UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
--- OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
---------------------
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
---------------
X-RITE, INCORPORATED
------------------------------------------------------------------------
(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 October 31, 2000 was 21,338,321 shares.
Exhibit Index on page 16.
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
X-RITE, INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
September 30, January 1,
2000 2000
----------- -----------
(Unaudited)
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $10,112,000 $ 6,898,000
Short-term investments 19,057,000 22,129,000
Accounts receivable, less allowances of
$1,048,000 in 2000 and $1,110,000 in 1999 17,434,000 20,249,000
Inventories 16,227,000 15,410,000
Deferred taxes 1,652,000 1,642,000
Prepaid expenses and other current assets 2,310,000 1,565,000
----------- -----------
Total current assets 66,792,000 67,893,000
PROPERTY AND EQUIPMENT, at cost 45,202,000 44,406,000
Less accumulated depreciation (23,915,000) (23,351,000)
----------- -----------
21,287,000 21,055,000
OTHER ASSETS:
Costs in excess of net assets acquired 8,323,000 8,036,000
Cash surrender values - Founders policies 10,104,000 6,616,000
Other noncurrent assets 8,404,000 4,219,000
----------- -----------
26,831,000 18,871,000
----------- -----------
$114,910,000 $107,819,000
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
X-RITE, INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS--Continued
<TABLE>
September 30, January 1,
2000 2000
----------- -----------
(Unaudited)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' INVESTMENT
CURRENT LIABILITIES:
Accounts payable $ 2,211,000 $ 2,277,000
Accrued liabilities--
Payroll and employee benefits 2,001,000 2,043,000
Income taxes - 325,000
Other accrued liabilities 1,956,000 2,352,000
----------- -----------
Total current liabilities 6,168,000 6,997,000
TEMPORARY SHAREHOLDERS' INVESTMENT:
Value of shares subject to redemption
agreements; 4,540,000 shares issued
and outstanding in 2000 and 1999 45,400,000 45,400,000
PERMANENT SHAREHOLDERS' INVESTMENT:
Common stock, $.10 par value, 50,000,000
shares authorized; 16,788,680 and
16,700,896 shares issued and outstanding
in 2000 and 1999 respectively, 1,679,000 1,670,000
Additional paid-in capital 5,023,000 8,439,000
Retained earnings 58,800,000 51,347,000
Shares in escrow - (4,820,000)
Accumulated other comprehensive loss (2,160,000) (1,214,000)
----------- -----------
63,342,000 55,422,000
----------- -----------
$114,910,000 $107,819,000
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
X-RITE, INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
Three Months Ended Nine Months Ended
September 30, October 2, September 30, October 2,
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales $23,087,000 $23,764,000 $75,453,000 $71,783,000
Cost of sales 8,468,000 8,344,000 26,955,000 24,401,000
----------- ----------- ----------- -----------
Gross profit 14,619,000 15,420,000 48,498,000 47,382,000
Operating expenses:
Selling & marketing 5,055,000 4,695,000 16,077,000 14,627,000
General & administrative 4,004,000 3,524,000 10,939,000 10,742,000
Research, development &
engineering 2,624,000 2,588,000 8,072,000 8,068,000
----------- ----------- ----------- -----------
11,683,000 10,807,000 35,088,000 33,437,000
----------- ----------- ----------- -----------
Operating income 2,936,000 4,613,000 13,410,000 13,945,000
Other income (expense) (59,000) 181,000 543,000 593,000
----------- ----------- ----------- -----------
Income before
income taxes 2,877,000 4,794,000 13,953,000 14,538,000
Income taxes 1,014,000 1,690,000 4,918,000 5,125,000
----------- ----------- ----------- -----------
NET INCOME $ 1,863,000 $ 3,104,000 $ 9,035,000 $ 9,413,000
=========== =========== =========== ===========
Earnings per share:
Basic $.09 $.15 $.43 $.45
==== ==== ==== ====
Diluted $.09 $.14 $.43 $.43
==== ==== ==== ====
Cash dividends per share $.025 $.025 $.075 $.075
===== ===== ===== =====
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
X-RITE, INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
Nine Months Ended
September 30 October 2
2000 1999
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES $13,842,000 $14,496,000
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of investments 6,000,000 19,875,000
Proceeds from maturities of investments 1,446,000 1,098,000
Purchases of investments (4,342,000) (22,934,000)
Capital expenditures (2,859,000) (3,889,000)
Acquisitions, net of cash (4,489,000) -
Purchases of other assets (1,206,000) (1,037,000)
Increase in cash value of life insurance (3,488,000) (3,498,000)
Other investing activities 44,000 80,000
---------- ----------
Net cash and cash equivalents provided
by (used for) investing activities (8,894,000) (10,305,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid (1,597,000) (1,589,000)
Issuance of common stock 413,000 214,000
Other financing activities 1,015,000 -
---------- ----------
Net cash and cash equivalents
used for financing activities (169,000) (1,375,000)
EFFECT OF EXCHANGE RATE CHANGES ON CASH
AND CASH EQUIVALENTS (1,565,000) (65,000)
---------- ----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 3,214,000 2,751,000
CASH AND CASH EQUIVALENTS AT BEGINNING
OF YEAR 6,898,000 1,536,000
---------- ----------
CASH AND CASH EQUIVALENTS AT END OF QUARTER $10,112,000 $4,287,000
========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
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 1999 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 September 30, 2000 and the results of
its operations and its cash flows for the three and nine month periods ended
September 30, 2000 and October 2, 1999. All such adjustments are of a normal and
recurring nature. Certain prior year information has been reclassified to
conform to the current year presentation.
NOTE 2--INVENTORIES
Inventories consisted of the following:
<TABLE>
September 30, January 1,
2000 2000
----------- -----------
<S> <C> <C>
Raw materials $ 6,015,000 $ 6,351,000
Work in process 5,293,000 5,381,000
Finished goods 4,919,000 3,678,000
----------- -----------
$16,227,000 $15,410,000
=========== ===========
</TABLE>
<PAGE>
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:
<TABLE>
Three Months Ended Nine Months Ended
September 30, October 2, September 30, October 2,
2000 1999 2000 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Numerators:
Net income numerators
for both basic and
diluted EPS $1,863,000 $3,104,000 $9,035,000 $9,413,000
========== ========== ========== ==========
Denominators:
Denominators for basic
EPS; weighted average
common shares
outstanding 21,327,051 20,952,174 21,116,844 20,941,646
Potentially
dilutive shares-
Shares subject to
redemption agreements 78,009 1,150,235 31,929 1,072,438
Stock options 60,583 8,389 50,358 9,312
---------- ---------- ---------- ----------
Denominators for
diluted EPS 21,465,643 22,110,798 21,199,131 22,023,396
========== ========== ========== ==========
</TABLE>
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 1,014,200 and
$10.13 - $19.52 in 2000, and 991,900 and $7.03 - $19.50 in 1999.
<PAGE>
X-RITE, INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED), continued
NOTE 4--COMPREHENSIVE INCOME
Comprehensive income consisted of net income, foreign currency translation
adjustments and unrealized losses on short term investments. Comprehensive
income was $1,380,000 and $8,089,000 for the three and nine month periods ended
September 30, 2000; and $3,470,000 and $9,298,000 for the three and nine month
periods ended October 2, 1999.
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 21.3 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 shares subject to the agreements have been reclassified on the September 30,
2000 balance sheet to a temporary equity account. 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 September 30, 2000 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. 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 were made in money market securities or X-Rite common
stock. This contractual agreement expired in July of 2000. The net sales goals
of certain products required for the payment of future contingent consideration
were not met during the periods outlined in the in the asset purchase agreement,
thereby releasing the Company from any additional obligations with respect to
the escrow fund.
NOTE 7--ACQUISITIONS
During the third quarter of 2000, the Company completed two acquisitions for a
combined cost of $4,489,000. On July 13, 2000 the Company purchased
substantially all of the assets of HoloVision Products Group a manufacturer of
laser measurement equipment. On September 11, 2000 the Company purchased
substantially all the assets of Optronik GmbH, a German based developer of
on-line color and light measurement systems.
Both acquisitions have been recorded using the purchase method of accounting.
Accordingly, the purchase price of these acquisitions has been allocated to the
net assets acquired based upon the estimated fair values at the date of
acquisition. The cost of the acquisitions in excess of net identifiable assets
acquired has been recorded as goodwill, which will be amortized on a straight
line basis over a ten year period.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
FINANCIAL CONDITION AND LIQUIDITY
Cash provided by operating activities during the first nine months of 2000
totaled $13.8 million, a decrease of 4.5% over the same period last year. The
largest component of operating cash flow was net income. Included in net income
were certain expenses that did not require the use of cash. The largest of these
expenses were depreciation and amortization which totaled $4.1 million.
Approximately $8.9 million of cash and cash equivalents has been used for
investing activities during 2000. With the exception of routine short-term
investment transactions, the most significant investing activity during the
first nine months were two acquisitions for a combined expenditure of $4.5
million that were completed during the third quarter. (See below, Other Items).
Another significant investment activity during 2000 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
21.3 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 2000 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 nine months of 2000 totaled $2.9 million and
consisted primarily of building improvements, machinery and equipment. The
Company currently anticipates capital expenditures for the remainder of 2000
will be approximately $600,000 dollars and will consist principally of building
improvements, machinery, equipment, and computer hardware and software.
Dividends of $1.6 million were paid during the first nine months of 2000 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 believes that X-Rite's current cash and investments, combined with
expected cash flows 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.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations, continued
RESULTS OF OPERATIONS
Net Sales:
Third quarter sales of $23.1 million was a decrease of 2.8% as compared to third
quarter 1999 sales of $23.8 million. The decline can be attributed to several
factors, including a seasonal slow down in the retail paint matching industry
and the traditional summer slow down in the European markets, that was more
significant than in prior years. Despite the weaker third quarter sales, year to
date sales of $75.5 million is a 5.1% increase over prior years sales of $71.8
million. Sales have increased across all product lines on a year to date basis.
The largest percentage gain has been recorded by the Printing unit at 13.6%,
followed by the Imaging, Labsphere and Coatings units at 5.3%, 3.1% and 1.6%
respectively.
X-Rite's efforts to develop its international markets continue to be successful.
International sales account for 32.1% of the Company's overall sales in 2000 as
compared to 30.5% in 1999, an increase of 5.2%. The Asia Pacific region has
experienced the largest growth in 200O, increasing 24.7% over the same period in
1999. European and North American sales have grown 6.5% and 2.9% respectively in
2000 as compared to 1999. Sales in Europe have been hampered by the strong US
Dollar versus the Euro and British Pound Sterling. Had foreign exchange rates
remained stable from year to year, sales of the Company's European subsidiaries
would have been reported approximately 11% higher in 2000 as compared to 1999.
Cost of Sales and Gross Profit:
Gross profit margins have decreased for both the third quarter and year to date
2000 as compared to the same periods in 1999. In 2000, gross profit margins were
63.3% for the for the quarter and 64.3% year to date, compared to 64.9% for the
quarter and 66.0% year to date in 1999. The decreases can be attributed to the
impact of foreign currency exchange rates and a changes in the Company's sales
mix.
Operating Expenses:
Selling and marketing expenses increased 7.7% and 9.9% on a quarterly and year
to date basis respectively. These increases reflect the costs associated with
developing new markets and expanding our geographic presence. These initiatives
include the development of specialized product managers and support functions
for the Company's various business units, as well as an expanding sales
infrastructure in Asia and South America.
