UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
- --- OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 3, 1999
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OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
- --- OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
---------- ----------
Commission File No. 0-14800
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X-RITE, INCORPORATED
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(Exact name of registrant as specified in its charter)
Michigan 38-1737300
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
3100 44th Street, SW, Grandville, Michigan 49418
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(Address of principal executive offices) (Zip Code)
(616) 534-7663
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(Registrant's telephone number, including area code)
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
--- ---
The number of shares outstanding of registrant's common stock, par value
$.10 per share, at August 2, 1999 was 21,209,238 shares.
Exhibit Index on page 16.
-1-
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
X-RITE, INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
July 3, January 2,
1999 1999
----------- -----------
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 9,850,000 $ 1,536,000
Short-term investments 11,423,000 19,268,000
Accounts receivable, less allowances of
$838,000 in 1999 and $798,000 in 1998 18,252,000 19,589,000
Inventories 15,105,000 15,871,000
Deferred tax assets 1,787,000 1,495,000
Prepaid expenses and other current assets 1,965,000 980,000
----------- -----------
Total current assets 58,382,000 58,739,000
PROPERTY AND EQUIPMENT, at cost 40,414,000 37,337,000
Less accumulated depreciation (21,190,000) (19,553,000)
----------- -----------
19,224,000 17,784,000
OTHER ASSETS:
Costs in excess of net assets acquired 8,271,000 8,572,000
Cash value of life insurance 6,589,000 3,091,000
Other noncurrent assets 7,398,000 7,258,000
----------- -----------
22,258,000 18,921,000
----------- -----------
$99,864,000 $95,444,000
=========== ===========
See accompanying notes to condensed consolidated financial statements.
-2-
X-RITE, INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS--Continued
July 3, January 2,
1999 1999
----------- -----------
(Unaudited)
LIABILITIES AND SHAREHOLDERS' INVESTMENT
CURRENT LIABILITIES:
Accounts payable $ 1,670,000 $ 1,772,000
Accrued liabilities--
Payroll and employee benefits 1,848,000 1,618,000
Income taxes - 309,000
Other accrued liabilities 1,341,000 1,626,000
----------- -----------
Total current liabilities 4,859,000 5,325,000
VALUE OF SHARES SUBJECT TO
REDEMPTION AGREEMENTS 45,400,000 45,400,000
SHAREHOLDERS' INVESTMENT:
Common stock 1,666,000 1,664,000
Additional paid-in capital 8,259,000 8,143,000
Retained earnings 45,055,000 39,793,000
Shares in escrow (4,807,000) (4,794,000)
Cumulative translation adjustment (568,000) (87,000)
----------- -----------
49,605,000 44,719,000
----------- -----------
$99,864,000 $95,444,000
=========== ===========
See accompanying notes to condensed consolidated financial statements.
-3-
X-RITE, INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three Months Ended Six Months Ended
July 3, July 4, July 3, July 4,
1999 1998 1999 1998
----------- ----------- ----------- -----------
Net sales $24,331,000 $24,286,000 $48,019,000 $47,923,000
Cost of sales 8,224,000 8,200,000 16,057,000 16,221,000
----------- ----------- ----------- -----------
Gross profit 16,107,000 16,086,000 31,962,000 31,702,000
Operating expenses:
Selling & marketing 5,021,000 5,042,000 9,932,000 10,132,000
Engineering, general
& administrative 3,941,000 4,078,000 8,326,000 7,885,000
Research & development 2,189,000 1,983,000 4,372,000 4,094,000
----------- ----------- ----------- -----------
11,151,000 11,103,000 22,630,000 22,111,000
----------- ----------- ----------- -----------
Operating income 4,956,000 4,983,000 9,332,000 9,591,000
Other income 181,000 91,000 412,000 195,000
----------- ----------- ----------- -----------
Income before
income taxes 5,137,000 5,074,000 9,744,000 9,786,000
Income taxes 1,811,000 1,725,000 3,435,000 3,327,000
----------- ----------- ----------- -----------
NET INCOME $ 3,326,000 $ 3,349,000 $ 6,309,000 $ 6,459,000
=========== =========== =========== ===========
Earnings per share:
Basic $.16 $.16 $.30 $.31
==== ==== ==== ====
Diluted $.15 $.16 $.29 $.31
==== ==== ==== ====
Cash dividends per share $.025 $.025 $.050 $.050
===== ===== ===== =====
See accompanying notes to condensed consolidated financial statements.
-4-
X-RITE, INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Six Months Ended
July 3, July 4,
1999 1998
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES $9,336,000 $8,444,000
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of investments 19,875,000 2,050,000
Proceeds from maturities of investments 1,098,000 1,880,000
Purchases of investments (13,133,000) (4,697,000)
Capital expenditures (3,259,000) (1,315,000)
Acquisitions, less cash acquired - (382,000)
Purchases of other assets (705,000) (710,000)
Increase in cash value of life insurance (3,498,000) (3,039,000)
Other investing activities 56,000 55,000
---------- ----------
Net cash and cash equivalents provided
by (used for) investing activities 434,000 (6,158,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid (1,060,000) (1,058,000)
Issuance of common stock 118,000 151,000
---------- ----------
Net cash and cash equivalents
used for financing activities (942,000) (907,000)
EFFECT OF EXCHANGE RATE CHANGES ON CASH
AND CASH EQUIVALENTS (514,000) 90,000
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NET INCREASE IN CASH AND CASH EQUIVALENTS 8,314,000 1,469,000
CASH AND CASH EQUIVALENTS AT BEGINNING
OF YEAR 1,536,000 2,808,000
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CASH AND CASH EQUIVALENTS AT END OF QUARTER $9,850,000 $4,277,000
========== ==========
See accompanying notes to condensed consolidated financial statements.
-5-
X-RITE, INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1--BASIS OF PRESENTATION
The condensed consolidated financial statements included herein have been
prepared by X-Rite Incorporated ("X-Rite" or the "Company"), without audit,
pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included
in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules
and regulations, although the Company believes that the disclosures are
adequate to make the information presented not misleading. It is suggested
that these condensed consolidated financial statements be read in
conjunction with the consolidated financial statements and notes thereto
included in X-Rite's 1998 annual report on Form 10-K.
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements contain all adjustments necessary to
present fairly the financial position of the Company as of July 3, 1999 and
the results of its operations and its cash flows for the three and six
month periods ended July 3, 1999 and July 4, 1998. All such adjustments
are of a normal and recurring nature.
NOTE 2--INVENTORIES
Inventories consisted of the following:
July 3, January 2,
1999 1999
----------- -----------
Raw materials $ 6,355,000 $ 6,575,000
Work in process 5,140,000 5,623,000
Finished goods 3,610,000 3,673,000
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$15,105,000 $15,871,000
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-6-
X-RITE, INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED), continued
NOTE 3--EARNINGS PER SHARE
Basic earnings per share ("EPS") is computed by dividing net income by the
weighted-average number of common shares outstanding in each quarter.
Diluted EPS is computed by dividing net income by the weighted-average
number of common shares outstanding plus all shares that would have been
outstanding if every potentially dilutive common share had been issued.
