse Effect. Set forth in
Section 3.7 of the Company Letter is a list of the indebtedness of the Company
and its Subsidiaries as of the date of this Agreement, excluding any
indebtedness in an amount not greater than $1 million individually or
$5 million in the aggregate, and a summary of any material changes in the terms
of such indebtedness between December 31, 2001 and the date of this Agreement.
Section 3.8 PERMITS AND COMPLIANCE. Each of the Company and each of its
Subsidiaries is in possession of all franchises, grants, authorizations,
licenses, permits, charters, easements, variances, exceptions, consents,
certificates, approvals and orders necessary for the Company or any of its
Subsidiaries to own, sell, lease and operate its properties or to carry on its
business as it is now being conducted (the "Company Permits"), except where the
failure to have any of the Company Permits, individually and in the aggregate,
has not had and would not reasonably be expected to have a Company Material
Adverse Effect, and no suspension or cancellation of
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any of the Company Permits is pending or, to the knowledge of the Company,
threatened, except where such suspension or cancellation has not had and would
not reasonably be expected to have a Company Material Adverse Effect. Neither
the Company nor any of its Subsidiaries is in violation of (i) its charter,
bylaws or other organizational documents, (ii) any applicable law, ordinance,
administrative or governmental rule or regulation or (iii) any order, decree or
judgment of any Governmental Entity having jurisdiction over the Company or any
of its Subsidiaries except, in the case of clauses (ii) and (iii), for any
violations that, individually and in the aggregate, have not had and would not
reasonably be expected to have a Company Material Adverse Effect. Except for
Commitments (as hereinafter defined) to be entered into after the date hereof
permitted under the provisions of Section 4.1, Section 3.8 of the Company Letter
sets forth a complete and correct list of each contract, agreement or
arrangement, written or unwritten, to which the Company or any of its
Subsidiaries is a party or by which the Company or any of its Subsidiaries is
bound that (i) relates to the borrowing of money or the guaranty of any
obligation to borrow money, in each case, in excess of $1 million,
(ii) involves revenues or expenditures in excess of $1 million per annum
(excluding purchase and sale orders entered into in the ordinary course of
business consistent with past practice), (iii) is a collective bargaining or
employment agreement involving any employee or employees of the Company or any
of its Subsidiaries, (iv) obligates the Company or any of its Subsidiaries not
to compete with any business or otherwise restricts its right to carry on its
business, (v) relates to any acquisition of the capital stock or any of the
assets of the Company or any Subsidiary by another person (other than in the
ordinary course of the Company's or such Subsidiary's business consistent with
past practice, with respect to assets) and pursuant to which the Company or any
Subsidiary has continuing obligations or liabilities, (vi) relates to any
acquisition by the Company or any of its Subsidiaries of the capital stock or
any substantial part of the assets of another person that was entered into in
the three years prior to the date hereof, (vii) is a contract with any supplier,
customer, distributor or fabricator involving an amount in excess of $1 million
per annum that is not cancelable by the Company without causing a Company
Material Adverse Effect (excluding purchases and sales orders entered into in
the ordinary course of business consistent with past practice), (viii) relates
to any merger, consolidation, recapitalization, dissolution, liquidation or
other reorganization of the Company or any of its Subsidiaries pursuant to which
the Company or any such Subsidiary has continuing obligations or liabilities,
(ix) relates to consulting or other professional services (other than contracts
for information technology and other services entered into in the ordinary
course of business consistent with past practice and providing for fees that are
less than $1 million in the aggregate) or to investment banking or other
financial advisory services (including any agreements requiring the Company or
any of its Subsidiaries to use a particular investment bank in any financing or
other transaction), (x) is referred to in Section 3.19 of the Company Letter,
(xi) is an after-market agreement with a distributor who purchases in excess of
$1 million of goods from the Company and the Subsidiaries per annum,
(xii) provides for pricing concessions or givebacks in excess of 5% per annum of
the price of any product supplied to a customer or (xiii) is a sales
representative agreement pursuant to which compensation to the representative is
reasonably expected to exceed $250,000 in any year or in respect of which the
cost to the Company or any of its Subsidiaries would exceed $250,000 upon the
termination thereof by the Company or such Subsidiary (collectively, the
"Commitments"). Except as set forth in Section 3.8 of the Company Letter,
neither the Company nor any of its Subsidiaries is in breach of or default or
has suffered the loss of a material benefit under or the acceleration of its
obligations under or the termination of (and, to the knowledge of the Company,
no event has occurred which with notice or the passage of time or both would
constitute or result in a breach of or default or such a loss of a material
benefit or acceleration under or the termination of) any Commitment, except for
breaches, defaults or losses that, individually and in the aggregate, have not
had and would not reasonably be expected to have a Company Material Adverse
Effect.
Section 3.9 TAX MATTERS. Except as otherwise set forth in Section 3.9 of the
Company Letter, (i) the Company and each of its Subsidiaries have timely filed
all income Tax Returns and all other Tax Returns required to have been filed or
appropriate extensions therefor have been properly obtained, and such Tax
Returns are true, correct and complete in all respects, (ii) all Taxes (whether
or not shown on any Tax Return) required to have been paid by the Company and
each of its Subsidiaries have been timely paid, (iii) the Company and each of
its Subsidiaries have complied with all rules and regulations relating to the
withholding of Taxes, (iv) neither the Company nor any of its Subsidiaries has
waived in writing any statute of limitations in respect of its Taxes and, to the
Company's knowledge, no deficiency with respect to any Taxes has been proposed,
asserted or assessed against the Company or any of its Subsidiaries, (v) to the
Company's knowledge, no issues that have been raised
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by the relevant taxing authority in connection with the examination of the Tax
Returns referred to in clause (i) are currently pending, (vi) all deficiencies
asserted or assessments made as a result of any examination of any Tax Returns
referred to in clause (i) by any taxing authority have been paid in full,
(vii) the Financial Statements reflect an adequate reserve for all Taxes payable
by the Company and its Subsidiaries for all taxable periods and portions thereof
through the date of such financial statements, (viii) there are no Liens for
Taxes (other than for current Taxes not yet due and payable or, if past due,
which are being contested in good faith by appropriate proceedings and set forth
in Section 3.9 to the Company Letter) on the assets of the Company or any of its
Subsidiaries, (ix) any Tax Returns referred to in clause (i) relating to federal
and state income Taxes for any period commencing after December 31, 1997, have
been examined by the Internal Revenue Service (the "IRS") or the appropriate
state taxing authority or the period for assessment of the Taxes in respect of
which such Tax Returns were required to be filed has expired, (x) there is no
action, suit, investigation, audit, claim or assessment pending or proposed or,
to the Company's knowledge, threatened with respect to Taxes of the Company or
any of its Subsidiaries and no reasonable basis exists therefor, (xi) Donnelly
Export has no assets, the shares of the capital stock of Donnelly Export have a
fair market value not greater than $100,000 and all contracts, agreements or
arrangements between Donnelly Export and the Company or any of its Subsidiaries
may be terminated prior to the Effective Time without any liability on the part
of the Company or its Subsidiaries and (xii) Donnelly Export has no "accumulated
DISC income," as such term is defined in Treasury Regulations
Section 1.996-3(b). For purposes of this Agreement: (i) "Taxes" means any
federal, state, local, foreign or provincial income, gross receipts, property,
sales, use, license, excise, franchise, employment, payroll, withholding,
alternative or added minimum, ad valorem, value-added, transfer or excise tax,
or other tax, custom, duty, governmental fee or other like assessment or charge
of any kind whatsoever, together with any interest or penalty imposed by any
Governmental Entity, and (ii) "Tax Return" means any return, report or similar
statement (including the attached schedules) required to be filed with respect
to any Tax, including any information return, claim for refund, amended return
or declaration of estimated Tax.
Section 3.10 ACTIONS AND PROCEEDINGS. Except as set forth in Section 3.10 of
the Company Letter, there are no outstanding orders, judgments, injunctions,
awards or decrees of any Governmental Entity against the Company or any of its
Subsidiaries or against any of the directors, officers or employees of the
Company or any of its Subsidiaries as such, any of its or their properties,
assets or business that, individually or in the aggregate, have had or would
reasonably be expected to have a Company Material Adverse Effect. Except as set
forth in Section 3.10 of the Company Letter, there are no actions, suits or
claims or legal, administrative or arbitrative proceedings or investigations
pending or, to the knowledge of the Company, threatened against the Company or
any of its Subsidiaries or any of its or their directors, officers or employees
as such, or any of its or their properties, assets or businesses that (a) if
determined or resolved adversely to the Company or any Subsidiary of the Company
in accordance with the claimant's or plaintiff's demands, individually or in the
aggregate, have had or would reasonably be expected to have a Company Material
Adverse Effect or (b) seek to, or is reasonably likely to, prevent, delay or
impair the Merger or the other transactions contemplated by this Agreement. With
respect to each such action, suit, claim, proceeding or investigation set forth
in Section 3.10 of the Company Letter, the Company has furnished to Parent true
and correct copies of each pleading, filing, notice of other material
correspondence or e-mail relating thereto.
Section 3.11 CERTAIN AGREEMENTS. Except as set forth in Section 3.11, 4.1(h)
or 4.1(i) of the Company Letter, neither the Company nor any of its Subsidiaries
is a party to any oral or written agreement or plan, including any employment
agreement, severance agreement, stock option plan, stock appreciation rights
plan, restricted stock plan or stock purchase plan, any of the benefits of which
will be increased, or the vesting of the benefits of which will be accelerated,
by the occurrence of any of the transactions contemplated by this Agreement or
the value of any of the benefits of which will be calculated on the basis of any
of the transactions contemplated by this Agreement. Except as set forth in
Section 3.11 of the Company Letter, no holder of any option to purchase shares
of Company Common Stock, or shares of Company Common Stock granted in connection
with the performance of services for the Company or its Subsidiaries is or will
be entitled to receive cash or other consideration (other than Company Common
Stock) from the Company or any Subsidiary in lieu of or in exchange for such
option or shares as a result of the transactions contemplated by this Agreement.
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Section 3.12 ERISA.
(a) Section 3.12(a) of the Company Letter contains a list of each Company
Plan (as hereinafter defined). With respect to each Company Plan, the Company
has made available to Parent a true and correct copy of (i) the most recent
annual report (Form 5500) filed with the IRS and the two most recent actuarial
reports and financial statements, (ii) such Company Plan and all amendments
thereto, (iii) each trust agreement, insurance contract or administration
agreement relating to such Company Plan, (iv) the most recent summary plan
description for each Company Plan for which a summary plan description is
required, (v) the most recent determination letter, if any, issued by the IRS
with respect to (A) any Company Plan intended to be qualified under
Section 401(a) of the Code or (B) any Company Plan or related trust intended to
be tax-exempt under any other provision of the Code, (vi) any request for a
determination currently pending before the IRS and (vii) all material
correspondence with the IRS, the Department of Labor ("DOL") or the Pension
Benefit Guaranty Corporation ("PBGC") relating to any outstanding controversy or
pending correction under the IRS's Employee Plans Compliance Resolution System
or the DOL's Voluntary Fiduciary Correction Program. Each Company Plan complies
in form, and has been operated and administered in compliance, with the Employee
Retirement Income Security Act of 1974 and the regulations, promulgated
thereunder ("ERISA"), the Code and all other applicable statutes and
governmental rules and regulations, except for noncompliance that, individually
and in the aggregate, has not had and would not reasonably be expected to have a
Company Material Adverse Effect.
(b) No "reportable event" (other than those for which the 30-day notice to
the PBGC has been waived) or "prohibited transaction" (other than those for
which there is an available exemption) (as such terms are defined in ERISA and
the Code, as applicable) has occurred with respect to any Company Plan during
the six years preceding the Closing Date. Neither the Company nor any ERISA
Affiliate has incurred any liability under Title IV of ERISA to the PBGC in
connection with any Company Plan which is subject to Title IV of ERISA which has
not been fully paid prior to the date hereof, other than liability for premiums
due the PBGC, which premiums have been paid when due, and, except as set forth
on Section 3.12(b) of the Company Letter, no such Plan has been terminated or is
reasonably expected to be terminated or to be subject to proceedings by the PBGC
under Title IV of ERISA on or before the Closing Date. No amendment to any
Company Plan has been adopted that would require the provision of security to
such Plan under Section 401(a)(29) of the Code.
(c) All the information furnished by the Company to Parent prior to the date
hereof in respect of (i) the present value of all "benefit liabilities" (whether
or not vested) (as defined in Section 4001(a)(16) of ERISA) under each Company
Plan which is subject to Title IV of ERISA or (ii) the actuarial present value
(determined in accordance with reasonable actuarial methods and assumptions
disclosed in writing to Parent prior to the date hereof) of all liabilities of
the Company and its ERISA Affiliates to provide life insurance or medical
benefits after termination of employment or service to any current or former
employee, director, consultant or dependent (other than as required by
Section 4980B of the Code or Part 6 of Title 1 of ERISA), is true and complete
in all material respects. The Company and its ERISA Affiliates have validly
reserved the right to amend or terminate any life insurance or health or medical
benefits provided to retirees and their dependents, including any amendment or
termination that may be adopted before or after the retirement or termination of
services of such persons.
(d) Except as set forth on Section 3.12(d) of the Company Letter, none of
the Company Plans is a Multiemployer Plan or a Multiple Employer Plan and
neither the Company nor any ERISA Affiliate has contributed or been required to
contribute to any Multiemployer Plan or Multiple Employer Plan within the
six years preceding the Closing Date. No withdrawal liability has been incurred
by or asserted against, or is reasonably expected to be asserted against, the
Company or any ERISA Affiliate with respect to any Multiemployer Plan. The
Company has received no notice and has no knowledge or reasonable expectation
that any Company Plan is insolvent or in reorganization within the meaning of
Title IV of ERISA or that increased contributions to any Company Plan may be
required to avoid a reduction in plan benefits or the imposition of any excise
tax.
(e) There has been no failure by the Company or any ERISA Affiliate to make
any required contribution or pay any amount due to any Company Plan as required
by Section 412 of the Code, Section 302 of ERISA, or the terms of any such
Company Plan.
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(f) There have been no claims made against any administrator of a Company
Plan or such Company Plan itself for any liability other than a liability to pay
benefits under such Company Plan in accordance with the terms thereof.
(g) All Company Plans that are intended to be qualified under
Section 401(a) of the Code have been determined by the IRS to be so qualified,
or a timely application for such determination is now pending or will be filed
on a timely basis and there is no reason why any Company Plan is not so
qualified in operation.
(h) As used herein, (i) "Company Plan" means a "pension plan" (as defined in
Section 3(2) of ERISA), a "welfare plan" (as defined in Section 3(1) of ERISA),
or any material bonus, profit sharing, deferred compensation, incentive
compensation, stock ownership, stock purchase, stock option, phantom stock,
vacation, severance, death benefit, insurance or other plan, arrangement or
understanding, in each case established, maintained or contributed to by the
Company or any of its ERISA Affiliates or as to which the Company or any of its
ERISA Affiliates may have any liability, (ii) "Multiemployer Plan" means a
"multiemployer plan" (as defined in Section 4001(a)(3) of ERISA),
(iii) "Multiple Employer Plan" means a plan described in PBGC Reg.
Section 4001.2 and subject to Section 413(c) of the Code and the regulations
promulgated thereunder and (iv) with respect to any person, "ERISA Affiliate"
means any trade or business (whether or not incorporated) which is under common
control or would be considered a single employer with such person pursuant to
Section 414(b), (c), (m) or (o) of the Code and the regulations promulgated
under those sections or pursuant to Section 4001(b) of ERISA and the regulations
promulgated thereunder.
(i) Except as disclosed in Section 3.12(i) of the Company Letter, neither
the Company nor any Subsidiary of the Company maintains or contributes to any
arrangement (other than a Company Plan) providing pension or welfare benefits
that is established or maintained by the Company or any Subsidiary for the
benefit of employees who are or were employed outside the United States. Any
such arrangement listed on Section 3.12(i) of the Company Letter complies in
form and has been operated and administered in compliance with applicable laws,
except for noncompliance that, individually and in the aggregate, has not had
and would not reasonably be expected to have a Company Material Adverse Effect;
and the Financial Statements appropriately reflect all liabilities with respect
to any such arrangement and neither the Company nor any Subsidiary of the
Company has incurred or expects to incur any liabilities with respect to any
such arrangement, other than as disclosed in Section 3.12(i) of the Company
Letter.
(j) Section 3.12(j) of the Company Letter contains a list, as of the date of
this Agreement, of all (i) severance and employment agreements with officers,
directors, employees and consultants of the Company and each ERISA Affiliate,
(ii) severance programs and policies of the Company and each ERISA Affiliate
with or relating to its officers, directors, employees or consultants and
(iii) plans, programs, agreements and other arrangements of the Company and each
ERISA Affiliate with or relating to its officers, directors, employees or
consultants which contain change of control or similar provisions, and in the
case of each of (i), (ii) and (iii) above, such list shall be limited only to
such agreements, programs, policies, plans and other arrangements that involve a
severance or employment agreement or arrangement with an individual officer,
director, employee or consultant, and which provide for minimum annual payment
or payments (not including commissions or any similar contingent incentive
payments) in excess of $100,000. The Company has provided to Parent a true and
complete copy of each of the foregoing.
Section 3.13 CERTAIN LIABILITIES. Except as set forth in Section 3.13 of the
Company Letter or as disclosed in the combined consolidated balance sheet of the
Company as of March 31, 2002, and except for such indebtedness permitted to be
incurred after the date hereof under the provisions of Section 4.1, the Company
and its Subsidiaries have no liabilities, absolute or contingent, and whether or
not required to be disclosed on the combined consolidated balance sheet of the
Company in accordance with GAAP, except for any liabilities that, individually
and in the aggregate, have not had and would not reasonably be expected to have
a Company Material Adverse Effect. Except as set forth in Section 3.13 of the
Company Letter, neither the Company nor any of its Subsidiaries has engaged in
any transaction that received off-balance sheet accounting treatment under
Financial Accounting Standard No. 125 or No. 140.
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Section 3.14 INTELLECTUAL PROPERTY.
(a) Section 3.14(a) of the Company Letter sets forth a true and complete
list of all material patents, copyrights, trademarks (registered or
unregistered), trade names and service marks and applications therefor
(collectively, "Marks") owned, used, filed by or licensed to the Company or any
of its Subsidiaries. With respect to registered trademarks, Section 3.14(a) of
the Company Letter sets forth a list of all jurisdictions in which such
trademarks are registered or applied for and all registration and application
numbers. Except as set forth in Section 3.14(a) of the Company Letter, the
Company and its Subsidiaries own, and the Company and its Subsidiaries have the
right to use, execute, reproduce, display, perform, modify, enhance, distribute,
prepare derivative works of and sublicense, without payment to any other person,
all Marks listed in Section 3.14(a) of the Company Letter and the consummation
of the transactions contemplated hereby will not conflict with, alter or impair
any such rights.
(b) Except as set forth in Section 3.14(b) of the Company Letter, none of
the Company or any of its Subsidiaries has granted any material options,
licenses, sublicenses or agreements of any kind relating to any Mark or any
other intellectual property and proprietary rights, whether or not subject to
statutory registration or protection (collectively with the Marks, "Intellectual
Property"). None of the Company or any of its Subsidiaries is bound by or a
party to any material options, licenses, sublicenses or agreements of any kind
relating to the Intellectual Property of any other person, except as set forth
in Section 3.14(b) of the Company Letter and except for agreements relating to
computer software licensed to the Company or its Subsidiaries in the ordinary
course of business. Subject to the rights of third parties set forth in
Section 3.14(b) of the Company Letter, all Intellectual Property listed in
Section 3.14(b) of the Company Letter is free and clear of the claims of others
and of all Liens. Except as disclosed in Section 3.14(b) of the Company Letter,
to the Company's knowledge, the conduct of the business of the Company or its
Subsidiaries as presently conducted and as proposed to be conducted does not and
will not violate or infringe the Intellectual Property of any other person.
