1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR FISCAL YEAR ENDED DECEMBER 31, 1996.
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from ______________ to ______________.
Commission File No.: 0-10235
GENTEX CORPORATION
(Exact name of registrant as specified in its charter)
MICHIGAN 38-2030505
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
600 N. CENTENNIAL STREET, ZEELAND, MICHIGAN 49464
(Address of principal executive offices) (Zip Code)
(616) 772-1800
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each Class Name of each exchange on which registered
NONE
-----------------------------------------
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $.06 PER SHARE
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes: X No: _____
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [ X ]
As of March 3, 1997, 34,843,182 shares of the registrant's common stock, par
value $.06 per share, were outstanding. The aggregate market value of the
common stock held by non-affiliates of the registrant (i.e., excluding shares
held by executive officers, directors, and control persons as defined in Rule
405, 17 CFR 230.405) on that date was $587,324,274 computed at the closing
price on that date.
Portions of the Company's Proxy Statement for its 1997 Annual Meeting of
Shareholders are incorporated by reference into Part III.
Exhibit Index located at Page 32
Page 1 of 47
2
Statements in this Annual Report on Form 10-K which express "belief",
"anticipation" or "expectation" as well as other statements which are not
historical fact, are forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995 and involve risks and
uncertainties described below under the headings "Business" and "Management's
Discussion and Analysis of Results of Operations and Financial Condition" that
could cause actual results to differ materially from those projected. All
forward-looking statements in this Annual Report are based on information
available to the Company on the date hereof, and the Company assumes no
obligation to update any such forward-looking statements.
PART I
ITEM 1. BUSINESS
(A) GENERAL DEVELOPMENT OF BUSINESS
Gentex Corporation (the "Company") designs, develops, manufactures and
markets proprietary products employing electro-optic technology. These
products consist primarily of two product lines: automatic rearview mirrors
and fire protection products.
The Company was organized in 1974 to manufacture residential smoke
detectors, a product line that has since evolved into a more sophisticated
group of fire protection products for commercial applications. In 1982, the
Company introduced an automatic interior rearview mirror that was the first
commercially successful glare-control product offered as an alternative to the
conventional, manual day/night mirror. In 1987, the Company introduced its
interior Night Vision Safety(TM) (NVS(R)) Mirror, an electrochromic
automatic-dimming interior rearview mirror, providing the first successful
commercial application of electrochromic technology in the automotive industry
and world. Through the use of electrochromic technology, this mirror is
continually variable and automatically darkens to the degree required to
eliminate rearview headlight glare. In 1991, the Company introduced its
exterior Night Vision Safety(TM) Mirror Sub-Assembly, which works as a complete
glare-control system with the interior NVS(R) Mirror. In 1994, the Company
began making shipments of its complete three-mirror system to its first
customer.
(B) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS.
See Note (9) to the Consolidated Financial Statements filed with this
report.
(C) NARRATIVE DESCRIPTION OF BUSINESS
The Company currently manufactures two electro-optic product lines:
automatic rearview mirrors for the automotive industry and fire protection
products for the commercial building industry.
AUTOMATIC REARVIEW MIRRORS
Interior NVS(R) Mirrors. In 1987, the Company achieved a significant
technological breakthrough by applying electrochromic technology to the
glare-sensing capabilities of its Motorized Mirror. Through the use of this
technology, the mirror gradually darkens to the degree necessary to eliminate
rearview glare from following vehicle
-2-
3
headlights. The NVS(R) Mirror offers all of the continuous reflectance levels
between its approximate 75% full-reflectance state and its 7% least-reflectance
state, taking approximately 10 seconds to span the entire range. Special
electro-optic sensors in the mirror detect glare and electronic circuitry
supplies electricity to darken the mirror to only the precise level required to
eliminate glare, allowing the driver to maintain maximum vision. This is
accomplished by the utilization of two layers of precision glass with special
conductive coatings that are separated by the Company's proprietary
electrochromic materials. When the appropriate light differential is detected,
an electric current causes the electrochromic material to darken, decreasing
the mirror's reflectance, thereby eliminating glare.
During 1991, the Company began shipping the first advanced-feature
interior NVS(R) Mirror, the NVS(R) Headlamp Control Mirror, an automatic-dimming
mirror that automatically turns car head- and taillamps "on" and "off" in
response to the level of light observed. During 1992, the Company began
shipping its second advanced-feature interior NVS(R) Mirror, the NVS(R) Lighted
Mirror, with map/reading lights. During 1993, the Company began shipping its
third advanced-feature interior NVS(R) Mirror, the NVS(R) Compass Mirror, with
an electronic compass that automatically compensates for changes in the earth's
magnetic field.
The Company sold approximately 1,395,000 interior NVS(R) Mirrors in
1994, approximately 1,811,000 in 1995, and approximately 2,423,000 in 1996.
During 1996, the unit growth primarily continued as a result of
increased penetration of a number of high-volume light vehicles manufactured in
North America, including pickup trucks and sport/utility vehicles from the Big
Three auto manufacturers, as well as increased penetration of light vehicle
models manufactured outside North America, including new, higher-volume
vehicles in Europe. The Company's interior NVS(R) Mirrors are standard
equipment or factory or distributor/dealer-installed options on the following
1997 and 1997-1/2 vehicle models:
-3-
4
TABLE 1. INTERIOR NVS(R) MIRROR AVAILABILITY BY VEHICLE LINE
GM/Cadillac Deville S* Audi A8 O
D'Elegance S Bentley (RKE) S
Catera S BMW 800 Series S
Concours S* 700 Series O
Eldorado S* 500 Series O
Eldorado Touring Coupe S* 300 Series O
Seville S* Daewoo Arcadia S
Seville STS S* Brougham O
GM/Buick LeSabre Limited S Fiat Lancia Kappa O
Park Avenue O* Alfa Romeo 164 O
Park Avenue-Ultra S* Fiat/Brazil Tempra O
Riviera O* Honda Inspire (5 Cyl.) O
GM Oldsmobile 88 Regency (ECC) S Inspire (6 Cyl.) S
88 LSS (ECC) S Sabre (5 Cyl.) O
Aurora (ECC) O Sabre (6 Cyl.) S
GM/Pontiac Bonneville SSE O Hyundai Grandeur O
GM/Chevrolet C/K Pickup (ECC) O Marcia O
C/K Crew Cab Pickup (ECC) O KIA Motors Corp. Potentia (3.0 L) S
Tahoe (2-Door) (ECC) O (Korea) Potentia (2.2 L) O
Tahoe (4-Door) (ECC) S Credos O
Suburban (ECC) O Mercedes-Benz S Class Coupe S
GM/GMC C/K Pickup (ECC) O S Class Sedans O
C/K Crew Cab Pickup (ECC) O SL Roadster O
Yukon (2-Door) (ECC) O E Class Convertible O
Yukon (4-Door) (ECC) S E Class Sedan O
Suburban (ECC) O C Class Sedan O
Ford/Lincoln Town Car Cartier S Mitsubishi Diamante O
Town Car Executive O Nissan Cima O
Town Car Signature O Cedric O
Mark VIII S Gloria O
Ford Crown Victoria O Leopard O
Explorer Limited (EH) S Laurel O
Explorer (Sport, EB, XLT) (EH) O Q45 Infiniti S
Windstar (EH) O J30 Infiniti S
Ford/Mercury Grand Marquis O I30 Infiniti O
Cougar O Opel Omega O
Mountaineer O Porsche 911 O
Chrysler LHS S Rolls Royce (RKE) S
Concorde O Toyota Lexus LS 400 S
Town & Country LXi S Lexus SC 400 S
Dodge Intrepid O Lexus SC 300 S
Caravan O 4-Runner**
Ram Pickup O Avalon** (ECC/T) O
Dakota Pickup O Avalon XLS** (ECC) O
Eagle Vision O Camry** (ECC/T) O
Jeep Grand Cherokee Limited S Land Cruiser** O
Grand Cherokee Laredo O T-100** O
Tacoma** O
KEY: S = Standard equipment
O = Optional equipment
EH = NVS(R) Mirror with Automatic Headlamp Control
EL = NVS(R) Mirror with Map Lights
ECC = NVS(R) Mirror with Electronic Compass
ECC/T = NVS(R) Mirror w/Electronic Compass
and Temperature
RKE = NVS(R) Mirror with Remote Keyless Entry
* ECC offered as upgrade option
** NVS(R) Mirrors are offered as optional equipment
through Southeast Toyota Distributors in the
states of FL, GA, NC, SC and AL, and Gulf States
Toyota in the states of TX, MS, AR, LA and OK.
-4-
5
Exterior NVS(R) Mirror Sub-Assemblies. The Company has devoted
substantial research and development efforts to the development of its
electrochromic technology to permit its use in outside rearview mirrors.
Exterior NVS(R) Mirrors are controlled by the sensors and electronic circuitry
in the interior NVS(R) Mirror, and both the interior and exterior mirrors dim
simultaneously. During 1991, the Company's efforts culminated in a design that
is intended to provide acceptable long-term performance in all environments
likely to be encountered. During 1994, the Company began shipments of its
complete three-mirror system, including the convex (curved glass) wide-angle
NVS(R) Mirror to BMW. The Company currently sells its exterior NVS(R) Mirror
Sub-Assemblies to seven exterior mirror suppliers to General Motors, Chrysler,
Ford, BMW and Mercedes-Benz, who assemble the exterior NVS(R) Mirror
Sub-Assemblies into full mirror units for subsequent resale to the automakers.
The Company sold approximately 365,000 exterior NVS(R) Mirror
Sub-Assemblies during 1994, approximately 417,000 in 1995, and approximately
656,000 in 1996.
The exterior NVS(R) Mirror is standard equipment or a factory-installed
option on the following 1997 and 1997-1/2 vehicle models.
Table 2. Exterior NVS(R) Mirror Availability by Vehicle Line.
GM/Cadillac Concours S BMW 500 Series (F & C) O
D'Elegance S 700 Series (F & C) O
Deville O Mercedes-Benz E Class Convertible O
Eldorado O E Class Sedan O
Eldorado Touring Coupe O S Class Coupe O
Seville O S Class Sedan O
Seville STS S SL Roadster O
GM/Buick LeSabre Limited O
Park Avenue O
Park Avenue Ultra S
Riviera O KEY: S = Standard Equipment
GM/Oldsmobile 88 Regency O O = Optional Equipment
Ford/Lincoln Continental O
Town Car Cartier S F & C = Flat and Convex Glass
Town Car Executive O
Town Car Signature O
Chrysler/Jeep Grand Cherokee Ltd. S
Product Development. The Company plans to continue introducing
additional advanced-feature NVS(R) Mirrors. These models currently include the
second-generation NVS(R) Headlamp Control Mirror (originally introduced during
1991), the NVS(R) Lighted Mirror with map/reading lights introduced in 1992,
the NVS(R) Compass Mirror introduced during 1993, the second-generation NVS(R)
Compass Mirror, introduced in 1996, and the NVS(R) Mirror with Remote Keyless
Entry and the NVS(R) compass/Temperature Mirror, introduced in 1996. Also in
1993, the Company introduced an NVS(R) Base Feature Mirror to target the
high-volume, mid-priced vehicle segments, and larger-size interior and exterior
NVS(R) Mirrors for use on vans and light trucks. In 1996, Gentex introduced
the first automatic-dimming "aspheric" exterior mirror. Aspheric mirrors are
wide-angle exterior mirrors that virtually eliminate the "blind spot."
Of particular importance to the Company has been the development of
its electrochromic technology for use in complete 3-mirror systems. In these
systems, both the driver and passenger-side exterior NVS(R) Mirrors are
controlled by the sensors and electronic circuitry in the interior rearview
mirror, and the interior and both exterior mirrors dim simultaneously. The
sale of complete mirror systems will increase the size of the available
worldwide
-5-
6
market, and the Company has been devoting substantial research and
development efforts to this project, which resulted in its first shipments,
including NVS(R) convex exterior mirrors to BMW, in 1994. At the end of 1996,
the Company began shipping NVS(R) aspheric exterior mirrors to a European
automaker, with volume shipments scheduled to start during 1997.
The Company's success with electrochromic technology provides an
opportunity for other potential commercial applications, which the Company
expects to explore in the future as resources permit. Examples of possible
applications of electrochromic technology include windows for both the
automotive and architectural markets, sunroofs and sunglasses. Significant
progress in adapting electrochromic technology to the specialized requirements
of the window market continued in 1996. However, achieving the rigorous
performance standards needed for launching a commercial product still could
require several years of additional work.