The following table reconciles the numerators and denominators used in the
calculations of basic and diluted EPS for each period presented in the
accompanying financial statements:
Three Months Ended Six Months Ended
July 3, July 4, July 3, July 4,
1999 1998 1999 1998
---------- ---------- ---------- ----------
Numerators:
Net income numerators
for both basic and
diluted EPS $3,326,000 $3,349,000 $6,309,000 $6,459,000
========== ========== ========== ==========
Denominators:
Denominators for basic
EPS; weighted average
common shares
outstanding 20,943,240 20,908,764 20,936,382 20,909,056
Potentially
dilutive shares-
Shares subject to
redemption agreements 1,155,876 - 1,033,539 -
Stock options 8,322 77,619 9,775 90,263
---------- ---------- ---------- ----------
Denominators for
diluted EPS 22,107,438 20,986,383 21,979,696 20,999,319
========== ========== ========== ==========
During the second quarter of 1999, certain shares subject to redemption
agreements (see Note 5) were considered dilutive. Certain exercisable
stock options were not included in the calculation of diluted EPS because
option prices were greater than the average market prices for the periods
presented. The number of stock options not included in the calculation of
diluted EPS and the range of exercise prices was 904,400 and $7.03 - $19.50
in 1999, and 525,500 and $14.50 - $19.50 in 1998.
-7-
X-RITE, INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED), continued
NOTE 4--COMPREHENSIVE INCOME
Comprehensive income consisted of net income and foreign currency
translation adjustments, and was $2,885,000 and $5,828,000 for the three
and six month periods ended July 3, 1999; and $3,482,000 and $6,724,000 for
the three and six month periods ended July 4, 1998.
NOTE 5--VALUE OF SHARES SUBJECT TO REDEMPTION AGREEMENTS
In January of 1998 the Company entered into agreements with its founding
shareholders for the future repurchase of 4.54 million shares, or 21.4
percent, of the Company's outstanding stock. The stock purchases will
occur following the later of the death of each founder and his spouse. The
cost of the repurchase agreements will be funded by proceeds from life
insurance policies the Company has purchased on the lives of certain of
these individuals. The price the Company will pay the founders' estates
for these shares will reflect a 10 percent discount from the average
closing price for the ninety trading days preceding the later death of the
founder and his spouse. The discounted price may not be less than $10 per
share or more than $25 per share. The closing price of the Company's
common stock on the day the agreements were announced was $18.75.
The shares subject to the agreements have been reclassified on the
July 3, 1999 balance sheet to a temporary equity account entitled "Value of
Shares Subject to Redemption Agreements." The reclassification of
$45,400,000 was determined by multiplying the applicable shares by the
minimum redemption price of $10, since the average closing price of the
Company's common stock, after applying the 10 percent discount, for the
ninety trading days preceding July 3, 1999 was less than $10.
NOTE 6--SHARES IN ESCROW
During 1997, the Company acquired substantially all the assets of Light
Source Computer Images, Inc. The asset purchase agreement provides for
future contingent consideration if net sales of certain products reaches or
exceeds agreed upon sales goals during twelve month periods that end in
July 1998, 1999 and 2000. The Company established an escrow fund equal to
the maximum contingent cash consideration that could be earned by the
sellers. The investment of escrow funds must be made in accordance with
the terms of an escrow agreement, which allows for certain money market
securities or X-Rite common stock. On July 3, 1999, the escrow fund held
257,064 shares of X-Rite common stock at a cost of $4,769,000, plus $38,000
in dividends received. Accordingly, that portion of the escrow fund is
presented in the accompanying balance sheet as a reduction to shareholders'
investment. This contractual agreement remains in effect until July of
2000.
-8-
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
FINANCIAL CONDITION AND LIQUIDITY
Cash provided by operating activities in the first six months of 1999
totaled $9.3 million. The primary source of cash was net income earned
during the period. Included in net income were certain accounting charges
that did not require the use of cash. The largest non-cash accounting
charges, which totaled $2.4 million, were depreciation and amortization.
Following short-term investment transactions, the most significant
investing activity during the first six months of 1999 was the payment of
life insurance premiums in connection with agreements the Company entered
into with its founding shareholders for the future redemption of 4.54
million shares, or 21.4 percent, of the Company's outstanding stock. The
stock redemptions will occur following the later of the death of each
founder and his spouse. The cost of the redemption agreements will be
funded by proceeds from life insurance policies the Company has purchased
on the lives of certain of these individuals. Of the $4.3 million of
premiums paid in the first quarter, approximately $3.5 million represented
cash surrender value and has been recorded as a noncurrent asset on the
Company's balance sheet.
Capital expenditures in the first six months of 1999 totaled $3.3 million
and consisted mainly of building improvements, machinery and equipment.
X-Rite currently anticipates capital expenditures for the remainder of 1999
will be approximately $1 million and will consist principally of building
improvements, machinery, equipment, and computer hardware and software.
Dividends of $1.1 million were paid during the first half of 1999 which is
equal to an annual rate of 10 cents per share. The Board of Directors
intends to continue paying dividends at this rate in the foreseeable
future.
Management expects that X-Rite's current liquidity, combined with cash flow
from future operations and the Company's $20 million revolving credit
agreement, will be sufficient to finance the Company's operations, life
insurance premiums, capital expenditures and dividends for the foreseeable
future. In the event more funds are required, additional short or
long-term borrowing arrangements are the most likely alternatives for
meeting liquidity and capital resource needs.
-9-
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations, continued
RESULTS OF OPERATIONS
Net Sales:
Second quarter and year-to-date 1999 consolidated net sales were
approximately the same as sales in the same periods a year ago. During the
second quarter there were changes in product mix compared to the prior
year; coatings and printing sales were up 6.9% and 12.5%, respectively,
while imaging and Labsphere sales were down 7.7% and 12.6%, respectively.
On a year-to-date basis, however, product mix was comparable to the prior
year. Geographically, sales approximated prior year periods, with some
gains being posted in Asia.
Cost of Sales and Gross Profit:
Gross profit margins did not change significantly between the periods being
reported. In 1999, gross profit margins were 66.2% for the for the quarter
and 66.6% year to date, compared to 66.2% for the quarter and year to date
in 1998. Although second quarter sales mix changed somewhat from the prior
year, overall gross margin percentages remained consistent.
Operating Expenses:
Sales and marketing activities in 1999 have been funded at levels
essentially comparable to 1998. In 1998 the Company deliberately stepped
up programs aimed at developing long-term growth opportunities, and that
strategy has continued throughout 1999. Sales and marketing expenses in
the second quarter were approximately the same as the prior year, while
expenses year-to-date were down 2.0% compared to 1998.
In year over year comparisons, engineering, general and administrative
("EG&A") expenses were slightly lower in the second quarter and slightly
higher year to date. EG&A expenses in 1999 have been affected by
fluctuations in staffing, the addition of a sales office in France, and
expansion of the Company's Hong Kong and U.K. offices.
Research and development expenses increased 10.4% in the second quarter and
6.8% year to date compared with the same periods in 1998. The Company has
made a conscious decision to continue increasing funding for research
activities in order to boost efforts aimed at expediting new product
introductions.
-10-
Item 2. Management's Discussion and Analysis of Results
of Operations and Financial Condition, continued
RESULTS OF OPERATIONS, continued
Other Income:
Other income consisted mainly of interest earnings from invested funds.
