SECURITIES & EXCHANGE COMMISSION
WASHINGTON D.C. 20549
Form 10-K
(Mark one)
[X] Annual report pursuant to Section 13 or 15(d) of the Securities Act of 1934
(Fee required) for the fiscal year ended January 1, 2000, or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (No fee required) for the transition period from
_______________to _________________
Commission file number 0-14800
X-RITE, INCORPORATED
--------------------------------------------------------
(Exact name of registrant as specified in charter)
Michigan 38-1737300
------------------------------- --------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification No.)
3100 44th Street, SW, Grandville, MI 49418
-----------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (616) 534-7663
--------------
Securities registered pursuant to Section 12(b) of the Act: (none)
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.10 per share
----------------------------
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
As of March 1, 2000, 21,275,951 shares of the registrant's common stock, par
value $.10 per share, were outstanding. The aggregate market value of the common
stock held by non-affiliates of the registrant (i.e., excluding shares held by
executive officers, directors and control persons as defined in Rule 405, 17 CFR
230.405) on that date was $201,668,060 computed at the closing price on that
date.
Portions of the Company's Proxy Statement for the 2000 Annual Meeting of
Shareholders are incorporated by reference into Part III. Exhibit Index is
located at Page 38.
<PAGE>
PART I
ITEM 1. BUSINESS
(a) General Development of Business
- - ------------------------------------
X-Rite, Incorporated ("X-Rite" or the "Company") was organized as a Michigan
corporation in 1958. The business currently conducted by the Company is largely
an outgrowth of the Company's x-ray marking and identification system introduced
in 1961. The Company's silver recovery equipment, introduced in 1968, and its
first quality control instruments, introduced in 1975, were developed to meet
the needs of film processors; a customer class known to the Company from its
sales of radio-opaque x-ray marking tape.
The Company has expanded its product offerings by concentrating on its
instrument technologies and developing expertise in the fields of light and
color measurement. Pursuant to that strategy, X-Rite has successfully developed
and marketed numerous quality control instruments, software and accessories.
The Company made its initial public offering of common stock during 1986.
Proceeds from that public offering were used to finance the construction of a
new building for office, manufacturing and warehouse needs, purchase new
production and laboratory equipment, retire debt and provide working capital.
X-Rite has grown through internal expansion and through acquisitions. In 1993
the Company established two foreign sales and service subsidiaries; X-Rite GmbH,
Cologne, Germany and X-Rite Asia-Pacific Limited, Hong Kong. In 1994 the Company
purchased a foreign sales and service subsidiary, X-Rite Limited, Congleton,
Cheshire, England, and acquired certain assets of Colorgen, Inc. ("Colorgen"), a
Massachusetts-based manufacturer of retail point-of-purchase paint matching
systems. In 1995 the Company acquired all of the outstanding stock of Labsphere,
Inc. ("Labsphere") of North Sutton, New Hampshire. Labsphere was founded in 1981
and is a leading manufacturer of light measurement and light source integrating
systems and instrumentation. In 1997, the Company acquired substantially all the
assets of Light Source Computer Images, Inc. ("Light Source"). Light Source is a
California-based producer of scanning, imaging and print optimization software.
In 1998, the Company established a French subsidiary, X-Rite Mediterranee SARL,
which acquired the branch of an X-Rite dealer located near Paris.
(b) Financial Information About Operating Segments
- - ---------------------------------------------------
For purposes of the consolidated financial statements included as part of this
report, all operations of the Company are classified in one operating segment:
quality control instruments and accessories.
<PAGE>
(c) Narrative Description of Business
- - --------------------------------------
Principal Products
The Company primarily manufactures and sells proprietary quality control
instruments which utilize advanced electronics and optics technologies.
The principal types of products produced include:
Densitometers
X-Rite's first densitometer was introduced in 1975. A densitometer is an
instrument that measures optical or photographic density, compares that
measurement to a reference standard, and signals the result to the operator of
the instrument. There are two types of densitometers; transmission densitometer
and reflection densitometer.
A transmission densitometer measures the amount of light that is transmitted
through film. Some models are designed for use in controlling variables in the
processing of x-ray film in medical and non-destructive testing applications.
Other models are designed to be used to control process variables in the
production of photo-transparencies, such as photographic film and microfilm.
Reflection densitometers measure the amount of incident light that is reflected
from a surface, such as ink on paper.
X-Rite introduced its spectrodensitometer in 1990 which combines the function of
a densitometer with the functions of a colorimeter and a spectrophotometer (see
following paragraphs) to provide measurements for monitoring and controlling
color reproduction. Also introduced in 1990 was the scanning densitometer, which
is used for controlling the color of printed inks in graphic arts applications.
In 1994 the Company began delivering densitometer-based products for digital
imaging applications. Products which calibrate image setters, raster image
processors and digital printers were the initial entrants into the market for
use in desktop publishing and computer-based printing activities.
In 1998 X-Rite launched its 500 series spectrodensitometer which is the only
hand-held densitometer equipped with a spectral engine. Spectral engines are the
most accurate type of measurement engines available and offer precise,
repeatable and reliable measurements for pressroom quality control.
The Company continued to expand the 500 series in 1999 with the introduction of
the micro-spot spectrodensitometer. This device is the first hand-held
measurement instrument to accurately read color bars and related micro-sized
color control elements as small as 1/16" (1.6mm).
Sensitometers
Sensitometers have been manufactured by X-Rite since 1975. This instrument is
used to expose various types of photographic film in a very precise manner for
comparison to a reference standard. The exposed film is processed and then
"read" with a densitometer to determine the extent of variation from the
standard.
<PAGE>
Colorimeters
In 1989 the Company introduced its first colorimeter. Colorimeters measure light
much like the human eye using red, green and blue receptors and are used to
measure printed colors on packages, labels, textiles and other materials where a
product's appearance is critical for buyer acceptance. In 1990 X-Rite added the
spectrocolorimeter which is a combination instrument that performs colorimeter
functions by applying spectrophotometric techniques and principles (see next
paragraph), thereby greatly improving the accuracy and reliability of the
instrument.
Spectrophotometers and Accessories
The spectrophotometer, introduced in 1990, is related to the colorimeter;
however, it measures light at many points over the entire visible spectrum,
generally with the high degree of accuracy required in laboratory measurements.
Spectrophotometers are used in color formulation for materials such as plastics,
paints, inks, ceramics and metals.
In 1991 the Company introduced a multi-angle spectrophotometer which is used to
measure the color of metallic finishes. This instrument is useful for
controlling the color consistency of automotive paints and other metallic and
pearlescent coatings. In 1992 the Company introduced a spherical
spectrophotometer which measures the color of textured surfaces and is used in
the textile, paint and plastics industries.
During 1993 and 1994, X-Rite introduced a group of color formulation and quality
control software packages designed for use with its spectrophotometer products.
This software is sold separately or is combined with a computer and an
instrument and sold as a turn-key system. Marketing efforts with respect to this
family of related products are being directed at packaging material printers,
textile, plastic, paint, ink and coatings manufacturers.
In 1994 and 1995, X-Rite introduced products developed for desktop graphics
professionals. One of the instruments in this product category is a hand-held
spectrophotometer which captures color from almost any item and sends it to a
personal computer. Once there, the color can be used in a variety of graphic
design applications, previewed and prepared for output, and organized into a
custom electronic color library; colors can also be transmitted to other
personal computers anywhere in the world using X-Rite's ColorMail software.
Another 1995 introduction was the auto-tracking spectrophotometer. This
instrument is used in the graphic arts industry to help control hard to match
colors such as pastels, reflex blue, dark reds and colors used in corporate logo
standards.
The 1995 acquisition of Labsphere expanded the Company's product lines to
include standard accessories which are compatible with a majority of
commercially available spectrophotometers worldwide. These accessories extend a
spectrophotometer's capabilities and enhance its performance.
In 1999 the company introduced the DTP41/T series of auto-tracking
spectrophotometer. These instruments enable the automated measurement of
transparent and semi-transparent material, as well as prints.
<PAGE>
In addition they provide transmission and ultraviolet capabilities. This
technology is ideal for use in commercial photo labs, print for pay centers and
research facilities.
In 1999 the SP60,SP62, and SP64 portable sphere spectrophotometer series was
introduced. These instruments were designed to provide a fast, precise, and
accurate color measurement on a wide array of materials ranging from paper and
paint to plastics and textiles.
The Company also released QA 2000 in 1999, a turnkey software package designed
to enhance and support the new multi-angle sphere spectrophotometer products.
This product is a user friendly Windows based software that utilizes client
/server database technology. The network capabilities allow for multiple users
in different locations to access a single database.
Point-of-Purchase Paint Matching Systems
In 1993 the Company introduced computerized point-of-purchase paint matching
systems for use by paint stores, hardware stores, mass merchants and home
improvement centers. After successfully establishing its own line of products,
the Company acquired certain assets of Colorgen in 1994. Colorgen had a
significant share of the U.S. point-of-purchase paint matching market. With that
acquisition, X-Rite has established a significant market presence in the retail
point-of-purchase architectural paint matching business.
Integrating Spheres and Integrating Sphere Systems
With the acquisition of Labsphere, X-Rite added integrating spheres and
integrating sphere systems to its product lines. Applications for these
instruments include testing incandescent and fluorescent lamp output,
calibration of remote sensors, laser power measurement, and reflectance and
transmittance light measurement.
Reflectance Materials and Coatings
Labsphere is also an OEM supplier of proprietary reflectance materials and
coating services. These materials and services are used in such products as
photographic processing equipment, check scanning systems, x-ray film analysis,
backlight illuminators and surface profiling equipment.
Other Products
For many years, X-Rite has also manufactured silver recovery equipment and
radio-opaque marking tape. Collectively, these other products represent less
than five percent of the Company's consolidated net sales.
Sales of the Company's products are made by its own sales personnel and through
independent manufacturer's representatives. Certain products not sold directly
to end users are distributed in the U.S. through a network of fifteen hundred
independent dealers and outside the U.S. through four hundred independent
dealers in fifty foreign countries. Independent dealers are managed and serviced
by the Company's sales staff and by independent sales representatives.
Raw Materials
With very few exceptions, raw materials and components necessary for
manufacturing products and providing services are generally available from
several sources.
<PAGE>
Subject to vendor readiness with the year 2000 (see Item 7.Management's
Discussion and Analysis of Financial Condition and Results of Operations), the
Company does not foresee any unavailability of materials or components which
would have a material adverse effect on its overall business in the near term.
Patents and Trademarks
The Company owns 29 U.S. patents and 10 foreign patents which are significant
for products it manufactures. The Company currently has 5 U.S. and 19 foreign
patent applications on file. While the Company follows a policy of obtaining
patent protection for its products, it does not believe that the loss of any
existing patent, or failure to obtain any new patents, would have a material
adverse impact on its competitive position.
Seasonality
The Company's business is generally not subject to seasonal variations that
would significantly impact sales, production or net income.
Significant Customers
No single customer accounted for more than 10% of total net sales in 1999, 1998
or 1997. The Company does not believe that the loss of any single customer would
have a material adverse effect on the Company.
Backlog
The Company's backlog of scheduled but unshipped orders was $6.8 million at
March 1, 2000 and $5.8 million at March 1, 1999. The March 1, 2000 backlog is
expected to be filled during the current fiscal year.
Competition
The Company has few competitors producing competing medical and photographic
instruments and believes its share in that market is substantial.
There are approximately ten firms producing competing products in the graphic
arts/digital imaging categories, and approximately five manufacturers of
competing products in the color and appearance market.
The primary basis of competition for all the Company's products is quality,
design and service. The Company believes that superior quality and features are
competitive advantages for its products.
Research and Development
During 1999, 1998 and 1997, respectively, the Company spent $8,420,000,
$8,135,000 and $6,380,000 on research and development. X-Rite has no
customer-sponsored research and development activities.
Human Resources
As of March 1, 2000, the Company employed 687 persons; 607 in its U.S.
operations and 80 in its foreign subsidiaries. The Company believes that its
relations with employees are excellent.
(d) Financial Information About Foreign and Domestic Operations
- - ----------------------------------------------------------------
See Note 1 to the consolidated financial statements contained in Part II, Item 8
of this report.
<PAGE>
ITEM 2. PROPERTIES
Listed below are the principal properties owned or leased by X-Rite as of
March 1, 2000:
<TABLE>
Owned
Location Principal Uses or Leased
------------------------- --------------------------- ---------
<S> <C> <C>
Grandville, MI Manufacturing, R&D, sales, Owned
customer service, warehouse
and administration
North Sutton, NH Manufacturing, R&D, sales, Owned
customer service, warehouse
and administration
Littleton, MA Customer service, R&D, and Leased
sales
Poynton, England Sales and customer service Leased
Cologne, Germany Sales and customer service Leased
Quarry Bay, Hong Kong Sales and customer service Leased
Brno, Czech Republic Sales Leased
MASSY, France Sales and customer service Leased
Tokyo, Japan Sales Leased
</TABLE>
Collectively, X-Rite and its subsidiaries own approximately 288,000 square feet
of space and lease approximately 33,000 square feet. Management considers all
the Company's properties and equipment to be well maintained, in excellent
operating condition, and suitable and adequate for their intended purposes.
ITEM 3. LEGAL PROCEEDINGS
The Company is not presently engaged in any material litigation within the
meaning of Regulation S-K.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table lists the names, ages and positions of all of the Company's
executive officers. Officers are elected annually by the Board of Directors at
the first meeting of the Board following the Annual Meeting of Shareholders.
<TABLE>
Position
Name Age Position Held Since
- - -------------------- ----- --------------------------- ----------
<S> <C> <C> <C>
Richard E. Cook 54 President and Chief 1998 (1)
Executive Officer
Bernard J. Berg 56 Senior Vice President, 1983
Engineering
Duane F. Kluting 50 Vice President,
Chief Financial Officer 1992
Jeffrey L. Smolinski 38 Vice President, Operations 1994
Joan Mariani Andrew 41 Vice President, Sales &
Marketing 1995 (2)
</TABLE>
(1) Prior to joining X-Rite, Mr. Cook was the President and Chief Operating
Officer of Cascade Engineering, a developer and producer of plastic mold
injection technology and products. Mr. Cook held that position for more than
five years.
(2) Before joining X-Rite, Ms. Andrew was Vice President, Sales and Marketing
for Bell & Howell's Document Management Products Company from 1992 to 1995,
Vice President-Marketing and New Business Development from 1991 to 1992, and
General Manager, Scanners from 1989 to 1991.
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS
The Company's common stock is traded over the counter on The Nasdaq Stock Market
under the symbol XRIT. As of March 1, 2000, there were approximately 1,600
shareholders of record. Ranges of high and low sales prices reported by The
Nasdaq Stock Market for the past two fiscal years appear in the following table.
<TABLE>
Dividends
High Low Per Share
------ ------ ---------
<S> <C> <C> <C>
Year Ended January 1, 2000:
Fourth Quarter $ 7.44 $ 5.75 $.025
Third Quarter 7.75 6.31 .025
Second Quarter 7.75 6.00 .025
First Quarter 8.87 6.18 .025
Year Ended January 2, 1999:
Fourth Quarter 10.13 6.53 .025
Third Quarter 13.88 8.38 .025
Second Quarter 14.38 12.13 .025
First Quarter 19.00 12.50 .025
</TABLE>
The Board of Directors intends to continue paying dividends at the current
quarterly rate of 2.5 cents per share in the foreseeable future, and retain the
balance of the Company's earnings for use in the expansion of its businesses.
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
Quarterly financial data are summarized as follows:
<TABLE>
(in thousands except per share data)
Diluted
Earnings
Operating Net (Loss)
Net Gross Income Income Per
Quarter Sales Profit (Loss) (Loss) Share
- - --------------------------- ------- ------- --------- ------- --------
<S> <C> <C> <C> <C> <C>
1999:
First $23,688 $15,855 $ 4,376 $2,983 $.14
Second 24,331 16,107 4,956 3,326 .15
Third 23,764 15,420 4,613 3,104 .14
Fourth 28,426 18,609 6,308 4,236 .19
------- ------- ------- ------ ----
$100,209 $65,991 $20,253 $13,649 $.62
======= ======= ======= ====== ====
1998:
First $23,637 $15,616 $ 4,608 $ 3,110 $.15
Second 24,286 16,086 4,983 3,349 .16
Third 21,461 13,985 2,283 1,503 .07
Fourth 25,427 16,545 5,087 3,251 .15
------- ------- ------- ------- ----
Totals before write-down
of digital imaging assets $94,811 $62,232 $16,961 $11,213 $.53
Write-down of digital
imaging assets - - (6,694) (4,351) (.21)
------- ------- ------- ------- ----
$94,811 $62,232 $10,267 $6,862 $.32
======= ======= ======= ======= ====
</TABLE>
Selected financial data for the five years ended January 1, 2000 are summarized
as follows:
<TABLE>
(in thousands except per share data)
1999 1998 1997 1996 1995
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net sales $100,209 $94,811 $96,991 $84,394 $72,634
Net income 13,649 6,862 18,022 15,381 9,871
Net income per share:
Basic .65 .33 .85 .73 .47
Diluted .62 .32 .85 .73 .47
Dividends per share .10 .10 .10 .10 .10
Total assets 107,819 95,444 92,468 78,951 63,507
Long-term debt -0- -0- -0- -0- -0-
</TABLE>
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Liquidity and Capital Resources
X-Rite enhanced its already substantial financial position during 1999. Net cash
provided by operations in 1999 was a record $20.4 million, compared to $17.9 and
$20.0 million for 1998 and 1997 respectively. At January 1, 2000 the Company had
working capital of $60.9 million as compared to 53.4 million at January 2,1999.