Markets and Marketing. The Company markets its automatic rearview
mirrors to domestic and foreign automobile manufacturers under the trade name
"Night Vision Safety(TM)" or "NVS(R)" Mirrors. In North America, the Company
markets these products primarily through a direct sales force of six persons.
The Company currently supplies NVS(R) Mirrors to Ford Motor Company, General
Motors Corporation and Chrysler Motors Corporation under long-term contracts.
During 1995, the Company negotiated a three-year long-term contract extension
with General Motors through the 1998 model year. The term of the Ford contract
is through December 1999, and the long-term contract with Chrysler Corporation
runs through the 1999 model year. The Company's exterior NVS(R) Mirror
Sub-Assemblies are supplied to General Motors, Ford and Chrysler by means of
sales to four exterior mirror suppliers.
During 1993, the Company established a sales and engineering office in
Germany and hired its first employee in Europe. During 1994, the Company
formed a German limited liability company, Gentex GmbH, to expand its sales and
engineering support activities. The Company's marketing efforts in Europe are
conducted through Gentex GmbH with the assistance of independent manufacturers'
representatives. The Company is currently supplying mirrors to Audi, Bavarian
Motor Works, A.G. (BMW), Fiat, Mercedes-Benz, Opel, Porsche and Rolls Royce.
During 1995, the Company negotiated a long-term contract with BMW through March
31, 1999.
During 1992, the Company negotiated a replacement reciprocal
distribution agreement with Ichikoh Industries, Ltd. (Ichikoh), a major
Japanese supplier of automotive products. Under this agreement, Ichikoh
markets the Company's automatic mirrors to certain Japanese automakers and
their subsidiaries with manufacturing facilities in Asia. The arrangement
involves very limited technology transfer by the Company and does not include
the Company's proprietary electrochromic gel formulation. The Company has been
shipping electrochromic mirror assemblies under the original agreement since
the first quarter of 1991 for Nissan Motor Co., Ltd.
During 1993, the Company hired sales agent Continental Far East to
market NVS(R) Mirrors to other Japanese automakers beyond Nissan. During 1994
and 1995, the Company began making mirror shipments to Tokai Rika Co., Ltd. for
Toyota Lexus vehicle models. The Company began making direct mirror shipments
to Honda and Mitsubishi, in 1995 and 1996, respectively. The Company is
currently planning to establish a sales and engineering office in Japan
sometime during 1997.
Historically, new safety and comfort options have entered the original
equipment automotive market at relatively low rates on "top of the line" or
luxury model automobiles. As the selection rates for the options on the luxury
models increase, they generally become available on more models throughout the
product line and may
-6-
7
become standard equipment. The recent trend of domestic and foreign automakers
is to offer several options as a package. As consumer demand increases for a
particular option, the mirror tends to be offered on more vehicles and in
higher option rate packages. The Company anticipates that its NVS(R) Mirrors
will be offered as standard equipment, in higher option rate packages and on
more models as consumer awareness of the safety and comfort features becomes
more well-known and acceptance grows.
Currently, the Company directs no significant efforts to the sale of
mirrors to the automotive aftermarket. It is management's belief that such
efforts are of limited value until the Company achieves a significantly higher
penetration of the original equipment manufacturing market.
Competition. Gentex is the leading producer of automatic rearview
mirrors in the world and currently is the dominant supplier to the automotive
industry with an approximate 90% market share worldwide. While the Company
believes it will retain a dominant position, one other U.S. manufacturer
(Donnelly Corporation) is offering for sale to domestic and foreign vehicle
manufacturers and is supplying a number of domestic and foreign vehicle models
with its hybrid version of electrochromic mirrors. In addition, three Japanese
manufacturers are supplying a limited number of vehicle models in Japan with
solid-state electrochromic mirrors.
The Company believes its electrochromic automatic mirrors offer
significant performance advantages, and that Donnelly shipped approximately
120,000 electrochromic mirrors to automotive customers in 1996. However,
Gentex recognizes that Donnelly Corporation is considerably larger than the
Company and presents a significant competitive threat by using pricing as its
primary means to attempt to gain additional electrochromic mirror business.
Gentex has been involved in patent litigation with Donnelly Corporation (see
discussion under the caption "Legal Proceedings").
There are numerous other companies in the world conducting research on
various technologies, including electrochromics, for controlling light
transmission and reflection. Gentex believes that the electrochromic materials
and manufacturing process it uses for automotive mirrors remains the most
efficient and cost-effective way to produce such products. While
automatic-dimming mirrors using solid-state electrochromics and hybrids or
liquid crystal displays may eliminate glare, each of these technologies have
inherent cost or performance limitations.
FIRE PROTECTION PRODUCTS
The Company manufactures over 40 different models of smoke detectors
and over 60 different models of signaling appliances. All of the smoke
detectors operate on a photo-electric principle to detect smoke. While the use
of photo-electric technology entails greater manufacturing costs, the Company
believes that these detectors are superior in performance to competitive
devices that operate through an ionization process and are preferred in most
commercial resident occupancies. Photo-electric detectors feature low light
level detection, while ionization detectors utilize an ionized atmosphere, the
electrical conductivity of which varies with changes in the composition of the
atmosphere. Photo-electric detectors are widely recognized to respond more
quickly to slow, smoldering fires, a common form of dwelling unit fire and a
frequent cause of fire-related deaths. In addition, photo-electric detectors
are less prone to nuisance alarms and do not require the use of radioactive
materials necessary for ionization detectors. The Company's fire protection
products provide the flexibility to be wired as part of multiple-function
systems and consequently are generally used in fire detection systems common to
large office buildings, hotels,
-7-
8
motels, military bases, college dormitories and other commercial
establishments. However, the Company also offers single-station detectors for
both commercial and residential applications. While the Company does not
emphasize the residential market, some of its fire protection products are used
in single-family residences that utilize fire protection and security systems.
The Company's detectors emit audible and/or visual signals in the immediate
location of the device and/or communicate with monitored remote stations.
In recent years, the Company introduced further improvements to its
line of smoke detectors, including submersibility to enhance maintenance, and a
new design feature that permits greater ease in sensitivity testing. The
Company offers the only detection device that may be completely submersed in
water for cleaning purposes. This feature permits more effective and
convenient cleaning of the product, thereby enhancing reliability. In
addition, the patented sensitivity test feature permits the user to check the
calibration of the least and most sensitive detection levels of the detector
with the simple turn of a knob. In December 1995, a National Fire Protection
Association code changed to require that all dwellings larger than 1-2 family
must annually conduct this sensitivity test.
During 1993, the Company introduced a 120 VAC photoelectric smoke
detector with a 9-volt battery backup for use in the commercial residential
markets and public-use facilities, as well as other facilities specified in
regional or national building codes.
The Company has also developed a new, high-intensity strobe warning
light to meet the new, stricter Underwriters Laboratories standard for visual
signaling for the hearing impaired. This new standard replaces the previous
standard where light dispersion was only measured from directly in front of the
unit. The new standard requires light to be dispersed at several critical
angles to provide notification, regardless of the individual's position in the
room of coverage, and also the light intensity is to be sized to the room.
The new product series has replaced the strobe warning light developed
in 1991 and is used in conjunction with other Gentex products such as the
remote signaling electronic horn, primary evacuation speaker, and smoke
detection products.
The Company, with the new products, is producing the only
photoelectric smoke detector with battery back-up that offers a supplemental
visual alarm.
During 1994, the Company introduced a mechanical evacuation
horn/strobe combination. The product will be used wherever a loud penetrating
tone is required, such as schools or other facilities where doors are usually
closed.
During 1995, the Company introduced a multi-tone audible signaling
appliance to meet new building code requirements for 1996 and beyond. This new
multi-tone product line has eight different tones and a high/low decibel level
selection. The multi-tone series also will be used in conjunction with the
Company's visual signals.
During 1996, the Company made numerous revisions to its products to
include weather-proofing the mechanical horn and strobe for outdoor use,
increasing the power taps on their speaker series, adding three new candela
ratings to their visual signals (strobe warning lights), and adding terminal
blocks to the remote signaling appliances to meet new code requirements.
Markets and Marketing. The Company's fire protection products are
sold directly to fire protection and security product distributors under the
Company's brand name, electrical wholesale houses, and to original
-8-
9
equipment manufacturers of fire protection systems under both the Company's
brand name and private labels. The Company markets its fire protection
products throughout the United States through five regional sales managers.
Competition. The fire protection products industry is highly
competitive in terms of both the smoke detectors and signaling appliance
markets. The Company estimates that it competes principally with eleven
manufacturers of smoke detection products for commercial use and approximately
four manufacturers within the residential market, three of which produce
photo-electric smoke detectors. In the signaling appliance markets, the
Company estimates it competes with approximately eight manufacturers. While
the Company faces significant competition in the sale of smoke detectors and
signaling appliances, it believes that the recent introduction of new products,
improvements to its existing products, its diversified product line, and the
availability of special features will permit the Company to maintain its
competitive position.
OTHER
The Company also has manufactured certain precision glass components
primarily for the office machinery and electronic test equipment industries.
The Company phased out this product line effective June 30, 1994, which did not
have a material effect on operations.
TRADEMARKS AND PATENTS
The Company owns 23 U.S. patents, 22 of which relate to electrochromic
technology and/or automotive rearview mirrors. These patents expire between
2002 and 2014. The Company believes that these patents provide the Company a
significant competitive advantage in the automotive rearview mirror market;
however, none of these patents is required for the success of any of the
Company's products. The remaining one U.S. patent relates to the Company's
fire protection products, and the Company believes that the competitive
advantage provided by this patent is relatively small.
The Company also owns 17 foreign patents, which relate to automotive
rearview mirrors. These patents expire at various times between 1999 and 2012.
The Company believes that the competitive advantage derived in the relevant
foreign markets for these patents is comparable to that experienced in the U.S.
market.
The Company also has in process 30 U.S. patent applications and 37
foreign patent applications. The Company continuously seeks to improve its
core technologies and apply those technologies to new and existing products.
As those efforts produce patentable inventions, the Company expects to file
appropriate patent applications.
During 1996, the Company settled virtually all patent litigation with
respect to its rearview mirrors (see discussion under the caption, "Legal
Proceedings").
"Night Vision Safety(TM)" is a trademark of Gentex Corporation and
"NVS(R)" is a registered trademark of Gentex Corporation.
MISCELLANEOUS
The Company considers itself to be engaged in business in two industry
segments: the manufacture and sale of automatic rearview mirrors for the
automotive industry and fire protection products for the commercial building
industry. The Company has three important customers within the automotive
industry segment, each of which accounts for 10% or more of the Company's
annual sales: General Motors Corporation, Chrysler Corporation
-9-
10
and Ford Motor Company. The loss of any of these customers could have a
material adverse effect on the Company. The Company's backlog of unshipped
orders was $39,782,000 and $33,882,000 at March 1, 1997 and 1996, respectively.
At March 3, 1997, the Company had 1,035 full-time employees. None of
the Company's employees are represented by a labor union or other collective
bargaining representative. The Company believes that its relations with its
employees are good.
ITEM 2. PROPERTIES.
The Company operates out of three office/manufacturing facilities in
Zeeland, Michigan, approximately 25 miles southwest of Grand Rapids. The
office and production facility for the Fire Protection Products Group is a
25,000-square-foot, one-story building leased by the Company since 1978 from
related parties (see Part III, Item 13, of this report).
The corporate office and production facility for the Company's
Automotive Products Group is a modern, two-story, 130,000-square-foot building
of steel and masonry construction situated on a 40-acre site in a well-kept
industrial park, providing ample opportunity for expansion. An additional
128,000-square-foot office/manufacturing facility on this site was constructed
during 1996, to meet the Company's current and future automotive production
needs.
ITEM 3. LEGAL PROCEEDINGS.
The Company owns a number of U.S. Patents for automatic mirrors and
electrochromic devices, four of which were asserted against Donnelly
Corporation ("Donnelly") in suits filed in 1990 and 1992. All of the
infringement claims in those suits have either been adjudicated or were
resolved in a settlement in May 1993. Gentex received $3.6 million in damages
and in settlement payment.
