<PAGE>


                               SEVERANCE AGREEMENT

     THIS AGREEMENT is entered into as of June 29, 2001, by and between Donnelly
Corporation, a Michigan corporation, and J. Dwane Baumgardner (the "Executive").

     WHEREAS, the Executive currently serves as a key employee of the Company
and his services and knowledge are valuable to the Company in connection with
the management of one or more of the Company's principal operating facilities,
divisions, departments or subsidiaries; and

     WHEREAS, the Board has determined that it is in the best interests of the
Company and its stockholders to secure the Executive's continued services and to
ensure the Executive's continued dedication and objectivity in the event of any
threat or occurrence of, or negotiation or other action that could lead to, or
create the possibility of, a Change in Control of the Company, without concern
as to whether the Executive might be hindered or distracted by personal
uncertainties and risks created by any such possible Change in Control, and to
encourage the Executive's full attention and dedication to the Company, the
Board has authorized the Company to enter into this Agreement.

     NOW, THEREFORE, for and in consideration of the premises and the mutual
covenants and agreements herein contained, the Company and the Executive hereby
agree as follows:

Section 1.  Term.

     This Agreement will commence on the Effective Date and shall continue in
effect for three (3) full years from the date hereof. However, at the end of
such three (3) year period and, if extended, at the end of each additional year
thereafter, the term of this Agreement shall be extended automatically for one
(1) additional year, unless the Board delivers written notice six (6) months
prior to the end of such term, or extended term, to the Executive, that this
Agreement will not be extended. If the Board delivers such written notice, this
Agreement will terminate at the end of the term, or extended term, then in
progress. Notwithstanding the foregoing, no such action shall be taken by the
Board during any period of time when the Board has knowledge that any Person has
taken steps reasonably calculated to effect a Change in Control until, in the
opinion of the Board, such Person has abandoned or terminated its efforts to
effect a Change in Control; and provided further, that in no event shall this
Agreement be terminated in the event of a Change in Control. If the Board
delivers such written notice, this Agreement will terminate at the end of the
term, or extended term, then in progress.

     However, in the event a Change in Control occurs during the original or any
extended term, this Agreement will remain in effect for the longer of: (i)
twenty-four (24) months beyond the month in which such Change in Control
occurred; or (ii) until all obligations of the Company hereunder have been
fulfilled, and until all benefits required hereunder have been paid to the
Executive.

Section 2.  Definitions.

     Whenever used in this Agreement, the following terms shall have the
meanings set forth below and, when the meaning is intended, the initial letter
of the word is capitalized.

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         2.1      "Base Salary" means the salary of record paid to an Executive
                  as annual salary, excluding amounts received under incentive
                  or other bonus plan, whether or not deferred.

         2.2      "Beneficial  Owner" shall have the meaning  ascribed to such
                  term in Rule 13d-3 of the General Rules and  Regulations under
                  the Exchange Act.

         2.3      "Beneficiary"  means the persons or entities  designated or
                  deemed  designated  by the Executive  pursuant to Section
                  11.3.

         2.4      "Board" means the Board of Directors of the Company.

         2.5      "Cause" means: (a) the Executive's willful and continued
                  failure to substantially perform his duties with the Company
                  which do not differ, in any material respect, from the
                  Executive's duties and responsibilities during the ninety (90)
                  day period immediately prior to a Change in Control (other
                  than any such failure resulting from Disability or occurring
                  after issuance by the Executive of a Notice of Termination for
                  Good Reason), after a written demand for substantial
                  performance is delivered to the Executive that specifically
                  identifies the manner in which the Company believes that the
                  Executive has willfully failed to substantially perform his
                  duties, and after the Executive has failed to resume
                  substantial performance of his duties on a continuous basis
                  within fourteen (14) calendar days of receiving such demand;
                  (b) the Executive's willfully engaging in conduct (other than
                  conduct covered under (a) above) which is demonstrably and
                  materially injurious to the Company, monetarily or otherwise;
                  or (c) the Executive's having been convicted of a felony. For
                  purposes of this subparagraph, no act, or failure to act, on
                  the Executive's part shall be deemed "willful" unless done, or
                  omitted to be done, by the Executive not in good faith and
                  without reasonable belief that the action or omission was in
                  the best interests of the Company.