It's ratios of current assets to current liabilities was 9.7:1 and 11:1 for 1999
and 1998 respectively. Since going public in 1986, the Company has funded its
operations, investing, acquisitions, and financing activities from internally
generated cash flows and cash reserves.
On January 1, 2000 the Company had cash and short-term investments totaling
$29.0 million, compared to 20.8 million at January 2, 1999. The Company expects
to use these funds for future acquisitions, capital expenditures and new product
development. The Company maintains a revolving line of credit in the amount of
$20 million. The line was not used during 1999.
Management anticipates that X-Rites current liquidity, future cash flows and
credit line will be sufficient to fund the Company's operations, life insurance
premiums, capital expenditures, and dividends for the foreseeable future. Should
additional funding be necessary, additional short or long-term borrowing
arrangements are the most probable alternatives for meeting capital resource and
liquidity needs.
Net income was the principal source of cash from operations. Certain expenses
included in net income did not require the use of cash. The most significant
non-cash expenses in 1999, which totaled $5.9 million, were depreciation, and
amortization. For 1998 and 1997 depreciation and amortization charges were $5.8
and $5.5 million respectively. The largest single non-cash expense in 1998 was
for the write down of digital imaging assets which was $6.7 million.
X-Rite's short term investments consist primarily of tax free municipal bonds,
high grade corporate bonds and preferred stocks. Historically the cost of the
Company's investments has approximated market value.
Capital expenditures of $4.3 million were made in 1999. The largest of these
capital investments was $2.2 million to expand manufacturing and storage
capacity at the Labsphere subsidiary in New Hampshire. The remaining
expenditures were made primarily for machinery, equipment, building
improvements, and computer hardware and software. Capital expenditures in 1998
were $4.2 million. The Company expects to make capital expenditures in 2000 of
approximately $3.5 million that consist mainly of machinery, equipment, building
improvements, and computer hardware and software.
During 1998, the Company announced it had entered into agreements with its
founding shareholders for the future redemption of 4.54 million shares, or 21.4
percent of the Company's outstanding stock. The stock redemptions
<PAGE>
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 totaling $160 million, or $35.24 per share, 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
market price, although the discounted price may not be less than $10 per share
or more than $25 per share.
At the maximum price, the aggregate stock purchases will total $113.5 million.
The Company anticipates that certain stock purchases will not coincide with the
receipt of insurance proceeds; therefore, borrowed funds may be needed from time
to time to finance the Company's purchase obligations. Insurance was purchased
at the $160 million level in order to cover both the maximum aggregate purchase
price and anticipated borrowing costs. Life insurance premiums will total $4.3
million each year while all the policies remain in effect. Of the $4.3 million
paid in 1999 and 1998 approximately $3.5 and $3.1 million respectively were
classified as cash surrender value.
The Company's most significant financing activity is the payment of dividends to
shareholders. During 1999, 1998, and 1997 dividends were paid at a rate of 10
cents per share. The total value of dividends paid for each of those years
approximated $2.1 million dollars. At the present time the Board of Directors
intends to continue payments at this rate.
The following table sets forth information derived from the Company's
consolidated statements of income expressed as a percentage of net sales.
<TABLE>
1999 1998 1997
----- ----- -----
<S> <C> <C> <C>
Net sales 100.0% 100.0% 100.0%
Cost of sales 34.1 34.4 34.0
----- ----- -----
Gross profit 65.9 65.6 66.0
Operating expenses:
Selling & marketing 20.1 21.6 18.5
Engineering, general
& administrative 17.2 17.6 13.1
Research & development 8.4 8.6 6.6
Write-down of digital
imaging assets - 7.0 -
----- ----- -----
45.7 54.8 38.2
----- ----- -----
Operating income 20.2 10.8 27.8
Other income 0.8 0.4 0.3
----- ----- -----
Income before income taxes 21.0 11.2 28.1
Income taxes 7.4 4.0 9.5
----- ----- -----
Net income 13.6% 7.2% 18.6%
===== ===== =====
</TABLE>
<PAGE>
Net Sales
Net sales in 1999 were a Company record of $100.2 million, an increase 5.7% over
1998 sales of $94.8 million. Sales in 1998 were a 2.2% decline as compared to
1997.
Most lines of business showed increases in 1999 from the prior year. The
Coatings and Printing business units and related services recorded the largest
percentage increases for the year.
Geographically, increased demand in North America offset a continuing softness
in the European markets. The Company's efforts to develop an Asian Pacific
marketing initiative continue to be rewarded. During 1999 this regions sales
increased 22.8%.
Price increases had a nominal effect on sales levels in 1999, 1998 or 1997.
Gross Profit
Despite an increasingly competitive global marketplace X-Rite has managed to
consistently maintain strong gross margins. Gross profit percentages were 65.9%,
65.6% and 66.0% in 1999, 1998 and 1997, respectively.
Selling and Marketing Expenses
The Company has continued to fund it's sales and marketing efforts at a level
consistent with 1998. The 1999 expenditures of $20.1 million was a 2.0% decline
from 1998. In 1998 the Company significantly increased it's emphasis in this
area. The 1998 expenditures of $20.5 were a 13.8% increase over the 1997 level
of $18.0 million.
These increased efforts have been focused on development of a European presence
as well as emerging markets for products in Asia.
Engineering, General and Administrative
Engineering, general and administrative ("EG&A") expenses increased 3.3% in 1999
over 1998. The increase was caused by wage inflation for technical talent and
corporate wide technology upgrades EG&A expenses in 1998 were higher compared to
1997 due primarily to life insurance premium expense incurred in connection with
the stock redemption program, higher legal fees, wage inflation and costs to
establish a new office in France.
Research and Development
Innovative product research and development ("R&D") has been a hallmark of
X-Rite since its inception. The Company has reaffirmed this commitment by
increasing its investment in R&D in each of the last three years. While
continuing to improve its traditional products, the Company has focused
additional resources on development of products for emerging technologies.
Research and development costs for 1999, 1998 and 1997 were $8.4, $8.1, and $6.4
million respectively.
<PAGE>
In addition to the R&D costs reported as operating expenses, there were costs
incurred to develop new software products in each of the last three years that
were not included with R&D expenses. Those costs were capitalized and the
related amortization expense was included in cost of sales (see Note 2 to the
accompanying financial statements). Software development costs capitalized
totaled $1.3, $1.2 and $1.3 million in 1999, 1998 and 1997, respectively.
Write-Down of Digital Imaging Assets
The Company recognized a nonrecurring charge of $6,694,000 in the third quarter
of 1998 for the write-down of certain digital imaging assets associated with the
1997 acquisition of Light Source Computer Images, Inc. (see Note 8 to the
accompanying financial statements). Increased competition in the digital imaging
business and a continued rapid decline in the demand for certain digital imaging
instruments, software and technology were the primary factors that led the
Company to reevaluate the markets Light Source sells into and the Light Source
product lines, which then forced the recognition of this charge. Digital imaging
markets have been changing rapidly and the demand for newer products at lower
prices with enhanced performance has impacted the Company's ability to compete
in certain of these markets. In addition, the Company has decided these assets
would not be employed in a separate strategic business unit within the
reorganized corporate structure that was announced at that time. The Company
will continue developing other digital imaging products for markets where it has
more experience and greater name recognition.
Other Income
Other income in 1999, 1998 and 1997 consisted mainly of interest earned on funds
invested in tax exempt municipal and corporate securities. Interest income in
1999 was larger than 1998 due to the growth of funds available for investment.
Income Taxes
The effective tax rate in 1999 was 35.3% compared to 35.8% in 1998 and 34.0% in
1997.
Inflation
The Company has experienced the effects of inflation on its business through
increases in the cost of services, employee compensation and fringe benefits.
Although modest adjustments to selling prices have deterred the effects of
inflation, the Company continues to explore ways to improve productivity and
reduce operating costs. The Company does not anticipate any significant adverse
impact from inflation in the coming year.
Most of the Company's transactions are invoiced and paid in U.S. dollars.
<PAGE>
YEAR 2000 READINESS DISCLOSURE
X-Rite senior management assembled a project team to pro-actively assess and
address remediation solutions related to Year 2000 ("Y2K")issues at Company
headquarters as well as all subsidiary locations. The project was begun in 1998
and substantially completed during the third quarter of 1999. The team focused
it emphasis on four primary areas, IT systems, products, physical plant, and
third parties. In addition to problem assessment, solution development and
implementation, the team also developed a comprehensive contingency plan.
As of the date of this report the Company has not experienced any problems
related to Y2K. All IT systems, product lines and facilities systems, machinery
and equipment have performed as expected. The Company also is not aware of Y2K
failures at critical suppliers or strategic customers. Contingency plans will
remain in place through the remainder of the year, but management does
anticipate having to implement them at this time.
Costs to Address the Company's Y2K Issues:
Y2K readiness costs incurred to date, are not material to the results of the
Company's operations, financial position or cash flows. Although the Company
purchased new mainframe hardware and software in 1995, it did not accelerate the
timing of replacing these systems in order to accommodate Y2K readiness.
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.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Registrant's market risk sensitive financial instruments do not subject the
Registrant to material market risk exposures.
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following report, financial statements and notes are included with this
report:
Report of Independent Public Accountants
Consolidated Balance Sheets
Consolidated Statements of Temporary and Permanent Shareholders'
Investment
Consolidated Statements of Income
Consolidated Statements of Permanent Shareholders' Investment
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
<PAGE>
Report of Independent Public Accountants
To the Shareholders of X-Rite, Incorporated:
We have audited the accompanying consolidated balance sheets of X-Rite,
Incorporated (a Michigan corporation) and subsidiaries as of January 1, 2000 and
January 2, 1999, and the related consolidated statements of temporary and
permanent shareholders' investment, income, permanent shareholders' investment
and cash flows for each of the three years in the period ended January 1, 2000.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of X-Rite, Incorporated and
subsidiaries as of January 1, 2000 and January 2, 1999, and the results of their
operations and their cash flows for each of the three years in the period ended
January 1, 2000, in conformity with accounting principles generally accepted in
the United States.
/s/ Arthur Andersen LLP
Grand Rapids, Michigan,
January 26, 2000
<PAGE>
X-RITE, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
January 1, January 2,
2000 1999
----------- -----------
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 6,898,000 $ 1,536,000
Short-term investments 22,129,000 19,268,000
Accounts receivable, less allowances of
$1,110,000 in 1999 and $798,000 in 1998 20,249,000 19,589,000
Inventories 15,410,000 15,871,000
Deferred taxes 1,642,000 1,495,000
Prepaid expenses and other current assets 1,565,000 980,000
----------- -----------
Total current assets 67,893,000 58,739,000
PLANT AND EQUIPMENT:
Land 2,278,000 2,278,000
Buildings and improvements 15,501,000 12,528,000
Machinery and equipment 13,368,000 12,507,000
Furniture and office equipment 13,169,000 11,737,000
Construction in progress 90,000 1,308,000
----------- -----------
44,406,000 40,358,000
Less accumulated depreciation (23,351,000) (19,836,000)
----------- -----------
21,055,000 20,522,000
OTHER ASSETS:
Costs in excess of net assets acquired 8,036,000 8,572,000
Cash surrender values - Founders policies 6,616,000 3,091,000
Other noncurrent assets 4,219,000 4,520,000
----------- -----------
18,871,000 16,183,000
----------- -----------
$107,819,000 $95,444,000
============ ===========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
X-RITE, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS--Continued
<TABLE>
January 1, January 2,
2000 1999
----------- -----------
LIABILITIES AND SHAREHOLDERS' INVESTMENT
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 2,277,000 $ 1,772,000
Accrued liabilities--
Payroll and employee benefits 2,043,000 1,618,000
Income taxes 325,000 309,000
Other 2,352,000 1,626,000
----------- -----------
Total current liabilities 6,997,000 5,325,000
TEMPORARY SHAREHOLDERS INVESTMENT:
Value of shares subject to redemption
agreements; 4,540,000 shares issued
and outstanding in 1999 and 1998 45,400,000 45,400,000
PERMANENT SHAREHOLDERS' INVESTMENT:
Preferred stock, $.10 par value,
5,000,000 shares authorized; none issued - -
Common stock, $.10 par value, 50,000,000
shares authorized; 16,700,896 and
16,638,179 shares issued and outstanding
in 1999 and 1998 respectively,
not subject to redemption agreements. 1,670,000 1,664,000
Additional paid-in capital 8,439,000 8,143,000
Retained earnings 51,347,000 39,793,000
Shares in escrow; 257,064 in 1999 and
257,064 in 1998 (4,820,000) (4,794,000)
Accumulated other comprehensive loss (1,214,000) (87,000)
----------- -----------
55,422,000 44,719,000
----------- -----------
$107,819,000 $95,444,000
============ ===========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
X-RITE, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF TEMPORARY AND PERMANENT SHAREHOLDERS' INVESTMENT
<TABLE>
For the years ended January 1, 2000, January 2,1999 and January 3,1998
Total Temporary
Temporary Permanent and Permanent
Shareholders' Shareholders' Shareholders'
Investment Investment Investment
---------- ------------ -------------
<S> <C> <C> <C>
Balances December 31, 1996 $ - $ 72,962,000 $ 72,962,000
Net changes in Permanent Shareholders Investment 13,118,000 13,118,000
---------- ----------- -----------
Balances January 3, 1998 - 86,080,000 86,080,000
Allocation of Permanent Shareholders' Investment
to Temporary Shareholders' Investment,
4,540,000 shares 45,400,000 (45,400,000) -
Net changes in Permanent Shareholders Investment 4,039,000 4,039,000
------------ ----------- ----------
Balances January 2, 1999 45,400,000 44,719,000 90,119,000
Net changes in Permanent Shareholders Investment 10,703,000 10,703,000
------------ ----------- ----------
Balances January 1, 2000 $ 45,400,000 $ 55,422,000 $ 100,822,000
============ ============ =============
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
X-RITE, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
For the year ended
---------------------------------------
January 1, January 2, January 3,
2000 1999 1998
----------- ----------- -----------
<S> <C> <C> <C>
Net sales $100,209,000 $94,811,000 $96,991,000
Cost of sales 34,218,000 32,579,000 32,933,000
----------- ----------- -----------
Gross profit 65,991,000 62,232,000 64,058,000
Operating expenses:
Selling & marketing 20,096,000 20,478,000 17,969,000
Engineering, general
& administrative 17,222,000 16,658,000 12,664,000
Research & development 8,420,000 8,135,000 6,380,000
Write-down of digital
imaging assets - 6,694,000 -
----------- ----------- -----------
45,738,000 51,965,000 37,013,000
----------- ----------- -----------
Operating income 20,253,000 10,267,000 27,045,000
Other income 827,000 425,000 267,000
----------- ----------- -----------
Income before income taxes 21,080,000 10,692,000 27,312,000
Income taxes 7,431,000 3,830,000 9,290,000
----------- ----------- -----------
NET INCOME $13,649,000 $ 6,862,000 $18,022,000
=========== =========== ===========
Earnings per share:
Basic $.65 $.33 $.85
==== ==== ====
Diluted $.62 $.32 $.85
==== ==== ====
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
X-RITE, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF PERMANENT SHAREHOLDERS' INVESTMENT
<TABLE>
Accumulated
Other Total
Additional Comprehensive Permanent
Common Paid-in Retained Shares in Income Shareholders'
Stock Capital Earnings Escrow (Loss) Investment
---------- ---------- ----------- ----------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
BALANCES,
DECEMBER 31, 1996 $2,107,000 $6,908,000 $64,059,000 $ - $ (112,000) $72,962,000
Net income - - 18,022,000 - - 18,022,000
Cash dividends declared
of $.10 per share - - (2,112,000) - - (2,112,000)
Issuance of 84,556 shares
of common stock under
employee benefit plans 8,000 968,000 - - - 976,000
Purchase of 184,300 shares
by escrow fund - - - (3,449,000) - (3,449,000)
Translation adjustment - - - - (319,000) (319,000)
---------- ---------- ----------- ----------- --------- -----------
BALANCES,
JANUARY 3, 1998 2,115,000 7,876,000 79,969,000 (3,449,000) (431,000) 86,080,000
Net income - - 6,862,000 - - 6,862,000
Cash dividends declared
of $.10 per share - - (2,092,000) (25,000) - (2,117,000)
Issuance of 28,798 shares
of common stock under
employee benefit plans 3,000 267,000 - - - 270,000
Purchase of 72,764 shares
by escrow fund - - - (1,320,000) - (1,320,000)
Value of shares subject to
redemption agreements (454,000) - (44,946,000) - - (45,400,000)
Translation adjustment - - - - 344,000 344,000
---------- ---------- ----------- ----------- --------- -----------
BALANCES,
JANUARY 2, 1999 1,664,000 8,143,000 39,793,000 (4,794,000) (87,000) 44,719,000
Net income - - 13,649,000 - - 13,649,000
Cash dividends declared
of $.10 per share - - (2,095,000) (26,000) - (2,121,000)
Issuance of 62,717 shares
of common stock under
employee benefit plans 6,000 296,000 - - - 302,000
Translation adjustment - - - - (659,000) (659,000)
Unrealized loss on short-term
investments - - - - (468,000) (468,000)
---------- ---------- ----------- ----------- --------- -----------
BALANCES,
JANUARY 1, 2000 $1,670,000 $8,439,000 $51,347,000 $(4,820,000) $(1,214,000) $55,422,000
========== ========== =========== ============ ============ ===========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
X-RITE, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
For the year ended
---------------------------------------
January 1, January 2, January 3,
2000 1999 1998
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 13,649,000 $ 6,862,000 $18,022,000
Adjustments to reconcile net income to net
cash provided by operating activities-
Depreciation and amortization 5,862,000 5,836,000 5,488,000
Provision for doubtful accounts 412,000 266,000 220,000
Deferred income taxes (246,000) (2,629,000) 187,000
Write-down of digital imaging assets - 6,694,000 -
Other (58,000) (15,000) 172,000
Changes in operating assets and liabilities
net of effects from acquisitions:
Accounts receivable (1,576,000) 1,189,000 (2,944,000)
Inventories 278,000 (623,000) 2,000
Other current and noncurrent assets (547,000) 892,000 (831,000)
Accounts payable 638,000 163,000 (548,000)
Other accrued liabilities 1,953,000 (693,000) 191,000
----------- ----------- -----------
Net cash provided by operating activities 20,365,000 17,942,000 19,959,000
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of investments 1,258,000 2,030,000 2,042,000
Proceeds from sales of investments 19,875,000 5,323,000 9,223,000
Purchases of investments (24,473,000) (16,056,000) (11,653,000)
Capital expenditures (4,343,000) (4,176,000) (4,288,000)
Acquisitions, less cash acquired - (382,000) (6,960,000)
Deposit to escrow fund in connection
with Light Source acquisition - - (4,638,000)
Investment in founders' life insurance (3,525,000) (3,091,000) -
Purchases of other assets (1,373,000) (1,279,000) (1,344,000)
Other investing activities 85,000 113,000 40,000
------------ ------------ ------------
Net cash used for investing activities (12,496,000) (17,518,000) (17,578,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid (2,121,000) (2,117,000) (2,112,000)
Issuance of common stock 302,000 270,000 976,000
----------- ----------- -----------
Net cash used for financing activities (1,819,000) (1,847,000) (1,136,000)
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND
CASH EQUIVALENTS (688,000) 151,000 (24,000)
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 5,362,000 (1,272,000) 1,221,000
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 1,536,000 2,808,000 1,587,000
----------- ----------- -----------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 6,898,000 $ 1,536,000 $ 2,808,000
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
X-RITE, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--THE COMPANY AND OTHER INFORMATION
X-Rite, Incorporated and its wholly-owned subsidiaries (individually "X-Rite"
and with its subsidiaries the "Company") are engaged in the development,
manufacture and sale of technically sophisticated instrumentation and
user-friendly software solutions for a wide variety of color-critical
applications, including corporate branding, medical diagnostics, consumer
products and on-line commerce. Principal markets for the Company's products
include the paint, plastic, textile, packaging, photographic, graphic arts and
medical industries, in addition to commercial and research laboratories. Based
on the nature of its products, the Company considers its business to be a single
operating segment.