Except as set forth in Section 3.14(b) of the Company Letter, no claims are
pending, or to the knowledge of the Company, threatened, against the Company or
any of its Subsidiaries by any person with respect to the ownership, validity,
enforceability, effectiveness or use of any Intellectual Property. To the
knowledge of the Company, there is no actual or suspected unauthorized use,
disclosure, infringement or misappropriation of any Intellectual Property rights
of the Company or any of its Subsidiaries or any third party Intellectual
Property rights, to the extent licensed to the Company or any of its
Subsidiaries by any third party, including any employee or former employee of
the Company or any of its Subsidiaries.
(c) It is the policy of the Company that all officers of the Company or any
of its Subsidiaries (other than the Chinese Joint Ventures (as defined in
Section 8.3) with respect to their operations in the People's Republic of China)
and all employees of the Company or any of such Subsidiaries who could
reasonably be expected to create Intellectual Property execute and deliver to
the Company or such Subsidiary prior to or promptly after the commencement of
their employment an agreement providing for the assignment to the Company or
such Subsidiary of any Intellectual Property arising from services performed for
the Company or such Subsidiary by such persons. To the Company's knowledge,
there is no Intellectual Property developed by an officer or employee of the
Company or any of its Subsidiaries that is subject to a patent, copyright or
trademark application of the Company or such Subsidiary that has not been
transferred to, and all such Intellectual Property is owned free and clear of
any Liens by, the Company or such Subsidiary.
Section 3.15 PROPERTIES, TITLE AND RELATED MATTERS.
(a) The Company and its Subsidiaries have sufficient title to all their
tangible properties and assets to conduct their respective businesses as
currently conducted or as contemplated to be conducted, with only such
exceptions as, individually or in the aggregate, have not had and would not
reasonably be expected to have a Company Material Adverse Effect.
(b) Except as described in Section 3.15(b) of the Company Letter, each
parcel of real property owned or leased by the Company or any of its
Subsidiaries (i) is owned or leased free and clear of all mortgages, pledges,
liens, security interests, conditional and installment sale agreements,
encumbrances, charges or other claims of third parties of any kind
(collectively, "Encumbrances"), other than (A) Encumbrances for current taxes
and assessments and other governmental charges not yet past due or, if past due,
which are being contested in good faith by appropriate proceedings and set forth
in Section 3.15(b) of the Company Letter, (B) inchoate
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mechanics' and materialmen's Encumbrances for construction in progress,
(C) workmen's, repairmen's, warehousemen's and carriers' Encumbrances arising in
the ordinary course of business of the Company or such Subsidiary consistent
with past practice, and (D) all matters of record, Encumbrances and other
imperfections of title that, individually or in the aggregate, have not had and
would not reasonably be expected to have a Company Material Adverse Effect and
(ii) is neither subject to any governmental decree or order to be sold nor is
being condemned, expropriated or otherwise taken by any public authority with or
without payment of compensation therefor, nor, to the Company's knowledge, has
any such condemnation, expropriation or taking been proposed.
(c) All leases of real and personal property for the use or benefit of the
Company or any of its Subsidiaries to which the Company or any such Subsidiary
is a party requiring rental payments in excess of $100,000 per year during the
period of the lease and all amendments and modifications thereto are in full
force and effect and have not been further modified or amended, and there exists
no default under any such lease by the Company or any such Subsidiary nor any
event which with notice or lapse of time or both would constitute a default
thereunder by the Company or any such Subsidiary except as would not,
individually and in the aggregate, reasonably be expected to have a Company
Material Adverse Effect. Except as disclosed in Section 3.15(c) of the Company
Letter, neither the Company nor any of its Subsidiaries has engaged in any
sale/leaseback or similar financing transactions, whether or not accounted for
as an operating or a capital lease, with respect to its real or personal
property.
Section 3.16 CUSTOMER WARRANTIES. Except as disclosed in Section 3.16 of the
Company Letter, there are not pending nor are there, to the knowledge of the
Company, threatened, any claims under or pursuant to any warranty, whether
expressed or implied, on products or services sold prior to the date of this
Agreement by the Company or any of its Subsidiaries that are not reflected in
the Financial Statements, except for such claims that, if determined or resolved
adversely to the Company or any Subsidiary of the Company in accordance with the
claimant's or plaintiff's demands, individually would cost the Company and its
Subsidiaries less than $500,000 for the related product or program. Since
January 1, 2000, neither the Company nor any of its Subsidiaries has had any of
its products involved in a recall (including any government-mandated recall,
"silent" recall or OEM customer satisfaction campaign) with a cost to the
Company or any such Subsidiary in excess of $500,000 in respect of any product
or program. To the Company's knowledge, neither the Company nor any of its
Subsidiaries has received any notice or claim regarding any such potential
recall.
Section 3.17 ENVIRONMENTAL MATTERS. Except as disclosed in Section 3.17 of
the Company Letter and except as, individually and in the aggregate, has not had
and would not reasonably be expected to have a Company Material Adverse Effect,
(i) neither the businesses of the Company and its Subsidiaries, nor the
operation thereof, nor any condition or circumstance at any property, asset,
improvement, fixture or equipment currently owned, operated or leased by the
Company or any of its Subsidiaries violates in any material respect any
applicable federal, state, local, regional or foreign laws, rules and
regulations, orders, decrees, common law, judgments, permits and licenses
relating to public or worker health and safety, the protection, management,
regulation or clean-up of the indoor or outdoor environment and activities or
conditions related thereto, including those relating to the generation,
handling, disposal, transportation or release of hazardous or toxic materials,
substances, wastes, pollutants and contaminants including, without limitation,
asbestos, petroleum (whether crude oil or any refined or altered product),
radon, urea formaldehyde, lead-based paint, mold and polychlorinated biphenyls
(such laws, rules, regulations, orders, decrees, common law, judgments, permits
and licenses, collectively, "Environmental Laws"); (ii) no condition,
circumstance or event exists or has occurred which, with notice or the passage
of time or both, would constitute such a violation of any Environmental Law or
give rise to a liability under any Environmental Law for the Company or its
Subsidiaries; (iii) the Company and each of its Subsidiaries is in possession of
all Company Permits required under any applicable Environmental Law
("Environmental Permits") for its operations and the Company and each of its
Subsidiaries has been and is in compliance in all material respects with all the
requirements and limitations included in such Environmental Permits; (iv) none
of the Company or any of its Subsidiaries has handled, buried, dumped, disposed
of, released (actively or passively), spilled, transported, stored or used any
materials, products, pollutants, contaminants, hazardous or toxic wastes,
substances or other materials regulated by, defined in or subject to any
Environmental Law (collectively, the "Hazardous Substances") on, at, beneath or
adjacent to any of its property or any other property (including ground water)
in any manner; (v) no person is violating, or has violated, any
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Environmental Law applicable to the business of the Company or any of its
Subsidiaries, or to any property, asset, improvement, fixture or equipment
owned, leased or operated by the Company or any of its Subsidiaries, nor has any
such other person failed to obtain any Environmental Permits respecting any
property, asset, improvement, fixture or equipment necessary or useful to the
Company or any of its Subsidiaries in the conduct of their respective
operations; (vi) none of the Company or any of its Subsidiaries has received any
notice, suit or claim from any authority or any private person or entity
alleging that the Company or any of its Subsidiaries or the operation of any of
their respective properties or their respective operations is or may be in
violation of any Environmental Law or any Environmental Permit or that it is or
may be responsible (or potentially responsible) for the presence, release or
threatened release of any Hazardous Substances at, on or beneath any of the
properties (including ground water) of the Company or any of its Subsidiaries,
or at, on or beneath any land adjacent thereto (including ground water) or in
connection with any other site; (vii) each of the Company and its Subsidiaries
has timely filed all material reports required to be filed with respect to all
of its property, assets, improvements, fixtures or equipment and has generated
and maintained all material required data, documentation and records required
under all applicable Environmental Laws; (viii) to the Company's knowledge there
are no underground storage tanks, including any piping, landfills, surface
improvements, lagoons or disposal areas, at, on or beneath any property owned,
leased or operated by the Company or any Subsidiary for any purpose; (ix) there
are no conditions, circumstances or events respecting any property, asset,
improvement, fixture or equipment owned or operated by any person other than the
Company or any Subsidiary that have given rise to or would reasonably be
expected to give rise to a Company Material Adverse Effect under any
Environmental Law; (x) to the Company's knowledge, none of the Company or any of
its Subsidiaries or any of their properties are subject to any investigation,
judicial or administrative proceeding, order, judgment, decree or settlement
agreement respecting Environmental Law or Hazardous Substances; (xi) none of the
Company or any of its Subsidiaries and none of the businesses of the Company or
any of its Subsidiaries have manufactured, distributed or sold products
containing asbestos; and (xii) none of the properties, assets, improvements,
fixtures or equipment of the Company or any of its Subsidiaries contain asbestos
that, individually or in the aggregate, has given rise to or would reasonably be
expected to give rise to liability for the Company or its Subsidiaries. All the
foregoing representations and warranties contained in clauses (ii)
through (xii) concerning properties, assets, improvements, fixtures and
equipment of the Company or any of its Subsidiaries shall be deemed to include
all current and former properties, assets, improvements, fixtures and equipment
owned, leased or operated by the Company or any of its Subsidiaries.
Section 3.18 INSURANCE. Section 3.18 of the Company Letter sets forth
descriptions of all insurance contracts or policies of the Company (the "Company
Policies"), including those that relate to liability or excess liability
insurance (collectively, the "Company Liability Policies"), including the name
of the insurer, the types, dates and amounts of coverages, and any material
coverage exclusions. Neither the Company nor any of its Subsidiaries has
breached or otherwise failed to perform in any material respects its obligations
under any of the Company Policies or the Company Liability Policies nor has the
Company or any of its Subsidiaries received any adverse written notice or, to
the knowledge of the Company, oral communication from any of the insurers party
to the Company Policies or the Company Liability Policies with respect to any
such alleged breach or failure in connection with any of the Company Policies or
the Company Liability Policies. In the last five years, neither the Company nor
any of its Subsidiaries has been denied coverage under any Company Policy or
Company Liability Policy. Except as disclosed in Section 3.18 of the Company
Letter, all Company Policies are sufficient for compliance with all laws and
regulations of any Government Entity and all agreements to which the Company and
its Subsidiaries are subject; are valid and outstanding, policies; and will not
be affected by, or terminate or lapse by reason of the execution and delivery of
this Agreement or the consummation of the transactions contemplated hereby,
except to the extent that any such termination or lapse would not, individually
or in the aggregate, reasonably be expected to have a Company Material Adverse
Effect.
Section 3.19 RELATED PARTY TRANSACTIONS. Except as set forth in
Section 3.19 of the Company Letter, neither any present or former officer,
director or Principal Shareholder of the Company or any of its Subsidiaries, nor
any affiliates of such officers, directors or Principal Shareholders, are
currently a party to any transaction involving an amount in excess of $50,000
with the Company or any of its Subsidiaries, excluding employment agreements but
including any agreement providing for the furnishing of services by, rental of
assets from or to, or otherwise requiring payments to, any of such officers,
directors, Principal Shareholders or affiliates.
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Section 3.20 PARACHUTE PAYMENTS TO DISQUALIFIED INDIVIDUALS. Except as set
forth in Section 3.20 of the Company Letter, no payment or other benefit, and no
acceleration of the vesting or payment of any options, payments or other
benefits, will, as a direct or indirect result of the transactions contemplated
by this Agreement, be (or under Section 280G of the Code and the Treasury
Regulations thereunder be presumed to be) a "parachute payment" to a
"disqualified individual" (as those terms are defined in Section 280G of the
Code and the Treasury Regulations thereunder) with respect to the Company or any
of its Subsidiaries without regard to whether such payment or acceleration is
reasonable compensation for personal services performed or to be performed in
the future. The approximate aggregate amount of excess "parachute payments"
related to the matters set forth in such Section 3.20 of the Company Letter,
assuming the Closing occurs on the date specified therein and termination of all
listed individuals without cause on such date, is set forth in such
Section 3.20 of the Company Letter.
Section 3.21 OPINION OF FINANCIAL ADVISOR. The Board of Directors of the
Company have received the opinion of Salomon Smith Barney Inc. ("Salomon Smith
Barney"), dated the date of this Agreement, to the effect that, as of such date,
Exchange Ratio is fair from a financial point of view to the holders of Company
Class A Common Stock (other than those holders and their respective affiliates
that have executed the Shareholders' Agreement), a copy of the written opinion
of which will be delivered to Parent promptly after receipt thereof by the
Company.
Section 3.22 STATE TAKEOVER STATUTES. The requirements of Section 780 of the
MBCA do not apply to the Merger, this Agreement or any of the transactions
contemplated hereby, pursuant to Section 783 of the MBCA. None of the Merger,
this Agreement or any of the transactions contemplated hereby is subject to
Chapter 7B of the MBCA. No takeover statute or similar statute or regulation in
the State of Michigan or any other state or other jurisdiction, applies or
purports to apply to the Merger or to this Agreement, or any of the transactions
contemplated hereby.
Section 3.23 REORGANIZATION. To the knowledge of the Company, neither it nor
any of its Subsidiaries has taken any action or failed to take any action which
action or failure would jeopardize the qualification of the Merger as a
reorganization within the meaning of Section 368(a) of the Code.
Section 3.24 BROKERS. No broker, investment banker or other person, other
than Salomon Smith Barney, the fees and expenses of which will be paid by the
Company, is entitled to any broker's, finder's or other similar fee or
commission in connection with the transactions contemplated by this Agreement
based upon arrangements made by or on behalf of the Company. The Company has
furnished to Parent a true and correct copy of the engagement letter between the
Company and Salomon Smith Barney.
Section 3.25 VOTES REQUIRED. The affirmative vote by the holders of Company
Common Stock entitled to vote not less than two-thirds of the total number of
votes entitled to be cast by holders of Company Common Stock, with the holders
of Company Class A Common Stock and Company Class B Common Stock voting together
as a single class (the "Company Required Vote"), is the only vote of the holders
of any class or series of the Company's voting securities that is necessary to
approve the Merger, this Agreement and the transactions contemplated hereby.
Section 3.26 DISCLOSURE. No representation or warranty by the Company in
this Agreement, and no document furnished to Parent in connection with the
transactions contemplated by this Agreement, contains any untrue statement of a
material fact or omits any material fact necessary to make the statements
contained herein or therein, in light of the circumstances under which made, not
misleading. All facts that would reasonably be expected to be material to an
investor making a decision to invest in equity securities of the Company have
been disclosed to Parent.
Section 3.27 ACCOUNTING CONTROLS. In all material respects, the Company
maintains a system of internal accounting controls sufficient to provide
reasonable assurances, to the extent required by Section 13(b)(2)(B) of the
Exchange Act, that (a) transactions are executed in accordance with management's
general or specific authorization; (b) transactions are recorded as necessary to
permit preparation of financial statements in conformity with generally accepted
accounting principles and to maintain accountability for assets; (c) access to
assets is permitted only in accordance with management's general or specific
authorization; and (d) the recorded accountability for assets is compared with
existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
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Section 3.28 ACCOUNTING MATTERS. The Company has not been advised by its
independent accountants of any material accounting irregularities that would
reasonably be expected to require the Company to restate the Financial
Statements (other than as required by any change in accounting principles
generally accepted in Canada or the United States). To the Company's knowledge,
the Company is not subject to any material pending or threatened investigation
by the SEC concerning the Financial Statements.
Section 3.29 LABOR MATTERS. Except as provided in Section 3.29 of the
Company Letter, neither the Company nor any of its Subsidiaries is a party to,
or bound by, any collective bargaining agreement, contract or other agreement or
understanding with a labor union or labor union organization. There is no unfair
labor practice, labor arbitration proceeding or other material labor dispute or
claim pending or, to the knowledge of the Company, threatened against the
Company or any of its Subsidiaries relating to their businesses. To the
knowledge of the Company, there are no organizational efforts with respect to
the formation of a collective bargaining unit currently being made or threatened
involving employees of the Company or any of its Subsidiaries. The Company has
not received any written or, to the knowledge of the Company, oral claims that
its Subsidiaries' European operations have employed any slave or prisoner-of-war
labor.
Section 3.30 OLD COMPANY STOCK OPTIONS. All the Company Stock Options have
vested in accordance with their terms by reason of the change of control of the
Company that occurred for purposes thereof upon the execution and delivery of
the Shareholders' Agreement by the parties thereto. If the Old Company Stock
Options are not duly exercised by the holders thereof prior to the Effective
Time, such Old Company Stock Options would terminate and be of no further force
or effect and would not give rise to any claim against the Surviving Corporation
by such holders.
Section 3.31 SUBSIDIARIES AND JOINT VENTURES. Section 3.31 of the Company
Letter sets forth all agreements and all organizational documents (collectively,
the "Subsidiary and Joint Venture Agreements") that are either (i) between any
of the Hohe Holders (as hereinafter defined) or any of their affiliates and Hohe
(as hereinafter defined) or (ii) with respect to any debt or equity investment
by the Company or any of its Subsidiaries or by any third party in (a) any
Subsidiary of the Company that is not a wholly owned Subsidiary (each, a
"non-wholly owned Subsidiary"), including Donnelly Hohe GmbH & Co., KG ("Hohe"),
and (b) any joint venture or equity investment of the Company that is not a
Subsidiary of the Company (each, a "Joint Venture"); and the Company has
furnished to Parent true and correct copies of each Subsidiary and Joint Venture
Agreement. Each Subsidiary and Joint Venture Agreement is in full force and
effect and the Company and the relevant non-wholly owned Subsidiary, as the case
may be, and, to the knowledge of the Company, the relevant Joint Venture and any
third party is not in violation of or in default under such Subsidiary and Joint
Venture Agreement. Neither the execution, delivery and performance of this
Agreement nor the consummation of the transactions contemplated hereby will
(with or without notice or lapse of time, or both) result in any violation of,
or default or the loss of a material benefit under, or give to others a right of
termination, cancellation or acceleration of any obligation under, any
Subsidiary and Joint Venture Agreement. Donnelly Holding GmbH has the legal and
enforceable right under applicable law under the Acquisition Agreement dated
May 25, 1995, as amended by the Agreement dated March 20, 1998, between, among
other parties, Paul Hohe, Elisabeth Hohe, Peter Hohe, Dr. Maria Hohe-Schramm and
Margarete Meyer (the "Hohe Holders") to acquire all the economic interest in
Hohe not currently owned by Donnelly Holding GmbH for DM5 million plus a
potential additional payment of up to DM500,000 upon notarized notice to the
Hohe Holders prior to the exercise of such right and, following the exercise
thereof, shall have the legal and enforceable right under applicable law under
the Option Agreement dated May 24, 1995 between Donnelly Holding GmbH, Peter
Hohe, Daniel Molhoek, Michael Sommer and Cornelius Weitbrecht to acquire all the
shares of Hohe Verwaltungs-GmbH not currently owned by the Company from Peter
Hohe for DM25,000 on written notice (such rights, collectively, the "Hohe Call
Options").
