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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended DECEMBER 26, 1996 Commission File No. 0-10394
DATA I/O CORPORATION
(Exact name of registrant as specified in its charter)
Washington 91-0864123
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10525 Willows Road N.E., Redmond, Washington, 98052
(address of principal executive offices, Zip Code)
Registrant's telephone number, including area code (206) 881-6444
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on
which registered
NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock (No Par)
Series A Junior Participating Preferred Stock
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Aggregate market value of voting stock held
by non-affiliates of the registrant as of February 25, 1997
$32,470,833
6,835,965 shares of no par value Common Stock outstanding as of February 25,
1997
DOCUMENTS INCORPORATED BY REFERENCE
(1) Portions of the registrant's Proxy Statement relating to its May 13, 1997,
Annual Meeting of Stockholders are incorporated into Part III of this
annual report on Form 10-K.
Page 1 of 168
Exhibit Index on Page 60
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DATA I/O CORPORATION
FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 26, 1996
INDEX
Part I Page
----
Item 1. Business 3
Item 2. Properties 21
Item 3. Legal Proceedings 21
Item 4. Submission of Matters to a Vote of Stockholders 21
Part II
Item 5. Market for Registrant's Common Stock and Related Stockholder
Matters 22
Item 6. Selected Five-Year Financial Data 23
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations 24
Item 8. Financial Statements and Supplementary Data 31
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosures 48
Part III
Item 10. Directors and Executive Officers of the Registrant 49
Item 11. Executive Compensation 49
Item 12. Security Ownership of Certain Beneficial Owners and
Management 49
Item 13. Certain Relationships and Related Transactions 49
Part IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K 50
Signatures 59
Exhibit Index 60
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PART I
ITEM 1. BUSINESS
GENERAL
Data I/O-Registered Trademark- Corporation ("Data I/O" or the "Company") was
incorporated in the State of Washington in 1969. The Company manufactures
hardware and software products for semiconductor manufacturers and users of
programmable integrated circuits ("IC" or "ICs"). Within this one predominant
business segment, the Company offers three major product groups: (1)
programming systems used by customers to handle, program, test and mark
programmable ICs; (2) semiconductor equipment used to handle, transport and mark
ICs; and (3) Electronic Design Automation ("EDA") software used to create
application designs for programmable ICs. These three product groups are
organized respectively under the Company's three divisions: (1) Programming
Systems, (2) Semiconductor Equipment, and (3) Synario-Registered Trademark-
Design Automation-TM-.
The Company is the world's leading provider of programming systems for
programmable ICs. It markets products to more than 15,000 customers worldwide
in a broad range of industries including computers, communications, test and
measurement, medical, consumer electronics, military, transportation, aerospace
and semiconductors. All of these customers either manufacture ICs or design or
manufacture products which incorporate programmable ICs.
FORWARD-LOOKING STATEMENTS
Although most of the information contained in this report is historical, certain
of the statements contain forward-looking information. To the extent these
statements involve, without limitation, product development and introduction
plans, the Company's expectations for growth, estimates of future revenue,
expenses, profit, cash flow, balance sheet items, sell-through or backlog,
forecasts of demand or market trends for the Company's various product
categories and for the industries in which the Company operates or any other
guidance on future periods, these statements are forward-looking and involve
matters which are subject to a number of risks and uncertainties that could
cause actual results to differ materially from those expressed in or implied by
such forward-looking statements. These risks and uncertainties include product
development or production difficulties or delays due to supply constraints,
technical problems or other factors; technological changes; the effect of
global, national and regional economic conditions; changes in operating system
platforms of preference; the impact of competitive products and pricing; changes
in demand; increases in component prices or other costs; inventory risks due to
shifts in market demand, product obsolescence or other factors and a number of
other risks including those identified by the Company under the caption "Risk
Factors" in Item 1 and elsewhere in this report, and other risks identified from
time to time in the Company's filings with the Securities and Exchange
Commission, press releases and other communications.
INDUSTRY OVERVIEW
GLOSSARY OF TERMS
Throughout this document industry-specific terminology and acronyms are used to
facilitate understanding of the industries in which the Company operates. Below
certain terms and acronyms are defined.
IC INTEGRATED CIRCUITS produced by semiconductor manufacturers
including those which are programmable and those which are
supplied by the manufacturer with a predetermined fixed function.
PLD A PROGRAMMABLE LOGIC DEVICE is a programmable logic IC that can
be configured or programmed by a system designer.
CPLD A COMPLEX PROGRAMMABLE LOGIC DEVICE is a programmable logic IC
that contains multiple programmable logic cells and a
programmable interconnect structure between the cells.
FPGA A FIELD PROGRAMMABLE GATE ARRAY is a sophisticated high-capacity
PLD.
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PROM A PROGRAMMABLE READ ONLY MEMORY is a programmable memory IC that
is a non-volatile data storage IC meaning it can retain data when
the power is shut off.
EPROM An ERASABLE PROM is a programmable memory IC, which can be erased
and reused.
EEPROM An ELECTRICALLY ERASABLE PROM is a programmable memory IC that
can be electronically erased and reused.
Micro- A microcontroller is an IC that is a processor containing
controller programmable memory within the IC.
Device Refers to any of the various ICs referred to herein.
Package Package refers to the physical shape, size and number and
arrangement of pins of an IC.
Pins Pins are the leads from the IC that connect the IC to the
circuitry on the printed circuit board.
PCB PRINTED CIRCUIT BOARDS are the boards on which ICs and other
electronic components are mounted in electronic products.
Conventional An IC package where the pins are inserted through holes drilled
Throughhole in a PCB. An example is a DIP (dual in line pin) package.
IC
Surface- An IC package where the pins from the IC connect to the surface
Mount IC of a PCB. Examples include PLCC (plastic leaded chip carrier),
SOIC (small outline IC) and TSOP (thin small outline package).
PROGRAMMABLE INTEGRATED CIRCUITS AND PROGRAMMING SYSTEMS
During the last 20 years, the semiconductor industry has developed processes
which continually have increased the number of functions and memory on a single
chip of silicon. These chips, called integrated circuits, are a tiny complex of
electronic components and connections which come in two types: fixed or
programmable. The fixed type have a specific design incorporated during the
manufacture of the circuit that cannot be changed and can only perform its
specific predetermined fixed function.
A programmable IC is manufactured without a specific function incorporated into
it and allows the electronics design engineer to specify how it is to perform.
Programmable ICs are analogous to a blank cassette tape in that the programmable
IC can record and store a set of instructions similar to the way a blank
cassette tape can record and store music. Programmable ICs consist of either
memory or logic circuits. Programmable memory ICs are for non-volatile data
storage, meaning they retain data when the power supply to the circuit is off.
Memory ICs include PROMs, EPROMs and EEPROMs. Programmable logic ICs contain
logic elements by which the entire function of the IC can be changed by
programming changes to these elements. This means a given programmable logic IC
can perform a variety of functions in an electronic design. Types of
programmable logic ICs include PLDs, CPLDs and FPGAs.
Today, some combination of programmable memory and logic ICs are found in
virtually all electronic equipment. Programmable memory ICs are used most
extensively for the permanent storage of software programs in instruments,
control systems, consumer electronic equipment, computers and computer
peripherals. Most microprocessor and microcomputer-based systems use some form
of programmable memory IC. These systems are increasingly using programmable
logic ICs as well.
Programmable memory and logic ICs are housed in several different types of
packages with a wide variety of sizes, shapes and number and arrangement of pins
to connect the IC to the circuit board. These numerous packages are combined
into two distinct groups: conventional throughhole and surface-mount.
Conventional throughhole ICs have pins which are inserted through holes in a
circuit board and are soldered to the bottom of the board. Surface-mount ICs
are very small and delicate packages that can be mounted onto the surface of a
circuit board without drilling holes through the circuit board for the IC pins.
This allows ICs to be mounted to both sides of the board, doubling the board's
"real estate" for ICs and circuitry.
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The development of programmable ICs created the need for programming equipment
to load the instructions into the physical IC. To accommodate the expanding
variety of programmable ICs, programming equipment must have the capability to
program the type of IC technology (how it physically accepts the information),
the specific IC's set of features and functions, while also accommodating the
IC's package type, including its specific size, pin arrangement and number of
pins. Data I/O's programming equipment supports the vast majority of the
thousands of different programmable ICs presently on the market. Additionally,
as the number of programmable IC types and their applications expanded, and as
programmable ICs became increasingly miniaturized, the demand for automated
methods of handling, programming, and marking of programmable ICs increases.
These programmable ICs are being used in high-volume manufacturing situations as
the cost of programmable ICs declines relative to fixed ICs and the competitive
environment causes the time-to-market to be increasingly critical. The ability
of manufacturers to shorten their product's time-to-market improves with
programmable ICs, as once the design for the programmable IC is finished it can
be programmed immediately into the programmable IC and changes can be readily
made. This avoids the expensive and time consuming process of setting up and
fabricating the fixed type of ICs where any changes require that the process be
restarted. Data I/O's automated programming and handling systems allow
manufacturers to program numerous types of programmable ICs in a variety of
packages in very high volumes.
SEMICONDUCTOR EQUIPMENT
IC manufacturers have responded to the market demand for more powerful ICs and
increased miniaturization by producing smaller devices with an increased number
of more delicate pins. This trend has increased the need for automated
equipment used to handle these smaller, more delicate device packages during the
IC manufacturing process as well as after the ICs are completed and sold to
electronic equipment manufacturers. Such automated handling equipment is
critical for minimizing damage of the delicate pins of the ICs and increases the
speed of transferring ICs into and out of the protective media used for
transporting ICs (tubes, trays, and tape and reel).
ELECTRONIC DESIGN AUTOMATION ("EDA") SOFTWARE TOOLS
The evolution of programmable logic IC technology enabled engineers to fit an
increasing number of large, complex functions into a single programmable IC.
This higher level of integration reduces the size and cost, and increases the
quality and reliability, of the electronic systems using these programmable ICs.
With the adoption rate and complexity of programmable logic ICs growing rapidly,
design engineers need software tools to speed up and lower the cost of the
design process. EDA tools span the entire electronic design process from
initial design through final test simulation. Data I/O's EDA software tools
allow the design engineer to describe their design's behavior using concise,
easy-to-understand expressions. The software then "prepares" the design for
implementation in a particular programmable IC and stores the design in a
standard format that can be used by a programmer. The programmer records the
design into the programmable IC, and the programmed IC can then be used in the
particular product or system for which it was designed.
PRODUCTS
The table below details the contribution the Company's three principal divisions
made to total net sales for the last three fiscal years (in thousands of
Dollars):
<TABLE>
<CAPTION>
Programming Systems Semiconductor Equipment Synario Design Automation
Division (1) Division (2) Division (1) Total Sales
------------------------- ---------------------------- ---------------------------- -----------------
Percent Percent Percent Percent Percent Percent Percent
Year Amount Growth of Total Amount Growth of Total Amount Growth of Total Amount Growth
- ---- ------ ------ -------- ------ ------ -------- ------ ------ -------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1996 $51,122 (16.2%) 84.6% $3,744 500% 6.2% $5,557 26.3% 9.2% $60,423 (8.5%)
1995 $61,005 4.6% 92.4% $625 N/A 0.9% $4,401 40.0% 6.7% $66,031 7.4%
1994 $58,335 (6.3%) 94.9% N/A N/A N/A $3,143 235.1% 5.1% $61,478 (2.7%)
</TABLE>
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(1) Prior year's figures have been reclassified for comparability.
(2) The purchase of the assets of Reel-Tech-TM-, Inc. in August 1995 added
semiconductor equipment to the Company's existing product lines.
Semiconductor Equipment Division 1995 net sales are for four months
compared to twelve months for 1996.
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PROGRAMMING SYSTEMS
Data I/O's broad line of programming systems includes a wide variety of systems,
modules and accessories, which can be grouped into three general categories:
non-automated programming systems, non-automated parallel programming systems,
and automated programming and handling systems. Its non-automated programming
systems are single site IC programmers. Its non-automated parallel programming
systems program multiple ICs at the same time, providing higher throughput. Its
automated programming and handling systems program ICs, and also handle, test
and mark the ICs in high volumes. With this broad range of capabilities,
Data I/O's systems can program more than 6,000 programmable ICs, which is the
vast majority of the different types of programmable ICs currently on the market
for both engineering (prototyping) and manufacturing applications.
Because semiconductor manufacturers continually develop new programmable ICs,
the Company continually updates its programming systems line to provide support
for the newest programmable ICs. In addition to incorporating new programmable
IC support into the latest versions of its products, the Company packages and
sells programmable IC support updates to allow customers to keep their existing
products current.
Data I/O works closely with all major semiconductor manufacturers of
programmable ICs to ensure that the Company's programming systems use
programming methodology that complies with the manufacturers' specifications.
Many of these manufacturers perform some testing of Data I/O programming systems
and issue a letter of certification indicating that the Data I/O programming
system is able to program their programmable IC. In addition, many
semiconductor manufacturers endorse Data I/O programming systems as equipment
they recommend for end-user applications as well as for use in their own
development and production environments. These relationships enable Data I/O to
keep its product line up-to-date with the latest technology and to provide
end-users with broad and current programmable IC support.
NON-AUTOMATED PROGRAMMING SYSTEMS
The UniSite-TM- Universal Programmer, introduced in July 1986, is the Company's
top-of-the-line non-automated programming system. The UniSite, based on
Data I/O's proprietary pin-driver technology, allows any pin of any programmable
IC to perform any programming function. This gives the programming system its
universality, allowing programming of each programmable IC according to its
unique specifications. In 1990, the Company enhanced the UniSite by adding its
proprietary universal socketing technology, which permits the programming of the
programmable ICs in small and delicate surface-mount packages. This socketing
technology significantly reduces the need for costly and less-efficient adapters
for every different type of programmable IC, and at the same time, reduces
costly programming errors and IC damage.
The 2900 and 3900 Programming Systems, introduced in April 1990 and October
1991, respectively, use the same operating system as the UniSite and incorporate
the Company's proprietary universal socketing technology. Both can program the
most complex programmable ICs. The 2900 is a highly-advanced mid-priced
programming system that can program and test programmable memory and logic ICs
with up to 44 pins. The 3900 programs ICs with as many as 88 pins and provides
added capability at a price between the mid-priced 2900 and the top-of-the-line
UniSite.
The ChipLab-Registered Trademark- Project Programmer, introduced in August 1993,
is a programming system designed and priced for individual engineers purchasing
a programmer for a specific project. This contrasts with the 2900/3900 and
UniSite which are intended for groups or departments. ChipLab runs directly
from an engineer's personal computer as a peripheral, and is designed to be
intuitive and easy to use.
The 2700 Programming System, introduced in 1995, was designed specifically for
smaller engineering facilities. The 2700 is a lower-priced member of the
2900/3900 product family using the same proprietary universal socketing
technology. Unlike the 2900 and 3900, but like the ChipLab, the 2700 runs
directly from an engineer's personal computer as a peripheral.
The UniSite, 3900, 2900, 2700 and ChipLab share a similar software architecture
and are supported by Data I/O's proprietary algorithm development tool. This
tool, licensed by Data I/O to leading semiconductor manufacturers, allows
Data I/O and the manufacturers to work together efficiently and effectively to
develop support for new programmable ICs as quickly as possible. The
semiconductor manufacturers use this tool to develop programming instructions
exclusively for Data I/O programmers, enhancing both the time-to-market of their
programmable ICs, and Data I/O's support and enhancement efforts.
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The Company is redesigning its entire non-automated programming system product
line with a new generation of programmer technology which it expects to be
available in the second half of 1997. These new products, based on a new
proprietary programming architecture called DataSite-TM-, will include a family
of single socket solutions for engineering applications, a multi-socket solution
for use in production and programming support for the Company's new high-volume
programming and handling systems. In addition, the Company announced on
February 21, 1997 a worldwide distribution agreement with ICE Technology, Ltd.,
which produces a variety of low-priced non-automated IC programmers. The
agreement allows Data I/O Corporation to sell, under its brand name, the ICE
Technology-Registered Trademark-, Ltd. IC programmers on a worldwide basis.
This will provide Data I/O with a significant new entry to improve its
competitive position in the low-priced segment of the programmer market. Data
I/O expects to begin marketing these products by mid-1997.
NON-AUTOMATED PARALLEL PROGRAMMING SYSTEMS
Data I/O's PSX1000-TM- and PSX500-TM- non-automated parallel programming systems
were introduced in 1992 to serve the needs of mid- and high-volume manufacturing
users of programmable memory and microcontroller ICs. The PSX1000 and PSX500
can duplicate twenty or ten programmable ICs at a time, respectively, and
support numerous package types using Data I/O's proprietary socketing technology
of low-cost interchangeable modules. A large number of the major electronic
manufacturers and semiconductor manufacturers, who develop programmable memory
or microcontrollers, use this product line because of its durability and high
throughput.
The PSX400-TM- introduced in December 1994 is the Company's low-cost
non-automated parallel programming system able to program eight ICs at a time.
The PSX400 addresses low-volume manufacturing and engineering applications in
which designers use several ICs on a single board and want to program them all
in a single operation.
The BoardSite-Registered Trademark- In-Circuit Programmer, introduced in
November 1988, is a unique product that is designed to program or reprogram an
entire circuit board full of programmable ICs while they are mounted on the
board. This allows circuitry to be updated in the field, and also provides an
alternative way for manufacturing operations to deal with programmable ICs. The
product is available as a bench-top workstation or as a portable programmer for
field applications.
AUTOMATED PROGRAMMING AND HANDLING SYSTEMS
Data I/O's ProMaster-Registered Trademark- line of equipment provides
manufacturers with an automated method for handling, programming, testing and
marking programmable ICs whether the ICs are housed in conventional throughhole
or surface-mount packages. During manufacturing, the ProMaster's
"pick-and-place" technology feeds the programmable ICs out of their protective
media (trays or tubes); places them into the socket of the programmer; triggers
programming; applies a label or marks the IC with a laser; sorts out the ICs
which could not be programmed correctly; and loads correctly programmed ICs back
into trays, tubes or onto special tape which is rolled onto reels. The ICs are
then ready to be attached to printed circuit boards using other automated
equipment.
The ProMaster 3000, introduced in January 1990, and the ProMaster 7000,
introduced in July 1991, both address high throughput needs (a combination of
volume and yield of correctly programmed ICs) for programming, testing and
marking programmable ICs. They both support conventional throughhole and
surface-mount packages with proprietary socketing technology that offers
customers highly reliable production capacity at a relatively low-cost per IC.
The ProMaster 3000 applies printed labels, while the ProMaster 7000 marks ICs
with a laser. The ProMaster 7500, introduced in the fall of 1994, offers even
higher speed and capacity by extending the ProMaster 7000 to include a second
programmer allowing it to program two ICs at a time. Each of these ProMaster
products use the AutoSite-TM- Production Programmer, which was the Company's
first IC programmer specifically designed to be connected to and integrated with
automated programming and handling systems.
The ProMaster 2500, introduced in September 1993, was the world's first
fully-integrated system for programming, handling, testing and marking
programmable ICs. Designed for medium-volume manufacturing applications, the
ProMaster 2500 supports both conventional throughhole and popular surface-mount
IC packages. The ProMaster 2500 internalized and integrated the programmer
inside the system unlike the ProMaster 3000, 7000, and 7500 models that connect
an AutoSite programmer. It uses labels to mark the ICs and is the Company's
entry-level priced automated programming and handling system.
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The ProMaster 9500, introduced in February 1995, is an automated programming and
handling system for programming, testing and marking fine-pitch memory and
microcontroller programmable ICs. The ProMaster 9500 was created to address
extremely high-volume manufacturing of the new generation of highly miniaturized
and fragile programmable ICs. The Company's handling technology results in the
ProMaster 9500 touching the delicate pins of each IC only once, thereby greatly
reducing the risk of damage that can be caused by even moderate handling. Its
programming module features Data I/O's PSX-TM- parallel programming technology
and can program up to 16 ICs simultaneously. The ProMaster 9500's flexible,
modular design allows the user to create the configuration needed for the
specific manufacturing operation.
The Company introduced the ProMaster 970, in February of 1997, a new fine-pitch
automated programming and handling system. This product combines the newest
technology in materials-handling with Data I/O's new generation of programming
technology. It will allow electronics manufacturers to economically program and
mark programmable ICs (including logic ICs) in high volumes. The Company is
scheduled to begin production shipments of the ProMaster 970 in the third
quarter of 1997. For smaller-scale manufacturers, the Company expects to
introduce later in 1997 a new fine-pitch programming and handling system at a
lower price than the ProMaster 970. Both of these new programming and handling
systems will take advantage of the Company's new DataSite programming
technology.
The Company also provides a complete line of labels for use with its automated
programming and handling systems. These labels are custom manufactured by
Data I/O for the ProMaster 2500, the ProMaster 3000 and their predecessors, the
ProMaster 2000 and the AutoLabel 1000.
SOFTWARE
ABEL-Registered Trademark- (Advanced Boolean Expression Language), first
released in March 1984, is an industry standard behavioral design entry software
tool for PLDs and CPLDs. The Company also licenses, as options to ABEL, IC
"fitters," which can further optimize or "fit" the design for the specific IC
selected. The narrow focus of ABEL contrasts with the Company's
Synario-Registered Trademark- software product, which is a full-featured
integrated design tool that encompasses schematic design, behavioral design,
simulation and synthesis for PLDs, CPLDs, FPGAs and printed circuit board
designs.
PROGRAMMING SYSTEMS PRICING
The U.S. manufacturer's suggested list prices for Data I/O's non-automated
programming systems range from approximately $1,000 for the ChipLab to $27,000
for a fully configured UniSite Universal Programmer. The ProMaster 2500
automated programming and handling system sells for approximately $47,000, while
the ProMaster 9500 configured with tray, tube and tape and reel along with
programming modules sells for approximately $600,000. The U.S. manufacturer's
suggested retail price for the Company's ABEL software ranges from $500 for an
entry-level version to $2,000 for the latest Windows version.
SEMICONDUCTOR EQUIPMENT
In acquiring the assets of Reel-Tech, Inc. in August 1995, Data I/O increased
its range of products to include equipment used by semiconductor manufacturers
in the handling, marking and transporting of ICs during the latter stage of
their manufacturing process. Such automated equipment is critical when working
with fine-pitch parts which have many fine pins extending from the IC package
that can be easily damaged by improper handling. The Company's semiconductor
equipment products are designed to utilize standard modules that can be
configured to meet the specific needs of the customer. The technology used in
the Semiconductor Equipment Division is highly compatible with the technology
used in the Company's automated programming and handling system products.
Laser Markers:
The LM6000 is a high-volume in-tray laser marking system that marks all types of
surface-mount ICs without removing them from the protective tray, providing
maximum utilization of the laser and handling system and eliminating pin damage
caused by handling.
The LM4000, introduced in January of 1996, is a high-volume laser marking system
that handles ICs from tubes. It removes the ICs from the tubes, laser marks
them and puts them in an output tube.
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Media Transfer Equipment:
The TR3000MT is a tape and reel system which accommodates virtually all
surface-mount ICs with tape widths of 8 to 56 millimeters. The TR3000MT
transfers fine-pitch ICs from trays or tubes to tape and reel.
The MT7000 is a media transfer system for surface-mount ICs. This
pick-and-place IC handler picks up, precises and transports the IC from one
media type to another media type (trays, tubes or tape and reel) and can be
customized to include other value-added processes such as programming and
marking. The MT7000 is custom configured for each customer's specific
manufacturing process.
SEMICONDUCTOR EQUIPMENT PRICING
Due to the wide range of individual requirements and the degree of customization
for each system sold, prices are generally quoted individually for each specific
system. The manufacturer's suggested list prices for systems vary but range
from approximately $100,000 for a tape and reel system to as much as $325,000
for a laser marking station with options.
SYNARIO DESIGN AUTOMATION
The Company formed Synario Design Automation as an autonomous division in
November of 1995 to focus solely on the Windows-based EDA market. This
division's flagship product family, Synario, was originally introduced by the
Company in 1993. Synario is a suite of Windows-based EDA tools used for
designing applications for programmable PLDs through board-level design. The
Synario Design Automation Division will continue to target the "mainstream"
designers, many of whom are transitioning to new "top-down" design methodologies
required for the new generation CPLDs and FPGAs.
Engineers use the Synario system, an automated EDA design tool set, to design
custom applications for complex FPGAs and CPLDs, which are becoming increasingly
popular. The driving philosophy behind the Synario design system is to offer
"ready-to-use" solutions incorporating the best of each class of specific design
application tools operating in a seamless design flow. The Synario system
embodies a commitment to standards and to Windows-based personal computers
("PCs"). As a native Windows-based application, the Synario environment taps
the power of today's 32-bit microprocessors, and provides users an intuitive,
graphical interface and superior inter-tool communication.
Synario features include:
- - PROJECT NAVIGATOR which builds into the Synario environment an understanding
of the proper design flow for most major PLD, CPLD and FPGA architectures,
automatically reconfiguring the design flow each time a designer changes
architectures;
- - FLEXIBLE HDL (HARDWARE DESCRIPTION LANGUAGE) AND SCHEMATIC DESIGN ENTRY which
provides unsurpassed support for mixed-entry, allowing designers to start with
high-level block diagrams, then select the design entry method most appropriate
for each block, whether it's schematics, ABEL-HDL, VHDL (Very high-speed IC
HDL), equations, truth tables, state diagrams or any combination thereof;
- - HDL-BASED SIMULATION OPTIONS which allow designers to select either Verilog or
VHDL simulators from independent EDA tool developers, both of which are tightly
integrated components of the Synario environment;
- - DEVICE KITS for programmable IC architectures usually including: schematic
symbols, simulation models, logic synthesis and IC-fitting technology, and
place-and-route software, providing support from the major programmable IC
suppliers, including Actel, Altera-Registered Trademark-, Atmel-Registered
Trademark-, Cypress-Registered Trademark-, Lattice-Registered Trademark-,
Lucent-Registered Trademark-, Motorola-Registered Trademark-, Philips-Registered
Trademark-, QuickLogic-Registered Trademark-, Vantis-TM- and Xilinx-Registered
Trademark-;
- - SYNARIO ENGINEERING CAPTURE SYSTEM ("Synario ECS") which is a design capture
system used in the front-end design of schematic diagrams for specific
programmable ICs or an entire PCB, including a collection of on-line analysis
and productivity tools as well as integration with and interfaces to other
design and simulation tools and PCB packages;
- - PCB INTERFACE OPTIONS which support forward and backward annotation for the
most popular PCB design packages, with utilities for automatic packaging, gate
swapping, reference designation, creation of bill-of-materials and engineering
change notices.
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The Company continually updates and upgrades Synario to support new ICs offered
by semiconductor manufacturers and to ensure compatibility with both new and
existing computer systems. The Company offers software updates and upgrades to
enable customers to take advantage of many of the latest ICs as they become
available.
SYNARIO PRICING
The U.S. manufacturer's suggested list price for Synario starts at $1,900 for
the single vendor version and $3,400 for the universal version. A typical price
for an advanced VHDL-based Synario design system including mixed-entry,
simulation and synthesis, and one vendor's device-specific software products,
sells for approximately $13,000. The U.S. manufacturer's suggested list price
for Synario ECS is $1,000. In addition, the Synario Design Automation Division
licenses products to other EDA and semiconductor companies as Original Equipment
Manufacturers ("OEMs") or distributors who bundle them with their product
offerings.
MARKETS AND CUSTOMERS
The Company's programming systems and EDA software products are used primarily
by electronic equipment manufacturers and programming/distribution centers in
the design and manufacturing of equipment for industrial, commercial and
military applications, and its semiconductor equipment products are used by
semiconductor manufacturers in manufacturing semiconductors. The Company
estimates that during 1996, it sold products to approximately 4,000 customers
throughout the world, none of which accounted for more than 10% of the Company's
net sales. None of the Company's independent distributors, resellers or OEMs
accounted for more than 5% of the Company's net sales.
PROGRAMMING SYSTEMS
In terms of total revenue, the Company believes that the worldwide market for
conventional non-automated programming systems for engineering applications has
been slightly declining or flat over the last several years due to a decline in
average selling prices offset by growth in the number of units sold,
particularly in the low-priced segment of the market. Over the last several
years, increasing use of low-priced, limited device "project" programmers has
lowered the barriers to entry in the IC programmer business. New competitors
enter the market regularly, each trying to carve out a niche, causing downward
price pressure and lowering the customers' perception of an acceptable price for
a conventional non-automated programming system. Technological improvements in
personal computers and design software tools cause engineering design teams to
shift spending away from hardware tools to software design tools. These
industry changes are adversely affecting the Company, especially because in the
past, Data I/O's product line has been heavily oriented toward hardware tools
and, within hardware tools, toward the higher-priced universal programming
systems. The Company expects these trends in the conventional programming
systems for the engineering market to continue for the foreseeable future. In
response to these market developments over the last few years, the Company
developed and released lower-cost product lines (ChipLab and 2700); entered into
an agreement in 1997 to begin worldwide distribution of low-priced IC
programmers from ICE Technology, Ltd.; added an entry-level non-automated
parallel programming system (PSX400); reorganized the Company's distribution
channels; and significantly reduced its overall cost structure.
However, the Company believes that recent changes in programmable IC technology,
such as increasingly complex logic ICs, lower voltage requirements and higher
pin counts, and the increasing need for higher quality and high volume
programming by users of programmable ICs means that a significant market need
for more sophisticated programmers will continue. The Company currently has
development projects underway for a new generation of programmer technology to
address the needs created by these technology changes.
The Company believes that the market for automated programming and handling
systems in the manufacturing environment decreased during 1996 due to economic
conditions that slowed down capital spending by electronics manufactures in the
United States and Europe. The Company believes this economic slowdown has
bottomed out and an up trend has started. The Company believes that in the
electronic manufacturing market, the expanded use of programmable integrated
circuits in the mid- to high-volume manufacturing environment and the
proliferation of hard-to-handle surface-mount packages in a variety of types is
causing a worldwide trend toward automation and integration of manufacturing
processes. The Company believes this trend is attributable to a reduction in
the cost of programmable ICs compared to fixed ICs, manufacturers' desire to
improve the time-to-market for new and improved products, and increased
functionality and miniaturization of programmable ICs. Because this is a newer
market for the Company, the Company's participation in this growth depends upon
the market's acceptance of its new products, its ability to understand and meet
the changing needs of this market, and its response to and
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development of changes in technology. In addition, service, corporate
reputation and product reliability are considered key decision making factors
for customers considering automated systems. The Company believes that
increased competition, in areas where new Data I/O product introductions are not
scheduled to occur until 1997, such as the ProMaster 970, has affected its
share of the market. Data I/O believes the breadth of its line of non-automated
parallel programming systems and automated programming and handling systems, as
well as the products under development, its worldwide service capabilities and
technology leadership will keep the Company in a position to capitalize on the
trend toward automation and integration of manufacturing processes. However,
there can be no assurance that this trend toward automation will continue as
anticipated, that the Company will be able to complete development of its new
generation of programming products, that its new products will experience strong
demand, that the Company will be able to anticipate and respond to changes in
customer needs and new technologies or that the Company will otherwise
effectively compete in the future.
SEMICONDUCTOR EQUIPMENT
The Company believes that economic conditions and capacity issues for
semiconductor manufacturers resulted in an economic slowdown in capital spending
for semiconductor manufacturing equipment in 1996. Reel-Tech, Inc. however,
grew by approximately 40% in 1996. From 1991 to 1995, the overall semiconductor
manufacturing equipment industry market grew at an average annual rate of
approximately 23% in terms of sales, according to VLSI Research. The Company
believes this to be a highly cyclical industry and believes that the economic
slowdown has bottomed out and that the market has the prospect of favorable
growth in 1997. The Company's semiconductor equipment products are used in the
latter stage of the semiconductor manufacturing process, after the IC packages
are virtually complete. The Company does not have independent market data on
the specific industry niche markets in which it operates. However, the broader
market for material handling equipment in the semiconductor industry is
projected to grow at a compounded annual rate of 12.7% through the year 2001
according to VLSI Research.
The Company's laser marking products are used primarily by memory IC
manufacturers to mark ICs after the test stage of the manufacturing process.
The Company's media transfer products are sold primarily to semiconductor
manufacturers and are designed to be utilized in instances where there is a need
to switch between media transport types (e.g., tubes to trays) within the
manufacturing process. The Company's tape and reel products are used by
semiconductor manufacturers for transferring high volumes of ICs from either
tubes or trays to tape and reel. The Company believes that it has positioned
itself well to take advantage of growth in the semiconductor industry by
providing semiconductor manufacturers with high-quality, specialized equipment.
SYNARIO DESIGN AUTOMATION
The EDA industry experienced approximately 25% growth in sales in 1996 and is
projected to grow approximately 25% in 1997, according to Needham & Company.
Based upon DataQuest market information published by ELECTRONIC ENGINEERING
TIMES, the Windows-based EDA segment of the industry is projected to grow at a
compound annual growth rate of approximately 40% from 1997 through 1999. A
major factor contributing to this growth is the advent of higher performance
microprocessors, such as the Intel-Registered Trademark- Pentium-Registered
Trademark- processor family, and dramatically increased memory capacity. These
advancements have made personal computers powerful enough to handle process
intensive tasks such as simulation and synthesis, which formerly could be done
only with UNIX-based tools with expensive workstations. With these advancements
in personal computers, Windows-based EDA tools are attractive, less expensive
options for design engineers.
Another significant factor contributing to the growth of the Windows-based EDA
market is the migration of FPGA and CPLD design engineers to higher levels of
design abstraction. FPGAs and CPLDs are growing more complex, requiring
designers to move away from schematic only based design to speed up the
programmable IC design process. These new demands have created a so-called "new
generation" of designers who require more sophisticated design tools.
The Company believes that the quality and relative ease of use of Synario,
position it well in what the Company expects to be a growing market for
Windows-based EDA products. Anticipating growth, the Company has made
significant investments in new product development over the last few years, and
has created the Synario Design Automation Division to better focus its efforts
in this market.
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SALES
The Company incorporated a new subsidiary of Reel-Tech, Inc. in Singapore in
September of 1996 to provide sales and service support for its Semiconductor
Equipment Division in the southeast Asia region. The Company closed its United
Kingdom subsidiary at the end of 1996 and entered into an agreement with a
distributor in the UK to sell the Company's programming systems products in the
UK. This was a continuation of the Company's process of restructuring its sales
operations that began in late 1993 to better align the Company with its evolving
markets and customers, and to better position itself for the future. The
Company has over this period increased its utilization of lower-cost telesales
channels and value-added resellers ("VARs") while reducing its direct sales
force.
A key element of the Company's distribution strategy for Synario is to partner
with semiconductor vendors. The Company has entered into distribution or OEM
agreements with several major semiconductor vendors whereby vendor-specific
Synario products are bundled with the semiconductor vendor's devices for resale
through their sales channels.
U.S. SALES
The Company markets its products throughout the U.S. using a variety of sales
channels including its own direct field sales personnel, direct telesales
organization, independent sales representatives, OEMs, and VARs. The Company's
U.S. independent sales representatives obtain orders on an agency basis, with
shipments made directly to the customer by the Company. OEMs and VARs purchase
products directly from the Company for resale to customers. Sales are
recognized by the Company at the time of shipment.
FOREIGN SALES
Foreign sales represented approximately 51% of net sales in 1996, 47% of net
sales in 1995, and 46% of net sales in 1994 (see Note 12 of "Notes to
Consolidated Financial Statements"). Foreign sales are made through the
Company's wholly owned subsidiaries in Japan, Germany, Canada, Singapore and
through the end of 1996, the United Kingdom, as well as independent
distributors, VARs and sales representatives located in 32 other countries.
Sales made through foreign subsidiaries are denominated in local currency and
recognized when the subsidiary ships to the end-user. The Company's independent
foreign distributors and VARs purchase Data I/O products in U.S. Dollars for
resale; and the sale is recognized at the time of shipment to the distributor or
VAR. Distributors and VARs are allowed to return a portion of their Data I/O
product inventory for credit on future purchases, subject to limitations. As
with U.S. sales representatives, sales made by international sales
representatives are on an agency basis with shipments made directly to the
customer by the Company. These sales are denominated in U.S. Dollars and are
recognized at the time of shipment.
Total foreign sales are determined by the geographic area into which the
products are sold and delivered, and include not only sales by foreign
subsidiaries but also export sales from the U.S. to the Company's foreign
distributors, VARs and representatives' customers. Foreign sales do not include
transfers between the Company and its foreign subsidiaries. Export sales are
subject to U.S. Department of Commerce regulations. The Company has not,
however, experienced any difficulties to date as a result of these requirements.
Fluctuating exchange rates and other factors beyond the Company's control, such
as international monetary stability, tariff and trade policies, and U.S. and
foreign tax and economic policies, affect the level and profitability of foreign
sales. The Company is unable to predict the effect of such factors on its
business. The Company does hedge against certain currency exposures in order to
minimize their impact.
COMPETITION
GENERAL
The programming systems, semiconductor equipment and EDA software markets are
highly competitive. Important competitive factors include product features,
price, quality, reliability, throughput, distribution channels, availability, IC
support, post sales support, service and the timely response to rapid
technological change with new and improved products. The Company believes its
competitiveness depends on offering the most effective combination of these
capabilities.
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PROGRAMMING SYSTEMS
The Company believes that maintaining close relationships with programmable IC
manufacturers, superior service, broad programmable IC support and the critical
mass of a large installed base will enable Data I/O to maintain its leading
position in the market for non-automated programming systems. The Company
believes its share of this market may grow because of new technology and a
broader product line. However, growth in the market may be limited, because
much of the remaining market is fragmented both geographically and
technologically. This situation will always allow smaller niche suppliers to
exist and, in some markets, to thrive.
Although independent market information is not available, the Company believes
that it has approximately 30% of the worldwide market share of revenue for
non-automated programming systems including both the engineering and the
parallel programming segments. This is based on information from studies
performed and estimates made each year internally by the Company, brand
awareness and brand preference studies published by Electronic Design Marketing
Research and ECN Marketing, and market statistical information published by
ELECTRONIC ENGINEERING TIMES. For the design engineering segment of the market
for non-automated programming systems the Company has identified two groups of
competitors. Based on information gathered internally, the Company believes
approximately 10% to 20% of this market is served by vendor-specific
non-automated programming systems supplied by the semiconductor manufacturers
themselves. The remainder of the market is divided among several dozen, mostly
regional, competitors. The most significant of these competitors are BP
Microsystems, Logical Devices, Stag Microsystems, SMS, System General, Hi-Lo and
Minato. Today, the competition for programming business is based primarily on
the breadth of programmable IC support and price. Most new entrants compete
based on price alone, because competing against the more established companies'
IC support is quite expensive.
The Company does not have independent market information but has commissioned
studies to obtain limited market data for the non-automated parallel programming
systems market. Principal competitors in the non-automated parallel programming
systems market are BP Microsystems, Elan, Minato, Hi-Lo, System General,
Needhams Electronics and SMS. The Company believes that other firms,
particularly in specific geographic regions, hold the dominant share of this
market. The Company believes this is primarily due to the Company historically
not having competitive products at the low-cost end of the market. The Company
believes that it has the largest market share in the high-volume end of the
non-automated parallel programming system market.
The market for automated programming and handling systems used in automated
manufacturing operations is shared primarily by Data I/O, BP Microsystems in
cooperation with Quad Systems and Unmanned Solutions in cooperation with SMS. In
addition, Exatron manufactures handling systems that can be combined with a
programmer which can be configured by the customer. Although independent market
information is not available, the Company believes that it has approximately 70%
of the worldwide market share of revenue for automated programming systems. The
most important competitive criteria for this market segment are product
reliability, service, IC and package support, throughput, ease of use and cost
of ownership. The Company believes new Data I/O product introductions scheduled
to occur in 1997, such as the ProMaster 970, and its line of automated
programming and handling systems will help the Company better compete and
capitalize on the trend toward automation and integration of manufacturing
processes.
Recently, some high-volume manufacturers of products which incorporate
programmable ICs have developed procedures to use very expensive testing
equipment to program ICs after they have been installed on printed circuit
boards. The Company believes that this programming technique, which is known as
in-circuit programming, is currently being used to program a very small portion
of the programmable ICs currently in use. The Company does not currently offer
a programming product which is intended to be used for in-circuit programming by
high-volume manufacturers, but is evaluating possible applications of its
products and technologies to in-circuit programming. (See "Risk Factors -
Technological Change.")
ABEL, the Company's software for designing PLDs, is an industry standard. The
Company believes this reflects the fact that ABEL is the most "universal" tool
in its market with support for the architectures of most major programmable
logic manufacturers. Competitors of ABEL are products from MINC and Logical
Devices.
SEMICONDUCTOR EQUIPMENT
In the semiconductor equipment industry market niche, in addition to price,
there are four primary competitive factors: throughput, changeover time,
availability and size of "footprint". The Company believes that its
semiconductor equipment is
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superior to its primary competition with respect to availability and footprint.
In terms of throughput and changeover time, the Company believes that its
products compete well.
For all of its semiconductor equipment products, the Company competes with
custom system integrators who are often smaller, local companies. The Company
believes that other firms hold the dominant market share for the laser marking
and tape and reel markets. For laser marking equipment, the Company competes
with NEC, Toshiba, Lumonics, and Rofin Sinar. For tape and reel equipment, the
Company competes with Ismeca and Systemation. The Company is not currently aware
of any significant competitors for its media transfer system.
SYNARIO DESIGN AUTOMATION
In the Windows-based EDA industry market niche, key competitive factors include
the universality of the tools, semiconductor manufacturer relationships and
endorsements, integration with other tools and ease of use. The Company
believes Synario Design Automation has advantages over its competitors in value,
embedded expertise resulting in ease-of-use, distribution channels, tighter tool
integration and relationships with semiconductor companies. Synario products
provide a universal, easy-to-use, workstation-class design environment at a
fraction of the cost of UNIX-TM--based EDA tools. Most Windows-based EDA
suppliers provide limited tools at a comparable price or comparable tools at a
much higher price.
The Company developed the Synario products to address the industry's increasing
demand for broad-based integrated EDA software tools for the PC-based designer.
Until recently, there has been a limited list of PC-based EDA tool suppliers
with limited capabilities. Principal competitors to the Synario product family
have been Viewlogic-TM- Systems, Inc., semiconductor vendor-specific software
design systems for their device-specific applications, and, to a lesser extent,
OrCAD-Registered Trademark- and ALDEC. However, the introduction of
higher-performance, Pentium-class microprocessors has blurred the distinction
between workstation-class and PC-class machines. This has fueled new
Windows-based product introductions and new players in the market place.
Late in 1995 and during 1996, the Windows-based EDA market was further validated
with product development announcements from major EDA players including
Cadence-TM- Design Systems ("Cadence") and Mentor Graphics-Registered Trademark-
and Synopsys-Registered Trademark-. Cadence has released their PCB layout
product, Allegro, on Windows. Mentor Graphics announced a Windows based
schematic package. Synopsys has announced FPGA Express, a Windows based FPGA
synthesis solution, and has agreed to OEM the product to the Synario Design
Automation Division as part of the Synario product line.
MANUFACTURING AND BACKLOG
During 1996, Data I/O operated two principal manufacturing operations. Its
principal facility in Redmond, Washington manufactures automated and
non-automated programming systems including component parts assembly, final
assembly and testing. The Company's second manufacturing facility, located in
Indianapolis, Indiana, manufactures semiconductor equipment. The Company closed
its manufacturing facility in Anaheim, California during the first quarter of
1996 after having moved and consolidated the production of automated
programming and handling systems to Redmond, Washington. The Company recorded
the cost of this move and consolidation as part of a restructuring charge in
1993.
In its manufacturing processes, the Company uses a combination of standard
components, proprietary custom ICs and fabricated parts manufactured to Data I/O
specifications. Most components used are available from a number of different
suppliers and subcontractors but certain items, such as some handler and
programmer subassemblies, custom ICs, hybrid circuits and connectors, are
purchased from single sources. The Company's policy is to maintain substantial
inventories of most single-source components. It believes that additional
sources could be developed for present single-source components without
significant difficulties in obtaining supplies. There can, however, be no
assurance that single-source components will continue to be readily available.
Most programming systems and software product orders are scheduled for delivery
within one to 60 days after receipt of order. The ProMaster 9500 is generally
scheduled for delivery within 60 to 90 days after receipt of order. Deliveries
of semiconductor equipment are generally scheduled within 60 to 120 days from
date of order. The Company's backlog of pending orders was approximately $4.2
million as of both December 26, 1996 and December 28, 1995.