Products are sold worldwide through the Company's own sales personnel and
through independent sales representatives. The Company is headquartered in
Grandville, Michigan and has other domestic operations in New Hampshire, and
Massachusetts.
In addition, the Company has locations in Germany, England, Hong Kong, Czech
Republic, France and Japan. All manufacturing is done in the United States.
Geographic sales information is as follows:
<TABLE>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Domestic sales:
U.S. operations $65,732,000 $62,875,000 $65,180,000
International sales:
U.S. operations' export sales
to unaffiliated customers 11,023,000 14,628,000 22,010,000
Foreign subsidiary sales 23,454,000 17,308,000 9,801,000
----------- ----------- -----------
34,477,000 31,936,000 31,811,000
----------- ----------- -----------
$100,209,000 $94,811,000 $96,991,000
=========== =========== ===========
</TABLE>
No single customer accounted for more than 10% of total net sales in 1999, 1998
or 1997.
<PAGE>
X-RITE, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation:
The consolidated financial statements include the accounts of X-Rite,
Incorporated and its wholly-owned domestic and foreign subsidiaries. All
significant inter-company accounts and transactions have been eliminated.
Effective January 1, 1997, the Company adopted a 4-4-5 quarterly accounting
cycle to accommodate manufacturing schedules that were developed to improve
customer service. Accordingly, 1999 ended on January 1, 2000 and 1998 ended on
January 2, 1999, and 1997 ended on January 3, 1998. The Company's 1999, 1998 and
1997 results from operations would have been approximately the same if the years
had ended on December 31 rather than on January 1, 2000, January 2, 1999, and
January 3,1998 .
Cash and Cash Equivalents:
The Company considers all highly liquid financial instruments with maturities of
three months or less when purchased to be cash equivalents.
Short-Term Investments:
Short-term investments consist primarily of municipal bonds, tax-exempt
industrial revenue bonds and preferred stocks. All of the Company's short-term
investments are stated at market value and are classified as available for sale.
Adjustments to market value are included in Other Comprehensive Income and Loss
(see Note 3) Short-term investments at January 1, 2000 include securities with
original maturities of greater than three months and remaining maturities of
less than one year.
Inventories:
Inventories are stated at the lower of cost, determined on a first-in first-out
basis, or market. Components of inventories are summarized as follows:
<TABLE>
January 1, January 2,
2000 1999
----------- -----------
<S> <C> <C>
Raw materials $ 6,351,000 $ 6,575,000
Work in process 5,381,000 5,623,000
Finished goods 3,678,000 3,673,000
----------- -----------
$15,410,000 $15,871,000
=========== ===========
</TABLE>
<PAGE>
X-RITE, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
Plant, Equipment and Depreciation:
Plant and equipment are stated at cost and include expenditures for major
renewals and betterments. Maintenance and repairs that do not extend the lives
of the respective assets are charged to expense as incurred. Depreciation
expense is computed using the straight-line method over the estimated useful
lives of the related assets. Estimated depreciable lives are as follows:
buildings and improvements, 5 to 40 years; machinery and equipment, 3 to 10
years; and furniture and office equipment, 3 to 10 years.
Software Development Costs:
Development costs incurred in the research and development of new software
products and enhancements to existing software products are expensed as incurred
until technological feasibility is achieved. After technological feasibility is
achieved, any additional development costs are capitalized and amortized using
the straight-line method over a three-year period.
The Company capitalized $1,334,000, $1,248,000 and $1,344,000 of software
development costs during 1999, 1998 and 1997, respectively. Amortization expense
was $1,249,000, $1,107,000 and $992,000 in 1999, 1998 and 1997, respectively.
The net capitalized software development costs included in other assets were
$2,160,000 and $2,076,000 as of January 1, 2000 and January 2, 1999,
respectively.
Costs in Excess of Net Assets Acquired and Other Long-Lived Assets: Costs in
excess of net assets acquired resulted primarily from the 1995 acquisition of
Labsphere, Inc. and the 1997 acquisition of the assets of Light Source Computer
Images, Inc. (see Note 8). The costs associated with the Labsphere acquisition
are being amortized using the straight-line method over twenty years. The costs
resulting from the Light Source acquisition were written off in 1998 (see Note
8). Accumulated amortization of excess acquisition costs was $2,790,000 and
$2,254,000 at January 1, 2000 and January 2, 1999, respectively.
The Company evaluates the recoverability of its long-lived assets by determining
whether unamortized balances can be recovered through undiscounted future
operating cash flows over the remaining lives of the assets in accordance with
the provisions of Statement of Financial Accounting Standards (SFAS) No. 121. If
the sum of the expected future cash flows is less than the carrying value of the
assets, an impairment loss is recognized for the excess of the carrying value
over the fair value. The estimated fair value is determined by discounting the
expected future cash flows at a rate that would be required for a similar
investment with like risks.
<PAGE>
X-RITE, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
Temporary and Permanent Shareholders' Investment: During 1998 the Company
entered into agreements with its founding shareholders for the future redemption
of 4.54 million shares or 21.4 percent of its outstanding stock (see Note 7).
These shares have been reclassified on the balance sheet to a temporary equity
account.
The Company records the results of its operations and all other equity
transactions as a component of permanent shareholders' investment.
Income Taxes:
The provision for income taxes is based on earnings reported in the financial
statements. Deferred income taxes are recognized for all temporary differences
between tax and financial reporting.
Revenue Recognition:
Revenue is recognized when a product is shipped or a service is performed.
Advertising Costs:
Advertising costs are charged to operations in the period incurred and totaled
$2,047,000, $2,389,000 and $2,053,000 in 1999, 1998 and 1997, respectively.
Per Share Data:
Basic earnings per share ("EPS") is computed by dividing net income by the
weighted-average number of common shares outstanding in each year. 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 of the last three years:
<TABLE>
1999 1998 1997
---------- ----------- -----------
<S> <C> <C> <C>
Numerators:
Net income numerators for
both basic and diluted EPS $13,649,000 $ 6,862,000 $18,022,000
========== =========== ===========
Denominators:
Denominators for basic EPS-
Weighted-average common
shares outstanding 20,951,692 20,913,400 21,122,347
Potentially dilutive shares-
Shares subject to
redemption agreements 1,155,096 159,522 -
Stock options 6,985 58,630 166,204
---------- ---------- ----------
Denominators for diluted EPS 22,113,773 21,131,552 21,288,551
========== ========== ==========
</TABLE>
<PAGE>
X-RITE, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
Per Share Data, continued:
During 1999 and the fourth quarter of 1998, certain shares subject to redemption
agreements (see Note 7) were considered dilutive.
Certain exercisable stock options were not included in the calculations of
diluted EPS because option prices were greater than average market prices for
the periods presented. The number of stock options outstanding at the end of
each year presented not included in the calculation of diluted EPS and the
ranges of exercise prices were 984,500 and $7.03 - $19.52 in 1999, 583,000 and
$14.50 - $19.50 in 1998, and 98,500 and $18.38 - $19.50 in 1997.
Foreign Currency Translation:
Foreign currency balance sheet accounts are translated into United States
dollars at the exchange rate in effect at year end. Income statement accounts
are translated at the average rate of exchange in effect during the year. The
resulting translation adjustments are recorded as a component of accumulated
other comprehensive income (loss) in the statements of shareholders' investment.
Use of Estimates:
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates; however, management believes
that any subsequent revisions to estimates used would not have a material effect
on the financial condition or results of operations of the Company.
Reclassifications:
Certain prior year information has been reclassified to conform to the current
year presentation.
NOTE 3--COMPREHENSIVE INCOME
Comprehensive income consisted of net income, foreign currency translation, and
unrealized loss on short-term investments, which are presented in the
accompanying statements of shareholders' investment. Comprehensive income
totaled $ 12,522,000, $ 7,206,000 and $17,703,000 in 1999, 1998 and 1997,
respectively.
NOTE 4--REVOLVING CREDIT AGREEMENT
The Company maintains a revolving line of credit agreement with a bank which
provides for maximum borrowings of $20,000,000 with interest at 1.5% over the
"Effective Federal Funds Rate" (3.99% at January 1, 2000).
<PAGE>
X-RITE, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4--REVOLVING CREDIT AGREEMENT, continued
The borrowings are unsecured and no compensating balances are required by the
agreement. There were no significant borrowings under this agreement during
1999, 1998 or 1997.
NOTE 5--INCOME TAXES
The provision for income taxes consisted of the following:
<TABLE>
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Current-
Federal $7,386,000 $6,111,000 $8,689,000
State 256,000 220,000 259,000
Foreign 35,000 128,000 155,000
---------- ---------- ----------
7,677,000 6,459,000 9,103,000
Deferred-
Federal (246,000) (2,629,000) 187,000
---------- ---------- ----------
$7,431,000 $3,830,000 $9,290,000
========== ========== ==========
</TABLE>
The provisions for income taxes reflected effective tax rates of 35.3%, 35.8%
and 34.0% in 1999, 1998 and 1997, respectively, compared to the U.S. statutory
rate of 35%. The Company's effective tax rates were impacted by state income
taxes, goodwill amortization and benefits from a foreign sales corporation.
Major components of the Company's deferred tax assets and liabilities are as
follows:
<TABLE>
January 1, January 2,
2000 1999
---------- ----------
<S> <C> <C>
Assets:
Inventory reserves $ 947,000 $1,076,000
Accounts receivable reserves 105,000 -
Amortization of intangible assets 2,629,000 2,554,000
Financial accruals and reserves
not currently deductible 638,000 563,000
---------- ----------
$4,319,000 $4,193,000
========== ==========
Liabilities:
Depreciation $ 143,000 $ 197,000
Software development costs 756,000 727,000
Other 34,000 129,000
---------- ----------
$ 933,000 $1,053,000
========== ==========
</TABLE>
<PAGE>
X-RITE, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5--INCOME TAXES, continued
Cash expended for income taxes was $7,551,000, $5,733,000 and $9,733,000 in
1999, 1998 and 1997, respectively.
NOTE 6--EMPLOYEE BENEFIT AND STOCK PLANS
The Company maintains 401(k) retirement savings plans for the benefit of
substantially all full-time U.S. employees. Participant contributions are
matched by the Company based on applicable matching formulas. The Company's
matching expense for the plans was $469,000, $473,000 and $336,000 in 1999, 1998
and 1997, respectively.
The Company may sell up to 1,000,000 shares of common stock to its employees
under an employee stock purchase plan. Eligible employees who participate
purchase shares quarterly at 85% of the market price on the date purchased.
During 1999, 1998 and 1997, employees purchased 40,137, 21,798 and 17,201
shares, respectively. The weighted average fair value of shares purchased in
1999 was $5.42. At January 1,2000, 833,484 shares were available for future
purchases.
The Company has two stock option plans covering 2,800,000 shares of common
stock. These plans permit options to be granted to key employees and the
Company's Board of Directors. Options are granted at market price on the date of
grant and are exercisable based on vesting schedules determined at the time of
grant. No options are exercisable after ten years from the date of grant. At
January 1, 2000, 1,592,993 shares were available for future granting. A summary
of shares subject to options follows:
<TABLE>
1999 1998 1997
------------------ ---------------- ----------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Prices Shares Prices Shares Prices
--------- -------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
beginning of year 1,093,100 $14.54 890,100 $14.33 723,300 $13.30
Granted 244,500 7.08 221,500 15.10 259,500 15.90
Exercised (10,000) 2.47 ( 7,000) 4.06 (61,700) 8.08
Canceled (22,400) 13.39 (11,500) 14.93 (31,000) 15.98
--------- ------- -------
Outstanding at
end of year 1,305,200 13.26 1,093,100 14.54 890,100 14.33
========= ========= =======
Exercisable at
end of year 1,076,500 14.27 943,100 14.25 735,600 14.09
========= ======= =======
Weighted average
fair value of
options granted $2.85 $6.23 $6.40
===== ===== =====
</TABLE>
<PAGE>
X-RITE, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6--EMPLOYEE BENEFIT AND STOCK PLANS, continued
A summary of stock options outstanding at January 1, 2000 follows:
<TABLE>
Outstanding Exercisable
--------------------------------- -----------------
Weighted
Weighted Average Weighted
Average Remaining Average
Exercise Contractual Exercise
Price Ranges Shares Price Life (Years) Shares Price
--------------- --------- -------- ------------ ------- --------
<S> <C> <C> <C> <C> <C>
$ 6.19 - $ 7.50 306,000 $ 6.95 7.6 126,000 $ 6.74
10.13 - 12.00 217,100 11.11 3.9 217,100 11.11
13.00 - 15.00 275,700 13.95 7.5 229,000 14.07
15.63 - 19.52 504,400 17.61 6.6 504,000 17.61
--------- -------
1,305,200 13.26 6.6 1,076,500 14.27
========= =======
</TABLE>
The Company accounts for its employee stock purchase plan and its stock option
plans under APB Opinion 25; therefore, no compensation costs are recognized when
employees purchase stock or when stock options are authorized, granted or
exercised. If compensation costs had been computed under SFAS No. 123,
"Accounting for Stock-Based Compensation," the Company's net income and earnings
per share (basic and diluted) would have been reduced by approximately $492,000
and $.02 in 1999, $924,000 and $.04 in 1998, and $1,109,000 and $.05 in 1997.