Interest income in the second quarter and year to date was higher than
comparable periods in 1998 due to an increase in funds available for
investment.
Net Income:
The Company recorded net income of $3,326,000 for the three months ended
July 3, 1999 compared to $3,349,000 in the same period of 1998. On a per
share basis, second quarter net income, diluted, was $.15 in 1999 compared
to $.16 in 1998. For the first six months of 1999, net income was
$6,309,000, or $.29 per share diluted, compared to $6,459,000, or $.31 per
share in 1998. The average number of common and common equivalent shares
outstanding was higher in 1999 due to the dilutive effect of shares subject
to redemption (see Note 3).
-11-
Item 2. Management's Discussion and Analysis of Results
of Operations and Financial Condition, continued
YEAR 2000 READINESS DISCLOSURE
X-Rite is actively engaged in taking steps to insure that information
technology ("IT") systems, products, embedded technology and material third
parties are all prepared to process date-related information in the Year
2000 ("Y2K"). X-Rite's senior management has assembled a project team to
address Y2K issues at the Company's world headquarters and at all
subsidiary locations. The Y2K project team has completed readiness
assessment and has developed remediation solutions. Implementation and
testing of remediation solutions is substantially complete. Any remaining
readiness issues are scheduled to be concluded in the third quarter of
1999. Contingency planning is ongoing and will continue throughout the
remainder of 1999.
Company's State of Readiness:
X-Rite's Y2K project team has developed a plan to inventory, assess,
correct and test all technology that may be impacted by Y2K issues. The
four primary areas covered by the plan are as follows:
IT Systems-
Mainframe IT systems are substantially Y2K ready as a result of the
Company purchasing new hardware and software systems in 1995. All
essential network, desktop and communication systems have been
inventoried and assessed; remediation solutions for these systems are
readily available and are expected to be completed on schedule.
Products-
Remediation solutions are being limited to current products produced
or supported. Products that have reached the end of the support
period, or will reach the end of the support period by the year 2000,
have not been included in the assessment process. All of the
Company's currently supported products have been assessed for Y2K
readiness. All but two products have been remediated (if necessary)
and tested. Readiness solutions have been developed for the two
remaining products and will be implemented before the end of 1999.
Physical Plant-
Embedded technology in facilities systems, machinery and equipment has
been inventoried and assessed. No significant Y2K readiness issues
have been identified and completion of all remediation and testing is
expected to be on schedule.
Third Parties-
The Company has sent questionnaires to its suppliers regarding Y2K
readiness and has followed up with second requests to nonrespondents.
Extra attention has been paid to suppliers that are considered
essential for preventing material interruptions in X-Rite's business
operations. Y2K readiness is also being discussed with certain
strategic customers. The assessment is ongoing and will continue
through the remainder of 1999.
-12-
Item 2. Management's Discussion and Analysis of Results
of Operations and Financial Condition, continued
YEAR 2000 READINESS DISCLOSURE, continued
Costs to Address the Company's Y2K Issues:
Based on costs incurred to date, the Company does not believe expenses
related to Y2K readiness will be material to the results of its operations,
financial position or cash flows. Although the Company purchased new
mainframe hardware and software in 1995, it did not accelerate the timing
of replacing these systems in order to accommodate Y2K readiness.
Risks of the Company's Y2K Issues:
The Company believes that it will complete the essential elements of its
Y2K project on schedule. However, due to the uncertain and unprecedented
nature of the Y2K problem, and the uncertainty of Y2K readiness of third
party suppliers and customers, the Company is not able to provide assurance
at this time that the consequences of Y2K interruptions will not have a
material impact on its results of operations, financial position or cash
flows.
Possible consequences of Y2K interruptions include, but are not limited to,
a temporary inability to manufacture or ship product; process transactions;
communicate with customers, suppliers, subsidiary locations and employees;
or conduct other similar corporate activities in a normal business
environment.
Company's Contingency Plans:
Contingency plans for Y2K-related interruptions are currently being
developed and include, but will not be limited to, developing emergency
backup and recovery procedures, temporarily replacing electronic
applications with manual processes, identifying alternate suppliers, and
increasing certain raw material and finished goods inventories. Planning is
ongoing and will continue throughout the remainder of 1999.
The preceding Year 2000 Readiness Disclosure is based in part upon
information provided by certain of the Company's IT suppliers, third party
service providers and various other vendors without independent
verification by the Company.
SAFE HARBOR PROVISIONS UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT
OF 1995.
Statements in this filing that are not historical facts are forward-looking
statements, which involve risks and uncertainties that could affect the
Company's results of operations, financial position and cash flows. Actual
results may differ materially from those projected in the forward-looking
statements, due to a variety of factors, some of which may be beyond the
control of the Company. Readers are cautioned not to place undue reliance
on these forward-looking statements, which speak only as of the date of
this report.
-13-
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
At the Annual Meeting of Shareholders on May 17, 1999, X-Rite's
shareholders voted on the following matters:
1. Election of the following directors to three year terms expiring in
2002:
Affirmative Votes Broker
Votes Withheld Non-votes
----------- -------- ---------
Stanley W. Cheff 18,852,618 440,547 -0-
James A. Knister 18,825,848 467,317 -0-
Company directors Dr. Peter M. Banks, Ted Thompson, and Ronald A.
VandenBerg (whose terms expire in 2001); and Rufus S. Teesdale,
Charles VanNamen and Richard E. Cook (whose terms expire in 2000)
continued as directors of the Company following the annual meeting.
Item 6. Exhibits and Reports on Form 8-K
(a) See Exhibit Index on Page 16 of this Form 10-Q report.
(b) There were no reports on Form 8-K filed by the Registrant
during the quarter ended July 3, 1999.
-14-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
X-RITE, INCORPORATED
August 13, 1999 /s/ Richard E. Cook
----------------------
Richard E. Cook
President and Chief
Operating Officer
August 13, 1999 /s/ Duane F. Kluting
----------------------
Duane F. Kluting
Vice President and
Chief Financial Officer
-15-
EXHIBIT INDEX
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3(a) Restated Articles of Incorporation (filed as exhibit to Form
S-18 dated April 10, 1986 (Registration No. 33-3954C) and
incorporated herein by reference)
3(b) Certificate of Amendment to Restated Articles of Incorporation
adding Article IX (filed as exhibit to Form 10-Q for the quarter
ended June 30, 1987 (Commission File No. 0-14800) and
incorporated herein by reference)
3(c) Certificate of Amendment to Restated Articles of Incorporation
amending Article III (filed as exhibit to Form 10-K for the year
ended December 31, 1995 (Commission File No. 0-14800) and
incorporated herein by reference)
3(d) Certificate of Amendment to Restated Articles of Incorporation
amending Article IV (filed as exhibit to Form 10-K for the year
ended January 2, 1999 (Commission File No. 0-14800) and
incorporated herein by reference)
3(e) Bylaws, as amended and restated January 20, 1998 (filed as
exhibit to Form 10-K for the year ended January 3, 1998
(Commission File No. 0-14800) and incorporated herein by
reference)
4 X-Rite, Incorporated common stock certificate specimen (filed
as exhibit to Form 10-Q for the quarter ended June 30, 1986
(Commission File No. 0-14800) and incorporated herein by
reference)
The following material contracts identified with "*" preceding the exhibit
number are agreements or compensation plans with or relating to executive
officers, directors or related parties.