The Company's patent infringement claim against Donnelly's "Polychromic"
mirror (Gentex Corporation vs. Donnelly Corporation, No. 1:93 CV 430, U.S.
District Court for the Western District of Michigan, Southern Division) was
finally adjudicated in 1995 by the Court of Appeals for the Federal Circuit.
That Court affirmed the District Court's judgment that Donnelly's "Polychromic"
rearview mirror does not infringe Gentex's U.S. Patent No. 5,128,799. Donnelly
no longer is offering "Polychromic" rearview mirrors for sale.
Despite the May 1993 settlement agreement, in November 1993, Donnelly
requested that the U.S. Patent and Trademark Office (USPTO) re-examine certain
claims of the Company's U.S. Patent No. 5,128,799. The USPTO agreed to do so,
which is not unusual. That re-examination has been concluded, and the USPTO
formally confirmed the patentability of four of the 31 claims without
amendment, including some of the claims that Donnelly had been found to
infringe in the 1992 suit, and confirmed all but one of the remaining claims,
after those claims were amended to further clarify that they relate to variable
reflectance rearview mirrors. In addition, the Company added ten claims to the
patent, and the USPTO confirmed the patentability of each of those claims.
The Company also was involved in other litigation which Donnelly
initiated in July 1993 with respect to four Donnelly patents (Donnelly
Corporation vs. Gentex Corporation, No. 1:93 CV 530, U.S. District Court for
the Western District of Michigan, Southern Division) and October 1994 with
respect to three Donnelly patents (Donnelly Corporation vs. Gentex Corporation,
No. 1:94 CV 695, U.S. District Court for the Western District of Michigan,
Southern Division).
-10-
11
On June 23, 1995, the Company brought a declaratory judgment action
against Donnelly seeking a declaration of invalidity and non-infringement with
respect to three Donnelly patents (Gentex Corporation v. Donnelly Corporation,
No. 4:95 CV 120, U.S. District Court for the Western District of Michigan,
Southern Division).
On April 1, 1996, the Company reached an agreement with Donnelly to
settle the patent litigation between the two companies. Under the agreement:
- The companies have cross-licensed certain patents (for the life of
the patents) that each company may practice within its own "core"
electrochromic mirror technology area.
- The Company paid Donnelly $6 million in April 1996 (plus a
$200,000 contingent payment if Donnelly prevails in its lighted
mirror patent appeal) as full and complete satisfaction of all of
Donnelly's patent infringement claims.
- The companies agreed not to pursue litigation against each other
on certain other patents for a period of four years.
The Company recorded a one-time charge of $4,000,000 ($6,000,000
payment, net of accrued reserves) during the first quarter in connection with
the settlement of its patent litigation with Donnelly.
To date, the $200,000 contingency payment related to Donnelly's
lighted mirror patent appeal is still contingent. On August 19, 1996, the
Court of Appeals for the Federal Circuit entered a judgment vacating Donnelly's
appeal because the District Court's certification of the claims for appeal was
improper. The case has been remanded to the District Court for proper
certification.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
EXECUTIVE OFFICERS OF THE REGISTRANT.
The following table lists the names, ages, and positions of all of the
Company's executive officers. Officers are elected at the first meeting of the
Board of Directors following the annual meeting of shareholders.
NAME AGE POSITION POSITION HELD SINCE
Fred Bauer 54 Chief Executive Officer May 1986
Kenneth La Grand 56 Executive Vice President September 1987
John Mulder 60 Vice President, Automotive Marketing July 1988
Enoch Jen 45 Vice President-Finance, Treasurer February 1991
Harlan Byker 42 Vice President, Electrochemical Research August 1993
There are no family relationships among the officers listed in the
preceding table.
Fred Bauer has held various executive offices since joining the
Company in 1980. Prior to his employment with the Company, Mr. Bauer was the
President and General Manager of Integrity Design Company, the research and
development partnership that invented, designed and developed the technology
for the Motorized Mirror, the
-11-
12
rights to which were subsequently acquired by the Company. For approximately
seven years before organizing Integrity Design Company, Mr. Bauer was the
General Manager of Robertshaw Controls Company's Simicon Division, a business
founded by Mr. Bauer and sold to Robertshaw Controls, which manufactures
electronic controls for appliances. In the last three years of his tenure at
Robertshaw Controls, Mr. Bauer also served as a Corporate Vice President.
Kenneth La Grand has been the Executive Vice President of the Company
since September 1987. Prior to joining the Company, he was Vice President of
Robertshaw Controls Company and the General Manager of its Simicon Division
since 1979.
John Mulder has served as Vice President-Automotive Marketing of the
Company since July 1988. Prior to that time Mr. Mulder served as Executive
Vice President for Harman Automotive, a division of Harvard Industries, Inc.,
where he was responsible for managing the marketing and engineering activities
of that exterior mirror company's Southfield office for more than five years.
Enoch Jen has served as Vice President-Finance and Treasurer of the
Company since February 1991. He joined the Company as Controller in January
1990. Prior to that time, Mr. Jen served as Chief Financial Officer of Hope
Rehabilitation Network, Inc. since 1985.
Harlan Byker has served as Vice President of Electrochemical Research
of the Company since August 1993, and as Director of Electrochemical
Development since 1985. Prior to that time, Dr. Byker served as a research
scientist at Battelle Columbus Laboratories.
-12-
13
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS.
The Company's common stock trades on the National Market tier of The
Nasdaq Stock Market. As of March 3, 1997, there were 1,958 record holders of
the Company's common stock. Ranges of high and low sale prices of the
Company's common stock (adjusted for the 2-for-1 stock split in June 1996)
reported through The Nasdaq Stock Market for the past two fiscal years appear
in the following table.
YEAR QUARTER HIGH LOW
---------------------------------------------------------------------------------------
1995 First 13 3/4 10
Second 10 5/8 7 7/8
Third 12 7/8 9 3/4
Fourth 12 1/2 10 1/4
1996 First 15 7/16 10 1/2
Second 23 1/2 14 3/4
Third 26 3/4 16
Fourth 26 1/4 17 1/2
The Company has never paid any cash dividends on its common stock, and
management does not anticipate paying any cash dividends in the foreseeable
future.
ITEM 6. SELECTED FINANCIAL DATA.
(in thousands except per share data)
1996 1995 1994 1993 1992
Net Sales $148,708 $111,566 $89,762 $63,664 $45,106
Net Income 23,963 18,895 16,466 9,845 5,066
Earnings
Per Share * 0.67 0.55 0.48 0.29 0.16
Total Assets $140,378 $109,244 $80,739 $55,191 $40,256
Long-Term Debt
Outstanding at
Year End $ - $ - $ - $ - $ -
* Adjusted for 2-for-1 stock splits in June 1996 and 1993.
-13-
14
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated certain items
from the Company's Consolidated Statements of Income expressed as a percentage
of net sales and the percentage change of each such item from that in the
indicated previous year.
Percentage of Net Sales Percentage Change
---------------------------------- -----------------
Year Ended December 31 1996 1995
---------------------------------- to to
1996 1995 1994 1995 1994
---- ---- ---- ---- ----
Net Sales 100.0% 100.0% 100.0% 33.3% 24.3%
Cost of Goods Sold 62.9 60.7 57.2 38.1 32.1
----- ----- ------ ---- ----
Gross Profit 37.1 39.3 42.8 25.9 13.9
Operating Expenses:
Research and Development 5.1 5.3 5.4 26.5 21.5
Selling, General and Administrative 7.9 11.6 11.8 (8.8) 21.9
Patent Settlement 2.7 - - N/A -
----- ----- ------ ---- ----
Total Operating Expenses 15.7 16.9 17.2 23.6 21.8
----- ----- ------ ---- ----
Operating Income 21.4 22.4 25.6 27.6 8.7
Other Income 2.5 2.6 1.9 22.7 74.9
----- ----- ------ ---- ----
Income Before Federal Income Taxes 23.9 25.0 27.5 27.0 13.2
Provision for Federal Income Taxes 7.8 8.1 9.1 27.5 10.1
----- ----- ------ ---- ----
Net Income 16.1% 16.9% 18.4% 26.8% 14.8%
===== ===== ====== ==== ====
RESULTS OF OPERATIONS: 1996 TO 1995
Net Sales. Automotive net sales increased by 37% and mirror
shipments increased by 38%, from 2,228,000 to 3,079,000 units, primarily
reflecting increased penetration on domestic and foreign 1996 and 1997 model
year vehicles for interior and exterior electrochromic NVS (R) Mirrors. Net
sales of the Company's fire protection products increased 11% primarily due to
increased sales of its AC/DC smoke detectors and strobe related products.
Cost of Goods Sold. As a percentage of net sales, cost of goods sold
increased from 61% to 63%, primarily reflecting automotive customer price
reductions; a shift in the Company's automotive mirror shipment product mix to
NVS (R) Compass Mirrors, which has a lower margin percentage due to the higher
amount of purchased components; and start-up costs associated with a new mirror
manufacturing facility and installation of new manufacturing lines for a
second-generation interior compass mirror product and exterior aspheric mirror
products, partially offset by the higher sales level covering fixed overhead
costs and increased manufacturing efficiencies.
Operating Expenses. Research and development expenses increased
approximately $1,580,000, but remained at 5% of net sales, primarily due to
additional staffing for new product development. Selling, general and
administrative expenses decreased approximately $1,131,000, and decreased from
12% to 8% of net sales, primarily reflecting lower patent litigation expense of
$1,560,000, compared to $4,110,000, as a result of the patent litigation
settlement at the end of the first quarter, partially offset by higher selling
expenses associated with the sales growth. The Company recorded a one-time
charge of $4,000,000 ($6,000,000 payment, net of accrued reserves) in
connection with the patent litigation settlement (see footnote (8) to the
Consolidated Financial Statements, filed as a part of this report).
-14-
15
Other Income. Investment income increased $573,000 in 1996,
primarily due to higher investable fund balances and higher average interest
rates.
Taxes. The provision for federal income taxes varied from the
statutory rates in 1996, primarily due to Foreign Sales Corporation exempted
taxable income from increased foreign sales, as well as tax-exempt interest
income.
Net Income. Net income increased by 27%, primarily reflecting the
increased sales level, partially offset by decreased margins.
RESULTS OF OPERATIONS: 1995 TO 1994
Net Sales. Automotive net sales increased by 33% and mirror
shipments increased by 27%, from 1,760,000 to 2,228,000 units, primarily
reflecting increased penetration on domestic and foreign vehicles for interior
and exterior electrochromic NVS(R) Mirrors. Net sales of the Company's fire
protection products decreased 7%, as reduced strobe shipments to a major
customer that has developed its own strobe product more than offset a 12% sales
increase to other customers.
Cost of Goods Sold. As a percentage of net sales, cost of goods
sold increased from 57% to 61%, primarily reflecting automotive customer price
reductions and changes to the Company's mix of automotive mirror shipments.
Operating Expenses. Research and development expenses increased
approximately $1,054,000, primarily due to additional staffing for the
development of interior NVS(R) Mirrors with additional features, complete mirror
systems, and other potential electrochromic products. Selling, general and
administrative expenses increased approximately $2,311,000, primarily as a
result of higher patent litigation expenses of $4,110,000 compared with
$2,600,000 in 1994. Despite the increased patent litigation costs, operating
expenses decreased slightly as a percentage of net sales as the increased sales
continued to outpace the increase in operating expenses.
Other Income. Other income increased $1,271,000 in 1995, primarily
due to higher investable fund balances and higher average interest rates.
Taxes. The provision for federal income taxes varied from the
statutory rates in 1995, primarily due to Foreign Sales Corporation exempted
taxable income from increased foreign sales, as well as tax-exempt interest
income. Net Income.
Net income increased by 15%, primarily reflecting the increased sales
level, partially offset by decreased margins.
LIQUIDITY AND CAPITAL RESOURCES
The Company's financial condition throughout the periods presented has
remained very strong.
The Company's current ratio increased from 4.9 to 6.4, primarily as a
result of decreased Accrued Professional Fees, due to the patent litigation
settlement.
Management considers the Company's working capital of approximately
$61,335,000 and long-term investments of approximately $33,945,000 at December
31, 1996, together with internally generated cash flow and an unsecured
$5,000,000 line of credit from a bank, to be sufficient to cover anticipated
cash needs for the foreseeable future.