         2.6      "Change in Control" means an occurrence of a nature with
                  respect to the Company that would be required to be reported
                  in response to Item 6(e) of Schedule 14A of Regulation 14A
                  promulgated under the Exchange Act. Without limiting the
                  inclusiveness of the definition in the preceding sentence, a
                  Change in Control shall be deemed to have occurred as of the
                  first day that any one or more of the following conditions is
                  satisfied:

                  (a)      Any Person is or becomes the Beneficial Owner,
                           directly or indirectly, of securities of the Company
                           representing forty percent (40%) or more of the
                           combined voting power of the Company's then
                           outstanding securities; or

                  (b)      At any time a majority of the Board of Directors of
                           the Company is comprised of other than Continuing
                           Directors (for purposes of this section, the term
                           Continuing Director means a director who was either
                           (i) first elected or appointed as a director prior to
                           the Effective Date of this Agreement; or (ii)
                           subsequently elected or appointed as a director if
                           such



                                       2

<PAGE>

                           director was nominated or appointed by at least a
                           majority of the then Continuing Directors); or

                  (c)      Any of the following occur:

                           (i)       Any merger or consolidation of the Company,
                                     other than a merger or consolidation in
                                     which the voting securities of the Company
                                     immediately prior to the merger or
                                     consolidation continue to represent (either
                                     by remaining outstanding or being converted
                                     into securities of the surviving entity)
                                     fifty percent (50%) or more of the combined
                                     voting power of the Company or surviving
                                     entity immediately after the merger of
                                     consolidation with another entity;

                           (ii)      Any sale, exchange, lease, mortgage,
                                     pledge, transfer, or other disposition (in
                                     a single transaction or a series of related
                                     transactions) of all or all but a
                                     non-material portion of the assets of the
                                     Company.

                           (iii)     Any liquidation or dissolution of the
                                     Company;

                           (iv)      Any reorganization, reverse stock split, or
                                     recapitalization of the Company which would
                                     result in a Change in Control; or

                           (v)       Any transaction or series of related
                                     transactions having, directly or
                                     indirectly, the same effect as any of the
                                     foregoing; or any agreement, contract, or
                                     other arrangement providing for any of the
                                     foregoing.

         2.7      "Code" means the United States Internal Revenue Code of 1986,
                  as amended.

         2.8      "Committee" means the Compensation Committee of the Board or
                  any other committee appointed by the Board to perform the
                  functions of the Compensation Committee.

         2.9      "Company" means Donnelly Corporation, or any successor thereto
                  as provided in Section 10.

         2.10     "Disability" means that, as a result of the Executive's
                  incapacity due to physical or mental illness, the Executive
                  shall have been absent from the full-time performance of his
                  duties with the Company for twelve (12) consecutive months
                  and, within thirty (30) calendar days after written notice of
                  suspension due to Disability is given, the Executive shall not
                  have returned to the full-time performance of his duties.

         2.11     "Earned  Bonus" means the  executive  bonus paid or payable to
                  the  Executive  with respect to any fiscal year of the
                  Company.

         2.12     "Effective Date" means the date of this Agreement set forth
                  above.



                                       3

<PAGE>

         2.13     "Effective Date of Termination" means (i) the date on which a
                  Qualifying Termination occurs which triggers the payment of
                  Severance Benefits under this Agreement, (ii) if the Executive
                  dies, the date of his death, (iii) if the Executive becomes
                  disabled, the date of his Disability, or (iv) if the
                  Executive's termination of employment is not a Qualifying
                  Termination and not because of his death or Disability, the
                  date specified in a written notice given pursuant to Section
                  11.1 prior to termination specifying the effective date of
                  such termination.

         2.14     "Exchange Act" means the United States Securities Exchange Act
                  of 1934, as amended.