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ARTICLE IV
COVENANTS RELATING TO CONDUCT OF BUSINESS
Section 4.1 CONDUCT OF BUSINESS BY THE COMPANY PENDING THE MERGER. During
the period from the date of this Agreement through the Effective Time, the
Company shall, and shall cause each of its Subsidiaries to, conduct its
operations in the ordinary course of business consistent with past practice and,
to the extent consistent therewith, use all reasonable efforts to keep available
the services of its current officers and key employees and, except as otherwise
agreed upon by Parent, preserve its material relationships with customers,
suppliers, licensors, lessors, creditors and others having business dealings
with it, except where the failure to do so, individually and in the aggregate,
would not reasonably be expected to have a Company Material Adverse Effect.
Without limiting the generality of the foregoing, and except as otherwise
expressly required by this Agreement, the Company shall not, and shall not
permit any of its Subsidiaries to, without the prior written consent of Parent:
(a) adopt any amendment to its articles or certificate of incorporation or
by-laws or other comparable organizational documents;
(b) issue, deliver, sell, pledge, dispose of or otherwise encumber any
shares of its capital stock, any other voting securities or equity equivalent or
any securities convertible into, or any rights, warrants or options to acquire,
any such shares, voting securities, equity equivalent or convertible securities,
other than the issuance of shares of Company Class A Common Stock or shares of
common stock of Information Products, Inc. upon the exercise of employee stock
options pursuant to the Company Stock Plans and the Information Products, Inc.
stock option plan, respectively, outstanding on the date of this Agreement in
accordance with their terms or the issuance of Company Class A Common Stock in
exchange for Company Class B Common Stock;
(c) (i) declare, set aside or pay any dividends on, or make any other
actual, constructive or deemed distributions in respect of, any of its capital
stock, or otherwise make any payments to its shareholders in their capacity as
such (other than dividends and other distributions by Subsidiaries to the
Company or its Subsidiaries and other than the Company's regular quarterly cash
dividends; PROVIDED that the record dates after June 2002 for such regular
quarterly cash dividends shall be set on the record date established by Parent
for dividends on Parent Common Stock), (ii) other than in the case of any wholly
owned Subsidiary, split, combine or reclassify any of its capital stock or issue
or authorize the issuance of any other securities in respect of, in lieu of or
in substitution for shares of its capital stock or (iii) except as contemplated
by Section 4.4, purchase, redeem or otherwise acquire any shares of capital
stock of the Company or any of its non-wholly owned Subsidiaries or any other
debt or equity securities thereof or any rights, warrants or options to acquire
any such shares or other securities;
(d) (A) acquire or agree to acquire (i) by merging or consolidating with, or
by purchasing a substantial portion of the assets or properties of or equity in
(except as contemplated by clause (ii) below), or by any other manner, any
business or any corporation, partnership, limited liability company, association
or other business organization or division thereof for a price in excess of
$2 million or (ii) any assets or properties that are, individually or in the
aggregate, material to the Company and its Subsidiaries taken as a whole, other
than purchases of equipment, tooling or raw materials that are in the ordinary
course of business consistent with past practice or (B) make any capital
contributions to, or other investments in, any person that is not a majority
owned Subsidiary of the Company (other than additional capital contributions or
investments not in excess of $500,000 in the aggregate that are in respect of
investments of the Company held as of the date hereof);
(e) sell, lease, license, mortgage or otherwise encumber or subject to any
Lien or otherwise dispose of any of its assets, other than transactions
(including the sale of inventory) that are in the ordinary course of business
consistent with past practice or in connection with the liquidation of Schott
Donnelly, LLC;
(f) incur or assume any indebtedness for borrowed money, guarantee any such
indebtedness in excess of existing credit facilities, issue or sell any debt
securities or warrants or other rights to acquire any debt securities, guarantee
or otherwise support any debt securities or make any loans or advances to any
other person, or enter into any arrangement having the economic effect of any of
the foregoing, other than (i) indebtedness incurred in the financing of customer
contracts and accounts receivable in the ordinary course of business consistent
with past practice, (ii) indebtedness, loans, advances, guarantees, capital
contributions and investments between the
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Company and any of its wholly owned Subsidiaries or between any of such wholly
owned Subsidiaries, (iii) other indebtedness in a maximum aggregate principal
amount not exceeding $5 million or (iv) in connection with refinancing existing
indebtedness;
(g) alter (through merger, liquidation, reorganization, restructuring or in
any other fashion) the corporate structure or ownership of the Company or any
non-wholly owned Subsidiary;
(h) except as required under Section 5.8 or as set forth in Section 4.1(h)
of the Company Letter, enter into or adopt any, or amend any existing, severance
plan, agreement or arrangement or enter into or amend any Company Plan or
employment or consulting agreement, other than as required by law or by an
existing contractual obligation of the Company disclosed in Section 4.1(h) of
the Company Letter;
(i) except as set forth in Section 4.1(i) of the Company Letter, and except
to the extent required by written employment agreements existing on the date of
this Agreement and set forth in Section 3.12(i) of the Company Letter, increase
the compensation payable or to become payable to its officers or other
employees, except for increases in the ordinary course of business consistent
with past practice in salaries or wages of such other employees of the Company
or any of its Subsidiaries;
(j) grant or award, or amend or modify any previously granted or awarded,
any stock options, restricted stock, performance shares, stock appreciation
rights or other equity-based incentive awards;
(k) change or modify the accounting methods, principles or practices used by
it (other than changes or modifications required to be made by changes in
accounting principles generally accepted in the United States);
(l) except as set forth in Section 4.1(l) of the Company Letter, make or
agree to make any capital expenditure, other than (i) in the ordinary course of
business consistent with past practice to support the Company's production in
respect of takeover work or other contracts awarded by an OEM after the date of
the business plan of the Company previously delivered to Parent, (ii) as
specified in such business plan or (iii) to the extent not specified in such
business plan, in an amount not greater than $1 million individually or
$5 million in the aggregate;
(m) settle or compromise any suit, proceeding or claim or threatened suit,
proceeding or claim in an amount not covered by insurance in excess of
$1 million in the aggregate;
(n) settle or compromise any liability under any federal, state, local or
foreign tax law or under any Environmental Law, in each case, in excess of
$1 million or that would impose a material restraint on the business of the
Company or any Subsidiary;
(o) make any material tax election not required by law;
(p) except as set forth in Section 4.1(p) of the Company Letter, make any
material amendment to, or waive any material provision of, any contract,
arrangement or understanding requiring the lease or purchase of equipment,
materials, supplies or services in excess of $1,000,000 individually or
$5,000,000 in the aggregate, which is not cancelable without penalty on 90 or
fewer days' notice;
(q) knowingly violate or fail to perform any material obligation or duty
imposed upon it or any Subsidiary by any applicable federal, state or local law,
rule, regulation, guideline or ordinance;
(r) make any payment of any nature whatsoever to Donnelly Export, other than
to permit it to make its regular quarterly cash dividend in the ordinary course
of business consistent with past practice;
(s) take or agree to take any action that would reasonably be expected to
cause any representation or warranty of the Company set forth in this Agreement
not to be true and correct in any material respect or result in any of the
conditions set forth in Article VI not being satisfied as contemplated by this
Agreement (or fail to take any action required to (i) prevent any such
representation or warranty from becoming not true and correct in any material
respect or (ii) satisfy such conditions as contemplated hereby); or
(t) authorize, recommend, propose or announce an intention to do any of the
foregoing, or enter into any contract, agreement, commitment or arrangement to
do any of the foregoing.
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Section 4.2 NO SOLICITATION; THIRD PARTY STANDSTILL AGREEMENTS.
(a) From the date hereof until the termination of this Agreement in
accordance with its terms, the Company shall not, nor shall it authorize or
permit any of its Subsidiaries to, nor shall it authorize or permit any officer,
director or employee of or any financial advisor, attorney or other advisor,
representative or agent of, the Company or any of its Subsidiaries to,
(i) solicit, initiate or encourage the submission of, any Takeover Proposal (as
hereinafter defined), (ii) enter into any agreement with respect to or approve
or recommend any Takeover Proposal or (iii) participate in any discussions or
negotiations regarding, or furnish to any person any non-public information with
respect to, or take any other action to facilitate any inquiries or the making
of any proposal that constitutes, or may reasonably be expected to lead to, any
Takeover Proposal. Without limiting the foregoing, it is understood that any
violation of the restrictions set forth in the preceding sentence by any
director or officer of the Company or any of its Subsidiaries or any financial
advisor, attorney or other advisor, representative or agent of the Company or
any of its Subsidiaries, whether or not such person is purporting to act on
behalf of the Company or any of its Subsidiaries or otherwise, shall be deemed
to be a breach of this Section 4.2(a) by the Company. For purposes of this
Agreement, "Takeover Proposal" means any proposal for a merger, sale of all or
substantially all the assets of, or other business combination or
recapitalization or similar transaction involving, the Company or any of its
Subsidiaries or any proposal or offer to acquire in any manner, directly or
indirectly, an equity interest in excess of 5% of the Company Common Stock or
voting securities of the Company or any of its Subsidiaries, other than the
transactions contemplated by this Agreement.
(b) The Company promptly (but in no event later than 48 hours after the
event) shall advise Parent orally and in writing of (i) any Takeover Proposal or
any inquiry or any communication with respect to or which could reasonably be
expected to lead to any Takeover Proposal, (ii) the material terms of such
Takeover Proposal (including a copy of any written proposal) and (iii) the
identity of the person or persons making any such Takeover Proposal, inquiry or
communication. The Company will keep Parent promptly and fully informed of the
status, changes in and details of any such Takeover Proposal, inquiry or
communication.
(c) During the period from the date of this Agreement through the Effective
Time, the Company shall not terminate, amend, modify or waive any provision of
any confidentiality, standstill or similar agreement to which the Company or any
of its Subsidiaries is a party (other than any to which Parent is a party).
During such period, the Company agrees to enforce, to the fullest extent
permitted under applicable law, the provisions of any such agreements, including
using all reasonable efforts to obtain injunctions to prevent any threatened or
actual breach of such agreements and to enforce specifically the terms and any
provision thereof in any court of the United States or any state thereof having
jurisdiction.
Section 4.3 REORGANIZATION. During the period from the date of this
Agreement through the Effective Time, unless the other party shall otherwise
agree in writing, none of Parent, the Company or any of their respective
Subsidiaries shall knowingly take or fail to take any action which action or
failure would jeopardize the qualification of the Merger as a reorganization
within the meaning of Section 368(a) of the Code.
Section 4.4 REDEMPTION OF COMPANY 7 1/2% PREFERRED. Prior to the Effective
Time, the Company shall duly call for redemption and, immediately prior to the
Effective Time, shall duly redeem, all outstanding shares of the Company 7 1/2%
Preferred, in accordance with the terms thereof.
ARTICLE V
ADDITIONAL AGREEMENTS
Section 5.1 SPECIAL MEETING OF SHAREHOLDERS. The Company shall duly call a
Special Meeting of its shareholders for the purpose of voting upon this
Agreement (insofar as it relates to the Merger), the Merger and related matters
and use its best efforts duly to give notice of, convene and hold such Special
Meeting as soon as practicable following the date hereof. The Company will,
through its Board of Directors, recommend to its shareholders approval and
adoption of this Agreement and approval of the Merger, unless the Company has
received a Superior Proposal (as hereinafter defined) or unless Parent has
delivered a Parent MAE Notice with respect to any Parent Material Adverse Effect
or deemed Parent Material Adverse Effect pursuant to Section 6.2(d).
Notwithstanding the foregoing or any other provision of this Agreement, the
Company shall adjourn the Special Meeting at any time and from time to time,
until the conditions set forth in Article VI (other
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than in Section 6.1(f) and other than those that this Agreement contemplates
will be satisfied at or immediately prior to the Effective Time) have been
satisfied or waived. "Superior Proposal" means any bona fide written Takeover
Proposal that the Board of Directors of the Company determines in good faith
after consultation with the Company's legal and financial advisors, and taking
into account all the terms and conditions of the Takeover Proposal, including
the likelihood of consummation of such proposal, is more favorable to the
Company's shareholders than the Merger and for which financing, to the extent
required, is then fully committed or reasonably determined by the Board of
Directors of the Company to be available.
Section 5.2 FILINGS; OTHER ACTIONS.
(a) The Company shall as soon as practicable after the date hereof prepare
and file with the SEC the Proxy Statement/Prospectus and Parent shall prepare
and file with the SEC the Registration Statement, in which the Proxy
Statement/Prospectus will be included as a prospectus. Each of Parent and the
Company shall use all reasonable efforts to have the Registration Statement
declared effective under the Securities Act as promptly as practicable after
such filing. As promptly as practicable after the Registration Statement shall
have become effective, the Company shall mail the Proxy Statement/Prospectus to
its shareholders (the date of such mailing to any of such shareholders being
hereinafter called the "Mailing Date"). Each party shall furnish all information
concerning itself and the holders of its capital stock as may reasonably be
requested in connection with any such action, including information relating to
the number of shares of Parent Common Stock required to be registered.
(b) Each party hereto agrees, subject to applicable laws relating to the
exchange of information, promptly to furnish the other parties hereto with
copies of written communications (and memoranda setting forth the substance of
all oral communications) received by such party, or any of its subsidiaries,
affiliates or associates (as such terms are defined in Rule 12b-2 under the
Exchange Act as in effect on the date hereof), from any Governmental Entity, and
to promptly advise the other parties hereto of any proposed delivery of any of
the foregoing to any Governmental Entity and provide such other parties with
reasonable opportunity to comment thereon, in respect of the transactions
contemplated hereby.
(c) Each of the Company and Parent will promptly, and in any event within
ten business days after execution and delivery of this Agreement with respect to
the HSR Act, within seven calendar days after the execution and delivery of this
Agreement, with respect to the EC Merger Regulation (unless a valid extension is
obtained granting additional time with respect to the EC Merger Regulation, and
then within such extended period of time) and within the time required by all
other applicable laws, rules and regulations, make all filings or submissions as
are required under the HSR Act or the EC Merger Regulation or any other
applicable antitrust statute. Each of the Company and Parent will promptly
furnish to the other such necessary information and reasonable assistance as the
other may request in connection with its preparation of any filing or
submissions necessary under the HSR Act or the EC Merger Regulation or any other
applicable antitrust statute. Each of the Company and Parent will promptly
notify the other of the receipt and content of any inquiries or requests for
additional information made by any Governmental Entity in connection therewith
and, subject to the next sentence, will promptly (i) comply with any such
inquiry or request and (ii) provide the other with a description of the
information provided to any Governmental Entity with respect to any such inquiry
or request. In addition, each of the Company and Parent will keep the other
apprised of the status of any such inquiry or request. The foregoing shall not
require (i) Parent or the Company to make any divestiture or consent to any
divestiture in order to fulfill any condition or obtain any consent,
authorization or approval or to appeal an injunction or order, or to post a bond
in respect of such appeal or (ii) Parent to comply with any request for
additional information from any Governmental Entity, compliance with which would
be, after Parent's good faith efforts to negotiate with such Governmental Entity
the narrowing of the scope of such request, unduly burdensome or expensive (it
being understood that a "second request" for information from any Governmental
Entity in connection with filings made under the HSR Act would not necessarily
be unduly burdensome or expensive).
Section 5.3 COMFORT LETTERS.
(a) The Company shall use all reasonable efforts to cause to be delivered to
Parent "comfort" letters of PriceWaterhouseCoopers and BDO Seidman LLP, the
Company's independent public accountants, dated the date on which the
Registration Statement shall become effective and as of the Effective Time, and
addressed to
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the respective Boards of Directors of Parent and the Company, in form and
substance reasonably satisfactory to Parent and reasonably customary in scope
and substance for letters delivered by independent public accountants in
connection with transactions such as those contemplated by this Agreement.
(b) Parent shall use all reasonable efforts to cause to be delivered to the
Company "comfort" letters of Ernst & Young LLP, Parent's independent public
accountants, dated the date on which the Registration Statement shall become
effective and as of the Effective Time, and addressed to the respective Boards
of Directors of the Company and Parent, in form and substance reasonably
satisfactory to the Company and reasonably customary in scope and substance for
letters delivered by independent public accountants in connection with
transactions such as those contemplated by this Agreement.
Section 5.4 ACCESS TO INFORMATION. Subject to the other terms and conditions
of this Section 5.4, during normal business hours during the period from the
date of this Agreement through the Effective Time, the Company shall, and shall
cause each of its Subsidiaries to, afford to the accountants, counsel, financial
advisors and other representatives of Parent reasonable access to, and permit
them to make such reasonable inspections (including environmental and other
sampling, subject to the execution of a reasonable environmental site access
agreement) as they may reasonably require of, all their respective properties,
books, Tax Returns, contracts, commitments and records (including the work
papers of independent accountants, if available and subject to the consent of
such independent accountants) and, during such period, the Company shall, and
shall cause each of its Subsidiaries to, furnish promptly to Parent (i) a copy
of each material report, schedule, registration statement and other document
filed by it during such period pursuant to the requirements of federal or state
securities laws or otherwise filed by it during such period with any
Governmental Entity and (ii) all other information concerning its business,
properties and personnel as Parent may reasonably request. Notwithstanding any
provision of this Agreement, including this Section 5.4, the Company shall have
no obligation to disclose or provide to Parent or any of its accountants,
counsel, financial advisors or other representatives any information, documents
or records that are competitively highly sensitive, including costing
information on any particular product or program and information on any program
or product to be bid to an automotive manufacturer, provided that no such
sensitive, non-disclosed or non-provided information, documents or records
involves any facts that, individually or in the aggregate, has had or would
reasonably be expected to have a Company Material Adverse Effect. No
investigation pursuant to this Section 5.4(a) shall affect any representation or
warranty in this Agreement of any party hereto or any condition to the
obligations of the parties hereto. All information obtained by Parent pursuant
to this Section 5.4(a) shall be kept confidential in accordance with the letter
agreement dated March 21, 2002 (the "Confidentiality Agreement") between Parent
and the Company.
Section 5.5 COMPLIANCE WITH THE SECURITIES ACT. The Company shall use all
reasonable efforts to cause each person who is identified as an "affiliate" of
the Company as that term is used in paragraphs (c) and (d) of Rule 145 under the
Securities Act (the "Rule 145 Affiliates") to deliver to Parent on or prior to
the Effective Time a written agreement in substantially the form of Exhibit 5.5
hereto, executed by such person.
Section 5.6 STOCK EXCHANGE LISTINGS. Parent shall use its best efforts to
list on the NYSE and the TSE, upon official notice of issuance, the shares of
Parent Common Stock to be issued in connection with the Merger.
Section 5.7 FEES AND EXPENSES.
(a) Except as provided in paragraphs (b) and (c) of this Section 5.7, all
fees and expenses incurred in connection with the Merger, this Agreement and the
transactions contemplated hereby, including the fees and disbursements of
counsel, financial advisors and accountants, shall be paid by the party
incurring such fees or expenses, whether or not the Merger is consummated;
PROVIDED that all expenses incurred in connection with (i) the fees of Arnold &
Porter incurred pursuant to any joint retainer agreement in connection with any
filings made pursuant to the EC Merger Regulation and antitrust statutes of
countries other than the United States and (ii) the printing of the Registration
Statement and the Proxy Statement/Prospectus shall be divided equally between
Parent and the Company.
(b) The Company shall pay to Parent upon demand, in same day funds, a fee of
$8 million (a "Termination Fee") if this Agreement is terminated by Parent
pursuant to Section 7.1(c) or (d).
(c) Parent shall pay to the Company upon demand, in same day funds, a
Termination Fee of $8 million if this Agreement is terminated by the Company
pursuant to Section 7.1(c) or (d).