For purposes of computing compensation costs of stock options granted, the fair
value of each stock option grant was estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted-average
assumptions:
<TABLE>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Dividend yield .7% .6% .5%
Volatility 40% 40% 35%
Risk-free interest rates 4.7% - 5.9% 5.5% - 5.6% 5.8% - 6.8%
Expected term of options 5 years 5 years 5 years
</TABLE>
Black-Scholes is a widely accepted stock option pricing model, however, the
ultimate value of stock options granted will be determined by the actual lives
of options granted and future price levels of the Company's common stock.
<PAGE>
X-RITE, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6--EMPLOYEE BENEFIT AND STOCK PLANS, continued
The Company also has a restricted stock plan covering 400,000 shares of common
stock. Shares awarded under this plan entitle the shareholder to all rights of
common stock ownership except that the shares may not be sold, transferred,
pledged, exchanged or otherwise disposed of during the restriction period. The
restriction period is determined by a committee, appointed by the Board of
Directors, but in no event shall have a duration period in excess of ten years.
No shares were awarded in 1999, 1998 or 1997. At January 1, 2000, there were
345,200 shares available for future awards.
NOTE 7--FOUNDERS STOCK REDEMPTION AGREEMENTS
During 1998, the Company entered into agreements with its founding shareholders
for the future redemption of 4.54 million shares or 21.4 percent of the
Company's outstanding stock. The stock redemptions will occur following the
later of the death of each founder and his spouse. The cost of the redemption
agreements will be funded by proceeds from life insurance policies the Company
has purchased on the lives of certain of these individuals. 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 January 2,
1999 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 January 1, 2000 was less than $10.
NOTE 8--ACQUISITION & WRITE-DOWN OF DIGITAL IMAGING ASSETS
In May of 1997 the Company acquired substantially all the assets of Light Source
Computer Images, Inc. ("Light Source") for $6,955,000 in cash. Light Source is a
California-based producer of scanning, imaging and print optimization software.
The acquisition was accounted for under the purchase method of accounting and
was funded by proceeds from sales of short-term investments.
The asset purchase agreement provides for future contingent consideration if net
sales of certain products reaches or exceeds agreed upon sales goals during
twelve month periods that end in July 1998, 1999 and 2000.
<PAGE>
X-RITE, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8--ACQUISITION & WRITE-DOWN OF DIGITAL IMAGING ASSETS, continued
The Company has paid $4,638,000 in cash into an escrow fund which is equal to
the maximum contingent cash consideration that could be earned by the sellers if
such sales goals are realized. The escrow fund payment is not included in the
acquisition price stated in the preceding paragraph. If any contingent payments
are made, those amounts will be accounted for as additional costs of the
acquired assets and amortized over the remaining lives of the assets. As of
January 1, 2000, no additional consideration had been paid from the escrow fund.
The investment of escrow funds must be made in accordance with the terms of an
escrow agreement, which allows for certain money market securities or X-Rite
common stock. On January 1, 2000, the escrow fund held 257,064 shares of X-Rite
common stock at a cost of $4,769,000, plus $51,000 in dividends received.
Accordingly, that portion of the escrow fund is presented in the accompanying
balance sheet as a reduction to permanent shareholders' investment. This
contractual agreement remains in effect until July of 2000.
During the third quarter of 1998, increased competition in the digital imaging
business and a continued rapid decline in the demand for certain digital imaging
instruments, software and technology led the Company to reevaluate its digital
imaging markets and product lines, which forced the recognition of an asset
impairment loss. The non-cash, pre-tax write down of $6,694,000 ($4,351,000
after tax) consisted of $6,294,000 in goodwill, and $400,000 in fixed assets and
other capitalized start-up costs associated with the 1997 Light Source asset
acquisition.
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(a) Directors
Information relating to directors appearing under the caption "Election of
Directors" in the definitive Proxy Statement for the 2000 Annual Meeting of
shareholders and filed with the Commission is incorporated herein by reference.
(b) Officers
Information relating to executive officers is included in this report in the
last section of Part I under the caption "Executive Officers of the Registrant."
(c) Compliance With Section 16(a)
Information concerning compliance with Section 16(a) of the Securities Exchange
Act of 1934 appearing under the caption "Compliance With Reporting Requirements"
in the definitive Proxy Statement for the 2000 Annual meeting of Shareholders
and filed with the Commission is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information contained under the caption "Executive Compensation" contained
in the definitive Proxy Statement for the 1999 Annual Meeting of Shareholders
and filed with the Commission is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information contained under the captioned "Securities Ownership of
Management" contained in the definitive Proxy Statement for the 1999 Annual
Meeting of Shareholders and filed with the Commission is hereby incorporated
herein by reference.
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Not applicable.
Part IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
(a) The following financial statements, all of which are set forth in Item 8,
are filed as a part of this report:
Report of Independent Public Accountants
Consolidated Balance Sheets
Consolidated Statements of Temporary and Permanent Shareholders'
Investment
Consolidated Statements of Income
Consolidated Statements of Permanent Shareholders' Investment
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
(b) No reports on Form 8-K were filed for the 3-month period ended January 1,
2000.
(c) See Exhibit Index located on page 38.
(d) All other schedules required by Form 10-K Annual Report have been omitted
because they were inapplicable, included in the notes to the consolidated
financial statements, or otherwise not required under the instructions
contained in Regulation S-X.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
March 30, 2000 /s/ Richard E. Cook
Richard E. Cook, President and Chief
Executive Officer
March 30, 2000 /s/ Duane F. Kluting
Duane F. Kluting, Vice President and
Chief Financial Officer
Pursuant to the requirements of the Securities and Exchange Act of 1934, this
report has been signed below on this 30th day of March, 2000, by the following
persons on behalf of the Registrant and in the capacities indicated.
Each director of the Registrant whose signature appears below, hereby appoints
Richard E. Cook and Duane F. Kluting, and each of them individually as his
attorney-in-fact to sign in his name and on his behalf as a Director of the
Registrant, and to file with the Commission any and all amendments to this
report on Form 10-K to the same extent and with the same effect as if done
personally.
/s/ Ted Thompson /s/ Peter M. Banks
Ted Thompson, Director Dr. Peter M. Banks, Director
/s/ Stanley W. Cheff /s/ Richard E. Cook
Stanley W. Cheff, Director Richard E. Cook, Director
/s/ Rufus S. Teesdale /s/ James A. Knister
Rufus S. Teesdale, Director James A. Knister, Director
/s/ Charles Van Namen /s/ Ronald A. VandenBerg
Charles Van Namen, Director Ronald A. VandenBerg, Director
<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 as filed with the Michigan Department of Consumer
& Industry Services (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 (Commission
File No. 0-14800).
4 X-Rite, Incorporated common stock certificate specimen (filed as
exhibit to Form 10-Q for the quarter ended June 30, 1986 (Commission
File No. 0-14800) and incorporated herein by reference)
The following material contracts identified with "*" preceding the exhibit
number are agreements or compensation plans with or relating to executive
officers, directors or related parties.
*10(a) X-Rite, Incorporated Amended and Restated Outside Director Stock
Option Plan, effective as of September 17, 1996 (filed as exhibit to
Form 10-Q for the quarter ended September 30, 1996 (Commission File
No. 0-14800) and incorporated herein by reference)
*10(b) X-Rite, Incorporated Cash Bonus Conversion Plan (filed as Appendix A
to the definitive proxy statement dated April 8, 1996 relating to the
Company's 1996 annual meeting (Commission File No. 0-14800) and
incorporated herein by reference)
*10(c) Form of Indemnity Contract entered into between the registrant and
members of the board of directors (filed as exhibit to Form 10-Q for
the quarter ended June 30, 1996 (Commission File No. 0-14800) and
incorporated herein by reference)
<PAGE>
EXHIBIT INDEX
--------------------------------------------------------------------------
*10(d) Employment Agreement dated April 17,1998 between the registrant
and Richard E. Cook (filed as exhibit to Form 10-K for the year
ended January 2, 1999 (Commission File No. 0-14800) and
incorporated herein by reference)
10(e) 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 persons, 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. (Commission File No. 0-14800)
*10(j) Deferred compensation trust agreement dated November 23, 1999
between the registrant and Richard E. Cook. (Commission File No.
0-14800)
21 Subsidiaries of the registrant
23 Consent of independent accountants
27 Financial Data Schedule
<PAGE>
X-RITE, INCORPORATED
EMPLOYMENT ARRANGEMENT
EFFECTIVE UPON A CHANGE IN CONTROL
THIS AGREEMENT entered into as of the day of , 19____, (the "Execution
Date") by and between X-Rite, Incorporated (the "Company"), and
____________________________________ (the "Executive").
WHEREAS, the Board of Directors of the Company (the "Board") recognizes
that the threat of, or the occurrence of a Change in Control (as hereinafter
defined) can result in significant distractions of its key management personnel
because of the uncertainties inherent in such a situation;
WHEREAS, the Board has determined that it is in the best interest of the
Company and its shareholders to retain the services of the Executive in the
event of a threat or occurrence of a Change in Control, and to ensure the
Executive's continued dedication and efforts in such event without undue concern
for personal financial and employment security; and
WHEREAS, the Company desires to enter into this Agreement with the
Executive to provide the Executive with certain benefits during the term of his
employment following a Change in Control, in the event his employment is
terminated as a result of, or in connection with a Change in Control and to
provide the Executive with the Gross-Up Payment (as hereinafter defined).
NOW, THEREFORE, in consideration of the respective agreements of the
parties contained herein, it is agreed as follows:
<PAGE>
1. Duration
(a) The duration of this Agreement shall commence on the Execution
Date and shall continue until either (i) the termination of the employment
relationship between the Company and the Executive prior to the
commencement of the Employment Term or (ii) upon written notice from the
Company to the Executive of the Company's election to terminate this
Agreement effective not less than twelve (12) months after the date of the
notice; provided, however, that such election to terminate by the Company
shall not be effective in the event the Employment Term commences prior to
the effective date of the termination specified in the notice.
(b) The "Employment Term" shall commence on the date on which a Change
in Control occurs (the "Effective Date") and shall expire on the third
anniversary of the Effective Date; provided, however, if the Executive's
employment is involuntarily terminated prior to the Effective Date and the
Executive reasonably demonstrates that such termination was at the request
of a Third Party, or otherwise occurred in connection with, or in
anticipation of a Change in Control, then for purposes of this Agreement,
the Effective Date shall mean the date immediately prior to the date of
such termination of the Executive's employment.
2. Employment
(a) Subject to the provisions of Section 8 hereof, the Company agrees
to continue to employ the Executive and the Executive agrees to remain in
the employ of the Company during the Employment Term. During the Employment
Term, the Executive shall be employed by the Company in the same position
as on the Effective Date or in such other senior executive capacity as may
be mutually agreed to in writing by the parties. The Executive shall
perform the duties, undertake the responsibilities and exercise the
authority customarily performed, undertaken and exercised by persons
situated in a similar executive capacity.
(b) During the Employment Term, excluding periods of vacation and sick
leave to which the Executive is entitled, the Executive agrees to devote
reasonable attention and time during usual business hours to the business
and affairs of the Company to the extent necessary to discharge the
responsibilities assigned to the
<PAGE>
Executive hereunder. The Executive may serve on corporate, civil or
charitable boards or committees, and manage personal investments so long as
such activities do not significantly interfere with the performance of the
Executive's responsibilities hereunder.
3. Compensation
(a) Base Salary. During the Employment Term, the Company agrees to pay
or cause to be paid to the Executive annual base salary at a rate at least
equal to the highest rate of the Executive's annual base salary as in
effect at any time within ninety (90) days preceding the Effective Date,
and as may be increased from time to time (hereinafter referred to as the
"Base Salary"). Such Base Salary shall be payable in accordance with the
Company's customary practices applicable to its executives.
(b) Annual Bonus. In addition to Base Salary, the Executive shall be
awarded, for each fiscal year ending during the Employment Term, an annual
bonus (the "Annual Bonus") in cash at least equal to the average of the
annual bonus paid or payable during the three full fiscal years ended prior
to the Effective Date (or such lesser period for which the annual bonuses
were paid or payable to the Executive). Each such Annual Bonus shall be
paid in accordance with the Company's customary practices applicable to its
executives or, in the event there are no such practices, no later than the
end of the third month of the fiscal year next following the fiscal year
for which the Annual Bonus is awarded.
4. Employee Benefits. During the Employment Term, the Executive shall be
entitled to participate in all employee benefit plans, practices and programs
maintained by the Company and made available to employees generally, including,
without limitation, all pension, retirement, profit sharing, savings, medical,
hospitalization, disability, dental, life or travel accident insurance benefit
plans. Unless otherwise provided herein, the compensation and benefits under,
and the Executive's participation in such plans, practices and programs shall be
on the same basis and terms as are applicable to employees of the Company
generally, but in no event on a basis less favorable in terms of benefit levels
and coverages than the most favorable of such plans, practices and
<PAGE>
programs covering the Executive at any time within ninety (90) days preceding
the Effective Date, or if more favorable, at any time thereafter.
5. Executive Benefits. During the Employment Term, the Executive shall be
entitled to participate in all executive benefit or incentive compensation plans
maintained or established by the Company for the purpose of providing
compensation and/or benefits to executives of the Company including, but not
limited to, the Company's Cash Bonus Conversion Plan, and any supplemental
retirement, salary continuation, stock option, deferred compensation,
supplemental medical or life insurance or other bonus or incentive compensation
plans. Unless otherwise provided herein, the compensation and benefits under,
and the Executive's participation in, such plans shall be on the same basis and
terms as other similarly situated executives of the Company, but in no event on
a basis less favorable in terms of benefit levels or reward opportunities than
the most favorable benefit levels and reward opportunities applicable to the
Executive at any time within ninety (90) days preceding the Effective Date, or
if more favorable, at any time thereafter. No additional compensation provided
under any of such plans shall be deemed to modify or otherwise affect the terms
of this Agreement or any of the Executive's entitlements hereunder.
6. Other Benefits
(a) Fringe Benefits and Perquisites. During the Employment Term, the
Executive shall be entitled to all fringe benefits and perquisites (e.g.,
company cars, club dues, physical examinations, financial planning and tax
preparation services) generally made available by the Company to its
executives. Unless otherwise provided herein, the fringe benefits and
perquisites provided to the Executive shall be on the same basis and terms
as other similarly situated executives of the Company, but in no event
shall be less favorable than the most favorable fringe benefits and
perquisites applicable to the Executive at any time within ninety (90) days
preceding the Effective Date, or if more favorable, at any time thereafter.
<PAGE>
(b) Expenses. The Executive shall be entitled to receive prompt
reimbursement of all expenses reasonably incurred in connection with the
performance of duties hereunder or for promoting, pursuing or otherwise
furthering the business or interests of the Company.
7. Vacation and Sick Leave. During the Employment Term, at such reasonable
times as the Board shall in its discretion permit, the Executive shall be
entitled, without loss of pay, to absent himself voluntarily from the
performance of his employment under this Agreement, provided that:
(a) The Executive shall be entitled to annual vacation in accordance
with the policies as periodically established by the Board for similarly
situated executives of the Company, but in no event shall the Executive's
annual vacation entitlement be less than four (4) weeks per year.
(b) The Executive shall be entitled to sick leave (without loss of
pay) in accordance with the Company's policies as in effect from time to
time.
8. Termination. During the Employment Term, the Executive's employment
hereunder may be terminated under the following circumstances;
(a) Cause. The Company may terminate the Executive's employment for
Cause." A termination of employment is for "Cause" if the Executive (1)
engaged in conduct involving dishonesty or fraud or is convicted of a crime
involving moral turpitude, (2) intentionally engaged in conduct which is
materially injurious to the Company, monetarily or otherwise, (3) fails to
substantially perform assigned duties consistent with paragraph 2 above
(other than any failure resulting from an illness or other similar
incapacity or disability), or to comply with policies applicable to all
Company executives, after a demand for performance or compliance is made to
Executive which specifically identifies the manner in which it is alleged
that the Executive has not substantially performed or complied.