         2.15     "Good Reason" shall mean, without the Executive's  express
                  written consent,  the occurrence of any one or more of the
                  following:

                  (a)      The assignment of the Executive to duties materially
                           inconsistent with the Executive's authority, duties,
                           responsibilities, and status (including offices,
                           titles, and reporting requirements) as an employee of
                           the Company, or a reduction or alteration in the
                           nature or status of the Executive's authorities,
                           duties, or responsibilities from those in effect
                           during the immediately preceding fiscal year other
                           than changes all of which are beneficial to the
                           Executive and which are accompanied by a material and
                           commensurate increase in compensation;

                  (b)      The Company's requiring the Executive to be based at
                           a location which is thirty-five (35) miles farther
                           from the facility which is the Executive's principal
                           business office than such distance at the time of the
                           Change in Control, except for required travel on the
                           Company's business to an extent substantially
                           consistent with the Executive's business obligations
                           in effect in the fiscal year preceding the Change in
                           Control;

                  (c)      A reduction by the Company in the Executive's Base
                           Salary or target incentive cash bonus as in effect on
                           the Effective Date or as the same shall be increased
                           from time to time;

                  (d)      A material reduction in the Executive's level of
                           participation in any of the Company's short- and/or
                           long-term incentive compensation plans, or employee
                           benefit or retirement plans, policies, practices, or
                           arrangements in which the Executive participates as
                           of the Effective Date; provided, however, that
                           reductions in the levels of participation in any such
                           plans shall not be deemed to be "Good Reason" if the
                           Executive's reduced level of participation in each
                           such program remains substantially consistent with
                           the average level of participation of other
                           Executives who have positions commensurate with the
                           Executive's position;

                  (e)      A successor to the Company refuses or fails to assume
                           and agree to perform this  Agreement,  as
                           contemplated in Section 10;

                  (f)      Any  termination of Executive's employment by the
                           Company that is not  effected  pursuant to a Notice
                           of Termination; or



                                       4

<PAGE>

                  (g)      Any other reason determined in the sole discretion of
                           the Board to be a "Good Reason."

                  The existence of Good Reason shall not be affected by the
                  Executive's incapacity due to physical or mental illness. The
                  Executive's continued employment shall not constitute a waiver
                  of the Executive's rights with respect to any circumstance
                  constituting Good Reason.

         2.16     "Notice of Termination" has the meaning set forth in Section
                  3.7.

         2.17     "Person" shall have the meaning ascribed to such term in
                  Section 3(a)(9) of the Exchange Act and used in Sections 13(d)
                  and 14(d) thereof, including a "group" as provided in Section
                  13(d).

         2.18     "Qualifying Termination" means any of the events described in
                  Section 3.2, the occurrence of which triggers the payment of
                  Severance Benefits under this Agreement.

         2.19     "Retirement" shall mean voluntary termination of employment
                  for other than Good Reason after attaining Retirement Age.

         2.20     "Retirement Age" shall mean sixty-five years of age.

         2.2      "Severance Benefits" means the payment of severance
                  compensation as provided in Section 3.3.

Section 3.  Severance Benefits.

         3.1 Right To Severance Benefits. The Executive shall be entitled to
             ---------------------------
receive from the Company Severance Benefits, as described in Section 3.3, if
there has been a Change in Control and if, within the six (6) month period prior
to the effective date of a Change in Control and after the Board became aware
that any Person was seeking to effect a Change of Control, or within twenty-four
(24) months following the effective date of a Change in Control, the Executive's
employment with the Company shall end for any reason specified in Section 3.2.

             The Executive shall not be entitled to receive Severance Benefits
if he is terminated for Cause, or if his employment with the Company ends due to
death, Disability or Retirement due to a voluntary termination of employment by
the Executive without Good Reason.

         3.2 Qualifying Termination. The occurrence of any one or more of the
             ----------------------
following events within the six (6) month period prior to the effective date of
a Change in Control and after the Board became aware that any Person was seeking
to effect a Change of Control, or within twenty-four (24) months following the
effective date of a Change in Control shall trigger the payment of Severance
Benefits to the Executive under this Agreement:

         (a)      An involuntary termination of the Executive's employment by
                  the Company for reasons other than Cause;



                                       5

<PAGE>

         (b)      A voluntary termination by the Executive for Good Reason; or

         (c)      The Company or any successor company breaches any of the
                  provisions of this Agreement.