In year over year comparisons, general and administrative ("G&A") expenses were
higher in the third quarter and year to date. Quarterly expenses of $4.0 million
are a 13.7% increase over the same period in 1999. Year to date expenses are
$10.9 million, an increase of 1.9% over 1999. The larger quarterly increase can
be attributed to higher benefit costs and expenses related to two acquisitions
completed during the third quarter of 2000. On a year to date basis, the growth
in expenses has been held down by efficiencies gained through facility
consolidation, the positive effects of foreign exchange rates and lower database
costs.
Research, development and engineering costs increased 1.2% in the third quarter
and are flat on a year to date basis compared with the same periods in 1999. The
Company's RD&E efforts have gained significant efficiencies through facilities
consolidation and a more efficient allocation of engineering resources. These
savings have been invested in expanded new product development and research
efforts associated with the acquisitions completed during the third quarter of
2000.
<PAGE>
Item 2. Management's Discussion and Analysis of Results
of Operations and Financial Condition, continued
RESULTS OF OPERATIONS, continued
Other Income(Expense):
Other income(expense) consists mainly of interest earnings from invested funds
and losses associated with foreign currency transactions. Interest income in the
third quarter and year to date was higher than comparable periods in 1999 due to
an increase in funds available for investment and more favorable rate
environment for many of the Company's investment instruments. These gains were
offset by losses experienced on intercompany foreign currency transactions with
our European subsidiaries.
Net Income:
The Company recorded net income of $1,863,000 for the three months ended
September 30, 2000 compared to $3,104,000 in the same period of 1999. On a per
share basis, third quarter net income, diluted, was $.09 in 2000 compared to
$.14 in 1999. For the first nine months of 2000, net income was $9,035,000, or
$.43 per share diluted, compared to $9,413,000, or $.43 per share in 1999. The
average number of common and common equivalent shares outstanding was lower in
2000 due to a decrease in the dilutive effect of shares subject to redemption
agreements.
Other Items:
During the third quarter of 2000 X-Rite acquired the assets of Optronik GmbH a
leading German developer of color and light measurement systems. Headquartered
in Berlin, Germany, Optronik's strength is on-line color and light measurement.
With this acquisition X-Rite now has research, development and manufacturing
capabilities in Europe.
The Company also announced the purchase of the assets of the HoloVision Products
Group of Verdian-ERIM International. Located in Ann Arbor, Michigan,
HoloVision's product line is based on tunable laser technology and is used in a
variety of industries to accurately map the surfaces of physical objects.
In addition to the acquisitions noted above, the Company has also announced the
formation of a new strategic venture capital fund, XR Ventures, LLC. X-Rite will
hold a majority interest in the firm whose mission is to invest in companies
that develop and manage new technologies, many of which will lead to the future
market growth of X-Rite. Other partners in the firm include Dr. Peter M. Banks
and James A. Knister. Dr. Banks and Mr. Knister both have had extensive careers
as executives in technology companies. In addition to their roles with XR
Ventures, both serve on the Board of Directors of X-Rite, Incorporated.
On October 5, 2000 the Company announced that its Board of Directors has
authorized a common stock repurchase program. The Company is authorized to
repurchase up to 1,000,000 shares. The timing of the program and the amount of
the stock repurchases will be dictated by overall financial and market
conditions.
<PAGE>
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.
<PAGE>
PART II. OTHER INFORMATION
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 September 30, 2000.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
X-RITE, INCORPORATED
November 15, 2000 /s/ Richard E. Cook
----------------------
Richard E. Cook
President and Chief
Executive Officer
November 15, 2000 /s/ Duane F. Kluting
----------------------
Duane F. Kluting
Vice President and
Chief Financial Officer
<PAGE>
EXHIBIT INDEX
--------------------------------------------------------------------------
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)
3(f) Bylaws, as amended and restated November 18, 1999 (filed as
exhibit to Form 10-K for the year ended January 1, 1999
(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)
<PAGE>
EXHIBIT INDEX
--------------------------------------------------------------------------
*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)
*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) 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)
*10(f) Form of X-Rite, Incorporated Founders Redemption Agreement entered
into between the registrant and certain person together with a list of
such persons (filed as exhibit to Form 10-Q for the quarter ended July
3,1999 (Commission File No. 0-14800) and incorporated herein by
reference)
*10(g) First amendment to X-Rite, Incorporated Founders Redemption Agreement
dated July 16, 1999 between the registrant and Ted Thompson (filed as
exhibit to Form 10-Q for the quarter ended July 3,1999 (Commission
File No. 0-14800) and incorporated herein by reference)
*10(h) Chairman's agreement dated July 16, 1999 between the registrant and
Ted Thompson (filed as exhibit to Form 10-Q for the quarter ended July
3,1999 (Commission File No. 0-14800) and incorporated herein by
reference)
*10(i) Employment arrangement effective upon a change in control entered
into between the registrant and certain persons together with a
list of such persons(filed as exhibit to Form 10-K for the year
ended January 1, 2000(Commission File No. 0-14800)and incorporated
herein by reference)
*10(j) Deferred compensation trust agreement dated November 23, 1999 entered
into between the registrant and Richard E. Cook (filed as exhibit to
Form 10-K for the year ended January 1, 2000 (Commission File No.
0-14800) and incorporated herein by reference)
*10(k) Operating Agreement for XR Ventures, LLC dated September 14, 2000, by
and between XR Ventures, LLC, the registrant, Dr. Peter M. Banks and
Mr. James A. Knister.
27 Financial Data Schedule
<PAGE>
THE INTERESTS IN XR VENTURES, LLC HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR UNDER ANY STATE SECURITIES LAW
AND MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED UNLESS SUBSEQUENTLY
REGISTERED UNDER SUCH ACT OR LAWS OR UNLESS AN EXEMPTION FROM
REGISTRATION IS AVAILABLE. ARTICLE VII OF THIS AGREEMENT FURTHER
RESTRICTS TRANSFERABILITY OF INTERESTS IN THE COMPANY.
Operating Agreement
For
XR VENTURES, LLC
September 14, 2000
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I. DEFINITIONS 1
ARTICLE II. FORMATION 1
2.1 Formation 1
2.2 Name, Location, Etc. 1
2.3 Character of Business and Purposes 1
2.4 Term 1
2.5 Partnership Classification 1
ARTICLE III. MEMBERS AND CAPITAL 2
3.1 Members and Their Capital Commitments 2
3.2 Capital Accounts 2
3.3 Company Capital 2
3.4 Liability of Members 2
ARTICLE IV. DISTRIBUTIONS AND ALLOCATIONS 3
4.1 Non-Cash Distributions 3
4.2 Distributions Generally 3
4.3 Liquidating Distributions 4
4.4 Allocations of Net Loss 5
4.5 Allocation of Net Income and Gain 5
4.6 Special Allocations 5
4.7 Managers' Discretionary Powers 7
4.8 Determination of Allocations and Distributions
Among Members 7
ARTICLE V. MANAGERS RIGHTS, POWERS AND DUTIES 8
5.1 Management and Control of the Company 8
5.2 Authority of Managers 8
5.3 Reimbursement of Expenses 9
5.4 Restrictions on Authority of Managers 9
5.5 Duties and Obligations of Managers 10
5.6 Compensation of Managers 10
5.7 Other Business 10
5.8 Limitation on Liability of Managers; Indemnification 11
ARTICLE VI. MANAGERS WITHDRAWALS AND CHANGES 11
6.1 Withdrawal of Managers 11
6.2 Admission of Successor or Additional Managers 11
ARTICLE VII. TRANSFERABILITY OF MEMBERS' INTERESTS 11
7.1 Restrictions on Transfer of Company Interests 11
7.2 Transferees and Substituted Members 11
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7.3 Buy Back Options 12
7.4 Right of First Refusal and Other Transfer Restrictions 14
7.5 Priority 15
7.6 Transfer of Company Interest to a Revocable Living Trust 15
ARTICLE VIII. DISSOLUTION AND LIQUIDATION OF THE COMPANY 15
8.1 Events Causing Dissolution 15
8.2 Liquidation and Winding Up 16
8.3 No Liability for Return of Capital 16
8.4 Deemed Distribution and Recontribution 17
ARTICLE IX. BOOKS AND ACCOUNTING REPORTS 17
9.1 Books and Records 17
9.2 Tax Accounting 17
9.3 Bank Accounts 17
9.4 Depreciation and Elections 17
ARTICLE X. MEETINGS AND VOTING RIGHTS OF MEMBERS 17
10.1 Meetings 17
10.2 Notification 17
10.3 Proxies 18
10.4 Election Not to Dissolve 18
ARTICLE XI. MISCELLANEOUS PROVISIONS 18
11.1 Amendments 18
11.2 Investment Representations 18
11.3 Parties Bound and Benefited 19
11.4 Entire Agreement 19
11.5 Governing Law 19
11.6 Severability of Provisions; Waiver of Right to Partition 19
11.7 Construction; Captions; Pronouns 19
11.8 Further Action 20
11.9 Counterparts 20
11.10 Specific Performance and Damages 20
11.11 Counsel 20
11.12 Dispute Resolution 20
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THE INTERESTS IN XR VENTURES, LLC HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR UNDER ANY STATE SECURITIES LAW
AND MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED UNLESS SUBSEQUENTLY
REGISTERED UNDER SUCH ACT OR LAWS OR UNLESS AN EXEMPTION FROM
REGISTRATION IS AVAILABLE. ARTICLE VII OF THIS AGREEMENT FURTHER
RESTRICTS TRANSFERABILITY OF INTERESTS IN THE COMPANY.
OPERATING AGREEMENT
FOR
XR VENTURES, LLC
XR VENTURES, LLC, a Michigan limited liability company (the "Company"), and
all those who execute this Operating Agreement or a counterpart of it (the
"Agreement") as a Member or Manager, as described below, enter into this
Agreement effective as of September 14, 2000.
ARTICLE I. DEFINITIONS
The terms set forth in Exhibit B as used in this Agreement shall, unless
the context other-wise requires, have the meanings specified in Exhibit B.
ARTICLE II. FORMATION
2.1 Formation. By executing this Agreement, the parties agree to form and
operate a limited liability company pursuant to the pro-visions of the Act. The
rights, powers and liabilities of the Company and the Members shall be as
provided in the Act except as provided in this Agreement.
2.2 Name, Location, Etc. The name of the Company is "XR Ventures, LLC," and
such name may be changed only by the Members. The Company's business may be
conducted under that name or such other name(s) as the Managers shall determine
from time to time. The location of the principal place of business of the
Company and its registered office initially shall be 3100 44th Street, S.W.,
Grandville, Michigan 49418, and the resident agent initially shall be Duane F.
Kluting. The Managers may unanimously agree to change the place of business,
registered office, or resident agent from time to time. Notification of any
change in the Company's place of business, registered office, or resident agent
shall be given to the Members.
2.3 Character of Business and Purposes. The business and purposes of the
Company shall be searching for, finding, negotiating, structuring, acquiring,
investing in, holding, selling, or otherwise disposing of Portfolio Companies,
managing and supervising Portfolio Companies, and engaging in such other
activities incidental or ancillary thereto as the Managers deem necessary or
advisable.
2.4 Term. The Company's term shall commence as of the date of the filing of
its Articles of Organization and shall continue indefinitely thereafter, unless
dissolved pursuant to the Act or this Agreement.