-15-
16
INFLATION, CHANGING PRICES AND OTHER
In addition to price reductions over the life of its long-term
contracts, the Company continues to experience pricing pressures from its
automotive customers, which have affected, and which will continue to affect,
its margins to the extent that the Company is unable to offset the price
reductions with productivity improvements, engineering cost reductions and
increases in unit sales volume. In addition, the Company continues to
experience some pressure for raw material cost increases. The Company will
begin volume shipments of its new NVS(R) aspheric and thin glass exterior
mirrors during 1997; margins may be adversely affected to the extent that the
Company is unable to improve glass yields to target levels and ramp-up
production on schedule.
The Company currently supplies NVS(R) Mirrors to BMW, Chrysler
Corporation, Ford Motor Company and General Motors Corporation under long-term
contracts. The BMW long-term contract is through March 31, 1999, and the
long-term contract with Chrysler Corporation runs through the 1999 Model Year.
The term of the Ford contract is through December 1999, while the GM contract
runs through the 1998 Model Year.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The following financial statements are filed with this report as pages
19 through 31 following the signature page:
Report of Independent Public Accountants
Consolidated Balance Sheets as of December 31, 1996 and 1995
Consolidated Statements of Income for the years ended December 31,
1996, 1995 and 1994
Consolidated Statements of Shareholders' Investment for the years
ended December 31, 1996, 1995 and 1994
Consolidated Statements of Cash Flows for the years ended December 31,
1996, 1995 and 1994
Notes to Consolidated Financial Statements
Selected quarterly financial data for the past two years appears in the
following table.
Quarterly Results of Operations
(in thousands except per share data)
- ----------------------------------------------------------------------------------------------------------------------
First Second Third Fourth
- ----------------------------------------------------------------------------------------------------------------------
1996 1995 1996 1995 1996 1995 1996 1995
- ----------------------------------------------------------------------------------------------------------------------
Net Sales $35,908 $26,043 $38,673 $26,021 $36,798 $26,801 $37,330 $32,702
Gross Profit 13,530 10,617 14,492 10,074 13,049 10,420 14,055 12,689
Operating Income 4,161 6,159 9,856 5,198 8,452 5,987 9,371 7,618
Net Income 3,346 4,587 7,224 3,996 6,333 4,578 7,060 5,734
Earnings per Share* $ .10 $ .13 $ .20 $ .12 $ .18 $ .13 $ .20 $ .17
- ----------------------------------------------------------------------------------------------------------------------
*Adjusted for 2-for-1 stock split in June 1996.
ITEM 9. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.
Not applicable.
-16-
17
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information relating to executive officers is included in this report
in the last section of Part I under the caption "Executive Officers of the
Registrant". Information relating to directors appearing under the caption
"Election of Directors" in the definitive Proxy Statement for the 1997 Annual
Meeting of Shareholders and filed with the Commission is hereby incorporated
herein by reference. Information concerning compliance with Section 16(a) of
the Securities and Exchange Act of 1934 appearing under the caption "Section
16(A) Beneficial Ownership Reporting Compliance" in the definitive Proxy
Statement for the 1997 Annual Meeting of Shareholders and filed with the
Commission is hereby incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION.
The information contained under the caption "Executive Compensation"
contained in the definitive Proxy Statement for the 1997 Annual Meeting of
Shareholders and filed with the Commission is hereby incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information contained under the captions "Securities Ownership of
Management" and "Securities Ownership of Certain Beneficial Owners" contained
in the definitive Proxy Statement for the 1997 Annual Meeting of Shareholders
and filed with the Commission is hereby incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information contained under the caption "Transactions with
Management" contained in the definitive Proxy Statement for the 1997 Annual
Meeting of Shareholders and filed with the Commission is hereby incorporated
herein by reference.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) 1. Financial Statements. See Item 8.
2. Financial Statement Schedules. Not applicable.
3. Exhibits. See Exhibit Index located on page 32.
(b) No reports on Form 8-K were filed for the three-month period
ended December 31, 1996.
-17-
18
SIGNATURES
Pursuant to the requirements of Section 13 of 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on this behalf by the undersigned thereunto duly authorized.
Dated: March 7, 1997 GENTEX CORPORATION
By: /s/ Fred Bauer
----------------------------------
Fred Bauer, Chairman and Principal
Executive Officer
and
/s/ Enoch Jen
----------------------------------
Enoch Jen, Vice President, Finance
and Principal Financial and
Accounting Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below on this 7th day of March, 1997, by the
following persons on behalf of the Registrant and in the capacities indicated.
Each Director of the Registrant whose signature appears below hereby
appoints Enoch Jen and Kenneth La Grand, each of them individually, as his
attorney-in-fact to sign in his name and on his behalf, and to file with the
Commission any and all amendments to this report on Form 10-K to the same
extent and with the same effect as if done personally.
/s/ Fred Bauer Director
- ----------------------------
Fred Bauer
/s/ Harlan Byker Director
- ----------------------------
Harlan Byker
/s/ Mickey E. Fouts Director
- ----------------------------
Mickey E. Fouts
/s/ Kenneth La Grand Director
- ----------------------------
Kenneth La Grand
/s/ Arlyn Lanting Director
- ----------------------------
Arlyn Lanting
/s/ John Mulder Director
- ----------------------------
John Mulder
Director
- ----------------------------
Ted Thompson
/s/ Leo Weber Director
- ----------------------------
Leo Weber
-18-
19
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Gentex Corporation:
We have audited the accompanying consolidated balance sheets of GENTEX
CORPORATION (a Michigan corporation) and subsidiaries as of December 31, 1996
and 1995, and the related consolidated statements of income, shareholders'
investment and cash flows for each of the three years in the period ended
December 31, 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Gentex Corporation
and subsidiaries as of December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.
Grand Rapids, Michigan /s/ Arthur Anderson LLP
January 24, 1997
-19-
20
GENTEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1996 AND 1995
ASSETS
1996 1995
---- ----
CURRENT ASSETS:
Cash and cash equivalents $ 16,730,356 $ 14,115,041
Short-term investments 31,803,621 32,911,222
Accounts receivable, less allowances
of $200,000 and $175,000 in 1996 & 1995 17,015,174 14,706,156
Inventories 6,180,422 5,735,519
Prepaid expenses and other 966,287 1,342,640
------------ ------------
Total current assets 72,695,860 68,810,578
PLANT AND EQUIPMENT:
Land, building and improvements 15,335,447 8,975,233
Machinery and equipment 27,155,406 20,233,537
Construction-in-process 4,729,615 2,008,235
------------ ------------
47,220,468 31,217,005
Less-Accumulated depreciation
and amortization (15,645,921) (12,274,890)
------------ ------------
31,574,547 18,942,115
OTHER ASSETS:
Long-term investments 33,945,446 19,397,389
Patents and other assets, net 2,162,567 2,093,439
------------ ------------
36,108,013 21,490,828
------------ ------------
$140,378,420 $109,243,521
============ ============
LIABILITIES AND SHAREHOLDERS' INVESTMENT
1996 1995
---- ----
CURRENT LIABILITIES:
Accounts payable $ 5,794,832 $ 5,422,658
Accrued liabilities:
Salaries, wages and vacation 1,240,834 894,125
Professional fees 136,674 3,985,761
Taxes 2,686,815 3,009,121
Other 1,501,762 738,402
------------ ------------
Total current liabilities 11,360,917 14,050,067
DEFERRED INCOME TAXES 1,213,862 521,674
CONTINGENCIES (Note 8)
SHAREHOLDERS' INVESTMENT:
Preferred stock, no par value,
5,000,000 shares authorized; none
issued or outstanding - -
Common stock, par value $.06 per share;
50,000,000 shares authorized 2,084,957 1,013,752
Additional paid-in capital 44,963,895 37,128,320
Retained earnings 82,268,476 58,305,081
Deferred compensation (1,804,104) (1,721,684)
Unrealized gain (loss) on investments 290,887 (44,485)
Cumulative translation adjustment (470) (9,204)
------------ ------------
Total shareholders' investment 127,803,641 94,671,780
------------ ------------
$140,378,420 $109,243,521
============ ============
The accompanying notes are an integral part of these consolidated balance
sheets.
-20-
21
GENTEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
1996 1995 1994
---- ---- ----
NET SALES $148,708,218 $111,566,225 $89,762,349
COST OF GOODS SOLD 93,582,756 67,767,347 51,318,972
------------ ------------ -----------
Gross profit 55,125,462 43,798,878 38,443,377
OPERATING EXPENSES:
Research and development 7,537,933 5,957,966 4,903,887
Selling, general and administrative 11,747,961 12,878,790 10,567,292
Patent settlement 4,000,000 0 0
------------ ------------ -----------
Total operating expenses 23,285,894 18,836,756 15,471,179
------------ ------------ -----------
Operating income 31,839,568 24,962,122 22,972,198
OTHER INCOME:
Interest and dividend income 3,437,040 2,863,730 1,612,354
Other, net 205,787 105,291 85,465
------------ ------------ -----------
Total other income 3,642,827 2,969,021 1,697,819
------------ ------------ -----------
Income before provision
for federal income taxes 35,482,395 27,931,143 24,670,017
PROVISION FOR FEDERAL INCOME TAXES 11,519,000 9,036,000 8,204,000
------------ ------------ -----------
NET INCOME $ 23,963,395 $ 18,895,143 $16,466,017
============ ============ ===========
EARNINGS PER SHARE $ 0.67 $ 0.55 $ 0.48
============ ============ ===========
The accompanying notes are an integral part of these consolidated financial
statements.
-21-
22
GENTEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' INVESTMENT
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
Common Stock Additional Unrealized
---------------------- Paid-In Retained Deferred Gain (Loss) on
Shares Amount Capital Earnings Compensation Investments
---------- ---------- ----------- ----------- ------------ --------------
BALANCE AS OF DECEMBER 31, 1993 16,211,791 $ 972,707 $26,265,298 $22,943,921 $ (634,882) $ -
Issuance of common stock and the tax benefit
of stock plan transactions 297,685 17,862 5,610,157 - (605,250) -
Amortization of deferred compensation - - - - 340,996 -
Current year translation adjustment - - - - - -
Net income - - - 16,466,017 - -
---------- ---------- ----------- ----------- ------------ --------------
BALANCE AS OF DECEMBER 31, 1994 16,509,476 990,569 31,875,455 39,409,938 (899,136) -
Issuance of common stock and the tax benefit
of stock plan transactions 386,383 23,183 5,252,865 - (1,159,975) -
Amortization of deferred compensation - - - - 337,427 -
Current year translation adjustment - - - - - -
Unrealized loss on investments - - - - - (44,485)
Net income - - - 18,895,143 - -
---------- ---------- ----------- ----------- ------------ --------------
BALANCE AS OF DECEMBER 31, 1995 16,895,859 1,013,752 37,128,320 58,305,081 (1,721,684) (44,485)
Issuance of common stock and the tax benefit
of stock plan transactions 633,754 38,025 8,868,755 - (630,241) -
Amortization of deferred compensation - - - - 547,821 -
Stock split 17,219,669 1,033,180 (1,033,180) - - -
Current year translation adjustment - - - - - -
Unrealized gain on investments - - - - - 335,372
Net income - - - 23,963,395 - -
---------- ---------- ----------- ----------- ------------ --------------
BALANCE AS OF DECEMBER 31, 1996 34,749,282 $2,084,957 $44,963,895 $82,268,476 $ (1,804,104) $ 290,887
========== ========== =========== =========== ============ ==============
Cumulative Total
Translation Shareholders'
Adjustment Investment
----------- -------------
BALANCE AS OF DECEMBER 31, 1993 $ - $ 49,547,044
Issuance of common stock and the tax benefit
of stock plan transactions - 5,022,769
Amortization of deferred compensation - 340,996
Current year translation adjustment (1,365) (1,365)
Net income - 16,466,017
----------- -------------
BALANCE AS OF DECEMBER 31, 1994 (1,365) 71,375,461
Issuance of common stock and the tax benefit
of stock plan transactions - 4,116,073
Amortization of deferred compensation - 337,427
Current year translation adjustment (7,839) (7,839)
Unrealized loss on investments - (44,485)
Net income - 18,895,143
----------- -------------
BALANCE AS OF DECEMBER 31, 1995 (9,204) 94,671,780
Issuance of common stock and the tax benefit
of stock plan transactions - 8,276,539
Amortization of deferred compensation - 547,821
Stock split - -
Current year translation adjustment 8,734 8,734
Unrealized gain on investments - 335,372
Net income - 23,963,395
----------- -------------
BALANCE AS OF DECEMBER 31, 1996 $ (470) $ 127,803,641
=========== =============
The accompanying notes are an integral part of these consolidated financial
statements.