*10(a) X-Rite, Incorporated Amended and Restated Outside Director Stock
Option Plan, effective as of September 17, 1996 (filed as exhibit
to Form 10-Q for the quarter ended September 30, 1996 (Commission
File No. 0-14800) and incorporated herein by reference)
*10(b) X-Rite, Incorporated Cash Bonus Conversion Plan (filed as
Appendix A to the definitive proxy statement dated April 8, 1996
relating to the Company's 1996 annual meeting (Commission File
No. 0-14800) and incorporated herein by reference)
*10(c) Form of Indemnity Contract entered into between the registrant
and members of the board of directors (filed as exhibit to
Form 10-Q for the quarter ended June 30, 1996 (Commission File
No. 0-14800) and incorporated herein by reference)
-16-
EXHIBIT INDEX
- --------------------------------------------------------------------------
*10(d) Employment Agreement dated April 17,1998 between the registrant
and Richard E. Cook (filed as exhibit to Form 10-K for the year
ended January 2, 1999 (Commission File No. 0-14800) and
incorporated herein by reference)
*10(e) Form of X-Rite, Incorporated Founder's Redemption Agreement
entered into between the registrant and certain persons, together
with a list of such persons
*10(f) First Amendment to X-Rite, Incorporated Founder's Redemption
Agreement dated July 16, 1999 between the registrant and Ted
Thompson
*10(g) Chairman's Agreement dated July 16,1999 between the registrant
and Ted Thompson
10(h) Asset Purchase Agreement entered into between Light Source
Acquisition Company and Light Source Computer Images, Inc.
including Escrow Agreement by and between Light Source
Acquisition Company and Light Source Computer Images, Inc. and
U.S. Trust Company of California, N.A. (filed as exhibit to
Form 8-K dated June 2, 1997 (Commission File No. 0-14800) and
incorporated herein by reference)
27 Financial Data Schedule
-17-
<EX-10.e>
Exhibit 10(e)
X-RITE, INCORPORATED
FOUNDER'S REDEMPTION AGREEMENT
AGREEMENT made and entered into by and between X-Rite, Incorporated, a
Michigan corporation (the "Company") and _____________________________ (the
"Shareholder"), effective as of the ____ day of ____________, 1998.
RECITALS:
Shareholder is one of the original organizers of the Company, he
currently holds a significant percentage of the outstanding shares of the
Company's common stock, and the basis for tax purposes of those shares is
negligible. Shareholder is apprehensive that his estate may find it
necessary to sell a large portion of his shares to provide funds to pay
various taxes upon his demise, and that such sales will have a depressing
effect on the market price for the Company's common stock. Other
shareholders who were also original organizers of the Company are similarly
situated, and the combined need for two or more estates to liquidate X-Rite
common stock simultaneously, or within a short period of time, could have a
disastrous, negative impact on the market price for such stock. The
Company, on its own behalf in the interest of protecting its potential for
access to the capital markets at a reasonable cost, and on behalf of all
other shareholders in the interest of protecting the value of their
investment in the Company, desires to make arrangements to avoid the need
for such stock sales and the attendant negative impact on the market price.
This Agreement is being executed for the purpose of memorializing the terms
and conditions for such arrangements.
W I T N E S S E T H:
In consideration of the mutual promises, and upon the conditions
hereinafter set forth, the parties AGREE:
ARTICLE I
PURCHASE OF SHARES
1.1 Stock Purchase. Subject to Section 1.3 below, the Company agrees
to purchase, and the Shareholder agrees to sell ___________________________
shares of the X-Rite common stock now owned by Shareholder (the "Shares").
The price shall be determined in accordance with Section 1.2 below, and the
Closing shall be held as provided in Article VI below. Notwithstanding
anything in this Agreement to the contrary, Shareholder shall be the
beneficial owner of the Shares, and Shareholder shall continue to be
entitled to vote the Shares and receive dividends paid on those Shares,
until transfer at Closing.
1.2 Purchase Price. The net purchase price shall be the number of
Shares subject to purchase at the time of Closing multiplied by the product
of ninety percent (90%) and the Average Market Price as defined in the next
sentence; provided, however, that the net purchase price per Share shall be
not less than Ten Dollars ($10) or more than Twenty-five Dollars ($25).
-18-
The Average Market Price shall be equal to the arithmetic mean of the
closing price for the Company's common stock for the ninety (90) trading
days preceding the latter of the date of death of the Shareholder or the
Shareholder's spouse, ____________________; where the closing price means
the closing price reported by the NASDAQ Stock Market or any other public
exchange or self-regulatory organization where the Company subsequently
lists or qualifies its common stock for trading.
1.3 Gift and/or Estate Planning Transfers. At any time prior to the
Closing, Shareholder shall be entitled to make one or more transfers of
Shares to individuals or entities, including trusts, educational and/or
eleemosynary organizations, without the receipt of consideration, provided
that the transferee enters into an agreement with the Company prohibiting
further transfer of those Shares and providing for the sale of those Shares
to the Company at the Closing with the same effect for the Company as if
those Shares were owned by Shareholder. At the Shareholder's option, the
Company shall consider the purchase of Shares from any such transferee in a
then current transaction, in such amount and at such time as may be
designated by Shareholder, at a price determined in accordance with Section
1.2 above; provided, however, that Shares purchased pursuant to this
sentence shall not exceed ______ Shares in the aggregate, and provided
further that the transferee is a charitable organization exempt from
taxation under Section 501(a) of the Internal Revenue Code.
1.4 Insurance on Shareholder. The Company shall have the right, at
its option, to acquire and maintain, by paying all premiums thereon, an
insurance policy, or policies, on the life of Shareholder and/or
Shareholder's spouse specified above, in such amount as the Company deems
advisable. The proceeds paid from any such insurance policies at the death
of Shareholder and/or Shareholder's spouse shall be used to purchase the
Shares. The Company shall be the sole owner of the policies issued to it
and may apply to the payment of premiums any dividends declared and paid on
such policies.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Shareholder that:
2.1 Due Organization. The Company is duly organized, validly
existing, and in good standing under the laws of the state of Michigan, has
all requisite corporate power and authority to own, operate, and lease its
property and to carry on its business now being conducted, and is duly
qualified and licensed as a foreign corporation, and is in good standing in
every jurisdiction in which the property owned, leased, or operated by it,
or the nature of the business conducted by it, makes such qualification
necessary.
2.2 Authority and Authorization. The Company has all requisite
corporate power and authority to execute this Agreement and to perform the
obligations required to be performed by it hereunder. The Agreement has
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been authorized by all necessary corporate action on the part of the
Company, has been duly executed and delivered by the Company, and is the
valid and binding agreement of the Company, enforceable against it in
accordance with its terms.
