<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
____________________
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): August 31, 1995
DATA I/O CORPORATION
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(Exact name of registrant as specified in its charter)
Washington
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(State of other jurisdiction of incorporation)
0-10394 91-0864123
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(Commission File Number) (IRS Employer Identification No.)
10525 Willows Road N.E., Redmond, WA 98073-9746
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (206) 881-6444
Not Applicable
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(Former name or former address, if changed since last report)
Page 1 of 57 Pages
Exhibit Index at Page 4
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ITEM 5. OTHER EVENTS
ACQUISITION OF ASSETS. On August 31, 1995, Data I/O Corporation (the
"Company") completed the acquisition of the assets of Reel-Tech, Inc. (the
"Acquisition"). A press release, dated September 5, 1995, a copy of which is
attached as EXHIBIT 99.1, contains a brief description of the Acquisition.
EXHIBIT 99.1 is hereby incorporated into this paragraph by reference.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(c) EXHIBITS
2.1 Asset Purchase Agreement dated as of August 31, 1995, among Reel-
Tech, Inc., an Indiana corporation, Norris R. Hall, Douglas R.
Hall, and Reel-Tech, Inc., a Washington corporation, a wholly-
owned subsidiary of Data I/O Corporation.
2.2 Escrow Agreement dated as of August 31, 1995, among Reel-Tech,
Inc., a Washington corporation, Reel-Tech, Inc., an Indiana
corporation, and Seattle-First National Bank.
99.1 Press release dated September 5, 1995.
PAGE 2
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
DATA I/O CORPORATION
November 6, 1995 By /s/ Steve M. Gordon
-------------------------------------------
Steve M. Gordon
Its Vice President-Finance/CFO
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PAGE 3
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EXHIBIT INDEX
Data I/O Corporation
Current Report on Form 8-K
Description of Exhibit Page No.
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2.1 Asset Purchase Agreement dated as of August 31, 4
1995 among Reel-Tech, Inc., an Indiana
corporation, Norris R. Hall, Douglas R. Hall, and
Reel-Tech, Inc., a Washington corporation, a
wholly-owned subsidiary of Data I/O Corporation.
2.2 Escrow Agreement dated as of August 31, 1995, 35
among Reel-Tech, Inc., a Washington
corporation, Reel-Tech, Inc., an Indiana
corporation, and Seattle-First National Bank.
99.1 Press release dated September 5, 1995. 56
PAGE 4
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EXHIBIT 2.1
CONFIDENTIAL PORTIONS OF THIS DOCUMENT HAVE BEEN
OMITTED AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION.
ASSET PURCHASE AGREEMENT
between
REEL-TECH, INC., A WASHINGTON CORPORATION
and
REEL TECH, INC., AN INDIANA CORPORATION
<PAGE>
CONFIDENTIAL PORTIONS OF THIS DOCUMENT HAVE BEEN
OMITTED AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION.
ASSET PURCHASE AGREEMENT
THIS AGREEMENT is effective as of August 31, 1995 ("Effective Date"), by
and among REEL TECH, INC., an Indiana corporation ("Seller"), NORRIS R. HALL and
DOUGLAS R. HALL (together, the "Shareholders"), REEL-TECH, INC., a Washington
corporation ("Purchaser"), a wholly-owned subsidiary of DATA I/O CORPORATION, a
Washington corporation ("Data I/O").
RECITALS
Seller designs, develops, manufactures and markets automation
equipment and systems which support manufacturers and users of semiconductors
and the Shareholders are the sole shareholders of Seller.
Seller, the Shareholders and Purchaser desire to enter into an
agreement pursuant to which Seller will sell and assign to Purchaser its assets
listed or generally described in SCHEDULE 1.1 hereto (the "Assets") and
Purchaser will assume certain of Seller's liabilities and contracts. The semi-
conductor equipment business heretofore conducted with the Assets by Seller and
the continuing semi-conductor equipment business to be conducted with the Assets
hereafter is referred to herein as the "SCE Business."
NOW THEREFORE, THE PARTIES HERETO AGREE AS FOLLOWS:
SECTION 1. TRANSACTIONS
1.1 SALE, TRANSFER AND ASSIGNMENT. Seller hereby sells, assigns,
transfers and conveys to Purchaser, and Purchaser does hereby purchase, all
right, title and interest in and to the Assets, free and clear of any lien,
charge, mortgage, pledge, conditional sales agreement, assessment, encumbrance
or claim of any nature whatsoever.
1.2 ASSIGNMENT AND ASSUMPTION OF CERTAIN LIABILITIES. Seller hereby
assigns, transfers and sets over to Purchaser all of its rights, benefits,
duties and obligations under the leases, contracts and other agreements listed
in SCHEDULE 1.2 (the "Contracts") and the additional payment obligations listed
on SCHEDULE 1.2. The duties and obligations under the Contracts and the
additional payment obligations listed in SCHEDULE 1.2 are collectively referred
to herein as the "Assumed Liabilities." Purchaser hereby agrees faithfully to
perform the Assumed Liabilities, but only to the extent that such duties and
obligations have been expressly described in SCHEDULE 1.2. Purchaser does not
assume or agree to pay or indemnify Seller or any other person or entity against
any other liability, obligation, payable, duty or expense, whether presently
existing
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CONFIDENTIAL PORTIONS OF THIS DOCUMENT HAVE BEEN
OMITTED AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION.
or hereafter arising, including, without limitation, employee severance costs
and accrued vacation, personal or sick time. Nor does Purchaser assume any
contingent liabilities of Seller such as those associated with pending or
threatened litigation. As of the Effective Date, Seller shall have terminated
all of its employees and independent contractors. At the request of Purchaser,
Seller shall assist Purchaser in hiring any former employees and retaining any
independent contractors of Seller. Except for hiring the Shareholders as per
Section 3.6, Purchaser is under no obligation to hire any employee or retain any
independent contractor of Seller but is free to do so in its sole discretion.
The Assets and the Contracts are collectively referred to herein as the
"Purchased Assets."
SECTION 2. PURCHASE PRICE
2.1 AMOUNT AND ESCROW ARRANGEMENT The total purchase price (the
"Purchase Price") for the Purchased Assets shall be the sum of $2,000,000 plus
the additional amount, if any, calculated in accordance with Section 2.4 (the
"Earn-Out Payment"), subject to possible reduction in accordance with Section
2.2 below. $1,500,000 is paid in cash herewith, the receipt of which is hereby
acknowledged by Seller. $500,000 (the "Escrowed Funds") is delivered herewith
to Seattle-First National Bank (the "Escrow Agent") to be held in accordance
with the terms of the Escrow Agreement attached hereto as EXHIBIT 2.1 (the
"Escrow Agreement") for the purpose of effecting, if necessary, adjustments in
the Purchase Price in accordance with Section 2.2 or to satisfy indemnity claims
in accordance with Section 7 below.
2.2 POSSIBLE REDUCTION OF PURCHASE PRICE.
2.2.1 The Purchase Price shall be reduced by the amount, if any,
by which the liabilities of Seller paid by Purchaser ("Actual Liabilities")
exceeds the value of the Purchased Assets at the Effective Date (the "Closing
Value") minus $150,000 (such excess, if any, being a "True-Up Amount"). The
Actual Liabilities shall be the actual amount of liabilities of Seller which
existed as of the Effective Date or arose from the operations, actions or
failures to act of Seller on or before the Effective Date which are reasonably
paid by Purchaser. The Closing Value shall be the sum of (i) the amount of cash
which is transferred hereby plus the amount of Seller's accounts, notes or other
receivables actually collected by Purchaser as of the end of the sixth complete
"Fiscal Month", as described below, following the Effective Date (the "True-Up
Date"), plus (ii) the book value of all of Seller's inventory on hand at the
Effective Date which is used by the SCE Business or Purchaser in the ordinary
course by the True-Up Date plus the book value as of the Effective Date of those
items listed on SCHEDULE 2.2.1A (the
2
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CONFIDENTIAL PORTIONS OF THIS DOCUMENT HAVE BEEN
OMITTED AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION.
"Excluded Inventory") which remain in inventory at the True-Up Date plus (iii)
the value of all fixed assets, as noted on SCHEDULE 2.2.1B, which are part of
the Purchased Assets. All inventory owned by Seller as of the Effective Date is
listed on SCHEDULE 2.2.1C. "Fiscal Month(s)" shall mean the Purchaser's fiscal
month(s) as described in SCHEDULE 2.2.1D. No later than forty-five (45) days
after the True-Up Date, Purchaser shall provide to Seller a written report
setting forth Purchaser's calculation of the amount of the Actual Liabilities
and the Closing Value including an explanation of material adjustments, if any,
in the value of the Purchased Assets from the amount assigned thereto in the
actual balance sheet of Seller as of August 31, 1995 (the "True-Up Report").
The True-Up Report shall specify the True-Up Amount. Notwithstanding the
foregoing, within twenty-one (21) days after the Effective Date, Purchaser may
make a good faith determination that it will be entitled to a True-Up Amount
based upon a difference between the actual balance sheet of Seller as of August
31, 1995 and the estimated balance sheet of Seller as of August 31, 1995 (an
"Initial True-Up Amount"). If Purchaser makes such a determination, Purchaser
shall provide to Seller a written report, within twenty-one (21) days after the
Effective Date, setting forth the difference between such balance sheets and
specifying the Initial True-Up amount (the "Initial True-Up Report").
Notwithstanding any other provision(s) to the contrary, Seller may and is hereby
authorized to retain, or to distribute prior to the Effective Date, cash to
reduce the amount of Purchased Assets included in the Closing Value so that the
value of the Purchased Assets less the Actual Liabilities is no greater than
$150,000. Such retention or distribution of cash by Seller shall be determined
in good faith.
2.2.2 The Purchase Price shall be further reduced by the book
value as of the Effective Date (an "Excluded Inventory Adjustment Amount") of
the Excluded Inventory that has not been used by the SCE Business or Purchaser
in the ordinary course by the "Release Date", as defined below, but only if (i)
a True-Up Amount would have been due under Section 2.2.2 if the Excluded
Inventory Adjustment Amount had been deducted from the Closing Value and then
only to the extent of such True-Up Amount or (ii) a True-Up Amount was
previously due under Section 2.2.2. No later than thirty (30) days after the
"Release Date", as defined below, Purchaser shall provide to Seller a written
report setting forth Purchaser's calculation of the Excluded Inventory
Adjustment Amount (the "Excluded Inventory Adjustment Report"). The Excluded
Inventory Adjustment Report shall specify the Excluded Inventory Adjustment
Amount.
2.2.3 All determinations pursuant to this Section 2.2 shall be
made by Purchaser in good faith in accordance with generally accepted accounting
principles applied in a manner consistent with the accounting policies,
practices and
3
<PAGE>
CONFIDENTIAL PORTIONS OF THIS DOCUMENT HAVE BEEN
OMITTED AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION.
assumptions employed by Purchaser in preparing its own financial statements.
For this purpose, inventories shall be valued at original cost on a first-in,
first-out (FIFO) basis less an appropriate reserve for excess and obsolete
items. The Shareholders and Seller will provide Purchaser with such assistance
and access to personnel, books and records as Purchaser may reasonably request
in connection with Purchaser's audit of the Assumed Liabilities, the Assets and
the Excluded Inventory.
2.3 RELEASE OF ESCROWED FUNDS. The Escrowed Funds shall be released
as follows:
2.3.1 If Purchaser has a good faith belief that it is entitled
to an Initial True-Up Amount, it shall provide a copy of the Initial True-Up
Report to Seller and the Escrow Agent. The Escrow Agent shall deliver to
Purchaser from the Escrowed Funds cash in the amount of the Initial True-Up
Amount within ten (10) days of receipt of such Initial True-Up Report.