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In accordance with industry practices, generally all orders are subject to
cancellation prior to shipment without penalty except for contracts calling for
custom configuration. To date, such cancellations have not had a material
effect on the Company's sales volume. To meet customers' fast delivery
requirements, Data I/O manufactures certain of its products based upon a
combination of backlog and anticipated orders. The size of backlog at any
particular date is not necessarily a meaningful indicator of the trend of the
Company's business.
RESEARCH AND DEVELOPMENT
Because Data I/O's future growth is, to a large extent, dependent upon the
timely development and introduction of new products and its extensive support of
the latest programmable ICs, the Company is committed to a substantial research
and development program. Research and development activities include applied
research, design of new products and continual enhancement and support of
existing products. Data I/O has focused its efforts on applied rather than
basic research, concentrating on technical innovation for long-term product
requirements. The Company made expenditures for research and development of
$10,944,000, $9,069,000 and $9,227,000 in 1996, 1995 and 1994, respectively,
representing 18.1%, 13.7%, and 15.0% of net sales, respectively. The
percentage of research and development spending was abnormally high in 1996
because of the development of the new generation of products, particularly in
programming systems.
The Company has currently directed its main product development efforts toward a
new programming technology for a new generation of programming systems and for
its automated programming and handling system products, enhancements to its
semiconductor equipment products, and enhancements for its EDA software
products. Substantial engineering resources are also being devoted to
developing updates and upgrades for both programming systems and software
products and providing IC support for new programmable ICs as they are
introduced by semiconductor manufacturers.
PATENTS, COPYRIGHTS, TRADEMARKS AND LICENSES
Intellectual property rights applicable to various Data I/O products include
patents, copyrights, trade secrets and trademarks. However, rather than depend
on patents and copyrights, which are frequently outdated by rapid technological
advancements in the electronics industry, Data I/O relies primarily on product
development, engineering, manufacturing and marketing skill to establish and
protect its market position.
The Company attempts to protect its rights in proprietary software products by
retaining the title to and copyright of the software and documentation, by
including appropriate contractual restrictions on use and disclosure in its
licenses and by requiring its employees to execute non-disclosure agreements.
The Company's software products are shipped in sealed packages on which notices
are prominently displayed informing the end-user that, by breaking the seal of
the packaging, the end-user agrees to be bound by the license agreement
contained in the package. The license agreement includes limitations on the
end-user's authorized use of the product, as well as restrictions on disclosure
and transferability. The legal and practical enforceability and extent of
liability for violations of license agreements that purport to become effective
upon opening of a sealed package are unclear. The Company is not aware of any
situation where a license agreement restricting an end-user's authorized use of
a licensed product resulted in enforcement action.
Because of the rapidly changing technology in the semiconductor, electronic
equipment and software industries, there is a possibility that portions of the
Company's products might infringe upon existing patents or copyrights, and the
Company may therefore be required to obtain licenses or discontinue the use of
the infringing technology. The Company believes that any exposure it may have
regarding possible infringement claims is a reasonable business risk similar to
that being assumed by other companies in the electronic equipment and software
industries. However, any claim of infringement, with or without merit, could be
costly and a diversion of management's attention, and an adverse determination
could adversely affect the Company's reputation, preclude it from offering
certain products, and subject it to substantial liability.
EMPLOYEES
As of December 26, 1996, the Company had 403 total employees, of which 38 were
located outside the U.S. Many of Data I/O's employees are highly skilled and
the Company's continued success will depend in part upon its ability to attract
and retain employees who are in great demand within the industry. At times, the
Company, along with most other electronic equipment manufacturers and software
developers, experiences difficulty in hiring and retaining experienced
personnel. To
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date, the Company believes it has been successful in its efforts to recruit
qualified employees, but there is no assurance that it will continue to be as
successful in the future. None of the Company's employees are represented by a
collective bargaining unit and the Company believes relations with its employees
are favorable.
ENVIRONMENTAL COMPLIANCE
The Company's facilities are subject to numerous laws and regulations concerning
the discharge of materials or otherwise relating to the environment. Compliance
with environmental laws has not had, nor is it expected to have, a material
effect on capital expenditures, the financial position, the results of
operations or the competitive position of the Company.
EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below is certain information concerning the executive officers of the
Company as of February 28, 1996:
Name Age Position
---- --- --------
William C. Erxleben 54 President
Chief Executive Officer
Secretary
James J. David 53 Vice President
Worldwide Sales and Marketing
Programming Systems Division
William J. Haydamack 54 Senior Vice President
Synario Design Automation
Division
Susan S. Webber 42 Vice President
Quality and Human Resources
Larry D. Vandendriessche 39 Vice President
Programming Systems Division
Domenico Picone 58 Vice President
Operations
Joel S. Hatlen 38 Corporate Controller
Chief Accounting Officer
Treasurer
William C. Erxleben became President and Chief Executive Officer of the Company
on October 29, 1993. He has been a member of the Board of Directors of Data I/O
since 1979. Mr. Erxleben was a partner with the Seattle-based law firm of Lane
Powell Spears Lubersky from March 1991 until joining the Company. From March
1985 to March 1991 he was a partner with the Seattle law firm of Foster Pepper &
Shefelman. Prior to 1985, he was a member of the faculty of the University of
Washington Graduate School of Business and a Regional Director of the Federal
Trade Commission.
James J. David joined the Company in May 1996 as Vice President of Worldwide
Sales, Programming Systems Division and became Vice President of Worldwide Sales
and Marketing in December 1996. From 1992 until joining the Company, Mr. David
served as Vice President of U.S. Operations for Aldus Corporation, a software
company. From 1989 until 1992, Mr. David was employed by ButtonWare, Inc., a
software company, where in his last position he served as President. Prior to
ButtonWare, Mr. David served in sales and marketing management positions with
Egghead, Inc. and IBM.
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William J. Haydamack joined the Company in August 1993 as Vice President and
General Manager of the Design Software Division. In December 1995 he was
promoted to Senior Vice President and General Manager of the Synario Design
Automation Division. From 1986 until joining the Company, Mr. Haydamack served
in various senior management positions with Cadence Design Systems, an EDA
software company. Prior to Cadence Design Systems, Mr. Haydamack served in
management positions with Waferscale Integration, Inc., Hewlett Packard and
General Dynamics.
Susan S. Webber joined the Company in April 1994 as Director of Quality and was
given the responsibility for Human Resources in November of 1994. In December
1995, Ms. Webber was promoted to Vice President of Quality and Human Resources.
From 1985 until joining the Company, Ms. Webber was employed by AG Communication
Systems, a designer and manufacturer of telecommunications systems. Her most
recent position was Quality Director. Prior to AG Communication Systems, Ms.
Webber was with Motorola and was an Assistant Professor at the University of
Nebraska.
Larry D. Vandendriessche joined the Company in January 1996 as Vice President
and General Manager of the Programming Systems Division. From 1994 until
joining the Company, Mr. Vandendriessche served as Vice President of Product
Development for Plasti-Line, Inc., a producer of electronic and
electromechanical display systems. From 1984 to 1994 Mr. Vandendriessche held
various management positions at AT&T, most recently as the Director of Graphic
Products in the NCR Microelectronic Products Division.
Domenico Picone joined the Company in May 1995 as Director of Operations. In
December 1996, Mr. Picone was promoted to Vice President of Operations. From
1994 until joining the Company, Mr. Picone was employed by Spacelabs Medical, a
manufacturer of emergency room medical electronics. His most recent position
was Manufacturing and Engineering Director. From 1979 to 1994, Mr. Picone was
employed by Eldec Corporation, a manufacturer of avionics, where his last
position was Director of Operations. Prior to Eldec Corporation, Mr. Picone
held various manufacturing management positions at Diagnostic Information, Inc.,
Sony Corporation and Tektronix, Inc.
Joel S. Hatlen was named Chief Accounting Officer and Treasurer on February 20,
1997. Mr. Hatlen first joined Data I/O in September of 1991 as a Senior Tax
Accountant. He was promoted to Tax Manager in November of 1992 and Corporate
Controller in December of 1993. From 1981 to 1991 Mr. Hatlen was employed by
Ernst & Young LLP, a certified public accounting and consulting firm. His most
recent position there was Senior Manager.
RISK FACTORS
In addition to the other information in this report, the following risk factors
should be carefully considered in evaluating the Company. See also the sections
captioned "Forward-Looking Statements" in Item 1 and Item 7.
DEVELOPMENT, INTRODUCTION AND SHIPMENT OF NEW PRODUCTS
The Company is scheduled to complete development of, introduce and ship several
new engineering and automated programming and handling system products in 1997.
Successful introduction of these products requires the Company to complete
development of a new programming system architecture which will be common to all
of these new products. In addition, the Company relies on third parties for key
portions of the robotics to be used in its new automated handling and
programming systems. There can be no assurance the Company will not encounter
significant technological, supplier, manufacturing or other problems which will
cause the introduction or production of its new products to be delayed. Also,
as the Company's customers anticipate the introduction of new products, sales of
the Company's existing products may be adversely affected. Accordingly, delays
in the completion and shipment of new products, or unfavorable customer
acceptance of such products, will likely result in a decline in sales in 1997.
VARIABILITY IN QUARTERLY OPERATING RESULTS
The Company's quarterly operating results have in the past varied and may in the
future vary significantly depending on factors such as increased competition,
timing of new product announcements, releases and pricing changes by the Company
or its competitors, market acceptance or delays in the introduction of new
products, production lead times, production constraints, timing of significant
orders, seasonal factors, capital budgets of customers, foreign currency
exchange rates, and economic conditions, as well as all of the other risk
factors discussed in this report. Historically, a substantial portion of the
Company's revenue in each quarter results from orders booked in that quarter.
The Company's expense levels are based, in part, on its expectations as to
future revenue. If anticipated shipments in any quarter do not occur or are
delayed, expenditure
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levels could be disproportionately high, and the Company's operating results for
that quarter would be adversely affected. As a result, the Company's results of
operations for any quarter are not necessarily indicative of results for any
future period. Due to all of the foregoing factors, it is possible that in some
future quarter the Company's operating results will be below expectations of
analysts and investors.
TECHNOLOGICAL CHANGE
The markets for the Company's programming systems, semiconductor equipment and
EDA software products are characterized by rapid technological change and
evolving industry standards, and are highly competitive with respect to timely
product innovation. The introduction of products embodying new technology and
the emergence of new industry standards can render existing products obsolete
and unmarketable. New and changed technologies may result in products that
contain defects or errors which may give rise to product liability claims or be
detrimental to market acceptance of such products. The Company's success
depends on its ability to anticipate changes in technology, IC package types,
electronics equipment manufacturing practices, software platform preferences and
industry standards and to develop and introduce successfully new and enhanced
products on a timely basis. Also, to the extent that more rigid standards are
established in the programmable IC industry, the value-added element of the
Company's products and support services could be decreased. If such decreases
occur, or if the Company is unable, for technological or other reasons, to
develop products in a timely manner in response to changes in the industry or if
products or product enhancements that the Company develops contain defects or
errors or do not achieve market acceptance, the Company's business, financial
condition and results of operations will be materially and adversely affected.
DEPENDENCE ON BROAD ACCEPTANCE OF MS WINDOWS OPERATING SYSTEM IN THE DESKTOP EDA
MARKET
The Company believes that the desktop EDA market is at the beginning of a trend
toward the use of the Microsoft-Registered Trademark- Windows operating systems,
and anticipates that the use of Windows-based products in the EDA market will
continue to expand. Accordingly, all of the new EDA software products
introduced by the Company during 1996, and all of the EDA software products the
Company is currently developing, are designed for use on Microsoft's Windows 3.1
and 3.11, Windows NT and Windows 95 operating systems. Any factor adversely
affecting the demand for, or use of, the Microsoft Windows operating systems for
EDA applications or in general, could have a material adverse effect on the
Company. Further, any changes to the underlying components of the Microsoft
Windows operating systems that would require changes to the Company's products
would have a material adverse effect on the Company's business if the Company
were unable to successfully develop and implement such changes in a timely
fashion, or if the Company's products, as changed, failed to gain market
acceptance.
ECONOMIC AND MARKET CONDITIONS
The Company's business depends on capital spending and other economic cycles
that affect the users and manufacturers of ICs. This industry is highly
cyclical and characterized by rapid technological change, short product life
cycles, fluctuations in manufacturing capacity and pricing and gross margin
pressures. Segments of this industry, in each of the United States, Europe and
Japan, have from time to time experienced significant economic downturns
characterized by decreased product demand, reductions in capital expenditures,
production over-capacity, price erosion, work slowdowns and layoffs. In
addition, portions of this industry have experienced downturns at different
times. The Company believes that there was a slowdown in capital spending by
electronics manufacturers in the United States and Europe during 1996. The
Company's operations may in the future reflect substantial fluctuations from
period-to-period as a consequence of such industry patterns, general economic
conditions affecting the timing of orders from major customers, and other
factors affecting capital spending. There can be no assurance that such factors
will not have a material adverse effect upon the Company's business, financial
condition and results of operations.
COMPETITION
The markets for the Company's products are highly competitive. Competitors for
the Company's semiconductor equipment and EDA software products include a number
of established companies that may have significantly greater financial,
technical, manufacturing and marketing resources than the Company. The
Company's competitors may have well established relationships or strategic
affiliations which give them certain competitive advantages. Advances in
technology have reduced the barriers of entry into the programming systems
markets, resulting in new competitors who compete for certain market niches.
The Company expects competition to increase from both established and emerging
companies. There
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<PAGE>
can be no assurance that the Company will be able to compete successfully
against current and future sources of competition or that the competitive
pressures faced by the Company will not adversely affect its profitability or
financial performance.
DEPENDENCE ON IC MANUFACTURERS
The Company maintains close working relationships with semiconductor
manufacturers to ensure that the Company's programming systems use programming
methodology that complies with each semiconductor manufacturer's specifications.
In addition, many semiconductor manufacturers endorse Data I/O programming
systems as equipment that they recommend for end-user applications as well as
for use in their own development and production environments. These
relationships enable Data I/O to keep its programming systems product line
up-to-date with the latest technology and to provide end-users with broad and
current programmable IC support. Any adverse change in the relationships that
the Company maintains with semiconductor manufacturers could have a material
adverse effect on the Company's business, financial condition and results of
operations.
DEPENDENCE ON SUPPLIERS
Certain components used in the Company's products, including but not limited to
robotics and certain other custom components, are currently available only from
single sources, and other components are available from only a limited number of
sources. To date the Company has been able to obtain adequate supplies of these
components and maintain inventories of its more critical components, in certain
instances through negotiated contractual relationships or parts allocations from
suppliers. However, the Company's inability in the future to develop
alternative sources or to obtain sufficient single or limited-source components
could result in delays or reductions in product introductions or shipments,
which could have a material adverse effect on the Company's operating results.
The Company has limited ability to avoid or offset future price increases by
suppliers of key components. Accurate production forecasts are required to
ensure that adequate component supplies are available in a timely manner,
particularly in those instances where component suppliers require long lead
times. There can be no assurance that the Company will be able to accurately
forecast its production schedule in the future. If the Company were to
experience significant delays, interruptions or reductions in its supply of key
components, or unfavorable price terms, its business, financial condition and
results of operations could be materially adversely affected.
RELIANCE ON THIRD PARTY DISTRIBUTION CHANNELS
The Company has limited internal sales personnel. The Company is dependent on
third party manufacturers' representatives, OEMs, VARs and international
distributors (collectively, "Third Party Distributors") for the majority of its
domestic and international sales. Accordingly, the Company is dependent upon the
continued viability and financial stability of these Third Party Distributors.
Because most of the Company's products are used by highly skilled professional
engineers, effective Third Party Distributors must possess sufficient technical,
marketing and sales resources and must devote their resources to sales efforts,
customer education, training and support. Only a limited number of potential
Third Party Distributors meet these criteria. In addition, the Company's
relationship with its Third Party Distributors is usually established through a
formal contractual agreement, which generally may be terminated by either party
without cause upon minimal notice. There can be no assurance that the Company
will be able to attract and retain a sufficient number of qualified Third Party
Distributors to successfully market the Company's products, and the failure to
do so would have a material adverse effect on the Company's business, financial
condition and results of operations.
INTERNATIONAL OPERATIONS
International sales represented approximately 51% of the Company's total revenue
for the fiscal year ended December 26, 1996, and the Company expects that
international sales will continue to account for a significant portion of its
net revenue in future periods. International sales are subject to inherent
risks, including unexpected changes in regulatory requirements, tariffs and
taxes, difficulties in staffing and managing foreign operations, longer payment
cycles, greater difficulty in accounts receivable collection, compliance with
any applicable export licensing requirements and other trade barriers, as well
as political and economic instability. The European Community and European Free
Trade Association have established certain electronic emission and product
safety requirements ("CE"). Certain of the Company's products have not yet met
these requirements. Failure to obtain either a CE mark or a waiver for any
products may prevent the Company from marketing such products in Europe.
Moreover, gains and losses on the conversion to U.S. Dollars of receivables and
payables arising from international operations may contribute to fluctuations in
the Company's results of operations. In
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<PAGE>
addition, if for any reason exchange or price controls or other restrictions on
their currencies were imposed, the Company's business, financial condition and
results of operations could be adversely affected. Moreover, currency exchange
fluctuations in countries in which the Company has wholly owned subsidiaries may
have a material adverse effect on the Company's investment in those
subsidiaries.
PROTECTION OF INTELLECTUAL PROPERTY
Refer to the section captioned "Patents, Copyrights, Trademarks and Licenses"
above.
MANAGEMENT OF GROWTH
The Company plans to continue to expand its product lines, focus increased
efforts on marketing and distribution and pursue strategic acquisitions and
relationships. The Company's growth plans will present management, competitive
and other challenges to the Company's executive management and employees. There
can be no assurance that the Company will be able to achieve its planned
expansion goals or manage its growth effectively. The Company's failure to
manage growth effectively could have a material adverse effect on its business,
financial condition and results of operations.
FUTURE ACQUISITIONS
The Company may in the future pursue acquisition of complementary technologies,
product lines or businesses. Future acquisitions by the Company may result in
potentially dilutive issuances of equity securities, the incurrence of
additional debt and amortization expenses related to goodwill and intangible
assets that could adversely affect the Company's profitability. In addition,
acquisitions involve numerous risks, including difficulties in the assimilation
of the operations and products of the acquired company, the diversion of
management's attention from other business concerns, risks of entering markets
in which the Company has no or limited direct prior experience, and the
potential loss of key employees of the acquired company. In the event that such
an acquisition does occur, there can be no assurance as to the effect thereof on
the Company's business or operating results.
DEPENDENCE ON KEY PERSONNEL
Refer to the section captioned "Employees" above.
POTENTIAL VOLATILITY OF STOCK PRICE
There has been significant volatility in the market price of securities of
technology companies. The Company believes factors such as announcements of new
products by the Company or its competitors and quarterly variations in financial
results could cause the market price of the Company's Common Stock to fluctuate
substantially. In addition, the stock market has experienced volatility that
has particularly affected the market prices for many technology companies' stock
and that often has been unrelated to the operating performance of such
companies. These market fluctuations may continue in the future and may
adversely affect the price of the Company's Common Stock.
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<PAGE>
ITEM 2. PROPERTIES
Data I/O's headquarters and principal facility is a 96,000 square foot building
on approximately 79 acres of land, which is owned by the Company and located in
Redmond, Washington. In September 1991, the Company engaged the services of a
real estate broker and began a formal process of negotiating to sell excess land
at its headquarters. This land has been classified as Land Held for Sale in the
Company's financial statements. In order to enhance the land's marketability,
the Company listed its entire Redmond headquarters property in 1995, including
the building, as available for sale with long-term lease back provisions on the
building. The Company announced on July 18, 1996 that it had entered into an
agreement to sell the headquarters property and enter into a ten year lease back
arrangement of the building with options for an additional ten years. Closing
of this transaction had been expected to occur by the end of 1996 but has been
postponed due to delays in receiving regulatory approvals necessary for
development of the property. Closing of the sale remains subject to a number of
conditions and contingencies. The Company has granted an extension of the due
diligence period to April 20, 1997, subject to certain payments from the buyer.
See Note 4 of "Notes to Consolidated Financial Statements."
The Company currently leases approximately 12,000 square feet of space for its
semiconductor equipment manufacturing facility in Indianapolis, Indiana. In
addition, approximately 15,000 square feet is leased at four foreign sales and
service locations.
ITEM 3. LEGAL PROCEEDINGS
Nothing to report.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF STOCKHOLDERS
No matters were submitted for a vote of stockholders of the Company during the
fourth quarter of the fiscal year ended December 26, 1996.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
The following table shows, for the periods indicated, the market sales price
range for the Company's common stock as reported by the Nasdaq National Market
tier of The Nasdaq Stock Market (Nasdaq symbol is DAIO).
Period High Low
------ ---- ---
1996 Fourth Quarter $5.63 $4.00
Third Quarter 6.00 4.38
Second Quarter 6.88 5.13
First Quarter 7.75 5.38
1995 Fourth Quarter $8.88 $6.00
Third Quarter 12.63 7.63
Second Quarter 9.63 4.88
First Quarter 6.00 4.38
The approximate number of shareholders of record and approximate number of
beneficial shareholders of record at February 25, 1997 was 1,019 and 4,700
respectively.
Except for a special cash dividend of $4.15 per share paid on March 8, 1989, the
Company has not paid cash dividends on its common stock and does not anticipate
paying regular cash dividends in the foreseeable future. The Company's U.S.
line of credit agreement restricts the payment of cash dividends through a
requirement for minimum levels of tangible net worth.
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ITEM 6. SELECTED FIVE-YEAR FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED
- -------------------------------------------------------------------------------------------------------------
DEC. 26, DEC. 28, DEC. 29, DEC. 30, DEC. 31,
(in thousands, except employee and per share data) 1996 1995 1994 1993 1992 (1)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FOR THE YEAR:
Net sales $60,423 $66,031 $61,478 $63,186 $69,337
Gross margin 29,897 35,433 33,094 31,775 39,292
Research and development 10,944 9,069 9,227 9,700 7,797
Selling, general and administrative 19,765 20,411 20,032 26,094 26,872
Write-off of acquired in-process R&D (2) 825
Provision for business restructuring (3) (400) 6,120
Operating income (loss) (812) 5,528 3,835 (10,139) 4,623
Non-operating (income) expense 59 (125) 134 2,218 310
Income (loss) before taxes, extraordinary item
and cumulative effect of accounting change (871) 5,653 3,701 (12,357) 4,313
Income tax expense (benefit) 230 892 975 (700) 1,445
Income (loss) before extraordinary item and
cumulative effect of accounting change (1,101) 4,761 2,726 (11,657) 2,868
Extraordinary item, net of tax (4) (1,675)
Cumulative effect of accounting change (5) 400
Net income (loss) ($1,101) $4,761 $2,726 ($11,257) $1,193
- -------------------------------------------------------------------------------------------------------------
AT YEAR-END:
Working capital $10,054 $12,005 $10,038 $3,582 $9,940
Total assets $39,319 $44,776 $43,487 $43,025 $49,702
Long-term debt (6) $1,500 $1,500 $1,500 $1,500
Total debt $1,605 $1,617 $1,940 $3,867 $3,422
Stockholders' equity $22,559 $25,929 $24,343 $21,183 $31,343
Number of employees 403 401 379 445 517
- -------------------------------------------------------------------------------------------------------------
COMMON STOCK DATA:
Earnings per share:
Income (loss) before extraordinary item and
cumulative effect of accounting change ($0.16) $0.60 $0.37 ($1.63) $0.40
Net income (loss) ($0.16) $0.60 $0.37 ($1.57) $0.17
Book value per share at year end $3.33 $3.66 $3.28 $2.92 $4.46
Shares outstanding at year end 6,778 7,084 7,432 7,250 7,030
Weighted average shares outstanding 6,857 7,879 7,420 7,170 7,117
- -------------------------------------------------------------------------------------------------------------
KEY RATIOS:
Current ratio 1.7 1.7 1.6 1.2 1.6
Gross margin to sales 49.5% 53.7% 53.8% 50.3% 56.7%
Operating income (loss) to sales (1.3%) 8.4% 6.2% (16.0%) 6.7%
Net income (loss) to sales (7) (1.8%) 7.2% 4.4% (18.4%) 4.1%
Return on average total assets (7) (2.6%) 10.4% 6.4% (23.7%) 6.1%
Return on average stockholders' equity (7) (4.6%) 18.2% 12.3% (39.3%) 9.5%
- -------------------------------------------------------------------------------------------------------------
</TABLE>
FOOTNOTES:
(1) Fiscal 1992 was a 53 week year.
(2) For further discussion, see Note 6 of "Notes to Consolidated Financial
Statements."
(3) For further discussion, see Note 2 of "Notes to Consolidated Financial
Statements."
(4) Net of tax write down of the value of land due to a Sensitive Area
Ordinance by the City of Redmond.
(5) Cumulative effect of a change in accounting for income taxes to SFAS 109.
(6) For further discussion, see Note 7 of "Notes to Consolidated Financial
Statements."
(7) Computed based on net income (loss) before cumulative effect of accounting
change and extraordinary item.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
SHARE REPURCHASE PROGRAM
The Company announced on October 27, 1995 a share repurchase program which
authorized the Company to repurchase up to 7.5% (approximately 570,000 shares)
of its outstanding shares of common stock. The Company announced on February 21,
1996 that the Board of Directors had authorized the Company to repurchase up to
an additional 8% (approximately 570,000 shares) of its outstanding common stock.
These purchases may be executed through open market purchases at prevailing
market prices, through block purchases or in privately negotiated transactions.
Purchases may commence or be discontinued at any time and the Board may withdraw
its authorization at any time. At December 26, 1996, the Company had
repurchased an aggregate of 1,015,700 shares for approximately $7.1 million
since October of 1995.
SALE OF HEADQUARTERS PROPERTY
The Company announced on July 18, 1996 that it had reached an agreement to sell
the approximately 79 acres of land and 96,000 square foot building comprising
its Redmond, Washington headquarters campus for approximately $14.0 million to a
major real estate company. The transaction will include a leaseback of the
building by Data I/O for ten years with options for an additional ten years.
The Company had been marketing a portion of the land on its headquarters campus
for the past five years and in 1995 decided to market the building with
long-term leaseback provisions on the building to enhance the value of the
entire property.
Closing of this transaction had been expected to occur by the end of 1996 but
has been postponed due to delays in receiving regulatory approvals necessary for
development of the property. Closing of the sale remains subject to a number of
conditions and contingencies. The Company has granted an extension of the due
diligence period to April 20, 1997, subject to certain payments from the buyer.
As closing of the sale is subject to a number of conditions and government
approvals, there can be no assurance that the sale will be consummated. If
consummated, this sale is expected to result in a pre-tax gain of approximately
$5.8 million. Approximately $2.0 million of this gain would be recognized upon
the closing of the sale, with the balance amortized over the initial ten-year
lease term. The Company expects to realize approximately $12.0 million in cash
after payment of transaction fees and income taxes.
FORWARD-LOOKING STATEMENTS
Although most of the information contained in this report is historical, certain
of the statements contain forward-looking information. To the extent these
statements involve, without limitation, product development and introduction
plans, the Company's expectations for growth, estimates of future revenue,
expenses, profit, cash flow, balance sheet items, sell-through or backlog,
forecasts of demand or market trends for the Company's various product
categories and for the industries in which the Company operates or any other
guidance on future periods, these statements are forward-looking and involve
matters which are subject to a number of risks and uncertainties that could
cause actual results to differ materially from those expressed in or implied by
such forward-looking statements. These risks and uncertainties include product
development or production difficulties or delays due to supply constraints,
technical problems or other factors; technological changes; the effect of
global, national an regional economic conditions; changes in operating system
platforms of preference; the impact of competitive products and pricing; changes
in demand; increases in component prices or other costs; inventory risks due to
shifts in market demand, product obsolescence or other factors and a number of
other risks including those identified by the Company under the caption "Risk
Factors" in Item 1 and elsewhere in this report, and other risks identified from
time to time in the Company's filings with the Securities and Exchange
Commission, press releases and other communications.
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<PAGE>
RESULTS OF OPERATIONS
NET SALES
<TABLE>
<CAPTION>
Years Ended Years Ended
-------------------------------- -------------------------------
Net sales by division (in thousands) 1996 1995 % Change 1995 1994 % Change
- ------------------------------------- ------- ------- -------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Programming Systems Division:
Non-automated programming systems $36,029 $41,400 (13.0%) $41,400 $43,756 (5.4%)
Automated programming systems 15,093 19,605 (23.0%) 19,605 14,579 34.5%
------- ------- ------- ------- ------- -------
Total Programming Systems Division 51,122 61,005 (16.2%) 61,005 58,335 4.6%
Synario Design Automation Division 5,557 4,401 26.3% 4,401 3,143 40.0%
Semiconductor Equip. Div. (Reel-Tech) 3,744 625 500.0% 625
------- ------- ------- ------- ------- -------
Net sales $60,423 $66,031 (8.5%) $66,031 $61,478 7.4%
------- ------- ------- ------- ------- -------
Years Ended Years Ended
-------------------------------- -------------------------------
Net sales by location (in thousands) 1996 1995 % Change 1995 1994 % Change
- -------------------------------------- ------- ------- -------- ------- ------- --------
United States $29,572 $35,280 (16.2%) $35,280 $32,930 7.1%
% of total 48.9% 53.4% 53.4% 53.6%
International $30,851 $30,751 0.3% $30,751 $28,548 7.7%
% of total 51.1% 46.6% 46.6% 46.4%
- ------------------------------------------------------------------------------------------------------------
</TABLE>
1996 VS. 1995
The Company experienced an overall decline in sales and orders for the Company's
products during 1996. Orders declined approximately 11% to $58.5 million in
1996, compared with $65.7 million in 1995.
The Company believes the declines in overall Programming Systems Division sales
and orders were primarily due to a slowdown in capital spending by electronics
manufacturing companies in the United States and Europe which reduced the demand
for the Division's products. The Company believes that the economic slowdown in
capital spending for electronics manufacturing equipment has bottomed out and is
beginning to turn upward. The Company believes that increased competition, in
areas where new Data I/O product introductions are not scheduled to occur until
1997, or where products are nearing the end of their product life cycles, is
also affecting sales. The Company's current expectations are that these new
products will not be available in production quantities until the second half of
1997 and early 1998. In addition, the Company believes the declines in
non-automated programming systems also reflect the continuing market shift away
from the Company's traditional line of higher-priced IC programmers for the
engineering market, toward lower-priced programmers.
The Company believes the market shift toward lower-priced IC programmers has
been caused in part by advances in semiconductor processing technology that have
lowered the barriers to entry in the programmer business over the last several
years. This has caused new market entrants to appear regularly, each trying to
carve out a niche. New entrants cause downward price pressure, and each cycle
of new competitors lowers the acceptable price of a conventional IC programmer
in the customer's view. In addition, the Company believes that technological
improvements in personal computers and design software tools have caused a shift
in the demand for IC design tools by engineering design teams away from hardware
tools in favor of increased software design tools. These industry changes had,
and are continuing to have, an adverse effect on the Company's IC programmer
sales and gross margins, especially because the Company's products historically
have been oriented toward hardware tools and, within hardware tools, toward
higher-priced IC programmers.
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<PAGE>
However, the Company believes that recent changes in programmable IC technology,
such as increasingly complex logic ICs lower voltage requirements and higher pin
counts, and the increasing need for higher quality and high volume programming
by users of programmable ICs means that there is a significant market need for
more sophisticated programmers and automated programming systems. The Company
currently has development projects underway for new programmer and automation
technology to address the needs created by these technology changes.
The Company believes the decline in overall automated handling systems sales and
orders in 1996 were primarily due to the slowdown in capital spending by
electronics manufacturing companies. The Company believes that in the
electronic manufacturing market, the expanded use of programmable integrated
circuits in the mid- to high-volume manufacturing environment and the
proliferation of hard-to-handle surface-mount packages in a variety of types is
causing a worldwide trend toward automation and integration of manufacturing
processes. The Company believes that increased competition, in areas where new
Data I/O product introductions are not scheduled to occur until 1997, such as
the ProMaster 970, is affecting sales. The Company continues to believe that
its product line, as well as the products under development, its worldwide
service capabilities, and technology leadership will keep the Company in a
position to capitalize on the trend toward automation and integration of
manufacturing processes.
The Company believes the sales growth in the Synario Design Automation
Division's software products, including Synario and ECS, is due to greater
market acceptance of Windows based EDA software products as well as continued
product enhancements. Synario is targeted at the change in the industry demand
toward greater usage of software products and at the Company's belief in the
emerging Windows-based EDA market. The Company believes Synario is well
positioned to take advantage of the adoption of the Windows environment by users
of EDA software tools.
Sales growth in the Company's Semiconductor Equipment Division products was due
to having a full year of sales in 1996 after the purchase of Reel-Tech in August
of 1995. Sales for the fourth quarter of 1996 grew 55% compared to the fourth
quarter of 1995. During April of 1996, the Company moved and expanded the
Indianapolis, Indiana factory to provide additional capacity. The Company
believes that a slowdown in capital spending due to overcapacity and price
competition by DRAM semiconductor manufacturers, among Reel-Tech's primary
customers, has slowed the growth of Reel-Tech in recent quarters. The Company
believes that this slowdown has bottomed out, which is supported by Reel-Tech,
Inc. experiencing increased bookings in the fourth quarter.
The Company experienced a small increase in international sales during 1996 due
to increased sales in Asia, which were partially offset by declining sales in
Europe due to the slowdown in capital spending by electronics manufacturing
companies in Europe and the negative impact of foreign currency exchange rate
changes. The foreign currency exchange rate changes reduced sales by
approximately $1.3 million during 1996 compared to 1995. These declines were
due primarily to rate changes for the German Mark and the Japanese Yen. When the
U.S. Dollar is stronger, sales of the Company's products in local currency
translate into fewer U.S. Dollars. However, offsetting the revenue translation
impact is the translation of local currency costs and expenses.
1995 VS. 1994
Programming Systems Division products experienced year-over-year revenue growth
due primarily to increased sales of automated programming and handling systems
which was partially offset by a decline in sales of the Company's non-automated
programming systems and the Company's older software design tools. The addition
of Semiconductor Equipment Division products, obtained as part of the Reel-Tech
acquisition in August of 1995, also provided incremental sales growth.
The Company experienced decreased sales for the non-automated programming
systems products used primarily in the engineering market. Partially offsetting
this decline was an increase in sales of non-automated parallel programming
systems used in the manufacturing market. The overall decline reflects the
continuing market shift, technology changes and competitive situation discussed
above for 1996. Sales of the Company's Programming Systems Division software
products decreased by 28% in 1995 compared to 1994 which contributed to the
decline in the non-automated programming systems products. The Company's older
software design tools, including ABEL and FutureNet, declined due to competitive
pricing pressures, product aging and the discontinuation of the FutureNet
product.
The Company believes the growth in sales of the Company's automated programming
and handling systems for the manufacturing environment increased due to a trend
toward the expanded use of programmable ICs in high-volume manufacturing
situations. The Company believes this trend is due to a reduction in the cost
of programmable ICs relative to
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<PAGE>
fixed ICs, the desire of manufacturers to improve the time-to-market for new and
improved products, and the increased functionality and miniaturization of
programmable ICs. A market shift in the ProMaster product mix toward
higher-priced models also contributed to the sales increase. The Company's most
recently introduced products, ProMaster 9500, ProMaster 7500, ProMaster 2500 and
Tape and Reel, provided this growth during 1995.
The Company believes the sales growth in the Synario Design Automation Division
software products, including Synario and ECS, was due to greater market
acceptance of Windows-based EDA software products as well as product
enhancements.
Sales of the Company's Semiconductor Equipment Division products, acquired as
part of the Reel-Tech acquisition, were approximately $625,000. The Company
believes the market for semiconductor equipment experienced strong growth in
1995 as semiconductor manufacturers expanded capacity in response to demand for
ICs.
International sales were favorably impacted by foreign currency translation
which increased sales by approximately $1.3 million in 1995 compared to 1994,
primarily due to rate changes for the German Mark and the Japanese Yen which
strengthened relative to the U.S. Dollar during 1995.
GROSS MARGIN
(in thousands) 1996 Change 1995 Change 1994
- --------------------------------------------------------------------------------
Gross margin $29,897 (15.6%) $35,433 7.1% $33,094
Percentage of net sales 49.5% 53.7% 53.8%
- --------------------------------------------------------------------------------
1996 VS. 1995
The gross margin decreased in Dollars and as a percentage of sales during 1996
compared to 1995. The decrease in gross margin is due primarily to lower
volumes, lower product margins and increases in inventory reserves. The
relatively high fixed component of cost of goods sold causes any swing in total
volume to have a significant impact on gross margin. The shift in mix of
product revenues from higher-priced and higher-margin non-automated programming
systems to the lower-priced alternatives has lowered the overall product gross
margins. Also contributing to the decline of gross margin was the strengthening
of the U.S. Dollar in relation to the Japanese Yen and the German Mark, in which
approximately 17% of the Company's sales are denominated.
1995 VS. 1994
The gross margin increased in Dollars during 1995 compared to 1994 while staying
approximately the same as a percentage of sales. The increase in gross margin
Dollars is due primarily to the increase in sales volume. The Company
experienced improved gross margins on automated programming and handling system
products in 1995 due to increased volume and a shift toward higher-priced
models. Offsetting this improvement is a shift in the mix of sales of the
Company's non-automated programming systems products from higher-priced,
higher-margined products toward lower-priced alternatives which has lowered the
overall margins for this product line. The shift in the product mix to a lower
overall percentage of software sales, which have higher gross margins, has had
an additional offsetting impact. In addition, the gross margin on the ProMaster
9500 was below that of the Company's traditional automated programming and
handling systems due to higher material and labor costs. Finally, gross margin
was favorably affected by improvements due to the positive currency effects of a
weaker U.S. Dollar.
Page 27
<PAGE>
RESEARCH AND DEVELOPMENT
(in thousands) 1996 Change 1995 Change 1994
- --------------------------------------------------------------------------------
Research and development $10,944 20.7% $9,069 (1.7%) $9,227
Percentage of net sales 18.1% 13.7% 15.0%
- --------------------------------------------------------------------------------
1996 VS. 1995
Research and development spending increased both in amount and as a percentage
of sales in 1996 compared to 1995. The spending increase is primarily due to
the inclusion of expenses for the Company's Reel-Tech subsidiary acquired in
August of 1995, additional product development projects, including those related
to products slated for introduction in 1997, and additional engineering staff
compensation costs. The Company expects to continue its significant investment
in research and development, especially for projects related to planned 1997
product introductions.
The Company believes it is essential to invest in research and development to
support its existing products and to create new products as markets develop and
technologies change. The Company is focusing its research and development
efforts in its strategic growth markets, namely new programming technology,
automated handling systems for the manufacturing environment, Windows-based EDA
software design tools and semiconductor handling equipment. The Company expects
to continue this focus in the future and believes that it is essential to invest
in research and development to support its existing products and to create new
products as markets develop and technologies change.
1995 VS. 1994
Research spending declined slightly both in Dollars and as a percentage of
sales. The decline is primarily due to lower personnel costs which relate
primarily to open job positions during the year. The Company focused its
research and development efforts in 1995 on its strategic growth markets, namely
automated programming and handling systems, Windows-based EDA software design
tools, low-priced project specific IC programmers and semiconductor equipment.
The charge for in-process research and development acquired as part of the
August 1995 Reel-Tech acquisition of $825,000 is not included in research and
development expense.
SELLING, GENERAL AND ADMINISTRATIVE
(in thousands) 1996 Change 1995 Change 1994
- --------------------------------------------------------------------------------
Selling, general and
administrative $19,765 (3.2%) $20,411 1.9% $20,032
Percentage of net sales 32.7% 30.9% 32.6%
- --------------------------------------------------------------------------------
1996 VS. 1995
The decrease in selling, general and administrative expenditures during 1996
relative to 1995 is primarily due to decreased commissions, incentive
compensation and decreased expenses in the Company's foreign offices, due in
part to currency rate changes. Partially offsetting this is the inclusion of
expenses for the Company's Reel-Tech subsidiary acquired in August of 1995.
1995 VS. 1994
The actual Dollar increase in selling, general and administrative expenditures
in 1995 was due to increased marketing and promotion expenditures, increased
commissions resulting from the sales volume increase and increased expenses in
the Company's foreign offices due to currency rate changes. Partially offsetting
this increase were reductions in spending due to the Company's restructuring
efforts.
Page 28
<PAGE>
BUSINESS RESTRUCTURING
During the fourth quarter of 1993, the Company recorded a pretax charge of $6.1
million related to the restructure of its sales and distribution channels,
downsizing its operations to a level consistent with anticipated lower sales and
product margins, and consolidation and outsourcing certain manufacturing
processes. Of the total $6.1 million restructuring charge, the Company paid
approximately $1.5 million in cash in 1993 (including approximately $300,000 of
previously accrued vacation and pension payments), $2.1 million in 1994
(including approximately $200,000 of previously accrued vacation and pension
payments), $855,000 in 1995, $653,000 in 1996 and expects to pay the balance of
approximately $312,000 in 1997. In addition, since inception of the
restructuring, the Company recorded approximately $800,000 in asset write-downs
related to its restructuring.
During the fourth quarter of 1996, the Company continued its restructuring
activities related to its sales and distribution channels by closing its sales
and service operation in the United Kingdom. The lease termination, loss on
equipment disposition, severance, and closure expenses of approximately $285,000
were charged to operations. Offsetting this charge was a reversal of certain
amounts provided for in the original restructuring for outsourcing certain
manufacturing processes which will not be used. Other than remaining abandoned
lease obligations which runs out over the next year, the 1993 restructuring has
been completed.
During the fourth quarter of 1995, asset and accrued liability accounts
associated with the plan were adjusted such that the total restructuring costs
were lowered by $400,000 or 7% of the original plan. The restructuring plan
changed, in 1995, primarily as the Company experienced difficulties in
proceeding as planned on outsourcing certain manufacturing processes. The
effect of this in 1995, was a delay in accomplishing portions of the outsourcing
plan, resulting in continued usage of certain production equipment beyond the
time that was originally planned, as well as reductions in originally
contemplated costs.
INTEREST
(in thousands) 1996 Change 1995 Change 1994
- --------------------------------------------------------------------------------
Interest income $199 (50.0%) $398 176.4% $144
Interest expense $256 (6.2%) $273 0.0% $273
- --------------------------------------------------------------------------------
1996 VS. 1995
Interest income decreased during 1996 compared with 1995, primarily due to a
decrease in the average level of funds available for investment and a decrease
in the average investment interest rates.
1995 VS. 1994
Net interest income increased in 1995 to $125,000. This increase relates to
increased interest income from investment of higher cash balances and from funds
being invested at higher average interest rates during the year.
INCOME TAXES
(in thousands) 1996 Change 1995 Change 1994
- --------------------------------------------------------------------------------
Income tax expense $230 (74.2%) $892 (8.5%) $975
Effective tax rate 26.4% 15.8% 26.3%
- --------------------------------------------------------------------------------
1996 VS. 1995
The effective income tax rate for 1996 differed from the expected benefit at the
statutory 34% tax rate primarily due to the establishment of additional tax
valuation reserves. The additional valuation reserves were due to an inability
to record a benefit for foreign tax credit carryforwards and alternative
minimum tax credit carryforwards as well as the reduced ability to offset
reversing temporary differences against 1995 taxable income after carrying back
the 1996 tax loss. See Note 11 of "Notes to Consolidated Financial Statements."
Page 29
<PAGE>
The Company had valuation allowances of $3,555,000 at December 26, 1996 compared
to $2,571,000 at December 28, 1995 and $3,358,000 at December 29, 1994. The
valuation reserves may increase should the Company continue to experience losses
or reverse as the Company records income. The potential reversal of these
valuation allowances may significantly reduce the Company's effective tax rate
in 1997.
1995 VS. 1994
The effective income tax rate for 1995 differed from the statutory 34% tax rate
primarily due to reversal of tax valuation reserves established in 1993. The
reversal of valuation reserves was due to the utilization of foreign subsidiary
loss carryforwards and alternative minimum tax credit carryforwards as well as
the offset of reversing temporary differences against 1995 taxable income. See
Note 11 of "Notes to Consolidated Financial Statements."
NET INCOME AND EARNINGS PER SHARE
(in thousands) 1996 Change 1995 Change 1994
- --------------------------------------------------------------------------------
Net:
Income (loss) ($1,101) (123.1%) $4,761 74.7% $2,726
Percentage of net sales (1.8%) 7.2% 4.4%
Earnings (loss) per share ($0.16) (126.7%) $0.60 62.2% $0.37
- --------------------------------------------------------------------------------
1996 VS. 1995
The decrease in net income and earnings per share in 1996 compared with 1995 is
primarily due to a combination of decreased sales volume, a lower gross margin
percentage, increased costs and operating expenses resulting from the Company's
acquisition of Reel-Tech as well as spending on new development projects and
recording of deferred tax valuation reserves.