2.3 No Violations. Neither the execution of this Agreement, nor the
consummation of the transactions contemplated hereby, will: (i) violate or
result in a breach of, or constitute a default under, any provision of the
Company's Articles of Incorporation or Bylaws, or (ii) violate, or result
in a material breach of, or constitute a material default (or would result
in, or constitute such a material breach or default with notice, or lapse
of time, or both), under any provision of any indenture, mortgage, lien,
lease, agreement, instrument, license, order, arbitration award, judgment,
decree, law, ordinance, regulation, or any other restriction of any kind or
character to which the Company is a party or by which it is bound (other
than such violations, breaches, or defaults which are not reasonably likely
to have a material adverse effect on the Company).
2.4 Aggregate Coverage. The Company is simultaneously entering into
similar redemption agreements with other shareholders of the Company who
were original organizers of the Company covering, in the aggregate, shares
representing approximately twenty-two percent (22%) of the Company's issued
and outstanding common stock.
ARTICLE III
REPRESENTATION AND WARRANTIES OF SHAREHOLDER
Shareholder represents and warrants to the Company that:
3.1 Good Title. Shareholder is the lawful, beneficial owner of the
Shares, free and clear of all liens and encumbrances of every kind and
nature. Shareholder has valid and marketable title to the Shares, and
there are no outstanding options, agreements, calls, commitments, or
demands of any character to which Shareholder is a party, which restrict
the transfer of the Shares.
3.2 Authority and Authorization. Shareholder has all necessary power
and authority to enter into this Agreement and to perform the obligations
required to be performed by him hereunder. This Agreement has been duly
executed and delivered by Shareholder, and is the valid and binding
obligation of Shareholder, enforceable against him in accordance with its
terms.
3.3 No Violations. The execution and delivery of this Agreement by
Shareholder, and the performance of Shareholder's obligations hereunder,
will not conflict with, violate, result in a material breach of, or
constitute a material default (or would result in, or constitute such a
material breach or default with notice, or lapse of time, or both) under
any of the provisions of any indenture, mortgage, lien, lease, agreement,
instrument, license, order, judgment, arbitration award, decree, law,
ordinance, regulation, or any other restriction of any kind or character to
which Shareholder is a party or by which he is bound.
-20-
3.4 Disclosures. Shareholder acknowledges that all documents, books,
and records requested by him pertaining to the Company, including its
Strategic Plan, have been made available for inspection by Shareholder and
his agents and representatives; that Shareholder and his agents and
representatives have had a reasonable opportunity to ask questions of, and
receive answers from, the Company, its executive officers, and other
employees acting on its behalf concerning the business and prospects of the
Company. Shareholder and his agents and representatives have such
knowledge and experience in financial and business matters as to enable
them to utilize the information made available to them in connection with
the transaction contemplated hereby, and to make an informed decision with
respect thereto, and such evaluation and informed decision have been made.
ARTICLE IV
COVENANTS
4.1 Insurance Continuation. The Company shall acquire, and maintain,
by paying all premiums thereon, insurance policies on the lives of the
Shareholder, and/or some or all of the other shareholders of the Company
referenced in Section 2.4 above, and/or their spouses, in such aggregate
amount as will be sufficient to satisfy the Company's obligations to
purchase shares of its common stock under this Agreement and the agreements
entered into with the aforementioned other shareholders. The proceeds
received under those policies shall be held by the Company in trust, and
shall be used exclusively to purchase the Shares and the shares of common
stock owned by the aforementioned other shareholders, service the debt on
any funds borrowed to effect such purchases, pay expenses related to any
such debt or purchases, and/or invested in fixed income instruments and/or
deposits, until such obligations have been satisfied in full. The Company
shall be the sole owner of these insurance policies and may apply to the
payment of premiums any dividends declared and paid on such policies.
4.2 Transfer Restriction. Prior to Closing, Shareholder agrees not
to transfer the Shares, or any interest therein, except in strict
compliance with this Agreement, and Shareholder shall take such steps as
are necessary to keep the Shares free and clear of liens and encumbrances
of every kind and nature.
ARTICLE V
CONDITIONS PRECEDENT TO CLOSING
5.1 Company Conditions . The Company's duty to perform its
obligations under this Agreement are subject to the fulfillment, at or
before the Closing, of the following conditions:
a. The representations and warranties of Shareholder shall be
accurate in all material respects as of the date of Closing, to the same
extent as if made on, and as of such date. Shareholder shall have complied
with and performed in all material respects all agreements, covenants, and
conditions on Shareholder's part to be performed or complied with on or
before the date of Closing.
-21-
b. No suit, action, or other proceeding by any third party
shall be pending or threatened before any court or government agency
seeking to restrain, or prohibit, or to obtain damages or other relief in
connection with this Agreement or the consummation of the transactions
contemplated hereby.
5.2 Shareholder Conditions. The Shareholder's duty to perform its
obligations under this Agreement are subject to the fulfillment, at or
before the Closing, of the following conditions:
a. The representations and warranties of the Company shall be
accurate in all material respects, as of the date of Closing, to the same
extent as if made on, and as of, such date. The Company shall have
complied with and performed in all material respects all agreements,
covenants, and conditions on the Company's part to be performed or complied
with on or before the date of Closing.
b. No suit, action, or other proceeding by any third party
shall be pending or threatened before any court or government agency
seeking to restrain, or prohibit, or to obtain damages or other relief in
connection with this Agreement or the consummation of the transactions
contemplated hereby.
5.3. Waiver. The foregoing conditions, or any of them, may be waived,
in writing, in whole or in part, by the affected party.
ARTICLE VI
CLOSING
6.1 Closing Place and Time. The Closing shall take place at the
Company's executive offices, as promptly as practical after the death of
Shareholder or Shareholder's spouse identified in Section 1.2 above, or,
with the Company's agreement, at such earlier time as Shareholder may
designate pursuant to Section 1.3 above, and all the conditions specified
in Article V above have been satisfied or waived. In the event the Company
maintains insurance on the Shareholder or Shareholder's spouse that will be
used to pay for the Shares, as provided in this Agreement, then the Closing
shall be delayed for such reasonable period of time as may be necessary to
process a claim under, and receive proceeds from such insurance policy, and
the Company agrees to promptly file such claim and diligently pursue
collection of such proceeds; provided, however, in the event the Closing
has not been held within ninety (90) days after the death that triggers the
obligation to close, the personal representative of the estate of the
Shareholder and/or the Shareholder's spouse, as the case may be, shall be
entitled to withdraw from this Agreement, and promptly sell, such number of
Shares, from time to time, as may be necessary to meet the obligations of
such estate to pay cash for taxes and/or other obligations then due or
about to become due in the immediate future.
6.2 Deliveries. At the Closing, the Company shall deliver the
purchase price in the form of a certified check, a cashier's check, or wire
transfer, and the Shareholder's personal representative and/or the
authorized representatives of other holders of Shares, if any, shall
deliver a certificate or certificates representing all of the Shares,
endorsed in blank for cancellation or accompanied by duly executed stock
powers.
-22-
ARTICLE VII
TERMINATION, AMENDMENT, AND ASSIGNMENT
7.1 Termination. This Agreement, and the transactions contemplated
herein, may be terminated and abandoned at any time prior to the Closing
under the following circumstances:
a. By mutual written agreement of the Company and the
Shareholder.
b. By written notice from the party adversely affected in the
event any of the conditions set forth in Article V above have not been
fulfilled within one hundred eighty (180) days after the latter of the date
of death of the Shareholder or the Shareholder's spouse, and the
performance or fulfillment thereof has not been waived by such party.
c. By written notice from either the Company or the Shareholder
in the event that the insurance coverage specified in Section 4.1 above
cannot be maintained or replaced at a commercially reasonable cost despite
the Company's best efforts to maintain or replace such insurance.