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(d) The Company and Parent each acknowledge that the agreements contained in
paragraphs (b) and (c) of this Section 5.7 are an integral part of the
transactions contemplated by this Agreement, and that, without these agreements,
the parties hereto would not enter into this Agreement; accordingly, if the
Company or Parent, as the case may be, fails promptly to pay any amount due
pursuant to this Section 5.7 and, in order to obtain such payment, the Company,
Parent or Sub, as the case may be, commences a suit that results in a judgment
against such other party for any such amount, such other party shall pay to the
commencing party its costs and expenses (including attorneys' fees) in
connection with such suit, together with interest on the amount of the fee at
the base prime rate of Citibank, N.A., from the date such payment was due under
this Agreement.
(e) Payment of the Termination Fee pursuant to this Section 5.7 shall be the
sole and exclusive damages remedy to which Parent or the Company, as the case
may be, shall be entitled against the other; PROVIDED, HOWEVER, that nothing in
this Section 5.7 shall limit any remedy that any party hereto may have for
specific performance of any provision of this Agreement.
Section 5.8 REASONABLE EFFORTS. Upon the terms and subject to the conditions
set forth in this Agreement, each of the parties agrees to use all reasonable
efforts to take, or cause to be taken, all actions, and to do, or cause to be
done, and to assist and cooperate with the other parties in doing, all things
necessary, proper or advisable to consummate and make effective, in the most
expeditious manner practicable, the Merger and the other transactions
contemplated by this Agreement, including: (a) the obtaining of all necessary
actions or non-actions, waivers, consents and approvals from all Governmental
Entities and the making of all necessary registrations and filings (including
filings with Governmental Entities) and the taking of all reasonable steps as
may be necessary to obtain an approval or waiver from, or to avoid an action or
proceeding by, any Governmental Entity (including those in connection with the
HSR Act, the EC Merger Regulation, any other applicable antitrust statute and
state takeover statutes), (b) the obtaining of all necessary consents, approvals
or waivers from third parties, (c) the defending of any lawsuits or other legal
proceedings, whether judicial or administrative, challenging this Agreement or
the consummation of the transactions contemplated hereby, including seeking to
have any stay or temporary restraining order entered by any court or other
Governmental Entity with respect to the Merger or this Agreement vacated or
reversed, and (d) the execution and delivery of any additional instruments
necessary to consummate the transactions contemplated by this Agreement;
PROVIDED, HOWEVER, that the foregoing shall not require (i) Parent or the
Company to make any divestiture or consent to any divestiture in order to
fulfill any condition or obtain any consent, authorization or approval or to
appeal an injunction or order, or to post a bond in respect of such appeal or
(ii) Parent to comply with any request for additional information from any
Governmental Entity, compliance with which would be, after Parent's good faith
efforts to negotiate with such Governmental Entity the narrowing of the scope of
such request, unduly burdensome or expensive (it being understood that a "second
request" for information from any Governmental Entity in connection with filings
made under the HSR Act would not necessarily be unduly burdensome or expensive).
Section 5.9 PUBLIC ANNOUNCEMENTS. Neither Parent nor the Company will issue
any press release with respect to the transactions contemplated by this
Agreement or otherwise issue any written public statements with respect to such
transactions without the prior consent of the other party, except as may be
required by applicable law or by obligations pursuant to any listing agreement
with any national securities exchange or the TSE.
Section 5.10 REAL ESTATE TRANSFER AND GAINS TAX. Parent and the Company
agree that the Surviving Corporation will pay any state or local tax which is
attributable to the transfer of the beneficial ownership of the Company's or its
Subsidiaries' real property, if any (collectively, the "Gains Taxes"), and any
penalties or interest with respect to the Gains Taxes, payable in connection
with the consummation of the Merger. The Company and Parent agree to cooperate
with the other in the filing of any returns with respect to the Gains Taxes,
including supplying in a timely manner a complete list of all real property
interests held by the Company and its Subsidiaries and any information with
respect to such property that is reasonably necessary to complete such returns.
The portion of the consideration allocable to the real property of the Company
and its Subsidiaries shall be agreed to between Parent and the Company. The
shareholders of the Company shall be deemed to have agreed to be bound by the
allocation established pursuant to this Section 5.10 in the preparation of any
return with respect to the Gains Taxes.
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Section 5.11 STATE TAKEOVER LAWS. If any "fair price," "business
combination" or "control share acquisition" statute or other takeover or tender
offer statute or regulation shall become applicable to the transactions
contemplated hereby, Parent, Sub and the Company and their respective Boards of
Directors shall use all reasonable efforts to grant such approvals and take such
actions as are necessary so that the transactions contemplated hereby may be
consummated as promptly as practicable on the terms contemplated hereby and
shall otherwise act to minimize the effects of any such statute or regulation on
the transactions contemplated hereby.
Section 5.12 INDEMNIFICATION; DIRECTORS AND OFFICERS INSURANCE. For claims
asserted, occurring or arising within six years from and after the Effective
Time, the Surviving Corporation shall indemnify, defend and hold harmless all
past and present officers and directors of the Company and of its Subsidiaries
(the "Indemnified Parties") to the same extent such persons are indemnified as
of the date of this Agreement by the Company pursuant to the Company Articles of
Incorporation, the Company's Bylaws and any agreements and contracts set forth
in Section 5.12 of the Company Letter between the Company or any of its
Subsidiaries and any of their current officers and directors, as such agreements
and contracts are amended prior to the Effective Time, for acts or omissions
occurring at or prior to the date hereof, for acts or omissions occurring at or
prior to the Effective Time. For a period of six (6) years after the Effective
Time, the Surviving Corporation shall maintain in effect the current policies of
directors' and officers' liability insurance maintained by the Company (PROVIDED
that the Surviving Corporation may at its option substitute therefor policies
that would cover the Indemnified Parties (i) with at least the same coverage and
amounts containing terms and conditions that are no less advantageous in any
material respect to the Indemnified Parties or (ii) after July 1, 2003, that
cover Parent's directors against similar liabilities, in amounts and coverages
equal to those provided for Parent's directors; PROVIDED FURTHER that there
shall be no period of time between the effectiveness of coverage of the
Company's current policies and the effectiveness of coverage of any substitute
policies) with respect to matters arising before the Effective Time. The
provisions of this Section 5.12 are intended to be for the benefit of, and shall
be enforceable by, each Indemnified Party, his or her heirs and his or her
personal representatives and shall be binding on all successors and assigns of
Sub, the Company and the Surviving Corporation. Without limiting the foregoing,
from and after the Effective Time, Parent and Surviving Corporation shall, and
Parent shall cause Surviving Corporation to, indemnify and hold harmless all
current directors of the Company for all liability, damages, claims, charges,
cost and expenses, including fees of one counsel for all such directors (it
being understood that (i) Parent shall have the right to assume the defense of
any claims or suits brought against any such directors, in which case Parent
shall not be liable for any such fees subsequently incurred by any directors,
and (ii) no director shall settle any such claim or suit without Parent's
consent, which shall not be unreasonably withheld), arising from or related to
any acts or omissions occurring in connection with this Agreement, the
negotiation and approval of this Agreement, and the consummation of the
transactions contemplated hereby. Parent also agrees to cause Surviving
Corporation to fulfill all contractual indemnification obligations of the
Company to its officers and directors referred to in this Section 5.12.
Section 5.13 NOTIFICATION OF CERTAIN MATTERS. Parent shall use all
reasonable efforts to give prompt notice to the Company, and the Company shall
use all reasonable efforts to give prompt notice to Parent, of: (i) the
occurrence, or non-occurrence, of any event the occurrence, or non-occurrence,
of which it is aware and which would reasonably be likely to cause (x) any
representation or warranty contained in this Agreement to be untrue or
inaccurate in any material respect or (y) any covenant, condition or agreement
contained in this Agreement not to be timely complied with or satisfied in all
material respects, (ii) any failure of Parent or the Company, as the case may
be, to comply in a timely manner with or satisfy any covenant, condition or
agreement to be complied with or satisfied by it hereunder, (iii) any material
new litigation or claim instituted or asserted against the Company or any of its
Subsidiaries or any material developments in any such existing litigation or
claim or (iv) any event, change or development that, individually or in the
aggregate, has had or would reasonably be expected to have a Parent Material
Adverse Effect or a Company Material Adverse Effect, as the case may be;
PROVIDED, HOWEVER, that the delivery of any notice pursuant to this
Section 5.13 shall not limit or otherwise affect the remedies available
hereunder to the party receiving such notice.
Section 5.14 SHAREHOLDER LITIGATION. Each of Parent and the Company shall
use all reasonable efforts to settle, and the Company shall give Parent the
opportunity to direct the defense of, any shareholder litigation against the
Company or its directors relating to the transactions contemplated by this
Agreement; PROVIDED,
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HOWEVER, that no such settlement shall be agreed to without Parent's consent,
which shall not be unreasonably withheld; PROVIDED FURTHER, HOWEVER, that no
such settlement the result of which would be to prevent the consummation of the
Merger shall be agreed to without the Company's consent, which shall not be
unreasonably withheld, and no such settlement shall be agreed to without the
consent of the Company or any director of the Company unless such settlement
contains a release of, and no admission of fault or wrongdoing with respect to,
the Company or such director, as the case may be.
Section 5.15 COMPANY DEBT AGREEMENTS. The Company will, if required by
Parent, (a) promptly seek agreement, on terms reasonably acceptable to Parent,
of the banks party to the credit agreements of the Company or any of its
Subsidiaries and the holders of debt instruments of the Company or any of its
Subsidiaries (collectively, the "Company Debt") to amend such agreements and
instruments to permit the consummation of the Merger, and to provide that such
actions do not constitute an event permitting the banks or lenders that are
parties thereto to accelerate the amounts outstanding under such agreements and
instruments and (b) in the event that such acceleration occurs prior to the
Merger, reasonably cooperate with Parent and Sub in arranging financing on terms
reasonably acceptable to Parent and Sub to finance any required repurchase or
prepayment of Company Debt.
Section 5.16 COMPANY STOCK OPTIONS. The Company shall use all reasonable
efforts to cause the holders of New Company Stock Options to exercise all such
New Company Stock Options immediately prior to the Effective Time.
Section 5.17 DONNELLY EXPORT. The Company shall terminate, effective prior
to the Effective Time, all contracts, agreements or arrangements between the
Company or any of its Subsidiaries and Donnelly Export.
Section 5.18 BENEFIT PLANS.
(a) With respect to any employee benefit plans of Parent in which the
employees of the Company or any of its wholly owned Subsidiaries participate
subsequent to the Effective Time, Parent shall, or shall cause the Surviving
Corporation to: (i) waive all limitations as to pre-existing conditions,
exclusions and waiting periods with respect to participation and coverage
requirements applicable to the employees under any such employee benefit plan
that is a welfare plan, as defined in Section 3(1) of ERISA, in which such
employees may be eligible to participate, to the same extent that such
limitations are or would be waived or satisfied with respect to any particular
employee under a comparable Company Plan as in effect immediately prior to the
Effective Time, and (ii) recognize all service of the employees of the Company
and its wholly owned Subsidiaries with the Company and its wholly owned
Subsidiaries for all purposes (excluding benefit accrual under any defined
benefit pension plan, deferred profit sharing plan and eligibility for benefits
under any post-retirement medical plans) in any employee benefit plan of Parent
in which such employees are eligible to participate, to the same extent that
such service is or would be recognized under a comparable Company Plan as in
effect immediately prior to the Effective Time.
(b) The Surviving Corporation shall not and Parent shall cause the Surviving
Corporation not to make any changes, amendments or revisions to the Company's
(i) Pension Plan for Outside Directors, (ii) Deferred Director Fee Plan,
(iii) Deferred Compensation Plan or (iv) Supplemental Retirement Plan, that
would adversely affect the amounts or the payment terms with respect to benefits
accrued as of the Effective Time and to be paid to the participants therein as
of the Effective Time. Notwithstanding the foregoing, the Surviving Corporation
may make any other changes, amendments or revisions to the foregoing plans as
permitted by the terms of such plans and applicable law.
(c) The Surviving Corporation shall terminate, as of the Effective Time, the
Company's 2002 management bonus plan and each participant in such plan as of the
Effective Time shall be entitled to such participant's benefits thereunder as
disclosed in Section 5.18(c) of the Company Letter (prorated as appropriate).
(d) The Surviving Corporation will, and Parent will cause the Surviving
Corporation to, provide retiree medical benefits after the Effective Time as
follows:
(i) With respect to each current retiree at the Effective Time who
receives medical benefits that are fully paid for by the Company or one of
its wholly owned Subsidiaries, the Surviving Corporation will
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continue after the Effective Time to provide Medical Benefits (as
hereinafter defined) to such retiree (at no cost or expense to the retiree).
(ii) With respect to each current retiree at the Effective Time who
receives medical benefits that are partially paid for by the Company or one
of its wholly owned Subsidiaries and partially paid for by the retiree, the
Surviving Corporation will continue after the Effective Time to provide
Medical Benefits to and pay a percentage of the cost of Medical Benefits for
such retiree that is equal to the percentage of the cost of medical
benefits, subject to existing maximum Company contribution amounts, for such
retiree that is paid by the Company or one of its wholly owned Subsidiaries
immediately prior to the Effective Time.
(iii) With respect to each current employee of the Company or one of its
wholly owned Subsidiaries at the Effective Time who (A) commenced employment
with the Company or one of its wholly owned Subsidiaries on or before
July 1, 1998, and (B) retires after the Effective Time with both ten
(10) or more years of service to the Company or one of its wholly owned
Subsidiaries or successors and at an age of fifty-five (55) years or older,
the Surviving Corporation will provide Medical Benefits to and pay a
percentage of the cost of Medical Benefits for such person that is equal to
the percentage of the cost of medical benefits, subject to existing maximum
Company contribution amounts, that would have been required to be paid by
the Company or one of its wholly owned Subsidiaries upon such retirement
pursuant to the schedule used to determine the percentage of such cost that
is paid by the Company or one of its wholly owned Subsidiaries immediately
prior to the Effective Time with respect to the retirees referenced in
Section 5.18(d)(ii) above. For purposes of determining a person's years of
service under the foregoing sentence, the Surviving Corporation shall only
be required to take account of the greater of years of service to the
Company or one of its wholly owned Subsidiaries prior to the Effective Time
or ten (10) years.
(iv) With respect to each current employee of the Company or one of its
wholly owned Subsidiaries at the Effective Time who (A) commenced employment
with the Company or one of its wholly owned Subsidiaries after July 1, 1998,
and (B) retires after the Effective Time, such person shall be entitled to
participate in such retiree medical programs and receive such medical
benefits as may be offered by the Surviving Corporation from time to time to
its employees in accordance with the terms of such programs. For purposes of
determining an employee's eligibility under such retiree medical programs,
the Surviving Corporation shall take account of the combined service of such
employee with the Company or one of its wholly owned Subsidiaries and the
Surviving Corporation.
(v) "Medical Benefits" shall mean medical benefits that are
substantially similar to the medical benefits that the Surviving Corporation
provides from time to time to its employees.
Except as otherwise provided in Section 5.18(d) above, the Surviving
Corporation shall have such rights to modify, amend or terminate such Medical
Benefits as are currently afforded the Company pursuant to the Company's
Participant Benefit Plan--Summary Plan Description, revised January 1, 2000.
Section 5.19 EXERCISE OF HOHE CALL OPTIONS. The Company shall use all
reasonable efforts, including negotiations with the Hohe Holders, to exercise
the Hohe Call Options such that the closings of the share and economic interest
transfers contemplated thereby (the "Hohe Call Option Closings") shall occur
immediately prior to the Effective Time, but shall be conditioned on the
satisfaction or waiver of all conditions to the Merger set forth in Article VI
hereof. If the Company is unable to exercise the Hohe Call Options on such a
conditional basis, then upon Parent's request to the Company, delivered at least
10 business days prior to the date of the Effective Time (the "Parent Hohe
Request"), the Company shall exercise the Hohe Call Options pursuant to their
terms on a date specified by Parent. If Parent has made the Parent Hohe Request,
then, at the Hohe Call Option Closings, Parent shall loan or cause to be loaned
to the Company all amounts necessary to permit such exercise and such closings,
as specified in Section 3.31. Such loan shall (i) be evidenced by a promissory
note in customary form, (ii) be made in Euros, (iii) not bear interest and
(iv) be repayable in Euros on the fifth anniversary of the making of such loan;
PROVIDED that, in the event that this Agreement is terminated by Parent pursuant
to Section 7.1(c) or (d), the Company shall repay such loan on the business day
immediately following the date of such termination.
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ARTICLE VI
CONDITIONS PRECEDENT TO THE MERGER
Section 6.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER. The
respective obligations of each party to effect the Merger shall be subject to
the fulfillment (or waiver by such party) at or prior to the Effective Time of
the following conditions:
(a) STOCK EXCHANGE LISTINGS. The shares of Parent Common Stock issuable in
the Merger shall have been authorized for listing on the NYSE and on the TSE,
subject to official notice of issuance.
(b) HSR WAITING PERIOD; OTHER ANTITRUST STATUTES. The waiting period (and
any extension thereof) applicable to the consummation of the Merger under the
HSR Act shall have expired or been terminated and any required approval of the
Merger shall have been obtained pursuant to any other applicable antitrust
statute.
(c) EC MERGER REGULATION. The proposed merger of Sub into the Company:
(i) shall have been cleared by the European Commission, or
(ii) shall be deemed to have been cleared by the European Commission due
to expiry of the time limit pursuant to Article 10 par. 6 of the EC Merger
Regulation, or
(iii) may be consummated due to a derogation from the suspension
obligation granted by the European Commission in accordance with Art. 7 par.
4 of the EC Merger Regulation.
(d) REGISTRATION STATEMENT. The Registration Statement shall have become
effective in accordance with the provisions of the Securities Act. No stop order
suspending the effectiveness of the Registration Statement shall have been
issued by the SEC and remain in effect and no proceedings for that purpose shall
have been initiated or, to the knowledge of Parent or the Company, threatened by
the SEC and not been dismissed. All necessary state securities or blue sky
authorizations shall have been received.
(e) NO ORDER. No court or other Governmental Entity having jurisdiction over
the Company or Parent, or any of their respective Subsidiaries, shall (after the
date of this Agreement) have enacted, issued, promulgated, enforced or entered
any law, rule, regulation, executive order, decree, injunction or other order
(whether temporary, preliminary or permanent) which is then in effect and has
the effect of making the Merger or any of the transactions contemplated hereby
illegal.
(f) PROXY STATEMENT/PROSPECTUS; COMPANY REQUIRED VOTE. At least 30 days
shall have elapsed between the Mailing Date and the date of the Special Meeting,
and the Company Required Vote approving the Merger and this Agreement shall have
been duly obtained at the Special Meeting.
Section 6.2 CONDITIONS TO OBLIGATION OF THE COMPANY TO EFFECT THE MERGER.