         3.3      Description Of Severance Benefits. If the Executive becomes
                  ---------------------------------
entitled to receive Severance Benefits, as provided in Sections 3.1 and
3.2, the Company shall pay to the Executive and provide him with the following:

         (a)      A lump sum cash amount equal to: (i) two (2) times the highest
                  rate of the Executive's annualized Base Salary rate in effect
                  within the three (3) years up to and including the Effective
                  Date of Termination, plus (ii) two (2), times the Executive's
                  average Earned Bonus over the two (2) full fiscal years prior
                  to the Change in Control; if the Executive has not been
                  eligible for an Earned Bonus for two (2) fiscal years, such
                  average Earned bonus shall be deemed to be the Executive's
                  target bonus for the current fiscal year multiplied by the
                  decimal equivalent of the average percentage of target bonus
                  paid to the Company's Corporate Management Team in the last
                  two fiscal years; if the Executive has been eligible for an
                  Earned Bonus for the last full fiscal year but not for the
                  last two full fiscal years, such Average Earned Bonus shall be
                  the average of (i) the Executive's actual Earned Bonus for the
                  last full fiscal year, and (ii) the Executive's target bonus
                  for the current fiscal year multiplied by the decimal
                  equivalent of the average percentage of target bonus paid to
                  the Company's Corporate Management Team in the penultimate
                  full fiscal year prior to the Change in Control; provided,
                  that any amount to be paid pursuant to this Section 3.3(a)
                  shall be reduced by the sum of $18,000 plus any other amount
                  of severance relating to salary or bonus continuation to be
                  received by the Executive upon termination of employment of
                  the Executive under any salary or bonus continuation
                  guideline, plan, agreement, policy or arrangement of the
                  Company and any severance payments the Company is required to
                  make pursuant to the requirements of any United States or
                  foreign law or regulation.

         (b)      A cash amount equal to the sum of (i) the Executive's unpaid
                  Base Salary and accrued vacation pay through the Effective
                  Date of Termination, (ii) the Executive's average Earned Bonus
                  over the two (2) full fiscal years prior to the Change in
                  Control, multiplied by a fraction, the numerator of which is
                  the number of days completed in the then-existing fiscal year
                  through the Effective Date of Termination, and the denominator
                  of which is three hundred sixty-five (365)' if the Executive
                  has not been eligible for an Earned Bonus for two (2) fiscal
                  years, such average Earned bonus shall be deemed to be the
                  Executive's target bonus for the current fiscal year
                  multiplied by the decimal equivalent of the average percentage
                  of target bonus paid to the Company's Corporate Management
                  Team in the last two fiscal years; if the Executive has been
                  eligible for an Earned Bonus for the last full fiscal year but
                  not for the last two full fiscal years, such Average Earned
                  Bonus shall be the average of (i) the Executive's actual
                  Earned Bonus for the last full fiscal year, and (ii) the
                  Executive's target bonus for the current fiscal year
                  multiplied by the decimal equivalent of the average percentage
                  of target bonus paid to the Company's Corporate Management
                  Team in the penultimate



                                       6

<PAGE>

                  full fiscal year prior to the Change in Control; (iii) any
                  Earned Bonus for the previous fiscal year which has not yet
                  been paid, and (iv) any compensation previously deferred by
                  the Executive other than pursuant to any deferred stock plan
                  or any tax qualified plan (together with any interest and
                  earnings thereon), in each case to the extent not previously
                  paid.

         (c)      A continuation of the welfare benefits of health care, life
                  and accidental death and dismemberment, and disability
                  insurance coverage for two (2) years after the Effective Date
                  of Termination. These benefits shall be provided to the
                  Executive at the same premium cost, and at the same coverage
                  level, as in effect as of the Executive's Effective Date of
                  Termination. If, however, the premium cost and/or level of
                  coverage shall change for all employees of the Company, the
                  cost and/or coverage level, likewise, shall change for each
                  Executive in a corresponding manner. The continuation of these
                  welfare benefits shall be discontinued prior to the end of the
                  two (2) year period or the date on which the Executive has
                  available substantially similar benefits from a subsequent
                  employer, as determined by the Committee.