2.3.2 If Purchaser has a good faith belief that it is entitled
to any True-Up Amount in addition to any Initial True-Up Amount delivered to
Purchaser pursuant to Section 2.3.1 above or to an Excluded Inventory Adjustment
Amount, it shall provide a copy of the True-Up Report or the Excluded Inventory
Adjustment Report, as applicable, to Seller and the Escrow Agent. Seller may
contest such claim by Purchaser by giving Purchaser and the Escrow Agent written
notice within thirty (30) days after Purchaser gives written notice of the claim
for a True-Up Amount or an Excluded Inventory Adjustment to Seller. If Seller
does not timely contest the True-Up Report or the Excluded Inventory Adjustment
Report, as the case may be, the Escrow Agent shall promptly after expiration of
the thirty (30) day response period deliver to Purchaser from the Escrowed Funds
cash in the True-Up Amount or the Excluded Inventory Adjustment Amount, as
applicable. If Seller timely contests such claim of Purchaser, then the Escrow
Agent shall release any portion of the True-Up Amount or Excluded Inventory
Adjustment Amount not disputed by Seller and shall continue to hold Escrowed
Funds in the amount of the True-Up Amount or Excluded Inventory Adjustment
Amount in dispute for delivery to Purchaser in such amount, if any, as shall be
specified by any of the following:
(a) Written instructions executed by both Purchaser
and Seller; or
(b) A court order adjudicating such dispute issued by
a court of competent jurisdiction.
4
<PAGE>
CONFIDENTIAL PORTIONS OF THIS DOCUMENT HAVE BEEN
OMITTED AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION.
2.3.3 If on or prior to the last day of the ninth complete
Fiscal Month after the Effective Date (the "Release Date") Purchaser has a good
faith belief that it or any other Indemnified Party, as defined below, is
entitled to indemnification pursuant to Section 7 hereof, it shall give written
notice to Seller and the Escrow Agent of such claim (an "Indemnity Claim"),
which notice shall specify the basis for the claim and the estimated dollar
amount required to satisfy such claim (the "Claim Amount"). Seller may contest
any Indemnity Claim by giving Purchaser and the Escrow Agent written notice
within thirty (30) days after Purchaser gives written notice of the Indemnity
Claim to Seller. If Seller does not timely contest the Indemnity Claim pursuant
to the preceding sentence, the Escrow Agent shall promptly after expiration of
the thirty-day response period deliver to Purchaser from the Escrowed Funds cash
in the amount of the Claim Amount. If Seller timely contests the Indemnity
Claim, then the Escrow Agent shall continue to hold Escrowed Funds in the amount
of such disputed Claim Amount for delivery to Purchaser in such amount, if any,
as shall be specified by any of the following:
(a) Written instructions executed by both Purchaser and
Seller; or
(b) A court order adjudicating such dispute issued by a
court of competent jurisdiction.
2.3.4 On the forty-first day following the Release Date (or
the next business day if such day is not a business day), the Escrow Agent shall
release to Seller all remaining Escrowed Funds less the sum of all True-Up
Amounts, Excluded Inventory Adjustment Amounts and Claim Amounts which have not
been resolved in accordance with Section 2.3.2 or 2.3.3 above by that date. All
Escrowed Funds not so released shall continue to be held until the conditions
for release in Section 2.3.2 or 2.3.3 are met.
2.4 CALCULATION AND PAYMENT OF EARN-OUT.
2.4.1 Subject to the requirements of Section 2.4 hereof,
Purchaser shall make additional cash payments of an aggregate amount not to
exceed $2,000,000 should the continuing operations of the SCE Business acquired
hereby attain the revenue and pre-tax income as a percentage of revenue targets
set forth below. The period for attainment of these targets will be the period
beginning with the first day following the Effective Date and ending on August
20, 1998 (the "Earn-Out Period"), after which no earn-out will accrue. The
revenue and pre-tax income targets and related Earn-Out Payments are as follows:
5
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CONFIDENTIAL PORTIONS OF THIS DOCUMENT HAVE BEEN
OMITTED AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION.
EARN-OUT PAYMENTS(1) (2)
Earn-Out Earn-Out Earn-Out
Payment 1 Payment 2 Payment 3
EARN-OUT PAYMENT AMOUNTS:
Achievement of minimum targets(1) $666,000 $667,000 $667,000
Achievement of bonus targets(1) $832,750 $833,750 $333,500
MINIMUM TARGETS(1):
Revenues(2) $4,500,000 $5,500,000 $6,500,000
and
Pre-tax income as a % of revenues(3) CONFIDENTIAL CONFIDENTIAL CONFIDENTIAL
BONUS TARGETS(1)
Revenues(2) $4,500,000 $5,500,000 $6,500,000
and
Pre-tax income as a % of revenues(3) CONFIDENTIAL CONFIDENTIAL CONFIDENTIAL
REQUIREMENTS:
(1) For any Earn-Out Payments, both the revenue target and pre-tax income as a
% of revenue target must be met in an Annual Earn-Out Period, as defined
below. Any Earn-Out Payment may be earned during any of the three Annual
Earn-Out Periods during the Earn-Out Period and more than one Earn-Out
Payment may be earned in any Annual Earn-Out Period, provided that each
Earn-Out Payment may be earned only once and under no circumstances will
the aggregate amount of Earn-Out Payments exceed $2,000,000.
(2) For purposes of calculating Earn-Out Payments, revenue shall mean revenues
generated by the SCE Business from the sale of semi-conductor equipment or
the provision of related services plus the transfer price of the ProMaster-
Registered Trademark- 9500 at the price therefor under the OEM/Purchase
Agreement dated October 7, 1994, between Data I/O and Seller (the "9500
Transfer Price") plus actual revenues from the sale of any other products
as mutually agreed in writing, in each case net of discounts, returns,
credits and allowances. Revenues shall not include sales to third party
customers of any of Data I/O's ProMaster-Registered Trademark- line of
products or of similar products which include programming capabilities.
Acceptance of orders will be governed by Purchaser-approved operating plans
and profit criteria. All exceptions will require approval by the Chief
Executive Officer, Treasurer or Chief Financial Officer of Purchaser.
(3) Pre-tax income shall mean the aggregate net income (including losses which
shall be taken into account negatively) for the Annual Earn-Out Period in
question before any deductions for federal, state or local taxes measured
by income. The costs to be used in calculating pre-tax income will be
determined substantially as follows:
(a) All direct costs, except for costs associated with producing
Data I/O's ProMaster-Registered Trademark- 9500, associated with the
Indianapolis operations or otherwise associated with the SCE Business
or any product for which revenue is included in this earn-out
calculation, per note 2 above, will be charged against earnings.
Amortization of the purchase price of this transaction shall be
excluded.
6
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CONFIDENTIAL PORTIONS OF THIS DOCUMENT HAVE BEEN
OMITTED AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION.
(b) Interest expense will be charged against earnings at a rate equal to
the prevailing prime rate as published by the Wall Street Journal in
effect on the first day of each Purchaser fiscal quarter to the extent
that the operations of the SCE Business consume cash beyond the amount
of cash included in the Purchased Assets or generated by the SCE
Business after the Effective Date. For purposes of this calculation
all sums paid as Purchase Price will be excluded. Such use of cash
will be calculated on a daily basis. A "line of credit" shall be
established by Purchaser for the SCE Business. Such "line of credit"
will provide the SCE Business with working capital as approved by
Purchaser and may be paid down to reduce the balance based on cash
generated by the SCE Business.
(c) The costs of producing Data I/O's ProMaster-Registered Trademark- 9500
will be included in the calculation of the Earn-Out Payment at
percent ( ) of the 9500 Transfer Price. CONFIDENTIAL
(d) New product development will be funded at 8% of revenues of the SCE
Business unless otherwise mutually agreed by Purchaser and the
Shareholders. The actual direct costs to the SCE Business of any NRE
funded by customers of the SCE Business for development of new
products will be considered product development expenditures for
purposes of calculating such 8%.
(e) Data I/O corporate senior staff time and costs will not be charged to
the Indianapolis operation; provided, however, other corporate
personnel time and costs will be charged to the SCE Business on a pro-
rata basis at Direct, Unburdened Cost, plus a 5% administrative fee,
if such personnel devote more than one-half of their time in any
Fiscal Month to direct support of the SCE Business. "Direct,
Unburdened Cost" shall include all salaries, benefits and taxes for
personnel and other direct costs associated with the support of the
SCE Business.
(f) The following also shall be excluded from the calculation of pre-tax
income:
(i) Revenue derived from non-operating sources, such as interest
income and income or loss from non-business related investments;
(ii) Gain from the sale of capital assets or other non-recurring
events; and
(iii) The results of any operations acquired by the SCE Business
or Purchaser after the Effective Date.
2.4.2 All Earn-Out Payments are contingent on or subject to the
following:
(a) The parties agree that the target date for ISO 9001 certification of
the Indianapolis, Indiana facility is January 31, 1997. No Earn-Out
Payment shall be made unless and until the SCE Business obtains
ISO 9001 certification. If ISO 9001 certification is not obtained by
the end of the Earn-Out Period, no Earn-Out Payments shall accrue or
be made.
7
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CONFIDENTIAL PORTIONS OF THIS DOCUMENT HAVE BEEN
OMITTED AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION.
(b) Earn-Out Payments 2 and 3 are contingent on completion by the SCE
Business of engineering and manufacturing documentation for all
products being sold by the SCE business and for Data I/O's ProMaster-
Registered Trademark- 900 and 9500 products which satisfy the
standards set forth in SCHEDULE 2.4.2. The parties agree that the
target date for completion of such documentation is January 31, 1997;
provided, however, that if such documentation has not been completed
by the end of the Earn-Out Period, Earn-Out Payments 2 and 3 shall not
accrue or be paid.
(c) Payment of Earn-Out Payments is also contingent on both of the
Shareholders continued employment (unless such employment is
terminated as a result of death or disability) by Purchaser pursuant
to their Employment Agreements with Purchaser.
2.4.3 The measurement of the achievement of the revenue and pre-
tax income as a percentage of revenue targets will be done based on three
consecutive twelve (12) Fiscal Month periods, the first of which will begin on
September 1, 1995, and end on August 22, 1996; the second of which will begin on
August 23, 1996 and end on August 21, 1997; and the third of which will begin on
August 22, 1997, and end on August 20, 1998. Each such period is referred to as
an "Annual Earn-Out Period". The calculation of the actual results will be
completed by Purchaser within sixty (60) days following the last day of each
Annual Earn-Out Period. All calculations of performance of the SCE Business
against the foregoing targets shall be determined by Purchaser in good faith
based on the foregoing and in accordance with generally accepted accounting
principles applied in a manner consistent with the accounting policies,
practices and assumptions employed by Purchaser in preparing its own financial
statements.
2.4.4 Earn-Out Payments shall be made to the Seller within
thirty (30) days of completion of the measurement of actual results as noted in
Section 2.4.3 or within thirty (30) days of the completion of the requirements
as specified in Section 2.4.2, whichever is later.
2.5 ALLOCATION OF PURCHASE PRICE The Purchase Price shall be
allocated among the Purchased Assets in accordance with SCHEDULE 2.5. The
parties shall report consistently with such allocations on all income tax
returns and other statements (including, without limitation, filing of Form 8594
for 1995) and in the course of any tax audit, tax review or tax litigation
relating thereto. Not later than ten days prior to the filing of their
respective Form 8594 relating to this transaction, each party shall deliver to
the other party a copy of its Form 8594. Seller shall timely pay all taxes
payable by Seller as a result
8
<PAGE>
CONFIDENTIAL PORTIONS OF THIS DOCUMENT HAVE BEEN
OMITTED AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION.
of the sale of the Purchased Assets; provided, however, that Purchaser shall
remit all sales taxes payable as a result of its purchase of the Purchased
Assets.