1995 VS. 1994
The change in the Company's profitability was due primarily to the increased
sales volume, the reversal of a portion of the restructure accrual, reduced
costs and operating expenses resulting from the Company's 1993 restructure and
the reversal of deferred tax valuation reserves. Offsetting a portion of this
was the charge of $660,000 net of tax for in-process research and development
related to the Reel-Tech acquisition.
INFLATION AND CHANGES IN FOREIGN CURRENCY EXCHANGE RATES
In the past, the Company has been able to offset the impact of inflation with
efficiency increases and price adjustments. Heightened competition has made the
Company's products subject to more price competition and has diminished its
ability to offset the impacts of inflation.
Sales and expenses incurred by foreign subsidiaries are in the subsidiary's
local currency and translated into U.S. Dollar amounts at average rates of
exchange during the year. To date the foreign currency rate changes have not
significantly impacted the Company's profitability. This is because only
approximately one-quarter of the Company's sales are made by foreign
subsidiaries, independent currency fluctuations tend to minimize the effect of
any individual currency exchange fluctuations and the effect of individual rate
changes on sales and expenses tend to offset each other. Additionally, the
Company hedges its foreign currency exposure on the sales of inventory and
certain loans to its foreign subsidiaries through the use of foreign exchange
contracts. See Note 1 of "Notes to Consolidated Financial Statements."
Page 30
<PAGE>
FINANCIAL CONDITION
LIQUIDITY AND CAPITAL RESOURCES
(in thousands) 1996 Change 1995 Change 1994
- --------------------------------------------------------------------------------
Working capital $10,054 ($1,951) $12,005 $1,967 $10,038
Total debt $1,605 ($12) $1,617 ($323) $1,940
- --------------------------------------------------------------------------------
Working capital decreased during the 1996 primarily due to funds used to
repurchase common stock as discussed above. This decrease was partially offset
by funds provided by operations.
The Company's trade accounts receivable decreased by approximately $3.3 million
during 1996. This decrease was primarily due to decreased sales volume in 1996.
The Company decreased its inventory level by $279,000 during 1996. The Company
had experienced an inventory increase during the first half of 1996, primarily
due to having purchased inventory in anticipation of a higher sales volume than
occurred, to support anticipated growth in the Semiconductor Equipment products
as well as to provide a level of safety stock during the Anaheim factory
relocation which was completed in March 1996. The Company expects to continue
to reduce its inventories during the next year to better align inventory levels
to the sales volume. Accrued expenses declined compared to the prior year
primarily due to decreased accrued incentive compensation and payment of accrued
restructure costs. The use of $3.0 million of cash to repurchase 453,300 shares
of Common Stock during 1996 was partially offset by stock sale proceeds of
$747,000 under the Company's employee stock benefit plans.
As of December 26, 1996, the Company had total debt of $1.6 million or
approximately 7% of its $22.6 million in equity. Of this total, approximately
$105,000 is current debt, consisting entirely of borrowings on its foreign line
of credit. The $1.5 million of long-term debt consists of a note due in 1998
for the balance of the purchase price for CAD/CAM (see Note 6 of "Notes to
Consolidated Financial Statements"). At December 26, 1996, the Company also had
an unused $8.0 million U.S. line of credit maturing in May 1997 under which
borrowings would incur interest at the bank's published prime rate or the LIBOR
rate plus 110 basis points.
The foreign line of credit of $1.4 million matures in November 1997.
Historically, this debt and the U.S. line of credit, have been structured as
short-term and have been continuously renewed on their maturity dates. The
Company currently expects to be able to renew these lines of credit on maturity
under substantially the same terms as those presently in place. No assurances
can be made, however, in regard to the renewal of these agreements.
The Company has accrued a $666,000 payment obligation in connection with the
acquisition of Reel-Tech which is expected to be paid during 1997. Additional
contingent acquisition-related payments of $1,334,000 are dependent on future
operating results which may be achieved and become payable in whole or in part
in 1997 or 1998.
The Company estimates that capital expenditures for property, plant and
equipment during 1997 will be approximately $2.0 million. Such expenditures are
currently expected to be funded from internally generated funds and, if
necessary, borrowings from the Company's existing credit lines. Although the
Company fully expects that such expenditures will be made, it has commitments
for only a small portion of these amounts.
At December 26, 1996, the Company's material short-term unused sources of
liquidity consisted of approximately $4.0 million in cash and cash equivalents
and available borrowings of $8.0 million under its U.S. line of credit and
approximately $1.3 million under its foreign line of credit. The Company
believes these sources and cash flow from operations will be sufficient during
1997 to fund working capital needs, service existing debt, finance planned
capital acquisitions, fund the Reel-Tech contingent payment obligations and fund
its remaining restructure accrued liabilities. Additional capital will also be
provided if the Company successfully disposes of its Redmond headquarters
property (see Note 4 of "Notes to Consolidated Financial Statements").
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See pages 32 through 48.
Page 31
<PAGE>
- --------------------------------------------------------------------------------
R E P O R T O F E R N S T & Y O U N G L L P ,
I N D E P E N D E N T A U D I T O R S
- --------------------------------------------------------------------------------
Board of Directors and Stockholders
Data I/O Corporation
We have audited the accompanying consolidated balance sheets of Data I/O
Corporation as of December 26, 1996, and December 28, 1995, and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the three years in the period ended December 26, 1996. Our audits also
included the financial statement schedule listed in the Index at Item 14(A).
These financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Data I/O Corporation at December 26, 1996, and December 28, 1995, and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended December 26, 1996, in conformity with generally
accepted accounting principles. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
/s/ Ernst & Young LLP
Seattle, Washington
February 7, 1997 ERNST & YOUNG LLP
- --------------------------------------------------------------------------------
R E P O R T O F M A N A G E M E N T
- --------------------------------------------------------------------------------
Management is responsible for preparing the Company's financial statements and
related information that appears in this annual report on Form 10-K. Management
believes that the financial statements fairly reflect the form and substance of
transactions and reasonably present the Company's financial condition and
results of its operations in conformity with generally accepted accounting
principles. Management has included in the Company's financial statements
amounts that are based on estimates and judgments, which it believes are
reasonable under the circumstances.
The Company maintains a system of internal accounting policies, procedures and
controls intended to provide reasonable assurance, at appropriate cost, that
transactions are executed in accordance with Company authorization and are
properly recorded and reported in the financial statements, and that assets are
adequately safeguarded.
Independent audits of the Company's financial statements are performed in
accordance with generally accepted auditing 0standards and provide an objective,
independent review of the fairness of reported financial condition and results
of operations.
The Board of Directors of the Company has an Audit Committee composed of
non-management Directors. The Committee meets with financial management and the
independent auditors to review internal accounting controls and accounting,
auditing and financial reporting matters.
/s/ William C. Erxleben /s/ Joel S. Hatlen
WILLIAM C. ERXLEBEN JOEL S. HATLEN
President Corporate Controller
Chief Executive Officer Chief Accounting Officer
Treasurer
Page 32
<PAGE>
DATA I/O CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
Dec. 26, Dec. 28, Dec. 29,
FOR THE YEARS ENDED 1996 1995 1994
- --------------------------------------------------------------------------------
(in thousands, except per share data)
Net sales $60,423 $66,031 $61,478
Cost of goods sold 30,526 30,598 28,384
------- ------- -------
Gross margin 29,897 35,433 33,094
Operating expenses:
Research and development 10,944 9,069 9,227
Selling, general and administrative 19,765 20,411 20,032
Write-off of acquired in-process R&D 825
Provision for business restructuring (400)
------- ------- -------
Total operating expenses 30,709 29,905 29,259
------- ------- -------
Operating income (loss) (812) 5,528 3,835
Non-operating income (expense):
Interest income 199 398 144
Interest expense (258) (273) (278)
------- ------- -------
Total non-operating income (expense) (59) 125 (134)
------- ------- -------
Income (loss) before income taxes (871) 5,653 3,701
Income tax expense 230 892 975
------- ------- -------
Net Income (loss) ($1,101) $4,761 $2,726
------- ------- -------
------- ------- -------
Net income (loss) per share: ($0.16) $0.60 $0.37
------- ------- -------
------- ------- -------
Weighted average common and equivalent
shares outstanding 6,857 7,879 7,420
------- ------- -------
------- ------- -------
See notes to consolidated financial statements.
Page 33
<PAGE>
DATA I/O CORPORATION
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
Dec. 26, Dec. 28,
1996 1995
- --------------------------------------------------------------------------------
(in thousands, except share data)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $4,048 $4,496
Trade accounts receivable,
less allowance for doubtful
accounts of $362 and $311 9,796 13,115
Inventories 8,260 8,539
Recoverable income taxes 474
Deferred income taxes 762 976
Other current assets 997 893
--------- ---------
TOTAL CURRENT ASSETS 24,337 28,019
Land held for sale 2,437 2,095
Property, plant and equipment - net 9,430 10,240
Other assets 3,115 4,422
--------- ---------
TOTAL ASSETS $39,319 $44,776
--------- ---------
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $1,906 $2,071
Accrued compensation 2,587 3,612
Deferred revenue 5,494 5,436
Other accrued liabilities 3,102 2,672
Accrued costs of business restructuring 312 965
Income taxes payable 777 1,141
Notes payable 105 117
--------- ---------
TOTAL CURRENT LIABILITIES 14,283 16,014
LONG-TERM DEBT 1,500 1,500
LONG-TERM OTHER PAYABLES 503 1,117
DEFERRED INCOME TAXES 474 216
COMMITMENTS (Note 8)
STOCKHOLDERS' EQUITY:
Preferred stock -
Authorized, 5,000,000 shares, including
200,000 shares of Series A Junior Participating
Issued and outstanding, none
Common stock, at stated value -
Authorized, 30,000,000 shares
Issued and outstanding, 6,777,720
and 7,083,825 shares 15,247 17,528
Retained earnings 6,845 7,946
Currency translation adjustments 467 455
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 22,559 25,929
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $39,319 $44,776
--------- ---------
--------- ---------
See notes to consolidated financial statements.
Page 34
<PAGE>
DATA I/O CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
Dec. 26, Dec. 28, Dec. 29,
For the years ended 1996 1995 1994
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
(in thousands)
OPERATING ACTIVITIES:
Net income (loss) ($1,101) $4,761 $2,726
Adjustments to reconcile income (loss)
to net cash provided by operating activities:
Depreciation and amortization 3,990 4,285 4,671
Write-off of acquired in-process R&D 825
Income and deferred income taxes and refunds (365) 39 2,133
Deferred revenue 58 184 937
Changes in current items other
than cash and cash equivalents:
Trade accounts receivable 3,370 (1,712) (741)
Inventories 279 (1,469) 1,345
Other current assets (101) 474 (218)
Business restructure (653) (925) (1,936)
Accounts payable and accrued liabilities (1,353) (354) 38
------- ------- -------
Cash provided by operating activities 4,124 6,108 8,955
INVESTING ACTIVITIES:
Additions to property, plant and equipment (2,311) (2,654) (1,876)
Investment in assets of acquired business (2,055)
Additions to other assets (104) (53)
------- ------- -------
Cash used for investing activities (2,311) (4,813) (1,929)
FINANCING ACTIVITIES:
Repayment of notes payable (9) (921) (1,931)
Sale of common stock 321 333 327
Proceeds from exercise of stock options 426 585 160
Repurchase of common stock (3,028) (4,119)
------- ------- -------
Cash used for financing activities (2,290) (4,122) (1,444)
------- ------- -------
Increase (decrease) in cash and cash equivalents (477) (2,827) 5,582
Effects of exchange rate changes on cash 29 44 (7)
Cash and cash equivalents - Beginning of year 4,496 7,279 1,704
------- ------- -------
Cash and cash equivalents - End of year $4,048 $4,496 $7,279
------- ------- -------
------- ------- -------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $120 $121 $255
Income taxes $564 $923 $405
</TABLE>
See notes to consolidated financial statements.
Page 35
<PAGE>
DATA I/O CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
Currency
Common Stock Retained Translation
Shares Amount Earnings Adjustment
(in thousands except share data)
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BALANCE AT DECEMBER 30, 1993 7,250,036 $20,242 $459 $482
Net income 2,726
Stock options exercised 44,875 160
Issuance of stock through
Employee Stock Purchase Plan 136,990 327
Currency translation adjustment, net of
tax of $27 (53)
--------- --------- --------- ---------
BALANCE AT DECEMBER 29, 1994 7,431,901 20,729 3,185 429
Net income 4,761
Stock options exercised 118,125 585
Issuance of stock through
Employee Stock Purchase Plan 96,199 333
Repurchase of Common Stock (562,400) (4,119)
Currency translation adjustment, net of
tax benefit of $2 26
--------- --------- --------- ---------
BALANCE AT DECEMBER 28, 1995 7,083,825 17,528 7,946 455
Net Loss (1,101)
Stock options exercised 81,500 426
Issuance of stock through
Employee Stock Purchase Plan 65,695 321
Repurchase of Common Stock (453,300) (3,028)
Currency translation adjustment, net of
tax of $6 12
--------- --------- --------- ---------
BALANCE AT DECEMBER 26, 1996 6,777,720 $15,247 $6,845 $467
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
See notes to consolidated financial statements.
Page 36
<PAGE>
DATA I/O CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NATURE OF OPERATIONS
Data I/O Corporation (the "Company") manufactures hardware and software products
for users of programmable integrated circuits, and manufactures equipment used
by integrated circuit manufacturers. The Company's principal customers use the
Company's programming systems and software programs to design and manufacture
electronic equipment for industrial, commercial and military applications. The
Company also sells its semiconductor equipment products to semiconductor
manufacturers. Customers for the Company's programming systems, software and
semiconductor equipment products are located around the world, primarily in the
United States, Europe and the Far East. All of the Company's manufacturing
operations are located in the United States.
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Data I/O
Corporation and its wholly owned subsidiaries. The consolidated financial
statements include the results of operations of Reel-Tech, Inc. since the
acquisition of this business on August 31, 1995. All significant intercompany
accounts and transactions have been eliminated in consolidation.
REPORTING PERIOD
The Company reports on a fifty-two, fifty-three week basis. Results of
operations for 1996, 1995 and 1994 are for fifty-two week periods.
USE OF ESTIMATES
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
STOCK-BASED COMPENSATION
The Company grants stock options for a fixed number of shares to employees with
an exercise price equal to the fair value of the shares at the date of grant.
The Company accounts for stock option grants in accordance with APB Opinion No.
25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES. Accordingly, the Company
recognizes no compensation expense for its stock option grants.
FOREIGN CURRENCY TRANSLATION
Assets and liabilities denominated in foreign currencies are translated at the
exchange rate on the balance sheet date. Revenues, costs and expenses are
translated at average rates of exchange prevailing during the year. Translation
adjustments resulting from this process are charged or credited to stockholders'
equity, net of taxes. Realized and unrealized gains and losses on foreign
currency transactions are included in non-operating expense as Foreign Currency
Exchange.
In an effort to minimize the effect of exchange rate fluctuations on the results
of its operations, the Company hedges certain portions of its foreign currency
exposure through the use of forward exchange contracts none of which are
speculative. At December 26, 1996, the Company had approximately $1,040,000 in
foreign exchange contracts outstanding, with the contract exchange rates being
approximately equal to the market exchange rates. These contract terms range
from 7 to 90 days.
Page 37
<PAGE>
CASH AND CASH EQUIVALENTS
Cash and cash equivalents are highly liquid investments with insignificant
interest rate risk. The Company invests in the highest grade commercial paper
with original maturities of three months or less and conservative money market
funds. Interest earned is reported in non-operating income (expense) as
Interest Income.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is computed on a
currently adjusted standard basis, which approximates actual cost on an average
or first-in/first-out basis.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at cost and depreciated using the
straight-line method over estimated useful lives as follows:
Building 40 years
Equipment 3 to 7 years
Leasehold improvements Lesser of lease term or estimated useful life
REVENUE RECOGNITION
Revenue from product sales is recognized at the time of shipment or customer
acceptance, if an acceptance clause is specified in the sales terms. Revenue
from software products licensed to original equipment manufacturers is
recognized when earned per the terms of the contracts. Revenue from the sale of
service and update contracts is recorded as deferred revenue and recognized as
earned revenue on a straight-line basis over the contractual period.
RESEARCH AND DEVELOPMENT
Research and development costs are expensed as incurred. No software
development costs have been capitalized due to immateriality.
ADVERTISING EXPENSE
The Company expenses advertising costs as incurred. Total expenses were
$2,409,000, $2,261,000, and $1,771,000 in 1996, 1995 and 1994, respectively.
WARRANTY EXPENSE
The Company warrants its products against defects for periods ranging from
ninety days to one year. The Company provides currently for the estimated cost
which may be incurred under its product warranties.
INCOME TAXES
Income tax expense includes U.S., state and foreign income taxes. Certain items
of income and expense are not reported in both the tax returns and financial
statements in the same year. The Company uses the liability method of accounting
for income taxes under which deferred taxes are provided for the temporary
differences between the financial reporting basis and the tax basis of the
Company's assets and liabilities. These deferred tax assets and liabilities are
measured by the provisions of currently enacted tax laws.
Page 38
<PAGE>
EARNINGS PER SHARE
The Company calculates and reports earnings per share based on the weighted
average common and common stock equivalent shares outstanding during the period
(using the treasury stock method). Common stock equivalents which are
antidilutive are not considered. Stock options are common stock equivalents.
Fully diluted earnings per share approximates primary earnings per share.
On February 21, 1996, the Company's Board of Directors extended the Share
Repurchase Program. This extension authorizes the repurchase of up to an
additional 8% (approximately 570,000 shares) of the Company's outstanding common
stock through open market purchases at prevailing market prices or through block
purchases or through privately negotiated transactions. During 1996, the
Company repurchased 453,300 shares of its common stock under a Share Repurchase
Program. Purchases may commence or be discontinued at any time and the Board of
Directors may withdraw this authorization at any time.
DIVERSIFICATION OF CREDIT RISK
Financial instruments which potentially subject the Company to concentrations of
credit risk consist primarily of trade receivables. The Company's trade
receivables are geographically dispersed and include customers in many different
industries. Management believes that any risk of loss is significantly reduced
due to the diversity of its end-customers and geographic sales areas. The
Company performs on-going credit evaluations of its customers' financial
condition and requires collateral, such as letters of credit and bank
guarantees, whenever deemed necessary.
RECLASSIFICATIONS
Certain prior years' balances have been reclassified to conform to the current
year presentation.
NOTE 2 - PROVISION FOR BUSINESS RESTRUCTURING
During the fourth quarter of 1993, the Company recorded a pretax charge of $6.1
million related to the restructure of its sales and distribution channels,
downsizing its operations to a level consistent with anticipated lower sales and
product margins, and consolidation and outsourcing certain manufacturing
processes. Of the total $6.1 million restructuring charge, the Company paid
approximately $1.5 million in cash in 1993 (including approximately $300,000 of
previously accrued vacation and pension payments), $2.1 million in 1994
(including approximately $200,000 of previously accrued vacation and pension
payments), $855,000 in 1995, $653,000 in 1996 and expects to pay the balance of
approximately $312,000 in 1997. In addition, since inception of the
restructuring, the Company recorded approximately $800,000 in asset write-downs
related to its restructuring.
During the fourth quarter of 1996, the Company continued its restructuring
activities related to its sales and distribution channels by closing its sales
and service operation in the United Kingdom. The lease termination, loss on
equipment disposition, severance, and closure expenses of approximately $285,000
were charged to operations. Offsetting this charge was a reversal of certain
amounts provided for in the original restructuring for outsourcing certain
manufacturing processes which will not be used. Other than remaining abandoned
lease obligations which runs out over the next year, the 1993 restructuring has
been completed.
During the fourth quarter of 1995, asset and accrued liability accounts
associated with the plan were adjusted such that the total restructuring costs
were lowered by $400,000 or 7% of the original plan. The restructuring plan
changed, in 1995, primarily as the Company experienced difficulties in
proceeding as planned on outsourcing certain manufacturing processes. The
effect of this in 1995, was a delay in accomplishing portions of the outsourcing
plan, resulting in continued usage of certain production equipment beyond the
time that was originally planned, as well as reductions in originally
contemplated costs.
Page 39
<PAGE>
NOTE 3 - INVENTORIES
Inventories consisted of the following components (in thousands):
Dec. 26, Dec. 28,
1996 1995
------------ ------------
Raw material $3,947 $4,839
Work-in-process 2,480 2,125
Finished goods 1,833 1,575
------------ ------------
$8,260 $8,539
------------ ------------
------------ ------------
NOTE 4 - LAND HELD FOR SALE
The Company owns 79.4 acres of land at its headquarters site in Redmond,
Washington, which it purchased in various parcels between 1979 and 1986. In
1990, the Company decided to market and sell excess land which was then
reclassified to Land Held for Sale in the Company's financial statements. In
order to enhance the property's marketability, the Company listed its entire
Redmond headquarters property as available for sale with long-term lease back
provisions on the building in 1995. The Company announced on July 18, 1996 that
it had entered into an agreement to sell the headquarters property for
approximately $14 million and enter into a ten year lease back arrangement for
the building with options for an additional ten years. Closing of the sale is
subject to a number of conditions and contingencies. The Company has granted an
extension of the due diligence period to April 20, 1997, subject to certain
payments from the buyer. If consummated, this sale is expected to result in a
pre-tax gain of approximately $5.8 million. Approximately $2.0 million of this
gain would be recognized on the closing of the sale, with the balance amortized
over the initial ten-year lease term. The Company expects to realize
approximately $12 million in cash after payment of transaction fees and income
taxes.
NOTE 5 - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following components (in
thousands):
Dec. 26, Dec. 28,
1996 1995
------------ ------------
Land $ 910 $ 910
Building and improvements 7,605 7,539
Equipment 21,554 22,329
------------ ------------
30,069 30,778
Less accumulated depreciation 20,639 20,538
------------ ------------
Property, plant and equipment - net $9,430 $10,240
------------ ------------
------------ ------------
NOTE 6 - OTHER ASSETS
Other assets consisted of the following components (in thousands):
Dec. 26, Dec. 28,
1996 1995
------------ ------------
Long-term lease deposits $ 234 $ 262
Investment in product lines 8,629 8,629
------------ ------------
8,863 8,891
Less accumulated amortization 5,748 4,469
------------ ------------
Other assets - net $3,115 $4,422
------------ ------------
------------ ------------
Total amortization recorded for 1996, 1995 and 1994 was $1,279,000, $1,324,000
and $1,399,000, respectively.
Page 40
<PAGE>
INVESTMENT IN PRODUCT LINES
The Company's investment in product lines includes intangible assets, the value
of which are dependent upon future technological trends. The Company amortizes
these intangible assets over their estimated useful lives. However, there is no
assurance that the actual lives will not materially differ from their estimated
useful lives. Periodically, the Company assesses and would adjust, if deemed
appropriate, the carrying value and the estimated lives of its investment in
product lines.
REEL-TECH, INC.
On August 31, 1995, the Company acquired the assets of Reel-Tech, Inc.
(Reel-Tech) of Indianapolis, Indiana, and entered into employment and
non-compete agreements with its two founding technologists. The purchase price
for the assets of Reel-Tech included an initial cash payment of $2.0 million and
the assumption of certain liabilities of approximately $1.2 million. The
Company has agreed to make additional payments of up to a maximum of $2.0
million over the next three years, with these payments contingent upon the
acquired operation achieving specified performance goals.
The transaction was accounted for using the purchase method of accounting based
upon an independent appraisal. In addition to the initial cash payment, the
Company accrued a $666,000 payment obligation. The remaining payments of
$1,334,000 are considered contingent as they are dependent on future operating
results and would result in a charge to earnings at the time a determination is
made that the payments are probable. The Company recorded approximately $1.3
million of tangible assets consisting of approximately $1.2 million of trade
receivables and approximately $100,000 of inventories. As part of the purchase
price allocation, intangible assets of approximately $1.7 million were recorded,
consisting of established technology, customer base, workforce and
non-competition agreements which are being amortized over their estimated useful
lives of five to seven years. In addition, the Company recorded a charge in the
third quarter of 1995 of $825,000 relating to that portion of the purchase price
representing the estimated fair value of in-process research and development.
The net book value of the assets capitalized in Other Assets related to this
acquisition was approximately $1.4 million and $1.7 million at December 26, 1996
and December 28, 1995, respectively.
CAD/CAM GROUP, INC.
On January 19, 1993, the Company acquired substantially all of the assets of
CAD/CAM Group, Inc. and entered into non-compete agreements with its two
founding technologists. The acquisition was accounted for under the purchase
method of accounting. Of the total purchase price of $3.0 million to be paid to
CAD/CAM Group, Inc. and its two founding technologists, $1.5 million was paid
during 1993 and the balance plus accrued interest payable at the U.S. Treasury
Bill rate is payable in 1998. Of the total consideration, approximately $2.9
million plus approximately $200,000 of transaction costs were allocated to
various identifiable intangible assets. These are reported in the accompanying
balance sheet as Other Assets and are being amortized ratably over the economic
life of the specific assets acquired (two to eight years). The net book value
of the assets capitalized in Other Assets related to this acquisition was
$700,000 and $1.2 million at December 26, 1996 and December 28, 1995,
respectively.
QUALITY AUTOMATION, INC.
On September 25, 1992, the Company exercised options, acquired in 1990 to
purchase the assets, technology and rights in the products of Quality Automation
Inc., and Q.A. Engineering, Inc. (both herein combined and referred to as
"Quality Automation" or "QA"). Of the total acquisition cost, approximately
$3.8 million of various identifiable intangible assets were reported as Other
Assets in the accompanying balance sheets and are being amortized ratably over
the economic life of the specific assets acquired (three to five years). The
net book value of the assets capitalized in Other Assets related to this
acquisition is $780,000 and $1.3 million at December 26, 1996, and December 28,
1995, respectively.
NOTE 7 - NOTES PAYABLE AND LONG-TERM DEBT
Notes payable as of December 26, 1996 and December 28, 1995 consisted of
borrowings under a $1.4 million unsecured foreign revolving line of credit
maturing in November 1997 with variable interest rates of 1.8% to 4.0% and
weighted-average interest rates of 1.8% and 3.1% at December 26, 1996 and
December 28, 1995, respectively.
Long term debt as of December 26, 1996 and December 28, 1995 related to an
unsecured note payable to the CAD/CAM Group, Inc. for $1.5 million, maturing in
full on January 19, 1998, with variable interest rates based on one-year U.S.
Treasury Bills (5.54% at December 26, 1996 and 5.15% at December 28, 1995).
Page 41
<PAGE>
The Company also has a U.S. unsecured revolving line of credit of $8 million
maturing May 31, 1997 with variable interest rates of the lender's prime rate or
LIBOR plus 1.1% at the Company's option.
Historically, the U.S. and foreign lines of credit have been structured as
short-term and have been continuously renewed on their maturity dates. The
Company anticipates renewing these lines of credit in 1997 under substantially
the same terms. No assurance can be made, however, in regard to the renewal of
these agreements if the Company again experiences losses.
NOTE 8 - COMMITMENTS
The Company has commitments under non-cancelable operating leases and other
agreements, primarily for office space, with initial or remaining terms of one
year or more as follows (in thousands):
1997 $428
1998 374
1999 140
2000 93
2001 23
Thereafter 0
Lease and rental expense was $890,000, $977,000, and $1,169,000 in 1996, 1995
and 1994, respectively. The Company has renewal options on substantially all of
its major leases.
In January of 1997, the Company made a commitment to purchase approximately $1.4
million of product, after initial product acceptance by the Company, with
payments scheduled to be completed by approximately the middle of 1998.
NOTE 9 - STOCK AND RETIREMENT PLANS
STOCK OPTION PLANS
At December 26, 1996, there were 966,250 shares of common stock reserved for
issuance under the Company's employee stock option plans. Pursuant to these
plans, options are granted to officers and key employees of the Company with
exercise prices equal to the fair market value of the common stock at the date
of grant and generally vest over four years. Options granted under the plans
have a maximum termination date of six years from the date of grant.
EMPLOYEE STOCK PURCHASE PLAN
Under the Employee Stock Purchase Plan, eligible employees may purchase shares
of the Company's common stock at six-month intervals at 85% of the lower of the
fair market value on the first or the last day of each six-month period.
Employees may purchase shares having a value not exceeding 10% of their gross
compensation during an offering period. During 1996, 1995 and 1994, a total of
65,695, 96,199 and 136,990 shares were purchased under the plan at average
prices of $5.10, $3.46 and $2.39 per share, respectively. At December 26, 1996,
a total of 484,745 shares were reserved for future issuance.
STOCK APPRECIATION RIGHTS PLAN
The Company has a Stock Appreciation Rights Plan ("SAR") under which each
director, executive officer or holder of 10% or more of the Company's common
stock has a SAR with respect to each exercisable stock option. The SAR entitles
the SAR holder to receive cash from the Company for the difference between the
market value of the stock and the exercise price of the option in lieu of
exercising the related option. SARs are only exercisable following a tender
offer or exchange offer for the Company's stock, or following approval by
stockholders of the Company of any merger, consolidation, reorganization or
other transaction providing for the conversion or exchange of more than 50% of
the common shares outstanding. As no event has occurred which would make the
SARs exercisable, no compensation expense has been recorded under this plan.
RETIREMENT SAVINGS PLAN
The Company has a savings plan that qualifies as a cash or deferred salary
arrangement under Section 401(k) of the Internal Revenue Code. Under the plan,
participating U.S. employees may defer up to 17% of their pre-tax salary, but no
more than approximately $9,500 per plan year. In fiscal years 1996, 1995 and
1994, the Company contributed one Dollar for each Dollar contributed by a
participant, with a maximum contribution of 4% of a participant's earnings. The
Company's matching
Page 42
<PAGE>
contribution expense for the savings plan was approximately $478,000, $455,000
and $384,000 in 1996, 1995 and 1994, respectively.
DIRECTOR FEE PLAN
The Company has a Director Fee Plan which provides for the payment of the annual
retainer fees to directors who are not employees of Data I/O Corporation by
delivery of shares of the Company's common stock. The number of shares is
determined by dividing the fee by the share price on the first trading day of
the year or as of the date such Director is elected to the Board of Directors.
A total of 200,000 shares were authorized in 1996 for the plan, of which 13,508
shares at a weighted-average price of $6.58 will be issued in 1997 for fees
related to 1996. Compensation expense recorded in 1996 related to these shares
was approximately $89,000.
NOTE 10 - STOCK-BASED COMPENSATION
The Company has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB 25) and related Interpretations
in accounting for its employee stock options because, as discussed below, the
alternative fair value accounting provided for under FASB Statement No. 123,
"Accounting for Stock-Based Compensation requires the use of option valuation
models that were not developed for use in valuing employee stock options. Under
APB 25, because the exercise price of the Company's employee stock options
equals the market price of the underlying stock on the date of grant, no
compensation expense is recognized.
Pro forma information regarding net income and earnings per share is required by
Statement 123, and has been determined as if the Company had accounted for its
employee stock options, employee stock purchase plan options and directors fee
shares under the fair value method of that Statement. The fair value for these
options was estimated at the date of grant using a Black-Scholes option pricing
model with the following weighted average assumptions:
<TABLE>
<CAPTION>
Employee Stock Employee Stock Director
Options Purchase Plan Options Fee Plan
1996 1995 1996 1995 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Risk-free interest rates 6.40% 5.94% 5.39% 5.95% 5.33%
Volatility factors of the expected market price
of the Company's common stock .49 .49 .49 .49 .49
Expected life of the option in years 4.75 4.75 0.5 0.5 1
Expected dividend yield None None None None None
</TABLE>
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's employee stock options, employee stock purchase plan options, and
director fee shares have characteristics significantly different from those of
traded options, and because changes in the subjective input assumptions can
materially affect the fair value estimate, in management's opinion, the existing
models do not necessarily provide a reliable single measure of the fair value of
its options.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. During the phase in
period of Statement 123, which has been applied only for options granted after
1994, the effects of applying the Statement for providing pro forma disclosure
are not indicative of future amounts until the new rules are applied to all
outstanding nonvested awards. The Company's pro forma information follows (in
thousands, except earning per share information):
1996 1995
---- ----
Pro Forma Net Income (Loss) ( $1,582) $4,574
Pro Forma Net Income (Loss) per share ($0.23) $ 0.58
Page 43
<PAGE>
A summary of the Company's stock option activity, and related information
follows:
<TABLE>
<CAPTION>
December 26, 1996 December 28, 1995
---------------------------- ---------------------------
Weighted-Average Weighted-Average
Options Exercise Price Options Exercise Price
------- ---------------- ------- ----------------
<S> <C> <C> <C> <C>
Outstanding - beginning of year 859,125 $5.03 816,000 $3.39
Granted 246,250 5.42 280,750 8.21
Exercised (81,500) 4.03 (118,125) 3.02
Forfeited (109,375) 5.16 (119,500) 3.49
Expired (2,500) 4.50
-------- ------ -------- ------
Outstanding - end of year 912,000 $5.22 859,125 $5.03
Exercisable at end of year 349,875 $4.13 267,250 $3.55
</TABLE>
December 29, 1994
-----------------------------
Range of
Options Exercise Price
------- --------------
Outstanding - beginning of year 746,750 $2.06 - $6.38
Granted 413,000 $2.44 - $3.59
Exercised (44,875) $2.06 - $3.75
Forfeited (258,875) $2.06 - $5.88
Expired (40,000) $4.75 - $5.75
--------
Outstanding - end of year 816,000 $2.06 - $6.38
Exercise prices for options outstanding as of December 26, 1996 ranged from
$2.44 to $8.63.
<TABLE>
<CAPTION>
For options outstanding at December 26, 1996: Range of option exercise prices
----------------------------------------------
Less than $4 From $4 to $6 Over $6 Total
------------ ------------- ------- -----
<S> <C> <C> <C> <C>
Number of options outstanding 418,250 194,750 299,000 912,000
Weighted-average exercise price $ 3.28 $ 5.06 $ 8.02 $ 5.22
Weighted-average remaining contractual life in years 3.00 5.45 4.80 4.11
Number of options exercisable 286,375 5,000 58,500 349,875
Weighted-average exercise price for exercisable $ 3.23 $ 5.58 $ 8.42 $ 4.13
</TABLE>
Page 44
<PAGE>
NOTE 11 - ACCOUNTING FOR INCOME TAXES
<TABLE>
<CAPTION>
(in thousands)
Year Ended
December
-----------------------------------
1996 1995 1994
----- ----- -----
<S> <C> <C> <C>
Components of income (loss) before taxes:
U.S. operations ($1,762) $ 4,703 $2,615
Foreign operations 891 950 1,086
------ ------- ------
($871) $ 5,653 $3,701
------ ------- ------
------ ------- ------
Income tax expense (benefit) consists of:
Current tax expense (benefit)
U.S. federal ($246) $ 1,284 ($103)
State (11) 77 127
Foreign 14 89 78
------ ------- ------
(243) 1,450 102
Deferred tax expense (benefit)
U.S. federal 473 (573) 859
Foreign 0 15 14
------ ------- ------
473 (558) 873
------ ------- ------
Total income tax expense (benefit) $230 $ 892 $ 975
------ ------- ------
------ ------- ------
</TABLE>
For federal income tax purposes, a deduction is received for stock option
compensation gains. The benefit of this deduction, which is recorded in common
stock, was $98,000, $222,000 and $15,000 in 1996, 1995 and 1994, respectively.
Foreign currency translation adjustments, which were recorded directly in
equity, were recorded net of the related deferred tax liabilities of $6,000 in
1996 and $2,000 in 1995 and a deferred tax asset of $27,000 in 1994.
Page 45
<PAGE>
The tax effects of temporary differences that gave rise to significant portions
of the deferred tax assets and deferred tax liabilities are presented below in
accordance with SFAS 109 (in thousands):
<TABLE>
<CAPTION>
Dec. 26, Dec. 28, Dec. 29,
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Deferred income tax assets:
Receivables allowance for doubtful accounts $ 114 $ 89 $ 79
Inventory, product return reserves and basis differences 1,470 1,077 1,079
Land basis 1,509 1,522 966
Compensation accruals 277 283 253
Intercompany profit 174 163 308
Pension and retirement accruals 240 239 127
Restructure asset and liability reserves 106 275 606
Accrued liability reserves 241 253 270
Reel-Tech amortization 322 279
Foreign net operating loss carryforwards 184 350 720
Tax credit carryforwards 283 275
Other, net 262 61 93
------- ------- -------
5,182 4,591 4,776
Valuation allowance (3,555) (2,571) (3,358)
------- ------- -------
$ 1,627 $ 2,020 $ 1,418
------- ------- -------
------- ------- -------
Deferred income tax liabilities:
Tax accelerated depreciation and amortization $ 1,072 $ 949 $ 798
Foreign currency translation 267 310 279
Other 138
------- ------- -------
$ 1,339 $ 1,259 $ 1,215
------- ------- -------
------- ------- -------
</TABLE>
The valuation allowance for deferred tax assets increased $984,000 during the
year ended December 26, 1996 due primarily to the Company's loss generated in
the current period and the inability to utilize foreign tax credits. The net
deferred tax assets recorded were limited to the estimated carryback benefit
available from temporary differences at the time of their expected reversal.
A reconciliation of the Company's effective income tax rate and the U.S. federal
tax rate is as follows:
<TABLE>
<CAPTION>
Year Ended
December
------------------------------------
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Statutory rate (34.0%) 34.0% 34.0%
Foreign Sales Corporation tax benefit (20.6%) (4.5%) (2.7%)
State and foreign income tax, net of
federal income tax benefit (8.5%) 1.2% 5.1%
Valuation allowance for deferred assets 113.0% (12.9%) (10.7%)
Other (23.5%) (2.0%) 0.6%
------ ------ ------
26.4% 15.8% 26.3%
------ ------ ------
------ ------ ------
</TABLE>
The Company has foreign net operating loss ("NOLs") carryforwards of
approximately $535,000, with the following expirations: $166,000 in 1998 and
$369,000 available indefinitely. Deferred tax assets arising from these foreign
NOLs are fully provided for in the valuation allowance.
Page 46
<PAGE>
NOTE 12 - GEOGRAPHIC SEGMENT INFORMATION
Data I/O Corporation and its subsidiaries operate predominantly within a single
industry segment and offer three major product groups: (1) electronic
programming systems used by customers to handle, program, test and mark
programmable ICs; (2) semiconductor equipment used to handle, transport and mark
integrated circuits; and (3) electronic design automation software used to
create designs for programmable ICs. No one customer accounted for more than
10% of the Company's revenues in the years ended December 26, 1996, December
28, 1995 and December 29, 1994. Major operations outside the U.S. include sales
and service support subsidiaries in Japan, Germany, Canada, Singapore and,
through the end of 1996, the United Kingdom.
Geographic information for the three years ended December 26, 1996 is presented
in the table that follows. Net sales, as shown in the table below, are based
upon the geographic area into which the products were sold and delivered. As
such, U.S. export sales of $24,578,000, $22,160,000 and $18,522,000 in 1996,
1995 and 1994, respectively, have been excluded from U.S. reported net sales.
Transfers between geographic areas are made at prices consistent with rules and
regulations of governing tax authorities. The profit on transfers between
geographic areas is not recognized until sales are made to non-affiliated
customers. For purposes of the table below, the profit on the transfers between
geographic areas has been shown in operating income in the geographic area where
the final sale to non-affiliated customers took place. Certain general
corporate expenses are charged to the U.S. segment. Identifiable assets are
those assets that can be directly associated with a particular geographic area.
<TABLE>
<CAPTION>
Year Ended December
--------------------------------------
(in thousands) 1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Net sales:
U.S. $ 29,572 $ 35,280 $ 32,930
Europe 14,096 16,555 16,221
Other 16,755 14,196 12,327
-------- -------- --------
$ 60,423 $ 66,031 $ 61,478
-------- -------- --------
-------- -------- --------
Operating income (loss):
U.S. ($3,158) $ 1,245 $ 1,235
Europe 1,429 2,202 2,012
Other 917 2,081 588
-------- -------- --------
($812) $ 5,528 $ 3,835
-------- -------- --------
-------- -------- --------
Identifiable assets:
U.S. $ 32,365 $ 35,604 $ 35,790
Europe 2,645 5,280 4,284
Other 4,309 3,892 3,413
-------- -------- --------
$ 39,319 $ 44,776 $ 43,487
-------- -------- --------
-------- -------- --------
</TABLE>
Page 47
<PAGE>
NOTE 13 - QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following table sets forth unaudited selected quarterly financial data for
the Company for 1996 and 1995. Although the Company's business is not seasonal,
growth rates of sales and earnings have varied from quarter to quarter as a
result of factors such as stocking orders from international distributors, the
timing of new product introductions, business acquisitions, and short-term
industry and general U.S. and international economic conditions. Information as
to any one or more quarters is therefore not necessarily indicative of trends in
the Company's business or profitability.
<TABLE>
<CAPTION>
(in thousands except per share data) 1996
----------------------------------------------------
For the quarters ended: Mar. 28 June 27 Sept. 26 Dec. 26
------- ------- -------- -------
<S> <C> <C> <C> <C>
Net sales $15,656 $15,308 $14,529 $14,930
Gross margin 7,551 7,583 7,185 7,578
Net income (loss) 62 (706) (258) (199)
Earnings per share:
Net income (loss) $ 0.01 ($0.10) ($0.04) ($0.03)
Market price per share:
High $ 7.75 $ 6.88 $ 6.00 $ 5.63
Low $ 5.38 $ 5.13 $ 4.38 $ 4.00
(in thousands except per share data) 1995
----------------------------------------------------
For the quarters ended: Mar. 30 June 29 Sept. 28 Dec. 28
------- ------- -------- -------
Net sales $16,208 $16,126 $15,648 $18,049
Gross margin 8,837 8,803 7,985 9,808
Net income (loss) 1,141 1,189 244 2,187
Earnings per share:
Net income (loss) $ 0.15 $ 0.15 $ 0.03 $ 0.28
Market price per share:
High $ 6.00 $ 9.63 $ 12.63 $ 8.88
Low $ 4.38 $ 4.88 $ 7.63 $ 6.00
</TABLE>
During 1996, the Company was unable to record a benefit for its pre-tax losses,
or offset its foreign taxes, due to carryback limitations associated with its
1993 loss.
The third quarter of 1995 reflects the charge of $660,000 net of tax for the
acquisition of in-process research and development. The fourth quarter of 1995
reflects the $350,000 net of tax reversal of a portion of the restructure
accrual. For the first three quarters of 1995, the Company recorded taxes at an
effective tax rate of 20%. The effective tax rate in the fourth quarter was 10%
due to the reversal of additional valuation allowances.
Data I/O Corporation's common stock trades on the Nasdaq National Market tier of
The Nasdaq Stock Market under the symbol DAIO and is quoted in many financial
publications, including the WALL STREET JOURNAL. The per share prices reported
in the table above are those reported by NASDAQ. The approximate number of
stockholders of record and the approximate number of beneficial stockholders of
record at February 25, 1997, was 1,019 and 4,700, respectively.
Except for a special cash dividend of $4.15 per share paid on March 8, 1989, the
Company has not paid cash dividends on its common stock and does not anticipate
paying regular cash dividends in the foreseeable future. The Company's U.S.
line of credit agreement restricts the payment of cash dividends through a
requirement for minimum levels of tangible net worth.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
None.
Page 48
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding the Registrant's directors is set forth under "Election of
Directors" in the Company's Proxy Statement relating to the Company's annual
meeting of shareholders to be held on May 13, 1997, and is incorporated herein
by reference. Such Proxy Statement will be filed within 120 days of the
Company's year end. Information regarding the Registrant's executive officers
is set forth in Item 1 of Part I herein under the caption "Executive Officers of
the Registrant".
ITEM 11. EXECUTIVE COMPENSATION
Information called for by Part III, Item 11, is included in the Company's Proxy
Statement relating to the Company's annual meeting of shareholders to be held on
May 13, 1997, and is incorporated herein by reference. The information appears
in the Proxy Statement under the caption "Executive Compensation." Such Proxy
Statement will be filed within 120 days of the Company's year end.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information called for by Part III, Item 12, is included in the Company's Proxy
Statement relating to the Company's annual meeting of shareholders to be held on
May 13, 1997, and is incorporated herein by reference. The information appears
in the Proxy Statement under the caption "Voting Securities and Principal
Holders." Such Proxy Statement will be filed within 120 days of the Company's
year end.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
Page 49
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
EXECUTIVE COMPENSATION PLANS AND ARRANGEMENTS
The following list is a subset of the list of exhibits described
below and contains all compensatory plans, contracts or arrangements
in which any director or executive officer of the Company is a
participant, unless the method of allocation of benefits thereunder is
the same for management and non-management participants:
(1) Amended and Restated 1982 Employee Stock Purchase Plan. See Exhibit
10.1 and 10.29.