(b) Disability. The Company may terminate the Executive's employment
in the event of the Executive's Disability. For purposes of this Agreement,
"Disability" means a physical or mental infirmity which
<PAGE>
impairs the Executive's ability to substantially perform his duties under
this Agreement which continues for a period of at least one hundred eighty
(180) consecutive days. Notwithstanding anything contained in this
Agreement to the contrary, until the Termination Date specified in a Notice
of Termination (as each term is hereinafter defined) relating to the
Executive's Disability, the Executive shall be entitled to return to his
position with the Company as set forth in this Agreement in which event no
Disability of the Executive will be deemed to have occurred.
(c) Good Reason. (1) The Executive may terminate his employment for
"Good Reason." For purposes of this Agreement, "Good Reason" shall mean the
occurrence, after a Change in Control, of any of the events or conditions
described in Subsections (i) through (viii) hereof:
(i) a change in the Executive's status, title, position or
responsibilities (including reporting responsibilities) which
represents a material adverse change from the status, title, position
or responsibilities in effect immediately prior thereto; the
assignment to the Executive of any new or different duties or
responsibilities which are materially inconsistent with his status,
title, position or responsibilities as in effect immediately prior
thereto, or any removal of the Executive from, or failure to reappoint
or reelect him to any of such offices or positions, except in
connection with the termination of his employment for (w) Disability,
(x) Cause, (y) as a result of his death, or (z) by the Executive other
than for Good Reason;
(ii) a reduction in the Executive's Base Salary or any failure to
pay the Executive any compensation or benefits to which he is entitled
promptly after of the date due;
(iii) a failure to increase the Executive's Base Salary at least
annually at a percentage of Base Salary no less than the average
percentage increases (other than increases resulting from the
Executive's promotion) granted to the Executive during the three full
years ended prior to a Change in Control (or such lesser number of
full years during which the Executive was employed);
(iv) the Company's requiring the Executive to be based at any
place other than that in
<PAGE>
effect on the Effective Date, except for reasonably required travel on
the Company's business which is not greater than such travel
requirements prior to the Change in Control;
(v) the insolvency of, or the filing (by any party, including the
Company) of a petition for bankruptcy of the Company, if that petition
is not dismissed within ninety (90) days;
(vi) any material breach by the Company of any provision of this
Agreement;
(vii) any purported termination of the Executive's employment for
Cause by the Company which does not comply with the terms of Section
8(a); or
(viii) the failure of the Company to obtain an agreement,
reasonably satisfactory to the Executive, from any successor or assign
of the Company to assume and agree to perform this Agreement, as
contemplated in Section 14 hereof.
(2) Any event or condition described in Section 8(c)(1)(i)
through (viii) which occurs prior to a Change in Control, but
which the Executive reasonably demonstrates was at the request of
a Third Party, or otherwise arose in connection with, or in
anticipation of a Change in Control, shall constitute Good Reason
for purposes of this Agreement.
(3) The Executive right's to terminate his employment
pursuant to this Section 8(c) shall not be affected by his
incapacity due to physical or mental illness.
(d) Voluntary Termination. The Executive may voluntarily terminate his
employment hereunder at any time, by giving the Company a Notice of
Termination.
(e) Termination Without Cause. The Company may terminate Executive's
employment at any time, without cause, by giving Executive a Notice of
Termination.
9. Compensation Upon Termination. Upon termination of the Executive's
employment during the Employment Term, the Executive shall be entitled to the
following benefits:
(a) If the Executive's employment with the Company is terminated (1)
by the Company for
<PAGE>
Cause or Disability, (2) by reason of the Executive's death, or (3) by the
Executive other than for Good Reason or during the Window Period, the
Company shall pay the Executive all amounts earned or accrued through the
Termination Date but not paid as of the Termination Date, including (i)
Base Salary and (ii) reimbursement for reasonable and necessary expenses
incurred by the Executive on behalf of the Company during the period ending
on the Termination Date (collectively, "Accrued Compensation").
(b) If the Executive's employment with the Company is terminated
(other than by reason of death), (1) by the Company other than for Cause or
Disability, (2) by the Executive for Good Reason or (3) by the Executive
for any reason within the Window Period, the Executive shall be entitled to
the following:
(i) the Company shall pay the Executive all Accrued Compensation
and a Pro-Rata Bonus;
(ii) at its election, the Company shall either: (y) continue to
pay the Executive's Base Salary in normal installments for the
remainder of the Employment Term, or (z) pay the Executive as
severance pay, and in lieu of any further compensation for periods
subsequent to the Termination Date, in a single payment, an amount in
cash equal to the Executive's Base Salary that would otherwise be
payable in installments for the remainder of the Employment Term. In
addition, the Company shall pay the Executive a Pro Rata Bonus with
respect to the then current fiscal year, plus the average of the
annual bonuses paid or payable to the Executive during the previous
three (3) full fiscal years (or such lesser period for which the
annual bonuses were payable to the Executive), times the number of
full fiscal years remaining in the Employment Term;
(iii) for the remainder of the Employment Term (the "Continuation
Period"), the Company shall at its expense continue on behalf of the
Executive and his dependents and beneficiaries the life insurance,
disability, medical, dental and hospitalization benefits provided (x)
to the Executive at any time during the 90-day period prior to the
Effective Date or at any time thereafter or (y) to other similarly
situated executives who continue in the employ of the Company during
the Continuation Period, whichever the Company elects. The coverage
and benefits (including deductibles and costs) provided in this
Section 9(b)(iii) during the Continuation
<PAGE>
Period shall be no less favorable to the Executive and his dependents
and beneficiaries, than the most favorable of such coverages and
benefits during any of the periods referred to in clauses (x) and (y)
above. The Company's obligation hereunder with respect to the
foregoing benefits shall be limited to the extent that the Executive
obtains any such benefits pursuant to a subsequent employer's benefit
plans, in which case the Company may reduce the coverage of any
benefits it is required to provide the Executive hereunder so long as
the aggregate coverages and benefits of the combined benefit plans is
no less favorable to the Executive than the coverages and benefits
required to be provided hereunder. This Subsection (iii) shall not be
interpreted so as to limit any benefits to which the Executive, his
dependents or beneficiaries may be entitled under any of the Company's
employee benefit plans, programs and practices following the
Executive's termination of employment, including without limitation,
retiree medical and life insurance benefits;
(iv) the restrictions on any outstanding incentive awards
(including restricted stock and granted performance shares or units)
granted to the Executive under any of the Company's incentive plans or
arrangements shall lapse and such incentive award shall become 100%
vested, all stock options and stock appreciation rights granted to the
Executive shall become nonforfeitable and shall become 100% vested,
and all performance units granted to the Executive shall be 100%
vested.
(c) The amount of any payment provided for in this Section 9 of this
Agreement shall be reduced by the amount of any compensation or benefits
provided to the Executive in any subsequent employment during the
Employment Term; provided, however, that compensation being received from
sources other than the Company at the time such payment commences shall not
be counted to reduce payments hereunder.
(d) The severance pay and benefits provided for in this Section 9
shall be in lieu of any other severance pay to which the Executive may be
entitled under any Company severance plan, program or arrangement.
<PAGE>
10. Definitions
(a) Change in Control. For purposes of this Agreement, a "Change in
Control" shall mean any of the following events:
(1) An acquisition (other than directly from the Company) of any
voting securities of the Company (the "Voting Securities") by any
"Person" (as the term person is used for purposes of Section 13(d) or
14(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")), immediately after which such Person has "Beneficial
Ownership" (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) of thirty percent (30%) or more of the combined voting
power of the Company's then outstanding Voting Securities; provided,
however, in determining whether a Change in Control has occurred,
Voting Securities which are acquired in a "Non-Control Acquisition"
(as hereinafter defined) shall not constitute an acquisition which
would cause a Change in Control. A "Non-Control Acquisition" shall
mean an acquisition by (i) an employee benefit plan (or a trust
forming a part thereof) maintained by (A) the Company or (B) any
corporation or other Person of which a majority of its voting power or
its voting equity securities or equity interest is owned, directly or
indirectly, by the Company (for purposes of this definition, a
"Subsidiary") (ii) the Company or its Subsidiaries, or (iii) any
Person in connection with a "Non-Control Transaction" (as hereinafter
defined);
(2) The individuals who, as of the Execution Date are members of
the Board (the "Incumbent Board"), cease for any reason to constitute
at least two-thirds of the members of the Board; provided, however,
that if the election, or nomination for election by the Company's
shareholders, of any new director was approved by a vote of at least
two-thirds of the Incumbent Board, such new director shall, for
purposes of this Plan, be considered as a member of the Incumbent
Board; provided further, that no individual shall be considered a
member of the Incumbent Board if such individual initially assumed
office as a result of either an actual or threatened "Election
Contest" (as described in Rule 14a-11 promulgated under the Exchange
Act) or other actual or threatened solicitation of proxies or consents
by or on behalf of a Person other than the Board (a "Proxy
<PAGE>
Contest") including by reason of any agreement intended to avoid or
settle any Election Contest or Proxy Contest; or
(3) Approval by shareholders of the Company of:
(i) A merger, consolidation or reorganization involving the
Company, unless such merger, consolidation or reorganization is a
"Non-Control Transaction." A "Non-Control Transaction" shall mean a
merger, consolidation or reorganization of the Company where:
(A) the shareholders of the Company, immediately before such
merger, consolidation or reorganization, own directly or
indirectly immediately following such merger, consolidation or
reorganization, at least seventy percent (70%) of the combined
voting power of the outstanding voting securities of the
corporation resulting from such merger or consolidation or
reorganization (the "Surviving Corporation") in substantially the
same proportion as their ownership of the Voting Securities
immediately before such merger, consolidation or reorganization,
(B) the individuals who were members of the Incumbent Board
immediately prior to the execution of the agreement providing for
such merger, consolidation or reorganization constitute at least
two-thirds of the members of the board of directors of the
Surviving Corporation, or a corporation beneficially directly or
indirectly owning a majority of the Voting Securities of the
Surviving Corporation, and
(C) no Person other than (i) the Company, (ii) any
Subsidiary, (iii) any employee benefit plan (or any trust forming
a part thereof) maintained by the Company, the Surviving
Corporation, or any Subsidiary, or (iv) any Person who,
immediately prior to such merger, consolidation or reorganization
had Beneficial Ownership of thirty percent (30%) or more of the
then outstanding Voting Securities, has Beneficial Ownership of
thirty percent (30%) or more of the combined voting power of the
Surviving Corporation's then outstanding voting securities.
<PAGE>
(ii) A complete liquidation or dissolution of the Company; or
(iii) An agreement for the sale or other disposition of all or
substantially all of the assets of the Company to any Person (other
than a transfer to a Subsidiary).
(4) Notwithstanding the foregoing, a Change in Control shall
not be deemed to occur solely because any Person (the "Subject
Person") acquired Beneficial Ownership of more than the permitted
amount of the then outstanding Voting Securities as a result of
the acquisition of Voting Securities by the Company which, by
reducing the number of Voting Securities then outstanding,
increases the proportional number of shares Beneficially Owned by
the Subject Persons, provided that if a Change in Control would
occur (but for the operation of this sentence) as a result of the
acquisition of Voting Securities by the Company, and after such
share acquisition by the Company, the Subject Person becomes the
Beneficial Owner of any additional Voting Securities which
increases the percentage of the then outstanding Voting
Securities Beneficially Owned by the Subject Person, then a
Change in Control shall occur.
(b) Notice of Termination. For purposes of this Agreement, a "Notice
of Termination" shall mean a notice which indicates the specific
termination provision in this Agreement, if any, relied upon and shall set
forth in reasonable detail the facts and circumstances claimed to provide a
basis for termination of the Executive's employment under the provision so
indicated. Any purported termination by the Company or by the Executive
shall be communicated by written Notice of Termination to the other. For
purposes of this Agreement, no such purported termination of employment
shall be effective without such Notice of Termination.
(c) Pro Rata Bonus. For purposes of this Agreement, "Pro Rata Bonus"
shall mean the average of the annual bonuses paid or payable to the
Executive during the preceding three (3) full fiscal years (or such lessor
period for which the annual bonuses were payable to the Executive)
multiplied by a fraction, the numerator of which is the number of days in
the then current fiscal year through the Termination Date and the
denominator of which is 365.
<PAGE>
(d) Termination Date, Etc. For purposes of this Agreement,
"Termination Date" shall mean in the case of the Executive's death, the
date of death, or in all other cases, the date specified in the Notice of
Termination; provided, however, the Executive's employment is terminated
for Good Reason or during a Window Period, the date specified in the Notice
of Termination shall be not less than thirty (30) days and not more than
sixty (60) days from the date the Notice of Termination is given to the
Company.
(e) Third Party. For purposes of this Agreement, "Third Party" shall
mean a person or entity who has indicated an intention, or has taken steps
reasonably calculated to effect a Change in Control, and who does, in fact,
effectuate a Change in Control.
(f) Window Period. For purposes of this Agreement, "Window Period"
shall mean that period of time commencing one hundred eighty (180) days
after the Effective Date and ending on the first anniversary of the
Effective Date.
11. Excise Tax Payments
(a) In the event that any payment or benefit (within the meaning of
Section 280G(b)(2) of the Internal Revenue Code of 1986, as amended (the
"Code")), paid or payable or distributed or distributable to the Executive
or for his benefit pursuant to the terms of this Agreement or otherwise in
connection with, or arising out of, his employment with the Company or a
change in ownership or effective control of the Company or of a substantial
portion of its assets (a "Payment" or "Payments"), would be subject to the
excise tax imposed by Section 4999 of the Code or any interest or penalties
are incurred by the Executive with respect to such excise tax (such excise
tax, together with any such interest and penalties, are hereinafter
collectively referred to as the "Excise Tax"), then the Executive will be
entitled to receive an additional payment (a "Gross-Up Payment") in an
amount such that after payment by the Executive of all taxes (including any
interest or penalties, other than interest and penalties imposed by reason
of the Executive's failure to file timely a tax return or pay taxes shown
due on his return, imposed with respect to such taxes and the Excise Tax),
including any Excise Tax imposed
<PAGE>
upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up
Payment equal to the Excise Tax imposed upon the Payments.
(b) A determination as to whether a Gross-Up Payment is required
pursuant to this Agreement and the amount of such Gross-Up Payment shall be
made at the Company's expense by an accounting firm selected by the Company
and reasonably acceptable to the Executive (the "Accounting Firm"). The
Accounting Firm shall provide its determination (the "Determination"),
together with detailed supporting calculations and documentation to the
Company and the Executive as promptly as practical after the Termination
Date, and if the Accounting Firm determines that no Excise Tax is payable
by the Executive with respect to a Payment or Payments, it shall furnish
the Executive with an opinion reasonably acceptable to the Executive that
no Excise Tax will be imposed with respect to any such Payment or Payments.
The Gross-Up Payment, if any, as determined pursuant to this Section 11a(b)
shall be paid by the Company to the Executive within five days of the
receipt of the Accounting Firm's Determination. The Determination shall be
binding, final and conclusive upon the Company and the Executive, subject
to the application of Section 11(c) below.
(c) Notwithstanding anything contained in this Agreement to the
contrary, in the event that, according to the Determination, an Excise Tax
will be imposed on any Payment or Payments, the Company shall pay to the
applicable governmental taxing authorities as Excise Tax withholding, the
amount of the Excise Tax that the Company has actually withheld from the
Payment or Payments.
12. Unauthorized Disclosure. During the period that the Executive is
actively employed by the Company, the Executive shall not make any Unauthorized
Disclosure. For purposes of this Agreement, "Unauthorized Disclosure" shall mean
disclosure by the Executive without the consent of the Board (other than
pursuant to a court order) to any person, other than an employee or director of
the Company or a person to whom disclosure is reasonably necessary or
appropriate in connection with the performance by the Executive of his duties as
an executive of the Company or as may be legally required, of any material
confidential information
<PAGE>
obtained by the Executive while in the employ of the Company (including any
material confidential information with respect to any of the Company's customers
or methods of distribution) the disclosure of which is materially injurious to
the Company; provided, however, that such term shall not include the use or
disclosure by the Executive, without consent, of any information known generally
to the public (other than a result of disclosure by him in violation of this
Section 12) or any information not otherwise considered confidential and
material by a reasonable person engaged in the same business as that conducted
by the Company.
13. Noncompetition. In the event of a termination of employment for any
reason other than a termination by the Executive for Good Reason or during the
Window Period, for the duration of the original Employment Term, the Executive
shall not:
(a) engage in any activity competitive to the business of the Company
anywhere in the world as a proprietor, partner, holder of any shares of
capital stock or other equity interests in any entity engaged in any
business competitive to the Company, or as an officer, director, employee,
consultant, agent, representative of any such competitor; provided,
however, that the ownership of equity securities of a publicly-held issuer
in an amount equal to less than five percent (5%) of the outstanding
interests of that class, shall not be deemed a violation of the Executive's
obligations under this subsection;
(b) solicit, induce, or otherwise encourage any person employed by the
Company to terminate his or her employment with the Company; or
(c) contact any customer of the Company in order to secure business
from that customer of any kind whatsoever.