2.5 Partnership Classification.
A. The Members intend that the Company shall be operated in a manner
consistent with its treatment as a "partnership" for federal and state
income tax purposes. No Member or Manager shall
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take any action inconsistent with such intent, and the Members and Managers
agree to make any amendments hereto required (in the opinion of counsel for
the Company) to obtain or maintain partnership classification for tax
purposes from time to time.
B. Notwithstanding the foregoing, the Members and Managers have formed
the Company as a limited liability company under the Act and specifically
intend and agree that the Company not be construed as a partnership
(including a limited partnership) or any other venture for purposes other
than tax matters. No Member or Manager shall be construed to be a partner
in the Company or a partner of any other Member or Manager or Person for
purposes other than tax matters solely as a result of the Articles of
Organization, this Agreement and the relationships created thereby and
arising therefrom, and same shall not be construed to suggest otherwise.
ARTICLE III. MEMBERS AND CAPITAL
3.1 Members and Their Capital Commitments. Each Person indicated on Exhibit
A has made or agrees to make the Capital Contribution shown opposite his/its
name on Exhibit A in exchange for the Company Units therein indicated. Each such
Person hereby is admitted as a Member. Members shall not be obligated to make
any additional contribution to the Company's capital unless they unanimously
agree otherwise.
3.2 Capital Accounts. A separate Capital Account shall be maintained for
each Member. The Capital Account balance for each Member shall be increased by
the amount of money and the fair market value of property contributed by such
Member to the Company's capital, and by that Member's share of Company net
income and gain, and decreased by distributions of cash or property (at fair
market value) to that Member, and that Member's share of Company net loss and
deductions. Such other adjustments to Capital Accounts shall be made as required
by the rules set forth in Section 1.704-1(b)(2)(iv) of the Regulations.
3.3 Company Capital. No Member shall be paid interest on any Capital
Contribution nor have the right to withdraw, or receive any return of, such
Member's Capital Contribution, except as may be specifically provided in this
Agreement. Under circumstances requiring a return of any Capital Contribution,
no Member shall have the right to receive property other than cash except as may
be specifi-cally provided in Sections 4.1 and 4.3 of this Agreement.
3.4 Liability of Members.
A. No Member shall be liable for the debts, liabilities, contracts or
any other obligations of the Company. A Member shall be liable only to make
payment for the amounts required to be contributed to the Company's capital
as expressly required hereunder. No Member with a negative balance in his
Capital Account, whether by virtue of distributions of cash or by
allocations of loss or deduction, shall have any obligation to the Company
or the other Members to restore a negative Capital Account.
B. For purposes of this section, it is the intent of the Members that
no distribution (or any part of any distribution) made to any Member
pursuant to Article IV of this Agreement be deemed a return or withdrawal
of capital, even if the distribution represents (in full or in part) a
distribution of depreciation or any other non-cash item accounted for as a
loss or deduction from or offset to the Company's income, and that no
Member shall be obligated to pay any such amount to or for the account of
the Company or any creditor of the Company. If any court of competent
jurisdic-tion, however, holds that, notwithstanding the provisions of this
Agreement, any Member is obligated to make any such payment, that
obligation shall
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be the obligation of such Member and not of the other Members or Managers,
and such Member shall return any such distribution to the Company.
ARTICLE IV. DISTRIBUTIONS AND ALLOCATIONS
4.1 Non-Cash Distributions. The Managers shall periodically review each
interest in a Portfolio Company and determine whether the Company should retain
or dispose of such interest or whether the interest should be distributed to the
Members. As of the Target Date related to a Portfolio Company, the Company's
entire interest in that Portfolio Company shall be distributed to the Members
unless otherwise determined by unanimous agreement of the Managers in which case
the Managers shall determine a new date for distribution of the interest in the
Portfolio Company as part of their unanimous agreement not to distribute. The
distributions contemplated by this Section 4.1 shall be made in accordance with
the following:
A. There shall first be distributed to the Class A Member an interest
in the distributed Portfolio Company having a Fair Market Value equal to
the Investment for that Portfolio Company, plus any Expended Funds not
already distributed to the Class A Member.
B. After the distribution contemplated by Subsection 4.1A, there shall
be distributed to X-Rite as a Class B Member eighty percent (80%) of the
balance of the inv estment being distributed less the Success Fee, if any,
and to the Class B Members other than X-Rite, pro rata, twenty percent
(20%), of the balance of the investment being distributed plus the Success
Fee, if any.
Any in-kind distribution shall provide for and be accompanied by an
Option/Put which shall be exercisable for thirty (30) days after the date of
distribution. Such distributions and such Option/Put shall be at the Fair Market
Value mutually agreed upon by the parties or, in the absence thereof, at the
Fair Market Value determined by the Valuation Procedure, which shall be
applicable to all distributions under Subsections 4.1A and 4.1B above. Any costs
or expenses associated with a Valuation Procedure shall be paid eighty percent
(80%) by X-Rite and twenty percent (20%) by the Class B Members other than
X-Rite.
To the extent X-Rite purchases under the Option/Put as specified in this
section, and then disposes or contracts to dispose of its investment in the
Portfolio Company or files a registration statement for an initial public
offering of such investment (which is subsequently concluded) within twelve (12)
months of the option exercise, the price paid by X-Rite to the selling Member(s)
shall be increased by the Look-Back in cash, unless the consideration in a sale
is not cash, in which case the Look-Back shall be paid in such other
consideration, or if more than one type of consideration is paid is in the same
proportion as each type of consideration bears to the total consideration.
4.2 Cash Distributions. All Disbursable Cash related to the sale of a
Portfolio Company shall immediately be distributed 100% to the Members upon such
sale, and all other Disbursable Cash shall be distributed to the Members at such
time(s) as the Managers by unanimous vote (or X-Rite alone in the case of
Subsection 4.2A) shall determine in accordance with the following:
A. There shall first be distributed to the Class A Member an amount
equal to any earnings on its Capita l Contributions which have not yet been
invested in, or employed by the Company in the pursuit of Portfolio
Companies, at any time X-Rite determines in its sole discretion.
B. There shall next be distributed to the Class A Member an amount
equal to the Investment in any Portfolio Companies which generated
Disbursable Cash, plus any Expended Funds not already distributed to the
Class A Member to the extent Disbursable Cash is available.
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C. After the distributions contemplated by Subsections 4.2A and 4.2B,
the balance of any amounts to be distributed shall be distributed eighty
percent (80%) to X-Rite as a Class B Member less the Success Fee, if any,
and twenty percent (20%), pro rata, to the Class B Members other than
X-Rite plus the Success Fee, if any.
Notwithstanding the foregoing, the Company shall distribute available
Disbursable Cash to Members annually in an amount equal to each Member's
anticipated tax liability resulting from any income or realized gain allocations
made by the Company to any Member. Except as otherwise provided herein, there
shall be no distributions, and no Member shall be entitled to any distribution
of the Company's property other than cash, unless such distribution has been
approved by the Members holding eighty-five percent (85%) of the Company Units.
Notwithstanding anything to the contrary contained herein, the Class A Member
shall be entitled to any distribution of any Capital Contribution amount that
has not been employed by the Company in the pursuit of Portfolio Companies to
the extent the Managers unanimously agree to such a distribution.
4.3 Liquidating Distributions. The proceeds of a sale, exchange or other
disposition of all or substantially all of the Company's Property con-stituting
a dissolution of the Company shall be applied as follows:
A. To the payment of debts and liabilities of the Company to creditors
in the order of priority provided by law, including any creditor who is a
Member or a former Member (other than in respect of his/its interest in the
Company) and the expenses of liquida-tion;
B. To the establishment of any Reserves that the Managers may
unanimously deem reasonably necessary for any contingent or unforeseen
liabilities or obligations of the Company arising out of or in connection
with the Company; and
C. Then to the Class A Member to the extent of the Investment in any
Portfolio Companies ever owned by the Company plus Expended Funds not
already distributed to the Class A Member less any Investment previously
distributed to the Class A Member plus any remaining positive balance in
its Capital Account, if any (after the distributions of the amount
specified in this sentence), and then any remaining amounts shall be
distributed to the Class B Members to the extent of any positive balances
in their Capital Accounts and then shared among them as follows: the
balance of any amounts to be distributed shall be distributed eighty
percent (80%) to X-Rite as a Class B Member minus the Final Success Fee
(which may be negative), and twenty percent (20%), pro rata, to the Class B
Members other than X-Rite plus the Final Success Fee (which may be
negative).
The Fair Market Value of any in-kind distributions pursuant to Subsection
4.3C shall be as agreed upon by the Class A Member and the Class B Members. If
the Members cannot agree upon such Fair Market Value, the Fair Market Value
shall be determined in accordance with the Valuation Procedure. Any costs or
expenses associated with the Valuation Procedure shall be paid eighty percent
(80%) by X-Rite and twenty percent (20%) by the Class B Members other than
X-Rite. With regard to in-kind distributions, there shall be an Option/Put(s)
for each in-kind distribution, which Option/Put(s) shall be at the Fair Market
Value determined above and shall be exercisable until the Target Date of each
Portfolio Company to which the in-kind distribution relates. To the extent
X-Rite exercises any option to purchase under the Option/Put and then disposes
of or contracts to dispose of its investment in the relevant Portfolio Company
or files a registration statement for an initial public offering of such
investment (which is subsequently concluded) any time prior to twelve (12)
months after the Target Date, the price paid by X-Rite to the selling Member(s)
shall be increased by the Look-Back in cash, unless the consideration in a sale
is not cash in which case the Look-Back shall be paid in such other
consideration, or if more than one type of consideration is paid in the
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same proportion as each type of consideration bears to the total consideration,
or if no transaction invoking a Look-Back occurs, by the Value-Back in cash
within thirty (30) days of the relevant Target Date.
4.4 Allocations of Net Loss. Except as provided in Section 4.6 and 4.7, any
realized net loss shall be allocated to and among the Members in the following
order of priority:
A. First, except as provided in Subsection 4.4E, to the Members in an
amount equal to the excess, if any, of the net profits allocated to the
Members pursuant to Subsection 4.5E over all prior allocations of losses to
the Members pursuant to this Subsection 4.4A;
B. Second, except as provided in Subsection 4.4E, to the Members in an
amount equal to the excess, if any, of the net profits allocated to the
Members pursuant t o Subsection 4.5D over all prior allocations of losses
to the Members pursuant to this Subsection 4.4B;
C. Third, except as provided in Subsection 4.4E, to the Members in an
amount equal to the excess, if any, of all prior allocations to the Members
pursuant to Subsection 4.5C over all prior allocations of losses to the
Members pursuant to this Subsection 4.4C;
D. Fourth, except as provided in Subsection 4.4E, all other losses
shall be allocated to the Class A Members; and
E. Notwithstanding the provisions of Subsections 4.4A, B, C, and D,
losses shall not be allocated to any Member to the extent such allocation
would cause such Member to have (or increase) an Adjusted Capital Account
Deficit; rather such losses shall be allocated to the other Members.
4.5 Allocation of Net Income and Gain. Except as provided in Sections 4.6
and 4.7, net income and realized gain shall be allocated to and among the
Members in the following order of priority:
A. First, to the Members, until cumulative profits allocated under
this Subsection 4.5A equal cumulative losses allocated to the Members under
Subsection 4.4D;
B. Second, to the Members to the extent of the excess of aggregate net
loss, if any, resulting from all prior allocations under Subsection 4.4C
over all prior allocations of gross income or gain under this Subsection
4.5B;
C. Third, to the Class A Member until cumulative profits allocated
under this Subsection 4.5C are equal to the amount of Disbursable Cash
payable for its Investments and Expended Funds;
D. Fourth, to the Class B Members until cumulative profits allocated
under this Subsection 4.5D are equal to the amount of Disbursable Cash
payable to them under this Agreement; and
E. The balance of the net income and gain to the Members in accordance
with their respective interests as set forth in Sections 4.1 and 4.3 above.