(2) 1984 Deferred Compensation Plan. See Exhibit 10.2.
(3) Retirement Plan and Trust Agreement. See Exhibit 10.12, 10.18, 10.25
and 10.35.
(4) 1985 Stock Option Plan. See Exhibit 10.3.
(5) 1984 FutureNet Employee Stock Option Plan. See Exhibit 10.4.
(6) Summary of Management Incentive Compensation Plan. See Exhibit 10.11,
10.13 and 10.19.
(7) Amended and Restated 1983 Stock Appreciation Rights Plan. See Exhibit
10.7.
(8) Amended and Restated 1986 Stock Option Plan. See Exhibit 10.8 and
10.21.
(9) Form of Change in Control Agreements. See Exhibit 10.17.
(10) 1996 Director Fee Plan. See Exhibit 10.26.
(11) Synario Division Proceeds Sharing Plan. See Exhibit 10.27.
(12) Letter Agreement with William J. Haydamack. See Exhibit 10.28.
(A) LIST OF DOCUMENTS FILED AS A PART OF THIS REPORT: PAGE
----
(1) INDEX TO FINANCIAL STATEMENTS:
Report of Independent Auditors 32
Report of Management 32
Consolidated Statements of Operations for each of the
three years ended December 26, 1996 33
Consolidated Balance Sheets as of December 26, 1996
and December 28, 1995 34
Consolidated Statements of Cash Flows for each of
the three years ended December 26, 1996 35
Consolidated Statements of Stockholders' Equity
for each of the three years ended December 26, 1996 36
Notes to Consolidated Financial Statements 37
Page 50
<PAGE>
(2) INDEX TO FINANCIAL STATEMENT SCHEDULES:
II Consolidated Valuation and Qualifying Accounts 55
All other schedules not listed above have been omitted because the
required information is included in the consolidated financial
statements or the notes thereto, or is not applicable or required.
(3) INDEX TO EXHIBITS:
3 ARTICLES OF INCORPORATION:
3.1 The Company's restated Articles of
Incorporation filed November 2, 1987
(Incorporated by reference to Exhibit 3.1 of
the Company's 1987 Annual Report on Form 10-K
(File No. 0-10394)). N/A
3.2 The Company's Bylaws as amended and restated
as of December 11, 1996. 64
3.3 Certificate of Designation, Preferences and
Rights of Series A Junior Participating Pre-
ferred Stock (Incorporated by reference to
Exhibit 1 of the Company's Registration
Statement on Form 8-A filed April 5, 1988
(File No. 0-10394)). N/A
4 INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS, INCLUDING
INDENTURES:
4.1 Form of Rights Agreement, dated as of March
31, 1988, between the Company and ChaseMellon
Shareholder Services (formerly Chemical
Mellon Shareholder Services and Chemical Trust
Company of California) which includes as Exhibit
B thereto the form of Rights Certificate
(Incorporated by reference to the Company's
Registration Statement Form 8-A filed on
April 5, 1988 (File No. 0-10394)). N/A
10 MATERIAL CONTRACTS:
10.1 Amended and restated 1982 Employee Stock
Purchase Plan (Incorporated by reference to
Exhibit 10.1 to the Company's Registration
Statement of Form S-8 (File No. 33-42010,
filed August 1, 1991)). N/A
10.2 1984 Deferred Compensation Plan (Incorporated
by reference to Exhibit 10.22 of the Company's
1983 Annual Report on Form 10-K (File No. 0-10394)). N/A
10.3 1985 Stock Option Plan (Incorporated by
reference to Exhibit 10.22 of the
Company's 1984 Annual Report on Form
10-K (File No. 0-10394)). N/A
10.4 1984 FutureNet Employee Stock Option
Plan (Incorporated by reference to Exhibit
10.23 of the Company's 1984 Annual Report
on Form 10-K (File No. 0-10394)). N/A
10.5 Asset Purchase Agreement, dated as of
December 31, 1992, by and among Data I/O
Corporation, CAD/CAM Group, Inc., and certain
of its shareholders, and an Amendment thereto,
dated January 19, 1993 (Incorporated by
reference to Exhibit 10.21 of the Company's
1992 Annual Report on Form 10-K (File No.
0-10394)). N/A
Page 51
<PAGE>
10.6 Software Development Agreement, dated as of
January 19, 1993, by and among Data I/O
Corporation, Michael J. Mendelsohn and Peter
C. Niday (Incorporated by reference to
Exhibit 10.22 of the Company's 1992 Annual
Report on Form 10-K (File No. 0-10394)). N/A
10.7 Amended and Restated 1983 Stock Appreciation
Rights Plan dated February 3, 1993 (Incorporated
by reference to Exhibit 10.23 of the Company's
1992 Annual Report on Form 10-K (File No.
0-10394)). N/A
10.8 Amended and Restated 1986 Stock Option Plan dated
February 3, 1993 (Incorporated by reference to
Exhibit 10.24 of the Company's 1992 Annual Report
on Form 10-K (File No. 0-10394)). N/A
10.9 Amendment, dated April 30, 1993, to the business
loan agreement dated November 25, 1992, with
Seattle First National Bank. (Incorporated by
reference to Exhibit 10.22 of the Company's 1993
Annual Report on Form 10K (File No. O-10394)). N/A
10.10 Business loan agreement dated February 28, 1994,
with Seattle First National Bank for $8.0 million.
(Incorporated by reference to Exhibit 10.24 of
the Company's 1993 Annual Report on Form 10K
(File No. O-10394)). N/A
10.11 Summary of 1994 Management Incentive Compensation
Plan. (Incorporated by reference to Exhibit
10.25 of the Company's 1993 Annual Report on
Form 10K (File No. O-10394)). N/A
10.12 Amended and Restated Retirement Plan and Trust
Agreement. (Incorporated by reference to Exhibit
10.26 of the Company's 1993 Annual Report on
Form 10K (File No. O-10394)). N/A
10.13 Management Incentive Compensation Plan.
(Incorporated by reference to Exhibit 10.16 of
the Company's 1994 Annual Report on Form 10K
(File No. 0-10394)). N/A
10.14 Performance Bonus Plan (Incorporated by
reference to Exhibit 10.17 of the Company's
1994 Annual Report on Form 10K (File No. 0-10394)). N/A
10.15 Amendment, dated July 22, 1994, to the business
loan agreement dated February 28, 1994, with
Seattle First National Bank (Incorporated by
reference to Exhibit 10.18 of the Company's
1994 Annual Report on Form 10K (File No. 0-10394)). N/A
10.16 Amendment, dated November 16, 1994 to the
Business Loan Agreement dated February 28, 1994,
with Seattle First National Bank (Incorporated
by reference to Exhibit 10.19 of the Company's
1994 Annual Report on Form 10K (File No. 0-10394)). N/A
10.17 Form of Change in Control Agreements (Incorporated
by reference to Exhibit 10.20 of the Company's
1994 Annual Report on Form 10K (File No. 0-10394)). N/A
10.18 First Amendment to the Data I/O Tax Deferred
Retirement Plan (Incorporated by reference to
Exhibit 10.21 of the Company's 1994 Annual Report
on Form 10K (File No. 0-10394)). N/A
Page 52
<PAGE>
10.19 Amended and Restated Management Incentive
Compensation Plan dated January 1, 1996
(Incorporated by reference to Exhibit 10.20 of
the Company's 1995 Annual Report on Form 10K
(File No. 0-10394)). N/A
10.20 Amended and Restated Performance Bonus Plan
dated January 1, 1996 (Incorporated by reference
to Exhibit 10.21 of the Company's 1995 Annual
Report on Form 10K (File No. 0-10394)). N/A
10.21 Amended and Restated 1986 Stock Option Plan
dated February 22, 1995 (Incorporated by
reference to Exhibit 10.22 of the Company's
1995 Annual Report on Form 10K (File No. 0-10394)). N/A
10.22 Business Loan Agreement dated May 12, 1995,
with Seattle First National Bank for $8.0 million
(Incorporated by reference to Exhibit 10.23 of the
Company's 1995 Annual Report on Form 10K
(File No. 0-10394)). N/A
10.23 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 (Confidential
treatment has been requested for certain portions
of this exhibit)(Incorporated by reference to Exhibit
2.1 of to the Company's Form 8-K Report dated November
6, 1995). N/A
10.24 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 (Incorporated by reference to
Exhibit 2.2 of to the Company's Form 8-K Report dated
November 6, 1995). N/A
10.25 Second Amendment to the Data I/O Tax Deferred
Retirement Plan (Incorporated by reference to
Exhibit 10.26 of the Company's 1995 Annual
Report on Form 10K (File No. 0-10394)). N/A
10.26 Data I/O Corporation 1996 Director Fee Plan
(Incorporated by reference to Exhibit 10.27
of the Company's 1995 Annual Report on Form 10K
(File No. 0-10394)). N/A
10.27 Synario Division Proceeds Sharing Plan
(Confidential treatment has been requested
for certain portions of this exhibit)
(Incorporated by reference to Exhibit 10.28 of
the Company's 1995 Annual Report on Form 10K
(File No. 0-10394)). N/A
10.28 Letter Agreement with William J. Haydamack
(Confidential treatment has been requested for
certain portions of this exhibit) (Incorporated
by reference to Exhibit 10.29 of the Company's
1995 Annual Report on Form 10K (File No. 0-10394)). N/A
10.29 Data I/O Corporation 1982 Employee Stock Pur-
chase Plan Amended and Restated December 11, 1996
(Incorporated by reference to Exhibit 10.1 to
the Company's Registration Statement of Form S-8
(File No. 333-20657, filed January 29, 1997)). N/A
10.30 Business Loan Agreement dated April 24, 1996,
with Seattle First National Bank for $8.0 million. 75
Page 53
<PAGE>
10.31 OEM Agreement between Synopsys, Inc. and Synario
Design Automation a Division of Data I/O Corporation.
(Portions of this exhibit have been omitted pursuant
to an application for an order granting confidential
treatment. The omitted portions have been separately
filed with the Commission). 89
10.32 Purchase and Sale Agreement dated as of July 9,
1996 (Relating to the sale of Data I/O Corporation's
headquarters property in Redmond, Washington con-
sisting of approximately 79 acres of land and an
approximately 96,000 square foot building. (Portions
of this exhibit have been omitted pursuant to an
application for an order granting confidential
treatment. The omitted portions have been
separately filed with the Commission). 111
10.33 Letter dated as of December 20, 1996, First
Amendment and extension of the Closing Date under
that certain Purchase and Sale Agreement dated
as of July 9, 1996. (Portions of this exhibit
have been omitted pursuant to an application for
an order granting confidential treatment. The
omitted portions have been separately filed with
the Commission). 163
10.34 Letter dated as of February 17, 1997, Second
Amendment and extension of the Closing Date
under that certain Purchase and Sale Agreement
dated as of July 9, 1996. (Portions of this
exhibit have been omitted pursuant to an
application for an order granting confidential
treatment. The omitted portions have been
separately filed with the Commission). 165
10.35 Third Amendment to the Data I/O Tax Deferred
Retirement Plan. 167
11 STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE 56
22 SUBSIDIARIES OF THE REGISTRANT 57
24 INDEPENDENT AUDITORS' CONSENT 58
(B) FORM 8-K:
No reports on Form 8-K were filed during the fourth quarter of 1996.
Page 54
<PAGE>
DATA I/O CORPORATION
CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS
ALLOWANCE FOR DOUBTFUL ACCOUNTS
SCHEDULE II
Collection
Charged/ of
(Credited) Accounts
Balance at to Costs Previously Accounts Balance at
Beginning and Written Written End of
Year Ended of Period Expenses Off Off Period
- -----------------------------------------------------------------------------
(in thousands)
December 29, 1994: $332 $4 $12 ($71) $277
---------- ------- -------- ------ ------
---------- ------- -------- ------ ------
December 28, 1995: $277 $55 $12 ($33) $311
---------- ------- -------- ------ ------
---------- ------- -------- ------ ------
December 26, 1996: $311 $101 $16 ($66) $362
---------- ------- -------- ------ ------
---------- ------- -------- ------ ------
Page 55
<PAGE>
EXHIBIT 11
DATA I/O CORPORATION
COMPUTATION OF EARNINGS PER SHARE
Earnings per share reported in Form 10-K for the three years ended December 26,
1996 are based on the following (in thousands):
Primary and Fully Diluted: 1996 1995 1994
- ------------------------------------- ---- ---- -----
Weighted Average Shares Outstanding 6,857 7,514 7,354
Dilutive Effect of Stock Options 365 66
----- ----- -----
Weighted Average Common and Equivalent
Shares Outstanding 6,857 7,879 7,420
----- ----- -----
----- ----- -----
Page 56
<PAGE>
EXHIBIT 22
DATA I/O CORPORATION
SUBSIDIARIES OF THE REGISTRANT
The following table indicates the name, jurisdiction of incorporation and basis
of ownership of each of the Company's subsidiaries:
State or Percentage
Jurisdiction of Voting
of Securities
Name of Subsidiary Organization Owned
------------------ ------------ ----------
Data I/O Japan Company, Limited Japan 100%
Data I/O International, Inc. Washington 100%
Data I/O European Operations GmbH Germany 100%
Data I/O FSC International, Inc. Territory of Guam 100%
Data I/O Canada Corporation Canada 100%
Data I/O GmbH Germany 100%
Data I/O Limited United Kingdom 100%
Reel-Tech, Inc. Washington 100%
Reel-Tech Singapore Pte, Ltd. Singapore 100%
Page 57
<PAGE>
EXHIBIT 24
- --------------------------------------------------------------------------------
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------
Board of Directors and Stockholders
Data I/O Corporation
We consent to the incorporation by reference in the Registration Statements
(Forms S-8 No. 333-20657, 33-2254, 33-3958, 33-26472, 33-42010, 33-54422,
33-66824 and 33-95608) of our report dated February 7, 1997, with respect to the
consolidated financial statements and schedule of Data I/O Corporation included
in the Annual Report (Form 10-K) for the year ended December 26, 1996.
//S//ERNST & YOUNG LLP
ERNST & YOUNG LLP
Seattle, Washington
February 28, 1996
Page 58
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
DATA I/O CORPORATION
(REGISTRANT)
DATED: February 28, 1997 By: //S//WILLIAM C. ERXLEBEN
--------------------------
William C. Erxleben
President
Chief Executive Officer
Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below on February 28, 1996, by the following persons on behalf
of the Registrant and in the capacities indicated.
NAME TITLE
By: //S//WILLIAM C. ERXLEBEN President
------------------------ Chief Executive
William C. Erxleben Officer
Director
By: //S//W. HUNTER SIMPSON Director
----------------------
W. Hunter Simpson
By: //S//DONALD R. STENQUIST Director
------------------------
Donald R. Stenquist
By: //S//MILTON F. ZEUTSCHEL Director
------------------------
Milton F. Zeutschel
By: //S//FRANCES M. CONLEY Director
----------------------
Frances M. Conley
By: //S//EDWARD D. LAZOWSKA Director
-----------------------
Edward D. Lazowska
By: //S//KEITH L. BARNES Director
--------------------
Keith L. Barnes
By: //S//JOEL S. HATLEN Corporate Controller
------------------- Chief Accounting
Joel S. Hatlen Officer
Treasurer
Page 59
<PAGE>
EXHIBITS INDEX
Exhibit Number Title Page Number
- -------------- ------------------------------------------------ ------------
3 ARTICLES OF INCORPORATION:
3.1 The Company's restated Articles of Incorporation
filed November 2, 1987 (Incorporated by reference
to Exhibit 3.1 of the Company's 1987 Annual Report
on Form 10-K (File No. 0-10394)). N/A
3.2 The Company's Bylaws as amended and restated as
of December 11, 1996. 64
3.3 Certificate of Designation, Preferences and Rights
of Series A Junior Participating Preferred Stock
(Incorporated by reference to Exhibit 1 of the
Company's Registration Statement on Form 8-A filed
April 5, 1988 (File No. 0-10394)). N/A
4 INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS, INCLUDING
INDENTURES:
4.1 Form of Rights Agreement, dated as of March 31, 1988,
between the Company and ChaseMellon Shareholder
Services (formerly Chemical Mellon Shareholder
Services and Chemical Trust Company of California)
which includes as Exhibit B thereto the form of Rights
Certificate (Incorporated by reference to the Company's
Registration Statement Form 8-A filed on April 5, 1988
(File No. 0-10394)). N/A
10 MATERIAL CONTRACTS:
10.1 Amended and restated 1982 Employee Stock Purchase Plan
(Incorporated by reference to Exhibit 10.1 to the
Company's Registration Statement of Form S-8
(File No. 33-42010, filed August 1, 1991)). N/A
10.2 1984 Deferred Compensation Plan (Incorporated by
reference to Exhibit 10.22 of the Company's 1983
Annual Report on Form 10-K (File No. 0-10394)). N/A
10.3 1985 Stock Option Plan (Incorporated by reference
to Exhibit 10.22 of the Company's 1984 Annual Report
on Form 10-K (File No. 0-10394)). N/A
10.4 1984 FutureNet Employee Stock Option Plan (Incorporated
by reference to Exhibit 10.23 of the Company's
1984 Annual Report on Form 10-K (File No. 0-10394)). N/A
10.5 Asset Purchase Agreement, dated as of December 31,
1992, by and among Data I/O Corporation, CAD/CAM
Group, Inc., and certain of its shareholders, and
an Amendment thereto, dated January 19, 1993
(Incorporated by reference to Exhibit 10.21 of
the Company's 1992 Annual Report on Form 10-K
(File No. 0-10394)). N/A
10.6 Software Development Agreement, dated as of
January 19, 1993, by and among Data I/O
Corporation, Michael J. Mendelsohn and Peter C. Niday
(Incorporated by reference to Exhibit 10.22 of the
Company's 1992 Annual Report on Form 10-K
(File No. 0-10394)). N/A
10.7 Amended and Restated 1983 Stock Appreciation Rights
Plan dated February 3, 1993 (Incorporated by
reference to Exhibit 10.23 of the Company's 1992
Annual Report on Form 10-K (File No. 0-10394)). N/A
Page 60
<PAGE>
10.8 Amended and Restated 1986 Stock Option Plan dated
February 3, 1993 (Incorporated by reference to Exhibit
10.24 of the Company's 1992 Annual Report on Form 10-K
(File No. 0-10394)). N/A
10.9 Amendment, dated April 30, 1993, to the business loan
agreement dated November 25, 1992, with Seattle First
National Bank. (Incorporated by reference to Exhibit
10.22 of the Company's 1993 Annual Report on Form 10K
(File No. O-10394)). N/A
10.10 Business loan agreement dated February 28, 1994, with
Seattle First National Bank for $8.0 million.
(Incorporated by reference to Exhibit 10.24 of the
Company's 1993 Annual Report on Form 10K
(File No. O-10394)). N/A
10.11 Summary of 1994 Management Incentive Compensation Plan.
(Incorporated by reference to Exhibit 10.25 of the
Company's 1993 Annual Report on Form 10K
(File No. O-10394)). N/A
10.12 Amended and Restated Retirement Plan and Trust Agreement.
(Incorporated by reference to Exhibit 10.26 of the
Company's 1993 Annual Report on Form 10K
(File No. O-10394)). N/A
10.13 Management Incentive Compensation Plan. (Incorporated
by reference to Exhibit 10.16 of the Company's 1994
Annual Report on Form 10K (File No. 0-10394)). N/A
10.14 Performance Bonus Plan (Incorporated by reference to
Exhibit 10.17 of the Company's 1994 Annual Report on
Form 10K (File No. 0-10394)). N/A
10.15 Amendment, dated July 22, 1994, to the business loan
agreement dated February 28, 1994, with Seattle First
National Bank (Incorporated by reference to Exhibit
10.18 of the Company's 1994 Annual Report on Form 10K
(File No. 0-10394)). N/A
10.16 Amendment, dated November 16, 1994 to the Business
Loan Agreement dated February 28, 1994, with Seattle
First National Bank (Incorporated by reference to
Exhibit 10.19 of the Company's 1994 Annual Report on
Form 10K (File No. 0-10394)). N/A
10.17 Form of Change in Control Agreements (Incorporated
by reference to Exhibit 10.20 of the Company's 1994
Annual Report on Form 10K (File No. 0-10394)). N/A
10.18 First Amendment to the Data I/O Tax Deferred
Retirement Plan (Incorporated by reference to
Exhibit 10.21 of the Company's 1994 Annual Report
on Form 10K (File No. 0-10394)). N/A
10.19 Amended and Restated Management Incentive Compensation
Plan dated January 1, 1996 (Incorporated by reference
to Exhibit 10.20 of the Company's 1995 Annual Report
on Form 10K (File No. 0-10394)). N/A
10.20 Amended and Restated Performance Bonus Plan dated
January 1, 1996 (Incorporated by reference to
Exhibit 10.21 of the Company's 1995 Annual Report
on Form 10K (File No. 0-10394)). N/A
Page 61
<PAGE>
10.21 Amended and Restated 1986 Stock Option Plan dated
February 22, 1995 (Incorporated by reference to
Exhibit 10.22 of the Company's 1995 Annual Report
on Form 10K (File No. 0-10394)). N/A
10.22 Business Loan Agreement dated May 12, 1995, with
Seattle First National Bank for $8.0 million
(Incorporated by reference to Exhibit 10.23 of the
Company's 1995 Annual Report on Form 10K
(File No. 0-10394)). N/A
10.23 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 (Confidential treatment has been
requested for certain portions of this exhibit)
(Incorporated by reference to Exhibit 2.1 of to the
Company's Form 8-K Report dated November 6, 1995). N/A
10.24 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 (Incorporated by reference to Exhibit
2.2 of to the Company's Form 8-K Report dated
November 6, 1995). N/A
10.25 Second Amendment to the Data I/O Tax Deferred
Retirement Plan (Incorporated by reference to
Exhibit 10.26 of the Company's 1995 Annual Report
on Form 10K (File No. 0-10394)). N/A
10.26 Data I/O Corporation 1996 Director Fee Plan
(Incorporated by reference to Exhibit 10.27 of
the Company's 1995 Annual Report on Form 10K
(File No. 0-10394)). N/A
10.27 Synario Division Proceeds Sharing Plan (Confidential
treatment has been requested for certain portions of
this exhibit) (Incorporated by reference to Exhibit
10.28 of the Company's 1995 Annual Report on Form
10K (File No. 0-10394)). N/A
10.28 Letter Agreement with William J. Haydamack
(Confidential treatment has been requested for
certain portions of this exhibit) (Incorporated
by reference to Exhibit 10.29 of the Company's 1995
Annual Report on Form 10K (File No. 0-10394)). N/A
10.29 Data I/O Corporation 1982 Employee Stock Purchase Plan
Amended and Restated December 11, 1996 (Incorporated
by reference to Exhibit 10.1 to the Company's
Registration Statement of Form S-8 (File No. 333-20657,
filed January 29, 1997)). N/A
10.30 Business Loan Agreement dated April 24, 1996, with
Seattle First National Bank for $8.0 million. 75
10.31 OEM Agreement between Synopsys, Inc. and Synario
Design Automation a Division of Data I/O Corporation.
(Portions of this exhibit have been omitted pursuant
to an application for an order granting confidential
treatment. The omitted portions have been separately
filed with the Commission). 89
Page 62
<PAGE>
10.32 Purchase and Sale Agreement dated as of July 9, 1996
(Relating to the sale of Data I/O Corporation's
headquarters property in Redmond, Washington consisting
of approximately 79 acres of land and an approximately
96,000 square foot building. (Portions of this exhibit
have been omitted pursuant to an application for an
order granting confidential treatment. The omitted
portions have been separately filed with the Commission). 111
10.33 Letter dated as of December 20, 1996, First
Amendment and extension of the Closing Date under
that certain Purchase and Sale Agreement dated as
of July 9, 1996. (Portions of this exhibit have been
omitted pursuant to an application for an order granting
confidential treatment. The omitted portions have been
separately filed with the Commission). 163
10.34 Letter dated as of February 17, 1997, Second Amendment
and extension of the Closing Date under that certain
Purchase and Sale Agreement dated as of July 9, 1996.
(Portions of this exhibit have been omitted pursuant
to an application for an order granting confidential
treatment. The omitted portions have been separately
filed with the Commission). 165
10.35 Third Amendment to the Data I/O Tax Deferred Retirement
Plan. 167
Page 63
<PAGE>
EXHIBIT 3.2
AMENDED AND RESTATED
BYLAWS
OF
DATA I/O CORPORATION
As of December 11, 1996
ARTICLE I
OFFICES
(1) REGISTERED OFFICE AND REGISTERED AGENT: The registered office of
the corporation shall be located in the State of Washington at such place as may
be fixed from time to time by the Board of Directors upon filing of such notices
as may be required by law, and the registered agent shall have a business office
identical with such registered office.
(2) OTHER OFFICES: The corporation may have other offices within or
outside the State of Washington at such place or places as the Board of
Directors may from time to time determine.
ARTICLE II
SHAREHOLDERS' MEETINGS
(1) MEETING PLACE: All meetings of the shareholders shall be held at
the registered office of the corporation, or at such other place as shall be
determined from time to time by the Board of Directors, and the place at which
any such meeting shall be held shall be stated in the notice of the meeting.
(2) ANNUAL MEETING TIME: The annual meeting of the shareholders for the
election of directors and for the transaction of such other business as may
properly come before the meeting, shall be held each year during the month of
May on such date and at such time as may be determined each year by the Board of
Directors.
(3) SPECIAL MEETINGS: Special meetings of the shareholders for any
purpose may be called at any time by the President, Board of Directors, or the
holders of not less than one-tenth of all shares entitled to vote at the meeting
in accordance with RCW 23B.07.020.
(4) NOTICE:
(a) Notice of the time and place of the annual meeting of
shareholders shall be given by delivering personally or by mailing a written or
printed notice of the same, at least ten days, and not more than sixty days,
prior to the meeting to each shareholder of record entitled to vote at such
meeting.
(b) At least ten days and not more than sixty days prior to the
meeting, written or printed notice of each special meeting of shareholders,
stating the place, day and hour of such meeting, and the purpose or purposes for
which the meeting is called, shall be delivered personally, or mailed to each
shareholder of record entitled to vote at such meeting.
(c) Notice of a shareholders' meeting at which the shareholders
will be called to act on an amendment to the articles of incorporation, a plan
of merger or share exchange, a proposed sale of assets other than in the regular
course of business or the dissolution of the Corporation shall be given not
fewer than twenty days and not more than sixty days before the meeting date.
(5) VOTING RECORD: At least ten days and not more than seventy days
before each meeting of shareholders, a complete record of the shareholders
entitled to vote at such meeting, or any adjournment thereof, shall be made,
arranged in
Page 64
<PAGE>
alphabetical order, with the address of and number of shares held by each, which
record shall be kept on file at the registered office of the corporation for a
period of ten days prior to such meeting. The record shall be kept on file at
the registered office of the Corporation for a period beginning ten days prior
to such meeting and shall be kept open at the time and place of such meeting for
the inspection of any shareholder, or any shareholder's agent or attorney.
(6) QUORUM: Except as otherwise required by law:
(a) A quorum at any annual or special meeting of shareholders
shall consist of shareholders representing, either in person or by proxy, a
majority of the votes entitled to be cast on the matter by each voting group.
(b) The votes of a majority in interest of those present at any
properly called meeting or adjourned meeting of shareholders at which a quorum
as in this paragraph defined is present shall be sufficient to transact
business.
(7) VOTING OF SHARES:
(a) Except as otherwise provided in these Bylaws or to the extent
that voting rights of the shares of any class or classes are limited or denied
by the Articles of Incorporation, each shareholder, on each matter submitted to
a vote at a meeting of shareholders, shall have one vote for each share of stock
registered in his name in the books of the corporation.
(b) If a quorum exists, action on a matter, other than the
election of directors, is approved by a voting group if the votes cast within
the voting group favoring the action exceed the votes cast within the voting
group opposing the action, unless the question is one which by express provision
of law, of the Articles of Incorporation or of these Bylaws a greater number of
affirmative votes is required.
(c) Unless otherwise provided in the Articles of Incorporation, in
any election of directors the candidates elected are those receiving the largest
numbers of votes cast by the shares entitled to vote in the election, up to the
number of directors to be elected by such shares.
(8) CLOSING OF TRANSFER BOOKS AND FIXING RECORD DATE: For the purpose
of determining shareholders notice of or to vote at any meeting of shareholders,
or any adjournment thereof, or entitled to receive payment of any dividend, the
Board of Directors may provide that the stock transfer books shall be closed for
a stated period not to exceed seventy days nor be less than ten days preceding
such meeting. In lieu of closing the stock transfer books, the Board of
Directors may fix in advance a record date for any such determination of
shareholders, such date to be not more than fifty days and, in case of a meeting
of shareholders, not less than ten days prior to the date on which the
particular action requiring such determination of shareholders is to be taken.
(9) PROXIES: A shareholder may vote either in person or by proxy
executed in writing by the shareholder or his duly authorized attorney-in-fact
or agent. An appointment of a proxy is effective when received by the person
authorized to tabulate votes for the Corporation. No proxy shall be valid after
eleven months from the date of its execution, unless otherwise provided in the
proxy.
(10) ACTION BY SHAREHOLDERS WITHOUT A MEETING: Any action required or
which may be taken at a meeting of shareholders of the corporation may be taken
without a meeting if a consent in writing, setting forth the action so taken,
shall be signed by all of the shareholders entitled to vote with respect to the
subject matter thereof, and delivered to the Corporation for inclusion in the
minutes or filing with the Corporation's records. Such consent shall have the
same force and effect as a unanimous vote of shareholders. Action taken in
accordance with this section shall be effective when all written consents are in
the possession of the Corporation unless the consent specifies a later effective
date.
(11) WAIVER OF NOTICE: A waiver of any notice required to be given any
shareholder, signed by the person or persons entitled to such notice, whether
before or after the time stated therein for the meeting shall be equivalent to
the giving of such notice provided that such waiver has been delivered to the
Corporation for inclusion in the minutes or filing with the Corporation's
records. A shareholder's attendance at a meeting waives any notice required,
unless the shareholder at the beginning of the meeting objects to holding the
meeting or transacting business at the meeting.
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(12) ACTION OF SHAREHOLDERS BY COMMUNICATIONS EQUIPMENT: Shareholders
may participate in a meeting of shareholders by means of a conference telephone
or similar communications equipment by means of which all persons participating
in the meeting can hear each other at the same time, and participation by such
means shall constitute presence in person at a meeting.
(13) NOTICE OF SHAREHOLDER NOMINEES: Nominations of persons for election
to the Board of Directors shall be made only at a meeting of shareholders and
only (i) by the Board of Directors or a committee appointed by the Board of
Directors or (ii) by any shareholder entitled to vote in the election of
directors at the meeting who complies with the notice procedures set forth in
this Section 13. Such nominations, other than those made by or at the direction
of the Board of Directors, shall be made pursuant to timely notice in writing to
the Secretary of the corporation. To be timely, a shareholder's notice shall be
delivered to or mailed and received at the principal executive offices of the
corporation (i) with respect to an election to be held at an annual meeting of
shareholders, ninety days prior to the date one year from the date of the
immediately preceding annual meeting of shareholders, and (ii) with respect to
an election to be held at a special meeting of shareholders for the election of
directors, the close of business on the tenth day following the date on which
notice of such meeting is first given to shareholders. For purposes of this
Section 14, any adjournment(s) or postponement(s) of the original meeting
whereby the meeting will reconvene within thirty days from the original date
shall be deemed for purposes of notice to be a continuation of the original
meeting, and no nominations by a shareholder of persons to be elected directors
of the corporation may be made at any such reconvened meeting unless pursuant to
a notice which was timely for the meeting on the date originally scheduled.
Each such notice shall set forth: (a) the name and address of the shareholder
who intends to make the nomination and of the person or persons to be nominated;
(b) a representation that the shareholder is a holder of record of stock of the
corporation entitled to vote at such meeting and intends to appear in person or
by proxy at the meeting to nominate the person or persons specified in the
notice; (c) a description of all arrangements or understandings between the
shareholder and each nominee and any other person or persons (naming such person
or persons) pursuant to which the nomination or nominations are to be made by
the shareholder; (d) such other information regarding each nominee proposed by
such shareholder as would be required to be disclosed in solicitations of
proxies for election of directors, or is otherwise required, in each case
pursuant to the Securities Exchange Act of 1934, as amended; and (e) the consent
of each nominee to serve as a director of the corporation if so elected.
Notwithstanding the foregoing, nothing in this Section 13 shall be
interpreted or construed to require the inclusion of information about any such
nominee in any proxy statement distributed by, at the direction of, or on behalf
of the Board of Directors. The Chairman of the meeting shall, if the facts
warrant, determine and declare to the meeting that a nomination was not made in
accordance with the foregoing procedures, and if he should so determine, he
shall so declare to the meeting and the defective nomination shall be
disregarded.
(14) SHAREHOLDER PROPOSALS AT ANNUAL MEETING: Business may be properly
brought before an annual meeting by a shareholder only upon the shareholder's
timely notice thereof in writing to the Secretary of the corporation. To be
timely, a shareholder's notice must be delivered to or mailed and received at
the principal executive offices of the corporation not later than ninety days
prior to the date one year from the date of the immediately preceding annual
meeting of shareholders. For purposes of this Section 14, any adjournment(s) or
postponement(s) of the original meeting whereby the meeting will reconvene
within thirty days from the original date shall be deemed for purposes of notice
to be a continuation of the original meeting, and no business may be brought
before any reconvened meeting unless pursuant to a notice which was timely for
the meeting on the date as originally scheduled. Each such notice shall set
forth: (a) the name and address of the shareholder who intends to make the
proposal; (b) a representation that the shareholder is a holder of record of
stock of the corporation entitled to vote at such meeting and intends to appear
in person or by proxy at the meeting to vote for the proposal; (c) any material
interest of such shareholder in such proposal; and (d) such other information
regarding such proposal as would be required to be disclosed in solicitations of
proxies pursuant to the Securities Exchange Act of 1934, as amended.
Notwithstanding the foregoing, nothing in this Section 14 shall be
interpreted or construed to require the inclusion of information about any such
proposal in any proxy statement distributed by, at the discretion of, or on
behalf of the Board of Directors. The Chairman of the meeting shall, if the
facts warrant, determine and declare to the meeting that a proposal was not made
in accordance with the foregoing procedures, and if he should so determine, he
shall so declare to the meeting, and any such business not properly brought
before the meeting shall be disregarded.
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ARTICLE III
STOCK
(1) ISSUANCE OF SHARES: No shares of the Corporation shall be issued
unless authorized by the Board of Directors. Such authorization shall include
the number of shares to be issued, the consideration to be received and a
statement regarding the adequacy of the consideration.
(2) CERTIFICATES: Certificates of stock shall be issued in numerical
order, and each shareholder shall be entitled to a certificate signed by the
President, or a Vice President, and the Secretary or an Assistant Secretary, and
may be sealed with the seal of the corporation or a facsimile thereof. The
signatures of such officers may be facsimiles if the certificate is manually
signed on behalf of a transfer agent, or registered by a registrar, other than
the corporation itself or an employee of the corporation. If an officer who has
signed or whose facsimile signature has been placed upon such certificate ceases
to be an officer before the certificate is issued, it may be issued by the
corporation with the same effect as if the person were an officer on the date of
issue.
At a minimum each certificate of stock shall state:
(a) the name of the Corporation;
(b) that the Corporation is organized under the laws of the State of
Washington;
(c) the name of the person to whom the certificate is issued;
(d) the number and class of shares and the designation of the series, if
any, the certificate represents; and
(e) if the Corporation is authorized to issue different classes of
shares or different series within a class, the designations, relative rights,
preferences and limitations applicable to each class and the variations in
rights, preferences and limitations determined for each series, and the
authority of the Board of Directors to determine variations for future series,
must be summarized either on the front or back of the certificate.
Alternatively, the certificate may state conspicuously on its front or back that
the Corporation will furnish the shareholder this information without charge on
request in writing.
(3) TRANSFERS:
(a) Transfers of stock shall be made only upon the stock transfer
books of the corporation, kept at the registered office of the corporation or at
its principal place of business, or at the office of its transfer agent or
registrar, and before a new certificate is issued the old certificate shall be
surrendered for cancellation. The Board of Directors may, by resolution, open a
share register in any state of the United States, and may employ an agent or
agents to keep such register, and to record transfers of shares therein.
(b) Shares of certificated stock shall be transferred by delivery
of the certificates therefor, accompanied either by an assignment in writing on
the back of the certificate or an assignment separate from certificate, or by a
written power of attorney to sell, assign and transfer the same, signed by the
holder of said certificate. No shares of certificated stock shall be
transferred on the records of the Corporation until the outstanding certificates
therefor have been surrendered to the Corporation or to its transfer agent or
registrar.
(4) REGISTERED OWNER: Registered shareholders shall be treated by the
corporation as the holders in fact of the stock standing in their respective
names and the corporation shall not be bound to recognize any equitable or other
claim to or interest in any share on the part of any other person, whether or
not it shall have express or other notice thereof, except as expressly provided
below or by the laws of the State of Washington. The Board of Directors may
adopt by resolution a procedure whereby a shareholder of the corporation may
certify in writing to the corporation that all or a portion of the
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shares registered in the name of such shareholder are held for the account of a
specified person or persons. The resolution shall set forth:
(a) The classification of shareholder who may certify;
(b) The purpose or purposes for which the certification may be
made;
(c) The form of certification and information to be contained
therein;
(d) If the certification is with respect to a record date or
closing of the stock transfer books, the date within which the certification
must be received by the corporation; and
(e) Such other provisions with respect to the procedure as are
deemed necessary or desirable.
Upon receipt by the corporation of a certification complying with the
procedure, the persons specified in the certification shall be deemed, for the
purpose or purposes set forth in the certification, to be the holders of record
of the number of shares specified in place of the shareholder making the
certification.
(5) MUTILATED, LOST OR DESTROYED CERTIFICATES: In case of any
mutilation, loss or destruction of any certificate of stock, another may be
issued in its place on proof of such mutilation, loss or destruction. The Board
of Directors may impose conditions on such issuance and may require the giving
of a satisfactory bond or indemnity to the corporation in such sum as they might
determine or establish such other procedures as they deem necessary.
(6) FRACTIONAL SHARES OR SCRIP: The corporation, by resolution of the
Board of Directors, may either: (a) issue fractions of a share which shall
entitle the holder to exercise voting rights, to receive dividends thereon, and
to participate in any of the assets of the corporation in the event of
liquidation; (b) arrange for the disposition of fractional interests by those
entitled thereto; (c) pay in cash the fair value of fractions of a share as of
the time when those entitled to receive such shares are determined; or (d) issue
scrip in registered or bearer form which shall entitle the holder to receive a
certificate for a full share upon the surrender of such scrip aggregating a full
share.
(7) SHARES OF ANOTHER CORPORATION: Shares owned by the corporation in
another corporation, domestic or foreign, may be voted by such officer, agent or
proxy as the Board of Directors may determine or, in the absence of such
determination, by the President of the corporation.
ARTICLE IV
BOARD OF DIRECTORS
(1) NUMBER AND POWERS: The management of all the affairs, property and
interest of the corporation shall be vested in a Board of Directors consisting
of seven (7) persons, who shall be elected for a term of one year, and shall
hold office until their successors are elected and qualified. Directors need
not be shareholders or residents of the State of Washington. In addition to the
powers and authorities by these Bylaws and the Articles of Incorporation
expressly conferred upon it, the Board of Directors may exercise all such powers
of the corporation and do all such lawful acts and things as are not prohibited
by statute or by the Articles of Incorporation or by these Bylaws or as directed
or required to be exercised or done by the shareholders.
(2) CHANGE OF NUMBER: The number of directors may at any time be
increased or decreased by amendment of these Bylaws, but no decrease shall have
the effect of shortening the term of any incumbent directors, except as provided
in Sections 5 and 6 of this Article IV.
(3) VACANCIES: All vacancies in the Board of Directors, whether caused
by resignation, death or otherwise, may be filled by the affirmative vote of a
majority of the remaining directors though less than a quorum of the Board of
Directors. A director elected to fill any vacancy shall hold office for the
unexpired term of his or her predecessor and until his or her successor is
elected and qualified. Any directorship to be filled by reason of an increase
in the number of directors
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may be filled by the Board of Directors for a term of office continuing only
until the next election of directors by the shareholders and until his or her
successor is elected and qualified.
(4) RESIGNATION: A director may resign at any time by delivering
written notice to the Board of Directors, the President or the Secretary. A
resignation is effective when the notice is delivered unless the notice
specifies a later effective date.
(5) REMOVAL OF DIRECTORS: At a special meeting of shareholders called
expressly for that purpose, the entire Board of Directors, or any member
thereof, may be removed by a vote of the holders of a majority of shares then
entitled to vote at an election of such directors. A director or directors may
be removed only if the number of votes cast to remove the director exceeds the
number of votes cast not to remove the director. The notice of such special
meeting must state that the purpose, or one of the purposes, of the meeting is
removal of the director or directors, as the case may be.
(6) REGULAR MEETINGS: Regular meetings of the Board of Directors or any
committee may be held without notice at the registered office of the corporation
or at such other place or places, either within or without the State of
Washington, as the Board of Directors or such committee, as the case may be, may
from time to time designate. The annual meeting of the Board of Directors shall
be held without notice immediately after the adjournment of the annual meeting
of shareholders.
(7) SPECIAL MEETINGS:
(a) Special meetings of the Board of Directors may be called at
any time by the President or by any two directors, to be held at the registered
office of the corporation or at such other place or places as the Board of
Directors or the person or persons calling such meeting may from time to time
designate. Notice of all special meetings of the Board of Directors shall be
given to each director by three day's service of the same by telegram, by
letter, or personally. Such notice need not specify the business to be
transacted at, nor the purpose of, the meeting.
(b) Special meetings of any committee may be called at any time by
such person or persons and with such notice as shall be specified for such
committee by the Board of Directors, or in the absence of such specification, in
the manner and with the notice required for special meetings of the Board of
Directors.
(8) QUORUM: A majority of the whole Board of Directors shall be
necessary at all meetings to constitute a quorum for the transaction of
business. If a quorum is present when a vote is taken, the affirmative vote of
a majority of directors present is the act of the Board of Directors.
(9) WAIVER OF NOTICE: Attendance of a director at a meeting shall
constitute a waiver of notice of such meeting, except where a director attends
for the express purpose of objecting to the transaction of any business because
the meeting is not lawfully called or convened and does not thereafter vote for
or assent to action taken at the meeting. A waiver of notice signed by the
director or directors and delivered to the Corporation for inclusion in the
minutes or filing with the corporate records, whether before or after the time
stated for the meeting, shall be equivalent to the giving of notice.
(10) REGISTERING DISSENT: A director who is present at a meeting of the
Board of Directors at which action on a corporate matter is taken shall be
presumed to have assented to such action unless his dissent shall be entered in
the minutes of the meeting, or unless he shall file his written dissent to such
action with the person acting as the secretary of the meeting, before the
adjournment thereof, or shall forward such dissent by registered mail to the
Secretary of the corporation within a reasonable time after the adjournment of
the meeting. Such right to dissent shall not apply to a director who voted in
favor of such action.
(11) EXECUTIVE AND OTHER COMMITTEES: The Board of Directors, by
resolution adopted by a majority of the full Board of Directors, may designate
from among its members an Executive Committee and one or more other standing or
special committees. The Executive Committee shall have and may exercise all the
authority of the Board of Directors, and other standing or special committees
may be invested with such powers, subject to such conditions, as the Board of
Directors shall see fit; PROVIDED THAT, notwithstanding the above, no committee
of the Board of Directors shall have the authority to: (1) Declare dividends or
distributions, except at a rate or in periodic amount determined by the Board of
Directors; (2) approve or recommend to shareholders actions or proposals
required by law to be approved by shareholders; (3) fill
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vacancies on the Board of Directors or any committee thereof; (4) adopt, amend,
or repeal the Bylaws; (5) authorize or approve the reacquisition of shares
unless pursuant to general formula or method specified by the Board of
Directors; (6) fix compensation of any director for serving on the Board of
Directors or on any committee thereof; (7) approve a plan of merger,
consolidation, or exchange of shares not requiring shareholder approval;
(8) reduce earned or capital surplus; or (9) appoint other committees of the
Board of Directors or the members thereof. All committees so appointed shall
keep regular minutes of their meetings and shall cause them to be recorded in
books kept for that purpose in the office of the corporation. The designation
of any such committee and the delegation of authority thereto shall not relieve
the Board of Directors, or any member thereof, of any responsibility imposed by
law.