In the event any portion of this Section 13 is deemed unenforceable by a court
of competent jurisdiction as a result of its duration or scope, such portion
shall be deemed automatically reduced to the extent necessary, in the judgment
of such court, to render it enforceable.
<PAGE>
14. Successors and Assigns
(a) This Agreement shall be binding upon and shall inure to the
benefit of the Company, its successors and assigns, and the Company shall
require any successor or assignee to expressly assume and agree to perform
this Agreement in the same manner and to the same extent that the Company
would be required to perform it if no such succession or assignment had
taken place. The term "successors and assigns" as used herein shall mean a
corporation or other entity acquiring all or substantially all the assets
and business of the Company (including this Agreement) whether by operation
of law or otherwise.
(b) Neither this Agreement nor any right or interest hereunder shall
be assignable or transferable by the Executive, his beneficiaries or legal
representatives, except by will or by the laws of descent and distribution.
This Agreement shall inure to the benefit of and be enforceable by the
Executive's legal personal representative.
15. Fees and Expenses. The Company shall pay all legal fees and related
expenses (including the costs of experts, evidence and counsel) reasonably
incurred by the Executive to the extent the Executive is successful in seeking
to obtain or enforce any right or benefit provided by this Agreement.
16. Notice. For the purposes of this Agreement, notices and all other
communications provided for in the Agreement (including the Notice of
Termination) shall be in writing and shall be deemed to have been duly given
when personally delivered or sent by certified mail, return receipt requested,
postage prepaid, addressed to the respective addresses last given by each party
to the other, provided that all notices to the Company shall be directed to the
attention of the Board with a copy to the Secretary of the Company. All notices
and communications shall be deemed to have been received on the date of delivery
thereof or on the third business day after the mailing thereof, except that
notice of change of address shall be effective only upon receipt.
17. Non-exclusivity of Rights. Nothing in this Agreement shall prevent or
limit the Executive's continuing or future participation in any benefit, bonus,
incentive or other plan or program provided by the
<PAGE>
Company or any of its subsidiaries and for which the Executive may qualify, nor
shall anything herein limit or reduce such rights as the Executive may have
under any other agreements with the Company or any of its subsidiaries. Amounts
which are vested benefits or which the Executive is otherwise entitled to
receive under any plan or program of the Company or any of its subsidiaries
shall be payable in accordance with such plan or program, except as explicitly
modified by this Agreement.
18. Settlement of Claims. The Company's obligation to make the payments
provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any circumstances, including, without
limitation, any set-off, counterclaim, defense, recoupment, or other right which
the Company may have against the Executive or others.
19. Miscellaneous. No provision of this Agreement may be modified, waived
or discharged unless such waiver, modification or discharge is agreed to in
writing and signed by the Executive and the Company. No waiver by either party
hereto at any time of any breach by the other party hereto of, or compliance
with, any condition or provision of this Agreement to be performed by such other
party shall be deemed a waiver of similar or dissimilar provisions or conditions
at the same or at any prior or subsequent time. No agreement or representations,
oral or otherwise, express or implied, with respect to the subject matter hereto
have been made by either party which are not expressly set forth in this
Agreement.
20. Governing Law. This Agreement shall be governed by and constructed and
enforced in accordance with the laws of the state of Michigan without giving
effect to its conflict of laws principles. Any action brought by any party to
this Agreement shall be brought and maintained in a court of competent
jurisdiction in Kent County Michigan.
21. Severability. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof.
<PAGE>
22. No Guaranteed Employment. The Executive and the Company acknowledge
that, except as may otherwise be provided under any other written agreement
between the Executive and the Company, the employment of the Executive by the
Company is "at will" and, prior to the Effective Date, may be terminated by
either the Executive or the Company at any time. Moreover, if prior to the
Effective Date, the Executive's employment with the Company terminates, the
Executive shall have no further rights under this Agreement, except as provided
in Sections 1(b) and 8(c)(2).
23. Entire Agreement. This Agreement constitutes the entire agreement
between the parties hereto and supersedes all prior agreements, if any,
understandings and arrangements, oral or written, between the parties hereto
with respect to the subject matter hereof.
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by its
duly authorized officer and the Executive has executed this Agreement as of the
day and year first above written.
X-RITE, INCORPORATED
By ______________________________
Its __________________________
_________________________________
X-Rite, Incorporated's Change of Control Agreement in the foregoing form have
been entered into between the registrant and the following persons:
1. Joan Mariani Andrew
2. Bernard Berg
3. Duane Kluting
4. Jeffrey Smolinski
<PAGE>
DEFERRED COMPENSATION TRUST
FOR RICHARD E. COOK
This Trust Agreement is made by and between X-Rite Corporation, a Michigan
corporation (the "Company") and Macatawa Bank, a Michigan corporation (the
"Trustee"). This Agreement is made with reference to the following:
A. The Company has adopted the Deferred Compensation Agreement for Richard
E. Cook dated November 23, 1999 (the "Plan") as a nonqualified deferred
compensation plan;
B. The Company wishes to establish a trust as a means for paying benefits
under the Plan, but wishes to have the trust assets remain subject to the claims
of the creditors of the Company so that the Plan will qualify as an "unfunded"
arrangement that will be exempt from most of the requirements of the Employee
Retirement Security Act of 1974 ("ERISA").
NOW, THEREFORE, the parties hereby establish the Deferred Compensation
Trust for Richard E. Cook which will be held and administered as follows:
ARTICLE I
ESTABLISHMENT OF TRUST
1.1 Company hereby deposits with Trustee $100 which will become the
principal of the Trust to be held, administered and disposed of by Trustee as
provided in this Trust Agreement.
1.2 The Trust hereby established will be irrevocable.
1.3 The Trust is intended to be a grantor trust, of which Company is the
grantor, within the meaning of subpart E, part I, subchapter J, chapter 1,
subtitle A of the Internal Revenue Code of 1986, as amended, and will be
construed accordingly.
1.4 The assets of the Trust will be used exclusively for the uses and
purposes of Plan participants and general creditors as herein set forth. Plan
participants and their beneficiaries will have no preferred claim on, or any
beneficial ownership interest in, any assets of the Trust. Any rights created
under the Plan and this Trust Agreement will be mere unsecured contractual
rights of Plan participants and their beneficiaries against Company. Any assets
held by the Trust will be subject to the claims of Company's general creditors
under federal and state law in the event of Insolvency, as defined in Section
3(a).
1.5 Company may make additional deposits of cash or other property in trust
with Trustee to augment the principal to be held, administered and disposed of
by Trustee as provided in this Trust Agreement.
<PAGE>
ARTICLE II
PAYMENTS TO PLAN PARTICIPANTS AND THEIR BENEFICIARIES
2.1 Company will deliver to Trustee from time to time written instructions
concerning payment of benefits from the Trust to or in respect of Plan
participants. Except as otherwise provided herein, Trustee will make payments to
the Plan participants and their beneficiaries in accordance with such
instructions. The Trustee will make provision for the reporting and withholding
of any federal, state or local taxes that may be required to be withheld with
respect to payments to plan participants and beneficiaries, and will pay amounts
withheld to the appropriate taxing authorities or determine that such amounts
have been reported, withheld and paid by Company.
2.2 The entitlement of a Plan participant or beneficiary to benefits under
the Plan will be determined by Company and any claim for benefits will be
considered and reviewed under the procedures set out in the Plan.
2.3 Company may make payment of benefits directly to Plan participants or
beneficiaries as they become due under the terms of the Plan. Company will
notify Trustee of its decision to make payment of benefits directly prior to the
time amounts are payable to participants or their beneficiaries. In addition, if
the assets of the Trust are not sufficient to make payments of benefits, Trustee
will notify Company and Company will make the balance of each such payment as it
falls due. The Trustee will promptly reimburse the Company for any benefits
under the Plan paid by the Company directly to participants and beneficiaries.
ARTICLE III
TRUSTEE RESPONSIBILITY REGARDING
PAYMENTS TO TRUST BENEFICIARY
WHEN COMPANY IS INSOLVENT
3.1 Trustee will cease payment of benefits to Plan participants and their
beneficiaries if the Company is Insolvent. Company will be considered
"Insolvent" for purposes of this Trust Agreement if Company is unable to pay its
debts as they become due, or Company is subject to a pending proceeding as a
debtor under the United States Bankruptcy Code.
3.2 The assets of the Trust will be subject to claims of general creditors
of Company under federal and state law as set forth below.
(a) The Chief Executive Officer of Company will inform Trustee in
writing of Company's Insolvency. If a person claiming to be a creditor of
Company alleges in writing to Trustee that Company has become Insolvent,
Trustee will determine whether Company is Insolvent and discontinue payment
of benefits to Plan participants or their beneficiaries.
<PAGE>
(b) Unless Trustee has actual knowledge of Company's Insolvency, or
has received notice from Company or a person claiming to be a creditor
alleging that Company is Insolvent, Trustee will have no duty to inquire
whether Company is Insolvent. Trustee may in all events rely on such
evidence concerning Company's solvency as may be furnished to Trustee and
that provides Trustee with a reasonable basis for making a determination
concerning Company's solvency.
(c) If at any time Trustee has determined that Company is Insolvent,
Trustee will discontinue payments to Plan participants or their
beneficiaries and will hold the assets of the Trust for the benefit of
Company's general creditors.
(d) Trustee will resume the payment of benefits to Plan participants
or their beneficiaries in accordance with Article II of this Trust
Agreement only after Trustee has determined that Company is not or is no
longer Insolvent.
3.3 If the Trustee discontinues the payment of benefits and subsequently
resumes payments, the next payment will include the amount of all payments due
to Plan participants and beneficiaries for the period of discontinuance of
payments minus the payments made by the Company during the period of
discontinuance of payments from the Trust.
ARTICLE IV
PAYMENTS TO COMPANY
Except as provided in Article III hereof, Company will have no right or
power to direct Trustee to return to Company or to divert to others any of the
Trust assets until all payment of benefits have been made to Plan participants
and their beneficiaries pursuant to the term of the Plan.
ARTICLE V
POWERS AND DUTIES OF TRUSTEE
5.1 General Powers. The Trustee will have exclusive authority and
discretion to manage and control the assets of the Trust except that:
(a) it will disburse benefit payments in accordance with written
directions from the Company; and
(b) the Company may direct, by written notice to the Trustee, the
segregation of any portion of the Trust into a separate investment account
or accounts, and appoint an investment manager to direct the investment and
reinvestment of any such investment account. Any such investment manager
will either be:
(1) registered as an investment adviser under the Investment
Advisers Act of 1940;
<PAGE>
(2) a bank, as defined in that Act; or
(3) an insurance company qualified to perform investment
management services under the laws of more than one state.
If investment of the Trust is to be directed in whole or in part by an
investment manager, the Company will deliver to the Trustee a copy of the
instruments appointing the investment manager and evidencing the investment
manager's acceptance of such appointment, an acknowledgment by the investment
manager that it is a fiduciary of the Plan, and evidence of the investment
manager's current registration under the 1940 Act. The Trustee will be fully
protected in relying upon such instruments until otherwise notified in writing
by the Company.
5.2 Relationship with Investment Manager. If an investment manager is
appointed in accordance with the provisions of Section 5.1:
(a) The Trustee will follow the directions of the investment manager
regarding the investment and reinvestment of the investment account. The
Trustee will be under no duty or obligation to review any investment to be
acquired, held, or disposed of pursuant to such directions, nor to make any
recommendations with respect to the disposition or continued retention of
any such investment. The Trustee will have no liability or responsibility
for acting or not acting pursuant to the direction of, or failing to act in
the absence of, any direction from the investment manager, unless the
Trustee knows that by such action or omission it would be itself committing
or participating in a breach of fiduciary duty by the investment manager.
(b) The investment manager may issue orders for the purchase or sale
of securities directly to a broker. In order to facilitate such
transactions, the Trustee, upon request, will execute and deliver
appropriate trading authorizations. Written notification of the issuance of
each such order will be given promptly to the Trustee by the investment
manager; the execution of each such order will be confirmed by written
advice to the Trustee by the broker. Such notification will be authority
for the Trustee to pay for securi ties purchased against receipt and to
deliver securities sold against payment.
(c) If an investment manager resigns or is removed by the Company, the
Trustee, upon receiving written notice from the Company that it is to
resume the responsibility of management, will manage the investment of the
investment account unless and until it will be notified in accordance with
the provisions of Section 5.1 of the appointment of another investment
manager.
(d) The accounts, books, and records of the Trustee will reflect the
segregation of any portion or portions of the Trust in a separate
investment account or accounts.
5.3 Payments by Trustee. The Trustee will pay benefits from the Trust to or
for the account of participants or beneficiaries in the amount and manner, and
at such time and addresses, as directed in
<PAGE>
writing by the Company. The Trustee will make such other payments as directed in
writing by the Company.
5.4 Accounts and Records. The Trustee will keep accurate and detailed
records of the Trust on a cash basis. The fiscal year of the Trust will be the
year adopted by the Company for federal income tax purposes unless another year
is agreed upon between the Company and the Trustee. Each year, the Trustee will
furnish the Company with an annual report showing all receipts and disbursements
and other transactions, together with a list of the assets held at the end of
such year showing the costs and the fair market value of each item. The Company
may approve such accounting by written notice delivered to the Trustee or by
failure to object to such accounting in writing delivered to the Trustee within
180 days. The Company will have the right to examine the books and records of
the Trust at any time. The Trustee will have the right to have its accounts
settled by judicial proceeding if it so elects.
5.5 Valuation of Assets. The Trustee will not amortize premiums paid for
bonds or other obligations purchased at a price above their par value nor
accumulate discounts by reason of the purchase of such securities at prices
below their par value. The Trustee may, in determining the market value of the
Trust, use any recognized method reasonably calculated to reflect the current
value of the Trust assets.
5.6 Reporting. The Trustee will, within the time prescribed by law, file
with the Internal Revenue Service and with other appropriate regulatory agencies
any reports or statements which by law are required to be filed by it. The
Trustee will have no responsibility for the preparation or filing of any
reports, returns, or documents required by law to be filed by the Company other
than those explicitly agreed upon in writing by the Trustee and the Company.
5.7 Miscellaneous. The Trustee will not be responsible for enforcing
payment of or collecting any contribution to be made by the Company or any
participants, or enforcing payment of or collecting any funds held by the
Company on behalf of participants for the purpose of making contribution to the
Plan.
ARTICLE VI
INVESTMENT OF THE TRUST
6.1 General Investment Powers. The Trustee will invest and reinvest the
principal and income of the Trust, without distinction between principal and
income, in the interest-bearing deposits of the Trustee, real estate, interests
in real estate, leaseholds, insurance and annuity contracts, common stocks,
bonds, notes, mortgages, contracts, debentures, mutual funds, tangible personal
property, leases, and such other personal or real property as the Trustee deems
advisable and believes would be purchased by persons of prudence, discretion,
and intelligence in such matters who are seeking preservation of capital and
reasonable income, whether or not such investment or reinvestment would
otherwise be permissible for the investment of trust funds under any present or
future laws; provided, however, that in the event an investment manager is
appointed, the Trustee will invest and reinvest the segregated portion of the
Trust that is in a separate investment account or accounts pursuant to the
written directions of the
<PAGE>
investment manager.