4.6 Special Allocations.
A. Nonrecourse Deductions (as described in Regulations ss. 1.704-2(c))
shall be separately allocated to and among the Members in proportion to
their respective Company Units. Member Nonrecourse Deductions shall be
specially allocated, in accordance with the Regulations, to the Member or
Members who bear the economic risk of loss for the Member Nonrecourse Debt
to which such deductions
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are attributable. It is hereby understood and agreed that if and to the
extent the Class A Member loans or otherwise provides funds to, or
guarantees or otherwise facilitates credit for, the Company, the Class A
Member shall be deemed to bear the economic risk of loss with respect
thereto, and shall indemnify and hold harmless the other Members with
respect to any loss arising therefrom, hereby releasing any rights of
subrogation arising thereunder, and therefore all deductions relating
thereto shall be allocated to the Class A Member.
B. Except as provided in Subsection 4.6C, if reductions to be made to
a Member's Capital Account pursuant to Regulations ss.
1.704-1(b)(2)(ii)(d)(4), (5) or (6), would cause a Member to have a deficit
in his Capital Account (at the end of any Company fiscal year) in excess of
the amount of deficit Capital Account that such Member is deemed to be
obligated to restore pursuant to the second to the last sentence of
Regulations ss. 1.704-2(g)(i), such Member shall be specifically allocated
items of Company income and gain in the amount of such excess as quickly as
possible.
C. Notwithstanding anything to the contrary in this Article IV:
(1) If during any Company fiscal year there is a net decrease in
Company "Minimum Gain," as described in Regulations ss. 1.704-2(b)(2)
(with the word "Company" replacing "partnership" therein), each Member
shall be specially allocated items of Company income and gain for such
year (and, if necessary, subsequent years) in an amount equal to the
portion of such Member's share of the net decrease in Company Minimum
Gain for the year as determined in accordance with Regulations ss.
1.704-2(g)(2). The items to be so allocated shall be deter-mined in
accordance with Regulations ss. 1.704-2(f). This Subsection 4.6C is
intended to comply with the minimum gain charge back provisions of
Regulations under Section 704 and shall be interpreted consistently
therewith.
(2) If there is a net decrease during a fiscal year in the Member
Minimum Gain attributable to a Member Nonrecourse Debt, then each
Member with a share of the Member Minimum Gain attributable to such
debt, determined in accordance with Regulations ss. 1.704-2(i)(5),
shall be specially allocated items of income and gain for such year
(and, if necessary, subsequent years) in an amount equal to such
Member's share of the net decrease in the Member Minimum Gain
attributable to such Member Nonrecourse Debt, determined in accordance
with Regulations ss. 1.704-2(i)(4). Allocations pursuant to the
preceding sentence shall be made among the Members in proportion to
the respective amounts to be allocated to each of them pursuant to
such Regulation. Any special allocation of items of income and gain
pursuant to this Section 4.6 shall be made before any other allocation
of items under this Subsection 4.6C(2), except only for special
allocations required under the immediately preceding Subsection
4.6C(1). The items to be so allocated shall be determined in
accordance with Regulations ss. 1.704-2(i)(4). This Subsection 4.6C(2)
is intended to comply with the provisions of Regulations ss.
1.704-2(i)(4) and shall be interpreted consistently therewith.
D. In making the allocation among the Members of gain or profit, the
ordinary income portion, if any, of such gain or profit caused by the
recapture of cost recovery or any other deduction shall be allocated among
those Members who were pre-viously allocated the cost recovery or any other
deductions in proportion to the amount of such deductions previously
allocated to them. It is intended that the Members shall bear the burden of
recapture caused by cost recovery or other deductions that were previously
allocated to them, in proportion to the amount of such deductions that have
been allocated to them, notwithstanding that a Member's share of profits,
losses or liabilities may increase or decrease from time to time. Nothing
in this Subsection 4.6D, however, shall cause the Members to be allocated
more or less gain or profit than would otherwise be allocated to them
pursuant to this Article IV.
E. Any special allocation of the items of income or gain pursuant to
this Section 4.6 shall be taken into account in computing subsequent
allocations of profit or gain pursuant to this Article IV,
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so that the net amount of any item so allocated and the profit, gain, loss
and any other item allocated to each Member pursuant to this Article IV
shall, to the extent possible, be equal to the net amount that would have
been allocated to each such Member pursuant to the provisions of this
Article IV if such special allocations had not occurred.
4.7 Managers' Discretionary Powers.
A. The allocation method set forth in this Article IV is intended to
allocate profits and losses to the Members for federal income tax purposes
in accordance with their economic interests in the Company and to comply
with Code ss. 704(b) and Regulations promulgated thereunder. If, in the
opinion of the Managers, the allocation of profits or losses pursuant to
the preceding provisions of this Article IV shall not satisfy the Code or
the Regulations or properly take into account any expendi-ture made by the
Company or transfer of a Company Interest, then, notwithstanding anything
to the contrary contained in this Article IV, profits and losses shall be
allocated in such manner as the Managers, in their unrestricted
discre-tion, determine to be required so as to comply with the Code or the
Regulations or to properly take into account any expenditure made by the
Company to transfer of a Company Interest, as the case may be. The Managers
shall have a right to amend this Agreement without action by the Members to
reflect any such change in the method of allocating profits and losses;
provided, however, that any change in the method of allocating profits or
losses shall not materially alter the economic agreement among the Members.
B. If there is any change in ownership of Company Interest among the
Members during a fiscal year, then for purposes of this Article IV, the
Managers shall take into account the requirements of Code ss. 706(d) and
shall have the right to select any method of determin-ing the varying
interest of the Members during the year which satisfies Code ss. 706(d).
4.8 Determination of Allocations and Distributions Among Members.
A. Except as provided in Subsections 4.8B and 4.8C, all allocations
and distribu-tions to which the Members are entitled shall be distributed
or allocated to each Member entitled to the distribution or allocation in
the ratio in which Company Units of the relevant class correspond to all
the Company Units of that class entitled to distribution or allocation.
B. Distributions and allocations shall be made, as the case may be, to
the Persons recognized by the Company as the holders of Company Units on
the day on which the allocation or distribution is made by the Company.
C. All net profits or net losses for a fiscal year allocable to any
Company Interest that may have been trans-ferred during the fiscal year or
acquired on any date after the first day of the Company's fiscal year shall
be allocated pro rata among the Persons who were Members during such
Company taxable year as of the first day of the month in which the transfer
was recognized in accordance with this Agreement without regard to the
results of Company operations during the fiscal year and without regard to
the timing or amount of cash distribu-tions which were made during the
taxable year.
D. Except as provided elsewhere in this Agreement, whenever a
proportionate part of net income, net loss or other income or loss is
allocated to a Member, every item of income, gain, loss or deduction
entering into the computation of such net income, net loss or other income
or loss shall be con-sidered allocated, and every item of credit, tax
preference, or recapture related to such net income, net loss or other
income or loss and applicable to the period when such net income, net loss
or other income or loss was realized shall be allocated to the Member in
the same proportions.
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E. Distributions and allocations for any portion of the Company's
fiscal year prior to the admission of Members shall be determined by an
interim closing of the Company's accounting records as of the first day of
the month in which the admission occurs if Members are admitted into the
Company during the first fifteen (15) days of the month and as of the 16th
day of the month in which admis-sion occurs if Members are admitted into
the Company after the 15th day of the month in which admission occurs.
ARTICLE V. MANAGERS RIGHTS, POWERS AND DUTIES
5.1 Management and Control of the Company.
A. Subject to any contrary provisions in the Act or this Agreement,
the Managers shall have the exclusive right to manage the busi-ness of the
Company and are hereby authorized to take any action of any kind and to do
anything and everything it deems necessary to carry out the purposes of the
Company set forth in Section 2.3.
B. No Member (except one who may also be a Manager, and then only in
his/its capacity as Manager within the scope of his/its authority under
this Agreement) shall participate in or have any control over the Company
business or shall have any authority or right to act for or bind the
Company, except as otherwise expressly provided in the Act or this
Agreement.
C. The Company shall be responsible for paying all direct costs and
expenses of organizing and operating the Company's business, including,
without limitation, debt service, insurance premiums, taxes, legal expenses
and fees, accounting fees, and all other fees, costs, and expenses.
D. The Managers, acting unanimously, are hereby authorized to
establish Reserves.
5.2 Authority of Managers.
A. Except to the extent otherwise provided in this Agreement, the
following must be approved unanimously by the Managers:
(i) negotiate for, structure, acquire by purchase, exchange or
other-wise any investment in a Portfolio Company;
(ii) operate, maintain, improve, own, grant options with respect
to, sell, convey, assign, distribute, or exchange any investment in
any Portfolio Company;
(iii) execute any and all agreements, contracts, docu-ments,
certi-fications and instruments necessary or convenient in connection
with the authority granted under Subsections 5.2A(i) and 5.2A(ii);
(iv) contract on behalf of the Company for the employment and
services of employees and/or independent contractors, including
lawyers and accountants consistent with the purposes of the Company as
provided in Section 2.3;
(v) make any and all elections for federal, state, and local tax
purposes, including any election, if permitted by applicable law: (1)
to adjust the basis of property pursuant to Code ss.ss. 734(b),
743(b), and/or 754, or comparable provisions of state or local law, or
any corresponding provisions of future tax laws, in connection with
transfers of Company Interest and Company distributions; and (2) to
extend the statute of limitations for assessment of tax deficiencies
before taxing authorities or courts of competent jurisdiction in tax
matters affecting the Company; and/or
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(vi) deal with, or otherwise engage in business with, or provide
services to and receive compensation therefor from, any Person who has
pro-vided or may in the future provide any services to, lend money to,
sell property to, or purchase property from, any Manager or any
Affiliate of a Manager.
B. Each Manager, acting with the consent of a majority of the
Managers, shall have the power, on the Company' s behalf, to do all things
necessary to carry out the day-to-day operations of the Company, which
day-to-day operations specifically exclude all matters discussed in
Subsection 5.2A. In addition, any Manager, without the approval of any
other Manager or Member, may undertake any action provided it or the
consequences of it do not involve any commitment by the Company in excess
of Five Thousand and No/100 Dollars ($5,000.00).
C. To the extent that the Capital Contributions for Class A Company
Units have not been expended in the pursuit of the Company's business,
X-Rite, as a Manager of the Company, shall have the sole discretion to
invest such balance in any manner it chooses, provided such investment does
not frustrate the purposes of the Company.
D. Any Person dealing with the Company or Managers may rely (without
further duty of inquiry) upon a certificate signed by the Managers as to:
(i) the identity of any Manager or any Member(s);
(ii) the existence or nonexistence of any fact or facts which
constitutes a condition precedent to acts by any Manager or which are
in any other manner germane to the affairs of the Company;
(iii) the Persons who are authorized to execute and deliver any
instrument or document of the Company; or
(iv) any act or failure to act by the Company or as to any other
matter whatsoever involving the Company or any Member.
5.3 Reimbursement of Expenses. Without limitation upon the other powers set
forth in this Agreement, and in addition to any Managers' interest in the
Company, the Company is expressly authorized to reimburse any Manager or its
Affiliates for past and future costs, expenses, legal fees, accounting fees, and
office, clerical and administrative expenses and similar outlays made and
incurred by any Manager on behalf of and for the benefit of the Company.