         (d)      To the extent not theretofore paid or provided, the Company
                  shall timely pay or provide to the Executive any other amounts
                  or benefits required to be paid or provided or which the
                  Executive is eligible to receive under any plan, program,
                  policy or practice or contract or agreement of the Company and
                  its affiliated companies through the Effective Date of
                  Termination, and the payments received and the time period
                  over which benefits are payable under Section 3.3(c) shall be
                  included for determining participation eligibility, vesting
                  and the amount of any benefit.

         (e)      To the extent not theretofore paid or provided, the Company
                  shall timely deliver to the Executive ownership of the
                  Executive's then provided Company vehicle in the form of the
                  transfer of title and the satisfaction and payment of any
                  amounts then owing thereon.

         3.4 Termination For Disability. Following a Change in Control, if a
             --------------------------
Executive's employment is terminated due to Disability, the Executive shall
receive his Base Salary through the Effective Date of Termination, at which
point in time the Executive's benefits shall be determined in accordance with
the Company's disability, retirement, insurance, and other applicable plans and
programs then in effect.

         3.5 Termination For Retirement Or Death. Following a Change in Control,
             -----------------------------------
if the Executive's employment is terminated by reason of his Retirement or
death, the Executive shall receive his Base Salary through the Effective Date of
Termination, at which point in time the Executive's benefits shall be determined
in accordance with the Company's retirement, survivor's benefits, insurance, and
other applicable plans and programs of the Company then in effect.

         3.6 Termination For Cause, Or Other Than For Good Reason Or Retirement.
             ------------------------------------------------------------------
Following a Change in Control, if the Executive's employment is terminated
either: (a) by the Company for Cause; or (b) by the Executive other than for
Retirement, death or disability and other than for Good Reason, the Company
shall pay the Executive his full Base Salary and accrued vacation through the
Effective Date of Termination, at the rate then in effect, plus all



                                       7

<PAGE>

other amounts to which the Executive is entitled under any compensation plans of
the Company, at the time such payments are due, and the Company shall have no
further obligations to the Executive under this Agreement.

         3.7 Notice Of Termination. Any termination by the Company for Cause or
             ---------------------
by the Executive for Good Reason shall be communicated by a Notice of
Termination. For purposes of this Agreement, a "Notice of Termination" shall
mean a written notice which shall indicate the specific termination provision in
this Agreement relied upon, and shall set forth in reasonable detail the facts
and circumstances claimed to provide a basis for termination of the Executive's
employment under the provision so indicated.

Section 4.  Form and Timing of Severance Benefits.

         4.1 Form And Timing Of Severance Benefits. The Severance Benefits
             -------------------------------------
described in Sections 3.3(a), 3.3(b), and 3.3(d) shall be paid in cash to the
Executive in a single lump sum as soon as practicable following the Effective
Date of Termination, but in no event beyond thirty (30) days from such date.

         4.2 Withholding Of Taxes. The Company shall be entitled to withhold
             --------------------
from any amounts payable under this Agreement all taxes which are legally
required to be withheld (including, without limitation, any United States
federal taxes and any other state, city, or local taxes or foreign taxes), and
are actually paid to such governmental authority by the Company.

Section 5.  Excise Tax Equalization Payment.

         5.1 Excise Tax Equalization Payment. If the Executive becomes entitled
             -------------------------------
to Severance Benefits or any other payment or benefit under this Agreement, or
under any other agreement with or plan of the Company (in the aggregate, the
"Total Payments") , if all or any part of the Total Payments will be subject to
the tax (the "Excise Tax") imposed by Section 4999 of the Code (or any similar
tax that may hereafter be imposed), the Company shall pay to the Executive in
cash an additional amount (the "Gross-Up Payment") in such amount such that
after payment by the Executive of any federal, state, and local income tax,
penalties, interest, and Excise Tax upon the Gross-Up Payment provided for by
this Section 5.1 (including FICA and FUTA), the Executive retains an amount of
the Gross-Up Payment equal to the Excise Tax upon the Total Payments. Such
payment shall be made by the Company to the Executive as soon as practical
following the Effective Date of Termination, but in no event beyond thirty (30)
days from such date.