The obligation of the Company to effect the Merger shall be subject to the
fulfillment (or waiver by the Company) at or prior to the Effective Time of the
following additional conditions:
(a) PERFORMANCE OF OBLIGATIONS; REPRESENTATIONS AND WARRANTIES. Each of
Parent and Sub shall have performed in all material respects each of its
agreements contained in this Agreement required to be performed at or prior to
the Effective Time, each of the representations and warranties of Parent and Sub
contained in this Agreement that is qualified as to materiality shall be true
and correct at and as of the Effective Time as if made at and as of such time
(other than representations and warranties which address matters only as of a
certain date, which shall be true and correct as of such certain date), each of
the representations and warranties that is not so qualified shall be true and
correct in all material respects on and as of the Effective Time as if made on
and as of such date (other than representations and warranties which address
matters only as of a certain date, which shall be true and correct in all
material respects as of such certain date), in each case except as otherwise
contemplated or permitted by this Agreement, and the Company shall have received
certificates signed on behalf of each of Parent and Sub by its Chief Financial
Officer and its President or any Executive Vice-President (the "Parent Closing
Certificate") to such effect; PROVIDED, HOWEVER, that this condition shall be
deemed (i) not to have been satisfied if the cumulative effect of all
inaccuracies in such representations and warranties (without regard to any
qualification in any particular representation or warranty as to materiality or
Parent Material Adverse Effect (other than the proviso to the last sentence of
Section 2.1)) has had or would reasonably be
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expected to have a Parent Material Adverse Effect and (ii) to have been
satisfied (with respect only to the representations and warranties of Parent and
Sub) if the cumulative effect of all inaccuracies in such representations and
warranties (without regard to any qualification in any particular representation
or warranty as to materiality or Parent Material Adverse Effect (other than as
aforesaid)) has not had and would not reasonably be expected to have a Parent
Material Adverse Effect.
(b) COMFORT LETTERS. The Company shall have received the "comfort letter"
described in Section 5.3(b), in form and substance reasonably satisfactory to
the Company.
(c) TAX OPINION. The Company shall have received an opinion of Varnum,
Riddering, Schmidt and Howlett LLP, in form and substance reasonably
satisfactory to the Company, dated the Effective Time, substantially to the
effect that on the basis of facts, representations and assumptions set forth in
such opinion that are consistent with the state of facts existing as of the
Effective Time, for federal income tax purposes the Merger will constitute a
"reorganization" within the meaning of Section 368(a) of the Code, and the
Company, Sub and Parent will each be a party to that reorganization within the
meaning of Section 368(b) of the Code. In rendering such opinion, Varnum,
Riddering, Schmidt and Howlett LLP may rely as to matters of fact upon the
representations contained herein and may receive and rely upon customary
representations from Parent and the Company (which representations, in the case
of Parent, shall be reasonably satisfactory to Parent).
(d) PARENT MATERIAL ADVERSE EFFECT. From the commencement of the 20
consecutive NYSE trading day period used in determining the Parent Stock Price
pursuant to Section 1.5(c) through the Closing, there shall not have occurred a
Parent Material Adverse Effect or any event or occurrence that would reasonably
be expected to result in a Parent Material Adverse Effect, and the Company shall
have received a certificate signed on behalf of Parent by its Chief Financial
Officer and its President or any Executive Vice-President to such effect;
PROVIDED, HOWEVER, that if there shall have occurred such a Parent Material
Adverse Effect or event or occurrence, then this condition shall nevertheless be
deemed satisfied if Parent gives notice to the Company (a "Parent MAE Notice")
that the Effective Time and the Closing shall occur on the 22nd NYSE trading day
after the date on which Parent publicly announces such Parent Material Adverse
Effect (including any deemed Parent Material Adverse Effect as contemplated by
Section 6.2(e)), in which case the Effective Time and the Closing shall occur on
such date (subject to the satisfaction or waiver of all other conditions to the
respective obligations of the parties to effect the Merger), it being understood
that the timing of such public announcement shall be at the discretion of
Parent, subject to applicable law, regulation and stock exchange rules.
(e) PARENT ACCOUNTING MATTERS. Parent (i) shall not have been advised by its
independent accountants of any material accounting irregularities that would
reasonably be expected to require Parent to restate its consolidated financial
statements included in the Parent SEC Documents (other than as required by any
change in accounting principles generally accepted in Canada or the United
States) and (ii) to Parent's knowledge, shall not be subject to any material
pending or threatened investigation by the SEC concerning such consolidated
financial statements, and the Parent Closing Certificate shall be to such
effect; PROVIDED, HOWEVER, that Parent may elect to deem any failure to satisfy
this condition to be a Parent Material Adverse Effect for purposes of the
proviso to Section 6.2(d), in which case this condition shall be deemed
satisfied.
Section 6.3 CONDITIONS TO OBLIGATIONS OF PARENT AND SUB TO EFFECT THE
MERGER. The obligations of Parent and Sub to effect the Merger shall be subject
to the fulfillment (or waiver by Parent) at or prior to the Effective Time of
the following additional conditions:
(a) PERFORMANCE OF OBLIGATIONS; REPRESENTATIONS AND WARRANTIES. The Company
shall have performed in all material respects each of its agreements contained
in this Agreement required to be performed at or prior to the Effective Time,
each of the representations and warranties of the Company contained in this
Agreement that is qualified as to materiality shall be true and correct at and
as of the Effective Time as if made at and as of such time (other than
representations and warranties which address matters only as of a certain date,
which shall be true and correct as of such certain date), each of the
representations and warranties that is not so qualified shall be true and
correct in all material respects at and as of the Effective Time as if made on
and as of such date (other than representations and warranties which address
matters only as of a certain date, which shall be true and correct in all
material respects as of such certain date), and Parent shall have received a
certificate signed on behalf of the Company by its Chief Executive Officer and
its Chief Financial Officer (the "Company Closing Certificate") to such effect;
PROVIDED, HOWEVER, that this condition shall be deemed (i) not to have been
satisfied if
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the cumulative effect of all inaccuracies in such representations and warranties
(without regard to any qualification in any particular representation or
warranty as to materiality or Company Material Adverse Effect (other than the
two provisos to the last sentence of Section 3.1(a))) has had or would
reasonably be expected to have a Company Material Adverse Effect and (ii) to
have been satisfied (with respect only to the representations and warranties of
the Company) if the cumulative effect of all inaccuracies in such
representations and warranties (without regard to any qualification in any
particular representation or warranty as to materiality or Company Material
Adverse Effect (other than as aforesaid)) has not had and would not reasonably
be expected to have a Company Material Adverse Effect.
(b) CONSENTS UNDER AGREEMENTS. The Company shall have obtained the consent
or approval of each person that is not a Governmental Entity whose consent or
approval is set forth in Section 6.3(b) of the Company Letter.
(c) APPROVALS. All authorizations, consents, orders, declarations or
approvals of, or registrations, declarations or filings with, or terminations or
expirations of waiting periods imposed by, any Governmental Entity set forth in
Section 6.3(c) of the Company Letter shall have been obtained, shall have been
made or shall have occurred, and shall be in full force and effect.
(d) COMFORT LETTERS. Parent shall have received the "comfort letter"
described in Section 5.3(a), in form and substance reasonably satisfactory to
Parent.
(e) COMPANY MATERIAL ADVERSE EFFECT. Except as specifically disclosed in the
Company Letter, since the date of this Agreement, there shall have been no
Company Material Adverse Effect and no event or occurrence that would reasonably
be expected to result in a Company Material Adverse Effect, and Parent shall
have received a certificate of the Chief Executive Officer and the Chief
Financial Officer of the Company to such effect.
(f) COMPANY ACCOUNTING MATTERS. The Company (i) shall not have been advised
by its independent accountants of any material accounting irregularities that
would reasonably be expected to require the Company to restate the Financial
Statements (other than as required by any change in accounting principles
generally accepted in Canada or the United States) and (ii) to the Company's
knowledge, shall not be subject to any material pending or threatened
investigation by the SEC concerning the Financial Statements, and the Company
Closing Certificate shall be to such effect.
(g) RECEIPT OF AGREEMENTS TO EXERCISE NEW COMPANY STOCK OPTIONS. The Company
shall have received from each holder of a New Company Stock Option a binding,
unconditional agreement, on terms reasonably satisfactory to Parent, obligating
such holder to exercise, not later than immediately prior to the Effective Time,
all such New Company Stock Options held by such holder, and the Company shall
have delivered to Parent true and correct copies thereof prior to August 1,
2002.
(h) HOHE CALL OPTION CLOSINGS. If Parent has made the Parent Hohe Request
pursuant to Section 5.19, then the Hohe Call Option Closings shall have occurred
as contemplated by such Section.
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ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
Section 7.1 TERMINATION. This Agreement may be terminated at any time prior
to the Effective Time, whether before or after any approval of the matters
presented at the Special Meeting in connection with the Merger:
(a) by mutual written consent of Parent and the Company;
(b) by either Parent or the Company if the required approval of the Merger
by the shareholders of the Company shall not have been obtained by reason of the
failure to obtain the required vote upon a vote held at a duly held meeting of
such shareholders or at any adjournment thereof;
(c) by either Parent or the Company if the other of them shall have failed
to comply in any material respect with any of its covenants or agreements
contained in this Agreement required to be complied with prior to the date of
such termination, which failure to comply, if curable, has not been cured within
20 business days following receipt by such other of them of written notice of
such failure to comply;
(d) by either Parent or the Company if there has been a breach (which
breach, if curable, has not been cured within 20 business days following receipt
by the breaching party of written notice of the breach) by the other of them (in
the case of Parent, including any material breach by Sub) of any representation
or warranty that would make the condition set forth in Section 6.3(a)
or 6.2(a), respectively, not satisfied if the Effective Time occurred on such
20th business day;
(e) by either Parent or the Company if: (i) the Merger has not been effected
on or prior to the close of business on December 31, 2002 (as such date may be
extended by mutual agreement); PROVIDED, HOWEVER, that the right to terminate
this Agreement pursuant to this Section 7.1(e)(i) shall not be available to any
party whose failure to fulfill any of its obligations contained in this
Agreement has been the proximate cause of the failure of the Merger to have
occurred on or prior to the aforesaid date; or (ii) any court or other
Governmental Entity having jurisdiction over a party hereto shall have issued an
order, decree or ruling or taken any other action permanently enjoining,
restraining or otherwise prohibiting the transactions contemplated by this
Agreement and such order, decree or ruling or other action shall have become
final and non-appealable;
(f) by Parent if Parent or Sub shall have received (i) notice under the HSR
Act that the Federal Trade Commission or the Antitrust Division of the
Department of Justice has extended the applicable waiting period under the HSR
Act by requesting additional information concerning the Merger, any related
transaction, or Parent or Sub, (ii) notice that the European Commission finds
that the Merger raises serious doubts as to its compatibility with the common
market and has initiated the proceedings pursuant to Art. 6 par. 1 (c) of the EC
Merger Regulation or (iii) any request for additional information from any
Governmental Entity in connection with the EC Merger Regulation, compliance with
which would be, after Parent's good faith efforts to negotiate with such
Governmental Entity the narrowing of the scope of such request, unduly
burdensome or expensive (it being understood that a "second request" for
information from any Governmental Entity in connection with filings made under
the HSR Act would not necessarily be unduly burdensome or expensive);
(g) by the Company if the Parent Stock Price is less than $52.28; PROVIDED,
HOWEVER, that such termination pursuant to this Section 7.1(g) shall not be
effective (and this Agreement shall continue in full force and effect) unless
both (i) the Company shall have (x) provided written notice to Parent prior to
the date of the Special Meeting of its intention to terminate this Agreement
pursuant to this Section 7.1(g) and (y) duly called, given notice of and
convened the Special Meeting and immediately thereafter duly adjourned the
Special Meeting to the date that is five business days thereafter (the "Special
Meeting Resumption Date") and (ii) Parent shall have not, on or prior to
5:00 p.m., Holland, Michigan time, on the business day next preceding the
Special Meeting Resumption Date, given written notice to the Company (the
"Merger Consideration Increase Notice") that the Exchange Ratio shall be
increased to equal the quotient of $24.00 divided by the Parent Stock Price;
PROVIDED FURTHER that, in the event of any adjustment of the Exchange Ratio
pursuant to Section 1.10, all such dollar amounts shall be commensurately
adjusted, as mutually agreed by Parent and the Company, each acting reasonably
and in good faith; and PROVIDED FURTHER that Parent shall have no obligation to
deliver the Merger Consideration Increase Notice; or
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(h) by the Company if both (i) Parent has given a Parent MAE Notice to the
Company pursuant to Section 6.2(d) and (ii) after giving effect to
Section 6.2(d), either (x) the Parent Stock Price or (y) the average of the
Average Prices for the three consecutive NYSE trading days immediately prior to
the date of the Effective Time, is less than $61.00.
The right of any party hereto to terminate this Agreement pursuant to this
Section 7.1 shall remain operative and in full force and effect regardless of
any investigation made by or on behalf of any party hereto, any person
controlling any such party or any of their respective officers, directors or
representatives, whether prior to or after the execution of this Agreement.
Section 7.2 EFFECT OF TERMINATION. In the event of termination of this
Agreement by either Parent or the Company, as provided in Section 7.1, this
Agreement shall forthwith become void and there shall be no liability hereunder
on the part of the Company, Parent, Sub or their respective officers or
directors (except for the last sentence of Section 5.4 and the entirety of
Sections 2.9, 3.24 and 5.7, this Section 7.2 and Article VIII, which shall
survive the termination); PROVIDED, HOWEVER, that nothing contained in this
Agreement shall relieve any party hereto from any liability for any breach of a
representation or warranty contained in this Agreement or the breach of any
covenant contained in this Agreement.
Section 7.3 AMENDMENT. This Agreement may be amended by the parties hereto,
by or pursuant to action taken by their respective Boards of Directors at any
time before or after approval of the matters presented in connection with the
Merger by the shareholders of the Company, but, after any such approval, no
amendment shall be made which by law requires further approval by such
shareholders without such further approval. This Agreement may not be amended
except by an instrument in writing duly executed by each of the parties hereto.
Section 7.4 WAIVER. At any time prior to the Effective Time, the parties
hereto may (i) extend the time for the performance of any of the obligations or
other acts of the other parties hereto, (ii) waive any inaccuracies in the
representations and warranties contained herein or in any document delivered
pursuant hereto and (iii) waive compliance with any of the agreements or
conditions contained herein which may legally be waived. Any agreement on the
part of a party hereto to any such extension or waiver shall be valid only if
set forth in an instrument in writing duly executed by such party. The failure
of any party to this Agreement to assert any of its rights under this Agreement
or otherwise shall not constitute a waiver of such rights.
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ARTICLE VIII
GENERAL PROVISIONS
Section 8.1 NON-SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Except for any
claim arising as a result of any breach of a representation or warranty prior to
the termination of this Agreement as contemplated by Section 7.2, the
representations and warranties in this Agreement or in any instrument delivered
pursuant to this Agreement shall terminate at the earlier of (i) the Effective
Time or (ii) the termination of this Agreement.
Section 8.2 NOTICES. All notices and other communications hereunder shall be
in writing and shall be deemed given when delivered personally, one day after
being delivered to a nationally recognized overnight courier or when telecopied
(with a confirmatory copy sent by such overnight courier) to the parties at the
following addresses (or at such other address for a party as shall be specified
by like notice):
(a) if to Parent or Sub, to
Magna Mirrors Acquisition Corporation
In care of Magna International Inc.
337 Magna Drive
Aurora, Ontario L4G 7K1 Canada
Attention: President (with a separate copy to Corporate Secretary)
Facsimile Nos.:
with copies to:
Scott M. Freeman
Sidley Austin Brown & Wood LLP
(on or prior to July 4, 2002)
875 Third Avenue
New York, New York 10022
Facsimile No.: (212) 906-2021
(after July 4, 2002)
787 Seventh Avenue
New York, New York 10019
Facsimile No.: (212) 839-5599
(b) if to the Company, to
Donnelly Corporation
49 West Third Street
Holland, Michigan 49432-2813
Attention: Chief Executive Officer
Facsimile No.: (616) 786-6232
with a copy to:
Varnum, Riddering, Schmidt & Howlett LLP
Bridgewater Place
333 Bridgewater Street, N.W.
Post Office Box 352
Grand Rapids, Michigan 49501-0352
Attention: Daniel C. Molhoek
Facsimile No.: (616) 336-7000
Section 8.3 INTERPRETATION. When a reference is made in this Agreement to a
Section or Article, such reference shall be to a Section or Article of this
Agreement unless otherwise indicated. The table of contents and headings
contained in this Agreement are for reference purposes only and shall not affect
in any way the meaning or interpretation of this Agreement. Whenever the words
"include," "includes" or "including" are used in this Agreement, they shall be
deemed to be followed by the words "without limitation." The phrase "to the
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knowledge of the Company" and similar phrases, when used in this Agreement,
refer to the knowledge, after reasonable investigation, of the officers of the
Company as of the date of determination. All references in this Agreement to "$"
shall be references to United States dollars. For all purposes of this
Agreement, "affiliate" shall have the meaning specified in Rule 405 under the
Securities Act. For all purposes of this Agreement, except as hereinafter
provided, "Subsidiary" means any corporation, partnership, limited liability
company, joint venture, trust company or other legal entity of which Parent or
the Company, as the case may be (either alone or through or together with any
other Subsidiary), (i) owns, directly or indirectly, 50% or more of the stock or
other equity interests the holders of which are generally entitled to vote for
the election of the board of directors or other governing body of such
corporation, partnership, limited liability company, joint venture, trust
company or other legal entity, (ii) is a general partner, trustee, manager or
other entity or person performing similar functions or (iii) has control (as
defined in Rule 405 under the Securities Act). For all purposes of this
Agreement, (x) a "wholly owned Subsidiary" of the Company shall be deemed to
include those entities which, for regulatory or other local law purposes, have
issued nominal ownership interests to persons other than the Company or any of
its Subsidiaries and (y) Shunde Donnelly Zhen Hua Automotive Systems Co. Ltd.
and Shanghai Donnelly Ganxiang Automotive Systems Co. Ltd. (the "Chinese Joint
Ventures") and Donnelly Export shall be deemed to be Subsidiaries of the
Company; PROVIDED that any representation or warranty of the Company with
respect to any Chinese Joint Venture, Shanghai Donnelly Fu Hua Window System
Company Limited, Donnelly Yantai Electronics Corporation Limited, Varitronix
(Malaysia) sdn.bhd or Schott Donnelly, LLC (collectively, the "Non-Controlled
Subsidiaries") set forth in Article III or in any certificate furnished in
connection with this Agreement shall be deemed qualified as though made only to
the knowledge of the Company, without investigation, and any covenant or
agreement of the Company in this Agreement to cause any Non-Controlled
Subsidiary to take or refrain from taking any action shall be deemed to require
the Company only to use all reasonable efforts to cause such Non-Controlled
Subsidiary to take or refrain from taking, as the case may be, such action. Any
obligation of Parent under any Section of this Agreement to cause the Surviving
Corporation to take any action or refrain from any action shall be deemed to be
absolute and unconditional and without regard to the financial ability of the
Surviving Corporation to take or refrain from such action and, in the case of
any obligation of the Surviving Corporation to make any payment, shall require
Parent to make or cause to be made such payment when due in the event that the
Surviving Corporation failed to make such payment for any reason.
Section 8.4 COUNTERPARTS. This Agreement may be executed in counterparts,
all of which shall be considered one and the same agreement, and shall become
effective when one or more counterparts have been signed by each of the parties
and delivered to the other parties.
Section 8.5 ENTIRE AGREEMENT; NO THIRD-PARTY BENEFICIARIES. Except for the
Confidentiality Agreement, this Agreement together with all other agreements
executed by the parties hereto on the date hereof 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. This
Agreement, except for the provisions of Section 5.12, is not intended to confer
upon any person other than the parties hereto any rights or remedies hereunder.
Section 8.6 GOVERNING LAW. Except to the extent that the laws of the State
of Michigan are mandatorily applicable to the Merger, this Agreement shall be
governed by, and construed in accordance with, the laws of the State of
New York, regardless of the laws that might otherwise govern under the
applicable principles of conflicts of laws thereof.
Section 8.7 ASSIGNMENT. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
hereto (whether by operation of law or otherwise) without the prior written
consent of the other parties, except that Sub may assign, in its sole
discretion, any of or all its rights, interests and obligations under this
Agreement to Parent or to any wholly owned Subsidiary of Parent. Subject to the
preceding sentence, this Agreement will be binding upon, inure to the benefit
of, and be enforceable by, the parties and their respective successors and
permitted assigns.