5.4 Restrictions on Authority of Managers. Without the approval of the
Members holding eighty-five percent (85%) of the Company Units, no Manager shall
have the authority to do any of the following for or on behalf of the Company:
A. Sell or otherwise dispose of at one time all or substan-tially all
the assets of the Company;
B. Amend the Company's Articles of Organization;
C. Approve of a merger or consolidation involving the Company;
D. Borrow money on behalf of the Company;
9
<PAGE>
E. Pledge or grant a security interest in any assets of the Company;
F. Do any act in contravention of this Agreement; or
G. Confess a judgment against the Company.
5.5 Duties and Obligations of Managers.
A. The Managers shall take all action that may be necessary or
appro-priate: (i) for the continuation of the Company's valid existence as
a limited liability Company under the laws of Michigan and its
qualification to do business in Michigan; and (ii) for the operation and
promotion of the Company's business in accordance with the provisions of
this Agreement.
B. The Managers shall devote to the Company such time as may be
necessary for the proper performance of his/its duties under this
Agreement.
C. The Managers shall be under a fiduciary duty to conduct the affairs
of the Company in the best interest of the Company and of the Members,
including the safekeeping and use of all of the Property and the use
thereof for the exclusive benefit of the Company, provided, however, that
the corporate opportunity doctrine, or similar concepts applicable to
limited liability companies, shall not apply to the Managers.
D. X-Rite shall act as the "tax matters partner" under the Code and in
any similar capacity under state or local law.
E. The individual Managers shall provide periodic reports to the Board
of Directors of X-Rite, a Member and Manager of the Company, when and where
such Board of Directors reasonably requests, which reports shall include
all activities of the Company, as well as the individual Manager's
involvement in: (i) business activities other than serving as a Manager of
the Company; and (ii) any opportunities the Managers are aware of, the
character of which, if presented to the Company, could be taken by the
Company.
5.6 Compensation of Managers. The Managers shall not in their capacity as
Managers receive any salary, fees, profits or distributions, except as otherwise
specifically provided for in this Agreement. Notwithstanding the foregoing
sentence, the Managers or any Affiliate thereof shall be entitled to receive
compensation, fees, and other payments as contemplated in this Agreement or in
any other agreement or understanding approved in writing by all the Members.
5.7 Other Business.
A. Any Member or Manager may engage independently or with others in
other business ventures of every nature and description, including, without
limitation, -investment activities. Nothing in this Agreement shall be
deemed to prohibit the Managers or any Affiliate of the Managers from
dealing, or otherwise engaging in business, with Persons transacting
business with the Company or from providing services to the Company and
receiving compensation therefor.
B. Neither the Company nor any Member shall have any right by virtue
of this Agreement or the relationships created hereby to any other ventures
or activities of the Members, even if competitive with the business of the
Company.
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<PAGE>
5.8 Limitation on Liability of Managers; Indemnification. The Managers
shall not be liable, responsible or accountable in damages or other-wise to any
of the Members for any act or omission performed or omitted by it in good faith
provided that the Managers were not guilty of fraud, bad faith or gross
negligence. The Company shall indemnify and save harmless the Managers and their
Affiliates, agents and assigns against any loss or damage, including costs and
attorneys' fees and any amounts expended in settlement of such claims or
liability, loss or damage incurred by such Person on behalf of the Company or in
furtherance of the Company's interests arising out of any act or failure to act
by such Manager or other Person, if such act or failure to act is in good faith
and is not attributable to gross negligence, fraud or bad faith. The
satisfaction of any indemnification and any saving harmless shall be from and
limited to Company assets, and no Member or Manager shall have any personal
liability on account thereof.
ARTICLE VI. MANAGERS WITHDRAWALS AND CHANGES
6.1 Withdrawal of Managers. Any Manager may, at any time, resign as
Manager. A successor Manager must be approved as provided in Section 6.2.
6.2 Admission of Successor or Additional Managers. The Members may, upon
the written consent of the Members holding eighty-five percent (85%) of the
Company Units, at any time designate a successor or additional Manager. Each
such designee shall become an additional Manager upon compliance with Section
11.1 of this Agree-ment. A Person who is a Member may, if so appointed
hereunder, be a Manager; but it is not required that a Person who is a Manager
also be a Member.
ARTICLE VII. TRANSFERABILITY OF MEMBERS' INTERESTS
7.1 Restrictions on Transfer of Company Interests.
A. No sale, exchange, assignment, pledge, encumbrance, or transfer of
any kind (each a "transfer") of any Company Interest may be made if the
Company Interest sought to be transferred, when added to the total of all
other Company Interests transferred within the period of 12 consecutive
months prior thereto, would, in the opinion of counsel for the Company,
result in the Company being considered to have been terminated within the
meaning of Section 708 of the Code, or any successor provision.
B. No transfer of any Company Interest may be made if counsel for the
Company shall be of the opinion that the transfer would be in violation of
the Securities Act of 1933, as amended, or of any state securities or "Blue
Sky" laws (including any investment suitability standards) applicable to
the Company.
C. No transferee may become a Member unless Members holding
eighty-five percent (85%) of the Company Units consent, except as otherwise
provided in this Agreement.
7.2 Transferees and Substituted Members.
A. If a Member dies, his personal representa-tive, executor,
adminis-trator or trustee, or, if he is adjudicated incompetent, his
guardian or conserva-tor, or, if he becomes bankrupt, the receiver or
trustee of his estate, shall have all the rights of an assignee only for
the purpose of settling or managing his estate and such power as the
decedent or incompetent possessed to assign all or any part of his Company
Interest, all subject to and consistent with the provisions of this
Agreement.
B. Except as provided herein, the Company need not recognize for any
purpose any transfer of all or any fraction of a Company Interest unless
there shall have been filed with the Company a duly executed and
acknowledged counterpart of the instrument making the transfer and the
instrument
11
<PAGE>
evidences the written acceptance by the transferee of all of the terms and
pro-visions of this Agreement and represents that the transfer was made in
accordance with all applicable laws and regulations. The Company shall
recognize the transfer of all or any fraction of a Company Interest of a
Member by the trustee of a Member or the Member's personal representative,
executor, heir, devisee, or beneficiary, provided, however, such transferee
shall not be recognized as a Member without the approval of Members holding
eighty-five percent (85%) of the Company Units. Any such transferee who
accepts such transfer shall be deemed to have accepted all of the terms and
provisions of this Agreement.
C. Any Member who shall assign his/its entire Company Interest shall
cease to be a Member of the Company.
D. Any Person who is a transferee of all or any fraction of a Company
Interest who has satisfied the requirements of this Agreement or otherwise
becomes a Member shall be recognized as a Sub-stituted Member if and only
if and when such conditions have been determined to be satisfied by the
Managers and such Person shall have paid all reasonable legal fees and
filing costs in connection with his substitution as a Member; provided,
however, that the substitution of any transferee of a Company Interest as a
Substituted Member shall be subject to the consent of Members holding
eighty-five percent of the Company Units (85%), which consent shall not be
unreasonably withheld.
E. A Person who is the transferee of all or any fraction of a Company
Interest and desires to make a further transfer of such Company Interest,
shall be subject to all the provisions of this Article VII to the same
extent and in the same manner as any Member desiring to make a transfer of
his Company Interest.
7.3 Buy Back Options.
A. The Company shall have the options described in the next paragraph
of this Subsection 7.3A with respect to any Person who holds a Company
Interest if any of the following events ("Triggering Events") has occurred
with respect to such holder or such holder's predecessor in interest:
(1) If the holder appoints or has appointed a receiver or
custodian for all or a substantial portion of its assets.
(2) If the holder makes or consents to an assignment for the
benefit of creditors or a common law composition of creditors.
(3) If the holder files a voluntary petition of bankruptcy or is
otherwise adjudged bankrupt or has entered against it an order for
relief in any bankruptcy or insolvency proceeding.
(4) If the holder's Company Interest shall be levied on for
execution, or if any interest in the Company is awarded by judicial
decree or judgment to any Person, including but not limited to the
spouse or former spouse of the holder pursuant to a divorce or
separation proceeding.
(5) If the holder dies, becomes legally incompetent, becomes
disabled (which for purposes of this Agreement shall mean an inability
to provide services to the Company for a period of six (6) consecutive
months), votes to dissent from a merger that is approved pursuant to
the provisions of this Agreement, or withdraws as a Manager of the
Company.
If any of the Triggering Events described above in this Subsection 7.3A
occurs, the Member involved in the Triggering Event (or his personal
representative, if applicable) shall provide prompt written notice to the
Company and the other Members of the nature of the event and all other relevant
circumstances.
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<PAGE>
Then the Company, acting by a majority of the Company Units of those Members
other than the holder of the Company Interest described above, shall have an
option (i) to purchase all, but not less than all, of such holder's Company
Interest at the price and on the terms specified in this Section 7.3, or (ii) to
demand that the Company be liquidated and dissolved, in which case all Members
shall vote in such manner to cause such liquidation and dissolution, or (iii) to
continue as permitted by law after the Triggering Event described above with any
holder continuing as a Member or any successor to such holder being treated as a
mere assignee of the interest thereof, with no right to participate in the
management of the Company (unless approved for membership in accordance with
this Agreement).
If the Company exercises the option to purchase or liquidate as granted
under this Section 7.3, it shall do so by notifying the holder of the Company
Interest being purchased (or its legal successor) of this decision any time
within one hundred twenty (120) days after the latter of the occurrence of the
Triggering Event or the notice of the same, even though it may have been cured
before the notice of exercise or any bankruptcy petition may have been dismissed
or otherwise discharged. The Company's option to purchase shall be enforceable
by injunctive relief.