         5.2 Tax Computation. For purposes of determining whether any of the
             ---------------
Total Payments will be subject to the Excise Tax and the amounts of such Excise
Tax:

         (a)      Any other payments or benefits received or to be received by
                  the Executive in connection with a Change in Control of the
                  Company or the Executive's termination of employment (whether
                  pursuant to the terms of this Agreement or any other plan,
                  arrangement, or agreement with the Company, or with any Person
                  whose actions result in a Change in Control of the Company or
                  any Person affiliated with the Company or such Persons) shall
                  be treated as "parachute payments" within the meaning of
                  Section 280G(b) (2) of the Code, and all "excess parachute
                  payments" within the meaning of Section 280G(b) (1) shall be
                  treated



                                       8

<PAGE>

                  as subject to the Excise Tax, unless in the opinion of tax
                  counsel as supported by the Company's independent auditors and
                  acceptable to the Executive, such other payments or benefits
                  (in whole or in part) do not constitute parachute payments, or
                  unless such excess parachute payments (in whole or in part)
                  represent reasonable compensation for services actually
                  rendered within the meaning of Section 280G(b) (4) of the Code
                  in excess of the base amount within the meaning of Section
                  280G(b) (3) of the Code, or are otherwise not subject to the
                  Excise Tax;

         (b)      The amount of the Total Payments which shall be treated as
                  subject to the Excise Tax shall be equal to the lesser of: (i)
                  the total amount of the Total Payments; or (ii) the amount of
                  excess parachute payments within the meaning of Section
                  280G(b) (1) (after applying clause (a) above); and

         (c)      The value of any noncash benefits or any deferred payment or
                  benefit shall be determined by the Company's independent
                  auditors in accordance with the principles of Sections 280G(d)
                  (3) and (4) of the Code.

         For purposes of determining the amount of the Gross-Up Payment, the
Executive shall be deemed to pay federal income taxes at the highest marginal
rate of federal income taxation in the calendar year in which the Gross-Up
Payment is to be made, and to pay state and local income taxes at the highest
marginal rate of taxation in the state and locality of the Executive's residence
on the Effective Date of Termination, net of the maximum reduction in federal
income taxes which could be obtained from deduction of such state and local
taxes.

         5.3 Subsequent Recalculation. If the Internal Revenue Service adjusts
             ------------------------
the computation of the Company under Section 5.2 so that the Executive did not
receive the intended net benefit, the Company shall reimburse the Executive for
the full amount necessary to make the Executive whole, including a market rate
of interest, as determined by the Committee.

Section 6.  The Company's Payment Obligations.

         The Company's obligation to make the payments and the arrangements
provided for herein shall be absolute and unconditional, and shall not be
affected by any circumstances, including, without limitation, any offset,
counterclaim, recoupment, defense, or other right which the Company may have
against the Executive or anyone else, except that the Company shall have the
right to set off any indebtedness of the Executive to the Company for borrowed
money which indebtedness is represented by a promissory note. All amounts
payable by the Company hereunder shall be paid without notice or demand. Each
and every payment made hereunder by the Company shall be final, and the Company
shall not seek to recover all or any part of such payment from the Executive or
from whomsoever may be entitled thereto, for any reasons whatsoever.

         The Executive shall not be obligated to seek other employment in
mitigation of the amounts payable or arrangements made under any provision of
this Agreement, and the obtaining of any such other employment shall in no event
effect any reduction of the Company's obligations to make the payments and
arrangements required to be made under this Agreement, except to the extent
provided in Section 3.3(c).



                                       9

<PAGE>

Section 7.  Legal Remedies.

         7.1 Payment Of Legal Fees. To the extent permitted by law, the Company
             ---------------------
shall reimburse the Executive for all legal fees, costs of litigation,
prejudgment interest, and other expenses incurred in good faith by the Executive
as a result of the Company's refusal to provide the Severance Benefits to which
the Executive becomes entitled under this Agreement, or as a result of the
Company's contesting the validity, enforceability, or interpretation of this
Agreement, or as a result of any conflict between the parties pertaining to this
Agreement, if the Executive prevails with respect to any one material issue of
dispute in connection with such legal action.