(12) REMUNERATION: No stated salary shall be paid directors, as such,
for their service, but by resolution of the Board of Directors, a fixed sum and
expenses of attendance, if any, may be allowed for attendance at each regular or
special meeting of such Board; provided, that nothing herein contained shall be
construed to preclude any director from serving the corporation in any other
capacity and receiving compensation therefor. Members of standing or special
committees may be allowed like compensation for attending committee meetings.
(13) LOANS: No loans shall be made by the corporation to the directors,
unless first approved by the holders of two-thirds of the voting shares. No
loans shall be made by the corporation secured by its own shares.
(14) ACTION BY DIRECTORS WITHOUT A MEETING: Any action required or which
may be taken at a meeting of the directors, or of a committee thereof, may be
taken without a meeting if a consent in writing, setting forth the action so
taken or to be taken, shall be signed by all of the directors, or all of the
members of the committee, as the case may be, either before or after the action
taken, and delivered to the Corporation for inclusion in the minutes or filing
with the Corporation's records. Such consent shall have the same effect as a
unanimous vote.
(15) ACTION OF DIRECTORS BY COMMUNICATIONS EQUIPMENT: Any action
required or which may be taken at a meeting of directors, or of a committee
thereof, may be taken by means of a conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other at the same time.
ARTICLE V
OFFICERS
(1) DESIGNATIONS: The officers of the corporation shall be a Chairman
of the Board of Directors, a President, one or more Vice-Presidents (one or more
of whom may be Executive Vice-Presidents), a Secretary and a Treasurer, and such
Assistant Secretaries and Assistant Treasurers as the Board may designate, who
shall be elected for one year by the directors at their first meeting after the
annual meeting of shareholders, and who shall hold office until their successors
are elected and qualified. Any two or more offices may be held by the same
person, except the offices of President and Secretary.
(2) THE CHAIRMAN OF THE BOARD OF DIRECTORS: The Chairman of the Board
of Directors shall preside at all meetings of shareholders and directors, and
shall perform all such other duties as are incident to his office or are
properly required of him by the Board of Directors.
(3) THE PRESIDENT: The President shall have general supervision of the
affairs of the corporation, and shall perform all such other duties as are
incident to his office or are properly required of him by the Board of
Directors.
(4) VICE-PRESIDENTS: During the absence or disability of the President,
the Executive Vice-Presidents, if any, and the Vice-Presidents in the order
designated by the Board of Directors, shall exercise all the functions of the
President. Each Vice-President shall have such powers and discharge such duties
as may be assigned to him from time to time by the Board of Directors.
(5) SECRETARY AND ASSISTANT SECRETARIES: The Secretary shall issue
notices for all meetings, except for notices for special meetings of the
shareholders and special meetings of the directors which are called by the
requisite number of shareholders or directors, shall keep minutes of all
meetings, shall have charge of the seal and the corporate books, and shall make
such reports and perform such other duties as are incident to his office, or are
properly required of him by the Board of
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Directors. The Assistant Secretary, or Assistant Secretaries in the order
designated by the Board of Directors, shall perform all of the duties of the
Secretary during the absence or disability of the Secretary, and at other times
may perform such duties as are directed by the President or the Board of
Directors.
(6) THE TREASURER: The Treasurer shall have the custody of all moneys
and securities of the corporation and shall keep regular books of account. He
shall disburse the funds of the corporation in payment of the just demands
against the corporation or as may be ordered by the Board of Directors, taking
proper vouchers for such disbursements, and shall render to the Board of
Directors from time to time as may be required of him an account of all his
transactions as Treasurer and of the financial condition of the corporation. He
shall perform such other duties incident to his office or that are properly
required of him by the Board of Directors. The Assistant Treasurer, or
Assistant Treasurers in the order designated by the Board of Directors, shall
perform all of the duties of the Treasurer in the absence or disability of the
Treasurer, and at other times may perform such other duties as are directed by
the President or the Board of Directors.
(7) DELEGATION: In the case of absence or inability to act of any
officer of the corporation and of any person herein authorized to act in his
place, the Board of Directors may from time to time delegate the powers or
duties of such officer to any other officer or any director or other person whom
it may in its sole discretion select.
(8) VACANCIES: Vacancies in any office arising from any cause may be
filled by the Board of Directors at any regular or special meeting of the Board.
(9) OTHER OFFICERS: Directors may appoint such other officers and
agents as it shall deem necessary or expedient, who shall hold their offices for
such terms and shall exercise such powers and perform such duties as shall be
determined from time to time by the Board of Directors.
(10) RESIGNATION: An officer may resign at any time by delivering notice
to the Corporation. Such notice shall be effective when delivered unless the
notice specifies a later effective date. Any such resignation shall not affect
the Corporation's contract rights, if any, with the officer.
(11) LOANS: No loans shall be made by the corporation to any officer,
unless first approved by the holders of two-thirds of the voting shares.
(12) TERM - REMOVAL: The officers of the corporation shall hold office
until their successors are chosen and qualify. Any officer or agent elected or
appointed by the Board of Directors may be removed at any time, with or without
cause, by the affirmative vote of a majority of the whole Board of Directors,
but such removal shall be without prejudice to the contract rights, if any, of
the person so removed.
(13) SALARIES AND CONTRACT RIGHTS: The salaries, if any, of the officers
shall be fixed from time to time by the Board of Directors. The appointment of
an officer shall not of itself create contract rights.
(14) BONDS: The Board of Directors may, by resolution, require any and
all of the officers to give bonds to the corporation, with sufficient surety or
sureties, conditioned for the faithful performance of the duties of their
respective offices, and to comply with such other conditions as may from time to
time be required by the Board of Directors.
ARTICLE VI
(1) DISTRIBUTIONS: The Board of Directors may authorize and the
corporation may make distributions to its shareholders; provided that no
distribution may be made if, after giving it effect, either:
(a) The Corporation would not be able to pay its debts as they
become due in the usual course of business; or
(b) The Corporation's total assets would be less than the sum of
its total liabilities plus the amount which would be needed, if the Corporation
were to be dissolved at the time of the distribution, to satisfy the
preferential rights upon dissolution of shareholders whose preferential rights
are superior to those receiving the distribution.
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The Board of Directors may authorize distributions to holders of record at
the close of business on any business day prior to the date on which the
distribution is made. If the Board of Directors does not fix a record date for
determining shareholders entitled to a distribution, the record date shall be
the date on which the Board of Directors authorizes the distribution.
(2) MEASURE OF EFFECT OF A DISTRIBUTION: For purposes of determining
whether a distribution may be authorized by the Board of Directors and paid by
the Corporation under Article VI, Section 1 of these Bylaws, the effect of the
distribution is measured:
(a) In the case of a distribution of indebtedness, the terms of
which provide that payment of principal and interest are made only if and to the
extent that payment of a distribution to shareholders could then be made under
this section, each payment of principal or interest is treated as a
distribution, the effect of which is measured on the date the payment is
actually made; or
(b) In the case of any other distribution:
(i) if the distribution is by purchase, redemption, or other
acquisition of the Corporation's shares, the effect of the distribution is
measured as of the earlier of the date any money or other property is
transferred or debt incurred by the Corporation, or the date the shareholder
ceases to be a shareholder with respect to the acquired shares;
(ii) if the distribution is of an indebtedness other than
described in subsection 2(a) and (b)(i) of this section, the effect of the
distribution is measured as of the date the indebtedness is distributed; and
(iii) in all other cases, the effect of the distribution is
measured as of the date the distribution is authorized if payment occurs within
120 days after the date of authorization, or the date the payment is made if it
occurs more than 120 days after the date of authorization.
(3) DEPOSITORIES: The moneys of the corporation shall be deposited in
the name of the corporation in such bank or banks or trust company or trust
companies as the Board of Directors shall designate, and shall be drawn out only
by check or other order for payment of money signed by such persons and in such
manner as may be determined by resolution of the Board of Directors.
ARTICLE VII
NOTICES
Except as may otherwise be required by law, any notice to any shareholder
or director must be in writing and may be transmitted by: mail, private carrier
or personal delivery; telegraph or teletype; or telephone, wire or wireless
equipment which transmits a facsimile of the notice. Written notice by the
Corporation to its shareholders shall be deemed effective when mailed, if mailed
with first-class postage prepaid and correctly addressed to the shareholder's
address shown in the Corporation's current record of shareholders. Except as
set forth in the previous sentence, written notice shall be deemed effective at
the earliest of the following: (i) when received; (ii) five days after its
deposit in the United States mail, as evidenced by the postmark, if mailed with
first-class postage, prepaid and correctly addressed; or (iii) on the date shown
on the return receipt, if sent by registered or certified mail, return receipt
requested, and receipt is signed by or on behalf of the addressee.
ARTICLE VIII
SEAL
The corporate seal of the corporation shall be in such form and bear such
inscription as may be adopted by resolution of the Board of Directors, or by
usage of the officers on behalf of the corporation.
ARTICLE IX
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INDEMNIFICATION
(1) RIGHT TO INDEMNIFICATION: Each person who was or is made a party or
is threatened to be made a party to or is involved (including, without
limitation, as a witness) in any actual or threatened action, suit or
proceeding, whether civil, criminal, administrative or investigative, by reason
of the fact that he or she is or was a director or officer of the corporation
or, being or having been such a director or officer, he or she is or was serving
at the request of the corporation as a director, officer, employee or agent of
another corporation or of a partnership, joint venture, trust or other
enterprise, including service with respect to employee benefit plans, whether
the basis of such proceeding is alleged action in an official capacity as a
director, officer, employee or agent or in any other capacity while serving as a
director, officer, employee or agent, shall be indemnified and held harmless by
the corporation to the full extent permitted by applicable law as then in
effect, against all expense, liability and loss (including attorneys' fees,
judgments, fines, ERISA excise taxes or penalties and amounts to be paid in
settlement) actually and reasonably incurred or suffered by such person in
connection therewith and such indemnification shall continue as to a person who
has ceased to be a director, officer, employee or agent and shall inure to the
benefit of his or her heirs, executors and administrators; provided, however,
that except as provided in Section 2 of this Article with respect to proceedings
seeking to enforce rights to indemnification, the corporation shall indemnify
any such person seeking indemnification in connection with a proceeding (or part
thereof) initiated by such person only if such proceeding (or part thereof) was
authorized by the Board of Directors of the corporation. The right to
indemnification conferred in this Section shall be a contract right and shall
include the right to be paid by the corporation the expenses incurred in
defending any such proceeding in advance of its final disposition; provided,
however, that the payment of such expenses in advance of the final disposition
of a proceeding shall be made only upon delivery to the corporation of an
undertaking, by or on behalf of such director of officer, to repay all amounts
so advanced if it shall ultimately be determined that such director or officer
is not entitled to be indemnified under this Section or otherwise.
(2) RIGHT OF CLAIMANT TO BRING SUIT: If a claim under Section 1 of this
Article is not paid in full by the corporation within sixty days after a written
claim has been received by the corporation, except in the case of a claim for
expenses incurred in defending a proceeding in advance of its final disposition,
in which case the applicable period shall be twenty days, the claimant may at
any time thereafter bring suit against the corporation to recover the unpaid
amount of the claim and, to the extent successful in whole or in part, the
claimant shall be entitled to be paid also the expense of prosecuting such
claim. The claimant shall be presumed to be entitled to indemnification under
this Article upon submission of a written claim (and, in an action brought to
enforce a claim for expenses incurred in defending any proceeding in advance of
its final disposition, where the required undertaking has been tendered to the
corporation) and thereafter the corporation shall have the burden of proof to
overcome the presumption that the claimant is not so entitled. Neither the
failure of the corporation (including its Board of Directors, independent legal
counsel or its shareholders) to have made a determination prior to the
commencement of such action that indemnification of or reimbursement or
advancement of expenses to the claimant is proper in the circumstances nor an
actual determination by the corporation (including its Board of Directors,
independent legal counsel or its shareholders) that the claimant is not entitled
to indemnification or to the reimbursement or advancement of expenses shall be a
defense to the action or create a presumption that the claimant is not so
entitled.
(3) NONEXCLUSIVITY OF RIGHTS: The right to indemnification and the
payment of expenses incurred in defending a proceeding in advance of its final
disposition conferred in this Article shall not be exclusive of any other right
which any person may have or hereafter acquire under any statute, provision of
the Articles of Incorporation, Bylaws, agreement, vote of shareholders or
disinterested directors or otherwise.
(4) INSURANCE, CONTRACTS AND FUNDING: The corporation may maintain
insurance, at its expense, to protect itself and any director, officer, employee
or agent of the corporation or another corporation, partnership, joint venture,
trust or other enterprise against any expense, liability or loss, whether or not
the corporation would have the power to indemnify such person against such
expense, liability or loss under the Washington Business Corporation Act. The
corporation may, without further shareholder action, enter into contracts with
any director or officer of the corporation in furtherance of the provisions of
this Article and may create a trust fund, grant a security interest or use other
means (including, without limitation, a letter of credit) to ensure the payment
of such amounts as may be necessary to effect indemnification as provided in
this Article.
(5) INDEMNIFICATION OF EMPLOYEES AND AGENTS OF THE CORPORATION: The
corporation may, by action of its Board of Directors from time to time, provide
indemnification and pay expenses in advance of the final disposition of a
proceeding to employees and agents of the corporation with the same scope and
effect as the provisions of this Article with respect to the
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indemnification and advancement of expenses of directors and officers of the
corporation or pursuant to rights granted pursuant to, or provided by, the
Washington Business Corporation Act or otherwise.
ARTICLE X
BOOKS AND RECORDS
The corporation shall keep correct and complete books and records of
account and shall keep minutes of the proceedings of its shareholders and Board
of Directors; and shall keep at its registered office or principal place of
business, or at the office of its transfer agent or registrar, a record of its
shareholders, giving the names and addresses of all shareholders in alphabetical
order by class of shares showing the number and class of the shares held by
each. Any books, records, and minutes may be in written form or any other form
capable of being converted into written form within a reasonable time.
ARTICLE XI
AMENDMENTS
(1) BY SHAREHOLDERS: These Bylaws may be altered, amended or repealed
by the affirmative vote of a majority of the voting stock issued and outstanding
at any regular or special meeting of the shareholders.
(2) BY DIRECTORS: The Board of Directors shall have power to make,
alter, amend and repeal the Bylaws of this corporation. However any such
Bylaws, or any alteration, amendment or repeal of the Bylaws, may be changed or
repealed by the holders of a majority of the stock entitled to vote at any
shareholders' meeting.
(3) EMERGENCY BYLAWS: The Board of Directors may adopt emergency
Bylaws, subject to repeal or change by action of the shareholders, which shall
be operative during any emergency in the conduct of the business of the
corporation resulting from an attack on the United States or any nuclear or
atomic disaster.
Most recently amended by resolution of the corporation's Board of
Directors on December 11, 1996.
/S/Steven M. Gordon
-------------------------
Steven M. Gordon, Secretary
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EXHIBIT 10.30
[LETTERHEAD]
BUSINESS LOAN AGREEMENT
PART A
This Business Loan Agreement ("Agreement") is made between Bank of America
NW, N.A., doing business as Seafirst Bank ("Bank"), and DATA I/O CORPORATION
("Borrower") with respect to the following:
LINE OF CREDIT Subject to the terms of this Agreement, Bank will make loans
to Borrower under a revolving line of credit as follows:
TOTAL AMOUNT
AVAILABLE: Borrower may borrow, repay and reborrow up to a maximum of
Eight Million Dollars ($8,000,000.00).
AVAILABILITY
PERIOD: Date of Note through May 31, 1997. However, if loans are made
and/or new promissory notes executed after the last date, such
advances will be subject to the terms of this Agreement until
repaid in full unless a written statement signed by the Bank
and Borrower provides otherwise, or a replacement loan
agreement is executed. The making of such additional advances
alone, however, does not constitute a commitment by the Bank
to make any further advances or extend the availability period.
INTEREST RATE: At Borrower's option:
1. Bank's publicly announced prime rate, plus 0 %
adjusted on the date of any Bank prime rate change
or
2. A rate of interest to be fixed at Borrower's
election equal to the London Interbank Offered
Rate ("LIBOR") plus 1.10 percent for periods
ranging from one, two, three or six month periods,
but not extending beyond the maturity date of the
note. The rate shall be adjusted for any
statutory reserves, FDIC or other assessments.
Rate will be set two business days prior to the
first day of the interest period selected. A
prepayment fee may apply if principal reductions
are made during a fixed rate period. The minimum
amount of a LIBOR loan for interest periods of
one, two, three or six months is $250,000.
At maturity of a fixed rate period, the interest
rate will revert to Prime as described in section
1 above unless otherwise elected by Borrower.
INTEREST
RATE BASIS: All interest will be calculated at the per annum interest rate
based on a 360-day year and applied to the actual number of
days elapsed.
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FEE ON UNUTILIZED
PORTION OF LINE: On each quarter, and every quarter thereafter, Borrower shall
pay a fee based upon the average daily unused portion of the
line of credit. This fee will be calculated as 1/4 of 1.00%
per annum, payable quarterly in arrears.
OTHER FEES: None.
REPAYMENT: At the times and in amounts as set forth in note(s) required
under Part B Article 1 of this Agreement.
COLLATERAL: This revolving line of credit shall be unsecured.
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[LETTERHEAD]
BUSINESS LOAN AGREEMENT
PART B
1. PROMISSORY NOTE(S). All loans shall be evidenced by promissory notes in a
form and substance satisfactory to Bank.
2. CONDITIONS TO AVAILABILITY OF LOAN/LINE OF CREDIT. Before Bank is
obligated to disburse/make any advance, or at any time thereafter which Bank
deems necessary and appropriate, Bank must receive all of the following, each of
which must be in form and substance satisfactory to Bank ("loan documents"):
2.1 Original, executed promissory note(s);
2.2 Original executed security agreement(s) and/or deed(s) of trust
covering the collateral described in Part A;
2.3 All collateral described in Part A in which Bank wishes to have a
possessory security interest;
2.4 Financing statement(s) executed by Borrower;
2.5 Such evidence that Bank may deem appropriate that the security
interests and liens in favor of Bank are valid, enforceable, and
prior to the rights and interests of others except those consented
to in writing by Bank;
+2.6 The following guaranty(ies) in favor of the Bank: N/A
+2.7 Subordination agreement(s) in favor of Bank executed by: N/A
2.8 Evidence that the execution, delivery, and performance by Borrower
of this Agreement and the execution, delivery, and performance by
Borrower and any corporate guarantor or corporate subordinating
creditor of any instrument or agreement required under this
Agreement, as appropriate, have been duly authorized;
2.9 Any other document which is deemed by the Bank to be required from
time to time to evidence loans or to effect the provisions of this
Agreement;
2.10 N/A
2.11 Pay or reimburse Bank for any out-of-pocket expenses expended in
making or administering the loans made hereunder including without
limitation attorney's fees (including allocated costs of in-house
counsel);
+2.12 Other (describe): N/A
3. REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants to Bank,
except as Borrower has disclosed to Bank in writing, as of the date of
this Agreement and hereafter so long as credit granted under this
Agreement is available and until full and final payment of all sums
outstanding under this Agreement and promissory notes that:
+3.1 Borrower is duly organized and existing under the laws of the state
of its organization as a:
<TABLE>
<S><C>
General Limited Sole
_X_ Corporation __ Partnership __ Partnership __ Proprietorship dba__________
</TABLE>
Borrower is properly licensed and in good standing in each
state in which Borrower is doing business and Borrower has
qualified under, and complied with, where required, the
fictitious or trade name statutes of each state in which
Borrower is doing business, and Borrower has obtained all
necessary government approvals for its business activities;
the execution, delivery, and performance of this Agreement and
such notes and other instruments required herein are within
Borrower's powers, have been duly authorized, and, as to
Borrower and any guarantor, are not in
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conflict with the terms of any charter, bylaw, or other organization
papers of Borrower, and this Agreement, such notes and the loan
documents are valid and enforceable according to their terms;
3.2 The execution, delivery, and performance of this Agreement, the loan
documents and any other instruments are not in conflict with any law
or any indenture, agreement or undertaking to which Borrower is a
party or by which Borrower is bound or affected;
3.3 Borrower has title to each of the properties and assets as reflected
in its financial statements (except such assets which have been sold
or otherwise disposed of in the ordinary course of business), and no
assets or revenues of the Borrower are subject to any lien except as
required or permitted by this Agreement, disclosed in its financial
statements or otherwise previously disclosed to Bank in writing;
3.4 All financial information, statements as to ownership of Borrower
and all other statements submitted by Borrower to Bank, whether
previously or in the future, are and will be true and correct in all
material respects upon submission and are and will be complete upon
submission insofar as may be necessary to give Bank a true and
accurate knowledge of the subject matter thereof;
3.5 Borrower has filed all tax returns and reports as required by law to
be filed and has paid all taxes and assessments applicable to
Borrower or to its properties which are presently due and payable,
except those being contested in good faith;
3.6 There are no proceedings, litigation or claims (including unpaid
taxes) against Borrower pending or, to the knowledge of the
Borrower, threatened, before any court or government agency, and no
other event has occurred which may have a material adverse effect on
Borrower's financial condition;
3.7 There is no event which is, or with notice or lapse of time, or
both, would be, an Event of Default (as defined in Section 7) under
this Agreement;
3.8 Borrower has exercised due diligence in inspecting Borrower's
properties for hazardous wastes and hazardous substances. Except as
otherwise previously disclosed and acknowledged to Bank in writing:
Borrower has no actual or constructive notice of any actual or
threatened litigation or claims of any kind by any person relating
to such matters. The terms "hazardous waste(s)," hazardous
substance(s)," "disposal," "release," and "threatened release" as
used in this Agreement shall have the same meanings as set forth in
the Comprehensive Environmental Response, Compensation, and
Liability Act of 1980, as amended, 42 U.S.C. Section 9601, et seq.,
the Superfund Amendments and Reauthorization Act of 1986, as
amended, Pub. L. No. 99-499, the Hazardous Materials Transportation
Act, as amended, 49 U.S.C. Section 1801, et seq., the Resource
Conservation and Recovery Act, as amended, 49 U.S.C. Section 6901,
et seq., or other applicable state or federal laws, rules or
regulations adopted pursuant to any of the foregoing.
+3.9 Each chief place of business of Borrower, and the office or offices
where Borrower keeps its records concerning any of the collateral,
is located at: N/A
4. AFFIRMATIVE COVENANTS. So long as credit granted under this Agreement is
available and until full and final payment of all sums outstanding under
this Agreement and promissory note(s) Borrower will:
+4.1 Use the proceeds of the loans covered by this Agreement only in
connection with Borrower's business activities and exclusively for
the following purposes: WORKING CAPITAL AND GENERAL CORPORATE
PURPOSES.
+4.2 Maintain current assets in an amount at least equal to 1.20 times
current liabilities, and not less than $N/A. Current assets and
current liabilities shall be determined in accordance with generally
accepted accounting principles and practices, consistently applied;
+4.3 Maintain a tangible net worth of at least $19,000,000 and not permit
Borrower's total indebtedness which is not subordinated in a manner
satisfactory to Bank to exceed 1.30 times Borrower's tangible net
worth. "Tangible net worth" means the excess of total assets over
total liabilities, excluding, however, from the determination of
total assets (a) all assets which should be classified as intangible
assets such as goodwill, patents, trademarks, copyrights,
franchises, and deferred charges (including unamortized debt
discount and research and development costs) but including as
tangible assets all of Borrower's existing and future "investment in
product line assets", (b) treasury stock, (c) cash held in a sinking
or other similar fund established for the purpose of redemption or
other retirement of capital stock, (d) to the extent not already
deducted from total
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assets, reserves for depreciation, depletion, obsolescence or
amortization of properties and other reserves or appropriations of
retained earnings which have been or should be established in
connection with the business conducted by the relevant corporation,
and (e) any revaluation or other write-up in book value of assets
subsequent to the fiscal year of such corporation last ended at the
date of this Agreement;
+4.4 Upon request Borrower agrees to insure and to furnish Bank with
evidence of insurance covering the life of Borrower (if an
individual) or the lives of designated partners or officers of
Borrower (if a partnership or corporation) in the amounts stated
below. Borrower shall take such actions as are reasonably requested
by Bank, such as assigning the insurance policies to Bank or naming
Bank as beneficiary and obtaining the insurer's acknowledgment
thereof, to provide that in the event of the death of any of the
named insureds the policy proceeds will be applied to payment of
Borrower's obligations owing to Bank;
Name:__N/A__________________Amount: $_______________________
Name:_______________________Amount: $_______________________
+4.5 Promptly give written notice to Bank of: (a) all litigation and
claims made or threatened affecting Borrower where the amount is
$500,000 or more; (b) any substantial dispute which may exist
between Borrower and any governmental regulatory body or law
enforcement authority; (c) any Event of Default under this Agreement
or any other agreement with Bank or any other creditor or any event
which become an Event of Default; and (d) any other matter which has
resulted or might result in a material adverse change in Borrower's
financial condition or operations;
+4.6 Borrower shall as soon as available, but in any event within 90 days
following the end of each Borrower's fiscal years and within 60 days
following the end of each quarter provide to Bank, in a form
satisfactory to Bank, such financial statements, Form 10-K Reports,
Form 10-Q Reports and other information respecting the financial
condition and operations of Borrower as Bank may reasonably request.
The fiscal year financial statements shall be audited by an
independent certified public accounting firm;
4.7 Borrower will maintain in effect insurance with responsible
insurance companies in such amounts and against such risks as is
customarily maintained by persons engaged in businesses similar to
that of Borrower and all policies covering property given as
security for the loans shall have loss payable clauses in favor of
Bank. Borrower agrees to deliver to Bank such evidence of insurance
as Bank may reasonably require and, within thirty (30) days after
notice from Bank, to obtain such additional insurance with an
insurer satisfactory to the Bank;
4.8 Borrower will pay all indebtedness taxes and other obligations for
which the Borrower is liable or to which its income or property is
subject before they shall become delinquent, except any which is
being contested by the Borrower in good faith;
4.9 Borrower will continue to conduct its business as presently
constituted, and will maintain and preserve all rights, privileges
and franchises now enjoyed, conduct Borrower's business in an
orderly, efficient and customary manner, keep all Borrowers
properties in good working order and condition, and from time to
time make all needed repairs, renewals or replacements so that the
efficiency of Borrower's properties shall be fully maintained and
preserved;
4.10 Borrower will maintain adequate books, accounts and records and
prepare all financial statements required hereunder in accordance
with generally accepted accounting principles and practices
consistently applied, and in compliance with the regulations of any
governmental regulatory body having jurisdiction over Borrower or
Borrower's business;
4.11 Borrower will permit representatives of Bank to examine and make
copies of the books and records of Borrower and to examine the
collateral of the Borrower at reasonable times;
4.12 Borrower will perform, on request of Bank, such acts as may be
necessary or advisable to perfect any lien or security interest
provided for herein or otherwise carry out the intent of this
Agreement;
4.13 Borrower will comply with all applicable federal, state and
municipal laws, ordinances, rules and regulations relating to its
properties, charters, businesses and operations, including
compliance with all minimum funding and other requirements related
to any of Borrower's employee benefit plans;
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<PAGE>
4.14 Borrower will permit representatives of Bank to enter onto
Borrower's properties to inspect and test Borrower's properties as
Bank, in its sole discretion, may deem appropriate to determine
Borrower's compliance with section 5.8 of this Agreement; provided
however, that any such inspections and tests shall be for Bank's
sole benefit and shall not be construed to create any responsibility
or liability on the part of Bank to Borrower or to any third party.
5. NEGATIVE COVENANTS. So long as credit granted under this Agreement is
available and until full and final payment of all sums outstanding under
this Agreement and promissory note(s):
+5.1 Borrower will not, during any fiscal year, expend or incur in the
aggregate more than $_______N/A______ for fixed assets, nor more
than $_______N/A_______ for any single fixed asset whether or not
payable that fiscal year or later under any purchase agreement or
lease;
5.2 N/A;
+5.3 The total of salaries, withdrawals, or other forms of compensation,
whether paid in cash or otherwise, by Borrower shall not exceed the
following amounts for the persons indicated, nor will amounts in
excess of such limits be paid to any other person:
Name: __N/A_____________ Monthly/Yearly Amount:$ _
Name: __________________ Monthly/Yearly Amount:$ _
5.4 N/A;
+5.5 N/A;
5.6 Borrower will not liquidate or dissolve or enter into any
consolidation, merger, pool, joint venture, syndicate or other
combination, or sell, lease, or dispose of Borrower's business
assets as a whole or such as in the opinion of Bank constitute a
substantial portion of Borrower's business or assets;
5.7 Borrower will not engage in any business activities or operations
substantially different from or unrelated to present business
activities or operations; and
5.8 Borrower's activity shall be conducted in compliance with all
applicable federal, state and local laws, regulations and
ordinances, including without limitation those described in section
3.8.
6. WAIVER, RELEASE AND INDEMNIFICATION. Borrower hereby:
(a) releases and waives any claims against Bank for indemnity or
contribution in the event Borrower becomes liable for cleanup or other
costs under any of the applicable federal, state or local laws,
regulations or ordinances, including without limitation those described in
section 3.8, and (b) agrees to indemnify and hold Bank harmless from and
against any and all claims, losses, liabilities, damages, penalties and
expenses which Bank may directly or indirectly sustain or suffer resulting
from a breach of (i) any of Borrower's representations and warranties with
respect to hazardous wastes and hazardous substances contained in section
3.8, or (ii) section 5.8. The provisions of this section 6 shall survive
the full and final payment of all sums outstanding under this Agreement
and promissory notes and shall not be affected by Bank's acquisition of
any interest in any of the Borrower's properties, whether by foreclosure
or otherwise.
7. EVENTS OF DEFAULT. The occurrence of any of the following events ("Events
of Default") shall terminate any and all obligations on the part of Bank
to make or continue the loan and/or line of credit and, at the option of
Bank, shall make all sums of interest and principal outstanding under the
loan and/or line of credit immediately due and payable, without notice of
default, presentment or demand for payment, protest or notice of non
payment or dishonor, or other notices or demands of any kind or character,
all of which are waived by Borrower, and Bank may proceed with collection
of such obligations and enforcement and realization upon all security
which it may hold and to the enforcement of all rights hereunder or at
law:
7.1 The Borrower shall fail to pay when due any amount payable by it
hereunder on any loans or notes executed in connection herewith;
7.2 Borrower shall fail to comply with the provisions of any other
covenant, obligation or term of this Agreement for a period of
thirty (30) days after the earlier of written notice thereof shall
have been
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given to the Borrower by Bank or Borrower or any Guarantor has
knowledge of an Event of Default or an event that can become an
Event of Default;
7.3 Borrower shall fail to pay when due any other obligation for
borrowed money, or to perform any term or covenant on its part to be
performed under any agreement relating to such obligation or any
such other debt shall be declared to be due and payable and such
failure shall continue after the applicable grace period;
7.4 Any representation or warranty made by Borrower in this Agreement or
in any other statement to Bank shall prove to have been false or
misleading in any material respect when made;
7.5 Borrower makes an assignment for the benefit of creditors, files a
petition in bankruptcy, is adjudicated insolvent or bankrupt,
petitions to any court for a receiver or trustee for Borrower or any
substantial part of its property, commences any proceeding relating
to the arrangement, readjustment, reorganization or liquidation
under any bankruptcy or similar laws, or if there is commenced
against Borrower any such proceedings which remain undismissed for a
period of thirty (30) days or, if Borrower by any act indicates its
consent or acquiescence in any such proceeding or the appointment of
any such trustee or receiver;
+7.6 Any judgment attaches against Borrower or any of its properties for
an amount in excess of $500,000 which remains unpaid, unstayed on
appeal, unbonded, or undismissed for a period of thirty (30) days;
7.7 Loss of any required government approvals, and/or any governmental
regulatory authority takes or institutes action which, in the
opinion of Bank, will adversely affect Borrower's condition,
operations or ability to repay the loan and/or line of credit;
7.8 Failure of Bank to have a legal, valid and binding first lien on, or
a valid and enforceable prior perfected security interest in, any
property covered by any deed of trust or security agreement required
under this Agreement;
7.9 Borrower dies, becomes incompetent, or ceases to exist as a going
concern;
7.10 Occurrence of an extraordinary situation which gives Bank reasonable
grounds to believe that Borrower may not, or will be unable to,
perform its obligations under this or any other agreement between
Bank and Borrower; or
7.11 Any of the preceding events occur with respect to any guarantor of
credit under this Agreement, or such guarantor dies or becomes
incompetent, unless the obligations arising under the guaranty and
related agreements have been unconditionally assumed by the
guarantor's estate in a manner satisfactory to Bank.
8. SUCCESSORS; WAIVERS. Notwithstanding the Events of Default above, this
Agreement shall be binding upon and inure to the benefit of Borrower and
Bank, their respective successors and assigns, except that Borrower may
not assign its rights hereunder. No consent or waiver under this Agreement
shall be effective unless in writing and signed by the Bank and shall not
waive or affect any other default, whether prior or subsequent thereto,
and whether of the same or different type. No delay or omission on the
part of the Bank in exercising any right shall operate as a waiver of such
right or any other right.
9. ARBITRATION.
9.1 At the request of either Bank or Borrower any controversy or
claim between the Bank and Borrower, arising from or relating
to this Agreement or any Loan Document executed in connection
with this Agreement or arising from any alleged tort shall be
settled by arbitration in King County Washington. The United
States Arbitration Act will apply to the arbitration
proceedings which will be administered by the American
Arbitration Association under its commercial rules of
arbitration except that unless the amount of the claim(s)
being arbitrated exceeds $5,000,000 there shall be only one
arbitrator. Any controversy over whether an issue is
arbitrable shall be determined by the arbitrator(s).
Judgement upon the arbitration award may be entered in any
court having jurisdiction. The institution and maintenance of
any action for judicial relief or pursuit of a provisional or
ancillary remedy shall not constitute a waiver of the right of
either party, including plaintiff, to submit the controversy
or claim to arbitration if such action for judicial relief is
contested.
For purposes of the application of the statute of limitations
the filing of an arbitration as provided herein is the
equivalent of filing a lawsuit and the arbitrator(s) will have
the authority to decide whether any claim or controversy is
barred by the statute of limitations, and if so, to dismiss
the
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arbitration on that basis. The parties consent to the joinder in
the arbitration proceedings of any guarantor, hypothecator or other
party having an interest related to the claim or controversy being
arbitrated.
9.2 Notwithstanding the provisions of Section 9.1, no controversy or
claim shall be submitted to arbitration without the consent of all
parties if at the time of the proposed submission, such controversy
or claim arises from or relates to an obligation secured by real
property;
9.3 No provision of this Section 9 shall limit the right of the Borrower
or the Bank to exercise self-help remedies such as setoff,
foreclosure or sale of any collateral, or obtaining any ancillary
provisional or interim remedies from a court of competent
jurisdiction before, after or during the pendency of any arbitration
proceeding. The exercise of any such remedy does not waive the
right of either party to request arbitration. At Bank's option
foreclosure under any deed of trust may be accomplished by exercise
of the power of sale under the deed of trust or judicial foreclosure
as a mortgage.
10. COLLECTION ACTIVITIES, LAWSUITS AND GOVERNING LAW. Borrower agrees to pay
Bank all costs and expenses (including reasonable attorney's fees and the
allocated cost for in-house legal services incurred by Bank), to enforce
this Agreement, any notes or any Loan Documents pursuant to this
Agreement, whether or not suit is instituted. If suit is instituted by
Bank to enforce this Agreement or any of these documents, Borrower
consents to the personal jurisdiction of the Courts of the State of
Washington and Federal Courts located in the State of Washington.
Borrower further consents to the venue of this suit, being laid in King
County, Washington. This Agreement and any notes and security agreements
entered into pursuant to this Agreement shall be construed in accordance
with the laws of the State of Washington.
+11. ADDITIONAL PROVISIONS. Borrower agrees to the additional provisions set
forth immediately following this Section 11 or on any Exhibit attached to
and hereby incorporated into Agreement. This Agreement supersedes all
oral negotiations or agreements between Bank and Borrower with respect to
the subject matter hereof and constitutes the entire understanding and
Agreement of the matters set forth in this Agreement.
11.1 If any provision of this Agreement is held to be invalid or
unenforceable, then (a) such provision shall be deemed modified if
possible, or if not possible, such provision shall be deemed
stricken, and (b) all other provisions shall remain in full force
and effect.
11.2 If the imposition of or any change in any law, rule, or regulation
guideline or the interpretation or application of any thereof by any
court of administrative or governmental authority (including any
request or policy whether or not having the force of law) shall
impose or modify any taxes (except U.S. federal, state or local
income or franchise taxes imposed on Bank), reserve requirements,
capital adequacy requirements or other obligations which would: (a)
increase the cost to Bank for extending or maintaining any loans
and/or line of credit to which this Agreement relates, (b) reduce
the amounts payable to Bank under this Agreement, such notes and
other instruments, or (c) reduce the rate of return on Bank's
capital as a consequence of Bank's obligations with respect to any
loan and/or line of credit to which this Agreement relates, then
Borrower agrees to pay Bank such additional amounts as will
compensate Bank therefor, within five (5) days after Bank's written
demand for such payment, which demand shall be accompanied by an
explanation of such imposition or charge and a calculation in
reasonable detail of the additional amounts payable by Borrower,
which explanation and calculations shall be conclusive, absent
manifest error.
11.3 N/A
11.4 This Business Loan Agreement also covers all future standby letters
of credit and foreign exchange facilities as may be requested by
Borrower and made by Bank.
12. NOTICES. Any notices shall be given in writing to the opposite party's
signature below or as that party may otherwise specify in writing.
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13. ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN MONEY, EXTEND CREDIT, OR TO
FORBEAR FROM ENFORCING REPAYMENT OF A DEBT ARE NOT ENFORCEABLE UNDER
WASHINGTON LAW.
This Business Loan Agreement (Parts A and B) executed by the parties on May 14,
1996. Borrower acknowledges having read all of the provisions of this Agreement
and Borrower agrees to its terms.
SEAFIRST BANK
Western Commercial Banking Division
By: /S/ STEVEN E. MELBY
-------------------
Steven E. Melby, Vice President
Address: Seafirst Bank
Western Commercial Banking Division, Team 2
10500 N. E. Eighth Street, Suite 500
Bellevue, WA 98004
Phone: (206) 585-6390
Fax: (206) 585-6393
DATA I/O CORPORATION
By: /S/ Steven M. Gordon
--------------------
Steven M. Gordon, Vice President/Chief Financial Officer
Address: Data I/O Corporation
10525 Willows Road N.E.
P. O. Box 97046
Redmond, WA 98073-9746
Phone: (206) 881-6444
Fax: (206) 861-6924
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LOAN MODIFICATION
[LETTERHEAD] AGREEMENT
- --------------------------------------------------------------------------------
This Agreement amends the Master Note For Multiple Advances-Business
Purpose dated February 28, 1994 ("Note") executed by DATA I/O CORPORATION
(together if more than one "Borrower") in favor of Bank of America NW, N.A.,
doing business as SEAFIRST BANK ("Bank"), regarding a loan in the maximum
principal amount of $8,000,000 (the "Loan"). For mutual consideration,
Borrower and Bank agree to amend the Note as follows:
1. MATURITY DATE. The maturity date of the Note is changed to May 31,
1997. Bank's commitment to make advances to Borrower under its line of
credit is also extended to May 31, 1997.
3. OTHER TERMS. Except as specifically amended by this agreement or any
prior amendment, all other terms, conditions, and definitions of the Note
and all other security agreements, guaranties, deeds of trust, mortgages,
and other instruments or agreements entered into with regard to the Loan
shall remain in full force and effect.
This agreement is dated April 15, 1996.
Bank: SEATTLE-FIRST NATIONAL BANK
By //S//Steven E. Melby
----------------------------
Title Vice President
---------------------------
Borrower: DATA I/O CORPORATION
By: //S//Steven M. Gordon
------------------------------
Title: Vice President/C. F. O.
----------------------------
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Exhibit A -- PREPAYMENT FEES
If the principal balance owing to Bank is prepaid in whole or in part, whether
by voluntary prepayment, operation of law, acceleration or otherwise, a
prepayment fee, in addition to any interest earned, will be immediately payable
to the holder of this note.
The amount of the prepayment fee depends on the following:
(1) The amount by which interest reference rates as defined below have changed
between the time the loan is prepaid and either a) the time the loan was
made for fixed rate loans, or b) the time the interest rate last changed
(repriced) for variable rate loans.
(2) A prepayment fee factor (see "Prepayment Fee Factor Schedule" on Page 2).
(3) The amount of principal prepaid.
If the proceeds from a CD or time deposit pledged to secure the loan are used to
prepay the loan resulting in payment of an early withdrawal penalty for the CD,
a prepayment fee will not also be charged under the loan.
DEFINITION OF REFERENCE RATE FOR VARIABLE RATE LOANS
The Reference Rate used to represent interest rate levels for variable rate
loans shall be the index rate used to determine the rate on this loan having
maturities equivalent to the remaining period to interest rate change date
(repricing) of this loan rounded upward to nearest month. The "Initial
Reference Rate" shall be the Reference Rate at the time of last repricing and a
new Initial Reference Rate shall be assigned at each subsequent repricing. The
"Final Reference Rate" shall be the Reference Rate at the time of prepayment.
DEFINITION OF REFERENCE RATE FOR FIXED RATE LOANS
The "Reference Rate" used to represent interest rate levels on fixed rate loans
shall be the bond equivalent yield of the average U.S. Treasury rate having
maturities equivalent to the remaining period to maturity of this loan rounded
upward to the nearest month. The "Initial Reference Rate" shall be the
Reference Rate at the time the loan was made. The "Final Reference Rate" shall
be the Reference Rate at time of prepayment.
The Reference Rate shall be interpolated from the Federal Reserve Statistical
Release (Publication H.15) as displayed on Page 119 of the Dow Jones Telerate
Service (or such other page or service as may replace that page or service for
the purpose of displaying rates comparable to said U.S. Treasure rates) on the
day the loan was made (Initial Reference Rate) or the day of prepayment (Final
Reference Rate).
An Initial Reference Rate of _____% has been assigned to this loan to represent
interest rate levels at origination.
CALCULATION OF PREPAYMENT FEE
If the Initial Reference Rate is less than or equal to the Final Reference Rate,
there is no prepayment fee.
If the Initial Reference Rate is greater than the Final Reference Rate, the
prepayment fee shall be equal to the difference between the Initial and Final
Reference Rates (expressed as a decimal), multiplied by the appropriate factor
from the Prepayment Fee Factor Schedule, multiplied by the principal amount of
the loan being prepaid.
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EXAMPLE OF PREPAYMENT FEE CALCULATION
VARIABLE RATE LOAN: A non-amortizing 6-month LIBOR based loan with principal of
$250,000 is fully prepaid with 3 months remaining until next interest rate
change date (repricing). An Initial Reference Rate of 7.0% was assigned to the
loan at last repricing. The Final Reference Rate (as determined by the 3-month
LIBOR index) is 6.5%. Rates therefore have dropped 0.5% since last repricing
and a prepayment fee applies. A prepayment fee factor of 0.31 is determined
from Table 3 below and the prepayment fee is computed as follows:
Prepayment Fee = (0.07 - 0.065) x (0.31) x ($250,000) = $387.50
FIXED RATE LOAN: An amortizing loan with remaining principal of $250,000 is
fully prepaid with 24 months remaining until maturity. An Initial Reference
Rate of 9.0% was assigned to the loan when the loan was made. The Final
Reference Rate (as determined by the current 24-month U.S. Treasure rate on
Page 119 of Telerate) is 7.5%. Rates therefore have dropped 1.5% since the loan
was made and a prepayment fee applies. A prepayment fee factor of 1.3 is
determined from Table 1 below and the prepayment fee is computed as follows:
Prepayment Fee = (0.09 - 0.075) x (1.3) x (250,000) = $4,875
PREPAYMENT FEE FACTOR SCHEDULE
TABLE I: FULLY AMORTIZING LOANS
Proportion or Remaining Principal
Amount Being Prepaid Months Remaining To Maturity/Repricing(1)
- --------------------------------------------------------------------------------
0 3 6 9 12 24 36 48 60 84 120 240 360
- --------------------------------------------------------------------------------
90-100% 0 .21 .36 .52 .67 1.3 1.9 2.5 3.1 4.3 5.9 10.3 13.1
60-89% 0 .24 .44 .63 .83 1.6 2.4 3.1 3.9 5.4 7.5 13.2 17.0
30-59% 0 .28 .53 .78 1.02 2.0 3.0 4.0 5.0 7.0 9.9 18.5 24.4
0-29% 0 .31 .63 .92 1.22 2.4 3.7 5.0 6.3 9.0 13.4 28.3 41.8
TABLE II: PARTIALLY AMORTIZING (BALLOON) LOANS
Proportion or Remaining Principal
Amount Being Prepaid Months Remaining To Maturity/Repricing(1)
- --------------------------------------------------------------------------------
0 3 6 9 12 24 36 48 60 84 120 240 360
- --------------------------------------------------------------------------------
90-100% 0 .26 .49 .71 .94 1.8 2.7 3.4 4.2 5.6 7.4 11.6 14.0
60-89% 0 .30 .59 .86 1.15 2.2 3.3 4.3 5.3 7.1 9.4 15.0 18.1
30-59% 0 .31 .63 .95 1.27 2.6 3.9 5.3 6.6 9.1 12.6 21.2 26.2
0-29% 0 .31 .63 .95 1.27 2.6 4.0 5.4 7.0 10.2 15.7 33.4 46.0
TABLE III: NON-AMORTIZING (INTEREST ONLY) LOANS
Proportion or Remaining Principal
Amount Being Prepaid Months Remaining To Maturity/Repricing(1)
- --------------------------------------------------------------------------------
0 3 6 9 12 24 36 48 60 84 120 240 360
- --------------------------------------------------------------------------------
0-100% 0 .31 .61 .91 1.21 2.3 3.4 4.4 5.3 6.9 8.9 13.0 14.8
(1) For the remaining period to maturity/repricing between any two
maturities/repricings shown in the above schedules, interpolate between the
corresponding factors to the closest month.