B. Except as otherwise specifically provided herein, the purchase
price for any interest in the Company to be sold pursuant to options or
requirements contained in this Agreement shall be equal to: (1) in the case
of Class A Company Units, the balance of the Capital Contributions of the
Class A Member which have not been employed by the Company in the pursuit
of Portfolio Companies plus any undistributed earnings thereon plus the
Investment in any Portfolio Companies not yet distributed to the Class A
Member plus any Expended Funds not yet distributed to the Class A Member;
and (2) in the case of any Class B Company Unit, the amount each Class B
Unit would be entitled to if the Company were liquidated pursuant to
Section 4.3, except that the amount a Class B Company Unit would be
entitled to under Section 4.3 shall, in the case of any event described in
Subsection 7.3A(1)-(4) and in the event of the withdrawal of the selling
Member as a Manager, be decreased by the Units proportional share of the
Fair Market Value of each investment in a Portfolio Company times the
relevant number below depending on the time in which the relevant event
triggering this provision occurred:
<TABLE>
--------------------------------------------------------------------------------------------
Years Number
--------------------------------------------------------------------------------------------
<S> <C>
Date of this Agreement-First Anniversary 1.0 - .0275 per month
--------------------------------------------------------------------------------------------
First Anniversary-Second Anniversary .66 - .0275 per month
--------------------------------------------------------------------------------------------
Second Anniversary-Third Anniversary .33 - .0275 per month
--------------------------------------------------------------------------------------------
After Third Anniversary .00
--------------------------------------------------------------------------------------------
</TABLE>
C. If a Company Interest is sold or purchased pursuant to the
provisions of this Agreement, the payment for such interest may be paid in
cash or in kind, at the option of the purchaser. If paid in kind, there
shall be an Option/Put similar to the one provided for in Section 4.3 for
each in-kind distribution which shall survive until the Target Date of the
Portfolio Company which was distributed in-kind. If the payment is made in
cash or if X-Rite exercises its option to purchase under the Option/Put and
then the investment in the Portfolio Company is disposed of or disposition
is contracted for or a registration statement is filed for an initial
public offering of the investment (which is subsequently concluded) any
time prior to twelve (12) months after its Target Date, the price paid by
X-Rite shall be increased by the Look-Back in cash, unless the
consideration in a sale is not cash in which case the Look-Back shall be
paid in such other consideration, or if more than one type of consideration
is paid in the same proportion as each type of consideration bears to the
total consideration. If no transaction invoking a Look-Back occurs, the
price paid by X-Rite shall be increased by the Value Back in cash within
thirty (30) days of the relevant Target Date. Notwithstanding the
foregoing, the Look-Back and Value Back, whichever is applicable, shall be
decreased by the Seller's proportionate share of the Fair Market Value of
each investment in a Portfolio Company at the Target Date times the
relevant number below depending on the number of years the investment in
the
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<PAGE>
Portfolio Company had been held by the Company at the time of the sale and
purchase of the Company Interest, notwithstanding the reason why the
purchase and sale is occurring, other than X-Rite as a Member acting
unilaterally to dissolve the Company, in which case, the Company will be
liquidated under Section 4.3 and this Subsection 7.3C shall be
inapplicable:
<TABLE>
----------------------------------------------------------------------------------------------------
Years Number
----------------------------------------------------------------------------------------------------
<S> <C>
0 - 1 .50
----------------------------------------------------------------------------------------------------
1 - 2 .40
----------------------------------------------------------------------------------------------------
2 - 3 .30
----------------------------------------------------------------------------------------------------
3 - 4 .20
----------------------------------------------------------------------------------------------------
4 - 5 .10
----------------------------------------------------------------------------------------------------
5 or More .00
----------------------------------------------------------------------------------------------------
</TABLE>
D. Except as otherwise provided herein, the closing on a purchase
pursuant to an option set forth in this Agreement shall occur within thirty
(30) days after the purchaser's written election to purchase, but may be
delayed to allow necessary time for any Valuation Procedure. The specific
time and place of closing shall be specified by the purchaser.
7.4 Right of First Refusal and Other Transfer Restrictions.
A. Except as otherwise provided herein, no holder of a Company
Interest shall sell, assign, encumber or otherwise transfer, voluntarily or
involuntarily, with or without consideration, all or part of any such
interest, whether now held or hereafter acquired, unless such holder has
first given the notices and made the offers to sell as provided herein, and
no such offer has been accepted. A Company Interest is transferable only in
strict compliance with the terms of this Agreement.
B. If any holder shall receive an offer for the purchase of or
otherwise desires to sell all or part of his/its Company Interest, that
holder shall have the right to sell the Company Interest subject to the
following limitations and subject to Section 7.1 and any other applicable
restrictions imposed by this Agreement:
(1) The holder shall procure a bona fide written offer, signed by
the prospective purchaser and containing all terms of the offer, or
the holder may establish a price and terms upon which he proposes to
sell his/its Company Interest.
(2) The holder shall promptly notify in writing the Company and
all of its Members of the terms of the offer or the terms on which he
proposes to sell his Company Interest.
(3) The Company shall have the option to elect, within sixty (60)
days after receipt of the notice, to purchase that portion of the
Company Interest covered by the offer. Notwithstanding anything to the
contrary, the Company's decision on whether to elect to purchase
pursuant to the option contained in this Subsection 7.4B(3) shall be
made by Members holding a majority of the Company Interests other than
those of the holder contemplating the sale pursuant to this Section
7.4.
(4) If the Company does not exercise its option to purchase, the
other Members of the same class shall have, for thirty (30) days after
the Company's option expires, the option to purchase the Company
Interest. If more than one such other Member elects to exercise this
purchase option, each such electing Member shall be entitled to
purchase only that portion of the Company Interest being sold that
corresponds to the percentage obtained by dividing such Member's
Company Interest by the total of the Company Interests of all Members
electing to so purchase.
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<PAGE>
(5) The options granted to the Company and to the other Members
under this Article shall be exercisable on the same terms and
conditions as required to be set forth in the notice referenced in
Subsection 7.4B(2) or at the purchase price and similar terms set
forth in Section 7.3, whichever the Company or the purchasing
Member(s) shall elect.
C. If any holder proposes a transfer of a Company Interest other than
by sale, including an assignment, encumbrance, or other disposition of a
Company Interest, or if any Person seeks to obtain an interest in any
holder's Company Interest, whether by execution, judgment or otherwise, the
holder, or the party seeking to obtain the interest, as the case may be,
shall notify the Company and all other Members of the name and address of
the prospective transferee, the extent of the Company Interest to be
transferred, and all terms and conditions contemplated by the transfer, and
the Company and the other Members shall have options to acquire the Company
Interest in accordance with the terms and conditions of the options granted
in Subsection 7.4B (right of first refusal).
D. After the expiration of the options described in Subsections 7.4B
and 7.4C, the holder shall be entitled to make the proposed sale,
assignment, encumbrance, or other transfer to the person named in the
notice, or offer the Company Interest for sale, but only upon the terms and
conditions described in the notice and subject to the provisions of this
Agreement. If such sale, assignment, encumbrance, or other transfer is not
made within sixty (60) days after the expiration of the last of the options
granted in this Section 7.4, the Company Interest shall automatically again
become subject to the restrictions on transfer stated herein.
7.5 Priority. In the event any condition or facts give rise to application
or possible application of simultaneous options under more than one section of
this Agreement to any particular set of facts, the parties holding the option(s)
to purchase shall, acting by a majority of the Company Units, be entitled to
elect whichever option(s) they desire to pursue.
7.6 Transfer of Company Interest . Notwithstanding the restrictions on
transfer imposed by Article VII, any Member may transfer his Company Interest to
a grantor trust under which he retains all voting rights and the right to revoke
or amend the trust at any time and may otherwise transfer up to twenty percent
(20%) of his/its Company Interest without the consent of the Managers or
Members. In addition, any Member may also transfer all or any of his/its Company
Interest if the Members holding eighty-five percent (85%) of the Company Units
consent to the same, which consent shall not be unreasonably withheld, provided
the transferee in any case shall become a signatory to this Agreement by
executing a conformed counterpart of this Agreement evidencing the transferee's
acceptance of all of the terms and provisions of this Agreement. Upon such
execution, the transferee shall be deemed to have adopted and agreed to be bound
by the provisions of this Agreement. If such a transfer is made, the transferee
shall be deemed to be a Member for all purposes under this Agreement with the
same rights and privileges and obligations as those imposed hereunder on the
individual Member transferring such Company Interest.
ARTICLE VIII. DISSOLUTION AND LIQUIDATION OF THE COMPANY
8.1 Events Causing Dissolution.
A. The Company shall dissolve and commence winding up and liquidating
and shall thereafter terminate upon the happening of any of the following
events:
(i) the election by a majority of the Company Units to dissolve,
wind up, and liquidate the Company; or
15
<PAGE>
(ii) the happening of any other event requiring the dissolu-tion
of the Company under the laws of the State of Michigan and not
otherwise addressed specifically i n this Agreement.
B. Dissolution of the Company shall be effective on the day on which
the event occurs giving rise to the dissolution, but the Company shall not
terminate until a certificate of dissolution shall have been filed and the
assets of the Company shall have been distributed as provided in this
Agreement. Notwithstanding the dissolution of the Company, prior to the
termination of the Company, the business of the Company and the affairs of
the Members, as such, shall continue to be governed by this Agreement.
8.2 Liquidation and Winding Up.
A. Upon the occurrence of a dissolution event described in Section
8.1, the Company shall continue for the sole purpose of winding up its
affairs in an orderly manner, liquidating its assets, and satisfying the
claims of its creditors and Members; and X-Rite (the "Liquidator"), shall
take account of the Company assets and liabilities, and the assets shall be
liquidated as promptly as is consistent with obtaining their fair market
value, and the proceeds of the liquidation, to the extent sufficient,
together with assets distributed in kind, shall be applied and distributed
in accordance with Section 4.3.
B. Distributions pursuant to this Section 8.2 may be made in cash or
kind as the Liquidator in its sole discretion shall determine. The Members'
Capital Account balances shall be appropriately adjusted before any
distri-butions pursuant to this Section 8.2 to reflect sales or other
dispositions by the Company giving rise to Capital Account adjustments and
to reflect the Capital Account adjustments that would have occurred had any
Property to be distributed in kind to the Members been sold for fair market
value by the Company prior to distribution.
C. In the event the Company is "liquidated" within the meaning of
Regulations ss. 1.704-1(b)(2)(ii)(g), distributions shall be made pursuant
to this Article VIII to the Members who have positive Capital Accounts in
compliance with Regulations ss. 1.704-1(b)(2)(ii)(b)(2). If any Member has
a deficit balance in his Capital Account (after giving effect to all
contributions, distributions and allocations for all taxable years,
including the year during which such liquidation occurs), such Member shall
have no obligation to make any contribution to the capital of the Company
with respect to such deficit, and such deficit shall not be considered a
debt owed to the Company or to any other Person for any purpose whatsoever.
In the discretion of the Liquidator, a pro rata portion of the
distributions that would otherwise be made to the Members pursuant to this
Article VIII may be:
(1) Distributed to a trust established for the benefit of the
Members for the purpose of liquidating Company assets, collecting
amounts owed to the Company, and paying any contingent or unforeseen
liabilities or obligations of the Company or of the Members arising
out of or in connection with the Company. The assets of any such trust
shall be distributed to the Members from time to time, in the
reasonable discretion of the Liquidator, in the same proportions as
the amount distributed to such trust by the Company would otherwise
have been distributed to the Members pursuant to this Agreement; or
(2) Withheld to provide a reasonable reserve for Company
liabilities (contingent or otherwise) and to reflect the unrealized
portion of any installment obligations owed to the Company, provided
that such withheld amounts shall be distributed to the Members as soon
as practicable.
8.3 No Liability for Return of Capital. Except as otherwise provided in
this Agreement, (a) each Member shall look solely to the assets of the Company
for the return of its Capital Contribution and shall have no right or power to
demand or receive property other than cash from the Company in accordance with
the terms hereof, and (b) no Class B Member shall have priority over any other
Member as to the return of its Capital Contributions, distributions, or
allocations.
16
<PAGE>
8.4 Deemed Distribution and Recontribution. Notwithstanding any other
provision of this Article VIII, in the event the Company is liquidated within
the meaning of Regulations ss. 1.704-1(b)(2)(ii)(g) but no liquidating event has
occurred, the Property shall not be liquidated, the Company's liabilities shall
not be paid or discharged, and the Company's affairs shall not be wound up.
Instead, the Company shall be deemed to have distributed the Property in kind to
the Members, who shall be deemed to have assumed and taken subject to all
Company liabilities, all in accordance with their respective Capital Accounts.
Immediately thereafter, the Members shall be deemed to have recontributed the
Property in kind to the Company, which shall be deemed to have assumed and taken
subject to all such liabilities.
ARTICLE IX. BOOKS AND ACCOUNTING REPORTS
9.1 Books and Records. The books and records of the Company shall be
maintained at the prin-cipal office of the Company, with similar accounting
policies and procedures as those that are adopted by X-Rite. The records
required by the Act to be kept at the Company's principal office are subject to
inspection and copying by any Member or his duly authorized representative
during ordinary business hours at the reasonable request and expense of such
Member.