SECTION 3. COVENANTS AND AGREEMENTS
3.1 LOCATION OF SEMI-CONDUCTOR SCE BUSINESS. Unless otherwise agreed
by the Shareholders, and provided that either of the Shareholders continue to be
employed by Purchaser, Purchaser will maintain a semi-conductor equipment
engineering and design facility in Indianapolis, Indiana or the surrounding area
for the Earn-Out Period. Purchaser further agrees that during the Earn-Out
Period it will not discontinue a semiconductor equipment manufacturing operation
in Indianapolis or its surrounding area without first conferring with the
Shareholders concerning whether such move would have an adverse effect on the
ability of the Shareholders to achieve the minimum targets for the Earn-Out
Payments as specified in Section 2.4.1. With the exception of the ProMaster-
Registered Trademark- 9500, production of which shall be relocated to Redmond,
Washington on or before April 1, 1996, Data I/O's semi-conductor handling and
programming systems will not be manufactured by the SCE Business (except for any
prototype units for Data I/O's ProMaster-Registered Trademark- 900 and 950 or
equivalent products) unless otherwise agreed by Data I/O, Purchaser and the
Shareholders.
3.2 DELIVERY OF PURCHASED ASSETS. Commencing on the Effective Date
and continuing thereafter, Seller shall cause to be delivered into the
possession or control of Purchaser all of the Purchased Assets, which shall
include, without limitation, the original copies of Contracts and the original
copies of all records, files, documents, correspondence and papers pertaining to
the Purchased Assets. Seller hereby constitutes and appoints Purchaser as
Seller's true and lawful attorney and attorneys, with full power of substitution
in Seller's name, place and stead, on behalf and for the benefit of Purchaser,
its successors and assigns, to demand and receive any and all of the Purchased
Assets, and to give receipts and releases for and in respect of the same, and
any part thereof, and from to time to institute and prosecute in Seller's name,
or otherwise, for the benefit of Purchaser, its successors and assigns, any and
all proceedings at law, in equity or otherwise, which Purchaser may deem proper
in order to collect or reduce to its possession any of the Purchased Assets, and
to do all acts and things relating to the Purchased Assets which Purchaser shall
deem desirable, Seller hereby declaring that the foregoing powers are coupled
with an interest and are and shall be irrevocable by Seller and shall not be
affected by its dissolution or in any manner or for any reason whatsoever.
9
<PAGE>
CONFIDENTIAL PORTIONS OF THIS DOCUMENT HAVE BEEN
OMITTED AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION.
3.3 USE OF NAMES. As of the date of this Agreement, Seller will
refrain from using any of the Names or any similar names as a trade name,
trademark or service mark in connection with any business or activity, and
within ten days of the date of this Agreement, Seller will change its corporate
name.
3.4 FURTHER ACTIONS. Seller shall, at any time and from time to time
hereafter, but only upon the request of Purchaser, do, execute, acknowledge and
deliver or shall cause to be done, executed, acknowledged and delivered all such
further reasonable acts, assignments, transfers, conveyances, assurances and
other instruments as may be reasonably required for the transferring, conveying,
assigning, delivering, assuring and assisting in collecting and reducing to the
possession of Purchaser of any and all of the Purchased Assets. Without
limiting the generality of the foregoing, Seller will use its best efforts to
provide to Purchaser and/or Data I/O any financial statements or other
information which may be required by the Securities and Exchange Commission (the
"SEC") or other regulatory authority. Purchaser shall bear the cost of any
independent public accountant for the review or audit of financial statements of
Seller for any period for which reviewed or audited financial statements do not
presently exist. The parties further agree to perform or cause to be performed
at and after the Effective Date any and all further acts as may be reasonably
necessary to consummate the transactions contemplated hereby.
3.5 INCOME AND OTHER TAXES. Seller shall in a timely manner file all
income, sales, use, franchise and other tax returns and pay related required
taxes associated with the operations of Seller on or prior to the Effective Date
and those arising from the transactions contemplated hereby except that
Purchaser shall pay all sales taxes arising from the purchase of the Assets
pursuant to this Agreement.
3.6 EMPLOYMENT AGREEMENTS. The Shareholders each shall execute and
deliver to Purchaser their respective Employment Agreements in the forms
attached hereto as EXHIBITS 3.6A AND 3.6B (the "Employment Agreements
3.7 OPINION OF SELLER'S COUNSEL. Seller delivers herewith to
Purchaser an opinion of Coons, Maddox and Koeller, dated as of the Effective
Date, in the form attached hereto as EXHIBIT 3.7.
3.8 OPINION OF PURCHASER'S COUNSEL. Purchaser delivers herewith to
Seller an opinion of Heller, Ehrman, White & McAuliffe, dated as of the
Effective Date, in the form attached hereto as EXHIBIT 3.8.
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3.9 NON-DISCLOSURE. Except as required by applicable law, including
without limitation, as required by the SEC or other regulatory authority,
neither Seller, the Shareholders nor Purchaser shall disclose to any third party
(other than persons engaged by the parties for the purpose of negotiating this
Agreement or consummating the proposed transactions) any information about this
Agreement or the transactions proposed herein, without the prior written consent
of the other parties to this Agreement.
3.10 NON-COMPETITION AND NON-SOLICITATION.
3.10.1. APPLICABILITY AND DEFINITION OF THE COMPANY. This
Section 3.10 shall survive the termination or expiration of this Agreement. For
purposes of Section 3.10 of this Agreement, "the Company" shall include the
Purchaser and all affiliates, including without limitation, subsidiaries,
parents, partnerships, and any business ventures in which the Purchaser and/or
such affiliates may participate.
3.10.2 NON-COMPETITION. The Seller agrees that it will not,
directly or indirectly, during the Earn-Out Period and for a period of two (2)
years thereafter, directly or indirectly, own, manage, operate, join, control or
participate in the ownership, management, operation or control of or be
connected with, in any manner, any person or entity engaged in any business or
activities that are, or are preparing to be, in competition with the Company
with respect to any product or service sold or activity engaged in by the
Company during the Earn-Out Period (including without limitation, products or
services used in the "Semi-conductor Equipment Market" or the "IC Programmer
Products Market" as defined below) in any geographical area in which such
product or service is sold or activity is engaged in during the Earn-Out Period
or which the Company was preparing to sell or engage in at the end of the Earn-
Out Period. "Semi-conductor Equipment Market" means the design, development,
manufacture, sale or distribution of materials handling equipment or marking
equipment and "IC Programmer Products Market" means the design, development,
manufacture, sale or distribution of any device or system used to program
programmable integrated circuits. The Seller shall be deemed to be connected
with such business if such business is carried on by a partnership, corporation
or association of which the Seller is a partner, shareholder, member or agent,
provided that nothing herein shall prevent the purchase or ownership by the
Seller of shares which constitute less than five percent (5%) of the outstanding
equity securities of a publicly-held corporation.
3.10.3 NON-SOLICITATION. The Seller shall not, in addition,
directly or indirectly solicit, influence or entice any employee or consultant
of the Company to cease his
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relationship with the Company or solicit, entice or in any way divert any
customer or supplier of the Company to do business with the Seller or any entity
described herein. This Section 3.10.3 shall apply during the time period and
geographic region described in Section 3.10.2 of this Agreement.
3.10.4 EQUITABLE RELIEF. The Seller acknowledges that the
provisions of this Section 3.10 are essential to the Company, that the Purchaser
would not enter into this Agreement if it did not include covenants not to
compete or solicit and that damages sustained by the Company as a result of a
breach of such covenants cannot be adequately remedied by money damages, and the
Seller agrees that the Company, notwithstanding any other provision of this
Agreement, in addition to any other remedy the Company may have under this
Agreement or at law, shall be entitled to injunctive and other equitable relief
to prevent or curtail any breach of any provision of this Section 3.10. The
Seller acknowledges that the covenants in this Section 3.10 are reasonable.
3.10.5 ADEQUATE CONSIDERATION. The Seller and the Purchaser
agree that adequate consideration has been given for the Seller to enter into
this Section 3.10 and assume the obligations contained in this Section 3.10.
The Seller recognizes that (i) the provisions of this Section 3.10 are
reasonable and necessary for the protection of the Company in light of the
consideration paid and payable by the Purchaser to the Seller under this
Agreement, and (ii) the Purchaser would not have entered into this Agreement and
consummated the transactions contemplated hereunder without the Seller having
agreed to be bound by provisions contained in this Section 3.10.
3.11 BULK TRANSFER LAWS. Purchaser hereby waives the requirements of
the bulk transfer provisions of the Indiana Uniform Commercial Code, to the
extent such provisions may be applicable. Seller and the Shareholders have
agreed to defend, indemnify and hold harmless Purchaser from any liabilities
arising from failures to comply with such provisions, as more particularly set
forth in Section 7 hereof.
SECTION 4. REPRESENTATION AND WARRANTIES. Seller represents, covenants
and warrants to Purchaser as follows:
4.1 CORPORATE EXISTENCE AND POWER. Seller is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Indiana, and has all corporate powers and all material governmental licenses,
authorizations, permits, consents and approvals required to carry on its
business as now conducted. Seller is duly qualified to do business as a foreign
corporation and is in good standing in each jurisdiction where the character of
the property owned or leased by it or the
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nature of its activities make such qualification necessary, except for those
jurisdictions where failure to be so qualified would not, individually or in the
aggregate, have a material adverse effect on its business, assets or condition
(financial or otherwise).
4.2 AUTHORIZATION. The execution, delivery and performance by Seller
of this Agreement and the consummation of the transactions contemplated hereby
are within Seller's corporate powers and have been duly authorized by all
necessary corporate action (shareholder or otherwise) on the part of Seller.
This Agreement, the Employment Agreements and the Escrow Agreement (the
"Agreements") are the legal, valid and binding obligations of Seller and are
enforceable against Seller in accordance with their terms, except as may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium and
other similar laws of general application that may affect the enforcement of
creditors' rights generally and by general equitable principals.
4.3 NON-CONTRAVENTION. The execution, delivery and performance by
Seller of the Agreements do not and will not (i) contravene or conflict with the
Articles of Incorporation or Bylaws of Seller; (ii) contravene or conflict with
or constitute a violation of any provision of any law, regulation, judgment,
injunction, order or decree binding upon or applicable to Seller or any of its
assets; (iii) constitute a default under or give rise to any right of
termination, cancellation or acceleration of any right or obligation of Seller
or to a loss of any benefit to which Seller is entitled under any provision of
any agreement, contract or other instrument binding upon Seller or to which
Seller is a party by which Seller or any of its assets are or may be bound, or
constitute a default (or an event which, with the lapse of time or the giving of
notice, or both, would constitute a default) thereunder, or violate any license,
franchise, permit or other similar authorization held by Seller; (iv) result in
the creation or imposition of any lien, security interest, charge or encumbrance
of any nature on any of the Purchased Assets; or (v) give to others any interest
or rights, including rights of termination, acceleration or cancellation, in or
respect to any item of the Purchased Assets.
4.4 TITLE TO AND CONDITION OF ASSETS. Seller has and does hereby
convey to Purchaser good and marketable title in and to the Purchased Assets
(whether personal, tangible or intangible), free and clear of any liens,
charges, assessments, taxes, mortgages, pledges, conditional sales agreements,
security agreements or encumbrances of any nature. All inventories of finished
goods, parts and supplies are of good and merchantable quality, saleable or
useable within a reasonable period of time in the ordinary course of business.