-22-
23
GENTEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
1996 1995 1994
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $23,963,395 $18,895,143 $16,466,017
Adjustments to reconcile net income to net
cash provided by operating activities-
Depreciation and amortization 3,918,515 3,201,847 2,984,124
Loss (gain) on disposal of equipment 47,949 11,937 (19,770)
Loss on sale of investments 39,295 0 0
Deferred income taxes 1,072,582 (142,930) 294,892
Amortization of deferred compensation 547,821 337,427 340,996
Change in assets and liabilities:
Accounts receivable, net (2,309,018) (3,619,176) (2,160,573)
Inventories (444,903) (431,967) (1,349,411)
Prepaid expenses and other (184,625) (91,962) (115,948)
Accounts payable 372,174 1,307,267 1,880,630
Accrued liabilities (3,061,324) 3,757,174 1,575,304
----------- ----------- -----------
Net cash provided by
operating activities 23,961,861 23,224,760 19,896,261
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Activity in Held-To-Maturity Securities
Sales Proceeds - - 242,856
Maturities and Calls 28,840,879 12,696,750 8,799,355
Purchases (34,915,969) (30,170,062) (23,827,197)
Activity in Available-For-Sale Securities
Sales Proceeds 1,123,053 - 1,295,615
Purchases (8,011,758) (450,735) -
Plant and equipment additions (16,424,358) (4,861,930) (6,160,481)
Proceeds from sale of plant and equipment 11,943 7,450 42,270
Increase in other assets (246,875) (1,631,256) (106,987)
----------- ----------- -----------
Net cash used for
investing activities (29,623,085) (24,409,783) (19,714,569)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock and tax benefit of
stock plan transactions 8,276,539 4,116,073 5,022,769
----------- ----------- -----------
Net cash provided by
financing activities 8,276,539 4,116,073 5,022,769
----------- ----------- -----------
NET INCREASE IN CASH AND
CASH EQUIVALENTS 2,615,315 2,931,050 5,204,461
CASH AND CASH EQUIVALENTS,
beginning of year 14,115,041 11,183,991 5,979,530
----------- ----------- -----------
CASH AND CASH EQUIVALENTS,
end of year $16,730,356 $14,115,041 $11,183,991
=========== =========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
-23-
24
GENTEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES
The Company
Gentex Corporation designs, develops, manufactures and markets two
proprietary electro-optical product lines: automatic rearview
mirrors for the automotive industry and fire protection products
for the commercial building industry. A substantial portion of
the Company's net sales and accounts receivable result from
transactions with domestic and foreign automotive manufacturers.
The Company's fire protection products are primarily sold to
domestic distributors and original equipment manufacturers of fire
and security systems.
Significant accounting policies of the Company not described elsewhere
are as follows:
Consolidation
The consolidated financial statements include the accounts of Gentex
Corporation and all of its wholly-owned subsidiaries (together the
"Company"). All significant intercompany accounts and
transactions have been eliminated.
Cash Equivalents
Cash equivalents consist of funds invested in money market accounts.
Investments
The amortized cost, unrealized gains and losses, and market value of
securities held to maturity and available for sale are shown as of
December 31, 1996 and 1995:
Unrealized
-------------------------------
1996
----
Cost Gains Losses Market Value
---- ----- ------ ------------
U.S. Government $11,164,723 $ 35,299 $ - $11,200,022
Municipal 34,758,226 84,197 (12,222) 34,830,201
Other Fixed 12,054,500 15,751 - 12,070,251
Equity 7,324,101 787,123 (339,606) 7,771,618
----------- -------- --------- -----------
$65,301,550 $922,370 $(351,828) $65,872,092
=========== ======== ========= ===========
1995
----
U.S. Government $16,601,678 $ 91,101 $ (2,065) $16,690,714
Municipal 30,056,733 47,210 (32,099) 30,071,844
Other Fixed 5,243,950 4,135 (1,831) 5,246,254
Equity 474,688 - (68,438) 406,250
----------- --------- --------- -----------
$52,377,049 $142,446 $(104,433) $52,415,062
=========== ========= ========= ===========
Fixed income securities are considered held to maturity and equity
securities are available for sale. Maturities of fixed income
securities as of December 31, 1996, are as follows:
Due within one year $31,803,621
Due between one and three years 26,173,828
As reflected in the consolidated statements of cash flows, during
1994, the Company sold approximately $243,000 of securities held
to maturity. The decision to sell these securities was based on
deterioration in the credit worthiness of the issuer.
Inventories
Inventories include material, direct labor and manufacturing overhead
and are valued at the lower of first-in, first-out (FIFO) cost or
market. Inventories consisted of the following as of December 31,
1996 and 1995:
-24-
25
GENTEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES, continued
1996 1995
---- ----
Raw materials $ 3,860,534 $ 3,294,254
Work-in-process 348,336 358,206
Finished goods 1,971,552 2,083,059
----------- -----------
$ 6,180,422 $5,735,519
=========== ==========
Plant and Equipment
Plant and equipment are stated at cost. Depreciation and amortization
are computed for financial reporting purposes using the
straight-line method, with estimated useful lives of 5 to 40 years
for building and improvements, and 3 to 10 years for machinery and
equipment.
Patents
The Company's policy is to capitalize costs incurred to obtain and
defend patents. The cost of patents is amortized over their
useful lives. The cost of patents in process is not amortized
until issuance. Accumulated amortization was approximately
$3,580,000 and $3,394,000 at December 31, 1996 and 1995,
respectively. Patent amortization expense was approximately
$186,000, $129,000 and $17,000 in 1996, 1995 and 1994,
respectively.
Revenue Recognition
The Company's revenue primarily is generated from sales of its
products. Sales are recognized upon the shipment of product to
customers.
Advertising and Promotional Materials
All advertising and promotional costs are expensed as incurred and
amounted to approximately $780,000, $608,000 and $593,000 in 1996,
1995 and 1994, respectively.
Repairs and Maintenance
Major renewals and improvements of property and equipment are
capitalized, and repairs and maintenance are expensed as incurred.
The Company incurred expenses relating to the repair and
maintenance of plant and equipment of approximately $1,338,000,
$1,041,000 and $853,000 in 1996, 1995 and 1994, respectively.
Self-Insurance
The Company is self-insured for a portion of its risk on workers'
compensation and employee medical costs. The arrangements provide
for stop loss insurance to manage the Company's risk. Operations
are charged with the cost of claims reported and an estimate of
claims incurred but not reported.
Earnings Per Share
The earnings per share are computed based on the weighted average
number of shares of common stock outstanding and, to the extent
dilutive, common stock equivalents outstanding during the year.
The weighted average number of shares outstanding was
approximately 35,512,000 in 1996, 34,255,000 in 1995, and
33,988,000 in 1994.
-25-
26
GENTEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES, continued
Foreign Currency Translation
The financial position and results of operations of the Company's
foreign subsidiary are measured using the local currency as the
functional currency. Assets and liabilities are translated at the
exchange rate in effect at year-end. Income statement accounts
are translated at the average rate of exchange in effect during
the year. The resulting translation adjustment is recorded as a
separate component of shareholders' investment.
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Reclassification
Certain prior year amounts have been reclassified to conform with the
current year presentation.
(2) LINE OF CREDIT
The Company has available an unsecured $5,000,000 line of credit from
a bank at the lower of the bank's prime rate or 1.5% above the
LIBOR rate. No borrowings were outstanding under this line in
1996 or 1995. No compensating balances are required under this
line.
(3) FEDERAL INCOME TAXES
The Company recognizes deferred tax liabilities and assets for the
expected future tax consequences of events that have been included
in the consolidated financial statements or tax returns. Under
this method, deferred tax liabilities and assets are determined
based on the difference between the financial statement and tax
bases of assets and liabilities using enacted tax rates in effect
for the year in which the differences are expected to reverse.
The components of the provision for federal income taxes are as
follows:
1996 1995 1994
------------- -------------- --------------
Currently payable $10,446,000 $9,179,000 $7,909,000
Tax over book depreciation 266,000 194,000 51,000
Deferred compensation (191,000) (46,000) 232,000
Patent costs 1,219,000 (196,000) 60,000
Other (221,000) (95,000) (48,000)
--------------- ------------- ------------
Net Deferred 1,073,000 (143,000) 295,000
------------- ------------ -----------
$11,519,000 $9,036,000 $8,204,000
=========== ========== ==========
The currently payable provision is further reduced by the tax benefits
associated with the exercise, vesting or disposition of stock
under the stock plans described in Note 6. These reductions
totaled $3,284,000, $1,876,000 and $3,340,000 in the respective
years.
The effective income tax rates are different from the statutory
federal income tax rates for the following reasons:
-26-
27
GENTEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(3) FEDERAL INCOME TAXES, continued
1996 1995 1994
---- ---- ----
Statutory federal income tax rate 35.0% 35.0% 35.0%
Foreign Sales Corporation exempted income (1.5) (1.7) (1.2)
Tax-exempt investment income (1.2) (1.1) (1.0)
Other 0.2 0.2 0.5
----- ---- ----
Effective income tax rate 32.5% 32.4% 33.3%
===== ==== ====
The tax effect of temporary differences which give rise to deferred
tax assets and liabilities at December 31, 1996 and 1995, are as
follows:
1996 1995
----------------------------- ---------------------------
Current Non-Current Current Non-Current
--------- ------------ ---------- -----------
Assets:
Accruals not currently deductible $ 412,785 52,500 $ 984,030 $ 87,500
Deferred compensation - 452,023 - 260,286
Other 261,413 17,340 238,198 18,867
Valuation allowance - - - -
--------- ----------- ---------- ---------
Total deferred tax assets 674,198 521,863 1,222,228 366,653
Liabilities:
Excess tax over book depreciation - (1,046,618) - (780,846)
Patent costs - (532,476) - (107,481)
Other (56,405) (156,631) (43,457) -
--------- ----------- ---------- ---------
Net deferred taxes $ 617,793 $(1,213,862) $1,178,771 $(521,674)
========= =========== ========== =========
Income taxes paid in cash were approximately $6,930,000, $4,926,000
and $4,343,000 in 1996, 1995 and 1994, respectively.
(4) EMPLOYEE BENEFIT PLAN
The Company has a 401(k) retirement savings plan in which
substantially all of its employees may participate. The plan
includes a provision for the Company to match a percentage of the
employee's contributions at a rate determined by the Company's
Board of Directors. In 1996, 1995 and 1994, the Company's
contributions were approximately $208,000, $151,000 and $134,000,
respectively.
The Company does not provide health care benefits to retired
employees.
(5) SHAREHOLDER PROTECTION RIGHTS PLAN
In August 1991, the Company's Board of Directors adopted a Shareholder
Protection Rights Plan (the Plan). The Plan is designed to
protect shareholders against unsolicited attempts to acquire
control of the Company in a manner that does not offer a fair
price to all shareholders.
Under the Plan, one purchase Right automatically trades with each
share of the Company's common stock. Each Right entitles a
shareholder to purchase 1/100 of a share of junior participating
preferred stock at a price of $54, if any person or group attempts
certain hostile takeover tactics toward the Company. Under
certain hostile takeover circumstances, each Right may entitle the
holder to purchase the Company's common stock at one-half its
market value or to purchase the securities of any acquiring entity
at one-half their market value. Rights are subject to redemption
by the Company at $.0025 per Right and, unless earlier redeemed,
will expire on August 26, 2001. Rights beneficially owned by
holders of 15 percent or more of the Company's common stock, or
their transferees, automatically become void.
-27-
28
GENTEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(6) STOCK-BASED COMPENSATION PLANS
The Company has three stock option plans, including two employee stock
option plans ("Employee Plans") and a non-employee directors stock
option plan ("Director Plan"), and an employee stock purchase
plan. The Company accounts for these plans under APB Opinion No.