9.2 Tax Accounting. The books of the Company shall be kept on such cash or
accrual method as the Managers shall reasonably establish, consistent with tax
law requirements, and the Company's fiscal year shall end on the same day as
X-Rite's fiscal year end or such other day as the Managers shall unanimously
reasonably establish consistent with the requirements of the Code.
9.3 Bank Accounts. The bank and other financial accounts of the Company
shall be maintained in such institutions as the Managers shall determine, and
withdrawals shall be made only in the regular course of Company business on such
signature or signatures as the Managers may determine. All deposits and other
funds not needed in the operation of the business may be invested as the
Managers deem appropriate.
9.4 Depreciation and Elections. With respect to all depreciable assets of
the Company, the Company may elect to use, so far as permitted by the provisions
of the Code, accelerated deprecia-tion methods; however, the Company may change
to or elect some other method of depreciation so long as such other method is,
in the opinion of the Managers, most advantageous to the Members. In the case of
the transfer of a Member's interest in the Company pursuant to any provisions
hereof, the Company shall file the election specified by Section 754 of the
Code.
ARTICLE X. MEETINGS AND VOTING RIGHTS OF MEMBERS
10.1 Meetings. Meetings of the Members for any purposes may be called by
the Managers and shall be called by the Managers upon receipt of a request in
writing signed by Members holding at least ten percent (10%) of the voting power
represented by Company Interests. Notification of such meeting shall be sent
within ten (10) days after receipt of such request. Such request shall state the
purpose of the proposed meeting and the matters proposed to be acted upon. Such
meeting shall be held in the principal office of the Company or such other place
as the Managers shall reasonably designate.
10.2 Notification. Notification of any such meeting shall be delivered by
hand, made by telephone, sent by facsimile or e-mail with confirmation, sent by
a nationally recognized overnight mail service, or sent by first class mail,
postage prepaid, not less than ten (10) days before the date of the meeting, to
each Member at his/its record address, or at such other address that he/it may
have furnished in writing to the Managers. The Notification shall include the
place, date and hour of the meeting, and shall indicate that it is being issued
at or by the direction of the Managers, Member or Members calling the meeting.
The
17
<PAGE>
Notification shall include the purpose or purposes of the meeting. If a meeting
is adjourned to another time or place, and if any announcement of the
adjournment of the time or place is made at the meeting, it shall not be
necessary to give notice of the adjourned meeting. The presence in person or by
proxy of a majority of the Company Units of the Members shall constitute a
quorum at all meetings of the Members; provided, however, that if there be no
such quorum, such Members so present or so represented may adjourn the meeting
from time to time without further notice, until a quorum shall have been
obtained. No Notification of the time, place or purpose of any meeting of
Members need be given to any Member who attends in person or is represented by
proxy (except when the Member attends a meeting for the express purpose of
objecting at the beginning of the meeting to the transaction of any business on
the ground that the meeting is not lawfully called or convened), or to any
Member entitled to such Notification who, in writing, either before or after the
time thereof, waives such notice.
10.3 Proxies. Each Member may authorize any Person or Persons to act for
him by proxy in all matters in which a Member is entitled to participate,
whether by waiving notice of any meeting, or voting or participating at a
meeting. Except as otherwise expressly provided by the Act or this Agreement,
the affirmative vote of Members holding a majority of the Company Units shall be
required to approve any action that specifically requires approval by the
Members. Every proxy must be signed by the Member or his attorney-in-fact. Every
proxy shall be revocable at the pleasure of the Member executing it.
10.4 Election Not to Dissolve. Notwithstanding anything to the contrary in
this Agreement, the withdrawal, removal, bankruptcy, death, dissolution,
adjudica-tion of incompetence or other event which may cause a Person to cease
being a Member of the Company under the Act shall not dissolve the Company and
the Company shall not be required to be wound up except as required in Section
8.1.
ARTICLE XI. MISCELLANEOUS PROVISIONS
11.1 Amendments.
A. Each Member, Substituted Member, Manager and successor Manager
shall become a signatory of this Agreement by signing such number of
counterpart signature pages to this Agreement or such other in-strument or
instruments, and in a manner and at a time, as the Manager shall
deter-mine. By so signing, each Member, Substituted Member, Manager or
successor Manager, as the case may be, shall be deemed to have adopted, and
to have agreed to be bound by, all the provisions of this Agreement, as
amended from time to time in accordance with the provisions of this
Agreement; provided, however, that no such counterpart shall be binding
until it shall have been accepted by the Managers pursuant to the
provisions of this Agreement.
B. In addition to the amendments otherwise authorized in this
Agreement, amendments may be made to this Agreement in writing from time to
time by the Managers with the written consent of the Members holding
eighty-five percent (85%) of the Company Units; provided, however, that
without the permission of the Members to be adversely affected by the
amendment, this Agreement may not be amended so as to alter the interest of
a Member in voting rights, distributions and/or allocations provided in
this Agreement.
11.2 Investment Representations. Each Member understands (a) that the
interests evidenced by this Agreement have not been registered under the
Securities Act of 1933, as amended, or any state securities laws (the
"Securities Acts") because the Company is issuing these interests in reliance
upon the exemptions from the registration requirements of the Securities Acts
providing for issuance of securities not involving a public offering, (b) that
the Company has relied upon the fact that the interests are to held by each
Member for investment purposes only, and (c) that exemption from registration
under the Securities Acts would not be available if the interests were acquired
by a Member with a view to distribution.
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Accordingly, each Member hereby confirms to the Company that such Member is
acquiring its interest hereunder for such own Member for investment and not with
a view to the resale or distribution thereof. Each Member agrees not to
transfer, sell or offer for sale any portion of such interest unless there is an
effective registration or other qualification relating thereto under the
Securities Acts or unless the Member delivers to the Company an opinion of
counsel, satisfactory to the Company, that such registration or other
qualification under such Securities Acts is not required in connection with such
transfer, offer or sale. Each Member understands that the Company is under no
obligation to register the interests or to assist such Member in complying with
any exemption from registration under the Securities Acts if such Member should
at a later date wish to dispose of any interest hereunder. Furthermore, each
Member realizes that such interests are unlikely to qualify for disposition
under Rule 144 of the Securities and Exchange Commission unless such Member is
not an "affiliate" of the Company and the interest has been beneficially owned
and fully paid for by such Member for at least three (3) years. Each Member
represents and warrants that prior to investing or acquiring any interest in the
Company, such Member and his legal or other representatives have made an
independent investigation of the Company and its business and have had made
available to them all information with respect thereto requested and/or needed
to make an informed decision to acquire the interest. Each Member represents and
warrants that he is an "accredited investor" under Regulation D of the
Securities Act of 1933, and under the state securities laws of the particular
state of residence of such Member, and that he is a person possessing experience
and sophistication as an investor which are adequate for the evaluation of the
merits and risks of such Member's investment in the Company.
11.3 Parties Bound and Benefited. The covenants and agreements contained in
this Agreement shall be binding upon, and inure to the benefit of, the heirs,
executors, administrators, personal representatives, successors and assigns (to
the extent permitted) of the respective parties to this Agreement. Nothing in
this Agree-ment, expressed or implied, is intended to confer on any other Person
any rights or remedies under or by this Agreement.
11.4 Entire Agreement. The parties agree that this instrument (together
with attached exhibits and schedules) contains the entire understanding among
the parties to this Agreement with respect to the subject matter of this
Agreement, and supersedes all prior and contemporaneous agree-ments and
understandings, proposals, representations, warranties, inducements or
conditions, express or implied, oral or written, except as contained in this
Agreement. The parties acknowledge that each has read this Agreement,
understands it and agrees to be bound by its terms. The parties further agree
that this Agreement may not in any way be explained or supplemented by a prior
or existing course of dealing between the parties, by any usage of any trade or
custom, or by any prior performance by the parties pursuant to this Agreement.
Except as otherwise expressly provided herein, this Agreement may not be
modified, supplemented, or amended other than by an agreement in writing signed
by any party contesting the validity of the modification or amendment.
11.5 Governing Law. The validity of this Agreement, the terms of this
Agreement, and all duties, obliga-tions and rights existing from this Agreement,
shall be governed by and interpreted in accordance with the local laws of the
State of Michigan, without regard to its conflicts of laws principles.
11.6 Severability of Provisions; Waiver of Right to Partition. Each
provision of this Agreement shall be considered severable. If for any reason any
provision or provisions hereof are determined to be invalid or contrary to any
exist-ing or future law, that invalidity shall not impair the operation of or
affect those portions of this Agreement which are valid. Each Member irrevocably
waives any right he may have to maintain any action for partition with respect
to any of the Company's Property.
11.7 Construction; Captions; Pronouns. Every covenant, term, and provision
of this Agreement shall be construed simply according to its fair meaning and
not strictly for or against any particular party. The captions contained in this
Agreement (including exhibits and schedules) are
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for convenience only, form no part of this Agreement and shall not in any manner
amplify, limit, modify or otherwise affect the interpretation of this Agreement.
As used in this Agreement (including exhibits and schedules), the masculine,
feminine or neuter gender and the singular or plural number shall be deemed to
include the others whenever the context so indicates or requires.
11.8 Further Action. Each Member, upon the request of the Managers, agrees
to perform all further acts and execute, acknowledge, and deliver any documents
that may be reasonably necessary, appropriate, or desirable to carry out the
provisions of this Agreement.
11.9 Counterparts. This Agreement may be executed in several counterparts,
all of which together shall constitute one agreement binding on all parties to
this Agreement, notwithstanding that all the parties have not signed the same
counterpart.
11.10 Specific Performance and Damages. The Members understand and agree
that any Member may suffer irreparable damage in the event that this Agreement
is not specifically performed according to its terms. Accordingly, the Members
agree that all the terms of this Agreement will be enforceable in a court having
equity jurisdiction by a decree of specific performance or by injunction or by
both; provided, however, that the foregoing will not be construed as prohibiting
any of the Members from pursuing any additional remedies for a breach or
threatened breach of this Agreement, including the recovery of damages.
11.11 Counsel. Each Member acknowledges that Varnum, Riddering, Schmidt &
Howlett LLP has been retained to represent X-Rite and in fact is not
representing either Dr. Peter M. Banks or James A. Knister in connection with
the preparation, negotiation, or evaluation of the matters contemplated by this
Agreement, and Dr. Peter M. Bank and James A. Knister acknowledge having been
advised to obtain or to consider obtaining independent counsel to represent them
in connection with any matters arising hereunder.
11.12 Dispute Resolution. Any dispute, controversy, or claim arising under
or in connection with or in relation to this Agreement shall be resolved
exclusively through binding arbitration, and the arbitrator(s) and procedures
for such arbitration shall be mutually agreed upon by the parties to the
dispute, controversy, or claim. If an agreement on arbitrator(s) or procedures
cannot be reached, the arbitration shall be done pursuant to the Commercial
Arbitration Rules of the American Arbitration Association. The arbitration shall
take place in Grand Rapids, Michigan. Any fees and costs of the arbitrator(s)
shall be shared equally by the parties. Each party may be represented by counsel
in the arbitration proceedings, but each party shall be responsible for payment
of its own attorney fees and costs. The arbitrator(s) shall have no power to
modify, supplement, or amend the terms of this Agreement. Any arbitration award
can be enforced in any Michigan Circuit Court or any other court of competent
jurisdiction.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
date set forth in the heading.