All equipment is in good
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operating condition and state of repair, normal wear and tear excepted, has been
maintained consistent with standards generally followed in the industry and is
suitable for its present uses.
4.5 REQUIRED CONSENTS. SCHEDULE 4.5 sets forth each agreement,
contract or other instrument binding upon Seller, or any license, franchise,
permit or similar authorization held by Seller, requiring a consent as a result
of the execution, delivery and/or performance of the Agreements or the
consummation of the transactions contemplated hereby and thereby (each such
consent, a "Required Consent" and together, the "Required Consents"). Except
for the Required Consents, there are no consents, approvals, authorizations,
orders, registrations or qualifications of or with any person, court, regulatory
authority or governmental body which are required for the consummation by Seller
of the transactions contemplated by the Agreements.
4.6 COMPLIANCE WITH CONTRACTS. The Contracts constitute all
presently effective contracts and agreements, whether written or oral, to which
Seller is a party and which are used or useful in connection with the SCE
Business or to which any of the Purchased Assets is subject. True and complete
copies of all written Contracts (with all amendments thereto) have been
delivered to Purchaser. Except as set forth in SCHEDULE 4.6, Seller has
complied with all material provisions of the Contracts, is not in arrears with
respect to any amounts owed thereunder and is not otherwise in default under any
thereof nor has any party asserted that Seller is in default under any thereof
and to the best knowledge of the officers of Seller, no condition exists which
with the passage of time or the giving of notice would constitute a default
under any thereof. All of the Contracts are valid and in full force and effect.
4.7 PRODUCTS. Each of the products produced or sold by Seller in
connection with the SCE Business is, and at all times has been, in compliance in
all material respects with all applicable federal, state and local laws and
regulations and is, and at all relevant times has been, fit for the ordinary
purposes for which it is intended to be used and conforms in all material
respects to any promises or affirmations of fact made in connection with its
sale. There is no design defect with respect to any of such products, and each
of such products contains adequate warnings, presented in a reasonably prominent
manner, in accordance with applicable laws and current industry practice with
respect to its use.
4.8 FINANCIAL STATEMENTS. Attached hereto as EXHIBIT 4.8 are (i)
balance sheets of Seller as of December 31, 1994, together with the statement of
operations, stockholder's equity and cash flows, including the notes thereto,
for the year ended December 31, 1994 (ii) actual balance sheets of Seller as
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of July 31, 1995 (the "Balance Sheet"), together with the statement of
operations, stockholders equity and cash flows for the seven month period then
ended and (iii) estimated balance sheets of Seller as of August 31, 1995. Such
financial statements, including, if any, the notes thereto, are true and
complete in all material respects and accurately and fairly present the
financial condition of Seller at the respective dates of each such financial
statement and the results of operations, stockholders' equity and cash flows for
the periods indicated, all in conformity with generally accepted accounting
principles applied on a consistent basis. At the Effective Date, Seller has no
material liabilities (fixed or contingent, including without limitation, any tax
liabilities due or to become due) which were not fully disclosed, reflected or
provided for in the Balance Sheet. The tangible assets reflected in the Balance
Sheet are shown thereon at actual cost, less depreciation and amortization.
4.9 AGING REPORTS. Attached hereto as EXHIBIT 4.9 are receivables
and payables aging reports dated as of the Effective Date (the "Aging Reports").
The Aging Reports are true, accurate and correct in all material respects as of
the dates thereof and correctly reflect the payment histories of the various
accounts shown thereon. All accounts receivable as reflected in the Balance
Sheet and the Aging Report constituted at the date thereof bona fide accounts
receivable resulting from the sale of goods or services in the ordinary course
of business and, to the best knowledge of Seller, such accounts receivable are
collectable in full in the ordinary course of business and are subject to no
conditions as to payment, or to offsets, counterclaims or defenses of any kind,
or to any returns, allowances or credits other than to the extent of the
allowance for doubtful accounts and warranty reserve reflected in the Balance
Sheet.
4.10 NO MATERIAL CHANGES. Except as set forth in SCHEDULE 4.10,
since the date of the Balance Sheet there has not been:
(a) Any material adverse change in the condition (financial or
otherwise), assets, liabilities, business or prospects of Seller from that
reflected in the Balance Sheet, any material decline in the rate of sales by
Seller or any occurrence, circumstance, development, condition of any character
known to the officers of Seller which materially adversely affects, or
reasonably could be expected to so affect, the condition (financial or
otherwise), assets, liabilities, business or prospects of Seller;
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(b) Any damage, destruction or loss of any of the Purchased
Assets (whether or not covered by insurance) or any write-down in the value of
any material inventory or write-off as uncollectible of any material notes or
accounts receivable;
(c) Any material increase in compensation payable to or for the
benefit of, or committed to be paid to or for the benefit of, any director,
shareholder, officer or employee of Seller; or
(d) Any modification, waiver, change, amendment, release,
recision, accord and satisfaction or termination of, or with respect to, any
material term, condition or provision of any material contract, agreement,
license or other instrument to which Seller is a party, including the Contracts,
other than any satisfaction by performance in accordance with the terms thereof.
4.11 PROPRIETARY RIGHTS. SCHEDULE 4.11 sets forth a true and
complete list of all patents, patent applications, registrations, applications
for registration, assignments, license agreements (whether written or oral) and
other documents evidencing any patent, copyright, trademark, trade name, service
mark or other intellectual property rights which are used in the conduct of the
SCE Business (the "Intellectual Properties"). Except as set forth in SCHEDULE
4.11, Seller possesses full right and authority to use all know-how, proprietary
information, copyrights, trademarks, patent rights and other proprietary and
intellectual properties necessary to the conduct of the SCE Business as
presently conducted and as proposed to be conducted without infringing the
rights of others, including the Intellectual Properties, all of which are
transferred to Purchaser pursuant to this Agreement, free and clear of all
liens, claims, options, charges, encumbrances, security interests or claims of
ownership of any person or of any obligation to pay royalties. Seller has taken
reasonable steps and precautions to protect and preserve the confidentiality of
all trade secrets and confidential information of Seller or others entrusted to
Seller. Except for any agreements with Purchaser, Seller has not entered into
any agreement pursuant to which it has agreed not to compete with any person.
The operations of Seller as currently conducted do not infringe any copyright,
trademark, service mark, trade name, patent rights or any other right of any
person, whether registered or unregistered, nor do they involve the
misappropriation of any trade secret of any person. Seller has not received
notice from any person alleging that such infringement or misappropriation has
occurred or is continuing.
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4.12 ENVIRONMENTAL COMPLIANCE. Except as described on SCHEDULE 4.12:
(a) No notice, notification, demand, request for information,
citation, summons or order has been issued, no complaint has been filed, no
penalty has been assessed and no investigation or review is pending or
threatened by any governmental or other entity (i) with respect to any alleged
violation by Seller of any environmental law, ordinance, rule, regulation or
order of any governmental entity; (ii) with respect to any alleged failure by
Seller to have any environmental permit, certificate, license, approval,
registration or authorization or (iii) with respect to any generation,
treatment, storage, recycling, transportation or disposal or release of any
toxic, caustic or otherwise hazardous substance ("Hazardous Substance").
(b) In connection with the operation of the SCE Business,
(i) Seller has not handled any Hazardous Substance on any property now or
previously owned or leased by Seller; (ii) there are no underground storage
tanks for Hazardous Substances, active or abandoned, at any property now or
previously owned or leased by Seller; (iii) no Hazardous Substance has been
released at, or under any property now or previously owned or leased by Seller;
and (iv) no Hazardous Substance has been released or is present, in a reportable
or threshold planning quantity, where such quantity has been established by
statute, ordinance, rule, regulation or order, at, on or under any property now
or previously owned or leased by Seller.
(c) In connection with the operation of the SCE Business, Seller
has not transported or arranged for the transportation (directly or indirectly)
of any Hazardous Substance to any location which is listed or proposed for
listing under CERCLA, or on any similar state list or which is the subject of
federal, state or local enforcement actions or other investigations which may
lead to claims against Purchaser for clean-up costs, remedial work, damages to
natural resources or for personal injury or property damage claims, including
but not limited to, claims under CERCLA, or an any similar state list or which
is the subject of federal, state or local enforcement actions or other
investigations which may lead to claims against Purchaser for clean-up costs,
remedial work, damages to natural resources or for personal injury or property
damage claims, including, but not limited to, claims under CERCLA.
(d) No oral or written notification of a release of a Hazardous
Substance has been filed by or on behalf of Seller with respect to the SCE
Business and no property now or previously owned or leased by Seller with
respect to the SCE
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Business is listed or, to Seller's knowledge, proposed for listing, on the
National Priorities List promulgated pursuant to CERCLA or on any similar state
list of sites requiring investigation or clean-up.
4.13 SOLVENCY. No insolvency proceedings of any character,
including, without limitation, bankruptcy, receivership, reorganization,
composition or arrangement with creditors, voluntary or involuntary, affecting
Seller, its predecessor or any of their assets or properties are pending and
Seller has not made an assignment for the benefit of creditors, nor taken any
action with a view to, or which would constitute the basis for, the institution
of any such insolvency proceedings.
4.14 LITIGATION. Except as described on SCHEDULE 4.14, there are no
legal actions, suits or other legal or administrative proceedings or
investigations pending or, to the knowledge of Seller, threatened against Seller
or affecting any of its assets, and Seller is not aware of any facts which might
form the basis for any such action, suit or other proceeding or investigation,
and there are no outstanding judgments against Seller or any of its assets.
4.15 BROKERAGE COMMISSION. No broker, finder, agent or similar
intermediary has acted for or on behalf of Seller or the Shareholders in
connection with this Agreement or the transactions contemplated hereby, and no
broker, finder, agent or similar intermediary is entitled to any broker's,
finder's or similar fee or other commission in connection with this Agreement
based on any agreement, arrangement or understanding with Seller or either
Shareholder or any action taken by Seller or the Shareholders.
4.16 TAXES. For all periods ended on or prior to the Effective Date,
Seller has filed or will file within the time prescribed by law all tax returns
and reports required to be filed by all federal, state and local taxing
authorities. Seller has not failed, and will not fail, to timely pay all such
taxes relating to the Purchased Assets.
4.17 OTHER INFORMATION. None of the documents or information
delivered to Purchaser in connection with the transactions contemplated by this
Agreement contains any untrue statement of material fact or omits to state any
material fact necessary in order to make the statements contained therein not
misleading. There is no significant adverse fact or condition relating to the
SCE Business which has not been specifically disclosed in writing by Seller to
Purchaser.
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SECTION 5. REPRESENTATIONS AND WARRANTIES OF SHAREHOLDERS. As an
inducement to the execution of this Agreement by Purchaser and the carrying out
of the provisions of this Agreement to be performed by Purchaser, each
Shareholder hereby represents and warrants that he has full power and authority
to enter into this Agreement and his Employment Agreement (including, for
purposes of this Section 5, the documents attached as exhibits thereto) and to
deliver and perform his obligations and undertakings set forth herein and
therein. This Agreement and his Employment Agreement have been duly executed
and delivered by him and constitutes his legal, valid and binding obligations,
enforceable in accordance with their terms, except as may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium and other similar
laws of general application that may affect the enforcement of creditors' rights
generally and by general equitable principles. The execution, delivery and
performance by him of this Agreement and his Employment Agreement do not and
will not (i) to the best of his knowledge, contravene or conflict with or
constitute a violation of any provision of any law, regulation, judgment,
injunction, order or decree binding upon or applicable to him; (ii) conflict
with or result in the breach (or constitute an event which, with the lapse of
time or the giving of notice, or both, would constitute a breach) of any
agreement, deed, contract, mortgage, indenture, writ, order, decree, legal
obligation or instrument to which he is a party, or constitute a default
thereunder.