Section 8.8 SEVERABILITY. If any term or other provision of this Agreement
is invalid, illegal or incapable of being enforced by any rule of law or public
policy, all other terms, conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic and legal
substance of the transactions contemplated hereby are not affected in any manner
materially adverse to any party. Upon such determination
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that any term or other provision is invalid, illegal or incapable of being
enforced, the parties shall negotiate in good faith to modify this Agreement so
as to effect the original intent of the parties as closely as possible in a
mutually acceptable manner in order that the transactions contemplated by this
Agreement may be consummated as originally contemplated to the fullest extent
possible.
Section 8.9 ENFORCEMENT OF THIS AGREEMENT. The parties hereto agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with their specific wording or were
otherwise breached. It is accordingly agreed that the parties hereto shall be
entitled to an injunction or injunctions to prevent breaches of this Agreement
and to enforce specifically the terms and provisions hereof in any court of the
United States or any state having jurisdiction, such remedy being in addition to
any other remedy to which any party is entitled at law or in equity.
IN WITNESS WHEREOF, Parent, Sub and the Company have caused this Agreement
to be signed by their respective officers thereunto duly authorized all as of
the date first written above.
MAGNA INTERNATIONAL INC.
By: /s/ BELINDA STRONACH______________
Name: Belinda Stronach
Title: President and CEO
By: /s/ VINCE GALIFI__________________
Name: Vince Galifi
Title: Executive Vice-President and
CFO
MAGNA MIRRORS ACQUISITION CORP.
By: /s/ WILLIAM J. BIGGAR_____________
Name: William J. Biggar
Title: Executive Vice-President,
Office of the CEO
By: /s/ JEFF PALMER___________________
Name: Jeff Palmer
Title: Executive Vice-President
DONNELLY CORPORATION
By: /s/ J. DWANE BAUMGARDNER__________
Name: J. Dwane Baumgardner
Title: CEO, Chairman & President
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EXHIBIT 5.5
FORM OF AFFILIATE LETTER FOR AFFILIATES OF THE COMPANY
[Date]
Magna International Inc.
337 Magna Drive
Aurora, Ontario L4G 7K1 Canada
Ladies and Gentlemen:
I have been advised that as of the date of this letter I may be deemed to be
an "affiliate" of Donnelly Corporation, a Michigan corporation (the "Company"),
as the term "affiliate" is defined for purposes of paragraphs (c) and (d) of
Rule 145 of the rules and regulations (the "Rules and Regulations") of the
Securities and Exchange Commission (the "Commission") under the Securities Act
of 1933, as amended (the "Act"). Pursuant to the terms of the Agreement and Plan
of Merger dated as of June 25, 2002 (the "Merger Agreement"), among Magna
International Inc., an Ontario corporation ("Parent"), Magna Mirrors Acquisition
Corp., a Michigan corporation ("Sub"), and the Company, Sub will be merged with
and into the Company (the "Merger"). Capitalized terms used in this letter
without definition shall have the meanings assigned to them in the Merger
Agreement.
As a result of the Merger, I may receive Class A Subordinate Voting Shares,
without par value, of Parent (the "Parent Shares") in exchange for shares of
common stock of the Company (the "Company Shares") owned by me or purchasable
upon exercise of stock options.
1. I represent, warrant and covenant to Parent that in the event I receive
any Parent Shares as a result of the Merger:
A. I shall not make any sale, transfer or other disposition of any
Parent Shares in violation of the Act or the Rules and Regulations.
B. I have carefully read this letter and the Merger Agreement and
discussed the requirements of such documents and other applicable
limitations upon my ability to sell, transfer or otherwise dispose of the
Parent Shares, to the extent I felt necessary, with my counsel or counsel
for the Company.
C. I have been advised that the issuance of the Parent Shares to me
pursuant to the Merger has been registered with the Commission under the Act
on a Registration Statement on Form F-4. However, I have also been advised
that, because at the time the Merger is submitted for a vote of the
shareholders of the Company, (a) I may be deemed to be an affiliate of the
Company and (b) the sale, transfer or other distribution by me of the Parent
Shares has not been registered under the Act, I may not sell, transfer or
otherwise dispose of the Parent Shares issued to me in the Merger unless
(i) such sale, transfer or other disposition is made in conformity with the
volume limitations and other conditions of Rule 145 promulgated by the
Commission under the Act (PROVIDED that I deliver to Parent customary
letters of representation from myself and my broker), (ii) such sale,
transfer or other disposition has been registered under the Act or (iii) in
the opinion of counsel reasonably acceptable to Parent, such sale, transfer
or other disposition is otherwise exempt from registration under the Act.
D. I understand that Parent is under no obligation to register the sale,
transfer or other disposition of any Parent Shares by me or on my behalf
under the Act or, except as provided in paragraph 2(A) below, to take any
other action necessary in order to make compliance with an exemption from
such registration available.
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E. I also understand that there will be placed on the certificates for
the Parent Shares issued to me, or any substitutions therefor, a legend
stating in substance:
"THE SHARES REPRESENTED BY THIS CERTIFICATE WERE ISSUED IN A TRANSACTION
TO WHICH RULE 145 PROMULGATED UNDER THE SECURITIES ACT OF 1933 MAY APPLY.
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY BE TRANSFERRED ONLY IN
ACCORDANCE WITH THE TERMS OF AN AGREEMENT DATED ______, ______ BETWEEN
THE REGISTERED HOLDER HEREOF AND MAGNA INTERNATIONAL INC., A COPY OF
WHICH AGREEMENT IS ON FILE AT THE PRINCIPAL OFFICES OF MAGNA
INTERNATIONAL INC."
F. I also understand that unless a sale, transfer or other disposition
is made in conformity with the provisions of Rule 145, or pursuant to a
registration statement, Parent reserves the right to put the following
legend on the certificates issued to my transferee:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 AND WERE ACQUIRED FROM A PERSON WHO
RECEIVED SUCH SHARES IN A TRANSACTION TO WHICH RULE 145 PROMULGATED UNDER
THE SECURITIES ACT OF 1933 APPLIES. THE SHARES HAVE BEEN ACQUIRED BY THE
HOLDER NOT WITH A VIEW TO, OR FOR RESALE IN CONNECTION WITH, ANY
DISTRIBUTION THEREOF WITHIN THE MEANING OF THE SECURITIES ACT OF 1933 AND
MAY NOT BE SOLD, TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF WITHOUT
REGISTRATION UNDER THE SECURITIES ACT OF 1933 OR IN ACCORDANCE WITH AN
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT
OF 1933."
G. Execution of this letter should not be considered an admission on my
part that I am an "affiliate" of the Company as described in the first
paragraph of this letter, nor as a waiver of any rights I may have to object
to any claim that I am such an affiliate on or after the date of this
letter.
2. By Parent's acceptance of this letter, Parent hereby agrees with me as
follows:
A. For so long as and to the extent necessary to permit me to sell
Parent Shares pursuant to Rules 144 and 145 under the Act, to the extent
applicable, Parent shall (a) use all reasonable efforts to (i) file, on a
timely basis, all reports and data required to be filed with the Commission
by it pursuant to Section 13 of the Securities Exchange Act of 1934, as
amended (the "1934 Act"), and (ii) furnish to me upon request a written
statement as to whether Parent has complied with such reporting requirements
during the 12 months preceding any proposed sale of Parent Shares by me
under Rule 145, and (b) otherwise use all reasonable efforts to permit such
sales pursuant to Rule 145 and Rule 144. Parent has filed all reports
required to be filed with the Commission under Section 13 of the 1934 Act
during the preceding 12 months.
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B. It is understood and agreed that certificates with the legends set
forth in paragraphs E and F above will be substituted by delivery of
certificates without such legend if (i) one year shall have elapsed from the
date the undersigned acquired the Parent Shares received in the Merger and
the provisions of Rule 145(d)(2) are then available to the undersigned,
(ii) two years shall have elapsed from the date the undersigned acquired the
Parent Shares received in the Merger and the provisions of Rule 145(d)(3)
are then applicable to the undersigned, or (iii) Parent has received either
an opinion of counsel, which opinion and counsel shall be reasonably
satisfactory to Parent, or a "no action" letter obtained by the undersigned
from the staff of the Commission, to the effect that the restrictions
imposed by Rule 145 under the Act no longer apply to the undersigned.
Very truly yours,
______________________________________
Name:
Agreed and accepted this ____
day of ____________ , 2002, by
Magna International Inc.
By: ____________________________
Name:
Title:
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ANNEX B
SHAREHOLDERS' AGREEMENT
SHAREHOLDERS' AGREEMENT (this "AGREEMENT") dated as of June 25, 2002, among
MAGNA INTERNATIONAL INC., an Ontario corporation ("PARENT"), MAGNA MIRRORS
ACQUISITION CORP., a Michigan corporation and a wholly owned subsidiary of
Parent ("SUB"), DONNELLY EXPORT CORPORATION, a Michigan corporation ("EXPORT"),
and the persons listed on SCHEDULE A hereto (such persons are collectively
referred to herein as the "SHAREHOLDERS" and individually referred to herein as
a "SHAREHOLDER").
WHEREAS Parent, Sub and DONNELLY CORPORATION, a Michigan corporation (the
"COMPANY"), propose to enter into an Agreement and Plan of Merger dated as of
even date herewith (as the same may be amended or supplemented, the "MERGER
AGREEMENT"), providing for the merger of Sub with and into the Company (the
"MERGER"), pursuant to which each issued and outstanding share of Class A Common
Stock, par value $.10 per share, of the Company (the "COMPANY CLASS A COMMON
STOCK") and each issued and outstanding share of Class B Common Stock, par value
$.10 per share, of the Company (the "COMPANY CLASS B COMMON STOCK" and, together
with the Company Class A Common Stock, the "COMPANY COMMON STOCK") will be
converted into the right to receive a fraction of a Class A Subordinate Voting
Share, without par value, of Parent (the "PARENT SHARES");
WHEREAS the Shareholders own in the aggregate 1,841,449 shares of Company
Class B Common Stock and 665,692 shares of Company Class A Common Stock
(including any shares of Company Common Stock acquired by any Shareholder after
the date hereof, the "OWNED SHARES") and otherwise control, through valid and
binding powers of attorney or proxies or otherwise, 1,408,200 shares of Company
Class B Common Stock and 637,730 shares of Company Class A Common Stock
(including any shares of Company Common Stock so controlled by any Shareholder
after the date hereof, the "CONTROLLED SHARES" and, together with the Owned
Shares, the "OWNED OR CONTROLLED SHARES");
WHEREAS the Shareholders own or otherwise control, in the aggregate,
(i) 79.62% of the outstanding shares of Company Class B Common Stock and
(ii) 19.33% of the outstanding shares of Company Class A Common Stock, in each
case as of June 7, 2002, representing in the aggregate approximately 72% of
votes entitled to be cast by holders of Company Class B Common Stock and Company
Class A Common Stock, voting together as a class, at any duly held meeting of
the Company's shareholders with respect to the approval of the Merger;
WHEREAS the holders of Company Class B Common Stock own all the outstanding
shares of capital stock of Export, and the parties desire that all contracts,
agreements and arrangements between Export and the Company or any of its
subsidiaries be terminated prior to the Merger without any liability on the part
of the Company or any such subsidiary; and
WHEREAS as a condition to their willingness to enter into the Merger
Agreement, Parent and Sub have requested that the Shareholders and Export enter
into this Agreement.
NOW, THEREFORE, to induce Parent and Sub to enter into, and in consideration
of their entering into, the Merger Agreement, and in consideration of the
premises and the representations, warranties and agreements contained herein,
the parties agree as follows:
1. REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS. Each Shareholder
hereby represents and warrants to Parent and Sub as follows:
(a) AUTHORITY. Such Shareholder has all requisite power and authority
to execute and deliver this Agreement and to consummate the transactions
contemplated hereby. The execution, delivery and performance of this
Agreement by such Shareholder, and the consummation of the transactions
contemplated hereby, have been duly authorized by all necessary action on
the part of such Shareholder. This Agreement has been duly executed and
delivered by such Shareholder and, assuming the due authorization, execution
and delivery by each of Parent and Sub, constitutes a valid and binding
obligation of such Shareholder enforceable against such Shareholder in
accordance with its terms, except to the extent
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enforceability may be limited by applicable bankruptcy, insolvency,
moratorium or other similar laws affecting creditors' rights generally or by
general principles governing the availability of equitable remedies. The
execution and delivery of this Agreement does not, and the consummation of
the transactions contemplated hereby and compliance with the terms hereof
will not, conflict with, or result in any violation of or default (with or
without notice or lapse of time or both) under, any provision of any trust
agreement, partnership agreement, loan or credit agreement, note, bond,
mortgage, indenture, license, lease, contract, agreement or other
instrument, permit, concession, franchise, judgment, order, writ,
injunction, decree, law, statute, rule or regulation applicable to such
Shareholder or to any of its property or assets (including the Owned
Shares), or any provision of the Second Restated and Amended Articles of
Incorporation, as amended, or Bylaws of the Company. Except for consents,
approvals, authorizations and filings as may be required under (i) the
Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT"), or
(ii) the provisions, rules and regulations of the National Association of
Securities Dealers, Inc. (the "NASD"), no filing or registration with, or
consent or approval of, any domestic (federal or state), foreign or
supranational court, governmental body, regulatory agency, authority,
commission, tribunal or securities exchange is required by or with respect
to such Shareholder in connection with the execution and delivery of this
Agreement or the consummation by such Shareholder of the transactions
contemplated hereby.
(b) THE OWNED OR CONTROLLED SHARES. Such Shareholder beneficially owns
(within the meaning of Rule 13d-3 under the Exchange Act) and has good and
valid title to, or otherwise controls the voting of (with respect to the
matters referred to herein), the number and kind of Owned Shares and
Controlled Shares, as the case may be, set forth opposite such Shareholder's
name on SCHEDULE A, free and clear of any security interests, liens, claims,
pledges, mortgages, options, rights of first refusal, agreements, charges or
other encumbrances whatsoever ("LIENS"). Except for this Agreement, no
proxies or powers of attorney have been granted by such Shareholder or any
other person with respect to the Owned or Controlled Shares that will remain
in effect after the execution of this Agreement and that would conflict or
be inconsistent with this Agreement. Except for this Agreement, no voting
arrangement with respect to the matters referred to herein (including voting
agreement or voting trust) affecting the Owned or Controlled Shares of such
Shareholder shall remain in effect after the execution of this Agreement.
(c) THE COMPANY'S REPRESENTATIONS. To the knowledge of such
Shareholder, the representations and warranties of the Company set forth in
Article III of the Merger Agreement are true and correct. This
representation and warranty shall not survive the Effective Time of the
Merger. The sole remedy of Parent and Sub against any Shareholder or Export
for any breach of this representation and warranty shall be a right to
terminate this Agreement prior to the Effective Time of the Merger, and
Export shall have no remedy for any such breach.
2. REPRESENTATIONS AND WARRANTIES OF EXPORT. Export hereby represents and
warrants to Parent and Sub as follows:
(a) AUTHORITY. Export has all requisite corporate power and authority
to execute and deliver this Agreement and to consummate the transactions
contemplated hereby. The execution, delivery and performance of this
Agreement by Export, and the consummation of the transactions contemplated
hereby, have been duly authorized by all necessary corporate action on the
part of Export. This Agreement has been duly executed and delivered by
Export and, assuming the due authorization, execution and delivery by each
of Parent and Sub, constitutes a valid and binding obligation of Export
enforceable against Export in accordance with its terms, except to the
extent enforceability may be limited by applicable bankruptcy, insolvency,
moratorium or other similar laws affecting creditors' rights generally or by
general principles governing the availability of equitable remedies. The
execution and delivery of this Agreement does not, and the consummation of
the transactions contemplated hereby and compliance with the terms hereof
will not, conflict with, or result in any violation of or default (with or
without notice or lapse of time or both) under, any provision of any loan or
credit agreement, note, bond, mortgage, indenture, license, lease, contract,
agreement or other instrument, permit, concession, franchise, judgment,
order, writ, injunction, decree, law, statute, rule or regulation applicable
to Export or to any of its property or assets, or any provision of the
Articles of Incorporation or Bylaws of Export. No filing or registration
with, or consent or approval of, any domestic (federal or state), foreign or
supranational court, governmental body, regulatory agency, authority,
commission, tribunal or securities exchange is required by or with respect
to Export in
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connection with the execution and delivery of this Agreement or the
consummation by Export of the transactions contemplated hereby.
(b) ASSETS; AGREEMENTS. Export has no assets and the shares of the
capital stock of Export have a fair market value not greater than $100,000.
All contracts, agreements or arrangements between Export and the Company or
any of its Subsidiaries (as defined in the Merger Agreement) may be
terminated prior to the Effective Time (as defined in the Merger Agreement)
without any liability on the part of the Company or its Subsidiaries.
3. REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB. Parent and Sub hereby
represent and warrant to the Shareholders as follows:
(a) AUTHORITY. Each of Parent and Sub has all requisite corporate power
and authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The execution, delivery and performance of
this Agreement by Parent and Sub, and the consummation of the transactions
contemplated hereby, have been duly authorized by all necessary corporate
action on the part of Parent and Sub. This Agreement has been duly executed
and delivered by Parent and Sub and, assuming the due authorization,
execution and delivery by each of the Shareholders and Export, constitutes a
valid and binding obligation of Parent and Sub enforceable in accordance
with its terms, except to the extent enforceability may be limited by
applicable bankruptcy, reorganization, insolvency, moratorium or other
similar laws affecting creditors' rights generally or by general principles
governing the availability of equitable remedies. The execution and delivery
of this Agreement does not, and the consummation of the transactions
contemplated hereby and compliance with the terms hereof will not, conflict
with, or result in any violation of or default (with or without notice or
lapse of time or both) under, any provision of any loan or credit agreement,
note, bond, mortgage, indenture, license, lease, contract, agreement or
other instrument, permit, concession, franchise, judgment, order, writ,
injunction, decree, law, statute, rule or regulation applicable to Parent or
Sub or to any of the property or assets of Parent or Sub, or any provision
of the charter or bylaws of Parent or Sub, other than conflicts, violations
or defaults that, individually or in the aggregate, will not have a material
adverse effect on Parent's and Sub's ability to consummate the transactions
contemplated by this Agreement or the enforceability of this Agreement.
Except for consents, approvals, authorizations and filings as may be
required under (i) the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended, the EC Merger Regulation (as defined in the Merger Agreement)
and other antitrust related statutes in various jurisdictions, the Exchange
Act or the Securities Act of 1933, as amended, or (ii) the provisions, rules
and regulations under or of any state or Canadian provincial securities
statute or the NASD, the New York Stock Exchange, Inc. or The Toronto Stock
Exchange, no filing or registration with, or authorization, consent or
approval of, any domestic (federal or state), foreign or supranational
court, governmental body, regulatory agency, authority, commission, tribunal
or securities exchange is required by or with respect to Parent or Sub in
connection with the execution and delivery of this Agreement by Parent and
Sub or the consummation by Parent and Sub of the transactions contemplated
hereby.
4. COVENANTS OF THE SHAREHOLDERS; IRREVOCABLE PROXY. Until the earlier of
(i) the Effective Time or (ii) the termination of this Agreement as specified in
Section 8, each Shareholder agrees as follows:
(a) At any meeting of shareholders of the Company called to vote upon
the Merger and the Merger Agreement or at any adjournment thereof or in any
other circumstances upon which a vote, consent or other approval with
respect to the Merger and the Merger Agreement is sought, such Shareholder
shall vote (or cause to be voted) all shares of Company Common Stock that it
owns or has voting control over in favor of the Merger, the approval of the
Merger Agreement and the approval of the terms thereof and each of the other
transactions contemplated by the Merger Agreement.