         7.2 Arbitration. The Executive shall have the right and option to elect
             -----------
(in lieu of litigation) to have any dispute or controversy arising under or in
connection with this Agreement settled by arbitration, conducted before a panel
of three (3) arbitrators sitting in a location selected by the Executive within
fifty (50) miles from the location of his employment with the Company, in
accordance with the rules of the American Arbitration Association then in
effect.

         Judgment may be entered on the award of the arbitrator in any court
having proper jurisdiction. All expenses of the arbitrators shall be borne by
the Company. If the Executive prevails with respect to any one material issue of
dispute in connection with such arbitration, the Company shall pay to the
Executive the fees and expenses of the counsel for the Executive incurred with
respect to the arbitration.

Section 8.  Outplacement Assistance.

         Following a Qualifying Termination (as described in Section 3.2), the
Executive shall be reimbursed by the Company for the costs of all outplacement
services obtained by the Executive within the two (2) year period after the
Effective Date of Termination; provided, however, that the total reimbursement
shall be limited to an amount equal to the lesser of fifteen percent (15%) of
the Executive's Base pay, or $25,000.

Section 9.  Obligations of the Executive.

         9.1 Limitation on Executive's Voluntary Termination. The Executive
             -----------------------------------------------
agrees that if any Person attempts a Change in Control, he shall not voluntarily
leave the employ of the Company without a Good Reason specified in Section
2.15(c) or 2.15(d) (a) until such attempted Change in Control terminates or (b)
if a Change in Control shall occur, until ninety (90) days following such Change
in Control. For purposes of clause (a) of the preceding sentence, Good Reason
shall be determined as if a Change in Control had occurred when such attempted
Change in Control became known to the Board.

         9.2      Confidential Information and Non-Solicitation.
                  ---------------------------------------------

         (a) The Executive acknowledges that, as an employee of the Company, he
will be making use of, acquiring and adding to confidential information of a
special and unique nature and value relating to the Company and its strategic
plan and financial operations. The Executive further recognizes and acknowledges
that all confidential information is the exclusive property of the Company, is
material and confidential, and is critical to the successful conduct of the
business of the Company. Accordingly, the Executive covenants and agrees that he
will use



                                       10

<PAGE>

confidential information for the benefit of the Company only and shall not at
any time, directly or indirectly, during the term of this Agreement or
thereafter divulge, reveal or communicate any confidential information to any
person, firm, corporation or entity whatsoever, or use any confidential
information for his own benefit or for the benefit of others. The Executive also
agrees not to engage in any business involving the production or design of any
products that are similar to any of the principal products of the Company (as
determined on the Effective Date of Termination), directly or indirectly,
whether as an employee, proprietor, partner, shareholder, consultant or
otherwise, for one (1) year after the Effective Date of Termination. The
Executive also agrees not to hire or solicit for hire, directly or indirectly,
any employee on the payroll of the Company for any third party during the term
of this Agreement and for one (1) year after the Date of Termination without the
prior written consent of the Company. In no event shall an asserted violation of
the provisions of this Section 9.2 constitute a basis for deferring or
withholding any amounts otherwise payable to the Executive under this Agreement.

         (b) Any termination of the Executive's employment or of this Agreement
shall have no effect on the continuing operation of this Section 9.2.

         (c) The Executive acknowledges and agrees that the Company will have no
adequate remedy at law, and could be irreparably harmed, if the Executive
breaches or threatens to breach any of the provisions of this Section 9.2. The
Executive agrees that the Company shall be entitled to equitable and/or
injunctive relief to prevent any breach or threatened breach of this Section
9.2, and to specific performance of each of the terms hereof in addition to any
other legal or equitable remedies that the Company may have. The Executive
further agrees that he shall not, in any equity proceeding relating to the
enforcement of the terms of this Section 9.2, raise the defense that the Company
has an adequate remedy at law.

Section 10.  Successors and Assignment.