SECTION 6. REPRESENTATIONS AND WARRANTIES OF PURCHASER. Purchaser hereby
represents and warrants that:
6.1 ORGANIZATION. Purchaser is a corporation duly organized, validly
existing and in good standing under the laws of the State of Washington, and has
all corporate powers and all material governmental licenses, authorizations,
permits, consents and approvals required to carry on its business as now
conducted.
6.2 AUTHORIZATION. The execution, delivery and performance by
Purchaser of this Agreement and the consummation by Purchaser of the
transactions contemplated hereby are within Purchaser's corporate powers and
have been duly authorized by all necessary corporate action on the part of
Purchaser. This Agreement is binding upon Purchaser and is enforceable against
Purchaser in accordance with its terms, except as may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium and other similar laws of
general application that may affect the enforcement of creditors' rights
generally and by general equitable principles.
6.3 NON-CONTRAVENTION. The execution, delivery and performance by
Purchaser of this Agreement do not and will not (i) contravene or conflict with
the Articles of Incorporation or
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Bylaws of Purchaser; (ii) contravene or conflict with or constitute a violation
of any provision of any law, regulation, judgment, injunction, order or decree
binding upon or applicable to Purchaser; (iii) constitute a default under or
give rise to any right of termination, cancellation or acceleration of any right
or obligation of Purchaser or to a loss of any benefit to which Purchaser is
entitled under any provision of any material agreement, contract or other
instrument binding upon Purchaser or to which Purchaser is a party, or
constitute a default (or an event which, with the lapse of time or the giving of
notice, or both, would constitute a default) thereunder.
6.4 BROKERAGE COMMISSION. No broker, finder, agent or similar
intermediary has acted for or on behalf of Purchaser in connection with this
Agreement or the transactions contemplated hereby, and no broker, finder, agent
or similar intermediary is entitled to any broker's, finder's or similar fee or
other commission in connection with this Agreement based on any agreement,
arrangement or understanding with Purchaser or any action taken by Purchaser.
SECTION 7. INDEMNIFICATION.
7.1 SELLER AND SHAREHOLDER INDEMNIFICATION. Seller and the
Shareholders (the "Indemnitors") jointly and severally agree to defend,
indemnify and hold harmless Purchaser and its officers, directors, shareholders,
successors and assigns (each an "Indemnified Party") from and against any
claims, losses, damages, expenses, liabilities or proceedings (including,
without limitation, diminutions in value and reasonable attorneys' and experts'
fees and all amounts reasonably paid in investigation, defense or settlement of
any of the foregoing) which may be sustained, suffered or incurred by an
Indemnified Party to the extent that such claims, losses, damages, expenses or
liabilities arise out of or result from (i) the breach by Seller or the
Shareholders of any covenant or warranty or the inaccuracy of any representation
made by Seller or the Shareholders in this Agreement; and (ii) any actions,
failures to act, obligations or defaults of Seller or the Shareholders before,
on or after the Effective Date other than the Assumed Liabilities including,
without limitation, those attributable to defaults under the Contracts and those
arising under bulk transfer, insolvency, fraudulent conveyance, bankruptcy, tax
or other laws or any other theory of successor liability. All payments pursuant
to this Section 7 shall be equal to an amount which, after taking into account
any taxes imposed on the receipt of such payments by the Indemnified Party and
any tax benefits actually recognized by such Indemnified Party as a result of
the incurring such loss or expenses, shall equal the amount of such loss or
expense.
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7.2 NOTICE OF CLAIM; ASSUMPTION OF DEFENSE; SETTLEMENT OF CLAIMS.
Any Indemnified Party shall promptly give written notice to the Indemnitors of
any claim for which indemnification will be sought under Section 7, which notice
shall state with reasonable specificity the nature of such claim. Except to the
extent the Indemnitors are prejudiced thereby, the failure by the Indemnified
Party to give the Indemnitor prompt notice of the claim will not eliminate the
obligation of the Indemnitor to indemnify the Indemnified Party under this
Agreement. The Indemnitors shall have the right to assume the defense of such
claim involving a third party through counsel selected by the Indemnitors and
approved by the Indemnified Party, and in connection therewith to conduct any
proceedings or negotiations relating thereto (subject to the provisions
hereinafter set forth), but the Indemnified Party may participate in the defense
or settlement thereof. If the Indemnitors elect to assume the defense of any
such claim, they shall give the Indemnified Party written notice of their
intention to do so within ten days of being notified of the claim, whereupon
they shall immediately assume the defense and use their best efforts to defend
such claim. Failure of an Indemnitor to notify the Indemnified Party of its
election to defend any such action within ten days after receipt of notice
thereof shall be deemed a waiver by the Indemnitor of its right to defend such
action. An Indemnitor shall not, in the defense of any such claim or any
litigation resulting therefrom, consent to entry of any judgments (except with
the prior written consent of the Indemnified Party) or enter into any settlement
(except with the prior written consent of the Indemnified Party) which does not
include, as an unconditional term thereof, the giving by the claimant or the
plaintiff to the Indemnified Party a release from all liability in respect of
such claim or litigation and in no event shall an Indemnitor have the right to
agree to a settlement involving injunctive relief or other equitable relief
against the Indemnified Party without obtaining the prior written consent of the
Indemnified Party. Should the Indemnitor fail to defend any claim or action,
then, in addition to any other remedies available to the Indemnified Party in
law or in equity, the Indemnified Party may settle or defend any such action or
proceeding through legal counsel of its own choosing and may recover from the
Indemnitors, jointly and severally, the amount of such settlement or any
judgment or decree and all of its costs and expenses incurred in connection
therewith as they are incurred, including, without limitation, reasonable
attorneys' and experts' fees and all other legal costs. Purchaser may, in
addition to all other available remedies and not as an exclusive remedy, reduce
the amount of any payments due to the Indemnitors under this Agreement, or any
other obligation, by the amount of any loss, damage, expenses or liabilities
suffered by it for which it is entitled to indemnification pursuant to Section
7. The right of an Indemnified Party to seek indemnification pursuant to
Section 7.1
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shall be in addition to any other legal or equitable remedy available to the
Indemnified Party. Any and all payments which may become due and payable by an
Indemnitor under the terms of this Section shall become due and payable at once
without notice from an Indemnified Party or to an Indemnitor. To the extent
permitted by law, from and after the date on which payment becomes due and
payable, the amount of such payment shall bear interest at the lesser of
eighteen percent (18%) per annum or the maximum rate permitted by law, until
paid in full.
7.3 LIMITATION ON LIABILITY OF THE SHAREHOLDERS. Notwithstanding the
foregoing, the liability of each of the Shareholders hereunder shall not exceed
the sum of all payments made pursuant to Section 2 of this Agreement.
7.4 TERMINATION. If an Indemnified Party fails to give, within 120
days after the earlier of the end of the Earn-Out Period or the date on which
the total possible Earn-Out Payment in the amount of $2,000,000 has been made
under this Agreement, written notice to the Indemnitors of any claim for which
indemnification will be sought under Section 7, then such claim is barred;
provided, however, the time period for any Indemnified Party to give written
notice to the Indemnitors of any claim for which indemnification will be sought
under Section 7 relating to any federal, state, local or other taxes shall be
120 days after the five (5) year period from the Effective Date.
SECTION 8. DEFINITIONS. The following terms shall have the meaning stated
in the Section referenced opposite the term:
Definition Section
---------- -------
Actual Liabilities 2.2
Aging Reports 4.9
Agreement Introduction
Agreements 4.2
Annual Earn-Out Period 2.4.3
Assets Recitals
Assumed Liabilities 1.2
Balance Sheet 4.8
Claim Amount 2.3.3
Closing Value 2.2.1
Company 3.10.1
Contracts 1.2
Data I/O Introduction
Direct, Unburdened Cost 2.4.1
Earn-Out Payment 2.1
Earn-Out Period 2.4.1
Effective Date Introduction
Employment Agreements 3.6
Escrow Agent 2.1
22
<PAGE>
CONFIDENTIAL PORTIONS OF THIS DOCUMENT HAVE BEEN
OMITTED AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION.
Escrow Agreement 2.1
Escrowed Funds 2.1
Excluded Inventory 2.2.1
Excluded Inventory Adjustment Amount 2.2.2
Excluded Inventory Adjustment Report 2.2.2
Fiscal Month(s) 2.2.1
Hazardous Substance 4.12
Indemnified Party 7.1
Indemnitors 7.1
Indemnity Claim 2.3.3
Initial True-Up Amount 2.2.1
Initial True-Up Report 2.2.1
Intellectual Properties 4.11
Names Schedule 1.1
Purchase Price 2.1
Purchased Assets 1.2
Purchaser Introduction
Receivables Schedule 1.1
Release Date 2.3.3
Required Consents 4.5
SCE Business Recitals
SEC 3.4
Seller Introduction
Shareholders Introduction
9500 Transfer Price 2.4.1
True-Up Amount 2.2.1
True-Up Date 2.2.1
True-Up Report 2.2.1
SECTION 9. MISCELLANEOUS.
9.1 NOTICES. All notices, demands and other communications called
for or required by this Agreement shall be in writing and shall be addressed to
the parties at their respective addresses stated below or to such other address
as a party may subsequently designate by ten (10) days' advance written notice
to the other parties. Communications hereunder shall be deemed to have been
received (i) upon delivery in person, (ii) five days after mailing it by U.S.
certified mail, return receipt requested and postage prepaid, (iii) the second
business day after depositing it with a commercial overnight carrier which
provides written verification of delivery or (iv) the day of transmission by
telefacsimile if sent before 2:00 p.m. recipient's time provided that a copy of
such notice is sent on the same day by U.S. certified mail, return receipt
requested and postage prepaid, with an indication that the original was sent by
facsimile and the date of its transmittal.
23
<PAGE>
CONFIDENTIAL PORTIONS OF THIS DOCUMENT HAVE BEEN
OMITTED AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION.
Purchaser: Reel-Tech, Inc., a Washington corporation
Attention: President
10525 Willows Road Northeast
Redmond, Washington 98073
Fax: (206) 881-2917
CC: Data I/O Corporation
Attention: Chief Financial Officer
10525 Willows Road Northeast
Redmond, Washington 98073
Fax: (206) 881-2917
Seller: Reel Tech, Inc., an Indiana corporation
Attention: Douglas R. Hall
7402 Oakland Hills Circle
Indianapolis, Indiana 46236
Fax: (317) 823-1482
Shareholders: Douglas R. Hall
7402 Oakland Hills Circle
Indianapolis, Indiana 46236
Fax: (317) 823-1482
To: Norris R. Hall
7402 Oakland Hills Circle
Indianapolis, Indiana 46236
Fax: (317) 823-1482
CC: Robert M. Koeller
Coons, Maddox & Koeller
9100 Keystone Crossing, Suite 440
Indianapolis, Indiana 46240-2159
Fax: (317) 574-2050
9.2 OPPORTUNITY TO PARTICIPATE IN DRAFTING. The parties have had an
equal opportunity to participate in drafting of this Agreement. No ambiguity
shall be construed against any party based upon a claim that party drafted the
applicable language.
9.3 FULL UNDERSTANDING. In executing this Agreement, each member of
each party fully, completely, and unconditionally acknowledges and agrees that
it (a) has consulted with, and had the advice and counsel of duly licensed and
competent attorney and that it has executed this Agreement after independent
investigation, voluntarily and without fraud, duress, or undue influence, and
(b) expressly consents that this Agreement be given full force and effect
according to each and every of its express terms and provisions.