7.2. Amendment. This Agreement may be amended, modified, or
supplemented only by an instrument in writing executed by all parties
hereto.
7.3 Assignment. This Agreement may not be assigned by any party
without the written consent of the other.
ARTICLE VIII
MISCELLANEOUS
8.1 Additional Shares. This Agreement shall be applicable to the
Shares and all other shares of common stock received in respect of the
Shares by stock dividend, stock split, or any recapitalization or
reorganization of the Company. Share prices, including the maximum and
minimum prices, specified in Section 1.2 and elsewhere in this Agreement
shall be adjusted to reflect any change in values by reason of any stock
dividend, stock split, or recapitalization or reorganization of the
Company, and the determination of the independent public accountants then
serving as auditors for the Company shall be final and binding on all
parties with respect to any disputes that may arise regarding any such
adjustments.
8.2 Merger or Consolidation. In the event a proposal for the Company
to merge or consolidate with another entity, or for the Company to sell
all, or substantially all, of its assets is submitted to the shareholders
of the Company for a vote, the Shareholder agrees to grant a discretionary
proxy to a proxy voter designated by a majority of the Continuing Directors
with respect to all matters that come before the shareholders at the
meeting where that proposal is acted upon. As used in this section,
"Continuing Directors" shall mean those members of the Corporation's Board
of Directors who are serving at the time this Agreement becomes effective,
and all directors who are elected thereafter who have been nominated by the
Company's Board of Directors. If a merger or a consolidation is approved
by the shareholders where the Company is not the surviving corporation, and
-23-
its common stock will no longer be outstanding, then this Agreement shall
be terminated automatically, without further action by any party,
immediately before the effective time for such merger or consolidation so
that the Shareholder will receive the same money, securities, and/or other
consideration as the other holders of the Company's common stock. If a
merger or consolidation is approved by the shareholders where the Company
is the surviving corporation, and if the aggregate number of shares then
covered by this Agreement and the agreements with the other original
organizers referenced in Section 2.4 above, will represent less than ten
percent (10%) of the Company's issued and outstanding common stock
immediately after the effective time for such merger or consolidation, then
this Agreement shall be terminated automatically, without further action by
any party, immediately before the effective time for such merger or
consolidation. If a sale of all, or substantially all, of the Company's
assets is approved by the shareholders, then this Agreement shall be
terminated automatically, without further action by any party,
simultaneously with the closing of that transaction when the Company
transfers its assets and receives the consideration from the purchaser.
All terminations of this Agreement specified in this Section 8.2 shall be
effective as and when specified herein, notwithstanding the fact that a
Closing under Article VI may have been postponed for the purpose of
collecting insurance proceeds as provided in Section 6.1.
8.3 Legend. All certificates representing Shares, from time to time
outstanding, shall be endorsed as follows:
The sale, assignment, encumbrance, transfer, or
other disposition of the shares of capital stock
represented by this certificate is subject to the
restrictions of a certain Founder's Redemption
Agreement between this Corporation and the
registered holder of this certificate, a copy of
which is on file at the offices of the Corporation.
8.4 Specific Enforcement. The parties recognize and agree that the
Shares and the Shareholder are uniquely situated, and that damages for
breach of any obligation herein on the part of Shareholder would be an
inadequate remedy. Accordingly, the parties agree that the covenants and
agreements of Shareholder contained herein shall be specifically
enforceable. Without limiting the generality of the foregoing, the Company
shall be entitled to refuse to transfer any Shares not made in strict
compliance with this Agreement and to refuse to recognize any unauthorized
transferee for any purpose whatsoever.
8.5 Notices. Any notice required or permitted by this Agreement
shall be in writing and delivered personally, or sent by registered or
certified mail, return receipt requested, addressed to the Company at its
executive offices, or to the Shareholder at his address shown in the
Company's stock records, or such other address as a Shareholder shall
substitute by written notice to the Company. Any notice given hereunder
shall be effective as of the date the notice is personally delivered, or if
mailed, on the third business day following the date of deposit in the
United States mail, postage prepaid, and addressed as set forth herein.
-24-
8.6 Modification of Other Agreements. The Company agrees not to
amend or otherwise modify its agreements with the other founders referenced
in Section 2.4 above in any material respect without the prior written
consent of Shareholder.
8.7 Captions. The captions contained in this Agreement are for
reference purposes only and shall not be interpreted or construed as
substantive parts of the Agreement between the parties.
8.8 Governing Law. This Agreement shall be governed by, and
interpreted and construed in accordance with the laws of the state of
Michigan.
8.9 Entire Agreement. This Agreement contains the entire
understanding of the parties with respect to its subject matter, and there
are no promises, representations, or agreements, except as expressly set
forth herein.
8.9 Binding Effect. This Agreement shall become effective as of the
date that the Company acquires the insurance policies specified in Section
4.1 above, and thereafter shall bind and inure to the benefit of the
Company and its successors, and the Shareholder and his heirs and personal
representatives, and the permitted assigns of either.
IN WITNESS WHEREOF, this Agreement has been executed the day and year
first above written.
X-RITE, INCORPORATED
By ___________________________________
Its _______________________________
_______________________________________
Shareholder
X-Rite, Incorporated Founder's Redemption Agreements in the foregoing form
have been entered into between the registrant and the following persons:
1. Leonard C. Blanding
2. Lawrence E. Fleming
3. Rufus S. Teesdale
4. Ted Thompson
5. Charles Van Namen
6. Quinten E. Ward
-25-
<EX-10.f>
Exhibit 10(f)
FIRST AMENDMENT TO
X-RITE, INCORPORATED
FOUNDER'S REDEMPTION AGREEMENT
THIS FIRST AMENDMENT ("AMENDMENT") TO THE X-RITE, INCORPORATED
FOUNDER'S REDEMPTION AGREEMENT (the "ORIGINAL AGREEMENT") is made and
entered into by and between X-Rite, Incorporated, a Michigan corporation
(the "Company") and Ted Thompson (the "Shareholder"), effective as of the
16th day of July, 1999.
RECITALS:
Shareholder and the Company entered into the Original Agreement
effective as of January 20, 1998. Shareholder entered into the Original
Agreement for the purpose of avoiding the untimely sale of a large portion
of his shares to provide funds to pay various taxes upon his demise, and
the attendant depressing effect on the market price for the Company's
common stock. Subsequently, Shareholder has decided to resign his position
as the Company's Chief Executive Officer in order to spend more time with
his wife who is in ill health, and he has become apprehensive about his
potential need to liquidate some of his shares of common stock of the
Company to cover medical and related expenses. The Board of Directors and
the other shareholders who are parties to Founder's Redemption Agreements
continue to believe in the wisdom and desirability of the founder's
redemption program, but are desirous of accommodating the wishes of
Shareholder, and they, therefore, have authorized the execution of this
Amendment for the purpose of memorializing the terms and conditions of a
change to the arrangements contained in the Original Agreement.