The Bank is not required to actually reinvest the prepaid principal in any U.S.
Government Treasury Obligations, or otherwise prove its actual loss, as a
condition to receiving a prepayment fee as calculated above.
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EXHIBIT B
PROMISSORY NOTE
INTEREST RATE. The "Borrower" agrees to pay interest monthly on the unpaid
principal amount of the Master Note (Line of Credit) from the date thereof until
fully paid at a rate equivalent to one or a combination of the two options
listed below:
(1) BANK'S PRIME RATE: Bank's publicly announced prime rate plus the sum of
0.00% (the "Margin") of the principal per annum, adjusted on the effective
date of any prime rate change.
(2) ADJUSTED LIBOR: "Adjusted LIBOR Rate" means for any day that per annum
rate equal to the sum of 1.10% (the "Margin"), (b) the Assessment rate, if
any, and (c) the LIBOR rate for the Interest Period in which said day
occurs divided by the Reserve Adjustment. The Adjusted LIBOR Rate shall
change with any change in the LIBOR Rate on the first day of each Interest
Period and on the effective date of any change in the Assessment Rate or
Reserve Adjustment.
Adjusted LIBOR Rate is available for increments of borrowing in excess of
$250,000.00 for specific periods of time (30, 60, 90, 180 days).
LIBOR (REUTERS) - "LIBOR Rate" means for any Interest Period that per annum
rate equal to the arithmetic mean (rounded to the nearest hundred-
thousandth of a percentage point) of the offered rates for U.S. Dollar
deposits for a period equal to the Interest Period appearing on the display
designated as page "LIBO" on the Reuters Monitor Money Rates Service (or
such other page on such service as may replace said page or, if none, on
such other available service which displays two or more London interbank
offered rates of major banks for U.S. Dollar deposits as of 11:00 a.m.,
London time, on the day which is two London banking days prior to the first
day of the Interest Period. If there is no period equal to the Interest
Period on the display, the LIBOR Rate shall be determined by straight-line
interpolation to the nearest month (or week or day if expressed in weeks or
days) corresponding to the Interest Period between the two nearest
neighboring periods on the display.
ASSESSMENT RATE - "Assessment Rate" means as of any day the annual
percentum rate established by the Federal Deposit Insurance Corporation (or
any successor) for the assessment due from members of the Bank Insurance
Fund (or any successor) in effect for the assessment period during which
said day occurs based on (a) deposits maintained at said members' offices
in the United States, in determination of an Adjusted CD Rate, or (b)
deposits maintained at such members' offices located outside of the United
States, in determination of an Adjusted LIBOR Rate.
RESERVE ADJUSTMENT - "Reserve Adjustment" means as of any day the remainder
of one minus that percentage (expressed as a decimal) which is the highest
of any such percentages established by the Board of Governors of the
Federal Reserve System (or any successor) for required reserves (including
any emergency, marginal or supplemental reserve requirement) regardless of
the aggregate amount of deposits with said member bank and without benefit
of any possible credit, proration, exemptions or offsets for (a) (in
determination of an Adjusted CD Rate) any type, duration or amount of new
time deposit established that day at offices of member banks located in the
United States, or (b) (in determination of an Adjusted LIBOR Rate) for time
deposits established at offices of member banks located outside of the
United States or for eurocurrency liabilities, if any.
It is understood that either or both options may be used during a monthly
billing period and that the billing by Bank will reflect the total of both
options.
If borrowings under Option 2 are prepaid, such prepayment shall be subject to a
prepayment penalty consisting of the differential, if any, by which the then
current rate is less than such rate at the borrowing date, applied to the amount
of the borrowing for the period from the prepayment date through the date of
maturity of such borrowings.
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ADDITIONAL PROVISION. Notwithstanding any other provision in this Note, Lender
will have no obligation to make any additional loans or to advance funds under
this Note if Lender makes demand under that certain Note Purchase Agreement
between Lender and Data I/O Corporation of even date herewith and pursuant to
which Lender may make such demand at Lender's sole discretion at any time and
without notice to Borrower.
DATA I/O CORPORATION
By: /s/Steven M. Gordon
-------------------------------------
Title: Vice President / CFO
----------------------------------
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CONFIDENTIAL PORTIONS OF THIS DOCUMENT HAVE BEEN
OMITTED AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION.
v01/24/97
EXHIBIT 10.31
OEM AGREEMENT
BETWEEN
SYNOPSYS, INC.
AND
SYNARIO DESIGN AUTOMATION
A DIVISION OF DATA I/O CORPORATION
This OEM Agreement ("Agreement") is entered into and effective as of
January 24, 1997 ("Effective Date"), by and between Synopsys, Inc., a Delaware
corporation with principal offices at 700 E. Middlefield Road, Mountain View,
California 94043-4033 ("Synopsys"), and Synario Design Automation, a division of
Data I/O Corporation , a Washington corporation with principal offices at 10525
Willows Road, N.E., Redmond, Washington 98073-9746 ("Synario").
RECITALS
Synopsys is a leader in the design, development and marketing of electronic
design automation software. Synopsys desires to enter into an OEM relationship
with Synario whereby Synario shall be authorized to sell an OEM version of
Synopsys' FPGA Express product. Synario wishes to enter into such a
relationship.
In consideration of the mutual promises contained herein, the parties agree as
follows:
AGREEMENT
1. DEFINITIONS
1.1 "BUG FIX" means an embodiment of the Licensed Software that corrects
Errors.
1.2 "CONFIDENTIAL INFORMATION" means any information disclosed by one party to
the other pursuant to this Agreement, which is in written, graphic,
machine-readable or other tangible form and is marked "Confidential,"
"Proprietary" or in some other manner to indicate its confidential nature.
Confidential Information may also include oral information disclosed by one
party to the other pursuant to this Agreement, provided that such
information is designated as "Confidential" at the time of disclosure and
reduced to a written summary by the disclosing party within thirty (30)
days after its oral disclosure, which is marked in a manner to indicate its
confidential nature and delivered to the receiving party. Notwithstanding
any failure to so identify it, however, all source code will be deemed
"Confidential Information" hereunder. Notwithstanding the above,
Confidential Information shall not include information which: (i) was
generally known and available at the time it was disclosed or becomes
generally known and available
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CONFIDENTIAL PORTIONS OF THIS DOCUMENT HAVE BEEN
OMITTED AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION.
v01/24/97
through no fault of the receiver; (ii) was known to the receiver, without
restriction, at the time of disclosure as shown by the files of the
receiver in existence at the time of disclosure; (iii) is disclosed with
the prior written approval of the discloser; (iv) was independently
developed by the receiver without any use of the Confidential Information
and by employees or other agents of the receiver who have not been exposed
to the Confidential Information, provided that the receiver can demonstrate
such independent development by documented evidence prepared
contemporaneously with such independent development; (v) becomes known to
the receiver, without restriction, from a source other than the discloser
without breach of this Agreement by the receiver and otherwise not in
violation of the discloser's rights; or (vi) is disclosed pursuant to the
order or requirement of a court, administrative agency, or other
governmental body, provided, that the receiver shall provide prompt,
advance notice thereof to enable the discloser to seek a protective order
or otherwise prevent such disclosure.
1.3 "DOCUMENTATION" means any user manuals, reference manuals, release,
application and methodology notes, written utility programs and other
materials in any form provided for use with the Licensed Software.
1.4 "END USER" means a direct or indirect customer of Synario authorized to use
the Licensed Software.
1.5 "ERROR" means a defect which causes the Licensed Software not to perform
substantially in accordance with the specifications set forth in Synopsys'
Documentation.
1.6 "INTELLECTUAL PROPERTY RIGHTS" means all patents, patent rights,
copyrights, trade secrets, service marks, maskworks and trademarks, and any
applications for any of the foregoing, in all countries in the world.
1.7 "LICENSED SOFTWARE" means a special OEM version of Synopsys' PC-based FPGA
synthesis product that is for integrated use with the Synario design system
as more fully described in Exhibit A attached hereto (as may be amended
from time to time). It shall contain all the capabilities and device
support of Synopsys' standard FPGA Express product.
1.8 "UPDATES" means an embodiment of the Licensed Software that delivers minor
improvements, incremental features or enhancements of existing features,
and/or functionality to the Licensed Software.
2. MINIMUM PURCHASE COMMITMENT AND TARGET PURCHASES
2.1 MINIMUM PURCHASE COMMITMENT. Synario shall make the minimum license
revenue and maintenance revenue commitments for Licensed Software (the
"Minimum Purchase Commitment") in the period commencing on the first day of
the month following Synopsys' delivery and Synario's acceptance of the
Licensed Software and CONFIDENTIAL and CONFIDENTIAL Optimizers, as
described in Exhibits A and C, and ending CONFIDENTIAL ( ) months
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CONFIDENTIAL PORTIONS OF THIS DOCUMENT HAVE BEEN
OMITTED AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION.
v01/24/97
thereafter ("Period 1"). Subject to the terms of this Agreement, the
Minimum Purchase Commitment is guaranteed to Synopsys and is nonrefundable
and independent of any changes to Synopsys' North America price list or
other Licensed Software configurations not described in this Agreement.
Upon execution of and subject to Section 4.4(e) and the other terms of this
Agreement, Synario shall make a non-refundable CONFIDENTIAL dollar (U.S.$)
pre-payment (the "Pre-Payment") which shall be applied as a credit toward
the first quarterly dollar commitment set forth in Section 1 of Exhibit B.
2.2 TARGET PURCHASES. Synopsys and Synario have established the targets for
purchases of the Licensed Software by Synario (the "Target Purchases")
during the period beginning at the end of Period 1 and ending CONFIDENTIAL
( ) months thereafter ("Period 2"); and an optional period beginning at
the end of Period 2 and ending CONFIDENTIAL ( ) months thereafter ("Period
3") set forth in Section 2 of Exhibit B and will work together to achieve
such Target Purchases; provided, however, the Target Purchases are
estimates and not binding commitments of Synario, subject to Section 9.2.
(Each of Period 1, Period 2 and Period 3 are referred to as "Periods".)
3. SYNARIO'S RIGHTS TO THE LICENSED SOFTWARE
3.1 APPOINTMENT. Subject to the terms and conditions set forth in this
Agreement, Synopsys grants Synario the nonexclusive, nontransferable,
worldwide (with the exception of mainland China, Cuba, Libya, North Korea,
Iran, Iraq or Syria, unless Synopsys grants such right to any original
equipment manufacturer ("OEM"), value added reseller ("VAR") or
distributor) right to manufacture and distribute the Licensed Software in
object code form in accordance with the restrictions set forth herein,
through any and all Synario distribution channels. However, Synario and
its agents shall be the exclusive sellers of a version of FPGA Express for
integrated use with the Synario design system. Synario may begin selling
the Licensed Software no sooner than CONFIDENTIAL. Synario may distribute
the Licensed Software only bundled with or as an add-on or synthesis
upgrade to a Synario license. The Licensed Software may not be distributed
by Synario to other electronic design automation software manufacturers.
Synario may not distribute any Products to any of its VARs or distributors
unless they have executed a written agreement with Synario that provides
that the Licensed Software shall be distributed subject to the terms of the
End User License Agreement, as defined below.
3.2 SOFTWARE LICENSE AND OTHER RESTRICTIONS. The Licensed Software is subject
to license and not sale. Each reference in this Agreement to a "purchase"
or "sale" of the Licensed Software, or like terms, shall mean a "license"
of the Licensed Software. Synopsys shall retain full title to the Licensed
Software (including all Intellectual Property Rights embodied therein) and
all copies thereof, and Synario and its customers may use the Licensed
Software only in accordance with the provisions of an End User License
Agreement that is provided with each copy of the Licensed Software. The
current Synario End User License Agreement entitled Data I/O-Registered
Trademark- Corporation Software License Agreement (the "End User License
Agreement") is attached hereto as Exhibit D. Synario
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CONFIDENTIAL PORTIONS OF THIS DOCUMENT HAVE BEEN
OMITTED AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION.
v01/24/97
agrees to distribute the Licensed Software with and in accordance with the
End User License Agreement or substantially similar form. Synopsys agrees
the End User License Agreement is in a form acceptable to Synopsys. Synario
agrees to abide by the terms of this Agreement and of the End User License
Agreement distributed with the Licensed Software. Synario agrees that the
Licensed Software purchased under this Agreement will not be sold into a
software tool environment that does not include Synario's products that
support design entry or verification for FPGA designs. Synario may sell
the Licensed Software as an add-on or synthesis upgrade to an existing
installed Synario license. The license fee for such an upgrade is
specified in Exhibit B.
3.3 PROPRIETARY NOTICES. Synario will not remove or alter any proprietary
notices on or in the Licensed Software. Additionally, Synario agrees that
when the Licensed Software is invoked by an End User from within the
Synario design tool environment, Synopsys' copyright notice and FPGA
Express logo must be appropriately displayed to the End User before or
while the Licensed Software is processing a design to the extent such
display functions in the Licensed Software when the software is processing
a design.
3.4 MANUFACTURING AND DISTRIBUTION. Manufacturing and distribution of the
Licensed Software and Documentation shall be the responsibility of Synario.
Synopsys shall provide master copies of the Licensed Software and
Documentation including available design examples and application notes
published for End Users. Documentation will be provided in machine-
readable form for adaptation by Synario. Final Synario documentation
adapted from Synopsys Documentation will acknowledge Synopsys as the
source. Synario agrees to manufacture the Licensed Software and/or
Documentation in the U.S. In the event Synario decides to manufacture the
Licensed Software and/or Documentation outside of the U.S., Synario will
report such manufacturing location(s) to Synopsys in its quarterly reports
to Synopsys.
3.5 DEMONSTRATION AND EVALUATION. A restricted version of the Licensed
Software that contains all the features of FPGA Express but is limited to
simple designs (presently under CONFIDENTIAL bytes of source code,
CONFIDENTIAL I/O pins, or CONFIDENTIAL registers) shall be provided to
Synario for demonstration and evaluation purposes at no charge.
3.6 PROMOTIONAL COPIES. Promotional copies with a one (1) year license
expiration may be provided by Synario to industry analysts, editors, etc.,
provided Synario has obtained the prior written approval from Synopsys on a
case-by-case basis.
3.7 PRELIMINARY COPIES. Preliminary copies of Licensed Software releases will
be promptly provided to Synario for internal evaluation and, by mutual
agreement, distribution to a limited number of End Users for beta testing.
3.8 NO IMPLIED LICENSES. No rights or licenses are granted to Synario by
implication, estoppel, or otherwise, other than the rights and licenses
expressly granted herein.
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OMITTED AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION.
v01/24/97
4. TERMS OF PURCHASE OF LICENSED SOFTWARE
4.1 TERMS AND CONDITIONS. All purchases of Licensed Software by Synario from
Synopsys during the term of this Agreement shall be subject to the terms
and conditions of this Agreement.
4.2 FEES. The per unit license and maintenance fees for the Licensed Software
shall be as provided in Exhibit B hereto. Synopsys has the right at any
time to revise the North America list price for FPGA Express and shall
provide Synario CONFIDENTIAL ( ) days' advance written notice for price
increases and CONFIDENTIAL ( ) days' advance written notice for price
decreases. Should Synopsys change its North America list price for FPGA
Express, the per unit license and maintenance fees for the Licensed
Software will be proportionately adjusted, except that during Period 1
Synario's price for such items shall not be increased. Pricing revisions
shall apply to all orders received by Synario from End Users after the
effective date of revision. Pricing increases shall not affect any quotes
submitted by Synario or its VARs or distributors to End Users within the
preceding CONFIDENTIAL ( ) days or any unfulfilled orders accepted by
Synario from End Users prior to the effective date of any price increase.
Pricing decreases shall apply to pending orders accepted by Synario prior
to the effective date of any decrease but not yet shipped.
4.3 REPORTING REQUIREMENTS. Synario shall deliver quarterly reports to
Synopsys within thirty (30) days after the end of each quarter. These
reports shall include the number and configuration of the Licensed Software
(base system and optimizer), second language options, additional
optimizers, and maintenance or maintenance renewals sold during the period,
and End User information (customer name, company address, and phone
number).
4.4 PAYMENT. In consideration of the rights granted to Synario herein, Synario
agrees to pay Synopsys as follows:
(a) GUARANTEED DOLLAR COMMITMENT. On a quarterly basis during Period 1,
Synario shall pay Synopsys twenty-five percent (25%) of the guaranteed
annual Minimum Purchase Commitment set forth in Section 1 of Exhibit
B. This payment shall be due and payable at the end of the second
month of each quarter during Period 1 and shall be paid within
CONFIDENTIAL ( ) days of receipt of Synopsys' invoice as provided in
Section 4.4(e) hereof. The $CONFIDENTIAL Pre-Payment will be applied
as a credit toward the first quarterly payment.
(b) ADDITIONAL OPTIMIZERS, LANGUAGES AND MAINTENANCE. Within CONFIDENTIAL
( ) days after the end of each quarter during Period 1, Synario shall
pay Synopsys the license and maintenance fees for the number of
additional optimizers and second language options, and fees for
maintenance renewals as set forth in Section 1 of Exhibit B.
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OMITTED AND HAVE BEEN FILED SEPARATELY WITH THE
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(c) ADDITIONAL BASE UNITS FEES AND MAINTENANCE FEES. Within CONFIDENTIAL
( ) days after the end of Period 1, Synario shall pay to Synopsys the
license fees and maintenance fees for the number of Base Units
licensed above the annual base unit commitment set forth in Section 1
of Exhibit B. Such amounts shall be paid within CONFIDENTIAL ( )
days of receipt of Synopsys' invoice as provided in Section 4.4(e)
hereof.
(d) LICENSE AND MAINTENANCE FEES DURING PERIODS 2 AND 3. Within
CONFIDENTIAL ( ) days of the end of each quarter of Periods 2 and 3,
Synario shall pay to Synopsys the license fees and maintenance fees
for the number of Base Units, additional optimizers and second
language options, and maintenance renewals licensed during such
quarter. Such amounts shall be paid within ( ) days of receipt of
Synopsys' invoice as provided in Section 4.4(e) hereof.
(e) INVOICING. Except as otherwise stated, Synopsys shall invoice Synario
for amounts due and payable to Synopsys hereunder. Except as
otherwise stated, full payment (including any taxes or other
applicable costs initially paid by Synopsys but to be borne by
Synario) shall be made by Synario to Synopsys in U.S. dollars within
CONFIDENTIAL ( ) days after the date of Synopsys' invoice therefor.
Any amount not paid when due shall be subject to a service charge
equal to the lesser of one and one-half percent (1.5%) per month or
the maximum amount permitted by law.
4.5 TAXES. Synario shall bear all sales, use, VAT or other taxes resulting
from the license or use of such Licensed Software, if any, other than
Synopsys' net income or privilege taxes.
4.6 AUDIT. Synario agrees to maintain records of all information necessary to
determine the accuracy of the calculation of the license and maintenance
fees payable to Synopsys under this Agreement for at least three (3) years
after termination of this Agreement. Upon at least thirty (30) days prior
written notice and not more than once annually, Synopsys' independent
auditors who are reasonably acceptable to Synario and who have entered into
appropriate nondisclosure agreements may inspect and audit such records
during Synario's normal business hours. Synopsys shall bear the cost and
expense of the audit; provided, however, in the event of an underpayment to
Synopsys of CONFIDENTIAL percent (%) or more, Synario shall reimburse
Synopsys the reasonable costs and expenses of any such audit as well as the
unpaid license and maintenance fee amounts. If the audit reveals an
underpayment of fees by Synario, then Synopsys reserves the right
subsequently to audit more frequently than once per year upon at least
thirty (30) days' prior written notice.
5. LIMITED WARRANTY
5.1 LIMITED WARRANTY. Synopsys warrants for a period of ninety (90) days from
delivery of the Licensed Software to Synario and acceptance by Synario that
such Licensed Software, as delivered, will be free from defects in the
media and will substantially conform to the
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specifications in the Licensed Software Documentation. In the event of
nonconformance of the Licensed Software, Synario shall promptly notify
Synopsys and provide Synopsys with all available information in written or
electronic form so that Synopsys can reproduce the Error. Synopsys' sole
obligation is to undertake reasonable commercial efforts to correct the
Errors reported to Synopsys in writing or in electronic form during the
warranty period. SYNOPSYS' SOLE LIABILITY AND SYNARIO'S EXCLUSIVE REMEDY
WITH RESPECT TO BREACH OF THE FOREGOING LIMITED WARRANTY WILL BE LIMITED TO
ERROR CORRECTION OR PRODUCT REPLACEMENT, OR IF NEITHER IS IN SYNOPSYS'
OPINION COMMERCIALLY FEASIBLE, REFUND OF THE LICENSE FEE RECEIVED BY
SYNOPSYS FROM SYNARIO, AND TERMINATION OF THE AGREEMENT.
5.2 DISCLAIMER. EXCEPT FOR THE ABOVE EXPRESS LIMITED WARRANTY, THE LICENSED
SOFTWARE AND DOCUMENTATION ARE LICENSED "AS IS," AND SYNOPSYS AND ITS
LICENSORS MAKE NO OTHER WARRANTIES EXPRESS, IMPLIED, STATUTORY OR OTHERWISE
REGARDING THE LICENSED SOFTWARE OR DOCUMENTATION. SYNOPSYS AND ITS
LICENSORS SPECIFICALLY DISCLAIM ANY IMPLIED WARRANTIES OF MERCHANTABILITY,
FITNESS FOR A PARTICULAR PURPOSE, OR ARISING FROM A COURSE OF DEALING OR
USAGE OF TRADE.
6. SYNOPSYS MAINTENANCE AND SUPPORT
6.1 ENGINEERING AND SUPPORT COPIES. Synario may manufacture and distribute a
limited number of copies (to be mutually agreed and to be restricted to one
(1) year license periods) of the Licensed Software, including applicable
software support, pursuant to the terms and conditions of Synario's End
User License Agreement for engineering and End User support purposes. At
Synopsys' request, Synario shall provide a list of locations where
engineering and support copies of the Licensed Software are installed and
the number of copies at each location. These copies of the Licensed
Software may only be used for demonstration or for a thirty (30) day period
for End User evaluation purposes.
6.2 TRAINING. At its expense (excluding Synario's customary expenses,
including without limitation, travel, accommodations and per diem),
Synopsys shall provide necessary training up to CONFIDENTIAL ( ) times a
year at a centralized location to Synario engineering and customer support
personnel as reasonably required to engineer, market, and support the
Licensed Software for initial product introduction and for each product
Update.
6.3 UPDATES AND BUG FIXES. Maintenance Agreements are required for the first
year on all new Licensed Software sold. Subsequent maintenance renewal is
optional. Synario shall pay Synopsys the maintenance fees set forth in
Exhibit B. Updates and Bug Fixes shall be provided to Synario in regular
maintenance releases to the extent Synopsys provides such releases to their
FPGA Express customers under Synopsys maintenance contracts.
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Maintenance releases will be provided every CONFIDENTIAL ( ) months or
whenever Synopsys, using its best efforts, issues them. Only End Users who
have entered into maintenance agreements may receive maintenance releases.
Critical bugs (to be defined by the parties) reported by Synario will be
urgently addressed by Synopsys' engineering support team. Bug Fixes will
be delivered to Synario at the earliest possible date for Synario to
provide to End Users. Upon receipt of an error report and design files
which can reproduce such an error, Synopsys shall take prompt corrective
action so as to remedy the reported problem, if the problem is classified
as critical showstopper, customer unable to proceed, no acceptable work
around, or error preventing useful work from being done. Any or all other
errors will be classified, prioritized, and corrected in future software
updates.
6.4 EARLY NOTICE. Synopsys shall provide at least CONFIDENTIAL ( ) days'
prior written notice of FPGA Express product plans and release schedules.
Synopsys shall ensure that Synario is included in all formal beta site
programs for FPGA Express. Synopsys and Synario agree to meet biannually
to discuss future product plans and release schedules.
7. SYNARIO SUPPORT RESPONSIBILITIES
7.1 SYNARIO SOFTWARE. Synopsys shall receive a limited number of copies (to be
mutually agreed to be licensed for a maximum of one (1) year of Synario
software, including applicable software support, for engineering purposes
and general technical support only. At Synario's request, Synopsys shall
provide a list of locations where such Synario software is installed and
the number of copies at each location.
7.2 END USER SUPPORT. End User support, and training and technical support to
channel FAEs, shall be provided by Synario. At no time shall Synario
direct its End Users or channel FAEs to Synopsys' support organization.
Synopsys shall designate a corporate applications engineer as a Synario
point of contact for backup technical support.
7.3 COPY PROTECTION. Synario shall use its best efforts consistent with
general industry standards to ensure that its copy protection software
adequately protects Synopsys' Intellectual Property Rights in the Licensed
Software and prevents unauthorized copying of the Licensed Software.
Synario shall provide information as reasonably requested by Synopsys to
ensure compliance by Synario with the requirements of this Section 7.3.
8. ENGINEERING
In order for Synario to act as an OEM of the Licensed Software, certain
engineering tasks (set forth in Exhibit C, as may be amended from time to
time as mutually agreed) must first be performed by both parties. The
parties agree to act diligently in completing their respective projects and
providing written acceptance criteria and test cases in accordance with the
schedule set forth in Exhibit C hereto. If Synario has not provided a
written acceptance or non-acceptance notice within CONFIDENTIAL ( ) days
of receipt of the pre-production technically effective, release quality
("Pre-Production") Licensed Software
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and CONFIDENTIAL and CONFIDENTIAL Optimizers, as described in Exhibits A
and C, and within two (2) days of receipt of the production, technically
effective, release quality ("Production") Licensed Software and
CONFIDENTIAL and CONFIDENTIAL Optimizers, as described in Exhibits A and C,
the Licensed Software shall be deemed accepted by Synario. If Synopsys
fails to deliver Production Licensed Software to Synario by CONFIDENTIAL,
Synario shall have the right to immediately terminate this Agreement upon
written notice to Synopsys and Synopsys shall refund the Pre-Payment to
Synario within CONFIDENTIAL ( ) days of such notice.
9. TERM AND TERMINATION
9.1 TERM. This Agreement shall commence as of the Effective Date and shall
expire on the later of the end of Period 2 or March 31, 1999, unless
terminated earlier as provided herein. Notwithstanding the foregoing,
provided the Agreement is still in effect, Synario has the option, on the
same terms as specified in this Agreement, to extend the initial term of
the Agreement for one (1) year, and an option, on mutually agreeable terms,
to extend the Agreement for an additional two (2) years. If Synario
decides to extend the term of this Agreement beyond the initial term,
Synario shall provide Synopsys CONFIDENTIAL ( ) days' written notice. The
parties shall each execute and deliver to the other an amendment to this
Agreement in which the parties agree on the period of extension and such
other changes in the terms of this Agreement as may be mutually agreeable.
9.2 EARLY TERMINATION. Should CONFIDENTIAL, then either Synopsys or Synario
may elect early termination of this Agreement. The notice of termination
will be effective at the end of the quarter in which written notice is
given. The phase-out period, as described in Section 9.4, would begin as
of the effective date of the notice of termination.
9.3 TERMINATION FOR CAUSE. Either party has the right to terminate this
Agreement immediately upon written notice at any time if
(a) the other party breaches or is in default of any obligation hereunder,
which default is incapable of cure or which, being capable of cure, has not
been cured within thirty (30) days after receipt of written notice from the
nondefaulting party or within such additional cure period as the
nondefaulting party may authorize; or
(b) the other party: (i) becomes insolvent; (ii) fails to pay its debts
or perform its obligations in the ordinary course of business as they
mature; (iii) admits in writing its insolvency or inability to pay its
debts or perform its obligations as they mature; or (iv) makes an
assignment for the benefit of creditors.
9.4 EFFECT OF TERMINATION. Upon the effective date of any notice of
termination of this Agreement for material breach by Synario under Section
9.3, Synario shall immediately cease all manufacturing and distribution of
the Licensed Software and all then-current monies due to Synopsys for
Licensed Software automatically will be accelerated so they
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become due and payable on the effective date of termination. If expiration
or termination occurs for any reasons other than breach by Synario under
Section 9.3, there shall be a phase-out period of CONFIDENTIAL ( ) months,
after expiration or termination to allow for reasonable transition. During
the phase-out period Synario will receive Updates and Bug Fixes as
described in Section 6.3. Synario may continue to sell the Licensed
Software pursuant to the terms and conditions of the End User License
Agreement during the phase-out period and until it no longer has any
Licensed Software in its inventory. Termination will not relieve either
party from any liability arising from any breach of this Agreement. At the
end of the phase-out period, all existing Synario maintenance agreements
for the Licensed Software shall be transferred to Synopsys. At the end of
such phase out period, Synario shall destroy or render ineffective any
authorization codes for the Licensed Software. Neither party will be
liable to the other for damages of any sort solely as a result of
terminating this Agreement in accordance with its terms. Termination of
this Agreement will be without prejudice to any other right or remedy of
either party. The provisions of Sections 4, 5, 9, 10, 11, 13 and 14 shall
survive the expiration or termination of this Agreement for any reason. All
End User sublicenses in effect prior to the date of expiration or
termination of this Agreement shall survive. All other rights and
obligations of the parties shall cease upon expiration or termination of
this Agreement.
10. LIMITATION OF LIABILITY
10.1 DIRECT DAMAGES. EACH PARTY'S LIABILITY ARISING OUT OF THIS AGREEMENT
AND/OR SALE OF THE LICENSED SOFTWARE SHALL BE LIMITED TO THE AMOUNTS PAID
BY SYNARIO FOR THE LICENSED SOFTWARE.
10.2 CONSEQUENTIAL DAMAGES. NEITHER PARTY SHALL BE LIABLE TO THE OTHER PARTY OR
ANY THIRD PARTIES FOR ANY SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES
ARISING IN ANY WAY OUT OF THIS AGREEMENT OR THE USE OF THE LICENSED
SOFTWARE AND DOCUMENTATION, HOWEVER CAUSED, (WHETHER ARISING UNDER A THEORY
OF CONTRACT, TORT (INCLUDING NEGLIGENCE); OR OTHERWISE), INCLUDING, WITHOUT
LIMITATION, DAMAGES FOR LOST PROFITS, LOSS OF DATA, OR COSTS OF PROCUREMENT
OF SUBSTITUTE GOODS OR SERVICES. THE LIMITATIONS ON EITHER PARTY AND ANY
THIRD PARTY LIABILITY SET FORTH IN THIS SECTION 10 SHALL APPLY
NOTWITHSTANDING THE FAILURE OF ESSENTIAL PURPOSE OF ANY OF THE LIMITED
REMEDIES SET FORTH IN SECTION 5.1 ABOVE.
11. CONFIDENTIALITY
11.1 CONFIDENTIALITY. Each party shall treat as confidential all Confidential
Information of the other party, shall not use such Confidential Information
except as expressly set forth herein or otherwise authorized in writing,
shall implement reasonable procedures to
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prohibit the disclosure, unauthorized duplication, misuse or removal of the
other party's Confidential Information and shall not disclose such
Confidential Information to any third party without the prior written
consent of the disclosing party. Without limiting the foregoing, each
party shall use at least the same procedures and degree of care that it
uses to prevent the disclosure of its own Confidential Information of like
importance to prevent the disclosure of Confidential Information disclosed
to it by the other party under this Agreement, but in no event less than
reasonable care.
11.2 NO BENCHMARKS DISCLOSURE. Synario agrees not to disclose, except subject
to a non-disclosure agreement signed by its customer, or publish
performance benchmarking results involving FPGA Express.
12. MARKETING
12.1 TRADEMARK USE. During the term of this Agreement, Synario is authorized by
Synopsys to use on a non-exclusive basis the trademarks Synopsys uses for
its standard FPGA Express product only in connection with Synario's
advertisement, promotion and distribution of the Licensed Software.
Synario's use of such trademarks shall be in accordance with generally
accepted trademark usage guidelines and shall reference the trademarks as
being owned by Synopsys. Synopsys shall immediately notify Synario if
Synopsys determines that Synario's use of the such trademarks conflicts
with generally accepted trademark usage guidelines and will allow Synario
thirty (30) days to correct such conflict.
12.2 PROMOTION. Synario shall prominently display and promote the Licensed
Software. Synario and Synopsys will cooperate in product promotions, press
releases, trade shows and the like. The parties agree to jointly
coordinate all press releases issued under this Agreement. Each party must
review and agree to the text of any public announcement related to this
Agreement prior to its release, which agreement will not be unreasonably
withheld.
13. INFRINGEMENT INDEMNITY
13.1 INDEMNITY. Synopsys agrees, at its own expense, to defend or, at its
option, to settle, any claim or action brought against Synario to the
extent it is based on a claim that the Licensed Software as delivered to
Synario infringes or violates any United States or Canadian patent,
copyright, trademark, trade secret or other proprietary right of a third
party, and Synopsys will indemnify and hold Synario harmless from and
against any damages, costs and fees reasonably incurred (including
reasonable attorneys' fees) that are attributable to such claim or action
and which are assessed against Licensee in a final judgment or settlement.
Synario agrees that Synopsys shall be released from the foregoing
obligation unless Synario provides Synopsys with: (i) prompt written
notification of the claim or action; (ii) sole control and authority over
the defense or settlement thereof; and (iii) all reasonably available
information, assistance and authority to settle and/or defend any such
claim or action.
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13.2 LIMITED REMEDIES. If the Licensed Software becomes, or in the opinion of
Synopsys is likely to become, the subject of an infringement claim or
action, Synopsys may at its sole option: (i) procure, at no cost to
Synario, the right to continue using the Licensed Software; (ii) replace or
modify the Licensed Software to render it noninfringing, provided there is
no material loss of functionality; or (iii) if, in Synopsys' reasonable
opinion, neither (i) nor (ii) above are commercially feasible, terminate
the license and refund the amounts Synario paid for such Licensed Software
as depreciated on a straight-line sixty (60) month basis.
13.3 EXCEPTIONS. Synopsys will have no liability under this Section 13 for any
claim or action where: (i) such claim or action would have been avoided but
for modifications of the Licensed Software, or portions thereof, made after
delivery to Synario; (ii) such claim or action would have been avoided but
for the combination or use of the Licensed Software, or portions thereof,
with other products, processes or materials; (iii) Synario continues
allegedly infringing activity after being notified thereof or after being
informed of modifications that would have avoided the alleged infringement;
or (iv) Synario's use of the Licensed Software is not strictly in
accordance with the terms of this Agreement.
13.4 DISCLAIMER. THE FOREGOING PROVISIONS OF THIS SECTION 13 STATE THE ENTIRE
LIABILITY AND OBLIGATIONS OF SYNOPSYS AND ITS LICENSORS, AND THE EXCLUSIVE
REMEDY OF SYNARIO, WITH RESPECT TO ANY ACTUAL OR ALLEGED INFRINGEMENT OF
ANY INTELLECTUAL PROPERTY RIGHTS BY THE LICENSED SOFTWARE AND
DOCUMENTATION.
14. GENERAL PROVISIONS
14.1 CHOICE OF LAW. The rights and obligations of the parties under this
Agreement shall not be governed by the 1980 U.N. Convention on Contracts
for the International Sale of Goods. This Agreement will in all respects
be interpreted and construed in accordance with, and governed by, the laws
of the State of California excepting that body of California law concerning
conflicts of law provisions, regardless of the place of execution or
performance of this Agreement.
14.2 JURISDICTION. The federal and state courts within Santa Clara County,
California shall have exclusive jurisdiction to adjudicate any dispute
arising out of this Agreement and brought by Synario, and the federal and
state courts within King County, Washington shall have exclusive
jurisdiction to adjudicate any dispute arising out of this Agreement and
brought by Synopsys. Each party hereto expressly consents to the personal
jurisdiction of, and venue in, such courts and service of process being
effected upon it by registered mail and sent to the address set forth at
the beginning of this Agreement.
14.3 ASSIGNMENT. This Agreement shall not be assigned, transferred or
subcontracted in whole or in part by either party without the prior written
consent of the other party; such written consent shall not be unreasonably
withheld. However, either party may assign all or a
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portion of its rights and duties hereunder to companies wholly owned or in
common ownership with such party, or to a buyer of all or substantially
all of such party's assets relevant to such party's performance under this
Agreement. Subject to the foregoing restrictions, this Agreement will
bind and benefit the parties and their successors and assigns.
14.4 NOTICES. Any notice, report, approval or consent required or permitted
hereunder shall be in writing and will be deemed to have been duly given
if delivered personally, by facsimile, or mailed by first-class,
registered or certified mail, postage prepaid to the respective addresses
of the parties as set forth in this Agreement. If to Synopsys, Attention:
General Counsel. If to Synario, Attention: Senior Vice President, CC:
Contracts Administrator.
14.5 NO WAIVER. Failure by either party to enforce any provision of this
Agreement will not be deemed a waiver of future enforcement of that or any
other provision.
14.6 INDEPENDENT CONTRACTORS. The relationship of Synopsys and Synario
established by this Agreement is that of independent contractors, and
nothing contained in this Agreement shall be construed (i) to give either
party the power to direct or control the day-to-day activities of the
other or (ii) to constitute the parties as partners, joint venturers, co-
owners or otherwise as participants in a joint or common undertaking.
14.7 SEVERABILITY. If for any reason a court of competent jurisdiction finds
any provision of this Agreement, or portion thereof, to be unenforceable,
that provision of the Agreement will be enforced to the maximum extent
permissible so as to effect the intent of the parties, and the remainder
of this Agreement will continue in full force and effect.
14.8 ATTORNEYS' FEES. The prevailing party in any action to enforce the
Agreement shall be entitled to recover costs and expenses including,
without limitation, reasonable attorneys' fees.
14.9 INJUNCTIVE RELIEF. The parties agree that a material breach of this
Agreement adversely affecting either party's Intellectual Property Rights
would cause irreparable injury for which monetary damages would not be an
adequate remedy and the non-breaching party shall be entitled to equitable
relief in addition to any remedies it may have hereunder or at law.
14.10 FORCE MAJEURE. Except for the obligation to make payments hereunder,
nonperformance of either party shall be excused to the extent that
performance is rendered impossible by strike, fire, flood, governmental
action, failure of suppliers, earthquake, or any other reason where
failure to perform is beyond the reasonable control of the nonperforming
party.
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14.11 EXPORT CONTROLS. Synario agrees and certifies that neither the Licensed
Software, nor any other technical data received from Synopsys will be
exported or re-exported outside the United States except as authorized and
as permitted by the laws and regulations of the United States and that the
country of origin wherein Synario manufactures the Licensed Software and
Documentation is stated in Section 3.4.
14.12 ENTIRE AGREEMENT. This Agreement, including all Exhibits, constitutes the
entire agreement between the parties with respect to the subject matter
hereof, and supersedes all prior agreements or representations, oral or
written, regarding such subject matter. This Agreement may not be
modified or amended except in a writing signed by a duly authorized
representative of both parties.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by
their duly authorized representatives:
SYNARIO DESIGN AUTOMATION, SYNOPSYS, INC.
A DIVISION OF DATA I/O
CORPORATION
By: //S// William C. Erxleben By: //S// Sanjiv Kaul
------------------------------ ------------------------------
Name: William C. Erxleben Name: Sanjiv Kaul
------------------------------- ----------------------------
(Print) (Print)
Title: Pres/CEO Title: VP of Marketing
------------------------------ -----------------------
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EXHIBIT A
LICENSED SOFTWARE DESCRIPTION AND SPECIFICATIONS
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EXHIBIT B
MINIMUM PURCHASE COMMITMENT, TARGET PURCHASES
AND
LICENSED SOFTWARE LICENSE AND MAINTENANCE FEES
1. MINIMUM PURCHASE COMMITMENT
Subject to Section 8 and the other terms of the Agreement, Synario agrees
to the following CONFIDENTIAL commitments for Licensed Software sales
during Period 1:
PERIOD 1
CONFIDENTIAL
CONFIDENTIAL
CONFIDENTIAL
Dollar Commitment $1,380,000
2. TARGET PURCHASES
Target Purchase shall be as follows during Periods 2 and 3:
PERIOD 2 PERIOD 3
CONFIDENTIAL
CONFIDENTIAL
CONFIDENTIAL
Dollar Targets $CONFIDENTIAL $CONFIDENTIAL
3. PER UNIT LICENSE AND MAINTENANCE FEES
The per unit license and maintenance fees for the Base Unit and for
options (other than first language and one (1) optimizer) shall be as
follows:
License Fee Maintenance
----------- -----------
(a) Base Unit of OEM FPGA Express $CONFIDENTIAL $CONFIDENTIAL
(b) Second Language Option $CONFIDENTIAL $CONFIDENTIAL
(c) Each Additional Optimizer $CONFIDENTIAL $CONFIDENTIAL
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(d) License fees paid to Synopsys for Base Units (first language and one
(1) optimizer) sold above the annual Minimum Purchase Commitment and
the Target Purchases and for upgrade units, as described below, shall
be:
License Fee Maintenance
----------- -----------
Base Unit of OEM FPGA Express $CONFIDENTIAL $CONFIDENTIAL
The license and maintenance fees set forth above are based on Synopsys'
North America list prices of $for FPGA Express Base System and one (1)
Optimizer, and $CONFIDENTIAL for second language and each additional
Optimizer and shall be proportionately adjusted as described in
Section 4.2.
License fees specified are for node-locked versions of Licensed Software
only. License fees for floating network versions of Licensed Software
shall be increased at the same percentage as the difference on the
then-current Synario price list between node-locked and network versions of
its PC products. Synario's current price list is set forth in Exhibit F
hereto.
Synario may offer its existing customer base an option to replace installed
design synthesis software with the Licensed Software. Synopsys will not
accept returns of the synthesis software being replaced. The license fee
for this upgrade shall be as specified in 3(d) above. All units sold in
accordance with this upgrade program shall be listed separately in the
regular monthly sales reports to Synopsys and shall count toward the annual
Unit forecast.
Synario shall not receive any additional discounts on sales of Licensed
Software to universities or educational institutions.
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EXHIBIT C
ENGINEERING SCHEDULE
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EXHIBIT D
DATA I/O-Registered Trademark- CORPORATION SOFTWARE LICENSE AGREEMENT
This is a legal agreement ("Agreement") between you (either an individual or an
entity) and Data I/O Corporation. By opening the sealed software package(s)
and/or documentation or by using any or all of the software and/or
documentation, you agree to be bound by the terms of this Agreement. If you do
not agree to the terms of this Agreement, promptly return the unopened software
package(s) and documentation to the place of purchase and you will receive a
refund.
1. LICENSE GRANT. Data I/O Corporation ("Data I/O") and/or its suppliers grant
you a non-exclusive license to use the program diskettes, magnetic tape, compact
disk or other medium and the computer software contained therein in object code
form (collectively, the "Software") and the accompanying user documentation,
only as authorized in this Agreement. This Agreement is your proof of license
to exercise the rights granted herein and must be retained by you. In the event
you are licensed to use restricted version(s) of Data I/O's and/or its
supplier's Software, you are only authorized to use such restricted version(s).