24
<PAGE>
CONFIDENTIAL PORTIONS OF THIS DOCUMENT HAVE BEEN
OMITTED AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION.
9.4 ENTIRE AGREEMENT. This Agreement and all exhibits and schedules
hereto contain all of the terms and conditions agreed upon by the parties
relating to the subject matter hereof and supersede and cancel all other prior
agreements, negotiations, correspondence, undertakings, communications and
understandings of the parties, whether written or oral, respecting that subject
matter.
9.5 MODIFICATION. No waiver or modification of this Agreement or of
any provision contained herein shall be valid unless in writing and duly
executed by all parties hereto. No evidence of any waiver or modification shall
be offered or received in evidence in any proceedings, arbitration, or
litigation between the parties hereto arising out of or affecting this
Agreement, or the rights or obligations of the parties hereunder, unless such
waiver or modification is in writing and duly executed. The parties further
agree that the provisions of this section may not be waived except as set forth
herein.
9.6 NO WAIVER. Failure or delay on the part of any party in
exercising any rights, power or privileges under this Agreement shall not be
deemed a waiver of any exercise of any right, power or privilege.
9.7 CAPTIONS AND CONSTRUCTION. Captions in this Agreement are for
the convenience of the reader and are not to be considered in the interpretation
of the terms.
9.8 SEVERABILITY. In the event any one or more immaterial provisions
is found to be invalid, the finding shall not affect the validity or
enforceability of the other provisions.
9.9 SURVIVAL. Neither the investigation by a party or the acceptance
of delivery of property hereunder shall constitute a waiver of any covenant,
representation, warranty, agreement, obligation or undertaking of a party
hereunder, and the same shall survive and continue after the Effective Date.
9.10 GOVERNING LAW. This Agreement, including all matters of
construction, validity and performance, shall be governed by and construed and
enforced in accordance with the laws of the State of Washington, without regard
to its conflict of law provisions which might otherwise require the application
of the law of any other jurisdiction. The parties agree that the exclusive
jurisdiction and venue of any lawsuit between them arising under this Agreement
or out of the transactions contemplated herein shall be the Superior Court of
Washington for King County, or the United States District Court for the Western
District of Washington at Seattle, and each of the parties hereby irrevocably
agrees, acknowledges and submits itself to the
25
<PAGE>
CONFIDENTIAL PORTIONS OF THIS DOCUMENT HAVE BEEN
OMITTED AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION.
exclusive jurisdiction and venue of such courts for the purposes of such
lawsuit. The parties agree that provisions of this Section serve as a material
inducement for Purchaser to enter into this Agreement.
9.11 EXPENSES. Purchaser, Seller and the Shareholders shall each pay
their respective expenses, costs and fees (including, without limitation,
attorneys' and accountants' fees) incurred in connection with the negotiation,
preparation, execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby.
9.12 EXECUTION IN COUNTERPARTS. This Agreement may be executed in
one or more counterparts, all of which shall be considered one and the same
agreement, and shall become a binding agreement when one or more counterparts
have been signed by each of the parties and either original or facsimile
counterparts have been delivered to the other party.
9.13 INVALID PROVISIONS. If any one or more of the provisions of
this Agreement, or the applicability of any such provision to a specific
situation, shall be held invalid or unenforceable, including but not limited to,
the duration of such provision, its geographical scope or the extent of the
activities prohibited or required by it, such provision shall be modified to the
minimum extent necessary to make it or its application valid and enforceable,
and the validity and enforceability of all other provisions of this Agreement
and all other applications of any such provision shall not be affected thereby.
9.14 ASSIGNMENT. None of the parties shall assign or delegate or in
any way transfer any rights, interests or obligations hereunder without the
prior written consent of the other parties, except that the parties agree that
this Agreement: (A) shall be transferred or assigned by the Purchaser to (i) an
entity resulting from any merger, consolidation or other reorganization to which
Purchaser is a party or (ii) a buyer of all or substantially all of Purchaser's
assets relevant to Purchaser's performance under this Agreement, whereupon such
assignee or transferee shall succeed to the rights and obligations of the
Purchaser hereunder, and (B) may be transferred or assigned by the Purchaser to
any entity in which Purchaser has a controlling interest or which is under
common control with Purchaser, whereupon such assignee or transferee shall
succeed to the rights and obligations of the Purchaser hereunder. Subject to
the foregoing restrictions, this Agreement will be fully binding upon, inure to
the benefit of, and be enforceable by the parties hereto and their respective
successors and permitted assigns.
26
<PAGE>
CONFIDENTIAL PORTIONS OF THIS DOCUMENT HAVE BEEN
OMITTED AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION.
9.15 ATTORNEYS' FEES. If legal proceedings are brought to enforce or
interpret any provision of this Agreement, the most prevailing party shall be
awarded its reasonable attorneys' fees and costs in addition to any other relief
or remedy which may be available.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
day and year first written above.
SELLER: REEL TECH, INC., PURCHASER: REEL-TECH, INC.
AN INDIANA CORPORATION A WASHINGTON CORPORATION
By: //S// DOUGLAS R. HALL By: //S// STEVE M. GORDON
---------------------------- --------------------------
Its: PRESIDENT Its: SECRETARY
--------------------------- -------------------------
SHAREHOLDERS
//S//DOUGLAS R. HALL //S//NORRIS R. HALL
- ------------------------------ -----------------------------
Douglas R. Hall Norris R. Hall
27
<PAGE>
CONFIDENTIAL PORTIONS OF THIS DOCUMENT HAVE BEEN
OMITTED AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION.
OMITTED SCHEDULES AND EXHIBITS FROM EXHIBIT 2.1
The following Schedules and Exhibits have been omitted from Exhibit 2.1 in
accordance with Item 601(b)(2) of Regulation S-K. The Registrant will furnish
supplementally a copy of any omitted schedule or exhibit to the Commission upon
request.
SCHEDULE OR EXHIBIT NUMBER DESCRIPTION
1.1 Purchased Assets
1.2 Assumed Liabilities, Obligations and Contracts
(assumed trade payables and other ascertainable
liabilities totalling $1,193,794.62)
2.1 Escrow Agreement (filed as Exhibit 2.2 to this
Report on Form 8-K)
2.2.1A Excluded Inventory
2.2.1B Value of Fixed Assets
2.2.1C Inventory Listing
2.2.1D Reel-Tech, Inc.'s (Washington corporation) Fiscal
Months
2.4.2 Engineering and Manufacturing Documentation
Standards
2.5 Allocation of Purchase Price
3.6A Employment Agreement,
Douglas R. Hall
3.6B Employment Agreement,
Norris R. Hall
3.7 Opinion of Coons, Maddox & Koeller
<PAGE>
CONFIDENTIAL PORTIONS OF THIS DOCUMENT HAVE BEEN
OMITTED AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION.
3.8 Opinion of Heller Ehrman White & McAuliffe
4.5 Required Consents
4.6 Exceptions to Section 4.6, Compliance with
Contracts
4.8 Financial Statements of Reel-Tech, Inc. (Indiana
corporation)
4.9 Accounts receivable and accounts payable aging
reports
4.10 Exceptions to Section 4.10, No Material Changes
4.11 Proprietary Rights
4.12 Exceptions to Section 4.12, Environmental
Compliance
4.14 Exceptions to Section 4.14,
Litigation
<PAGE>
EXHIBIT 2.2
ESCROW AGREEMENT
THIS ESCROW AGREEMENT (the "Agreement") is made and entered into as of
August 31, 1995, (the "Effective Date") by and among REEL-TECH, INC., a
Washington corporation ("Purchaser"), REEL TECH, INC., an Indiana corporation
("Seller") and SEATTLE-FIRST NATIONAL BANK, as escrow agent (the "Escrow
Agent").
RECITALS
WHEREAS, Purchaser and Seller have entered into a Asset Purchase Agreement
dated as of August 31, 1995 (the "Purchase Agreement"), pursuant to which
Purchaser has agreed to purchase substantially all of Seller's assets.
Capitalized terms used herein and not otherwise defined shall have the same
meaning as defined in the Purchase Agreement;
WHEREAS, Section 2.1 of the Purchase Agreement provides that $500,000 of
the Purchase Price (the "Escrowed Funds") will be paid into escrow to effect an
adjustment of the purchase price payable pursuant to the Purchase Agreement and
satisfy indemnity claims made by Purchaser pursuant to the Purchase Agreement;
and
WHEREAS, Purchaser, Seller and the Escrow Agent desire to enter into this
Agreement to establish the terms and conditions under which the Escrow Agent
will hold and disburse the Escrowed Funds;
NOW, THEREFORE, in consideration of the mutual covenants, conditions and
agreements contained in this Agreement, and for other valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, Purchaser, Seller
and the Escrow Agent agree as follows:
1. APPOINTMENT OF ESCROW AGENT. Purchaser and Seller hereby appoint the
Escrow Agent to serve in accordance with the terms of this Agreement, and the
Escrow Agent hereby agrees to act in such capacity upon the express terms,
conditions and provisions hereinafter set forth in this Agreement. The duties
and liabilities of the Escrow Agent shall be determined solely by this Agreement
and not by reference to other agreements between Purchaser and Seller.
-1-
<PAGE>
2. DELIVERY INTO ESCROW. Purchaser herewith delivers to the Escrow Agent
the Escrowed Funds. The Escrow Agent agrees to hold the Escrowed Funds,
including any income from investment of the Escrowed Funds, in escrow as agent
for Purchaser and Seller and to distribute the Escrowed Funds as provided
herein. The Escrowed Funds shall be invested by the Escrow Agent in one or more
of the instruments listed below as specified in writing by Purchaser:
i) direct obligations of the United States of America including
obligations issued or held in book entry form on the books
of the Department of Treasury of the United States of
America or obligations the timely payment of principal of
and interest on which are fully guaranteed by the United
States of America;
ii) repurchase agreements which are fully secured by collateral
in the form of the obligations described in clause (i)
above;
iii) certificates of deposit in amounts of $100,000 or more of
any national bank, including the Escrow Agent, with capital
and surplus of $200 million or more; or
iv) a taxable government money market mutual fund restricted to
obligations with maturities of one year or less, composed of
obligations issued or guaranteed as to payment of principal
and interest by the full faith and credit of the United
States of America or repurchase agreements secured by
government obligations.
The Escrow Agent shall have no duty or right to invest the Escrowed Funds until
it receives written investment instructions from Purchaser. The Escrow Agent
shall not be liable for any loss from said investments. The Escrow Agent is
authorized to redeem any such investments as necessary to make any payments or
disbursements required hereunder and shall be held harmless by Purchaser and
Seller, jointly and severally, with respect to any losses or penalties incurred
thereby. The Escrow Agent shall, at least ten (10) days prior to the maturity
of any investment, notify Purchaser of such impending maturity.
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<PAGE>
3. TAX FORMS. Each party to this Agreement other than the Escrow Agent
shall provide a completed I.R.S. Form W-8 or Form W-9 to the Escrow Agent at the
signing of this Agreement. For purposes of reporting to tax authorities, the
Escrow Agent will treat all income earned by the Escrow Funds as paid to Seller
at the time the income is received by the Escrow Agent.
4. RELEASE OF THE ESCROWED FUNDS. The Escrowed Funds, including any
income from investment of the Escrowed Funds, will be released as follows:
4.1 If Purchaser has a good faith belief that it is entitled to an
Initial True-Up Amount pursuant to Section 2.2.1 of the Purchase Agreement, it
shall provide a copy of the Initial True-Up Report to Seller and the Escrow
Agent within twenty-one (21) days of the Effective Date. The Escrow Agent shall
deliver to Purchaser from the Escrowed Funds cash in the Initial True-Up Amount
as specified in its written directions and accompanied by the Initial True-Up
Report within ten (10) days of receipt of such Initial True-Up Report.