XR VENTURES, LLC
/s/ James A. Knister
By __________________________
James A. Knister
Its Manager
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MEMBERS AND MANAGERS:
/s/ Peter M. Banks
____________________________________
Peter M. Banks, Member and Manager
/s/ James A. Knister
_____________________________________
James A. Knister, Member and Manager
X-RITE, INCORPORATED, Member and Manager
/s/ Richard E. Cook
By __________________________________
Richard E. Cook
Its President
::ODMA\PCDOCS\GRR\438690\24
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EXHIBIT A
<TABLE>
-----------------------------------------------------------------------------------------------------
NAME CAPITAL CONTRIBUTION COMPANY UNITS
-----------------------------------------------------------------------------------------------------
<S> <C> <C>
Dr. Peter M. Banks Organization of the 1, 000,000 Class B Units
Company
------------------------------------------------------------------------------------------------------
James A. Knister Organization of the 1,000,000 Class B Units
Company
------------------------------------------------------------------------------------------------------
X-Rite, Incorporated Organization of the 8,000,000 Class B Units
Company
------------------------------------------------------------------------------------------------------
X-Rite, Incorporated Dollars or the Value of A Number of Class A Units Equal to
Other Property to be the Number of Dollars or the Value
Contributed of Other Property to be Contributed
-------------------------------------------------------------------------------------------------------
</TABLE>
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EXHIBIT B
DEFINITIONS
"Act" means the Michigan Limited Liability Company Act.
"Adjusted Capital Account Deficit" means the deficit balance, if any, in a
Member's Capital Account (i) increased by (a) to the extent provided in
Regulations ss. 1.704-1(b)(2)(ii)(c), the amount of any unconditional obligation
of such Member imposed by state or local law to make contributions to the
Company and (b) the amount the Member is deemed obligated to restore pursuant to
Regulations ss. 1.704-2(g)(i) and ss. 1.704-2(i)(5), and (ii) decreased by the
items described in Regulations ss. 1.704-1(b)(2)(ii)(d)(4), (5) and (6). This
definition is intended to comply with the requirements of the alternate test for
economic effect contained in Regulations ss. 1.704-1(b)(2)(ii)(d).
"Adjusted Capital Contribution Account" means a financial account to be
maintained by the Company for the Members, which account shall be equal to the
total amount of cash contributed to the capital of the Company by all of the
Members and decreased by amounts distributed to the Members pursuant to Article
IV.
"Affiliate" means (i) any Person directly or indirectly controlling,
con-trolled by or under common control with another Person; (ii) any Person
owning or controlling 10% or more of the outstanding voting securities of such
other Person; (iii) any officer, director, or Member of such Person; and (iv) if
such Person is an officer, director, or Member, any Company for which such
Person acts in that capacity.
"Agreement" means this Operating Agreement for X-R Ventures, LLC, as
amended from time to time. Words such as "herein," "hereinafter," "hereof,"
"hereto," "hereby" and "hereunder," when used with reference to this Agreement,
refer to this Agreement (including exhibits and schedules) as a whole, unless
the context otherwise requires.
"Capital Account" means the account defined in Section 3.2.
"Capital Contribution" means the total amount of cash or the asset value of
any property other than cash con-tributed to the capital of the Company (prior
to the deduc-tion of any expenses) by all the Members or any class of Members or
any one Member, as the case may be (including the predece-ssor holders of the
Company Units of such Members or Member).
"Cash Flow" means, with respect to any fiscal year, cash receipts from
Company operations and investments, including the sale of investments, without
deduction for depreciation or cost recovery deductions, but after deducting cash
receipts used to pay operating expenses, Debt Service and capital expenditures.
"Class A Company Units" means those Company Units designated as such on
Exhibit A, which shall be nonvoting units.
"Class B Company Units" means those Company Units designated as such on
Exhibit A, which shall be voting units.
"Class A Member" means a Member holding Class A Company Units with respect
to the holding thereof.
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"Class B Member" means a Member holding Class B Company Units with respect
to the holding thereof.
"Code" means the Internal Revenue Code of 1986, as amended (or any
corresponding provision or provisions of succeeding law).
"Company" means X-R Ventures, LLC, the limited liability company formed
pursuant to this Agreement.
"Company Interest" means the extent to which a Person is entitled to
participate in net income and gain, net loss and Disbursable Cash and all other
attributes of ownership to which a Member is entitled under this Agreement.
"Company Unit" means an interest in the Company received in exchange for a
Capital Contribution, as determined in accordance with Exhibit A. The holder of
Company Units will, subject to the provisions of this Agreement, be entitled to
participate in allocations of net income and gain, net loss, distributions and
Disbursable Cash and all other attributes of ownership, to the extent provided
in this Agreement. Company Units may be classified into Class A Company Units
and Class B Company Units if and to the extent indicated on Exhibit A. The
distinctions between the Class A Company Units and the Class B Company Units are
those particularly described in this Agreement relating to distributions,
buyouts, consents, and voting. Class A Company Units shall not be entitled to
consent to or vote upon any matter requiring the consent or vote of the Members
under this Agreement.
"Debt Service" means all payments of principal, interest or premium or
other finance charges required to be made in connection with any loan to the
Company.
"Disbursable Cash" means, with respect to any fiscal period, Cash Flow less
any amounts set aside from Cash Flow for the restoration or creation of
Reserves.
"Expended Funds" means amounts expended by the Company but not capitalized
as an investment in a Portfolio Company.
"Fair Market Value" means the value of an asset, without taking into
account any discounts for l ack of marketability or for minority ownership.
"Final Success Fee" means the amount equal to the Fair Market Value of all
Portfolio Companies ever owned by the Company at the time of sale, distribution,
or dissolution if no prior distribution has occurred, less the Investment in
such Portfolio Companies, which difference shall be multiplied by the Result (as
defined in Success Fee) related to all Portfolio Companies ever owned by the
Company less all Success Fees paid to Class B Members other than X-Rite, which
difference may be negative.
"Investment" means the amount of money or other property invested in a
Portfolio Company.
"Look-Back" means the difference between the price paid to the selling
Member(s) and the amount the selling Member(s) would have received had the
interest purchased been retained and either sold in an initial public offering
that actually occurred or disposed of on the same terms and conditions as later
disposed of by the purchaser, within the time frame prescribed, which amount
shall never be less than zero (0).
"Managers" shall mean Dr. Peter M. Banks, James A. Knister, and X-Rite (or
its nominee), each of whom shall individually be a Manager. Manager(s) shall
also mean any other Person or Persons who have
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been admitted, as provided in this Agreement, as a successor Manager or as an
additional Manager. Any reference to "Manager(s)" shall deemed to include each
Person who then is a Manager.
"Members" mean any Person who is properly admitted as a Member pursuant to
this Agreement at the time of reference.
"Member Minimum Gain" means an amount, with respect to each Member
Nonrecourse Debt, equal to the Company Minimum Gain that would result if such
Member Nonrecourse Debt were treated as a Nonrecourse Liability, determined in
accordance with Section 1.704-2(i)(3) of the Regulations.
"Member Nonrecourse Debt" has the meaning set forth in Section
1.704-2(b)(4) of the Regulations for Partner Nonrecourse Debt.
"Member Nonrecourse Deductions" has the meaning set forth in Section
1.704-2(i)(2) of the Regulations for Partner Nonrecourse Deductions. The amount
of Member Nonrecourse Deductions with respect to a Member Nonrecourse Debt for a
Company fiscal year equals the excess, if any, of the net increase, if any, in
the amount of Member Minimum Gain attributable to such Member Nonrecourse Debt
during that fiscal year over the aggregate amount of any distributions during
that fiscal year to the Member that bears the economic risk of loss for such
Member Nonrecourse Debt to the extent such distributions are from the proceeds
of such Member Nonrecourse Debt and are allocable to an increase in Member
Minimum Gain attributable to such Member Nonrecourse Debt, determined in
accordance with Section 1.704-2(i)(2) of the Regulations.
"Nonrecourse Deductions" has the meaning set forth in Section 1.704-2(b)(1)
of the Regulations. The amount of Nonrecourse Deductions for a Company fiscal
year equals the excess, if any, of the net increase, if any, in the amount of
Company Minimum Gain during that fiscal year over the aggregate amount of any
distributions during that fiscal year of proceeds of a Nonrecourse Liability
that are allocable to an increase in Company Minimum Gain, determined according
to the provisions of Section 1.704-2(c).
"Nonrecourse Liability" has the meaning set forth in Section 1.752-l(a)(2)
of the Regulations.
"Option/Put" means an option for X-Rite to purchase for cash the other
Members' interests in any in-kind distribution and a put for the Members other
than X-Rite to require X-Rite to purchase for cash all of any such Member's
interest in an in-kind distribution, each of which shall survive for the period
provided.
"Person" means any natural person, partnership, limited liability Company,
corporation, trust, associ-ation or other legal entity.
"Portfolio Companies" (or singularly "Portfolio Company") means entities
and/or intellectual properties that could be (i) related and/or ancillary to the
existing business of X-Rite; (ii) relevant and/or related to the development of
new markets and/or technologies for X-Rite; or (iii) opportunities which could
benefit from the skills of X-Rite and/or the Class B Members other than X-Rite
in which the Company is invested or owns an interest.
"Property" means all real and personal property acquired or owned by the
Company, and shall include both tangible and intangible property.
"Reserves" means, with respect to any fiscal period, payments made or
amounts allocated during the period to reserves which shall be maintained in
amounts deemed sufficient by the Managers for working capital and to pay taxes,
insurance, Debt Service, repairs, replacements or renewals, or other costs and
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expenses incident to the ownership or operation of the Company's business and
for any future growth or capital acquisitions the Managers may contemplate.
"Substituted Member" means any Person admitted to the Company as a Member
pursuant to the provisions of Section 7.2.
"Success Fee" means the amount, not less than zero (0), equal to the Fair
Market Value of any Portfolio Company, or any proceeds from the sale of a
Portfolio Company, less the Investment, which difference shall be multiplied by
the result of the following: (1) divide the Fair Market Value of the Portfolio
Company by the Investment; (2) subtract one (1) from such quotient; and (3) then
multiply such difference by 2.2222% (the "Result"), which Result, however, shall
never exceed six and two-thirds percent (6.67%), to be paid at any time an
in-kind or other distribution is made, provided there are amounts available for
distribution after distributions with greater priority.
"Target Date" means the date between the fifth (5th) anniversary and the
seventh (7th) anniversary of the initial investment in an interest of a
Portfolio Company as unanimously agreed upon by the Managers at the time of the
initial acquisition of an interest in the Portfolio Company. In the absence of a
unanimous agreement by the Managers, Target Date shall mean the fifth (5th)
anniversary of the initial investment in an interest of a Portfolio Company.
"Triggering Event" means an event described as such in Section 7.3.
"Valuation Procedure" means the Fair Market Value as of the date of
distribution determined by its average last sales price if listed on a
recognized securities exchange or the NASDAQ or, if not, by an appraiser
mutually agreed upon by the parties for such purpose, or in the absence of an
agreement upon an appraiser, the Class B Members other than X-Rite shall select
an independent appraiser having a favorable, national reputation and substantial
experience in appraising investments of the same type as those in Portfolio
Companies, whose determination of Fair Market Value shall be final and binding
on the parties.
"Value-Back" means the difference between the amounts that would have been
received by Member(s) in exchange for their interests in the Company based on
the Fair Market Value of each Portfolio Company at their respective Target
Dates, determined by mutual agreement or in accordance with the Valuation
Procedure, and the amount actually received by the Member(s) based on the Fair
Market Value of each Portfolio Company prior to their respective Target Dates,
which amount shall never be less than zero (0).
"X-Rite" means X-Rite, Incorporated, a Michigan corporation.
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