2. RESTRICTIONS ON USE AND TRANSFER. You may use the Software on only one (1)
computer at a time; provided, however, if Data I/O provides you with additional
activation codes and/or written authorization to permit use of the Software on
more than one (1) computer, on a single server or in a local area network such
use shall be restricted to the number of computers for which activation codes
and/or written authorization are provided. You may not transfer, lease, rent,
or share your rights under this Agreement, except you may permanently transfer
all your rights to use the Software and documentation, provided you transfer
this Agreement and all copies of the Software and documentation to an end user
who agrees to be bound by the terms of this Agreement and you notify Data I/O of
any such transfer. The Software and documentation are confidential and
proprietary to Data I/O and/or its suppliers. You agree not to disclose or
provide the Software, documentation, or any other non-public information
relating to the Software to any other party without Data I/O's and/or its
suppliers' written permission. You may not copy, modify, reverse engineer,
decompile or disassemble the Software, except you may make one backup or
archival copy of the Software. You may not copy the documentation or publish
benchmark data regarding the Software without the prior written consent of
Data I/O. You may not alter or obscure any copyright, trademark or proprietary
rights notices on the Software or documentation. You must comply with all
applicable laws and regulations regarding the use and/or export of the Software
and documentation.
3. DATA I/O'S RIGHTS. You acknowledge and agree that the Software and
documentation consist of proprietary products of Data I/O and/or its suppliers,
protected under U.S. copyright law and other intellectual property laws and
international treaty provisions. You further acknowledge and agree that all
right, title and interest in and to the Software and documentation are and shall
remain with Data I/O and/or its suppliers.
4. TERM. This Agreement is effective upon your opening the sealed Software
package(s) and/or documentation, or by your use of the Software and/or
documentation and shall continue until terminated. You may terminate this
Agreement at any time by returning all copies of the Software and documentation
to the place of purchase. Data I/O may terminate this Agreement if you breach
this Agreement, and you agree to then return all copies of the Software and
documentation.
5. LIMITED WARRANTY. Data I/O warrants that the Software will perform
substantially in accordance with the accompanying documentation for a period of
ninety (90) days from the date of receipt. Any implied warranties on the
Software are limited to ninety (90) days. SOME STATES/JURISDICTIONS DO NOT
ALLOW
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LIMITATIONS ON DURATION OF AN IMPLIED WARRANTY, SO THE ABOVE LIMITATION MAY NOT
APPLY TO YOU.
6. REMEDIES. The entire liability of Data I/O and/or its suppliers and your
exclusive remedy shall be, at Data I/O's option, either (a) return of the
license fee you paid or (b) repair or replacement of the Software that does not
meet Data I/O's Limited Warranty and that is returned to the place of purchase
with a copy of your receipt. This Limited Warranty is void if failure of the
Software has resulted from accident, abuse, or misapplication. Any replacement
Software will be warranted for the remainder of the original warranty period or
thirty (30) days, whichever is longer. YOU AGREE THAT THE FOREGOING
CONSTITUTES YOUR SOLE AND EXCLUSIVE REMEDY FOR BREACH BY DATA I/O AND/OR ITS
SUPPLIERS OF ANY WARRANTIES MADE UNDER THIS AGREEMENT. EXCEPT FOR THE
WARRANTIES SET FORTH ABOVE, THE SOFTWARE AND DOCUMENTATION ARE LICENSED "AS IS,"
AND DATA I/O AND/OR ITS SUPPLIERS DISCLAIM ANY AND ALL OTHER WARRANTIES, WHETHER
EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION, ANY IMPLIED WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
7. LIMITATION OF LIABILITY. The cumulative liability of Data I/O and/or its
suppliers to you or any other party for any loss or damages resulting from any
claims, demands, or actions arising out of or relating to this Agreement shall
not exceed the license fee you paid for the use of the Software and
documentation. In no event shall Data I/O and/or its suppliers be liable for
any indirect, incidental, consequential, special, or exemplary damages, loss of
business profits, business interruption, or loss of business information, even
if advised of the possibility of such damages. SOME STATES/JURISDICTIONS DO NOT
ALLOW THE LIMITATION OR EXCLUSION OF LIABILITY FOR INCIDENTAL OR CONSEQUENTIAL
DAMAGES, SO THE ABOVE LIMITATION OR EXCLUSION MAY NOT APPLY TO YOU.
8. GOVERNING LAW. This Agreement shall be construed and governed in accordance
with the laws of the State of Washington, U.S.A, and the exclusive jurisdiction
and venue of any lawsuit pertaining to this Agreement shall be the state or
federal courts in King County, Washington U.S.A.
9. U.S. GOVERNMENT RESTRICTED RIGHTS. The Software and documentation are
provided with Restricted Rights. Use, duplication, or disclosure by the
Government is subject to restrictions as set forth in subparagraph (c)(1)(ii) of
the Rights in Technical Data and Computer Software clause at DFARS 252.227-7013
or subparagraphs (c)(1) and (2) of the Commercial Computer Software - Restricted
Rights at 48 CFR 52.227-19, as applicable. Contractor/manufacturer is Data I/O
Corporation, 10525 Willows Road, N.E., Redmond, WA 98073-9746.
If you have any questions about this Agreement, please write Data I/O
Corporation, P.O. Box 97046, Redmond, Washington 98073-9746.
EUA0896
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EXHIBIT E
API CONTENT SPECIFICATION
CONFIDENTIAL
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EXHIBIT F
SYNARIO PRICE LIST
(As of September 1, 1996)
CONFIDENTIAL
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EXHIBIT 10.32
PURCHASE AND SALE AGREEMENT
THIS PURCHASE AND SALE AGREEMENT (the "Agreement") is by and between DATA
I/O CORPORATION, a Washington corporation ("Seller"), and CONFIDENTIAL, a
CONFIDENTIAL corporation,("Purchaser").
RECITALS
A. Seller is the owner of that certain real property situated in the City
of Redmond, County of King, State of Washington located at 10525 Willows Road
N.E.
B. Seller desires to sell and Purchaser desires to purchase the property,
together with all improvements thereon, on the following terms and conditions.
AGREEMENTS
Therefore, in consideration of the mutual promises and covenants contained in
this Agreement and other good and valuable consideration, the receipt and
sufficiency of which are acknowledged, Seller and Purchaser agree:
1. THE PROPERTY. Subject to the terms and conditions in this Agreement,
Seller shall sell and convey to Purchaser, and Purchaser shall purchase from
Seller the following:
(a) the approximately seventy-nine (79) acres of real property
legally described in EXHIBIT 1(A) attached hereto and incorporated herein by
this reference located in King County, Washington, together with all of Seller's
right, title, and interest in and to any rights, licenses, privileges,
reversions, and easements appurtenant to the real property including, without
limitation, all mineral, oil, gas, and other hydrocarbon substances on and under
the real property, all development rights, air rights, water, water rights and
water stock relating to the real property, and any easements, rights-of-way, or
appurtenances used in connection with the beneficial use and enjoyment of the
real property (collectively the "Real Property");
(b) the 3-story office building located on the Real Property
(hereinafter referred to as the "Building") consisting of approximately ninety-
six thousand (96,000) gross square feet; all structures and parking facilities
located on the Real Property; all systems, equipment, and fixtures in the
Building or structures; all improvements and fixtures owned by Seller located in
the Building or structures including, without limitation, all apparatus,
equipment, and appliances used in connection with the operation or occupancy of
the Building or structures, the plumbing, heating, air-conditioning, and
electrical equipment facilities used to provide any utility services or other
services to the Building or structures, and elevators (hereinafter referred to
collectively as the "Improvements"); excluding all engineering, manufacturing,
and business process systems, equipment, gear, and materials and excluding but
not limited to the systems, equipment, and fixtures listed in EXHIBIT 1(b)
attached hereto and incorporated herein by this reference (collectively the
"Retained Equipment") all of which shall be retained by Seller and/or its
suppliers and removed by Seller when it vacates the Building; and
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(c) all transferable applications, licenses, permits, certificates,
and franchises issued by any federal, state, or local authorities relating to
the use, maintenance, occupancy or operation of the Real Property, the Building,
and the Improvements; all reports and studies, including physical and
engineering inspections, soil studies, utility and zoning studies, traffic
studies, and wetland studies; all books and records relating to the Real
Property and Improvements (excluding any materials related to any offers to
purchase, sell or lease the Real Property or Improvements and any materials
produced by or for Seller related to its analysis of the Real Property or
Improvements) and all plans and specifications, warranties and indemnities
relating to the Improvements; and all surveys relating to the Real Property
(hereinafter referred to collectively as the "Documents".)
The Real Property, Improvements, and Documents shall be referred to collectively
as the "Property".
2. PURCHASE AND SALE.
2.1 PURCHASE PRICE. Seller shall sell and Purchaser shall purchase
the Property for a purchase price of Fourteen Million and No/100 United States
Dollars (U.S. $14,000,000.00) (the "Purchase Price").
2.2 ALLOCATION OF PURCHASE PRICE. The Purchase Price shall be
allocated as follows:
Improvements and Real Property
related to the Building: $CONFIDENTIAL
Other Real Property: $CONFIDENTIAL
--------------
Total Purchase Price: $14,000,000.00
--------------
--------------
2.3 PAYMENT OF PURCHASE PRICE. The Purchase Price shall be payable
as follows:
2.3.1 EARNEST MONEY. Within one (1) business day after the full
execution of this Agreement, Purchaser shall deposit in cash with CONFIDENTIAL
("Escrow Agent") Purchaser's earnest money deposit in the amount of CONFIDENTIAL
Dollars (U.S. $ ) (the "Earnest Money"). For the purposes of this Agreement,
the term "Retention Amount" shall mean $ CONFIDENTIAL as of the sixty-first day
after the date of this Agreement, $ CONFIDENTIAL as of the ninety-first day
after the date of this Agreement, $ CONFIDENTIAL as of the one hundred twenty-
first day after the date of this Agreement, and $ CONFIDENTIAL as of the one
hundred fifty-first day after the date of this Agreement. If the Purchaser
terminates this Agreement for any reason other than Seller's breach or pursuant
to Sections 3.3, 8.2(e), 8.2(g), 8.2(h) or 9, the Earnest Money, less the
Retention Amount, shall be paid to the Purchaser and the Retention Amount shall
be paid to the Seller. If Purchaser terminates this Agreement during the Phase
I Contingency Period (defined below) or by reason of Seller's
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breach or pursuant to Sections 3.3, 8.2(e), 8.2(g), 8.2(h) or 9, the Earnest
Money, including any portion deemed to be the Retention Amount, shall be paid to
Purchaser. The Escrow Agent shall immediately pay to Seller the Earnest Money
if Purchaser breaches any of the terms of this Agreement through no fault of
Seller.
2.3.2 BALANCE OF PURCHASE PRICE. The Purchase Price, less the
Earnest Money paid by Purchaser, shall be payable on the Closing Date (defined
below) by wire transfer to an account to be specified by Seller on the Closing
Date.
3. TITLE.
3.1 SELLER'S TITLE. At the Closing Date, Seller shall convey to
Purchaser fee simple title to the Property by duly executed and acknowledged
statutory warranty deed, free and clear of all defects and encumbrances and
subject only to those exceptions that Purchaser shall approve pursuant to this
Agreement (the "Deed").
3.2 TITLE REPORT. Within ten (10) business days after the date of
this Agreement, Seller shall deliver to Purchaser a preliminary commitment for
an ALTA owner's extended coverage title insurance policy, issued by CONFIDENTIAL
(the "Title Company"), describing the state of title of the Real Property (the
"Title Report") together with copies of all exceptions and encumbrances referred
to in the Title Report relating to the Real Property, and the Survey (defined
below). Seller shall assume any cancellation fee for such Title Report.
3.3 APPROVAL OF TITLE REPORT. During the first fifteen (15) days of
the Phase I Contingency Period, Purchaser shall review title to the Property as
disclosed by the Title Report, the Survey and the UCC searches (the UCC searches
shall be conducted by Purchaser) and shall provide Seller with written notice of
its approval or disapproval of the Title Report, the Survey and the UCC
searches. Failure to provide such notice shall be deemed an approval of such
Title Report, Survey and UCC searches. Seller will cooperate with Purchaser in
curing any objections Purchaser may have to title to the Property. Seller shall
have no obligation to cure title objections except liens of an ascertainable
amount created by, under or through Seller, which liens Seller shall cause to be
released at the Closing. Seller agrees to remove any exceptions or encumbrances
to title which are created by, under or through Seller after the date of this
Agreement. Purchaser may terminate this Agreement and receive a full refund of
the Earnest Money if the Title Company revises the Title Report after the
expiration of the first fifteen (15) days of the Phase I Contingency Period to
materially add or modify exceptions or to materially modify the conditions to
obtaining any of Purchaser's Endorsements (defined below) and if Seller is
unable to cure any objections that Purchaser has to any such additions or
modifications within thirty (30) days after written notice from Purchaser. The
term "Permitted Exceptions" shall mean the specific exceptions (exceptions that
are not part of the promulgated title insurance form) in the title commitment
that the Title Company has not agreed to insure over or remove from the title
commitment and that Seller is not required to remove as provided above; real
estate taxes not yet due and payable; and Data I/O Corporation as a tenant in
possession under the Lease (defined below) without any option to purchase or
acquire an interest in the Property.
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3.4 TITLE POLICY. Seller shall cause Title Company to issue to
Purchaser at the Closing Date an ALTA extended coverage policy of title
insurance insuring Purchaser's title to the Real Property in the full amount of
the Purchase Price, containing Purchaser's Endorsements, and subject only to the
Permitted Exceptions (hereinafter referred to as the "Title Policy").
"Purchaser's Endorsements" shall mean, to the extent such endorsements are
available under the laws of the state in which the Property is located and which
the Title Company has committed to insure as of the end of the first fifteen
(15) days of the Phase I Contingency Period: (1) owner's comprehensive; (2)
access; (3) survey (accuracy of survey); (4) location (survey legal matches
title legal); (5) separate tax lot; (6) legal lot; (7) zoning 3.1, with parking
and loading docks; and (8) such other endorsements as the Purchaser shall
reasonably require. Seller shall pay the cost of the premiums attributable to
the standard coverage title policy and Purchaser shall pay the cost of the
premiums attributable to the extended coverage title policy and any Purchaser's
Endorsements. The Title Policy shall be dated as of the Closing Date and shall
contain the Purchaser's Endorsements. If the Title Company informs Seller and
Purchaser during the first fifteen (15) days of the Phase I Contingency Period,
in writing, that the Title Company is unwilling or unable to issue any of the
Purchaser's Endorsements or additional coverages, Purchaser shall have the right
to terminate this Agreement in which event the Earnest Money shall be delivered
to Purchaser, all documents deposited with the Escrow Agent shall be returned to
the depositing party, and the parties shall have no further obligations or
liabilities to each other except as otherwise provided in this Agreement.
4. REPRESENTATIONS, WARRANTIES, AND COVENANTS.
4.1 REPRESENTATIONS OF SELLER. Seller hereby represents and warrants
to Purchaser as follows:
(a) Seller is a corporation duly organized and validly existing
under the laws of Washington State; this Agreement and all documents executed by
Seller that are to be delivered to Purchaser at the Closing Date are or at the
time of the Closing Date will be (i) duly authorized, executed and delivered by
Seller, (ii) legal, valid and binding obligations of Seller, (iii) sufficient to
convey title (if they purport to do so) and in compliance with all provisions of
all agreements and judicial orders to which Seller is a party or to which Seller
or all or any portion of the Property is subject.
(b) There is not now pending or, to the best of Seller's
knowledge, threatened, any action, suit or proceeding before any court or
governmental agency or body against the Seller that would prevent Seller from
performing its obligations hereunder or against or with respect to the Property.
To Seller's knowledge, no condemnation, eminent domain or similar proceedings
are pending or threatened with regard to the Property. Seller has not received
any formal notice of any pending or threatened liens, special assessments,
impositions or increases in assessed valuations to be made against the Property,
except as described in EXHIBIT 4.1(b) attached hereto and incorporated herein by
this reference.
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(c) Seller has all licenses, permits and certificates necessary
for the use and operation of the Building, including without limitation, all
certificates of occupancy necessary for the occupancy of the Building. To
Seller's knowledge, neither the Building nor the use thereof violates any
governmental law or regulation or any covenants or restrictions encumbering the
Building; and, to Seller's knowledge, there are no material physical defects in
the Improvements. Seller has not received any written notice from any insurance
company or underwriter of any defects that would materially adversely affect the
insurability of the Building or cause an increase in insurance premiums. Seller
has not received, nor is aware of, any notices of violations or alleged
violations of any laws, rules, regulations or codes, including building codes,
with respect to the Building which have not been corrected to the satisfaction
of the issuer of the notice.
(d) Seller has no knowledge of any violation of Environmental
Laws related to the Property or the presence or release of Hazardous Materials
on or from the Property except in conformance with Environmental Laws or as may
be disclosed in EXHIBIT 4.1(d) attached hereto and incorporated herein by this
reference. Seller, to Seller's knowledge, has not manufactured, introduced,
released, discharged, generated, treated, stored, handled or disposed of any
Hazardous Materials from or onto the Property, in violation of any Environmental
Laws, except as may be disclosed in EXHIBIT 4.1(d). The term "Environmental
Laws", includes, without limitation, the Resource Conservation and Recovery Act
and the Comprehensive Environmental Response Compensation and Liability Act and
other federal laws regulating Hazardous Materials as in effect on the date of
this Agreement, together with their implementing regulations, guidelines, rules
or orders as of the date of this Agreement, and all state, regional, county,
municipal and other local laws, regulations, ordinances, rules or orders that
are equivalent or similar to the federal laws recited above or that purport to
regulate Hazardous Materials. The term "Hazardous Materials" includes
petroleum, including crude oil or any fraction thereof, natural gas, natural gas
liquids, liquefied natural gas, or synthetic gas usable for fuel (or mixtures of
natural gas or such synthetic gas), and any substance, material, waste,
pollutant or contaminant listed or defined as hazardous or toxic under any
Environmental Law.
(e) All water, sewer, gas, electric, telephone, and drainage
facilities, and other utilities required for the normal and proper operation of
the Building are installed and connected to the Building with valid permits, and
are adequate to serve the Building for its current use and to permit full
compliance with all requirements of law. All permits and connection fees are
fully paid and no action is necessary on the part of the Purchaser to transfer
such permits to it. To Seller's knowledge, all utilities serving the Building
enter it through publicly-dedicated roads or through currently effective public
or private easements. To Seller's knowledge, no fact or condition exists which
would result in the termination of such utilities services to the Building.
(f) The Real Property is a separately taxed, duly subdivided,
independent unit.
(g) Seller's sale of the Property is not subject to any federal,
state or local withholding obligation of Purchaser under the tax laws applicable
to Seller or the Property.
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(h) Seller is not and is not acting on behalf of an "employee
benefit plan" within the meaning of Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended, a "plan" within the meaning of Section
4975 of the Internal Revenue Code of 1986, as amended, or any entity deemed to
hold "plan assets" within the meaning of 29 C.F.R. Section 2510.3-101 of any
such employee benefit plan or plans.
(i) To Seller's actual knowledge, the reports, plans, and other
documents prepared by or on behalf of Seller and delivered by Seller to
Purchaser for review pursuant to Section 8.4 are materially true and correct.
All other reports, plans and other documents shall be provided to Purchaser
without representation or warranty from Seller, and Purchaser shall not be
entitled to rely on such reports, plans and other documents without the prior
written consent of the party which prepared such materials.
(j) Seller shall use its reasonable best efforts to obtain prior
to the Closing Date all necessary approvals from the U.S. Army Corps of
Engineers ("COE") for a wetland mitigation plan in order to fill the wetland
areas designated on EXHIBIT 4.1(j) attached hereto and incorporated herein by
this reference (the "Fill Area") in accordance with the letters issued by the
Seattle District of the COE on September 8, 1993 and August 3, 1995. Seller
shall also use its best efforts to obtain from the Washington State Department
of Ecology ("WSDOE") and the City of Redmond a Section 401 water quality
certification and wetland mitigation plan approval, respectively, in order to
perform the fill activity approved by the COE pursuant to the letters dated
September 8, 1993 and August 3, 1995 and any subsequent authorizations.
Purchaser recognizes, however, that the City of Redmond may not issue approvals
for filling the Fill Area even though the COE and WSDOE have granted approvals
for such filling until a complete site plan review application for development
of the Property is approved by the City of Redmond. If the necessary approvals
and permits are obtained and the weather and the time of year do not present
problems for construction of the wetland mitigation, Seller shall commence, as
soon as feasible, and thereafter diligently pursue to completion, but in no
event beyond the Closing Date, the wetland mitigation approved by COE, WSDOE,
and the City of Redmond and will provide Purchaser with status reports on the
wetland mitigation on a regular basis or as is appropriate. Seller shall have
no obligation to fill the Fill Area pursuant to the approved plans. At Closing,
Purchaser shall reimburse Seller for actual costs incurred in obtaining
approvals and implementing the approved wetland mitigation plan up to a maximum
of CONFIDENTIAL Dollars ($ ) The mitigation costs do not include the cost of
filling the Fill Area.
(k) To Seller's actual knowledge, the Real Property consists of
approximately seventy-nine (79) acres and the Building consists of approximately
96,000 gross square feet.
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4.2 REPRESENTATIONS OF PURCHASER. Purchaser hereby represents and
warrants to Seller as follows:
(a) Purchaser is a corporation duly organized and validly
existing under the laws of CONFIDENTIAL and is in good standing under the laws
of CONFIDENTIAL.
(b) This Agreement and all documents executed by Purchaser that
are to be delivered to Seller at the Closing Date are or at the time of the
Closing Date will be (i) duly authorized, executed, and delivered by Purchaser
(ii) legal, valid, and binding obligations of Purchaser and (iii) in compliance
with all provisions of all agreements and judicial orders to which Purchaser is
a party or to which it is subject.
(c) Purchaser shall use its reasonable best efforts to undertake
all studies and actions in order to complete the transaction contemplated by
this Agreement.
5. LIMITATION OF WARRANTIES. Except as otherwise expressly set forth in
Section 4.1, neither Seller nor any agent, representative, or employee of Seller
has made or is now making any other representations or warranties of any kind
whatsoever related to the physical condition of the Property, and if there are
any problems with the Property that are discovered subsequent to the Closing
Date, Seller shall have no responsibility and shall not be liable in any way for
such defects under this Agreement unless such defects constitute a breach of a
representation contained in Section 4.1, in which case Seller's obligation to
indemnify Purchaser shall be as set forth in Section 15. Purchaser is
conducting its own inspections and "due diligence" with respect to all physical
and other aspects of the Property. Upon reasonable notice and at mutually
agreeable times, Seller shall allow Purchaser reasonable access to Seller's
books, records, and the Property (subject to Section 8.2) to enable Purchaser to
complete such inspections. Purchaser shall be responsible for all costs of such
inspections and due diligence.
6. CLOSING.
6.1 CLOSING DATE AND LOCATION. This sale shall be closed in the
offices of the Escrow Agent in Seattle, Washington on a date which is the
earlier of (i) December 20, 1996, or (ii) ten (10) days following the date
Purchaser provides notice that the conditions described in Section 8.2 have been
waived or satisfied and all applicable appeal periods relating to the
Development Approvals (defined below) shall have passed (the "Closing Date").
Closing shall mean the consummation of this Agreement by the recording of all
instruments requiring recording, the rendering of all performances necessary to
the consummation of the purchase and sale, and delivery of other documents and
proceeds to the parties entitled thereto.
6.2 CLOSING INSTRUMENTS. Seller shall convey title to the Property
in the condition described in Section 3.1 by statutory warranty deed, duly
delivered, ready for recording and bill of sale. Seller shall further deliver:
evidence of authority satisfactory to the Title Company and Purchaser; such
affidavit as the Title Company may reasonably require to issue an extended
coverage policy; a certificate updating its representations and warranties to
the Closing Date; a Certificate of Non-Foreign Status in form and substance
reasonably acceptable to
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Purchaser; and the lease (the "Lease") (in the form attached hereto as EXHIBIT
6.2 and incorporated herein by this reference) and any deliveries required under
the Lease. Purchaser shall deliver a certificate updating its representations
and warranties to the Closing Date. Seller and Purchaser each shall deposit any
other instruments and documents that are reasonably required by the Escrow Agent
or otherwise required to close the escrow and consummate the purchase and sale
of the Property in accordance with this Agreement.
6.3 CLOSING COSTS AND EXPENSES.
6.3.1 SELLER'S CLOSING COSTS. At Closing, Seller shall pay
(a) one-half (1/2) of the escrow fee (b) any real estate excise or transfer
taxes (c) the premium for the policy of title insurance described in Section 3.2
attributable to standard coverage (d) recording and miscellaneous charges
customarily attributable to sellers in similar transactions (e) all attorneys'
and other fees incurred by Seller with respect to negotiating this Agreement and
in consummating the transaction contemplated herein and (f) the brokerage
commission of Cushman & Wakefield. One-half (1/2) of the costs of an ALTA
survey shall be paid by Seller prior to the end of the Phase I Contingency
Period.
6.3.2 PURCHASER'S CLOSING COSTS. Purchaser shall pay
(a) one-half (1/2) of the escrow fee (b) all necessary recording and
miscellaneous charges customarily attributable to purchasers in similar
transactions (c) the premium for the policy of title insurance described in
Section 3.2 attributable to extended coverage and the premium, fee, or charge
attributable to Purchaser's Endorsements and Seller's costs related to any
affidavit Seller may be required to sign pursuant to Section 6.2 and (d) all
attorneys' and other fees incurred by Purchaser with respect to negotiating this
Agreement and in consummating the transactions contemplated herein. One-half
(1/2) of the costs of an ALTA survey and the costs of the UCC searches shall be
paid by Purchaser prior to the end of the Phase I Contingency Period out of the
Phase I Funds (defined below).
Any other costs of Closing not specifically covered hereby shall be shared
equally by the parties.
6.4 PRORATIONS. Income, expenses, taxes for the current year, any
utilities constituting liens, local improvement district assessments, and all
similar assessments shall be prorated between Purchaser and Seller as of the
Closing Date, the Closing Date being a day of income and expense to Purchaser.
7. POSSESSION. On the Closing Date, Seller shall deliver possession of
the Property to Purchaser.
8. CONDITIONS PRECEDENT.
8.1 CONDITIONS PRECEDENT TO SELLER'S OBLIGATIONS. The obligations of
the Seller hereunder to sell the Property shall be subject to the fulfillment
and satisfaction of the following conditions, which conditions are for the
benefit of the Seller and may be waived only by a writing executed by Seller.
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(a) The approval of the transaction contemplated by this
Agreement by the Board of Directors of Seller by no later than the execution of
this Agreement.
(b) The representations of Purchaser set forth in Section 4.2
shall be true and correct, as of the Closing Date, with the same force and
effect as if made on the Closing Date.
(c) As of the Closing Date, Seller and Purchaser shall have
executed the Lease (in the form attached hereto as EXHIBIT 6.2).
8.2 CONDITION PRECEDENT TO THE PURCHASER'S OBLIGATIONS. The
obligations of the Purchaser hereunder shall be subject to the fulfillment and
satisfaction of the following conditions at the Purchaser's expense, which
conditions are for the benefit of the Purchaser and may be waived only by a
writing executed by the Purchaser.
(a) Purchaser shall have sixty (60) days after the execution of
the Purchase Agreement ("Phase I Contingency Period") to be satisfied in all
respects with its review of the items provided pursuant to Section 8.4, the
physical condition of the Property and the Property's suitability for
Purchaser's intended investment therein. If Purchaser is not satisfied in its
sole discretion with respect to any one or more of those matters, it may elect,
on or prior to the expiration of the Phase I Contingency Period, to terminate
the Agreement and recover its Earnest Money deposit, and any earnings thereon.
At the expiration of the Phase I Contingency Period, Purchaser shall remove all
contingencies with the exception of the Development Approvals which are to be
obtained during the Phase II Contingency Period (defined below).
(b) Purchaser shall have a period of approximately four (4)
months immediately following the expiration of the Phase I Contingency Period
("Phase II Contingency Period"), but in any event not extending beyond December
20, 1996, in order to consummate the transaction prior to the end of the
Seller's current fiscal year ending December 26, 1996, to prepare the necessary
plans and applications and to obtain site plan approval inclusive of a
concurrency certificate, SEPA Mitigated Determination of Non-Significance, and
design review board approval from the City of Redmond (collectively, the
"Development Approvals"). Seller shall reasonably cooperate with and assist
Purchaser in the approval process with the City of Redmond and any other
applicable entities and shall have the right to review and approve all
submittals and applications to the City of Redmond and other government
authorities regarding the Property, which approval shall not be unreasonably
denied or delayed. Such submittals and applications shall be deemed approved if
Seller has not approved or rejected the same within five (5) business days. In
the event Seller rejects such submittals and applications and the parties are
unable to agree on acceptable revisions, Purchaser shall be entitled to
terminate this Agreement and receive a full refund of the Earnest Money,
including any portion of the Earnest Money deemed to be the Retention Amount.
Within thirty (30) days after the expiration of the Phase I Contingency Period,
Purchaser shall use its best efforts to obtain a traffic study, prepare all of
the necessary plans and applications required for the submittals, and hold pre-
application meetings with the Technical Committee and the Design Review Board.
Immediately following this initial thirty (30) day period, Purchaser shall
commence its submittal of applications. If Purchaser gives
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Seller notice that it has been unable to obtain all Development Approvals by the
end of the Phase II Contingency Period or the Development Approvals are subject
to conditions which Purchaser has reasonably determined are unacceptable to it,
the Agreement will terminate and be of no further force or effect, and the
Earnest Money will promptly be returned to Purchaser, less the Retention Amount.
The government approvals will be deemed to be reasonably acceptable to Purchaser
if:
(1) the total cost of satisfying the conditions of all
approvals (including, but not limited to, wetlands mitigation, design and
construction of off-site road improvements, frontage improvements to Willows
Road, utility extensions, and storm water treatment and detention facilities;
payment of impact, traffic mitigation, and permit fees; and other similar
requirements and conditions) does not exceed $ CONFIDENTIAL per gross square
foot of building area contained in the approved site plan.
(2) any other conditions of approval relating to the size,
placement, phasing, parking or other material aspects of the buildings are
acceptable to Purchaser in the reasonable exercise of Purchaser's commercial
judgment.
(c) Seller shall provide to Purchaser within ten (10) days of
the execution of this Agreement an ALTA Survey of the Property, the cost of
which shall be shared equally by the parties.
(d) Purchaser shall provide to Seller evidence showing that the
person signing this Agreement on behalf of the Purchaser is authorized to do so.
(e) As of the Closing Date, no action or proceeding by or before
any governmental authority shall have been instituted or threatened (and not
subsequently dismissed, settled or otherwise terminated) which is reasonably
expected to restrain, prohibit or invalidate the purchase of the Real Property
and Improvements or the lease of the Building as described in EXHIBIT 6.2.
(f) As of the Closing Date, there shall be no pending or
threatened challenge to the Development Approvals obtained by Purchaser.
(g) The representations of Seller set forth in Section 4.1 are
true and correct as of the Closing Date, with the same force and effect as if
made on the Closing Date.
(h) As of the Closing Date, there shall have been no Material
Adverse Change in the financial condition of the Seller since the date of this
Agreement. For purposes of this Agreement, "Material Adverse Change" shall mean
Seller has, as of the Closing Date, less than $ CONFIDENTIAL of stockholder
equity as reflected in Seller's financial statements.
8.3 COSTS; DUE DILIGENCE ESCROW. Purchaser shall pay all costs
incurred in securing any studies undertaken pursuant to Section 8.2. Purchaser
shall deposit in cash CONFIDENTIAL United States Dollars (U.S. $ ) with the
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Escrow Agent ("Phase I Funds"), within one (1) business day after the full
execution of the Agreement, to fund its Phase I Contingency Period due diligence
review. Purchaser shall be entitled to withdraw from the Phase I Funds as
actual expenses are incurred (as evidenced by actual invoices) on a monthly
basis. At the commencement of the Phase II Contingency Period, Purchaser shall
deposit with the Escrow Agent CONFIDENTIAL Dollars($ ) ("Phase II Funds"), or
one-half of the $ CONFIDENTIAL which is budgeted for Phase II Contingency Period
due diligence review. Purchaser shall draw upon this balance as actual expenses
are incurred on a monthly basis (as evidenced by actual invoices). To the
extent that Purchaser's actual Phase I Contingency Period costs are less than $
CONFIDENTIAL (the budgeted amount), the balance of the Phase I Funds shall be
credited against the Phase II Funds required deposit amount. Purchaser shall
indemnify, defend and hold Seller harmless from and against any and all costs,
damages, loss, injury, or other expenses that may be incurred in connection with
Purchaser's undertaking of such studies. From and after the date of execution
of the Agreement, Purchaser or its agents or representatives shall, at their own
risk and from time to time, have reasonable access to the Property and the right
to conduct geotechnical, environmental, and other reasonably necessary
inspections to assure Purchaser of the physical condition of the Property and
its suitability for Purchaser's intended use thereof. Seller shall grant
reasonable access provided that Data I/O's business activities will not be
unreasonably disrupted and that Purchaser seeks approval for access to the
Property in advance. Reasonable alteration to the Property consistent with the
undertaking of such studies shall be permitted by Seller with Seller's consent
and provided that the Property is returned to its original state as much as
possible after Purchaser completes the studies. Purchaser shall further
indemnify, defend and hold Seller harmless from and against any and all liens,
attorneys' fees, damages and costs in clearing any such liens which may be filed
against the Property as a result of or in connection with Purchaser's
undertaking of such studies. In the course of its investigations, Purchaser may
make inquiries to third parties, including, without limitation, lenders,
contractors, and municipal, local and other government officials and
representatives, and Seller consents to such inquiries. Upon the Closing Date
or the earlier termination of this Agreement, any unexpended Phase I Funds and
Phase II Funds shall be refunded to Purchaser.
8.4 DELIVERY OF INFORMATION. To the extent available, Seller will
make available or deliver to Purchaser within five (5) days of the execution of
this Agreement, at Purchaser's discretion, (i) true, correct and complete copies
of all leases or license agreements encumbering any part of the Property, (ii)
any studies or reports in the possession of Seller relating to the presence (or
absence) of hazardous materials (including asbestos) at the Property, or the
condition of the soil underlying the Property, (iii) any reports or studies on
the Property in Seller's possession related to access, traffic, or
transportation, (iv) any documents in Seller's possession relating to
governmental restrictions affecting the site or the status of public approvals,
(v) a copy of the most recent tax bill and assessment for the property, (vi)
surveys and site plans, and (vii) final construction documents, building
specifications, as-built drawings and any engineering reports for the Building.
Upon termination of this Agreement, Purchaser shall return to Seller the copies
of documents delivered by Seller to Purchaser or Purchaser's agents,
consultants, accountants, or attorneys. If Purchaser elects to terminate this
Agreement (except for termination due to a default by Seller) or the Seller
terminates this Agreement following a default by Purchaser, then Purchaser shall
deliver to Seller, immediately after such termination,
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copies of all plans, correspondence, tests, reports and studies concerning the
Property (the "Study(ies)") prepared for Purchaser by independent third parties.
The Studies shall be provided to Seller without representation or warranty from
Purchaser, and Seller shall not be entitled to rely on any Study without the
prior written consent of the party which prepared such Study.
8.5 EXPIRATION OF CONTINGENCY PERIOD. Subject to Section 2.3.1, if
Purchaser terminates this Agreement because the conditions precedent described
in Section 8.2 are not waived or satisfied within the time periods specified,
all Earnest Money, less the Retention Amount, shall be returned to Purchaser,
all documents deposited with the Escrow Agent shall be returned to the
depositing party, and the parties shall have no further obligations or
liabilities to each other except as otherwise provided in this Agreement.
9. RISK OF LOSS. If prior to the Closing Date the Property is materially
damaged as the result of fire or other casualty or all or a portion of the
Property is condemned, Purchaser shall have the option, such election to be made
within fourteen (14) days after Purchaser's receipt of written notice from
Seller of such material damage (and the Closing Date shall be extended if
necessary to provide Purchaser with a full fourteen (14) day period to make such
election), to (a) accept title to the Property without any abatement of the
Purchase Price, in which event at the Closing all of the insurance proceeds and
condemnation proceeds shall be assigned by Seller to Purchaser and any moneys
theretofore received by Seller in connection with such fire or other casualty or
condemnation shall be paid over to Purchaser and Purchaser shall receive a
credit for all deductibles, or (b) terminate this Agreement, in which event the
Earnest Money shall be returned to Purchaser and thereupon neither party shall
have any further liability to the other. For purposes of this paragraph, the
term "material damage" shall mean damage which Purchaser reasonably determines
to cost in excess of $500,000. From the date this Agreement is signed by the
parties, Seller shall maintain property damage insurance in the amounts and with
substantially equivalent carriers as are currently in effect.
During the term of this Agreement, Seller shall not settle any fire or
casualty loss claims or agree to any award or payment in condemnation or eminent
domain or any award or payment in connection with the change in grade or any
street, road, highway or avenue in respect of or in connection with the Property
without obtaining Purchaser's prior consent in each case, which consent shall
not be unreasonably withheld or delayed.
10. REMEDIES.
10.1 SELLER'S DEFAULT. If there is an event of default under this
Agreement by Seller (including a breach of any representation, warranty, or
covenant), Purchaser shall be entitled as the sole and exclusive remedy
available to Purchaser, subject to Section 15, for such default (a) to seek
specific performance of Seller's obligations under this Agreement, (b) to seek
damages excluding any consequential damages or lost profits, or (c) to terminate
this Agreement by written notice to Seller and Escrow Agent. If Purchaser
terminates this Agreement, the escrow shall be terminated, the Earnest Money
immediately shall be returned to Purchaser, all documents shall immediately be
returned to the party who deposited them, and neither party shall have any
further rights or obligations under this Agreement, except as otherwise provided
in this
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Agreement, and except that Seller shall pay any costs of terminating the escrow.
Seller shall have ten (10) days from receipt of written notice from Purchaser to
cure any default under this Agreement.
10.2 PURCHASER'S DEFAULT. In the event Purchaser fails without legal
excuse to complete the purchase of the Property, the Earnest Money deposit made
by Purchaser shall be forfeited to Seller as the sole and exclusive remedy
available to Seller, subject to Section 15, for such failure. It being agreed
that such Earnest Money shall be liquidated damages for a default of Purchaser
hereunder and earned by the Seller for agreeing to sell the Property to the
Purchaser and for agreeing to hold the Property off the market. Purchaser shall
have ten (10) days from receipt of written notice from Seller to cure any
default under this Agreement.
11. ATTORNEYS' FEES. In any proceeding brought to enforce this Agreement
or to determine the rights of the parties under this Agreement, the most
prevailing party shall be entitled to collect, in addition to any judgment
awarded by a court, a reasonable sum as attorneys' fees, and all costs and
expenses incurred in connection with such a lawsuit, including attorneys' fees,
expenses of litigation, and costs of appeal. The term "proceeding" shall mean
and include arbitration, administrative, bankruptcy, and judicial proceedings
including appeals.
12. ASSIGNABILITY. Purchaser shall not have the right to convey,
transfer, or assign all or any part of its interest and its rights and
privileges under the terms of this Agreement except to an Affiliate. "Affiliate"
means (a) any entity that directly or indirectly controls, is controlled by or
is under common control with the Purchaser or (b) an entity at least a majority
of whose economic interest is owned by Purchaser; and the term "control" means
the power to direct the management of such entity through voting rights,
ownership or contractual obligations.
13. CONCURRENT DISCLOSURE; CONFIDENTIALITY. Seller shall make no public
announcement or disclosure of any information related to this Agreement to
outside brokers or third parties before the Closing without the consent of
Purchaser, except for such disclosures to Seller's financing sources, lenders,
creditors, officers, employees, attorneys, consultants and agents as may be
necessary to permit Seller to perform its obligations hereunder or as required
by law or otherwise by governmental authorities and except for public
announcement of the transaction contemplated hereby after execution of this
Agreement and upon review and approval of Purchaser which shall not be
unreasonably denied or withheld; provided, however, unless reviewed and approved
by Purchaser or required by law or otherwise by governmental authorities, Seller
shall not disclose in any public announcement or public statement the identity
of Purchaser prior to Closing. Purchaser will treat as confidential any
information received pursuant to this Agreement and will not disclose any such
information to brokers or third parties without the consent of Seller, provided
that, without the consent of Seller, Purchaser may (i) disclose such information
to its financing sources, lenders, creditors, officers, employees, attorneys,
consultants and agents as may be necessary to exercise its rights or perform its
obligations hereunder and (ii) disclose such information as required by law or
otherwise by governmental authorities. Purchaser may make public announcement
of the transaction contemplated hereby after execution of this Agreement and
upon the prior review and approval of Seller which shall not be unreasonably
denied or withheld.
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CONFIDENTIAL PORTIONS OF THIS DOCUMENT HAVE BEEN
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14. NOTICES. Any notice, demand, request or consent that the parties
hereto desire or is required to be given by this Agreement shall be deemed
sufficient if sent by United States first class mail, facsimile, or delivered
via messenger or overnight delivery service to the following:
Purchaser: CONFIDENTIAL
CONFIDENTIAL
CONFIDENTIAL
Attention: CONFIDENTIAL
Telephone: CONFIDENTIAL
Facsimile: CONFIDENTIAL
with copy to: CONFIDENTIAL
CONFIDENTIAL
CONFIDENTIAL
Attention: CONFIDENTIAL
Telephone: CONFIDENTIAL
Facsimile: CONFIDENTIAL
Seller: DATA I/O CORPORATION
10525 Willows Road N.E.
P.O. Box 97046
Redmond, WA 98073-9746
Attention: Chief Financial Officer
CC: General Counsel
Telephone: (206) 881-6444
Facsimile: (206) 881-2917
Notices shall be effective upon receipt if delivered by facsimile,
messenger service or overnight delivery and upon the third day following deposit
if by United States first class mail.
15. INDEMNIFICATION. Subject to the terms and conditions in this
Agreement, the indemnification obligations of Seller and Purchaser shall be as
follows:
(a) Each party shall indemnify, defend and hold harmless the other
party from and against any and all claims, demands, liabilities, costs,
expenses, penalties, damages and losses (including, without limitation,
reasonable attorneys' fees but excluding consequential damages and lost profits)
resulting from (i) any misrepresentation, breach of warranty or breach of
covenant made by such party under this Agreement or (ii) any negligence or
intentional misconduct of such party, its agents, employees or contractors.
(b) If either party receives notice of a claim or demand against
which it is entitled to indemnification pursuant to this Section, that party
shall give within ten (10) days' notice thereof to the other party. The party
obligated to indemnify immediately shall take such measures as may be reasonably
required to properly and effectively defend such claim, and may
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defend the same with counsel of its own choosing. If the party obligated to
indemnify fails to defend such claim, then the party entitled to indemnification
may defend such claim with counsel of its own choosing at the expense of the
party obligated to indemnify.
(c) In the event of a claim or demand based upon a breach of a
representation made by Seller in Section 4.1, in addition to the foregoing, the
Purchaser shall provide written notice to Seller within ten (10) days after
discovery of the problem which may lead to a potential claim or demand by
Purchaser.
(d) Except for indemnification related to the statutory warranties
associated with the Deed, the indemnification provisions of this Section shall
survive for a period of twelve (12) months beyond the delivery of the Deed and
transfer of title. Neither Seller nor Purchaser shall be required to pay, in
the aggregate, more than CONFIDENTIAL Dollars ($ ) to fulfill their obligations
pursuant to this Section 15 except pursuant to Section 15(a)(ii) and then only
to the extent covered by insurance. In addition, until a party's losses,
liabilities, damages, and/or expenses exceed CONFIDENTIAL Dollars ($ ),
individually or in the aggregate, that party shall have no right to invoke the
provisions of this Section 15 and only to the extent of such excess.
16. GENERAL.
16.1 COOPERATION. Seller and Purchaser shall cooperate at all times
from and after the date hereof with respect to the supplying of any information
requested by the other regarding any of the matters set forth in this Agreement.
Seller and Purchaser agree to execute any and all other instruments and
documents as may be reasonably required in order to consummate the purchase and
sale contemplated herein.
16.2 BROKERAGE COMMISSIONS. Seller and Purchaser each represent to
the other that there are no individuals or entities entitled to brokerage
commissions or other fees in connection with the transaction other than Cushman
& Wakefield, whose commission shall be paid by Seller. Purchaser and Seller
each represent and warrant to the other that no other broker, agent or finder,
licensed or otherwise has been engaged by it, respectively, in connection with
the transaction contemplated by this Agreement. In the event of any such claim
for broker's, agent's or finder's fee or commission in connection with the
negotiation, execution or consummation of this transaction, the party upon whose
alleged statement, representation or agreement such claim or liability arises
shall indemnify, defend and hold harmless the other party from and against such
claim and liability, including without limitation, reasonable attorneys' fees
and court costs. Buyer and Seller hereby agree that the representations and
warranties contained in this Section shall survive the Closing.