4.2 If Purchaser has a good faith belief that it is entitled to any
True-Up Amount in addition to any Initial True-Up Amount delivered to Purchaser
pursuant to Subsection 4.1 above and pursuant to Section 2.2.1 of the Purchase
Agreement or an Excluded Inventory Adjustment Amount pursuant to Section 2.2.2
of the Purchase Agreement, it shall provide a copy of the True-Up Report or the
Excluded Inventory Adjustment Report, as applicable, to Seller and the Escrow
Agent; provided, however, that any such True-Up Report must be delivered to
Seller and the Escrow Agent no later than forty-five (45) days after the last
day of the sixth complete Fiscal Month, as defined below, after the Effective
Date and that any such Excluded Inventory Adjustment Report must be delivered to
Seller and the Escrow Agent no later than thirty (30) days after the last day of
the ninth complete Fiscal Month, as defined below, after the Effective Date.
Seller may contest in whole or in part such True-Up Amount or Excluded Inventory
Adjustment Amount by giving Purchaser and the Escrow Agent written notice within
thirty (30) days after Purchaser provides such True-Up Report or Excluded
Inventory Adjustment Report to Seller. If Seller does not timely contest the
True-Up Amount or the Excluded Inventory Adjustment Amount, as the case may be,
the Escrow Agent shall promptly after expiration of the thirty (30) day response
period deliver to Purchaser from the Escrowed Funds cash in the amount of the
True-Up Amount or the Excluded Inventory Adjustment Amount, as
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<PAGE>
applicable. If Seller timely contests such True-Up Amount or Excluded Inventory
Adjustment Amount, then the Escrow Agent shall release any portion of the True-
Up Amount or Excluded Inventory Adjustment Amount not disputed by Seller and
shall continue to hold Escrowed Funds in the amount of the True-Up Amount or
Excluded Inventory Adjustment Amount in dispute for delivery to Purchaser in
such amount, if any, as shall be specified by any of the following:
(a) Written instructions executed by both Purchaser and
Seller; or
(b) A court order adjudicating such dispute issued by a
court of competent jurisdiction.
4.3 If Purchaser has a good faith belief that it or any other
Indemnified Party is entitled to indemnification pursuant to Section 7 of the
Purchase Agreement, it shall give written notice to Seller and the Escrow Agent
of such claim (an "Indemnity Claim"), which notice shall specify the basis for
the claim and the estimated dollar amount required to satisfy such claim (the
"Claim Amount") and which notice must be given no later than the last day of the
ninth complete Purchaser fiscal month ("Fiscal Month(s)"), as described in
Schedule 4.3, after the Effective Date. Seller may contest any Indemnity Claim
by giving Purchaser and the Escrow Agent written notice within thirty (30) days
after Purchaser gives written notice of the Indemnity Claim to Seller. If
Seller does not timely contest the Indemnity Claim pursuant to the preceding
sentence, the Escrow Agent shall promptly after expiration of the thirty (30)
day response period deliver to Purchaser from the Escrowed Funds cash in the
amount of the Claim Amount. If Seller timely contests the Indemnity Claim, then
the Escrow Agent shall continue to hold Escrowed Funds in the amount of such
disputed Claim Amount for delivery to Purchaser in such amount, if any, as shall
be specified by any of the following:
(a) Written instructions executed by both Purchaser and
Seller; or
(b) A court order adjudicating such dispute issued by a
court of competent jurisdiction.
4.4 On the forty-first day following the last day of the ninth
complete Fiscal Month after the Effective Date (or the next business day if such
day is not a business day), the Escrow
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<PAGE>
Agent shall release to Seller all remaining Escrowed Funds less the sum of all
True-Up Amounts, Excluded Inventory Adjustment Amounts and Claim Amounts which
have not been resolved in accordance with Subsection 4.2 or 4.3 above by that
date. Within five (5) business days after the execution of this Agreement,
Purchaser shall provide to the Escrow Agent in writing the date that is the
Effective Date of the Purchase Agreement.
4.5 All Escrowed Funds not released by the Escrow Agent in accordance
with Subsections 4.1 through 4.4 above shall be released to Seller or Purchaser
in such amount as shall be specified by:
(a) Written instructions executed by both Purchaser and Seller;
or
(b) A court order adjudicating such dispute issued by a court of
competent jurisdiction.
5. DUTY AND LIABILITY OF THE ESCROW AGENT.
5.1 The sole duty of the Escrow Agent, other than as herein
specified, shall be to receive the Escrowed Funds and hold them subject to
release in accordance with the terms of this Agreement. The Escrow Agent's
rights, duties and obligations are strictly limited to those expressly set forth
in this Agreement and the Escrow Agent shall be under no implied obligations nor
subject to take notice of any defaults or any other matter, nor be bound nor
required to give notice or demand, nor required to take any action whatever
except as herein expressly provided. The Escrow Agent shall not be liable for
any loss or damage unless caused by its own gross negligence or willful
misconduct.
5.2 The Escrow Agent may conclusively rely upon and shall be
protected in acting upon any statement, certificate, notice, request, consent,
order or other document believed by it to be genuine and to have been signed or
presented by the proper party or parties. The Escrow Agent shall have no duty
or liability to verify any such statement, certificate, notice, request,
consent, order or other document and its sole responsibility shall be to act
only as expressly set forth in this Agreement. The Escrow Agent shall be under
no obligation to institute or defend any action, suit or proceeding in
connection with this Agreement. The Escrow Agent may consult counsel in respect
of any question arising under this Agreement, and the Escrow Agent shall not be
liable for any action taken or omitted in good faith upon advice of such
counsel.
-5-
<PAGE>
5.3 Purchaser and Seller jointly and severally agree to indemnify and
hold harmless the Escrow Agent from loss, damage or any claim made against the
Escrow Agent arising out of or relating to this Agreement, such indemnification
to include all costs and expenses incurred by the Escrow Agent, including but
not limited to reasonable attorneys' fees; provided, however, that such
indemnification shall not include claims against the Escrow Agent which are
occasioned by gross negligence, bad faith or willful misconduct.
5.4 The Escrow Agent may conclusively rely on the written
instructions of all the parties as to the disposition of funds, assets,
documents, or other property held in escrow.
6. ESCROW AGENT'S FEE.
6.1 Purchaser and Seller each agree to pay one-half of the fees of
the Escrow Agent as set forth in SCHEDULE 6.1 attached hereto. If either or
both parties do not pay, both shall be jointly and severally liable therefor.
The fee for services rendered hereunder is intended as full compensation for the
Escrow Agent's services as contemplated by this Agreement. In addition,
Purchaser and Seller each agree to pay one-half of the Escrow Agent's reasonable
expenses and disbursements, including, but not limited to, the actual cost of
legal services, should the Escrow Agent deem it necessary to retain an attorney.
Should litigation instituted by or against any of the parties require additional
duties of the Escrow Agent or appearance in court, the Escrow Agent shall be
reimbursed by the nonprevailing party for its services and for its expenses
incurred therein, or in the event such litigation is settled, as agreed between
Purchaser and Seller.
6.2 If any controversy arises between the parties hereto or with any
third person, the Escrow Agent shall not be required to resolve the same or to
take any action to do so but may, at its discretion, institute such interpleader
or other proceedings as it deems proper. Any costs and expenses, including
reasonable counsel fees incurred by the Escrow Agent in connection with such
dispute, shall be paid by the nonprevailing party or as otherwise agreed by the
parties.
7. BINDING AGREEMENT AND SUBSTITUTION OF ESCROW AGENT. The terms and
conditions of this Agreement shall be binding on the heirs, executors and
assigns, creditors, transferees, or successors in interest of the parties
hereto, regardless of
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<PAGE>
whether such interest is obtained by operation of law or otherwise, including
without limitation by consolidation, transfer, assignment or merger. Any
corporation into which the Escrow Agent may merge, sell, or transfer its escrow
business shall automatically be and become successor Escrow Agent hereunder,
vested with all powers as was its predecessor without the execution or filing of
any instruments, or any further act, deed, or conveyance on the part of the
parties hereto. If, for any reason, the Escrow Agent named herein should be
unable or unwilling to continue to serve as such Escrow Agent, the Escrow Agent
shall give Purchaser and Seller twenty (20) days prior written notice thereof.
Upon the effective date of such resignation, the Escrow Agent shall have no
further duties or obligations hereunder. Purchaser and Seller shall within that
twenty (20) days appoint another escrow agent by a writing signed by Purchaser
and Seller, a copy of which shall be delivered to the withdrawing Escrow Agent.
If the Escrow Agent is not notified within twenty (20) days of a successor
Escrow Agent then the Escrow Agent shall be entitled to transfer all of the
Escrowed Funds to a court of competent jurisdiction with a request to have a
successor appointed. The Escrow Agent shall promptly thereafter execute all
documents necessary to transfer the Escrowed Funds to the substitute escrow
agent.
8. GENERAL.
8.1 All notices, demands and other communications called for or
required by this Agreement shall be in writing and shall be addressed to the
parties at their respective addresses stated below or to such other address as a
party may subsequently designate by ten (10) days' advance written notice to the
other parties. Communications hereunder shall be deemed to have been received
(i) upon delivery in person, (ii) three business days after mailing it by U.S.
certified mail, return receipt requested and postage prepaid, (iii) the first
business day after depositing it with a commercial overnight carrier which
provides written verification of delivery or (iv) the day of transmission by
telefacsimile if sent before 2:00 p.m. recipient's time provided that a copy of
such notice is sent on the same day by U.S. certified mail, return receipt
requested and postage prepaid, with an indication that the original was sent by
telefacsimile and the date of its transmittal.
Seller: Reel Tech, Inc., an Indiana corporation
Attention: Douglas R. Hall
7402 Oakland Hills Circle
Indianapolis, Indiana 46236
Fax: (317) 823-1482
CC: Robert M. Koeller
Coons, Maddox & Koeller
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<PAGE>
9100 Keystone Crossing, Suite 440
Indianapolis, Indiana 46240-2159
Fax: (317) 574-2050
Purchaser: Reel-Tech, Inc., a Washington corporation
Attention: President
10525 Willows Road Northeast
Redmond, Washington 98073
Fax: (206) 881-2917
CC: Data I/O Corporation
Attention: Chief Financial Officer
10525 Willows Road Northeast
Redmond, Washington 98073
Fax: (206) 881-2917
Escrow Agent: Seattle First National Bank
c/o BankAmerica State Trust Company
Attention: Linda Houston
1100 Second Avenue, Fifth Floor
Seattle, WA 98101
Fax: (206) 585-8738
8.2 This Agreement, including all matters of construction, validity
and performance, shall be governed by and construed and enforced in accordance
with the laws of the State of Washington, without regard to its conflict of law
provisions which might otherwise require the application of the law of any other
jurisdiction. The parties agree that the exclusive jurisdiction and venue of
any action arising under this Agreement shall be the Superior Court of
Washington for King County, or the United States District Court for the Western
District of Washington at Seattle, and each of the parties hereby irrevocably
agrees, acknowledges and submits itself to the exclusive jurisdiction and venue
of such courts for the purposes of such lawsuit.
8.3 This Agreement cannot be modified, or any of the terms hereof
waived, except by an instrument in writing (referring specifically to this
Agreement) executed by all the parties to this Agreement.
8.4 This Agreement may be executed in one or more counterparts, all
of which shall be considered one and the same agreement, and shall become a
binding agreement when one or more counterparts have been signed by each of the
parties and either original or facsimile counterparts have been delivered to the
other party.
-8-
<PAGE>
8.5 The parties hereto agree not to use the name of Seafirst or
Seattle-First National Bank to infer an association with the transaction other
than that of a legal bank.