25, under which no compensation cost has been recognized. Had
compensation cost for these plans been determined consistent with
FASB Statement No. 123, the Company's net income and earnings per
share would have been reduced to the follow pro forma amounts:
1996 1995
------- -------
Net Income: As reported $23,963,000 $18,895,000
Pro Forma 21,863,000 18,237,000
EPS: As reported $ 0.67 $ 0.55
Pro Forma 0.62 0.53
Because the Statement 123 method of accounting has not been applied to
options granted prior to January 1, 1995, the resulting pro forma
compensation cost may not be representative of that to be expected
in future years.
The Company may sell up to 800,000 shares of stock to its employees
under the Employee Stock Purchase Plan. The Company has sold to
employees 31,893 shares, 36,132 shares and 33,750 shares in 1996,
1995 and 1994 respectively, and has sold 121,095 shares through
December 31, 1996. The Company sells shares at 85% of the stock's
market price at date of purchase. The weighted average fair value
of shares sold in 1996 was approximately $18.
The Company may grant options for up to 9,708,000 shares under the
Employee Plans. The Company has granted options on 6,373,750
shares through December 31, 1996. Under the Plans, the option
exercise price equals the stock's market price on date of grant.
The Employee Plan options vest after one to five years, and expire
after five to seven years.
A summary of the status of the Company's two employee stock option
plans at December 31, 1996, 1995 and 1994 and changes during the
years then ended is presented in the table and narrative below:
1996 1995 1994
-------------------- -------------------- -----------------
Shares Wtd Avg. Shares Wtd Avg SharesWtd Avg.
(000) Ex Price (000) Ex Price (000)Ex Price
----- -------- ----- -------- -------------
Outstanding at Beginning of Year 2,899 $ 8 2,910 $ 6 2,799 $ 5
Granted 515 18 642 11 550 11
Exercised (878) 5 (635) 3 (438) 2
Forfeited (7) 14 (18) 9 (1) 11
Expired - - - - - -
------ ------ --------
Outstanding at End of Year 2,529 11 2,899 8 2,910 6
------ ------ --------
Exercisable at End of Year 1,010 8 1,204 6 1,059 4
Weighted Avg. Fair Value
of Options Granted $ 9 $ 6 -
1,953 of the 2,529 options outstanding at December 31, 1996, have
exercise prices between $1 and $13, with a weighted average
exercise price of $9 and a weighted average remaining contractual
life of 3 years. 956 of these options are exercisable; their
weighted average exercise price is $8. The remaining 576 options
have exercise prices between $15 and $26, with a weighted average
exercise price of $18 and a weighted average remaining contractual
life of 5 years. 54 of these options are exercisable; their
weighted average exercise price is $17.
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option pricing model with the following
weighted-average assumptions used for grants in 1996 and 1995,
respectively: risk-free interest rates of 6.4 and 6.2 percent;
expected dividend yields of 0.0 and 0.0 percent; expected lives
ranging from 5 to 7 years and 4 to 7 years; expected volatility of
47 and 54 percent.
-28-
29
GENTEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(6) STOCK-BASED COMPENSATION PLANS, continued
The Company may grant options for up to 1,000,000 shares under the
Director Plan. The Company has granted options on 488,000 shares
through December 31, 1996. Under the plan the option exercise
price equals the stock's market price on date of grant. The
Director Plan options vest after six months, and all expire after
ten years.
A summary of the status of the Director Plan at December 31, 1996,
1995 and 1994, and changes during the years then ended is
presented in the table and narrative below:
1996 1995 1994
-------------------- -------------------- -----------------
Shares Wtd Avg. Shares Wtd Avg Shares Wtd Avg.
(000) Ex Price (000) Ex Price (000) Ex Price
----- -------- ----- -------- ----------------
Outstanding at Beginning of Year 264 $ 7 224 $ 6 260 $ 5
Granted 40 18 40 10 40 14
Exercised (20) 9 - - (76) 5
----- ---- -----
Outstanding at End of Year 284 8 264 7 224 6
----- ---- -----
Exercisable at End of Year 284 8 264 7 224 6
Weighted Avg. Fair Value
of Options Granted $ 13 $ 7 -
The 284,000 options outstanding at December 31, 1996, have exercise
prices between $1 and $18 with a weighted average exercise price
of $8 and a weighted average remaining contractual life of 9
years. All of these options are exercisable.
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option pricing model with the following
weighted-average assumptions used for grants in 1996 and 1995,
respectively: risk-free interest rates of 6.8 and 6.7 percent;
expected dividend yields of 0.0 and 0.0 percent; expected lives of
10 and 10 years; expected volatility of 47 and 54 percent.
The Company has a restricted stock plan covering 800,000 shares of
common stock, the purpose of which is to permit grants of shares,
subject to restrictions, to key employees of the Company as a
means of retaining and rewarding them for long-term performance
and to increase their ownership in the Company. Shares awarded
under the plans entitle the shareholder to all rights of common
stock ownership except that the shares may not be sold,
transferred, pledged, exchanged or otherwise disposed of during
the restriction period. The restriction period is determined by a
committee, appointed by the Board of Directors, but may not exceed
ten years. During 1996, 1995 and 1994, 35,000, 101,600 and 48,000
shares, respectively, were granted with restriction periods of
four to six years at market prices ranging from $20.125 to $21.875
in 1996, $9.75 to $11.94 in 1995, and $11.19 to $12.81 in 1994.
The related expense is reflected as deferred compensation in the
accompanying consolidated financial statements and is being
amortized over the applicable restriction periods.
(7) STOCK SPLIT
On May 9, 1996, the Company's Board of Directors declared a
two-for-one stock split effected in the form of a 100% common
stock dividend to shareholders of record on May 31, 1996. The
stock split increased the number of shares of common stock then
outstanding from 17,219,669 to 34,439,338. Earnings per share and
all share data have been restated in all prior periods to reflect
this stock split.
(8) CONTINGENCIES
The Company has been involved in patent litigation with Donnelly
Corporation since 1990 concerning a number of patents relating to
electrochromic mirrors owned by the Company and Donnelly.
-29-
30
GENTEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(8) CONTINGENCIES, continued
During 1996, the Company reached an agreement with Donnelly to resolve
all of the patent litigation between the two companies. Under
the agreement:
- The companies have cross-licensed certain patents
(for the life of the patents) that each company may practice
within its own "core" electrochromic mirror technology area.
- The Company paid Donnelly $6 million in April 1996
(plus a $200,000 contingent payment if Donnelly prevails in its
lighted mirror patent appeal) as full and complete satisfaction of
all of Donnelly's patent infringement claims.
- The companies agreed not to pursue litigation against
each other on certain other patents for a period of four years.
The Company recorded a one-time charge of $4,000,000 ($6,000,000
payment, net of accrued reserves) in connection with this
settlement.
To date, the $200,000 contingent payment related to Donnelly's lighted
mirror patent appeal is still contingent. On August 19, 1996, the
Court of Appeals for the Federal Circuit entered a judgment
vacating Donnelly's appeal because the District Court's
certification of the claims for appeal was improper. The case has
been remanded to the District Court for proper certification.
The Company is subject to legal proceedings and claims which arise in
the ordinary course of its business. In the opinion of
management, the amount of ultimate liability with respect to these
actions will not materially affect the financial position or
results of operations of the Company.
(9) SEGMENT REPORTING
The Company operates in two reportable business segments: automatic
rearview mirrors for the automotive industry and fire protection
products for the commercial building industry. Corporate assets
are principally cash, investments, deferred income taxes, and
corporate fixed assets. Information by business segment and
geographic area is as follows:
1996 1995 1994
---- ---- ----
Revenue:
Automotive Products
U.S. $ 81,115,000 $ 65,853,000 $ 51,548,000
Europe 25,434,000 14,693,000 8,717,000
Other 23,065,000 13,751,000 10,732,000
------------- ------------ ------------
$ 129,614,000 $ 94,297,000 $ 70,997,000
Fire Protection Products $ 19,094,000 $ 17,269,000 $ 18,533,000
Operating Income:
Automotive Products $ 31,998,000 $ 21,600,000 $ 18,286,000
Fire Protection Products 3,658,000 3,362,000 4,704,000
Identifiable Assets:
Automotive Products $ 52,702,000 $ 37,268,000 $ 29,617,000
Fire Protection Products 3,961,000 3,960,000 4,239,000
Depreciation & Amortization:
Automotive Products $ 3,673,000 $ 2,793,000 $ 2,529,000
Fire Protection Products 262,000 247,000 222,000
Capital Expenditures:
Automotive Products $ 13,354,000 $ 4,721,000 $ 4,910,000
Fire Protection Products 309,000 199,000 329,000
-30-
31
GENTEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(9) SEGMENT REPORTING, continued
Automotive Products revenues in the "Other" category are primarily
sales to U.S. automotive manufacturing plants in Canada and
Mexico. All non-U.S. sales are invoiced and paid in U.S. dollars.
During the years presented, the Company had three automotive customers
which individually accounted for 10% or more of net sales as
follows:
Customer
----------------------------------------
#1 #2 #3
-- -- --
1996 43% 15% 10%
1995 38% 14% 13%
1994 33% 16% 16%
-31-
32
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION PAGE
- ----------- ----------- ----
3(a)(1) Registrant's Articles of Incorporation were filed in 1981 as Exhibit 2(a) to a Registration
Statement on Form S-18 (Registration No. 2-74226C), an Amendment to those Articles was filed as
Exhibit 3 to Registrant's Report on Form 10-Q in August of 1985, an additional Amendment to those
Articles was filed as Exhibit 3(a)(i) to Registrant's Report on Form 10-Q in August of 1987, and
an additional Amendment to those Articles was filed as Exhibit 3(a)(2) to Registrant's Report on
Form 10-K dated March 10, 1992, all of which are hereby incorporated herein by reference.
3(a)(2) Amendment to Articles of Incorporation, adopted on May 9, 1996, was filed as Exhibit 3(a)(2) to
Registrant's Report on Form 10-Q dated July 31, 1996, and the same is incorporated herein by
reference.
3(b) Registrant's Bylaws as amended and restated August 18, 1995, were filed as Exhibit 3(b) to
Registrant's Report on Form 10-Q dated November 1, 1995, and the same is incorporated herein by
reference.
4(a) A specimen form of certificate for the Registrant's common stock, par value $.06 per share, was
filed as part of a Registration Statement (Registration Number 2-74226C) as Exhibit 3(a), as
amended by Amendment No. 3 to such Registration Statement, and the same is hereby incorporated herein
by reference.
4(b) Shareholder Protection Rights Agreement, dated as of August 26, 1991, including as Exhibit A the form
of Certificate of Adoption of Resolution Establishing Series of Shares of Junior Participating
Preferred Stock of the Company, and as Exhibit B the form of Rights Certificate and of Election to
Exercise, was filed as Exhibit 4(b) to Registrant's report on Form 8-K on August 20, 1991, and the
same is hereby incorporated herein by reference.
4(b)(1) First Amendment to Shareholder Protection Rights Agreement, effective April 1, 1994, was filed as
Exhibit 4(b)(1) to Registrant's Report on Form 10-Q dated April 29, 1994, and the same is hereby
incorporated herein by reference.
4(b)(2) Second Amendment to Shareholder Protection Rights Agreement, effective November 8, 1996 34
10(a)(1) A Lease dated August 15, 1981 was filed as part of a Registration Statement (Registration Number
2-74226C) as Exhibit 9(a)(1), and the same is hereby incorporated herein by reference.
10(a)(2) A First Amendment to Lease dated June 28, 1985 was filed as Exhibit 10(m) to Registrant's Report
on Form 10-K dated March 18, 1986, and the same is hereby incorporated herein by reference.
*10(b)(1) Gentex Corporation Qualified Stock Option Plan (as amended and restated, effective March 7, 1997). 35
*10(b)(2) Gentex Corporation 1987 Incentive Stock Option Plan (as amended through May 24, 1989), was filed as
Exhibit 10(g)(3) to Registrant's Report on Form 10-K dated March 1, 1990, and the same is hereby
incorporated herein by reference.
-32-
33
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION PAGE
- ----------- ----------- ----
*10(b)(3) Gentex Corporation Restricted Stock Plan was filed as Exhibit 10(b)(3) to
Registrant's Report on Form 10-K dated March 10, 1992, and the same is hereby incorporated herein by reference.