(b) At any meeting of shareholders of the Company or at any adjournment
thereof or in any other circumstances upon which the Shareholders' vote,
consent or other approval is sought, such Shareholder shall vote (or cause
to be voted) all shares of Company Common Stock that it owns or has voting
control over against (i) any merger agreement or merger (other than the
Merger Agreement and the Merger), consolidation, combination, sale of
substantial assets, reorganization, recapitalization, dissolution,
liquidation or winding up of or by the Company or any other Takeover
Proposal (as defined below),
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(ii) unless otherwise directed by Parent, any amendment of the Company's
Second Restated and Amended Articles of Incorporation, as amended, or Bylaws
or other proposal or transaction involving the Company or any of its
Subsidiaries, other than as contemplated by Section 4(a), or (iii) any
action or agreement which would result in a breach of any representation,
warranty or covenant of the Company set forth in the Merger Agreement.
(c) Such Shareholder agrees not to (i) Transfer or Otherwise Dispose of
(as defined below), or enter into any arrangement with respect thereto, any
of its Owned or Controlled Shares to any person other than Sub or Sub's
designee or (ii) except for this Agreement, enter into any voting
arrangement, whether by proxy, voting agreement, voting trust or otherwise,
with respect to its Owned or Controlled Shares. For purposes of this
Agreement, "TRANSFER OR OTHERWISE DISPOSE OF" means any sale, exchange,
conversion (including any conversion of Company Class B Common Stock into
Company Class A Common Stock), redemption, assignment, gift, grant of a
security interest, pledge or other encumbrance, or the establishment of any
voting trust or other agreement or arrangement with respect to the transfer
of voting rights or any other beneficial interests in the Company Common
Stock, the creation of any other claim thereto or any other transfer or
disposition whatsoever (including involuntary sales, exchanges, transfers or
other dispositions as a result of a Takeover Proposal or otherwise, and
whether or not for cash or other consideration) affecting the right, title,
interest or possession in, to or of the Company Common Stock.
(d) Such Shareholder shall not, nor shall it authorize (and shall use
all reasonable efforts not to permit) any of its financial advisors,
attorneys or other advisers, representatives or agents to, (i) solicit,
initiate or actively encourage the submission of any Takeover Proposal,
(ii) enter into any agreement with respect to or approve or recommend any
Takeover Proposal or (iii) participate in any discussions or negotiations
regarding, or furnish to any person any information with respect to, or take
any other action to facilitate any inquiries or the making of any proposal
that constitutes, or may reasonably be expected to lead to, any Takeover
Proposal. For purposes of this Agreement, "TAKEOVER PROPOSAL" means any
proposal for a merger, sale or other disposition of all or a substantial
portion of the assets of, or other business combination or recapitalization
or similar transaction involving, the Company or any of its Subsidiaries or
any proposal or offer to acquire in any manner, directly or indirectly, an
equity interest in excess of 5% of the Company Common Stock or voting
securities of the Company or any of its Subsidiaries, other than the
transactions contemplated by the Merger Agreement.
(e) Such Shareholder promptly (but in no event later than 48 hours after
the event) shall advise Parent orally and in writing of (i) any Takeover
Proposal or any inquiry or communication with respect to or which could
reasonably be expected to lead to any Takeover Proposal which such
Shareholder shall have been approached or solicited by any person with
respect to, (ii) the material terms of such Takeover Proposal (including a
copy of any written proposal that is available to such Shareholder) and
(iii) the identity of the person or persons making any such Takeover
Proposal, inquiry or communication.
(f) Such Shareholder hereby irrevocably appoints Parent as the attorney
and proxy of such Shareholder, with full power of substitution, to vote all
Owned or Controlled Shares that such Shareholder is entitled to vote at any
meeting of shareholders of the Company (whether annual or special and
whether or not an adjourned or postponed meeting), only with respect to the
matters set forth in, and in accordance with the terms of, Sections 4(a)
and 4(b); PROVIDED that in any such vote pursuant to such proxy, Parent
shall not have the right (and such proxy shall not confer the right) to vote
to modify or amend the Merger Agreement to reduce the rights or benefits of
the Company or any shareholders of the Company under the Merger Agreement or
to reduce the obligations of Parent thereunder. THIS PROXY AND POWER OF
ATTORNEY IS IRREVOCABLE AND COUPLED WITH AN INTEREST. Such Shareholder
hereby revokes, effective upon the execution and delivery of this Agreement,
all other proxies and powers of attorney with respect to Owned or Controlled
Shares that such Shareholder may have heretofore appointed or granted, and
no subsequent proxy or power of attorney (except in furtherance of such
Shareholder's obligations under Section 4(a)) shall be given or written
consent executed (and if given or executed, shall not be effective) by such
Shareholder with respect thereto so long as this Agreement remains in
effect. Such Shareholder shall forward to Parent and Sub any proxy cards
that such Shareholder receives with respect to the Merger.
B-4
(g) Each Shareholder agrees not to, without the prior written consent of
Parent, sell, transfer, convey, pledge, gift or otherwise dispose
(collectively, "DISPOSE") of any Parent Shares after the Closing Date (as
defined in the Merger Agreement) except in accordance with this
Section 4(g) or as permitted by Section 4(h). Each Shareholder may at any
time and from time to time after the Closing Date Dispose of not more than
that number of Parent Shares which, together with all other Parent Shares
Disposed of by such Shareholder after the Closing Date, equals the product
of (x) the number of weeks that have then elapsed since the Closing Date
(with any fraction of a week deemed to be a whole week) times (y) 25,000
Parent Shares. This Section 4(g) shall terminate and be of no further force
or effect automatically upon the Company having the right to terminate the
Merger Agreement pursuant to Section 7.1(h) thereof (regardless of whether
such right is exercised).
(h) Each Shareholder may Dispose of all or any portion of the Parent
Shares owned by it:
(i) to an "affiliate" of such Shareholder (as defined in Rule 405
promulgated under the Securities Act), and any such affiliate
may thereafter Dispose of such Parent Shares back to such
Shareholder;
(ii) for estate or tax planning purposes, (A) to members of such
Shareholder's Family or trusts or other entities controlled
solely by such Shareholder and members of such Shareholder's
Family or (B) to any person meeting the requirements of
Section 501(c)(3) of the Internal Revenue Code of 1986, as
amended;
(iii) to Parent or any of its Subsidiaries (as defined in the Merger
Agreement) or any other person approved by Parent; or
(iv) as a result of the death of such Shareholder;
PROVIDED, HOWEVER, that, prior to a Shareholder Disposing of any Parent
Shares to any transferee permitted by clauses (i), (ii) or (iv) of this
Section 4(h), such permitted transferee agrees in writing to be bound by
this Agreement as if he, she or it were such Shareholder.
5. COVENANTS OF EXPORT. Export agrees that it shall cause each contract,
agreement or arrangement between Export and the Company or any of its
Subsidiaries to terminate, effective no later than immediately prior to the
Effective Time, without any liability on the part of the Company or any such
Subsidiary. Export further agrees that it shall execute such instruments to
effectuate the foregoing and a general release of the Company and its
Subsidiaries as counsel for Parent shall reasonably request.
6. FURTHER ASSURANCES. Each party will, from time to time, execute and
deliver, or cause to be executed and delivered, such additional or further
transfers, assignments, endorsements, consents and other instruments, including
proxies, as any other party may reasonably request for the purpose of
effectively carrying out the transactions contemplated by this Agreement.
7. ASSIGNMENT. Neither this Agreement nor any of the rights or interests
hereunder shall be assigned by any of the parties, nor shall any obligation
hereunder be assumed by any other person, without the prior written consent of
the other parties, except that Sub may assign, in its sole discretion, any or
all of its rights and interests hereunder to, and Sub's obligations hereunder
may be assumed by, Parent or any wholly owned Subsidiary (as defined in the
Merger Agreement) of Parent. Subject to the preceding sentence, this Agreement
will be binding upon, inure to the benefit of and be enforceable by the parties
and their respective successors and assigns and, in the case of any Shareholder
that is an individual, the heirs, executors, administrators and other legal
representatives of such Shareholder.
8. TERMINATION. This Agreement shall terminate only upon a valid
termination of the Merger Agreement pursuant to the terms of Section 7.1
thereof.
9. SHAREHOLDERS' CAPACITY. The parties hereto agree and acknowledge that
each Shareholder does not make any agreement or understanding in his capacity as
a director or officer of the Company or of Export. Each Shareholder has entered
into this Agreement solely in his capacity as the record holder and/or
beneficial owner of the Owned or Controlled Shares and nothing herein shall
expand, limit or affect any actions taken by each Shareholder in his capacity as
an officer or director of the Company or of Export.
B-5
10. GENERAL PROVISIONS.
(a) SURVIVAL OF REPRESENTATIONS. No representation or warranty made by any
party to this Agreement shall survive the Merger. The covenants made in
Sections 4(g), 4(h) and 5 of this Agreement and the other agreements made by the
parties to this Agreement shall survive the Merger and any termination of this
Agreement notwithstanding any investigation at any time made by or on behalf of
any party hereto.
(b) SPECIFIC PERFORMANCE. The parties agree that irreparable damage would
occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached. It
is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement in any court within the United
States, this being in addition to any other remedy to which they are entitled at
law or in equity.
(c) EXPENSES. All costs and expenses incurred in connection with this
Agreement and the transactions contemplated hereby shall be paid by the party
incurring such expense.
(d) AMENDMENTS. This Agreement may not be amended except by an instrument
in writing signed by each of the parties hereto.
(e) NOTICE. All notices or other communications required or permitted
hereunder shall be in writing and shall be deemed given or delivered (i) when
delivered personally, (ii) if transmitted by fax when confirmation of
transmission is received, or (iii) if sent by registered or certified mail,
return receipt requested, or by private courier when received; and shall be
addressed as follows:
(i) if to Parent or Sub to it:
In care of Magna International Inc.
337 Magna Drive
Aurora, Ontario L4G 7K1 Canada
Attention: President (with a separate copy to Corporate Secretary)
Facsimile Nos.:
with a copy to:
Scott M. Freeman
Sidley Austin Brown & Wood LLP
(on or prior to July 4, 2002)
875 Third Avenue
New York, New York 10022
Facsimile No.: (212) 906-2021
(after July 4, 2002)
787 Seventh Avenue
New York, New York 10019
Facsimile No.: (212) 839-5599
(ii) if to Export or the Shareholders, to:
Dwane Baumgardner
Donnelly Export Corporation
49 W.Third Street
Holland, MI 49423
and
Gerald T. McNieve
3222 Planthuest Road
Webster Grove, MO 63119
B-6
with a copy to:
Varnum, Riddering, Schmidt & Howlett LLP
Bridgewater Place
333 Bridgewater Street, N.W.
Post Office Box 352
Grand Rapids, Michigan 49501-0352
Attention: Daniel C. Molhoek
Facsimile No.: (616) 336-7000
or to such other address as such party may indicate by a notice delivered to
the other parties hereto.
(f) INTERPRETATION. When a reference is made in this Agreement to Sections,
such reference shall be to a Section of this Agreement unless otherwise
indicated. The headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement. Wherever the words "include", "includes" or "including" are used in
this Agreement, they shall be deemed to be followed by the words "without
limitation".
(g) COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement, and
shall become effective when one or more of the counterparts have been signed by
each of the parties and delivered to the other parties, it being understood that
each party need not sign the same counterpart.
(h) ENTIRE AGREEMENT; NO THIRD-PARTY BENEFICIARIES. This Agreement
(i) 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 and (ii) is not intended to confer upon any person other
than the parties hereto any rights or remedies hereunder.
(i) GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York without regard to any
applicable conflicts of law.
(j) WAIVERS. Any term or provision of this Agreement may be waived, or the
time for its performance may be extended, by the party or parties entitled to
the benefit thereof. Any such waiver shall be validly and sufficiently given for
the purposes of this Agreement if, as to any party, it is in writing signed by
such party or an authorized representative of such party. The failure of any
party hereto to enforce at any time any provision of this Agreement shall not be
construed to be a waiver of such provision, nor in any way to affect the
validity of this Agreement or any part hereof or the right of any party
thereafter to enforce each and every such provision. No waiver of any breach of
this Agreement shall be held to constitute a waiver of any other or subsequent
breach.
B-7
IN WITNESS WHEREOF, the parties have executed this Agreement or caused this
Agreement to be signed by their respective officers thereunto duly authorized
all as of the date first written above.
MAGNA INTERNATIONAL INC.
By: /s/ BELINDA STRONACH
----------------------------------------------------------------------------
Name: Belinda Stronach
Title: President and CEO
By: /s/ VINCE GALIFI
----------------------------------------------------------------------------
Name: Vince Galifi
Title: Executive Vice-President and
CFO
MAGNA MIRRORS ACQUISITION CORP.
By: /s/ WILLIAM J. BIGGAR
----------------------------------------------------------------------------
Name: William J. Biggar
Title: Executive Vice-President,
Office of the CEO
By: /s/ JEFF PALMER
----------------------------------------------------------------------------
Name: Jeff Palmer
Title: Executive Vice-President
DONNELLY EXPORT CORPORATION
By: /s/ KEVIN L. BROWN
----------------------------------------------------------------------------
Name: Kevin L. Brown
Title: President
B-8
LOUISE HOHMANN MCNEIVE AND GERALD T.
MCNEIVE, JR., Trustees of the Louise
Hohmann McNeive Living Trust U/A DTD
7/3/91
By: /s/ GERALD T. MCNEIVE, JR.
----------------------------------------------------------------------------
Name: Gerald T. McNeive, Jr.
Title: Co-trustee
Louise Hohmann McNeive
Living Trust U/A DTD 7/3/91
By: /s/ LOUISE HOHMANN MCNEIVE
----------------------------------------------------------------------------
Name: Louise Hohmann McNeive
Title: Co-trustee
Louise Hohmann McNeive
Living Trust U/A DTD 7/3/91
By: /s/ LOUISE HOHMANN MCNEIVE
----------------------------------------------------------------------------
Name: Louise Hohmann McNeive
Title: Custodian for
Gerald T. McNeive, III
Michael Louis McNeive
JANE H. KRAHMER AND CHARLES A.
KRAHMER, Trustees of the Jane H.
Krahmer 1999 Revocable Trust U/A DTD
3/31/99
By: /s/ JANE H. KRAHMER /s/ CHARLES A.
KRAHMER
------------------------------------
Name: Jane H. Krahmer, Charles A.
Krahmer
Title: Trustees of the Jane H.
Krahmer
1999 Revocable Trust U/A DTD
3/31/99
By: /s/ JANE H. KRAHMER /s/ CHARLES A.
KRAHMER
------------------------------------
Name: Jane H. Krahmer, Charles A.
Krahmer
Title: Trustees of the Charles A.
Krahmer
1999 Revocable Trust U/A DTD
3/31/99,
Pursuant to Power of Attorney
and Proxy
dated June 18, 2002
ANNE H. COPPS, Trustee of the Anne H.
Copps Trust U/A DTD 4/9/92
By: /s/ ANNE H. COPPS
----------------------------------------------------------------------------
Name: Anne H. Copps
Title: Trustee of the Anne H. Copps
Trust U/A DTD 4/9/92
B. PATRICK DONNELLY, III
By: /s/ B. PATRICK DONNELLY, III
----------------------------------------------------------------------------
Name: B. Patrick Donnelly, III
Title:
B-9
HUNTINGTON BANK, or Trustee of the
Virginia N. Donnelly Trust
UAD 3/19/87
By: /S/ CYNTHIA B. ALLEN
----------------------------------------------------------------------------
Name: Cynthia B. Allen
Title: V.P. Huntington Bank
Trustee of the Virginia N.
Donnelly
Trust UAD 3/19/87
HUNTINGTON BANK, Successor Trustee of
the Bernard P. Donnelly Trust U/A DTD
1/24/75
By: /S/ CYNTHIA B. ALLEN
----------------------------------------------------------------------------
Name: Cynthia B. Allen
Title: V.P. Huntington Bank
Trustee of the Bernard P.
Donnelly
Trust UAD 1/24/75, as amended
and restated
HUNTINGTON BANK, Successor Trustee of
the Bernard P. Donnelly and Virginia
N. Donnelly Trust
U/A DTD 11/16/93
By: /S/ CYNTHIA B. ALLEN
----------------------------------------------------------------------------
Name: Cynthia B. Allen
Title: V.P. Huntington Bank
Trustee of Bernand and
Virginia
Donnelly Unitrust UAD 11/16/93
KATHERINE S. DONNELLY, Trustee of the
Katherine S. Donnelly Trust U/A DTD
12/16/81
By: /S/ KATHERINE S. DONNELLY
----------------------------------------------------------------------------
Name: Katherine S. Donnelly,
Trustee
Title: Katherine S. Donnelly Trust
U/A DTD 12/16/81
B-10
JOHN DONNELLY, JR.
By: /s/ JOHN DONNELLY
----------------------------------------------------------------------------
Name: John Donnelly
Title:
M. SUSAN DONNELLY
By: /s/ M. SUSAN DONNELLY
----------------------------------------------------------------------------
Name: M. Susan Donnelly
Title:
THOMAS LEONARD
By: /s/ THOMAS E. LEONARD
----------------------------------------------------------------------------
Name: Thomas E. Leonard
Title: Director
FERNANDE PRUDEN
By: /s/ FERNANDE M. PRUDEN
----------------------------------------------------------------------------
Name: Fernande M. Pruden
Title:
JACQUELINE KING DONNELLY
By: /s/ JACQUELINE KING DONNELLY
----------------------------------------------------------------------------
Name: Jacqueline King Donnelly
Title:
B-11
SCHEDULE A
NUMBER OF OWNED OR CONTROLLED SHARES
OWNED CONTROLLED OWNED CONTROLLED
CLASS B CLASS B CLASS A CLASS A
NAME OF SHAREHOLDER COMMON STOCK COMMON STOCK COMMON STOCK COMMON STOCK
------------------- ------------ ------------ ------------ ------------
Louise Hohmann McNeive and Gerald T.
McNeive, Jr., Trustees of the Louise
Hohmann McNeive Living Trust U/A DTD
7/3/91.................................... 273,815 0 33,603 0
Jane H. Krahmer and Charles A. Krahmer,
Trustees of the Jane H. Krahmer 1999
Revocable Trust U/A DTD 3/31/99........... 218,353 145,000 65,492 33,413
Anne H. Copps, Trustee of the Anne H. Copps
Trust U/A DTD 4/9/92...................... 217,962 120,211 12,920 32,916
B. Patrick Donnelly, III.................... 77,147 460,570 29,422 76,883
Huntington Bank, Successor Trustee of the
Virginia N. Donnelly Trust U/A DTD
1/12/79................................... 76,517 0 62 0
Huntington Bank, Successor Trustee of the
Bernard P. Donnelly Trust U/A DTD
1/24/75................................... 218,329 0 9,585 0
Huntington Bank, Successor Trustee of the
Bernard P. Donnelly and Virginia N.