8.6 The Escrow Agent's immunities and limitations of liability
hereunder and its rights to payment of its fees and expenses shall survive its
resignation or removal and the termination of this Agreement.
8.7 This Agreement and the agreements referenced in the recitals
above contain all of the terms and conditions agreed upon by the parties
relating to the subject matter hereof and supersede and cancel all prior
agreements, negotiations, correspondence, undertakings, and communications of
the parties, whether oral or written, respecting that subject matter.
8.8 The parties hereto may elect to request transfer of funds by
Fedwire from time to time, subject to the conditions stated herein. The parties
hereto agree that the wire transfer security procedures identified on the
attached EXHIBIT 8.8 to this Agreement are commercially reasonable. Parties
hereto further agree that the Escrow Agent should use those procedures to detect
unauthorized wire transfer payment requests prior to executing such requests and
further agree that any request acted upon by the Escrow Agent in compliance with
these security procedures, whether or not authorized, shall be treated as an
authorized request. The parties hereto agree that the Escrow Agent has the
right to change the wire transfer security procedures from time to time and that
use of any changed procedures evidences the acceptance of commercial
reasonability of such change by the parties hereto.
8.9 If legal proceedings are brought to enforce or interpret any
provision of this Agreement, the most prevailing party shall be awarded its
reasonable attorneys' fees and costs in addition to any other relief or remedy
which may be available.
-9-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have entered into and signed this
Agreement as of the date and year first written above.
SEATTLE FIRST NATIONAL BANK,
as Escrow Agent
By BankAmerica State Trust Company,
Its Authorized Agent
By //S// DEBBIE WIGHT
---------------------------------
Its AVP
------------------------------
SELLER:
REEL TECH, INC., an Indiana corporation
By //S// DOUGLAS R. HALL
--------------------------------
Its PRESIDENT
------------------------------
PURCHASER:
REEL-TECH, INC., a Washington
corporation
By //S// STEVE M. GORDON
-------------------------------
Its SECRETARY
------------------------------
-10-
<PAGE>
SCHEDULE 4.3
Purchaser's Fiscal Months
1995
MONTHLY CLOSING DATES
January 26, 1995
February 23, 1995
MARCH 30, 1995
April 27, 1995
May 25, 1995
JUNE 29, 1995
July 27, 1995
August 24, 1995
SEPTEMBER 28, 1995
October 26, 1995
November 23, 1995
DECEMBER 28, 1995
<PAGE>
1996
MONTHLY CLOSING DATES
January 25, 1996
February 22, 1996
MARCH 28, 1996
April 25, 1996
May 23, 1996
JUNE 27, 1996
July 25, 1996
August 22, 1996
SEPTEMBER 26, 1996
October 24, 1996
November 21, 1996
DECEMBER 26, 1996
<PAGE>
1997
MONTHLY CLOSING DATES
January 23, 1997
February 20, 1997
MARCH 27, 1997
April 24, 1997
May 22, 1997
JUNE 26, 1997
July 24, 1997
August 21, 1997
SEPTEMBER 25, 1997
October 23, 1997
November 20, 1997
DECEMBER 25, 1997
<PAGE>
1998
MONTHLY CLOSING DATES
January 22, 1998
February 19, 1998
MARCH 26, 1998
April 23, 1998
May 21, 1998
JUNE 25, 1998
July 23, 1998
August 20, 1998
SEPTEMBER 24, 1998
October 22, 1998
November 19, 1998
DECEMBER 31, 1998
<PAGE>
SCHEDULE 6.1
ESCROW AGENT'S FEES
SEATTLE-FIRST NATIONAL BANK
SCHEDULE OF FEES
ESCROW SERVICES
MINIMUM ACCEPTANCE FEE $750.00
MINIMUM ANNUAL ACCOUNT MAINTENANCE FEE: $750.00
ANNUAL HOLDING FEE:
Securities held per year, per issue $50.00
Legal Documents $50.00
INVESTMENT FEE: (Securities other than Seafirst Managed Mutual Funds)
5% of interest earned
ADMINISTRATIVE FEES:
Deposit, exchange, or withdrawal of stock, bond or document
(per item) $5.00
Receipt of payment of deposit $10.00
Disbursements (per check or funds transfer) $7.50
Returned checks $10.00
List of subscribers for securities offerings per subscriber
($50.00 minimum) $2.00
Interest allocation per subscriber ($50.00 minimum) $1.50
Tax reporting (W-9, 1099) per individual/company (25.00 minimum) $2.00
Foreign tax reporting (W-8, 1042) per individual/company $50.00
Incoming/outgoing wire transfers $10.00
Minimum Final Release of Proceeds Review $25.00
Acceptance fees, annual account maintenance fees and Final Release of Proceeds
Review are based on appraisal of work and time spent.
For investments made through Seafirst-managed mutual funds, there is no
investment fee. Seafirst's fees and charges as investment advisor, shareholder
servicing agent, transfer agent and custodian are disclosed in the applicable
prospectus.
Thereafter, annual account maintenance fees are payable in advance. Annual
account maintenance fees will not be prorated.
Fees are to be paid before escrowed funds are released.
Seafirst Bank shall have a first and paramount lien against all property placed
in escrow for payment of its costs, charges, fees and expenses (including,
without limitation, reasonable attorneys' fees), in the event of a dispute or
misunderstanding.
All fees are subject to Washington State sales tax.
Additional fees may be charged in a reasonable amount for any unusual or
extraordinary services including investment management services rendered and not
covered by this fee schedule.
Fees are subject to change from time to time consistent with changes made by
Seafirst to its standard escrow fee schedule.
NOTE: FINAL ACCOUNT ACCEPTANCE IS SUBJECT TO REVIEW OF DOCUMENTS AD COMPLIANCE
WITH SEAFIRST'S ACCOUNT ACCEPTANCE PROCEDURES.
BANKAMERICA IS IN THE PROCESS OF PURSUING THE SALE OF ITS INSTITUTIONAL TRUST
AND SECURITIES DIVISION. THE SERVICE INCLUDED IN THIS PROPOSAL MAY BE AFFECTED
IN FULL OR PART BY THE PENDING SALE. DETAILS REGARDING THE TIMING OF THE SALE,
WHAT SERVICES WILL BE INCLUDED IN THE SALE TRANSACTION, WHETHER THE SERVICES
WILL BE THE SUBJECT OF ONE OR MULTIPLE SALES TRANSACTIONS AND PURCHASER NAMES
ARE NOT AVAILABLE AT THIS TIME.
DATED: JUNE 26, 1995 CONFIDENTIAL
<PAGE>
SCHEDULE 8.8
SECURITY PROCEDURES
WIRE TRANSFER SECURITY PROCEDURES
Requestor is defined as one of the parties to the escrow document.
REQUEST IS MADE IN WRITING:
a. Escrow Agent verifies signature vs. authorized list of
representatives for Requestor.
REQUEST IS MADE IN PERSON:
a. Requestor prepares a written signed request.
b. Escrow Agent verifies signature vs. authorized list of
representatives for Requestor.
REQUEST IS MADE BY PHONE:
a. Requestor provides Escrow Agent with their name, the account
number, and the detailed request.
b. Escrow Agent confirms that the person making the request is
an authorized representative for the Requestor.
c. Escrow Agent uses call back verification to reconfirm the
request*.
d. Requestor sends original follow-up request by mail*.
* If request changes the amount and/or message only, on an
instruction signed by Requestor's authorized representative which
Requestor has previously communicated to Escrow Agent in writing and
Escrow Agent has such written instruction on file, Escrow Agent is not
required to perform the call back verification and Requestor need not
follow-up the request by mail.
Escrow Agent has the right to change the Wire Transfer Security Procedures
from time to time and the Requestors use of any changed procedures
evidences the acceptance of the commercial reasonability of such change.
<PAGE>
EXHIBIT 99.1
NEWS RELEASE FOR IMMEDIATE RELEASE
SEPTEMBER 5, 1995
CONTACT: STEVEN M. GORDON
VP/CHIEF FINANCIAL OFFICER
DATA I/O CORPORATION
(206) 881-6444, EXT. 2224
DATA I/O ACQUIRES REEL-TECH, ENTERS SEMICONDUCTOR
EQUIPMENT MARKET
REDMOND, WASHINGTON - SEPTEMBER 5, 1995 - Data I/O Corporation (NASDAQ: DAIO)
announced today that it has completed the acquisition of the assets of
Indianapolis-based Reel-Tech Inc. Reel-Tech, founded in 1986, designs,
manufactures and sells equipment that is used in handling and marking integrated
circuits (ICs) during the semiconductor manufacturing process. Reel-Tech
revenues for the first eight months of 1995 totaled approximately $2.0 million
(excluding sales to Data I/O). Data I/O had previously announced on July 27 an
agreement in principal to acquire Reel-Tech.
Data I/O currently markets programming and handling equipment that
facilitates the use of programmable ICs in both engineering and manufacturing
environments. The acquisition of Reel-Tech enables Data I/O to develop and
offer more products and solutions in the materials handling and marking area,
which is closely related to its programming and handling business. It also
gives Data I/O expanded capability in systems integration, which large
semiconductor companies are increasingly demanding.
"There is a great deal of synergy between the products, technology, and
customers of the two companies. The acquisition allows us to further leverage
our relationships with the semiconductor manufacturers," said William C.
Erxleben, president and CEO of Data I/O. "In addition to opening new markets
for us, the Reel-Tech acquisition provides us with greater access to technology
that can be used in our existing automated handling products."
For the past year, Reel-Tech has partnered with Data I/O in the development
and manufacturing of the handling portion of Data I/O's ProMaster 9500 automated
handling system, which sets the industry standard for yield, uptime, and
throughput in high-volume programming and handling applications.
"We are extremely proud of our development methodology for the ProMaster
9500, which was brought to market in less than one year from conceptualization.
It is a development model that we plan to use for future products," said
Erxleben. The ProMaster 9500 is the first in a line of products that the
company will introduce to address the programming and handling of fine-pitch or
extremely delicate programmable ICs.
Doug Hall, president and CEO of Reel-Tech, joins Data I/O as director of
the Indianapolis Semiconductor Operation, which will comprise Reel-Tech's
current staff of
<PAGE>
21 engineering, manufacturing and sales personnel. The Indianapolis
Semiconductor Operation's products will continue to be sold through its world-
wide network of sales representative firms. In addition to Data I/O, Reel-
Tech's principal customers include the semiconductor divisions of Intel, Micron,
Motorola and Texas Instruments.
The purchase price for the assets of Reel-Tech included an initial payment
of $2.0 million plus the assumption of certain liabilities. In addition, the
company has agreed to pay up to a maximum of an additional $2.0 million if
certain financial and operational targets are achieved in the next three years.
The company expects to take a charge to earnings in the third quarter of 1995 of
$850,000 for the portion of the purchase price paid at closing related to in-
process engineering plus certain acquisition-related expenditures. With the
exception of this charge, the company does not expect this transaction to have a
material effect on earnings in 1995 or 1996, as the amortization of the
capitalized portion of the purchase price will substantially offset the
additional earnings from the acquisition.
Data I/O is the world's leading provider of programming and handling
equipment for design through manufacturing of programmable integrated circuits.
The company is also a leader in Windows electronic design automation (EDA)
software, providing superior design solutions based on tightly integrated best-
of-class tools. Its products are sold through an international network of
value-added resellers (VARs) and technical sales representative firms, which it
supports with local sales offices. Data I/O, founded in 1972 and headquartered
in Redmond, Washington, has sales and service offices throughout the United
States, Europe and Asia and is publicly traded (NASDAQ: DAIO).
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