*10(b)(4) Gentex Corporation Non-Employee Director Stock Option Plan (as amended
and restated, effective March 7, 1997). 41
10(e) The form of Indemnity Agreement between Registrant and each of the Registrant's directors was filed as a part of a
Registration Statement on Form S-2 (Registration No. 33-30353) as Exhibit 10(k) and the same is hereby incorporated
herein by reference.
21 List of Company Subsidiaries 46
23 Consent of Independent Public Accountants 47
27 Financial Data Schedule
___________________________________________________
* Indicates a compensatory plan or arrangement.
-33-
1
EXHIBIT 4(b)(2)
SECOND AMENDMENT TO
SHAREHOLDER PROTECTION RIGHTS AGREEMENT
This Second Amendment to Shareholder Protection Rights Agreement is
made and entered into effective November 8, 1996, by and between GENTEX
CORPORATION (the "Company"), and AMERICAN STOCK TRANSFER AND TRUST COMPANY (the
"Rights Agent").
WITNESSETH:
WHEREAS, the Company currently has outstanding 34,696,853 shares of its
common stock; and
WHEREAS, the aforementioned shares of common stock are subject to a
certain Shareholder Protection Rights Agreement effective August 26, 1991,
between the Company and the Rights Agent; and
WHEREAS, by virtue of a previous amendment to the aforementioned Rights
Agreement and a subsequent stock dividend, the Exercise Price pursuant to the
Rights Agreement is currently at $32.50.
NOW, THEREFORE, pursuant to Section 5.4 of the aformentioned Rights
Agreement, the Company and the Rights Agent hereby amend and restate Section 1.7
of the Rights Agreement to read as follows:
1.7 "Exercise Price" shall mean, as of any date, the price
at which a holder may purchase the securities issuable upon exercise
of one whole Right. Until adjustment thereof in accordance with the
terms hereof, the Exercise Price shall equal $54.00."
Except for the amendment to Section 1.7 set forth above, the
aforementioned Shareholder Protection Rights Agreement shall continue in full
force and effect in accordance with its terms.
IN WITNESS WHEREOF, the parties have caused this Amendment to be duly
executed effective as of the date specified above.
GENTEX CORPORATION
By /s/ Enoch Jen
-----------------------------
Its VP FINANCE
------------------------
AMERICAN STOCK TRANSFER AND
TRUST COMPANY
By /s/ Herbert J. Lemmer
-----------------------------
Its Vice President
----------------------
- 34 -
1
EXHIBIT 10(b)(1)
GENTEX CORPORATION
QUALIFIED STOCK OPTION PLAN
(AS AMENDED AND RESTATED, EFFECTIVE MARCH 7, 1997)
1. PURPOSE. The purpose of this Plan is to provide an
opportunity for certain employees of Gentex Corporation and its subsidiaries to
purchase shares of capital stock of the Corporation and thereby have an
additional incentive to contribute to the prosperity of the Corporation.
2. DEFINITIONS. The following terms are defined for use herein
as follows:
a. "Board" means the Board of Directors of Gentex
Corporation.
b. "Common Stock" means the common stock (par value $.06
per share) of Gentex Corporation.
c. "Committee" means the committee appointed pursuant to
Paragraph 4 to administer the Plan.
d. "Corporation" means Gentex Corporation and any
subsidiary corporation where Gentex Corporation owns fifty percent
(50%) or more of the combined voting power of all outstanding
securities within the meaning of the applicable provisions of the
Internal Revenue Code.
e. "Effective Date" means the effective date of this
Amended and Restated Plan, March 7, 1997.
f. "Market Value" means the closing sale price of Common
Stock reported in the NASDAQ National Market for the day on which the
particular option is granted, or, if prices of shares of Common Stock
are not so published for that date, then a fair market value
determined by the Committee by any reasonable method selected by it in
good faith.
g. "Optionee" means any employee to whom an option has
been granted under the Plan.
h. "Option Agreement" means an agreement evidencing
options as provided in Paragraph 7 of the Plan.
i. "Plan" means this Qualified Stock Option Plan of the
Corporation as in effect from time to time.
-35-
2
j. "Option Price" means the purchase price for Common
Stock under an option, as determined under Paragraph 7 of this Plan.
3. SHARES.
a. The total number of shares of the Common Stock which
may be sold under the Plan shall not exceed 5,208,000 shares, except
that the total number of shares which may be sold under the Plan may
be increased to the extent of adjustments authorized by Paragraph 10.
Such shares shall be authorized shares and may be either unissued
shares or treasury shares.
b. If an option granted under the Plan shall expire or
terminate for any reason without having been exercised in full, the
shares not delivered under such option shall be available for options
subsequently granted.
4. ADMINISTRATION.
a. The Plan shall be administered by a Committee
appointed by the Board, which shall consist of three (3) or more
members. Except as provided in Paragraph 7 f., the Committee shall
determine the employees to be granted options, the amount of stock to
be optioned to each employee, and the terms of the options to be
granted. The Committee shall have full power and authority to
interpret the provisions of the Plan, to supervise the administration
of the Plan and to adopt forms and procedures for the administration
of the Plan. All determinations made by the Committee shall be final
and conclusive.
b. The granting of any option pursuant to this Plan
shall be entirely within the discretion of the Committee. Nothing
herein contained shall be construed to give any officer or employee
any right to participate under this Plan.
c. Each person who is or shall have been a member of the
Committee shall be indemnified and held harmless by the Corporation
from and against any cost, liability or expense imposed or incurred in
connection with such person's or the Committee's taking or failing to
take any action under the Plan. Each such person may rely on
information furnished in connection with the Plan's administration by
any appropriate person or persons.
5. ELIGIBILITY. Only employees of the Corporation shall be
eligible to participate in the Plan. The Committee shall determine whether or
not an individual is eligible to participate in the Plan. An employee who has
been granted an option under this Plan or any other stock option plan of the
Corporation may be granted additional options.
-36-
3
6. EXERCISE PRICE. The per share exercise price of each option
granted under the Plan shall be at least one hundred percent (100%) of the
Market Value of a share of Common Stock; provided, however, any option granted
to a participant possessing more than ten percent (10%) of the total combined
voting power of all classes of stock of Gentex Corporation shall be at an
Option Price not less than one hundred ten percent (110%) of the market value
of a share of Common Stock and shall not be exercisable after the expiration of
five years from the date the option is granted.
7. TERMS OF OPTIONS. Each option shall be evidenced by a
written agreement containing such terms and conditions as are set by the Board
or the Committee, including without limitation the following:
a. NUMBER OF SHARES. Each Option Agreement shall state
the number of shares to which it pertains.
b. EXERCISE PRICE. Each Option Agreement shall state
the exercise price.
c. MEDIUM AND TIME OF PAYMENT. The exercise price for
each share purchased pursuant to an option granted under the Plan
shall be payable in full upon exercise, and may be paid in cash or, in
full or in part, by the surrender of Common Stock owned by the
Optionee valued at fair market value or by the surrender of Option
rights hereunder that are then exercisable, valued at the difference
between the Option Price and the fair market value of the underlying
Common Stock. Promptly after the exercise of an Option and the
payment of the full Option Price, the Optionee shall be entitled to
the issuance of a stock certificate evidencing ownership of such
Common Stock. However, an Optionee shall have none of the rights of a
shareholder until a certificate for those Shares is issued to the
Optionee, and no adjustment will be made for dividends or other rights
for which the record date is prior to the date such stock certificate
is issued, except as provided in Paragraph 10 of this Plan.
d. TERM AND EXERCISE OF OPTIONS. Each option shall be
exercisable in whole or in part in such amounts and at or after such
dates as may be specified in the option agreement. In no event,
however, shall any option be exercisable less than one (1) year from
the date of grant.
e. ADMINISTRATIVE DISCRETION. The Committee may in its
discretion vary, among employees and among options granted to the same
employee, any and all of the terms and conditions of options granted
under the Plan, including the term during which and the amounts in
which and dates at or after which such
-37-
4
options may be exercised.
f. SPECIAL C.E.O. TERMS. Notwithstanding any other
provision of this Plan to the contrary, the current chief executive
officer of Gentex Corporation shall receive, as of the date this Plan
is approved by the Board, and annually thereafter as of the time his
compensation is reviewed by the Committee, an option for 15,000 shares
of Common Stock, and no other options may be granted to that
individual under this Plan. These options shall become exercisable
for twenty percent (20%) of the shares on the first anniversary of the
grant date and for an additional twenty percent (20%) on each
anniversary thereafter, and all unexercised options shall expire on
the seventh anniversary date of the grant.
8. TRANSFERABILITY OF OPTIONS AND COMMON STOCK. Options under
this Plan may not be transferred except by will or according to the laws of
descent and distribution. During the lifetime of the Optionee, an option may
be exercised only by the Optionee or his guardian or legal representative.
After an Optionee's death, options that were exercisable at the date of death
may be exercised at any time within one year after the date of death, subject
to prior expiration, by the executor or administrator of the Optionee's estate,
any person(s) who acquired the option directly from the Optionee by bequest or
inheritance, or any person designated specifically in a written designation
signed by the Optionee and filed with the Committee prior to the date of death.
The Corporation may, in the event it deems the same desirable to assure
compliance with applicable federal and state securities laws, legend any
certificate representing shares issued pursuant to the exercise of an option
with an appropriate restrictive legend, and may also issue appropriate stop
transfer instructions to its transfer agent with respect to such shares.
9. TERMINATION OF OPTIONS. Each option agreement shall contain
such provisions as the Committee may deem advisable for termination of the
option in the event of, and/or exercise of the option after the Optionee's
death, disability, or termination of employment by the Corporation. No option
may be exercised more than three (3) months after the termination of the
Optionee's employment by the Corporation, nor more than twelve (12) months
after the Optionee shall have died or become disabled, without the specific
approval of the Committee.
Option agreements may also contain, in the discretion of the
Committee, provisions for termination of options and/or acceleration of
exercise rights in the event of any merger or consolidation of the Corporation
with, or acquisition of the Corporation or substantially all of its assets by,
any other corporation or entity.
Nothing in the Plan or in any option shall limit or affect in any way
the right of the Corporation to terminate an Optionee's employment at any time
nor be deemed to confer upon any Optionee any right to continue in the employ
of the Corporation.
-38-
5
10. ADJUSTMENT PROVISION. If the number of shares of Common Stock
outstanding changes by reason of a stock dividend, stock split,
recapitalization, merger, consolidation, split-up, combination or exchange of
shares, the aggregate number and class of shares available under this Plan and
the number of shares subject to each outstanding option, together with the
option prices, shall be appropriately adjusted by the Board or Committee to
prevent dilution of the interests of Optionees and of the Plan.
11. EFFECTIVE DATE OF PLAN, TERMINATION AND AMENDMENT. Unless
earlier terminated by the Board, the Plan shall terminate on August 12, 2004,
after which date no options may be granted under this Plan. The Board may
terminate the Plan at any time, or may from time to time amend the Plan as it
deems proper and in the best interest of the Corporation, provided that no such
amendment may (a) alter the aggregate number of shares that may be issued under
the Plan, (b) decrease the price at which options may be granted, or (c) modify
the eligibility requirements set forth in Paragraph 5.
12. DISQUALIFYING ASSIGNMENTS. At the request of an Optionee, the
Committee may authorize the amendment of any Option Agreement in order to
permit an assignment of the option, in whole or in part, to any Authorized
Transferee as hereinafter defined, subject to such procedures and conditions as
the Committee may establish from time to time; provided, however, any such
amendment may result in disqualification of the option from favorable tax
treatment under the applicable provisions of the Internal Revenue Code of 1986,
as amended, and the Company shall have no responsibility for that, or any other
adverse tax consequence that results from such an amendment. The amendment
shall: (i) permit transfers only to the Optionee's spouse and/or the Optionee's
descendants, and/or to a trust created primarily for the benefit of the
Optionee, the Optionee's spouse, and/or the Optionee's descendants ("Authorized
Transferee"); (ii) prohibit payment of any consideration by the Authorized
Transferee to the original Optionee; (iii) prohibit any further transfer of the
option; (iv) provide that the Authorized Transferee shall succeed to all of the
rights and benefits (except any right to further transfer the option) and be
subject to all obligations, conditions, and limitations applicable to the
original Optionee; (v) and set forth such other conditions, terms, and
provisions as the Committee may require in the exercise of its discretion. All
rights, benefits, obligations, conditions, and limitations of any option
transferred to an Authorized Transferee shall be determined as if the original
Optionee continued to hold the option, whereby provisions of this Plan dealing
with the death of an Optionee will continue to refer to the original Optionee
regardless of whether the option has been transferred to an Authorized
Transferee. Options may be exercised during the lifetime of the original
Optionee only by the original Optionee or an Authorized Transferee as the case
may be. In the event of an Optionee's death, options may be exercised to the
same extent exercisable by the Optionee at the date of death, at anytime prior
to the earlier of the specified expiration date, or a date after the Optionee's
death specified in the Option Agreement by any of the following persons: (1)
personal representatives of the estate of the Optionee; (2) any person or
persons who shall have acquired the option directly from the Optionee by
bequest or inheritance; (3) any person
-39-
6
designated to exercise the option by means of a specific written designation
executed by the Optionee and filed with the Company prior to the Optionee's
death; or (v) an Authorized Transferee. Except as provided herein, no option
shall be transferable by an Optionee otherwise then by will or the laws of
descent and distribution.