Donnelly Trust U/A DTD 11/16/93........... 0 0 1,000 0
Katherine S. Donnelly, Trustee of the
Katherine S. Donnelly Trust U/A DTD
12/16/81.................................. 197,301 519,082 140,928 377,979
John Donnelly, Jr........................... 107,739 0 91,012 0
M. Susan Donnelly........................... 90,149 0 63,098 0
Thomas Leonard.............................. 81,590 0 16,750 0
Fernande Pruden............................. 282,547 163,337 201,820 116,539
--------- --------- ------- -------
TOTAL:...................................... 1,841,449 1,408,200 665,692 637,730
========= ========= ======= =======
ANNEX C
[LETTERHEAD OF SALOMON SMITH BARNEY INC.]
June 24, 2002
The Board of Directors
Donnelly Corporation
49 West Third Street
Holland, Michigan 49423
Members of the Board:
You have requested our opinion as to the fairness, from a financial point of
view, to the holders of Class A Common Stock, par value $0.10 per share
("Donnelly Class A Common Stock"), of Donnelly Corporation ("Donnelly"), other
than holders who have executed a shareholders' agreement in connection with the
Merger and their respective affiliates, of the Exchange Ratio (defined below)
provided for in an Agreement and Plan of Merger (the "Merger Agreement") to be
entered into among Magna International Inc. ("Magna"), Magna Mirrors Acquisition
Corp., a wholly owned subsidiary of Magna ("Merger Sub"), and Donnelly. As more
fully described in the Merger Agreement, (i) Merger Sub will be merged with and
into Donnelly (the "Merger") and (ii) each outstanding share of Donnelly
Class A Common Stock and Class B Common Stock, par value $0.10 per share, of
Donnelly ("Donnelly Class B Common Stock") will be converted into the right to
receive a fraction of a share (the "Exchange Ratio"), subject to certain
adjustments described below, of Class A Subordinate Voting Shares, without par
value, of Magna ("Magna Class A Common Stock") equal to the quotient of
(x) $28.00 divided by (y) the average price of the daily average of the high and
low prices per share of Magna Class A Common Stock for 20 consecutive New York
Stock Exchange trading days ending on the second trading day immediately
preceding the effective date of the Merger (the "Magna Stock Price"). The Merger
Agreement provides that (a) subject to certain exceptions, in no event will the
Exchange Ratio be less than an amount equal to the quotient of $28.00 divided by
$80.00 or greater than an amount equal to the quotient of $28.00 divided by
$61.00 and (b) under certain circumstances more fully described in the Merger
Agreement, the Exchange Ratio will be adjusted in the event the Magna Stock
Price is less than $52.28 such that each outstanding share of Donnelly Class A
Common Stock will be converted into the right to receive that number of shares,
or fraction of a share, of Magna Class A Common Stock equal to the quotient of
$24.00 divided by the Magna Stock Price.
In arriving at our opinion, we reviewed a draft dated June 24, 2002 of the
Merger Agreement and held discussions with certain senior officers, directors
and other representatives and advisors of Donnelly and certain senior officers
and other representatives of Magna concerning the businesses, operations and
prospects of Donnelly and Magna. We examined certain publicly available business
and financial information relating to Donnelly and Magna as well as certain
financial forecasts and other information and data relating to Donnelly and
certain publicly available financial forecasts relating to Magna, which were
provided to or otherwise discussed with us by the managements of Donnelly and
Magna. We reviewed the financial terms of the Merger as set forth in the Merger
Agreement in relation to, among other things: current and historical market
prices and trading volumes of Donnelly Class A Common Stock and Magna Class A
Common Stock; the financial condition and historical and projected earnings and
other operating data of Donnelly and Magna; and the capitalization of Donnelly
and Magna. We considered, to the extent publicly available, the financial terms
of other transactions effected which we considered relevant in evaluating the
Merger and analyzed certain financial, stock market and other publicly available
information relating to the businesses of other companies whose operations we
considered relevant in evaluating those of Donnelly and Magna. We also evaluated
the potential pro forma financial impact of the Merger on Magna. In addition to
the foregoing, we conducted such other analyses and examinations and considered
such other financial, economic and market criteria as we deemed appropriate in
arriving at our opinion.
In rendering our opinion, we have assumed and relied, without independent
verification, upon the accuracy and completeness of all financial and other
information and data publicly available or furnished to or otherwise
C-1
The Board of Directors
Donnelly Corporation
June 24, 2002
Page 2
reviewed by or discussed with us. With respect to the publicly available
financial forecasts relating to Magna reviewed by or discussed with us, we have
been advised by the management of Magna that such forecasts reflect reasonable
estimates and judgments as to the future financial performance of Magna. With
respect to the financial forecasts and other information and data relating to
Donnelly provided to or otherwise reviewed by or discussed with us, we have been
advised by the management of Donnelly that such forecasts and other information
and data were reasonably prepared on bases reflecting the best currently
available estimates and judgments of the management of Donnelly as to the future
financial performance of Donnelly. We have assumed, with your consent, that any
consummation of the Merger will be effected in accordance with its terms,
without waiver, modification or amendment of any material term, condition or
agreement and that, in the course of obtaining the necessary regulatory or third
party approvals and consents for the Merger, no delay, limitation, restriction
or condition will be imposed that would have an adverse effect on Donnelly,
Magna or the contemplated benefits of the Merger. We also have assumed, with
your consent, that the Merger will be treated as a tax-free reorganization for
federal income tax purposes. In addition, representatives of Donnelly have
advised us, and we therefore further have assumed, that the final terms of the
Merger Agreement will not vary materially from those set forth in the draft
reviewed by us. Our opinion, as set forth herein, relates to the relative values
of Donnelly and Magna. We are not expressing any opinion as to what the value of
the Magna Class A Common Stock actually will be when issued in the Merger or the
prices at which the Magna Class A Common Stock will trade or otherwise be
transferable at any time. We have not made or been provided with an independent
evaluation or appraisal of the assets or liabilities (contingent or otherwise)
of Donnelly or Magna nor have we made any physical inspection of the properties
or assets of Donnelly or Magna. In connection with our engagement, we were
requested to solicit, and we held discussions with, selected third parties
regarding the possible acquisition of all or a part of Donnelly. We express no
view as to, and our opinion does not address, the relative merits of the Merger
as compared to any alternative business strategies that might exist for Donnelly
or the effect of any other transaction in which Donnelly might engage. Our
opinion is necessarily based upon information available to us, and financial,
stock market and other conditions and circumstances existing and disclosed to
us, as of the date hereof.
Salomon Smith Barney Inc. has acted as financial advisor to Donnelly in
connection with the proposed Merger and will receive a fee for such services, a
significant portion of which is contingent upon the consummation of the Merger.
As you are aware, one of our affiliates currently has lending arrangements with
Magna for which such affiliate has received, and will receive, customary fees.
In the ordinary course of our business, we and our affiliates may actively trade
or hold the securities of Donnelly and Magna for our own account or for the
account of our customers and, accordingly, may at any time hold a long or short
position in such securities. In addition, we and our affiliates (including
Citigroup Inc. and its affiliates) may maintain relationships with Donnelly,
Magna and their respective affiliates.
Our advisory services and the opinion expressed herein are provided for the
information of the Board of Directors of Donnelly in its evaluation of the
proposed Merger, and our opinion is not intended to be and does not constitute a
recommendation to any stockholder as to how such stockholder should vote or act
on any matters relating to the Merger.
Based upon and subject to the foregoing, our experience as investment bankers,
our work as described above and other factors we deemed relevant, we are of the
opinion that, as of the date hereof, the Exchange Ratio is fair, from a
financial point of view, to the holders of Donnelly Class A Common Stock (other
than holders who have executed a shareholders' agreement in connection with the
Merger and their respective affiliates).
Very truly yours,
/s/ SALOMON SMITH BARNEY INC.
SALOMON SMITH BARNEY INC.
C-2
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 136 of the Business Corporations Act (Ontario), as amended, provides
as follows:
(1) Indemnification of directors. A corporation may indemnify a director
or officer of the corporation, a former director or officer of the
corporation or a person who acts or acted at the corporation's request as a
director or officer of a body corporate of which the corporation is or was a
shareholder or creditor, and his or her heirs and legal representatives,
against all costs, charges and expenses, including an amount paid to settle
an action or satisfy a judgment, reasonably incurred by him or her in
respect of any civil, criminal or administrative action or proceeding to
which he or she is made a party by reason of being or having been a director
or officer of such corporation or body corporate, if,
(a) he or she acted honestly and in good faith with a view to the best
interests of the corporation; and
(b) in the case of a criminal or administrative action or proceeding that
is enforced by a monetary penalty, he or she had reasonable grounds
for believing that his or her conduct was lawful.
(2) Idem. A corporation may, with the approval of the court, indemnify a
person referred to in subsection (1) in respect of an action by or on behalf
of the corporation or body corporate to procure a judgment in its favour, to
which the person is made a party by reason of being or having been a
director or an officer of the corporation or the body corporate, against all
costs, charges and expenses reasonably incurred by the person in connection
with such action if he or she fulfills the conditions set out in
clauses (1) (a) and (b).
(3) Idem. Despite anything in this section, a person referred to in
subsection (1) is entitled to indemnity from the corporation in respect of
all costs, charges and expenses reasonably incurred by him or her in
connection with the defense of any civil, criminal or administrative action
or proceeding to which he or she is made a party by reason of being or
having been a director or officer of the corporation or body corporate, if
the person seeking indemnity,
(a) was substantially successful on the merits in his or her defence of
the action or proceeding; and
(b) fulfills the conditions set out in clauses (1) (a) and (b).
(4) Liability insurance. A corporation may purchase and maintain
insurance for the benefit of any person referred to in subsection (1)
against any liability incurred by the person,
(a) in his or her capacity as a director or officer of the corporation,
except where the liability relates to the person's failure to act
honestly and in good faith with a view to the best interests of the
corporation; or
(b) in his or her capacity as a director or officer of another body
corporate where the person acts or acted in that capacity at the
corporation's request, except where the liability relates to the
person's failure to act honestly and in good faith with a view to the
best interests of the body corporate.
(5) Application to court. A corporation or a person referred to in
subsection (1) may apply to the court for an order approving an indemnity
under this section and the court may so order and make any further order it
thinks fit.
(6) Idem. Upon an application under subsection (5), the court may order
notice to be given to any interested person and such person is entitled to
appear and be heard in person or by counsel.
Section 5 of By-law No. 1B-92 of Magna provides as follows:
PROTECTION OF DIRECTORS, OFFICERS AND OTHERS
5.1 LIMITATION OF LIABILITY. No director, officer or employee shall be
liable for the acts, receipts, neglects or defaults of any other director,
officer or employee, or for joining in any receipt or other act for
conformity, or for any loss, damage or expense happening to the Corporation
through the insufficiency or
II-1
deficiency of title to any property acquired for or on behalf of the
Corporation, or for the insufficiency or deficiency of any security in or
upon which any of the moneys of the Corporation shall be invested, or for
any loss or damage arising from the bankruptcy, insolvency or tortious acts
of any person with whom any of the moneys, securities or effects of the
Corporation shall be invested, or for any loss or damage arising from the
bankruptcy, insolvency or tortious acts of any person with whom any of the
moneys, securities or effects of the Corporation shall be deposited, or for
any loss occasioned by any error in judgment or oversight on his part, or
for any other loss, damage or misfortune whatever which shall happen in the
execution of the duties of his office or employment or in relation thereto,
unless the same are occasioned by his own negligence or willful default;
provided that nothing herein shall relieve any director, officer or employee
from the duty to act in accordance with the Act or from liability for any
breach thereof.
5.2 INDEMNIFICATION. The Corporation shall indemnify a director, officer,
former director, former officer or a person who acts or acted at the
Corporation's request as a director or officer or other similar executive
for another body corporate or other organization of which the Corporation is
or was a shareholder (or other type of equity-holder) or creditor, and such
person's heirs and legal representatives, against all costs, charges and
expenses, including an amount paid to settle an action or satisfy a
judgment, reasonably incurred by him in respect of any civil, criminal or
administrative action or proceeding to which he is made a party by reason of
being or having been a director, officer or other similar executive of such
body corporate or other organization, to the full extent permitted by law.
The Corporation is authorized to enter into agreements evidencing its
indemnity in favour of the foregoing persons to the full extent permitted by
law and may purchase and maintain insurance against the risk of its
liability to indemnify pursuant to this provision. Magna carries liability
insurance which provides for coverage for officers and directors of Magna
and its subsidiaries, subject to a deductible for executive indemnification.
The policy does not provide coverage for losses arising from the breach of
fiduciary responsibilities under statutory or common law or from violations
of, or the enforcement of, pollutant laws and regulations.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers or persons controlling Magna
pursuant to the foregoing provisions, Magna has been informed that in the
opinion of the U.S. Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is therefore unenforceable.
The merger agreement provides that Magna will cause the surviving company in
the merger to indemnify the directors and officers of Donnelly for a period of
six years to the same extent such persons are indemnified under Donnelly's
articles of incorporation and by-laws and certain existing indemnity agreements
including against claims arising from or related to acts or omissions occurring
in connection with the merger agreement, negotiations and approval of the merger
agreement, and consummation of the merger.
For a period of six years after the effective time of the merger, Magna will
maintain the current or substantially similar policies of directors' and
officers' liability insurance held by Donnelly with respect to claims arising
from or related to facts or events which occurred at or before the effective
time.
II-2
ITEM 21. EXHIBITS
2.1 Agreement and Plan of Merger dated as of June 25, 2002,
among Magna International Inc., the merger subsidiary and
Donnelly (included as Annex A to the prospectus/proxy
statement forming a part of this registration statement and
incorporated herein by reference).
5.1 Opinion of J. Brian Colburn, Executive Vice-President,
Special Projects and Secretary of Magna, as to the legality
of the securities being registered.*
8.1 Opinion of Varnum, Riddering, Schmidt & Howlett LLP as to
the United States federal income tax consequences of the
merger.
9.1 Shareholders' Agreement dated as of June 25, 2002, among
Magna, the merger subsidiary, the several shareholders of
Donnelly that are parties thereto and Donnelly Export
Corporation (included as Annex B to the prospectus/proxy
statement forming a part of this registration statement and
incorporated herein by reference).
23.1 Consent of Ernst & Young LLP.
23.2 Consent of BDO Seidman, LLP.
23.3 Consent of Varnum, Riddering, Schmidt & Howlett LLP
(included in Exhibit 8.1 to this Registration Statement).
23.4 Consent of J. Brian Colburn, Executive Vice-President,
Special Projects and Secretary of Magna (included in
Exhibit 5.1 to this registration statement).
24.1 Powers of Attorney.*
99.1 Form of proxy card to be mailed to holders of Donnelly
common stock.
99.2 Consent of Salomon Smith Barney Inc.*
------------
* Previously filed.
ITEM 22. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(b) (1) The undersigned registrant hereby undertakes as follows: that prior
to any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other Items of the applicable form.
(2) The registrant undertakes that every prospectus (i) that is filed
pursuant to the paragraph immediately preceding, or (ii) that purports to meet
the requirements of section 10(a)(3) of the Securities Act of 1933 and is used
in connection with an offering of securities subject to Rule 415, will be filed
as a part of an amendment to the registration statement and will not be used
until such amendment is effective, and that, for purposes of determining any
liability under the Securities Act of 1933, each such post-effective amendment
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise,
II-3
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act of 1933 and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of such
issue.
(d) The undersigned registrant hereby undertakes to (i) respond to requests
for information that is incorporated by reference into the prospectus pursuant
to Item 4, 10(b), 11, or 13 of Form F-4, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means; and (ii) to arrange or provide for a facility in the
U.S. for the purpose of responding to such requests. The information in
subparagraph (i) above includes information contained in documents filed
subsequent to the effective date of the registration statement through the date
of responding to the request.
(e) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-4
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form F-4 and has duly caused this amendment to the
registration statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the Town of Aurora, Province of Ontario, Canada, on
August 29, 2002.
Date: August 29, 2002
Magna International Inc.
By: /s/ J. BRIAN COLBURN
----------------------------------------------
J. Brian Colburn
Executive Vice-President,
Special Projects and
Secretary
By: /s/ VINCENT J. GALIFI
----------------------------------------------
Vincent J. Galifi
Executive Vice-President,
Finance and Chief
Financial Officer
II-5
Pursuant to the requirements of the Securities Act of 1933, as amended, this
amendment to the registration statement has been signed below by the following
persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
*
---------------------------------------- Chairman of the Board
Frank Stronach August 29, 2002
*
---------------------------------------- President and Chief Executive Officer,
Belinda Stronach Director (Principal Executive Officer) August 29, 2002
* Executive Vice-President, Finance and
---------------------------------------- Chief Financial Officer (Principal
Vincent J. Galifi Financial Officer) August 29, 2002
*
---------------------------------------- Controller (Principal Accounting
Pat McCann Officer) August 29, 2002
---------------------------------------- Director
William G. Davis August 29, 2002
*
---------------------------------------- Director
William H. Fike August 29, 2002
*
---------------------------------------- Director
Manfred Gingl August 29, 2002
*
---------------------------------------- Director
Edward C. Lumley August 29, 2002
*
---------------------------------------- Director
Karlheinz Muhr August 29, 2002
*
---------------------------------------- Director
Gerhard Randa August 29, 2002
*
---------------------------------------- Director
Donald Resnick August 29, 2002
*
---------------------------------------- Director
Royden R. Richardson August 29, 2002
---------------------------------------- Director
Franz Vranitzky August 29, 2002
*
---------------------------------------- Director
Siegfried Wolf August 29, 2002
*By: /s/ J. BRIAN COLBURN
-----------------------------------
J. Brian Colburn
AS ATTORNEY-IN-FACT
II-6
Pursuant to the requirements of Section 6(a) of the Securities Act of 1933,
the Authorized Representative has duly caused this registration statement to be
signed on its behalf by the undersigned, solely in its capacity as the duly
authorized representative of Magna International Inc. in the United States, in
the Town of Aurora, Province of Ontario, Country of Canada, on the 29th day of
August, 2002.
MAGNA INTERNATIONAL OF AMERICA, INC.
(Authorized Representative)
By: /s/ J. BRIAN COLBURN
----------------------------------------------
J. Brian Colburn
Executive Vice-President,
Special Projects and Secretary
By: /s/ VINCENT J. GALIFI
----------------------------------------------
Vincent J. Galifi
Executive Vice-President,
Finance and Chief
Financial Officer
II-7
EXHIBITS INDEX
EXHIBIT
NUMBER DESCRIPTION
------- -----------
2.1 Agreement and Plan of Merger dated as of June 25, 2002,
among Magna International Inc., the merger subsidiary and
Donnelly (included as Annex A to the prospectus/proxy
statement forming a part of this registration statement and
incorporated herein by reference).
5.1 Opinion of J. Brian Colburn, Executive Vice-President,
Special Projects and Secretary of Magna, as to the legality
of the securities being registered.*
8.1 Opinion of Varnum, Riddering, Schmidt & Howlett LLP as to
the United States federal income tax consequences of the
merger.
9.1 Shareholders' Agreement dated as of June 25, 2002, among
Magna, the merger subsidiary, the several shareholders of
Donnelly that are parties thereto and Donnelly Export
Corporation (included as Annex B to the prospectus/proxy
statement forming a part of this registration statement and
incorporated herein by reference).
23.1 Consent of Ernst & Young LLP.
23.2 Consent of BDO Seidman, LLP.
23.3 Consent of Varnum, Riddering, Schmidt & Howlett LLP
(included in Exhibit 8.1 to this Registration Statement).
23.4 Consent of J. Brian Colburn, Executive Vice-President,
Special Projects and Secretary of Magna (included in
Exhibit 5.1 to this Registration Statement).
24.1 Powers of Attorney.*
99.1 Form of proxy card to be mailed to holders of Donnelly
common stock.
99.2 Consent of Salomon Smith Barney Inc.*
------------
* Previously filed.
II-8