6.2 Specific Investment Powers. The Trustee is authorized and empowered as
follows:
(a) to sell, exchange, convey, assign, transfer, or otherwise dispose
of, and also to grant options with respect to, any property, whether real
or personal, at any time held by the Trustee, in such manner and for such
consideration and upon such terms and conditions as the Trustee may deem
advisable;
(b) to retain, manage, operate, repair, and improve, and to mortgage
or lease for any period, any real estate or tangible personal property held
by the Trustee;
(c) to compromise, compound, arbitrate, or settle any claim, debt, or
obligation due to it or from it as Trustee and to reduce the rate of
interest on, extend or otherwise modify, or foreclose upon, default, or
otherwise enforce any such obligation;
(d) to vote in person or by proxy any stocks, bonds, or other
securities held by it; to exercise any options available to any stocks,
bonds, or other securities; to exercise any rights to subscribe for
additional stocks, bonds, or other securities, and to make necessary
payments for such rights; and to join in or oppose any reorganization,
recapitalization, consolidation, sale, or merger;
(e) to make, execute, acknowledge, and deliver deeds, leases,
assignments, documents of transfer, and other instruments that may be
necessary to carry out the powers granted by this Agreement;
(f) to enforce any right, obligation, or claim in its absolute
discretion and, in general, to protect in any way the interest of the
Trust, either before or after default, and in its absolute discretion to
abstain from the enforcement of any right, obligation, or claim and to
abandon any property, whether real or personal, which at any time may be
held by it;
(g) to cause any investments in the Trust to be registered in or
transferred into its name or the name of its nominee or nominees or to
retain them unregistered or in form permitting transfer by delivery, but
the books and records of the Trustee will at all times show that all such
investments are part of the Trust;
(h) to employ accountants, auditors, actuaries, and attorneys,
including accountants, auditors, actuaries, and attorneys of the Company,
as well as other advisors and agents, and to delegate to them such
ministerial and limited discretionary duties as it sees fit, and to pay
their reasonable expenses and compensation from the Trust;
(i) to employ agents and investment advisors which may be subsidiaries
or affiliates of the Trustee, to employ legal counsel whenever necessary to
protect the interest
<PAGE>
of the trust or the participants, and to pay the reasonable fees and
expenses of the agents activities, actuaries, plan administrators, advisors
and counsel. The agents or counsel may be counsel for the Company as well
as the Trustee;
(j) to apply for, purchase, hold, or transfer, in accordance with
written instructions from the Company, annuity contracts by which the
Company may choose to provide benefits; and
(k) to do all other acts and to exercise any other powers which it may
deem necessary and proper to carry out its duties as Trustee under this
Trust Agreement.
ARTICLE VII
RESPONSIBILITY OF TRUSTEE
7.1 Trustee will act with the care, skill, prudence and diligence under the
circumstances then prevailing that a prudent person acting in like capacity and
familiar with such matters would use in the conduct of an enterprise of a like
character and with like aims, provided, however, that Trustee will incur no
liability to any person for any action taken pursuant to a direction, request or
approval given by Company which is contemplated by, and in conformity, the terms
of the Plans or this Trust and is given in writing by Company. In the event of a
dispute between Company and a party, Trustee may apply to a court of competent
jurisdiction to resolve the dispute.
7.2 If Trustee undertakes or defends any litigation arising in connection
with this Trust, Company agrees to indemnity Trustee against Trustee's costs,
expenses and liabilities (including without limitation, attorneys' fees and
expenses) relating thereto and to be primarily liable for such payments. If
Company does not pay such costs, expenses and liabilities in a reasonably timely
manner, Trustee may obtain payment from the Trust.
7.3 Trustee may consult with legal counsel (who may also be counsel for
Company generally) with respect to any of its duties or obligations hereunder.
7.4 Trustee may hire agents, accountants, actuaries, investment advisors,
financial consultants or other professionals to assist it in performing any of
its duties or obligations hereunder.
7.5 Trustee will have all powers conferred on Trustees by applicable law,
unless expressly provided otherwise herein, provided, however, that if an
insurance policy is held as an asset of the Trust, Trustee will have no power to
name a beneficiary of the policy other than the Trust, to assign the policy (as
distinct from conversion of the policy to a different form) other than to a
successor Trustee, or to loan to any person the proceeds of any borrowing
against such policy.
<PAGE>
ARTICLE VIII
COMPENSATION AND EXPENSES OF TRUSTEE
Company will pay all administrative and Trustee's fees and expenses. If not
so paid, the fees and expenses will be paid from the Trust.
ARTICLE IX
RESIGNATION AND REMOVAL OF TRUSTEE
9.1 Trustee may resign at any time by written notice to Company, which will
be effective 60 days after receipt of such notice unless Company and Trustee
agree otherwise.
9.2 Trustee may be removed from Company on 60 days notice or upon shorter
notice accepted by Trustee
9.3 Upon resignation or removal of Trustee and appointment of a successor
Trustee, all assets will subsequently be transferred to the successor Trustee.
The transfer will be completed within 60 days after receipt of notice of
resignation, removal or transfer, unless Company extends the time limit.
9.4 If Trustee resigns or is removed, the Company will appoint a successor
trustee by the effective date of the resignation or removal. If no such
appointment has been made, Trustee may apply to a court of competent
jurisdiction for appointment of a successor or for instructions. All expenses of
Trustee in connection with the proceeding will be allowed as administrative
expenses of the Trust.
. ARTICLE X
AMENDMENT OR TERMINATION
10.1 This Trust Agreement may be amended by a written instrument executed
by Trustee and Company. Notwithstanding the foregoing, no such amendment will
conflict with the terms of the Plan or make the Trust revocable.
10.2 The Trust will not terminate until the date on which Plan participants
and their beneficiaries are no longer entitled to benefits pursuant to the terms
of the Plan.
ARTICLE XI
MISCELLANEOUS
11.1 Any provision of this Trust Agreement prohibited by law will be
ineffective to the extent of any such prohibition, without invalidating the
remaining provisions.
11.2 Benefits payable to Plan participants and their beneficiaries under
this Trust Agreement
<PAGE>
may not be anticipated, assigned, alienated, pledged, encumbered or subjected to
attachment, garnishment, levy, execution or other legal or equitable process.
11.3 This Trust Agreement will be governed by and construed in accordance
with the laws of Michigan except to the extent that state laws are preempted by
the federal statute known as the Employee Retirement Income Security Act of
1974.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
this 23rd day of November, 1999.
X-RITE CORPORATION MACATAWA BANK
By /s/ Ted Thompson By ________________________________
Its Chairman Its Trust Officer
<PAGE>
AMENDED AND RESTATED BYLAWS
of
X-RITE, INCORPORATED
A Michigan Corporation
As Amended and Restated November 18, 1999
ARTICLE I. OFFICES
Section 1. Registered Office. The registered office of the Corporation
shall be as specified in the Articles of Incorporation. The Corporation shall
keep records containing the names and addresses of all shareholders, the number,
class and series of shares held by each, and the dates when they respectively
became holders of record thereof, at its registered office or at the office of
its transfer agent.
Section 2. Other Offices. The business of the Corporation may be transacted
in such locations other than the registered office, within or outside the State
of Michigan, as the Board of Directors may from time to time determine.
ARTICLE II. CAPITAL STOCK
Section 1. Stock Certificates. Certificates representing shares of the
Corporation shall be in such form as is approved by the Board of Directors.
Certificates shall be signed by the Chairman of the Board of Directors, Vice
Chairman of the Board of Directors, President or a Vice President, and by the
Treasurer, Assistant Treasurer, Secretary or Assistant Secretary of the
Corporation, and shall be sealed with the seal of the Corporation, or a
facsimile thereof, if one be adopted. The signatures of the officers may be
facsimiles if the certificate is countersigned by a transfer agent or registered
by a registrar other than the Corporation itself, or its employees. In the event
an officer who has signed, or whose facsimile signature has been placed upon, a
certificate ceases to be such officer before the certificate is issued, it may
be issued by the Corporation with the same effect as if he were such officer at
the date of issue.
Section 2. Replacement of Lost or Destroyed Certificates. In the event of
the loss or destruction of a stock certificate, no new certificate shall be
issued in place thereof until the Corporation has received from the registered
holder such assurances, representations, warranties and/or guarantees as the
Board of Directors, in its sole discretion, shall deem advisable, and until the
Corporation receives sufficient indemnification protecting it against any claim
that may be made on account of such loss or destroyed certificate, or the
issuance of any new certificate in place thereof, including an indemnity bond in
such amount and with sureties, if any, as the Board of Directors, in its sole
discretion, deems advisable. Any new certificate issued in place of any such
lost or destroyed certificate shall be plainly marked "duplicate" upon its face.
Section 3. Transfer of Shares. Shares of stock of the Corporation shall be
transferrable only upon the books of the Corporation. The old certificates shall
be surrendered to the Corporation by delivery thereof to the person in charge of
the stock transfer books of the Corporation, or to such other person as the
Board of Directors may designate, properly endorsed for transfer, and such
certificates shall be canceled before a new certificate is issued. The
Corporation shall be entitled to treat the person
<PAGE>
in whose name any share, right or option is registered as the owner thereof for
all purposes, and shall not be bound to recognize any equitable or other claim
with respect thereto, regardless of any notice thereof, except as may be
specifically required by the laws of the State of Michigan.
Section 4. Rules Governing Stock Certificates. The Board of Directors shall
have the power and authority to make all such rules and regulations as they may
deem expedient concerning the issue, transfer and registration of certificates
of stock, and may appoint a transfer agent and a registrar of transfer, and may
require all such certificates to bear the signature of such transfer agent and
of such registrar of transfers.
Section 5. Record Date for Stock Rights. The Board of Directors may fix in
advance a date not exceeding sixty (60) days preceding the date of payment of
any dividend, or the date for the allotment of rights, or the date when any
change or conversion or exchange of capital stock shall go into effect, as a
record date for the determination of the shareholders entitled to receive
payment of any such dividends, or any such allotment of rights, or to exercise
the rights with respect to any such change, conversion, or exchange of capital
stock; and in such case, only shareholders of record on the date so fixed shall
be entitled to receive payment of such dividends, or allotment of rights, or
exercise such rights, as the case may be, notwithstanding any transfer of any
stock on the books of the Corporation after any such record date is fixed.
In the event the Board of Directors shall fail to fix a record date as
provided in this Section 5 of Article II, the record date for the purposes
specified herein shall be the close of business on the day on which the
resolution of the Board of Directors relating thereto is adopted.
Section 6. Dividends. The Board of Directors, in its discretion, may from
time to time declare and direct payment of dividends or other distributions upon
its outstanding shares out of funds legally available for such purposes, which
dividends may be paid in cash, the Corporation's bonds or the Corporation's
property, including the shares or bonds of other corporations. In the event a
dividend is paid or any other distribution made, in any part, from sources other
than earned surplus, payment or distribution thereof shall be accompanied by
written notice to the shareholders (a) disclosing the amounts by which the
dividend or distribution affects stated capital, capital surplus and earned
surplus, or (b) if such amounts are not determinable at the time of the notice,
disclosing the approximate effect of the dividend or distribution upon stated
capital, capital surplus and earned surplus, and stating that the amounts are
not yet determinable.
In addition to the declaration of dividends and other distributions
provided in the preceding paragraph of this Section 6 of Article II, the Board
of Directors, in its discretion, from time to time may declare and direct the
payment of a dividend in shares of this Corporation, upon its outstanding
shares, in accordance with and subject to the provisions of the Michigan
Business Corporation Act. A share dividend or other distribution of shares of
the Corporation shall be accompanied by a written notice to shareholders (a)
disclosing the amounts by which the distributions affects stated capital,
capital surplus and earned surplus, or (b) if such amounts are not determinable
at the time of the notice, disclosing the approximate effect of the distribution
upon stated capital, capital surplus and earned surplus, and stating that the
amounts are not yet determinable.
<PAGE>
Section 7. Treasury Shares. Treasury shares held by the Corporation shall
be subject to the disposal of the Board of Directors, but shall neither vote nor
participate in dividends or other distributions.
Section 8. Redemption of Control Shares. Control shares acquired in a
control share acquisition, with respect to which no acquiring person statement
has been filed with the Corporation, shall, at any time during the period ending
60 days after the last acquisition of control shares or the power to direct the
exercise of voting power of control shares by the acquiring person, be subject
to redemption by the Corporation. After an acquiring person statement has been
filed with the Corporation and after the meeting at which the voting rights of
the control shares acquired in a control share acquisition are submitted to the
shareholders, the shares shall be subject to redemption by the Corporation
unless the shares are accorded full voting rights by the shareholders as
provided in Section 798 of the Michigan Business Corporation Act. Redemptions of
shares pursuant to this bylaw shall be at the fair value of the shares pursuant
to procedures adopted by the Board of Directors of the Corporation.
The terms "control shares," "control share acquisition," "acquiring person
statement" "acquiring person" and "fair value" as used in this bylaw, shall have
the meanings ascribed to them, respectively, in Chapter 7B of the Michigan
Business Corporation Act.
ARTICLE III. SHAREHOLDERS
Section 1. Place of Meetings. Meetings of shareholders shall be held at the
registered office of the Corporation or at such other place, within or outside
the State of Michigan, as may be determined from time to time by the Board of
Directors; provided, however, if a meeting of shareholders is to be held at a
place other than the registered office of the Corporation, the notice of the
meeting shall designate such place.
Section 2. Annual Meeting. Annual meetings of shareholders for election of
directors and for such other business as may come before the meeting shall be
held on such date prior to June 1 of each year and at such time as may be fixed
from year to year by the Board of Directors.
Section 3. Special Meetings. Special meetings of shareholders may be called
by the President or the Secretary, and shall be called by either of them
pursuant to resolution therefor by the Board of Directors, or upon receipt by
them of a request in writing, stating the purpose or purposes thereof, and
signed by shareholders of record owning a majority of the voting shares of the
Corporation issued and outstanding.
Section 4. Record Date for Notice and Vote. The Board of Directors may fix
a date not more than sixty (60) days nor less than ten (10) days before the date
of a shareholders' meeting as the record date for the purposes of determining
shareholders entitled to notice of and to vote at the meeting or adjournments
thereof; provided, however, that the record date shall not precede the date on
which the Board takes action to fix the record date. In the event the Board of
Directors fails to fix a record date as provided in this Section 4 of Article
III, the record date for determination of shareholders entitled to
<PAGE>
notice of or to vote at a meeting of shareholders shall be the close of business
on the day preceding the day on which notice is given, or if no notice is given,
the day next preceding the day on which the meeting is held.
Section 5. Notice of Shareholder Meetings. Written notice of the time,
place and purposes of any meeting of shareholders shall be given to shareholders
entitled to vote thereat, not less than ten (10) days nor more than sixty (60)
days before the date of the meeting, which notice may be given either by
delivery in person to such shareholders or by mailing such notice to
shareholders at their addresses as the same appear on the stock books of the
Corporation; provided, however, that attendance of a person at a meeting of
shareholders, in person or by proxy, constitutes a waiver of notice of the
meeting, except when the shareholder attends the meeting for the express purpose
of objecting, at the beginning of the meeting to the transaction of any
business, because the meeting is not lawfully called or convened.
Section 6. Voting Lists. The Corporation's officer or agent having charge
of its stock transfer books shall prepare and certify a complete list of the
shareholders entitled to vote at a shareholders' meeting or any adjournment
thereof, which list shall be arranged alphabetically within each class and
series, and shall show the address of, and the number of shares held by each
share holder. The list shall be produced at the time and place of the meeting of
shareholders and be subject to inspection by any shareholder at any time during
the meeting. If for any reason the requirements with respect to the shareholder
list specified in this Section 6 of Article III have not been complied with, any
shareholder, either in person or by proxy, who in good faith challenges the
existence of sufficient votes to carry any action at the meeting, may demand
that the meeting be adjourned and the same shall be adjourned until the
requirements are complied with; provided, however, that failure to comply with
such requirements does not affect the validity of any action taken at the
meeting before such demand is made.
Section 7. Voting. Except as may otherwise be provided by law or in the
Articles of Incorporation for the Corporation, each shareholder entitled to vote
at a meeting of shareholders shall be entitled to one vote, in person or by
proxy, for each share of stock entitled to vote held by such shareholder;
provided, however, no proxy shall be voted after three years from its date
unless such proxy provides for a longer period.
Section 8. Quorum. Shares equaling a majority of all of the voting shares
of the capital stock of the Corporation issued and outstanding represented in
person or by proxy, shall constitute a quorum at the meeting. Meetings at which
less than a quorum is represented may be adjourned by a vote of a majority of
the shares present to a further date without further notice other than the
announcement at such meeting, and when the quorum shall be present upon such
adjourned date, any business may be transacted which might have been transacted
at the meeting as originally called. Shareholders present in person or by proxy
at any meeting of shareholders may continue to do business until adjournment,
notwithstanding the withdrawal of shareholders to leave less than a quorum.
Section 9. Conduct of Meetings. The Chairman of the Corporation or his
designee shall call meetings of the shareholders to order and shall act as
chairman of such meetings unless otherwise determined by the affirmative vote of
a majority of all the voting shares of the capital stock of the Corporation
issued and outstanding. The Secretary of the Corporation shall act as secretary
of all meetings of shareholders, but in the absence of the Secretary at any
meeting of shareholders, or his
<PAGE>
inability or refusal to act as secretary, the presiding officer may appoint any
person to act as secretary of the meeting.
Section 10. Inspector of Elections. The Board of Directors may, in advance
of a meeting of shareholders, appoint one or more inspectors to act at the
meeting or any adjournment thereof. In the event inspectors are not so
appointed, or an appointed inspector fails to appear or act, the person
presiding at the meeting of shareholders may, and on request of a shareholder
entitled to vote shall, appoint one or more persons to fill such vacancy or
vacancies, or to act as inspector. The inspector(s) shall determine the number
of shares outstanding and the voting power of each, the shares represented at
the meeting, the existence of a quorum, the validity and effect of proxies, and
shall receive votes, ballots or consents, hear and determine challenges and
questions arising in connection with the right to vote, count and tabulate
votes, ballots or consents, determine the results, and do such acts as are
proper to conduct the election or vote with fairness to all shareholders.