CERTIFICATION
The foregoing Plan Amendment and Restatement was duly adopted by the
Board of Directors on the 7th day of March, 1997.
/s/ CONNIE HAMBLIN
----------------------------------
Connie Hamblin
Secretary
-40-
1
EXHIBIT 10(b)(4)
GENTEX CORPORATION
NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
(AS AMENDED AND RESTATED, EFFECTIVE MARCH 7, 1997)
PART I: PLAN ADMINISTRATION AND ELIGIBILITY
1.1 PURPOSE. The purpose of this Non-Employee Director Stock
Option Plan (the "Plan") of Gentex Corporation (the "Company") is to make
service on the Board of Directors of the Company (the "Board") more attractive
to present and prospective outside directors of the Company, as the continued
services of qualified outside directors are considered essential to the
Company's sustained progress, and to provide additional incentive for such
directors by offering them a greater interest in the continued success of the
Company through stock ownership.
1.2 ADMINISTRATION. The Plan shall be administered by the Board.
Grants of stock options under the Plan ("Options") and the amount and nature of
the options to be granted shall be automatic as described in Sections 1.3 and
2.2. The Board shall have the power to determine all questions arising under
the Plan and to adopt and amend such rules and regulations for the
administration of the Plan as it may deem desirable.
1.3 STOCK SUBJECT TO THE PLAN.
A. CLASS. The stock which is to be made the subject of
options granted under the Plan shall be the Company's authorized
common stock, par value $.06 per share ("Common Stock"). Shares may
be supplied to satisfy the requirements of options granted under the
Plan out of treasury shares, whether repurchased in the open market or
otherwise, or out of authorized but unissued shares, or both, in the
discretion of the Board of Directors.
B. AGGREGATE AMOUNT.
(1) The total number of shares issuable under the Plan
shall not exceed 1,000,000 shares (subject to adjustment as provided
in Section 3.4).
(2) If any outstanding option under the Plan expires or
is terminated for any reason, then the Common Stock allocable to the
unexercised or surrendered portion of such option shall not be charged
against the limitation of Section 1.3(B)(1) above, and may again
become the subject of a stock option granted under the Plan.
-41-
2
1.4 ELIGIBILITY; GRANT OF OPTIONS. Only directors who are not
employees of the Company shall be eligible to receive options under this Plan.
Effective as of the date of each annual meeting of the shareholders of the
Company, each Non-Employee Director who is newly elected or continues in office
as a director subsequent to that meeting, shall be granted an option to acquire
five thousand (5,000) shares. Any Non-Employee Director who is elected as a
director by the Board of Directors shall be granted an option to acquire that
number of shares that is equal to five thousand (5,000) shares multiplied by a
fraction that is equal to three hundred sixty-five (365), minus the number of
days that have elapsed since the last annual meeting of shareholders, and
dividing that difference by three hundred sixty-five (365); the result shall be
rounded to the nearest whole share.
PART II: OPTIONS AND RIGHTS
2.1 NON-STATUTORY STOCK OPTIONS. All options granted under the
Plan shall be non-statutory options, not entitled to special tax treatment
under Section 422 of the Internal Revenue Code of 1986, as amended.
2.2 TERMS, CONDITIONS, AND FORM OF OPTIONS. Each option granted
under this Plan shall be evidenced by a written agreement in such form and
containing such terms as the Board shall from time to time approve, which
agreements shall comply with and be subject to the following terms and
conditions:
(A) TRANSFERABILITY OF OPTIONS. Options may not be sold,
pledged, assigned, or transferred in any manner otherwise than by will
or the laws of descent and distribution to the extent provided in
Section 2.2(D), except that the Board may authorize the grant or
amendment of options so as to permit transfer to the Optionee's spouse
and/or the Optionee's descendants or to a trust created primarily for
the benefit of the Optionee, the Optionee's spouse and/or the
Optionee's descendants ("Authorized Transferee"), provided the
Optionee satisfies such conditions to the transfer as may be required
by the Board. The agreement pursuant to which a transferable option
is granted shall expressly set forth the transfer rights and
limitations, prohibit payment of any consideration by the Authorized
Transferee to the original Optionee, prohibit any further transfer of
the option and provide that the Authorized Transferee shall succeed
to all rights and benefits (except any right to further transfer of
the option) and be subject to all obligations, conditions, and
limitations applicable to the original Optionee. However, such rights
and benefits (except any right to further transfer of the option) and
obligations, conditions, and limitations shall be determined as if the
original Optionee continued to hold
-42-
3
the option, whereby provisions of this Plan dealing with death of an
Optionee will continue to refer to the original Optionee regardless of
whether the option has been transferred to an Authorized Transferee.
Options may be exercised during the lifetime of the original Optionee
only by the original Optionee or an Authorized Transferee. After the
Optionee's death, the Option shall be exercisable only to the extent
provided in Section 2.2(D).
(B) PERIOD OF OPTION. Options shall terminate upon the
expiration of ten (10) years from the date upon which such options
were granted, or at such earlier date as may be established in the
option agreement (subject to prior termination as hereinafter
provided).
(C) EXERCISE OF OPTIONS. Options may be exercised, in
full or in part, only by giving written notice to the Company, stating
the number of shares of Common Stock with respect to which the option
is being exercised, accompanied by payment in full for such shares,
which payment may be in whole or in part in shares of the Common Stock
of the Company valued at fair market value as computed under Section
2.3 below; provided, however, that (i) there shall be no such exercise
at any one time as to fewer than two thousand five hundred (2,500)
shares, unless fewer than two thousand five hundred shares remain to
be purchased under the Option being exercised; (ii) options may not be
exercised for a period of six (6) months after the date of grant, and
(iii) options may be exercised only during periods beginning on the
second (2nd) business day following the date on which the Company
releases for publication its annual or quarterly financial reports and
ending on the twelfth (12th) business day following that date.
(D) DEATH OF OPTIONEE AND TRANSFER OF OPTIONS. In the
event of an Optionee's death, options may be exercised, to the same
extent exercisable by the Optionee at the date of death, at any time
prior to the earlier of the specified expiration date or the first
anniversary of the Optionee's death, by any of the following persons:
(i) personal representatives of the estate of the Optionee; (ii) any
person or persons who shall have acquired the option directly from the
Optionee by bequest or inheritance; (iii) any person designated to
exercise the option by means of a specific written designation
executed by the Optionee and filed with the Company prior to the
Optionee's death; or (iv) an Authorized Transferee. No options,
unless granted pursuant to an agreement specifically permitting
transfer as described in Section 2.2(A), shall be transferable by an
Optionee otherwise than by will or by the laws of
-43-
4
descent and distribution of the state of the Optionee's domicile;
provided, however, that an Optionee may execute and file a notice of
designation as provided for in (iii) above.
2.3 OPTION PRICE. The Option exercise price for an Option granted
under the Plan shall be the fair market value of the shares of Common Stock
covered by the Option at the time the Option is granted. For purposes of this
Plan, the fair market value of a share of Common Stock shall be equal to the
last reported sale price per share of Common Stock on the date of grant or, if
that date is not a trading date, then the trading date immediately preceding
the date of the grant, or if there is no reported sale, the mean between the
highest closing bid and closing asked price, as quoted on the Nasdaq Stock
Market.
PART III. GENERAL PROVISIONS
3.1 ASSIGNABILITY. The rights and benefits under this Plan shall
not be assignable or transferable by the director, and during the lifetime of
the director Options granted under the Plan shall be exercisable only by him or
her, except as otherwise expressly provided in Section 2.2 of this Plan.
3.2 TIME FOR GRANTING OPTIONS. No options may be granted under
this Plan after the tenth anniversary of the date of the Plan, as amended and
restated, was approved by the shareholders of the Company i.e., May 12, 2002.
3.3 LIMITATION OF RIGHTS.
A. NO RIGHT TO CONTINUE AS A DIRECTOR. Neither the
Plan, nor the granting of an Option nor any other action taken
pursuant to the Plan, shall constitute or be evidence of any agreement
or understanding, express or implied, that the Company will retain a
director for any period of time, or at any particular rate of
compensation.
B. NO SHAREHOLDERS' RIGHTS FOR OPTIONS. A director
shall have no rights as a shareholder with respect to the shares
covered by Option(s) until the date of the issuance to him or her of a
stock certificate therefor, and no adjustment will be made for
dividends or other rights for which the record date is prior to the
date such certificate is issued.
3.4 ADJUSTMENTS TO STOCK. In the event any change is made to the
Common Stock subject to the plan or subject to any outstanding Option(s)
granted under the Plan (whether
-44-
5
by reason of merger, consolidation, reorganization, recapitalization, stock
dividend, stock split, combination of shares, exchange of shares, change in
corporate structure or otherwise), then appropriate adjustments shall be made
to the maximum number of shares subject to the Plan and the number of shares
and price per share of stock subject to outstanding Option(s).
3.5 EFFECTIVE DATE OF THE PLAN. This Amended and Restated Plan
shall take effect on the date of adoption by the shareholders of the Company,
and shall be applicable to all incumbent directors as of that date.
3.6 AMENDMENT OF THE PLAN. The Board of Directors of the Company
may suspend or discontinue the Plan or revise or amend it in any respect
whatsoever; provided, however, that without approval of the shareholders no
revision or amendment shall change the number of shares subject to the Plan
(except as provided in Section 3.4), change the designation of the class of
directors eligible to receive Options, materially increase the benefits
accruing to participants under the Plan or alter or impair any rights or
obligations of any Option previously granted without the consent of the
director holding such Option.
3.7 GOVERNING LAW. The Plan and all determinations made and
actions taken pursuant hereto shall be governed by and interpreted and
construed in accordance with the laws and in the courts of the state of
Michigan.
3.8 EXPENSES OF THE PLAN. All costs and expenses of the adoption
and administration of the Plan shall be borne by the Company.
CERTIFICATION
The foregoing Plan was amended and restated by the Board of Directors
of the Company on March 7, 1997.
/s/ Connie Hamblin
-----------------------------------
Connie Hamblin, Secretary
-45-
1
EXHIBIT 21
LIST OF GENTEX CORPORATION SUBSIDIARIES
1. E.C. Aviation Services, Inc., a Michigan corporation, is a wholly-owned
subsidiary of Gentex Corporation.
2. Gentex International Corporation, a Foreign Sales Corporation
incorporated in Barbados, is a wholly-owned subsidiary of Gentex
Corporation.
3. Gentex Holdings, Inc., a Michigan corporation, is a wholly-owned
subsidiary of Gentex Corporation.
4. Gentex GmbH, a German limited liability company, is a subsidiary 50%
owned by Gentex Corporation and 50% owned by Gentex Holdings, Inc.
Exhibit 21
-46-
1
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation of our report included in this Form 10-K, into the
Company's previously filed Registration Statement File Nos.
33-34661, 33-65321, 33-64504, 33-31408 and 33- 50396.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Grand Rapids, Michigan
March 12, 1997
- 47 -
5
12-MOS
DEC-31-1996
DEC-31-1996
16,730,356
31,803,621
17,015,174
0
6,180,422
72,695,860
47,220,468
(15,645,921)
140,378,420
11,360,917
0
0
0
2,084,957
125,718,684
140,378,420
148,708,218
148,708,218
93,582,756
93,582,756
(3,642,827)
0
0
35,492,395
11,519,000
23,963,395
0
0
0
23,963,395
0.67
0.67