Certain capitalized terms used but not defined elsewhere in the text
of this Amendment shall be as defined in the Original Agreement.
W I T N E S S E T H:
In consideration of the mutual promises, and upon the conditions
hereinafter set forth, the parties AGREE:
ARTICLE A
SALE OF SHARES
A.1. Sale of Shares. Notwithstanding anything to the contrary
contained in the Original Agreement, Shareholder may obtain the release of
one or more blocks of one hundred thousand (100,000) shares of common stock
of the Company (a "Block") from the restrictions of the Original Agreement,
up to a maximum of six hundred thousand (600,000) shares, by following the
procedure set forth in this Amendment. In the event Shareholder desires to
obtain any such release, Shareholder shall make the following
representations in a written request for such release to the Board of
Directors of the Company:
a. Shareholder and/or Shareholder's then current spouse do not
then hold shares of common stock of the Company exceeding $250,000 in
aggregate market value, including shares released pursuant to this
Amendment, which are not subject to the Original Agreement.
-26-
b. Shareholder anticipates the need to sell shares in excess of
the amount identified pursuant to Section A.1.a above in order to maintain
the style of life that he enjoys as of the effective date of this
Amendment.
Such written request can be repeated by Shareholder as his personal
financial needs and/or family financial needs require.
A.2. Board of Directors Approval. Upon receipt of a written request
for sale as provided in Section A.1, the Board of Directors shall grant the
request unless the Board of Directors determines that the grant and/or a
subsequent sale would involve an unreasonable risk of violation of law by
the Company and/or the Shareholder, or Shareholder has breached the
Original Agreement, as amended. If the Board of Directors approves
Shareholder's request, its secretary will provide written notice of such
approval to Shareholder, which notice shall include permission for removal
of the legend endorsed on the Block's certificate(s) pursuant to Section
8.3 of the Original Agreement.
A.3. Redemption After Approval. In the event any shares of the common
stock of the Company released pursuant to this Amendment remain unsold as
of the later of the date of the death of Shareholder or Shareholder's
spouse, those shares shall again become subject to the restrictions and
other provisions of the Original Agreement and they shall be disposed of in
accordance with the terms and conditions stated therein.
A.4. Amendment to Original Agreement. The Original Agreement is
hereby amended to take into account this Amendment, including the following
revisions:
a. Section 1.1 of the Original Agreement shall be deemed
amended to reduce the number of shares stated in Section 1.1 of the
Original Agreement by the number of shares released for sale pursuant to
the terms of this Amendment.
b. The percentage, in the aggregate, of shares subject to
redemption agreements contained in Section 2.4 of the Original Agreement
shall be deemed amended to take into account any shares released for sale
pursuant to the terms of this Amendment.
c. The transfer restrictions contained in Section 4.2 of the
Original Agreement shall be deemed amended to allow the transfers
contemplated by the terms of this Amendment.
d. Section 8.9 of the Original Agreement shall be deemed
amended to reflect the existence of this Amendment.
ARTICLE B
EFFECT OF AMENDMENT
B.1. Amendment Pursuant to Original Agreement. This Amendment is made
in writing pursuant to Section 7.2 of the Original Agreement and is
intended to supersede and override any inconsistent provisions of the
Original Agreement. Except as provided herein, the Original Agreement
shall remain in full force and effect. The consent of the other founders
-27-
who are parties to Founder's Redemption Agreements with the Company may be
obtained by their execution of counterparts of this Amendment and this
Amendment shall become effective at such time as all such necessary
consents have been obtained.
B.2. Binding Effect. By executing below, all the signatories to this
Amendment agree to be bound by the terms of the Original Agreement, as
amended by this Amendment.
IN WITNESS WHEREOF, this Amendment has been executed the day and year
first above written.
X-RITE, INCORPORATED
By /s/ Duane Kluting
----------------------------------
Its VP CFO
------------------------------
/s/ Ted Thompson
-------------------------------------
Ted Thompson
Shareholder
ACKNOWLEDGED AND AGREED:
/s/ Rufus S. Teesdale /s/ Charles Van Namen
- -------------------------------- --------------------------------
Rufus S. Teesdale Charles Van Namen
/s/ Leonard C. Blanding /s/ Lawrence E. Fleming
- -------------------------------- --------------------------------
Leonard C. Blanding Lawrence E. Fleming
/s/ Quinten E. Ward
- --------------------------------
Quinten E. Ward
-28-
<PAGE>
<EX-10.g>
Exhibit 10(g)
CHAIRMAN'S AGREEMENT
THIS IS AN AGREEMENT dated July 16th, 1999 ("Agreement"), between
X-RITE, INCORPORATED, of 3100 - 44th Street, SW, Grandville, Michigan 49418
("X-Rite") and TED THOMPSON of 1980 - 76th Street, SW, Byron Center,
Michigan 49315 ("Chairman")
RECITALS:
WHEREAS, Chairman Thompson has been the organizational and spiritual
leader of the Company for nearly four decades; and
WHEREAS, Chairman Thompson wishes to relinquish his responsibilities
for day-to-day operations of the Company's business; and
WHEREAS, the Board of Directors has requested that Chairman Thompson
continue to make himself available to perform certain leadership and
consulting functions for the Company; and
WHEREAS, Chairman Thompson is willing to continue his service to the
Company along the lines outlined in this Agreement.
THEREFORE, Chairman Thompson hereby tenders his resignation as the
Company's Chief Executive Officer, and this Agreement is being executed for
the purpose of memorializing the terms and conditions for the continuation
of his service to the Company as its Chairman.
IN CONSIDERATION OF THE MUTUAL PROMISES CONTAINED HEREIN, THE PARTIES
AGREE:
1. Employment. X-Rite hereby employs Chairman, and Chairman hereby
accepts employment, on the terms and subject to the conditions set
forth herein.
2. Term of Agreement. The term of this Agreement shall commence as of
the date set forth above, for a term extending as long as Chairman
shall be elected as Chairman of the Board of Directors of X-Rite.
3. Compensation. During Chairman's tenure as Chairman of the Board of
Directors of X-Rite, Chairman shall be paid an annual salary, annual
bonuses, and other fringe benefits as follows:
a. Salary. Chairman's salary hereunder shall be $145,000 on an
annualized basis. Salary shall be paid periodically in
accordance with X-Rite's normal payroll practices.
b. Bonus. Chairman will be entitled to participate in any bonus or
other incentive compensation program now or hereafter applicable
to X-Rite's executives.
-29-
c. Insurance and Other Fringe Benefits. Chairman shall be offered
such insurance and other fringe benefits including, but not
limited to, medical, dental, long term disability, group life
insurance, and accidental death and dismemberment insurance,
employee stock purchase plan, and 401(k) retirement plan pursuant
to X-Rite's plans and policies in effect from time to time for
its executives.
d. Leased Car Program. Chairman will be provided an automobile
consistent with X-Rite's executive automobile program.
e. Stock Options. Chairman will be entitled to 10,000 options for
shares for each year during his tenure as Chairman of the Board
of Directors on such terms and at such times as options are
provided to nonemployee directors of X-Rite.