         10.1     Successors To The Company.
                  -------------------------

                  (a) This Agreement shall not be terminated by any merger or
consolidation of the Company whether the Company is or is not the surviving or
resulting corporation or as a result of any transfer of all or substantially all
of the assets of the Company. In the event of any such merger, consolidation or
transfer of assets, the provisions of this Agreement shall be binding upon the
surviving or resulting corporation or the person or entity to which such assets
are transferred.

                  (b) The Company agrees that concurrently with any merger,
consolidation or transfer of assets referred to in Section 10.1(a), it will
cause any successor or transferee unconditionally to assume, by written
instrument delivered to the Executive (or his Beneficiary or estate), all of the
obligations of the Company hereunder. Failure of the Company to obtain such
assumption prior to the effectiveness of any such merger, consolidation or
transfer of assets shall be a breach of this Agreement and shall entitle the
Executive to compensation and other benefits from the Company in the same amount
and on the same terms as the Executive would be entitled hereunder if the
Executive's employment were terminated following a Change in Control voluntarily
for Good Reason. For purposes of implementing the foregoing, the date on which
any such merger, consolidation or transfer becomes effective shall be deemed the
Effective Date of Termination.



                                       11

<PAGE>

         10.2 Assignment By The Executive. This Agreement shall inure to the
              ---------------------------
benefit of and be enforceable by the Executive's personal or legal
representatives, executors, administrators, successors, heirs, distributees,
devisees, and legatees. If the Executive dies while any amount would still be
payable to him hereunder had he continued to live, all such amounts, unless
otherwise provided herein, shall be paid in accordance with the terms of this
Agreement to the Executive's Beneficiary. If the Executive has not named a
Beneficiary, then such amounts shall be paid to the Executive's devisee,
legatee, or other designee, or if there is no such designee, to the Executive's
estate.

Section 11  Miscellaneous.

         11.1. Notices. For purposes of this Agreement, all notices, including
               -------
without limitation, a Notice of Termination, and other communications required
or permitted hereunder shall be in writing and shall be deemed to have been duly
given when delivered or five days after deposit in the United States mail,
certified and return receipt requested, postage prepaid, addressed (1) if to the
Executive, to 1380 South Shore Drive, Holland, Michigan 49423, and if to the
Company, to 49 West Third Street, Holland, Michigan, attention Board of
Directors, with a copy to the Secretary, or (2) to such other address as either
party may have furnished to the other in writing in accordance herewith, except
that notices of change of address shall be effective only upon receipt.

         11.2. Employment Status. Except as may be provided under any other
               -----------------
agreement between the Executive and the Company, the employment of the Executive
by the Company is "at will," and may be terminated by either the Company or the
Executive at any time, subject to applicable law and subject to the respective
obligations of the Company and the Executive under the terms of this Agreement.

         11.3. Beneficiaries. The Executive may designate one or more persons or
               -------------
entities as the primary and/or contingent Beneficiaries of any Severance
Benefits owing to the Executive under this Agreement. Such designation must be
in the form of a signed writing acceptable to the Committee. The Executive may
make or change such designations at any time.

         11.4. Severability. In the event any provision of this Agreement shall
               ------------
be held illegal or invalid for any reason, the illegality or invalidity shall
not affect the remaining parts of the Agreement, and the Agreement shall be
construed and enforced as if the illegal or invalid provision had not been
included. Further, the captions of this Agreement are not part of the provisions
hereof and shall have no force and effect.

         11.5. Modification. No provision of this Agreement may be modified,
               ------------
waived, or discharged unless such modification, waiver, or discharge is agreed
to in writing and signed by the Executive and by an authorized member of the
Committee, or by the respective parties' legal representatives and successors.

         11.6. Applicable Law. To the extent not preempted by the laws of the
               --------------
United States, the laws of the state of Michigan shall be the controlling law in
all matters relating to this Agreement.



                                       12

<PAGE>

         IN WITNESS WHEREOF, the parties have signed this Agreement as of the
day and year written above.

                                    DONNELLY CORPORATION


                                    By
                                      ------------------------------------------
                                      Steven Crandall
                                      Senior Vice President of Human Resources

                                      ------------------------------------------
                                      J. Dwane Baumgardner




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