Section 11. Notice of Shareholder Proposals.
(a) Except for the election of directors, which is governed by Article
V of the Corporation's Articles of Incorporation, only such business shall
be conducted at any meeting of shareholders, and only such proposals shall
be acted upon at such meetings, as shall have been brought before the
meeting: (i) by, or at the direction of, the Board of Directors; or (ii) by
any shareholder of the Corporation who complies with the notice procedures
set forth in this Section of these Bylaws. For a proposal to be properly
brought before the meeting by a shareholder, the shareholder must have
given timely notice thereof in writing to the Secretary of the Corporation.
To be timely, a shareholder's notice must be delivered to, or mailed and
received at, the principal executive offices of the Corporation not less
than sixty (60) days nor more than ninety (90) days prior to the scheduled
meeting date, regardless of any postponements, deferrals, or adjournments
of that meeting to any later date; provided, however, that if less than
seventy (70) days' notice, or prior public disclosure of the date of a
scheduled meeting is given or made, notice by the shareholder to be timely
must be delivered or received not later than the close of business on the
tenth (10) day following the earlier of the day on which such notice of the
date of the scheduled meeting was mailed or the day on which such public
disclosure was made. A shareholder's notice to the Secretary shall set
forth, as to each matter the shareholder proposes to bring before the
meeting: (i) a brief description of a proposal desired to be brought before
the meeting and the reasons for conducting such business at the meeting;
(ii) the name and address, as they appear, on the Corporation's stock
record of the shareholder proposing such business and any other
shareholders known by such shareholder to be supporting such proposal;
(iii) the class and number of shares of the Corporation's stock which are
beneficially owned by the shareholder on the date of such shareholder
notice and by any other shareholders known by such shareholder to be
supporting such proposal on the date of such shareholder notice; and (iv)
any financial interest of the shareholder in such proposal.
(b) If the presiding officer at the meeting of shareholders determines
that a shareholder proposal was not made in accordance with the terms of
this Section, the presiding officer shall declare the matter to be out of
order and the matter shall not be acted upon at the meeting.
(c) Nothing contained in this Section shall prevent the consideration
and approval or
<PAGE>
disapproval at any meeting of shareholders of reports of officers,
directors, and committees of the Board of Directors, but, in connection
with such reports, no business shall be acted upon at such meeting unless
stated, filed, and received as provided herein.
ARTICLE IV. DIRECTORS
Section 1. Board of Directors. Except as may otherwise provided in the
Articles or Incorporation or these Bylaws, the business and affairs of the
Corporation shall be managed by a Board of Directors. The size of the Board, the
classification of the Board, the manner of filling vacancies occurring in the
Board, nominations for directors, and removal of directors shall be as provided
for in the Corporation's Articles of Incorporation
Section 2. Place of Meetings and Records. The directors shall hold their
meetings, and maintain the minutes of the proceedings of meetings of
shareholders, Board of Directors, and executive and other committees, if any,
and keep the books and records of account for the Corporation, in such place or
places, within or outside the State of Michigan, as the Board may from time to
time determine.
Section 3. Regular Meetings of the Board. Regular meetings of the Board of
Directors may be held at such times and places and pursuant to such notice, if
any, as may be established from time to time by resolution of the Board of
Directors.
Section 4. Special Meetings of the Board. Special meetings of the Board of
Directors may be called by the Chairman of the Board, the President or the
Secretary, and shall be called by one of them upon the written request of a
majority of the Directors. Written notice of the time and place of special
meetings of the Board shall be delivered personally or mailed to each director
at least forty-eight (48) hours prior thereto. Attendance of a Director at a
special meeting constitutes a waiver of notice of the meeting, except where a
director attends the meeting for the express purpose of objecting to the
transaction of any business because the meeting is not lawfully called or
convened.
Section 5. Quorum and Vote. A majority of the members of the Board then in
office constitutes a quorum for the transaction of business, and the vote of a
majority of the members present at any meeting at which a quorum is present
constitutes the action of the Board of Directors.
Section 6. Action of the Board Without a Meeting. Any action required or
permitted to be taken pursuant to authorization voted at a meeting of the Board
of Directors may be taken without a meeting if, before or after the action, all
members of the Board of Directors consent thereto in writing. Such written
consent shall be filed with the minutes of the proceedings of the Board of
Directors and the consent shall have the same effect as a vote of the Board of
Directors for all purposes.
Section 7. Report to Shareholders. At least once in each year the Board of
Directors shall cause a financial report of the Corporation for the preceding
fiscal year to be made and distributed to each shareholder within four months
after the end of such fiscal year. The report shall include the Corporation's
statement of income, its year-end balance sheet and, if prepared by the
Corporation's statement of source and application of funds.
<PAGE>
Section 8. Corporate Seal. The Board of Directors may provide a suitable
corporate seal, which seal shall be kept in the custody of the Secretary.
Section 9. Compensation of Directors. Each of the directors shall be
entitled to receive compensation for service as a director and/or member of a
committee of the Board of Directors and shall be reimbursed their expenses for
attendance at meetings of the Board of Directors or any committee of which a
director is a member, all in accordance with resolutions adopted by the Board of
Directors from time to time.
Section 10. Committees. The Board of Directors may by resolution establish
committees, including an executive committee, composed of one or more of the
directors to perform such functions and exercise such powers and authority of
the Board of Directors to the extent provided by resolution of the Board of
Directors and not prohibited by the Michigan Business Corporation Act in the
management of the business and affairs of the Corporation. Each committee and
each member thereof shall serve at the pleasure of the Board of Directors and a
majority of the members of any committee shall constitute a quorum for the
transaction of business.
Section 11. Directors Emeritus. Any director of the Corporation who has at
least nine years of service as a director and who either resigns as a director
or does not stand for reelection, shall be entitled to be considered for the
position of "Director Emeritus." If nominated by the Nominating committee and
elected by the Board of Directors, a Director Emeritus shall continue in that
position for a period equal to the time served as a regular director or until an
earlier resignation or death. During their tenure, Directors Emeritus shall be
given notices of all meetings of the Board of Directors, and they shall perform
such consulting services for the Corporation as the Board of Directors may
reasonably request from time to time. Directors Emeritus shall be entitled to
attend and participate in all such meetings of the Board of Directors, except
that they may not vote and they shall not be counted for purposes of determining
a quorum. Directors Emeritus shall receive the same annual retainer fee as is
provided for regular directors and shall be entitled to reimbursement for
expenses of attendance at meetings of the Board, but they shall receive no other
compensation from the Company.
ARTICLE V. OFFICERS
Section 1. Designation of Officers. The officers of the Corporation shall
consist of such officers as the Board of Directors shall determine from time to
time, and may include a Chairman of the Board, a President, a Secretary, a
Treasurer, one or more Vice Presidents, and such other or different offices as
may be established by the Board of Directors. The officers of the Corporation
need not be directors or shareholders. Any two or more offices may be held by
the same person, but an officer shall not execute, acknowledge or verify any
instrument in more than one capacity if the instrument is required by law to be
executed, acknowledged or verified by two or more officers.
Section 2. Election of Officers. The officers of the Corporation shall be
elected at the first meeting of the Board of Directors, or by action taken
pursuant to written consent, after the annual meeting of shareholders. Officers
shall hold office for the term of their election and until their respective
successors are elected and qualified, or until resignation or removal.
<PAGE>
Section 3. Resignation and Removal. An officer may resign by written notice
to the Corporation, which resignation is effective upon its receipt by the
Corporation or at a subsequent time specified in the notice of resignation.
Officers of the Corporation serve at the pleasure of the Board of Directors and
may be removed by the Board at any time, with or without cause.
Section 4. Compensation of Officers. The Board of Directors, or an
appropriate committee if one be appointed, may establish compensation of
officers for services to the Corporation irrespective of the personal interest
of any such director or committee member.
Section 5. Chairman of the Board. The Chairman of the Board of Directors
shall be elected by the directors from among the directors then serving. The
Chairman of the Board, shall preside at all meetings of the Board of Directors
and shareholders, and shall perform such other duties as from time to time may
be determined by resolution of the Board of Directors not inconsistent with
these Bylaws.
Section 6. President. The President shall be the chief operating officer of
the Corporation and shall have such authority and shall perform such duties in
the management of the Corporation as from time to time may be determined by
resolution of the Board of Directors not inconsistent with these Bylaws. In the
absence of the Chairman of the Board of Directors, the President shall perform
the duties of the Chairman.
Section 7. Vice Presidents. The Vice Presidents shall have such authority
and shall perform such duties as shall be assigned to them by the Board of
Directors and may be designated by such special titles as the Board of Directors
shall approve.
Section 8. Treasurer. The Treasurer, or other officer performing the duties
of a Treasurer, shall have custody of the corporate funds and securities and
shall keep full and accurate account of receipts and disbursements in books
belonging to the Corporation. The Treasurer shall deposit all money and other
valuables in the name and to the credit of the Corporation in such depositories
as may be designated by the Board of Directors. The Treasurer shall disburse the
funds of the Corporation as may be ordered by the Board of Directors or the
President, taking proper vouchers for such disbursements. The Treasurer shall
render to the President and Board of Directors, or any member thereof, at such
times as they may request within reason, an account of all his transactions as
Treasurer and of the financial condition of the Corporation. In general the
Treasurer shall perform all duties incident to the office of Treasurer and such
other duties as may be assigned by the Board of Directors. The Treasurer may be
required to give bond for the faithful performance of his duties in such sum and
with such surety, at the expense of the Corporation, as the Board of Directors
may from time to time require.
Section 9. Secretary. The Secretary shall give or cause to be given notice
or all meetings of shareholders and Directors and all other notices required by
law or by these Bylaws, and in case of his absence or refusal or neglect to do
so, any such notice may be given by the shareholders upon whose requisition the
meeting is called, as provided in these Bylaws. The Secretary shall record all
the proceedings of the meetings of the shareholders and of the Directors in one
or more books provided for that purpose. The Secretary shall have custody of the
seal of the Corporation, if one be provided, and shall affix the same to all
instruments requiring it when authorized by the Directors or the President.
<PAGE>
The Secretary shall have such authority and perform such other duties as may be
assigned by the Board of Directors. All records in the possession or custody of
the Secretary shall be open to examination by the Chairman of the Board,
President, and Board of Directors, or any member thereof, during regular
business hours.
Section 10. Other Offices. Other officers elected by the Board of Directors
shall have such authority and shall perform such duties in the management of the
Corporation as may be determined by resolution of the Board of Directors not
inconsistent with these Bylaws. In addition, the Chairman of the Board and the
President may jointly approve the employment of managerial employees for
positions which may involve the use of the title of "Vice President" or some
other official title, without the necessity of the Board of Directors' election
of such person as an officer of the Corporation. In such case, such persons
shall not constitute officers of the Corporation within the meaning of the
Corporation's Articles of Incorporation or Bylaws, and they shall have such
duties and authority as may be assigned to them by the Chairman and the
President.
ARTICLE VI. CONTRACTS, LOANS, CHECKS AND LEGAL ACTION
Section 1. Contracts. The Board of Directors may authorize any officer or
officers, agent or agents to enter into any contract or execute and deliver any
instrument in the name of and on behalf of the Corporation, and such authority
may be general or confined to specific instances.
Section 2. Loans. No loans shall be contracted on behalf of the
Corporation, and no evidences of indebtedness shall be issued in its name,
unless authorized by resolution of the Board of Directors. Such authorization
may be general or confined to specific instances.
Section 3. Checks. All checks, drafts or other orders for the payment of
money, notes or other evidences of indebtedness issued in the name of the
Corporation shall be signed by such officer or officers, agent or agents of the
Corporation and in such manner as shall from time to time be determined by
resolution of the Board of Directors.
Section 4. Deposits. All funds of the Corporation, not otherwise employed,
shall be deposited from time to time to the credit of the Corporation in such
banks, trust companies or other depositories as the Board of Directors may
determine.
ARTICLE VII. MISCELLANEOUS
Section 1. Fiscal Year. The fiscal year of this Corporation shall end on
the 31st day of December of each year.
Section 2. Notices. Whenever any notice is required to be given under the
provisions of any law, the Articles of Incorporation for this Corporation, or by
these Bylaws, it shall not be construed or interpreted to mean personal notice,
unless expressly so stated, and any notice so required shall be deemed to be
sufficient if given in writing by mail, by depositing the same in a Post Office
box, postage prepaid, addressed to the person entitled thereto at his last known
Post Office address, and such notice
<PAGE>
shall be deemed to have been given on the day of such mailing. Shareholders not
entitled to vote shall not be entitled to receive notice of any meetings, except
as otherwise provided by law or these Bylaws.
Section 3. Waiver of Notice. Whenever any notice is required to be given
under the provisions of any law, or the Articles of Incorporation for this
Corporation, or these Bylaws, a waiver thereof in writing, signed by the person
or persons entitled to said notice, whether before or after the time stated
therein, shall be deemed equivalent thereto.
Section 4. Voting of Securities. Securities of another corporation foreign
or domestic, standing in the name of this Corporation which are entitled to vote
shall be voted, in person or by proxy, by the President of this Corporation or
by such other or additional persons as may be designated by the Board of
Directors.
ARTICLE VIII. AMENDMENTS
Section 1. Except as may otherwise be provided in the Articles of
Incorporation or these Bylaws, these Bylaws may be amended, repealed or new
Bylaws adopted either by a majority vote of the Board of Directors at a regular
or special meeting of the Board, or by vote of the holders of a majority of the
outstanding voting stock of the Corporation at any annual or special meeting, if
notice of the proposed amendment, repeal or adoption be contained in the notice
of such meeting.
<PAGE>
Exhibit 21
X-RITE, INCORPORATED
LIST OF SUBSIDIARIES
1. X-Rite International, Inc., a Barbados Corporation, is a wholly owned
subsidiary of X-Rite, Incorporated, being utilized as a foreign sales
corporation.
2. X-Rite Holdings, Inc., a U.S. Corporation, is a wholly owned subsidiary
of X-Rite, Incorporated, being utilized as a stockholder of certain
foreign subsidiaries.
3. X-Rite GmbH, a German Corporation, is wholly owned by X-Rite,
Incorporated and X-Rite Holdings, Inc., and being utilized as a sales and
service office.
4. X-Rite Asia Pacific Limited, a Hong Kong Corporation, is wholly owned by
X-Rite, Incorporated and X-Rite Holdings, Inc., and being utilized as a
sales office.
5. X-Rite Ltd, a United Kingdom Corporation, is wholly owned by X-Rite,
Incorporated and being utilized as a sales and service office.
6. X-Rite MA, Incorporated, a U.S. Corporation, is wholly owned by X-Rite,
Incorporated and being utilized as a sales and service office.
7. OTP, Incorporated, a U.S. Corporation, is wholly owned by X-Rite,
Incorporated and was used to execute a real estate transaction.
8. Labsphere, Inc., a U.S. Corporation, is wholly owned by X-Rite,
Incorporated and is a manufacturer of light measurement systems and
related proprietary materials.
9. Labsphere Ltd, a United Kingdom Corporation, is wholly owned by
Labsphere, Incorporated and being utilized as a sales office.
10. X-Rite Mediterranee SARL, a French Corporation, is wholly owned by
X-Rite, Incorporated and X-Rite Holdings, Inc., and being utilized as a
sales and service office.
<PAGE>
Exhibit 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report included in this Form 10-K, into X-Rite, Incorporated's previously filed
Registration Statement File Numbers 33-29288, 33-29290, 33-82258 and 33-82260.
/s/ Arthur Andersen LLP
Grand Rapids, Michigan,
March 30, 2000.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-01-2000
<PERIOD-END> JAN-01-2000
<CASH> 6,898,000
<SECURITIES> 22,129,000
<RECEIVABLES> 21,359,000
<ALLOWANCES> 1,110,000
<INVENTORY> 15,410,000
<CURRENT-ASSETS> 67,893,000
<PP&E> 44,406,000
<DEPRECIATION> 23,351,000
<TOTAL-ASSETS> 107,819,000
<CURRENT-LIABILITIES> 6,997,000
<BONDS> 0
0
0
<COMMON> 1,670,000
<OTHER-SE> 99,822,000
<TOTAL-LIABILITY-AND-EQUITY> 107,819,000
<SALES> 100,209,000
<TOTAL-REVENUES> 100,209,000
<CGS> 34,218,000
<TOTAL-COSTS> 34,218,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 412,000
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 21,080,000
<INCOME-TAX> 7,431,000
<INCOME-CONTINUING> 13,649,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,649,000
<EPS-BASIC> .65
<EPS-DILUTED> .62
</TABLE>