4. Duties. Chairman shall be employed as Chairman of the Board of
Directors of X-Rite, with duties and responsibilities consistent with
that office, and as are assigned by the Board of Directors. During
the period of his employment by X-Rite, Chairman shall devote
sufficient business time and energy to the business and affairs of
X-Rite and will use his best efforts to perform his duties as Chairman
of the Board of Directors of X-Rite. During the period of Chairman's
employment pursuant to this Agreement, Chairman shall not be required
to relocate or to spend any time outside of the area of Western
Michigan.
5. Loyalty and Confidentiality. Chairman agrees that during his
employment pursuant to this Agreement, and while receiving any
payments or benefits under this Agreement, he will not, without the
prior approval of the Board of Directors of X-Rite, either for himself
or on behalf of any other person, firm or corporation, directly or
indirectly divert or attempt to divert from X-Rite any business
opportunity or business whatsoever, or attempt to negatively influence
any X-Rite customers or potential X-Rite customers with whom Chairman
may have dealings. Chairman shall forever hold in strictest
confidence and shall not use or disclose any confidential information,
technique, process, development, or experimental work, trade secret,
customer lists, or other secret and confidential matter relating to
the products, services, sales, employees, or business of X-Rite,
except as such disclosure or use may be required in connection with
Chairman's work for X-Rite.
6. Termination. The compensation provided for in Paragraph 3 of this
Agreement shall terminate at any time Chairman does not serve as
Chairman of the Board of Directors of X-Rite, for any reason including
death, disability, or failure to be elected. Disability shall, for
purposes of this Agreement, be defined as Chairman's inability to
substantially perform his duties for a period of nine (9) successive
months by reason of illness or other similar incapacity or disability.
Any determination as to whether Chairman is disabled shall be made by
a licensed physician selected by agreement of X-Rite and Chairman or,
-30-
if they cannot agree upon a physician, then by a majority of a panel
of three (3) licensed physicians, one selected by X-Rite, one selected
by Chairman, and the third selected by the first two.
7. Consulting Pay After Termination. After Chairman no longer serves as
Chairman of the Board of Directors of X-Rite, he shall be entitled to
certain consulting pay and benefits, provided that Chairman makes
himself available to X-Rite at such reasonable times and at such
reasonable places to perform consulting services as reasonably
requested by the Board of Directors. The Chairman shall receive
consulting pay and benefits as follows:
(i) monthly consulting payments equal to $2,083.33 for five (5)
years; and
(ii) maintenance by X-Rite in full force and effect all insurance
for five (5) years; and
(iii) the stock options described in subparagraph 3(e) for as
long as he remains a member of the Board of Directors of
X-Rite.
The payments and benefits described in this Paragraph 7, shall
terminate upon the death, disability, or other failure by Chairman
to perform the required consulting services.
8. Covenant Not to Compete. Chairman agrees that during his employment
pursuant to this Agreement and for a period of two (2) years after
Chairman receives any payments or benefits under this Agreement,
Chairman shall not: (i) participate directly or indirectly, in the
ownership, management, financing or control of any business which is,
or is about to become, a competitor of X-Rite or its subsidiaries;
(ii) provide consulting services or serve as an officer or director
for any such business; or (iii) solicit, encourage or facilitate
employees of X-Rite to terminate their employment with X-Rite in favor
of any other employer. Chairman is not prohibited by this Paragraph,
however, from owning stock of any corporation whose shares are
publicly traded so long as that ownership is in no case more than five
percent (5%) of such shares of the corporation.
9. Chairman Liability Insurance Coverage and Indemnification. Nothing in
this Agreement shall deprive Chairman, both during and subsequent to
the termination of his employment pursuant to this Agreement, of the
benefits of X-Rite's existing or hereafter obtained executive
liability insurance coverage, subject to the terms and conditions of
such coverage, nor of any right to indemnification under X-Rite's
Articles of Incorporation and Bylaws or under any indemnification
agreement between X-Rite and Chairman, subject to the limitations on
indemnification set forth therein.
10. Successors. X-Rite shall require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of X-Rite, by
-31-
agreement in form and substance reasonably satisfactory to Chairman,
to expressly assume and agree to perform this Agreement in the same
manner and to the same extent that X-Rite would be required to perform
if no such succession had taken place. As used in this Agreement,
"X-Rite" shall mean X-Rite and any successor to X-Rite's business
and/or assets as aforesaid which executed and delivered the agreement
provided for in this Paragraph 10 or which otherwise becomes bound by
all the terms and provisions of this Agreement by operation of law.
11. Binding Agreement. This Agreement shall inure to the benefit of and
be enforceable by the Chairman and his heirs and personal
representatives.
12. Notice. For the purpose of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and
shall be deemed to have been duly given when delivered or mailed by
United States registered mail, return receipt requested, postage
prepaid, addressed to Chairman at the address set forth on the first
page of this Agreement, or to X-Rite at its principal executive
offices to the attention of the Secretary, or to such other address as
either party may have furnished to the other in writing in accordance
herewith, except that notice of change of address shall be effective
only upon receipt.
13. Modification or Waiver. No provisions of this Agreement may be
amended, modified, waived, or discharged unless such waiver,
modification, or discharge is agreed to in writing signed by Chairman
and such officer, other than the Chairman, as may be specifically
designated by the Board of Directors of X-Rite. No waiver by either
party to this Agreement at any time of any breach by the other party
hereto of any condition or provision of this Agreement to be performed
by such other party, nor any compliance with any such condition or
provision by the party not required to so perform, shall be deemed a
waiver of similar or dissimilar provisions or conditions at that time
or at any prior or subsequent time. Failure to insist upon strict
compliance with any of the terms, covenants or conditions of this
Agreement shall not be deemed a waiver of such term, covenant or
condition, nor shall any waiver or relinquishment of any right or
power hereunder at any one or more times be deemed waiver or
relinquishment of such right or power at any other time.
14. Governing Law. This Agreement was entered into in the state of
Michigan and shall be construed and interpreted in accordance with the
laws of the state of Michigan as applied to contracts made and to be
performed in the state of Michigan. Any action arising out of or to
enforce this Agreement must be brought in courts in the state of
Michigan. The parties consent to the jurisdiction of the courts in
the state of Michigan and to service of process by registered mail,
return receipt requested, or by any other manner provided by law.
15. Arbitration. Except for matters arising pursuant to Sections 5 and 8
of this Agreement, any dispute between the parties with respect to
this Agreement shall be resolved exclusively by arbitration in
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accordance with the rules for commercial arbitration promulgated by
the American Arbitration Association. The arbitration shall be
conducted in Grand Rapids, Michigan and the award shall be final and
binding upon the parties and enforceable in any court of competent
jurisdiction.
16. Validity. The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and
effect.
17. Miscellaneous. No agreements or representations, oral or otherwise,
express or implied, with respect to the specific subject matter hereof
have been made by either party which are not set forth expressly in
this Agreement.
IN WITNESS WHEREOF, X-Rite has caused this Agreement to be executed by
a duly authorized corporate officer and Chairman has executed this
Agreement as of the date and year first above written.
X-RITE, INCORPORATED
By /s/ Duane Kluting
--------------------------------------
Duane Kluting, Chief Financial Officer
/s/ Ted Thompson
--------------------------------------
Ted Thompson, Chairman
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<PERIOD-END> JUL-03-1999
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