16.3 MAINTENANCE OF PROPERTY. From the date this Agreement is signed
by the parties until the Closing Date, Seller shall maintain the Property in its
current operating condition and repair (reasonable wear and tear excluded) and
otherwise operate the Property in the same
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manner as before the making of this Agreement. Seller shall not take any action
or omission which would cause any of the representations or warranties of Seller
contained herein to become inaccurate or any of the covenants of Seller to be
breached.
16.4 NEW CONTRACTS. From the date this Agreement is signed by the
parties until the Closing Date, Seller or any agent for Seller shall not (a)
enter into any lease, lease amendment, contract, contract amendment, agreement
or agreement amendment relating to the Property (except for contracts,
agreements, or amendments in the normal course of business) that requires
performance, other than the payment of money, beyond the Closing Date or waive
any right of Seller under any of the foregoing (b) take any action or inaction
to cause a defect, lien, encumbrance, or adverse claim on the Property which is
not shown on the preliminary commitment for an ALTA owner's extended title
insurance policy furnished to Purchaser by Title Company under this Agreement
without Purchaser's prior written consent.
16.5 LISTINGS AND OTHER OFFERS. Seller will not list the Property
with any broker or otherwise solicit or make or accept any offers to sell the
Property, engage in any discussions or negotiations with any third party with
respect to the sale or other disposition of any of the Property, or enter into
any contracts or agreements (whether binding or not and except in the normal
course of business) regarding any disposition of any of the Property.
16.6 MAINTENANCE OF PERMITS. Seller shall maintain in existence all
licenses, permits and approvals necessary or reasonably appropriate to the
ownership, operation or improvement of the Building.
16.8 BINDING EFFECT. The covenants, agreements, representations, and
warranties contained herein shall extend to and be obligatory upon the
successors and assigns of the respective parties hereto.
16.9 AMENDMENT. This Agreement may be amended only by written
instrument executed by Seller and Purchaser.
16.10 ENTIRE UNDERSTANDING. This Agreement, and the documents
incorporated herein, embody the entire agreement between the parties with
relation to the transactions contemplated hereby. There have been and are no
covenants, agreements, representations, warranties, or restrictions between the
parties with regard thereto other than those set forth herein or for which there
has been provision made herein. The provisions of this Agreement cannot be
waived except by the written agreement of the party against whom a waiver shall
be asserted.
16.11 COUNTERPARTS. This Agreement may be executed simultaneously in
counterparts, each of which shall be an original, but all of which together
shall constitute one and the same instrument.
16.12 TIME OF ESSENCE. Time is of the essence of this Agreement.
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16.13 SEVERABILITY. The unenforceability, invalidity, illegality, or
termination of any provision of this Agreement shall not render any other
provision of this Agreement unenforceable, invalid, or illegal and shall not
terminate this Agreement or impair the rights or obligations of the parties
hereto.
16.14 CAPTIONS. Section or paragraph titles or other headings
contained in this Agreement are for convenience only and shall not be a part of
this Agreement, or considered in its interpretation.
16.15 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Washington without regard
to conflicts of law rules. The venue for any cause of action related to this
Agreement shall be the state and federal courts sitting in King County,
Washington.
16.16 CALCULATION OF TIME PERIODS. Unless otherwise specified, in
computing any period of time described herein, the day of the act or event after
which the designated period of time begins to run is not to be included and the
last day of the period so computed is to be included at, unless such last day is
a Saturday, Sunday or legal holiday for national banks in the location where the
Property is located, in which event the period shall run until the end of the
next day which is neither a Saturday, Sunday, or legal holiday. The last day of
any period of time described herein shall be deemed to end at 11 p.m.
Washington, D.C. time.
16.17 INFORMATION AND AUDIT COOPERATION. At Purchaser's request, at
any time before the Closing, Seller shall provide to Purchaser's designated
independent auditor access to the books and records of the Property, as
described in Section 1(c), regarding the period for which Purchaser is required
to have the Property audited under the regulations of the Securities and
Exchange Commission.
DATED July 9, 1996.
SELLER: DATA I/O CORPORATION
By: //S// STEVE M. GORDON
-----------------------------------------
Steven M. Gordon, Chief Financial Officer
PURCHASER: CONFIDENTIAL
By: //S// Purchaser
-----------------------------------------
CONFIDENTIAL
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OMITTED AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION.
Escrow Agent, by its duly authorized agent, agrees to accept this escrow on the
terms and conditions of, and to comply with the instructions contained in, the
foregoing Agreement and such supplemental instructions as the Escrow Agent
reasonably requires.
DATED July __, 1996.
CONFIDENTIAL
By: //S// Escrow Agent
----------------------------------
Name: Escrow Agent Name
--------------------------------
Title: Escrow Agent Title
-------------------------------
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EXHIBIT 1(a)
LEGAL DESCRIPTION
Legal Description of Property
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CONFIDENTIAL PORTIONS OF THIS DOCUMENT HAVE BEEN
OMITTED AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION.
EXHIBIT 1(b)
RETAINED EQUIPMENT LIST
Cafeteria Equipment
3 Refrigerators in food preparation area
Salad bar
Serving bar
2 Ovens
Hotplate
Ice machine
Meat slicer
Microwave oven in food preparation area
Miscellaneous counter equipment
2 Refrigerators in lunch room/meeting area
Espresso machine
Cash register
Manufacturing Air Compressor
Vacuum Pump
50Hz Generator
2 Thermatrons
Telephone System (excluding interior wiring)
Dytel Automated Answering System
Security System (excluding interior wiring and permanently installed card
readers and door strikes)
Synchronized Clock System
Trash Compactor
Supplier owned Equipment, including but not limited to,
Vending machines
3 microwave ovens
Ice cream freezer
Soft drink dispenser
Drink refrigeration cases
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CONFIDENTIAL PORTIONS OF THIS DOCUMENT HAVE BEEN
OMITTED AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION.
Computer Network Hubs/Routers (excluding interior wiring)
Computer Room Equipment and Halon System
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CONFIDENTIAL PORTIONS OF THIS DOCUMENT HAVE BEEN
OMITTED AND HAVE BEEN FILED SEPARATELY WITH THE
EXHIBIT 4.1(b)
PENDING LIENS AND ASSESSMENTS
None
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OMITTED AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION.
EXHIBIT 4.1(d)
HAZARDOUS MATERIAL DISCLOSURE
Invoices, Maps and Pre- And Post-Removal Reports Regarding Removal Of Asbestos
From Outbuilding And Heating Oil and Oil Storage Tank From Property
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OMITTED AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION.
EXHIBIT 4.1(j)
WETLAND AREA TO BE FILLED
Map of Wetland Area To Be Filled
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CONFIDENTIAL PORTIONS OF THIS DOCUMENT HAVE BEEN
OMITTED AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION.
EXHIBIT 6.2
LEASE
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LEASE
THIS LEASE AGREEMENT (hereinafter, the "Lease") is made this ____ day of
___________, 1996, by and between CONFIDENTIAL, a CONFIDENTIAL corporation
("Landlord"), and DATA I/O CORPORATION, a Washington corporation ("Tenant").
WHEREAS, Landlord and Tenant entered into a Purchase and Sale Agreement
dated July 9, 1996 (the "Purchase and Sale Agreement") under which Tenant agreed
to sell and convey to Landlord, and Landlord agreed to purchase from Tenant the
real property legally described in EXHIBIT A attached hereto and incorporated
herein by this reference (the "Property").
WHEREAS, under the terms of the Purchase and Sale Agreement, Landlord
agreed to lease to Tenant the Building situated on the Property subject to
mutually acceptable terms and conditions of a lease agreement.
NOW, THEREFORE, in consideration of the mutual terms and conditions in this
Lease, the parties agree:
1. LEASE. Landlord hereby leases to Tenant, and Tenant hereby leases
from Landlord, subject to the terms and conditions of this Lease, the Building
located on the real property located at 10525 Willows Road N.E., Redmond,
Washington containing approximately Ninety-Six Thousand One Hundred Seventy-Nine
square feet (hereinafter, the "Leased Premises"). The lease of the Leased
Premises shall include, during the term of the Lease, the exclusive use of
CONFIDENTIAL parking spaces located on the Property as follows: such spaces
will be located first on the portion of the Property depicted as the exclusive
parking area on EXHIBIT B attached hereto and incorporated herein by this
reference (the "Exclusive Parking Area") and the remainder of such spaces will
be located on another portion of the Property adjacent and reasonably convenient
to the Leased Premises (collectively, as the same may be relocated, the "Parking
Area"). The number of parking spaces located on the Exclusive Parking Area
shall not be subject to reduction but may be increased. The current location of
the balance of the CONFIDENTIAL exclusive spaces, which are not located in the
Exclusive Parking Area is depicted on EXHIBIT B as the "Remaining Parking Area."
Landlord may, as one option, relocate all or a portion of the parking spaces
currently located in the Remaining Parking Area to the area depicted on
EXHIBIT B as the proposed parking area. The configuration, location and size of
the CONFIDENTIAL parking spaces allocated to Tenant shall be subject to Tenant's
reasonable approval. Upon any relocation, reconfiguration or resizing of such
parking spaces, the parties shall execute an amendment to EXHIBIT B reflecting
the new location of the Parking Area. Any relocation, reconfiguration or
resizing of such parking spaces shall be at Landlord's cost and expense.
Further, such spaces may be temporarily relocated, subject to Tenant's
reasonable approval and at Landlord's cost and expense, during Landlord's
construction on the Property so long as such relocation does not unreasonably
disrupt Tenant's business and access to the Leased Premises. Except for any
failure of Tenant to approve which would result in Tenant having less than
CONFIDENTIAL
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exclusive parking spaces, any approval by Tenant under this Section 1 will be
deemed unreasonably withheld if Tenant's failure to approve such matter would
result in a permitted density approved by the City of Redmond, Washington of
less than CONFIDENTIAL square feet for the Property.
In addition to the foregoing, Landlord shall use commercially reasonable
efforts to make an additional CONFIDENTIAL nonexclusive parking spaces available
to Tenant in an area on the Property designated by Landlord, which area may be
relocated by Landlord from time to time; provided that Landlord shall not be
required to provide such additional spaces if the allocation of such spaces to
Tenant would result in a permitted density approved by the City of Redmond,
Washington of less than CONFIDENTIAL square feet for the Property. Tenant shall
have no right to approve the location of such additional parking spaces;
provided that Landlord will make reasonable efforts to make such spaces
reasonably convenient to the Leased Premises.
Tenant shall have no right to use parking spaces on the Property except as
expressly provided in this Section 1.
The lease of the Leased Premises shall also include use of all outbuildings
located on the Property, including but not limited to, the house/conference
facility and the barn, until Landlord elects to demolish the same in order to
construct buildings or other infrastructure improvements, fill in any wetlands
or, if Tenant fails to maintain the outbuildings and the access road leading to
them, to remedy any nuisance or hazardous condition. Rent under this Lease
shall not be affected by the demolition of the outbuildings. Landlord shall
have no repair, maintenance or other obligations or liability with respect to
the outbuildings or the access road leading to them. The Building, the existing
Parking Area and the outbuildings, are shown on EXHIBIT C attached hereto and
incorporated herein by this reference.
The right to the exclusive use of the parking spaces pursuant to this
Section 1 shall inure to the benefit of Tenant and Tenant's affiliates and
sublessees in accordance with this Lease, but shall terminate in the event of an
assignment of the entire Lease or subletting of an aggregate of CONFIDENTIAL
percent ( %) or more of the Leased Premises by Tenant (excluding assignments or
subletting to its affiliates).
2. TERM. The term of this Lease shall commence on the date first written
above and expire on December 31, 2006. So long as Tenant is not in material
default of the terms of this Lease, Tenant may terminate this Lease at the end
of the fifth year of the Lease term by giving Landlord written notice of such
termination six (6) months prior to the end of the fifth year of the Lease term
and by paying Landlord U.S. $ CONFIDENTIAL on or before the last day of the
fifth year of the Lease term. The right to terminate the Lease pursuant to this
Section 2 shall inure to the benefit of Tenant and Tenant's affiliates but shall
terminate in the event of an assignment of the entire Lease. All defaults by
Tenant under this Lease shall be cured on or before the termination of the Lease
as provided herein.
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3. OPTIONS TO EXTEND TERM. So long as Tenant is not in material default
of the terms of the Lease, and there has not been at the end of the initial term
a material adverse change in the financial condition of Tenant as reflected in
Tenant's financial statements which at that time materially limits its ability
to perform under this Lease, Tenant shall have the option to extend the Lease
term for an additional five (5) year term by giving Landlord written notice of
Tenant's intent to extend at least six (6) months prior to the end of the Lease
term. So long as Tenant is not in material default of the terms of the Lease,
and there has not been at the end of the first extended term a material adverse
change in the financial condition of Tenant as reflected in Tenant's financial
statements which at that time materially limits its ability to perform under
this Lease, Tenant shall also have the option to extend the Lease term for a
second five (5) year term by giving Landlord written notice of Tenant's intent
to extend at least six (6) months prior to the end of the first extension of the
Lease term. Any extensions of the term of this Lease shall be on the same terms
contained in this Lease, except for rent which shall be at the then prevailing
fair market rental rate for rental space of comparable size, age, location and
quality in Redmond, Washington for each extension period. In the event Landlord
and Tenant are unable to agree upon the fair market rent within thirty (30) days
after Landlord has notified Tenant of the proposed rate for the applicable
extension period, the fair market rental rate shall be determined by appraisal
by a panel of two appraisers, each with a minimum of five years' prior
experience in the office leasing market in King County. Within ten (10) days of
written rejection by Tenant of Landlord's proposed rate, Landlord and Tenant
shall each appoint an appraiser at their own expense, and the two appraisers
shall, within thirty (30) days determine the fair market rental rate for the
extension period. If the two appraisers cannot agree on the fair market rental
rate for the extension period during the thirty (30) days, the two appraisers
shall, within five (5) days, jointly select a third, the cost of which shall be
shared by Landlord and Tenant. The appraisers shall submit their decisions
within fifteen (15) days of selection of the third appraiser. The average of
the two closest fair market rental rates submitted by each appraiser shall
determine the fair market rental rate for the extension period.
The right to extend the Lease pursuant to this Section 3 shall inure to the
benefit of Tenant and Tenant's affiliates but, shall terminate in the event of
an assignment of the entire Lease or subletting of an aggregate of CONFIDENTIAL
percent ( %) or more of the Building by Tenant (excluding assignments or
subletting to its affiliates).
4. RENT. As rent for the Leased Premises, and on the first day of each
month during the term of this Lease, Tenant shall pay to Landlord the sum of
U.S. $ CONFIDENTIAL (triple net) per month in advance. Commencing with the
sixth year of the Lease term, the rent for the Leased Premises shall be U.S. $
CONFIDENTIAL (triple net) per month. If the term of this Lease begins on a date
other than the first day of a month, the rent for that month will be prorated
based on a 365 day year. Except as expressly provided in this Lease, and except
for Landlord's privilege and income taxes and any franchise fees, all rent,
additional rent and other amounts shall be paid to Landlord net of all
impositions, fees and other charges and without offset, deduction or abatement.
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5. ADDITIONAL RENT. This Lease is a triple net lease. In addition to the
rent to be paid by Tenant as set forth in Section 4 of this Lease, Tenant shall
pay to Landlord as additional rent, Tenant's share of all expenses, except as
expressly provided herein, incurred by Landlord in the operation, maintenance
and ownership of the Leased Premises, the Tenant landscaping area as described
in EXHIBIT D attached hereto and incorporated herein by this reference, the
Parking Area, and the access road leading to the Leased Premises (the "Operating
Expenses"), including, without limitation, costs of any commercially reasonable
insurance maintained by Landlord from time to time (including, without
limitation, insurance required by this Lease, rent loss, earthquake and such
other insurance as may be elected by Landlord consistent with comparable
properties in the area), maintenance and repair costs for the Parking Area and
access roads to the Leased Premises, market property management fees payable to
any manager (including an affiliate of Landlord), labor, salaries and applicable
benefits attributable to the management of the Leased Premises, Parking Area and
the access road leading to the Leased Premises, security services if any,
utility costs if any, snow removal costs and work performed by Landlord under
Section 9. Operating Expenses shall not include depreciation of the Building,
the costs of tenant improvements, the costs of relocating, reconfiguring or
resizing any parking spaces, real estate brokers' commissions, marketing costs,
interest, the costs of repairing, maintaining or replacing the roof and
structural components of the Building that Landlord is required to maintain
under Section 14.2, the costs of any replacement capital improvements required
to be paid by Landlord under Section 14.1, and any costs incurred by Landlord
triggered by Landlord's development of the remainder of the Property. Tenant's
share of any Operating Expenses attributable only to the Leased Premises,
Parking Area and the Tenant landscape area described in EXHIBIT D shall be 100%
and Tenant's share of any Operating Expenses attributable to the access road
leading to the Leased Premises shall be the percentage from time to time of the
floor area of the Leased Premises to the total floor area of the Leased Premises
and any other buildings on the Property (excluding the outbuildings).
Landlord shall provide, at least thirty (30) days prior to the beginning of
each Lease year, a monthly estimate of amounts payable under this Section 5,
using the cash basis of accounting, for each Lease year based on an estimate
agreed upon by the parties. Tenant shall pay the monthly estimated amount as
additional rent on the first day of each month during the Lease term. Within
fifteen (15) days after the end of each quarter, Landlord shall provide a
statement of the actual Operating Expenses payable by Tenant under this Lease
and a reconciliation based on the monthly estimates paid by Tenant under this
Section 5. Tenant shall pay any difference (underpayment) in a lump sum within
thirty (30) days after receipt of such statement from Landlord. Any overpayment
by Tenant shall be credited toward the monthly rent next coming due. Payments
of Operating Expenses for any partial month shall be prorated based on a 365 day
year.
6. LATE FEE. Any rent or additional rent due under this Lease not paid
after ten (10) days when due shall accrue interest until paid at the rate of
CONFIDENTIAL percent ( %) per annum. In addition to the foregoing, if any
payment of rent or additional rent is not received by Landlord within ten (10)
days after its due date, then Tenant shall pay to Landlord a late charge equal
to CONFIDENTIAL % of such overdue amount. The parties hereby agree that such
late charge represents a fair and reasonable estimate of the costs Landlord will
incur as a result of late payment by Tenant.
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7. USE. The Leased Premises shall be used by Tenant for general office
and software, electronic component and/or electronic equipment manufacturing,
fabrication, assembly, engineering, warehousing, storage and related purposes,
and for no other purposes without the prior written consent of Landlord. Tenant
shall comply with all laws relating to the Leased Premises, Parking Area and
landscaping area described in EXHIBIT D or Tenant's use thereof, matters of
record and reasonable rules for the business park, each as may be in effect from
time-to-time. Tenant shall not commit waste or misuse, overload or stress the
Building.
8. LANDLORD'S ACCESS TO LEASED PREMISES. Landlord shall have the right
to enter any part of the Leased Premises at reasonable times and upon reasonable
advance notice, except in the event of an emergency, in which event Landlord
shall provide Tenant with notice as soon as possible thereafter, to Tenant for
the purpose of examining, inspecting or showing the Leased Premises. Landlord
may post on the Leased Premises, the Tenant landscaping area as described in
EXHIBIT D, the Parking Area, and the access road leading to the Leased Premises,
"for lease" and "for sale" signs related to the Building.
9. ALTERATIONS AND IMPROVEMENTS. Tenant may alter, improve, or
reconfigure the space in the Leased Premises with the prior written consent of
Landlord which consent shall not be unreasonably withheld except that the
Landlord's consent shall not be required for non-structural alterations which do
not exceed $ CONFIDENTIAL per item, including without limitation, recarpeting,
interior painting, and office reconfiguration. Landlord may elect to make any
repair, restoration, alteration, improvement or reconfiguration of the Leased
Premises, at Tenant's reasonable cost, that Tenant is authorized or obligated to
make under this Lease if such work involves piercing or compromising the roof
membrane or roof system or cutting or drilling the floor or would affect the
structural components of the Building or the integrity or operation of the
Building or mechanical systems in the Building. Except with respect to
recarpeting, interior painting and office reconfiguration, Tenant shall provide
Landlord with prior written notice of any alteration, improvement,
reconfiguration or repair of the Leased Premises and with as-built plans and
specifications for such work on the completion thereof, if applicable,
including, without limitation, with respect to the applicable improvements
listed on EXHIBIT E. The alterations and improvements listed on EXHIBIT E
attached hereto and incorporated herein by this reference, all of which shall be
performed at Tenant's sole cost, are hereby approved by Landlord. All
contractors shall be subject to Landlord's reasonable approval and will deliver
certificates of insurance evidencing insurance coverage reasonably satisfactory
to Landlord prior to commencing such work. All work will be done in a good and
workmanlike manner in compliance with all laws applicable thereto. The
provisions of this Section 9 shall also apply to significant repairs to be made
by Tenant.
10. LIENS. Tenant shall not cause or permit the creation of any lien or
other encumbrance on the Leased Premises. Tenant shall give Landlord prompt
written notice of any lien or encumbrance against the Leased Premises caused by
Tenant and cause such lien or encumbrance to be discharged within thirty (30)
days after the filing or recording thereof; provided that Tenant may contest
such liens or encumbrances in accordance with applicable law
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as long as such contest prevents foreclosure thereof and Tenant causes such lien
or encumbrance to be bonded or insured over as reasonably acceptable to Landlord
within such thirty (30) day period.
11. SIGNS. Tenant shall have the right, at Tenant's cost, to place
identification signs on the Building and at the location where the access road
to the Building intersects Willows Road, N.E. subject to the Landlord's
reasonable approval, which approval shall not be unreasonably withheld. Any
signs placed on the Leased Premises or at Willows Road, N.E. shall be placed
with the understanding and agreement that Tenant will remove same at the
termination of this Lease and repair any damage or injury to the Leased Premises
caused thereby, and if not so removed by Tenant then Landlord may have same so
removed at Tenant's expense. The existing signs on the Building and at the
intersection of Willows Road, N.E. with the Building access road may remain so
long as Tenant desires. Tenant shall obtain, at its expense, all permits and
approvals necessary for any signage erected by Tenant. Landlord, at Landlord's
cost, may replace existing signs, with standard signage for the business park,
with the consent of the Tenant, which consent shall not be unreasonably
withheld.
12. ACCEPTANCE OF LEASED PREMISES. Tenant accepts the Leased Premises in
their present condition. Except as expressly provided in this Lease, Landlord
will not be obligated to make any alterations or improvements to the Leased
Premises, outbuildings or Property based upon this Lease or arising out of this
Lease. Landlord shall not be obligated to provide any services to Tenant except
as provided in this Lease; however, Landlord shall not disrupt, disconnect or
disturb any of the utility or other services provided to the Leased Premises at
the start of the term of this Lease. Landlord disclaims all express or implied
warranties regarding the Building, the Leased Premises or the Property.
13. SURRENDER OF LEASED PREMISES. Furnishings, trade fixtures and
equipment installed by Tenant shall be the property of Tenant. Upon the
expiration or termination of this Lease, Tenant shall surrender possession of
the Leased Premises to Landlord in a broom clean condition, normal wear and tear
excepted. Upon the expiration or termination of the Lease term Tenant shall
remove its trade fixtures and the Retained Equipment described in EXHIBIT F
attached hereto and incorporated herein by this reference from the Leased
Premises and, unless otherwise directed by Landlord, Tenant shall remove all
alterations and improvements made by Tenant to the Leased Premises which have
not been previously approved by Landlord and which are incompatible with general
office use of the Leased Premises. Tenant shall promptly and at its cost repair
or reimburse Landlord for any damage to the Leased Premises caused by Tenant
during the removal of any equipment, materials, systems and fixtures required or
permitted to be removed from the Leased Premises at the end of the Lease term.
In any event, Tenant shall remove, at the Tenant's expense, all manufacturing
equipment upon expiration or termination of the Lease.
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14. MAINTENANCE AND REPAIR.
14.1 TENANT'S OBLIGATIONS. Subject to Sections 20 and 21, excluding
the items which Landlord is required to repair and maintain under Section 14.2,
Tenant shall be responsible for keeping the Leased Premises and the real
property immediately adjacent to the Leased Premises as described in EXHIBIT D
in good condition and repair, including, without limitation, the repair of the
roof membrane and roof leaks subject to Section 14.3, and the painting of the
exterior of the Leased Premises. If Tenant's parking area is changed and the
parties amend EXHIBIT B, the parties shall execute an amendment to EXHIBIT D
reflecting the new landscape maintenance area. At Tenant's option and expense,
Tenant may maintain in their current state all existing landscaped areas on the
Property not required to be maintained by Tenant under the Lease until Landlord
commences development on the Property.
Without limiting the foregoing, if Tenant is required to replace any
Standard Capital Improvement (as hereinafter defined) under this Lease as a
result of the failure or impending failure of, or if it is not reasonably
economically feasible to repair, such Standard Capital Improvement, the costs of
replacement shall be paid by Tenant. However, in the event the term of this
Lease, whether initial or extended, expires (other than as a result of a default
by Tenant or the exercise of Tenant's early termination right under Section 2)
and the useful life of such replacement extends beyond such expiration date,
Landlord shall, upon such expiration, reimburse Tenant for a portion of the cost
of such replacement calculated by allocating the original cost of such
replacement equally over a useful life of ten (10) years. Landlord shall pay
Tenant an amount equal to the portion of such cost allocated to the period
beyond the expiration of the Lease term, with such amount prorated for any
partial Lease year. Tenant shall not be entitled to any such reimbursement upon
the termination of this Lease as a result of Tenant's default or the exercise of
Tenant's early termination option under Section 2. Notwithstanding anything to
the contrary in this Lease, all Standard Capital Improvements for which Landlord
reimburses Tenant shall remain in the Leased Premises at the expiration of the
Lease term. Notwithstanding the foregoing, in no event shall Landlord be
required to reimburse Tenant for the costs of (a) replacing any Standard Capital
Improvements which Tenant failed to maintain or repair in accordance with the
terms of this Lease, (b) any Standard Capital Improvement to be replaced if such
replacement is a result of a material increase after July 12, 1996, of either
the stress on such Standard Capital Improvement or the required capacity of such
Standard Capital Improvement as a result of the use of the Leased Premises for
manufacturing, assembly, fabrication, warehousing or storage purposes, (c)
without limiting Landlord's obligations under Section 14.2, the replacement or
addition of capital improvements other than Standard Capital Improvements, or
(d) the replacement, change or addition of any Standard Capital Improvement for
any reason other than the failure or impending failure thereof or if it is not
reasonably economically feasible to repair such Standard Capital Improvement.
By way of example only, if at the beginning of the third year of the Lease
term Tenant is required to replace the HVAC which has failed with a new HVAC
costing $200,000, and Tenant elects not to exercise its extension option, then
at the end of the initial term of this Lease Landlord would pay Tenant $40,000
of the costs of such HVAC ($20,000 per year multiplied by
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two (2) years of useful life after the expiration of the initial term) and such
payment by Landlord shall not be included as an Operating Expense of the Leased
Premises.
As used herein, "Standard Capital Improvement" shall mean HVAC, mechanical
and electrical systems, plumbing and lighting capital improvements, roof
membrane, elevator, fire and life-safety systems, all at the capacity existing
as of July 12, 1996, or at the capacity necessary for the use of the Leased
Premises for general office use purposes, whichever is greater, and other
capital improvements that would be used by Landlord for another tenant using the
Leased Premises for general office uses after the expiration of this Lease.
14.2 LANDLORD'S OBLIGATIONS. Subject to Sections 20 and 21, Landlord
shall be responsible for keeping in good condition and repair the roof
(excluding roof membrane and roof leaks), the foundation, the structural
condition of any exterior or load-bearing walls, the access road to the Leased
Premises and, only during any construction on any of Tenant's parking area (as
the same may be relocated, resized or reconfigured as provided herein), such
parking area. Notwithstanding the foregoing, Landlord shall not be responsible
for any repairs, replacements, additions or changes to any of the foregoing
which (a) are a result of a material increase after July 12, 1996, of either the
stress thereon or the required capacity thereof as a result of the use of the
Leased Premises for manufacturing, assembly, fabrication, warehousing or storage
purposes, or (b) are required in connection with any laws or insurance
requirements effective after July 12, 1996, which would not be applicable to the
use of the Leased Premises for general office use or for Tenant's use of the
Leased Premises as of July 12, 1996. As of July 12, 1996, Tenant's use of the
Leased Premises consists of the design, light manufacturing, light fabrication,
light assembly, service, repair, inventory and product storage of software,
programming systems and electronic equipment, materials handling and marking
equipment, and accessories; general office; and engineering. Landlord shall pay
its portion of the Standard Capital Improvements as described in Section 14.1.
14.3 PERFORMANCE. Except as expressly provided in Sections 14.1 and
14.2, each party's maintenance and repair obligations are at its own cost except
as provided with respect to Operating Expenses, and except as otherwise
provided, include necessary replacements and additions, and apply whether the
repair, replacement or addition is large or small, foreseen or unforeseen, and
include any modifications or additions to the applicable items or areas that
each party is required to maintain necessary to comply with any laws or
insurance requirements now or hereafter enacted or to correct defects. Tenant
has the exclusive right to perform its maintenance and repair obligations and to
make alterations and improvements under Section 9, except that Landlord can
elect to perform, at Tenant's expense, any maintenance, repair, alteration or
improvement which affects the roof membrane or roof system, any structural
components, any mechanical systems or involves the cutting or drilling of any
floor. Unless the Landlord is contesting any of its repair or maintenance
obligations in good faith, Tenant shall have the right to make any repairs or
perform Landlord's other obligations under Section 14.2 if Landlord does not
commence any repair or maintenance within thirty (30) days after Tenant delivers
to Landlord written notice of the need for such repair or maintenance and Tenant
may deduct the reasonable cost of such repair or maintenance so performed by
Tenant from the next rent payment(s) due pursuant to this Lease.
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15. TAXES. Tenant shall, within ten (10) days after demand by Landlord
but in no event prior to fifteen (15) days before the date when due (and not as
Operating Expenses), reimburse Landlord for all taxes and governmental fees and
charges of any nature, assessments, special assessments and local improvement
district charges incurred by Landlord in the operation or ownership of the
Leased Premises, the Tenant landscaping area as described in EXHIBIT D, the
Parking Area and the access road leading to the Leased Premises and attributable
to the Lease term. If any such amounts are assessed against the Leased
Premises, the Parking Area, the Tenant landscaping area as described in EXHIBIT
D and the Property, they will be equitably apportioned by Landlord as described
in Section 5. Notwithstanding the foregoing, Tenant shall not be required to
pay Landlord's privilege and income taxes or any franchise fees or any
assessments, special assessments or local improvement district charges imposed
against the Leased Premises, the Parking Area or the Tenant landscaping area as
described in EXHIBIT D triggered by Landlord's development of the remainder of
the Property. Tenant shall pay all taxes and other governmental charges
relating to Tenant's use of the Property including all personal property taxes.
16. DEFAULT/REMEDIES.
16.1 TENANT DEFAULT. Tenant shall be in default, if Tenant (i) fails
to pay any installment of rent, additional rent or other amounts when due under
this Lease, except that Tenant shall be allowed a ten (10) day opportunity to
cure a default for nonpayment of rent, (ii) fails to perform any other material
term or covenant in this Lease, (iii) abandons the Property (but Tenant shall
not be deemed to abandon the Property and shall not be in breach of this Lease
if it continues to pay all rent when due and is not in breach of any of its
obligations under this Lease), (iv) makes an assignment for the benefit of
creditors, commences or is the subject of any bankruptcy, reorganization or
insolvency proceeding which is not dismissed within sixty (60) days, has a
receiver appointed for substantially all of Tenant's property, (v) breaches any
of the assignment, subletting or transfer provisions of this Lease, or (vi)
fails to maintain any insurance required by the terms of this Lease; provided,
however, that the defaults specified in subsections (ii) and (v) above shall not
constitute defaults if Tenant cures the default within thirty (30) days (or
longer if the default cannot reasonably be cured in such thirty (30) day period
and Tenant commences such cure within such applicable period and thereafter
diligently pursues such cure) and the default specified in subsection (vi) shall
not constitute a default if Tenant cures such default within ten (10) days of
written notice from Landlord.
In the event of any default under this Lease by Tenant, Landlord may at any
time thereafter after all cure periods expressly set forth herein have passed,
with or without notice or demand and without limiting Landlord in the exercise
of any right or remedy which Landlord may have by reason of such default:
a. Terminate Tenant's right to possession of the Leased Premises by any
lawful means, in which case this Lease shall terminate and Tenant shall
immediately surrender possession of the Leased Premises to Landlord. In
such event Landlord shall be entitled to recover from Tenant all damages
incurred by Landlord by reason of Tenant's default including, but not
limited to, the reasonable cost of recovering possession of the Premises;
reasonable expenses of reletting
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(except for any tenant improvement costs ("Tenant Improvement Costs") which
are not commercially reasonable to relet the Leased Premises and any Tenant
Improvement Costs in excess of the TI Cap Amount (as hereinafter defined)),
reasonable attorneys' fees, and any real estate commission actually paid;
and the difference at the time of award by the court having jurisdiction
thereof (discounted using the 90-day U.S. Treasury bill rate at the time of
the award) of the amount by which the unpaid rent, additional rent and
other charges for the balance of the term after the time of such award
exceeds the amount of such rental loss for the same period that Tenant has
proven could be reasonably avoided.
b. Maintain Tenant's right to possession in which case this Lease shall
continue in effect. In such event Landlord shall be entitled to enforce
all of Landlord's rights and remedies under this Lease, including the right
to recover the rent, additional rent and other amounts as they become due
hereunder, and Landlord shall use commercially reasonable efforts to relet
the Leased Premises; provided that any proposed tenant shall meet
Landlord's reasonable leasing criteria. Landlord shall be entitled to
recover from Tenant all damages incurred by Landlord by reason of Tenant's
default including the reasonable cost of recovering possession of the
Leased Premises; reasonable expenses of reletting (except for any Tenant
Improvement Costs which are not commercially reasonable to relet the Leased
Premises and any Tenant Improvement Costs in excess of the TI Cap Amount),
reasonable attorneys' fees, and any real estate commission actually paid.
If Landlord relets the Leased Premises as provided herein and the net rent
received by Landlord in connection therewith is less than the rent and
additional rent required to be paid under this Lease, Tenant shall pay
Landlord the amount of any deficiency upon demand from Landlord from
time-to-time.
c. Pursue any other remedy now or hereafter available to Landlord at law or in
equity. No remedy hereunder shall be deemed to be exclusive but shall, to the
extent possible, be cumulative with all other remedies at law or in equity.
d. The Consumer Price Index referenced herein shall mean the Consumer Price
Index for All Urban Consumers (Revised Series) (CPI-U) All Items, U.S. City
Average (1982-1984 = 100), or if the same is unavailable, a comparable
substitute therefor acceptable to Landlord and Tenant.
e. As used herein, "TI Cap Amount" shall mean the product of the Base Amount
(as hereinafter defined) and the following percentages: (a) if eight (8) or more
years remain in the term of the Lease as of Tenant's default, CONFIDENTIAL %,
(b) if more than six (6) but less than eight (8) years remain in the term of the
Lease as of Tenant's default, CONFIDENTIAL percent ( %), (c) if more than four
(4) but less than six (6) years remain in the term of the Lease as of Tenant's
default, CONFIDENTIAL percent ( %), (d) if more than two (2) but less than four
(4) years remain in the term of the Lease as of Tenant's default, CONFIDENTIAL
percent ( %), and (e) if less than two (2) years remain in the term of the
Lease as of Tenant's default, CONFIDENTIAL percent ( %). For the purposes of
the foregoing, the term of the Lease shall include the term of any extension
period for which Tenant has exercised its extension option under this Lease. As
used herein, "Base Amount" shall mean $ CONFIDENTIAL per square foot, with such
amount increased through the date of such reletting by increases in the Consumer
Price Index from the commencement date of this Lease.
16.2 LANDLORD DEFAULT. Landlord shall be in default under this Lease
if within thirty (30) days (or such longer period as may be reasonably necessary
to cure the default so long as Landlord diligently is pursuing a cure) following
written notice to Landlord by Tenant specifying any material breach of
Landlord's obligations under this Lease such breach remains uncured. If the
Landlord's default is not cured within the applicable cure period, then Tenant
shall have the option to cure the Landlord's default without further notice to
Landlord. If Tenant elects to cure, then all actual, reasonable sums paid, and
reasonable costs and expenses incurred
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by Tenant (including reasonable Tenant relocation costs) in curing Landlord's
default, including without limitation, reasonable attorneys' fees, shall be paid
by Landlord to Tenant on demand, and if not paid Tenant may deduct the same from
the next sums due Landlord from Tenant under this Lease, until all such costs
and expenses are repaid by Landlord in full. Tenant's remedies under this
Section 16.2 are in addition to any other legal and equitable remedies to which
Tenant may be entitled under applicable law other than the termination of this
Lease.
17. INDEMNITY. Except for the indemnified party's negligence, Tenant
agrees to indemnify, defend and hold harmless Landlord and its agents, employees
and contractors, from and against any and all losses, liabilities, damages,
costs and expenses (including attorneys' fees) resulting from claims by third
parties for injuries to any person and property damage arising from the
negligence or willful misconduct of Tenant or its agents, employees, contractors
and subtenants occurring in or about the Leased Premises, the access road
leading to the Leased Premises, the Parking Area or the landscaping area
described in EXHIBIT D or the use of any of the outbuildings. Except for the
indemnified party's negligence, Landlord agrees to indemnify, defend and hold
harmless Tenant and its agents, employees and contractors, from and against any
and all losses, liabilities, damages, costs and expenses (including attorneys'
fees) resulting from claims by third parties for injuries to any person and
property damage arising from the negligence or willful misconduct of Landlord or
its agents, employees or contractors occurring in or about the Leased Premises,
the access road leading to the Leased Premises, the Parking Area or the
landscaping area described in EXHIBIT D. This Section 17 shall survive the
termination of this Lease.
18. INSURANCE.
18.1 TENANT'S INSURANCE. During the term of this Lease, Tenant shall
be responsible for insuring its property on the Leased Premises with insurance
for the full replacement cost of Tenant's property. During the term of this
Lease, Tenant shall maintain commercial general liability insurance covering
Tenant's occupancy of the Leased Premises in the amount of $ CONFIDENTIAL per
occurrence and $ CONFIDENTIAL in the aggregate with an additional umbrella
amount of not less than $ CONFIDENTIAL in the aggregate with no per occurrence
limit. All such insurance shall provide primary coverage to Landlord and shall
be issued by an insurance company reasonably acceptable to Landlord. Landlord
may from time-to-time require commercially reasonable increases in any such
insurance limits consistent with comparable properties in the area. The
insurance carried by Tenant under this Section 18.1 may not be canceled without
thirty (30) days' prior written notice to Landlord. Landlord and Landlord's
property manager shall be named as additional insureds. Upon request, Tenant
shall furnish Landlord a certificate of insurance evidencing compliance with the
terms of this Section 18.
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18.2 LANDLORD'S INSURANCE. Landlord shall maintain all risk property
insurance insuring the full replacement cost of the Leased Premises, with no co-
insurance penalty, and rent loss insurance in an amount reasonably determined by
Landlord to cover the loss of rents under this Lease, general liability
insurance, boiler and machinery insurance and such other insurance as Landlord
may elect acting in a commercially reasonable manner, the costs of which shall
be Operating Expenses. The Leased Premises may be included in a blanket policy
(in which case the cost of such insurance allocable to the Leased Premises will
be reasonably determined by Landlord based upon the insurer's cost
calculations).
19. WAIVER OF SUBROGATION. To the extent permitted by law, neither party
nor its officers, directors, employees, managers, agents, invitees or
contractors shall be liable to the other for loss or damage to property or
business interests from any risk reasonably coverable by insurance (including,
without limitation, business interruption or loss of rents), including loss or
damage arising from such party's negligence, and each party waives any claims
against the other party, and its officers, directors, employees, managers,
agents, invitees and contractors for such loss or damage. The failure of a
party to insure its property shall not void the foregoing waiver. The insurance
obtained by Landlord and Tenant shall include waivers of subrogation by the
insurers and all rights based upon an assignment from its insured, against
Landlord or Tenant, their officers, directors, employees, managers, agents,
invitees and contractors, in connection with any loss or damage thereby insured
against.
20. DAMAGE OR DESTRUCTION. In the event the Leased Premises are damaged
to such an extent as to render them untenantable in whole or in substantial
part, or are destroyed, Landlord shall restore the Leased Premises as nearly as
practicable to the condition immediately prior to such damage or destruction,
unless the Landlord deems that it is not economically feasible to restore the
Leased Premises. If the damage is covered by insurance the restoration of the
Leased Premises shall be deemed economically feasible. After the happening of
any such event of damage or destruction, Tenant shall give Landlord immediate
written notice thereof. Landlord shall have twenty (20) days after the date of
such notification to notify the Tenant in writing of Landlord's intentions to
repair or rebuild the Leased Premises, or the part so damaged. If Landlord
elects to repair or rebuild the Leased Premises, Landlord shall commence and
complete promptly the work of repairing or rebuilding without unnecessary delay,
and during such period the rent of the Leased Premises shall be abated in the
same ratio that the portion of the Leased Premises rendered for the time being
unfit for occupancy shall bear to the whole of the Leased Premises. If Landlord
shall fail to give notice of its decision to rebuild, Tenant shall have the
right to declare this Lease terminated by written notice served upon the
Landlord. In the event of damage or destruction of CONFIDENTIAL percent ( %)
or more of the replacement cost of the Leased Premises during the last year of
the then-current Lease term, either party may terminate the Lease upon thirty
(30) days written notice to the other party.
21. CONDEMNATION. If any part of the Leased Premises or Parking Area
should be taken for any public or quasi-public use under governmental law,
ordinance, or regulation, or by right of eminent domain, or by private purchase
in lieu thereof (a "Taking" or "Taken"), and the Taking would prevent or
substantially interfere with Tenant's use of the Leased Premises, either
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party may terminate this Lease upon thirty (30) days' written notice and rent
shall be apportioned as of the date of title vesting in such proceeding or
purchase. If part of the Leased Premises shall be Taken, and this Lease is not
terminated as provided above, the rent payable hereunder during the unexpired
lease term shall be reduced to such extent as may be fair and reasonable under
the circumstances. In the event of any such Taking, Landlord shall be entitled
to receive the entire price or award from any such Taking without any payment to
Tenant. Nothing contained herein shall be deemed to give Landlord any interest
in or to require Tenant to assign to Landlord any separate award made to Tenant
for the taking of personal property or fixtures belonging to Tenant or for the
interruption of or damage to Tenant's business or for Tenant's moving expenses.
22. QUIET ENJOYMENT. If Tenant shall perform all of the covenants and
agreements herein, Tenant shall, subject to the terms of this Lease, at all
times during the Lease term, have peaceful and quiet enjoyment of the Leased
Premises against any person claiming by, through or under Landlord. Any
development or construction activity undertaken by Landlord on the Property
shall be conducted in a manner that does not unreasonably interfere with
Tenant's business. Landlord shall undertake all reasonable efforts to minimize
the amount of dust and noise created by any development or construction activity
on the Property, and Landlord shall pay for cleaning and removing construction
dust from the Leased Premises and the landscaping maintained by Tenant. Landlord
shall not construct any building or other structure east of the Building in the
area designated on EXHIBIT G attached hereto and incorporated herein by this
reference although parking may be located in that area.
The restriction on construction within the area designated on EXHIBIT G
shall inure to the benefit of Tenant and Tenant's affiliates, but shall
terminate in the event of an assignment of the entire Lease or subletting of the
entire Leased Premises.
23. HAZARDOUS SUBSTANCES. Except for Hazardous Substances used for
ordinary cleaning and office purposes and for the uses permitted under Section 7
of this Lease, in each case used in compliance with all applicable laws and
regulations, Tenant shall not transport, store, use, generate, manufacture or
release any Hazardous Substances on any part of the Property or permit the
foregoing to occur. Tenant, at its sole cost and expense, shall operate its
business in the Leased Premises, Parking Area and landscaping area in EXHIBIT D
in compliance with all Environmental Laws and shall promptly remediate any
Hazardous Substances released on or from the Property by Tenant, its agents,
employees, contractors, subtenants or invitees. If the release of any Hazardous
Substance on the Property caused or permitted by Tenant, its agents, employees,
contractors, subtenants or invitees, whether or not permitted by this Section
23, results in any contamination, damage or injury to the Property, the
environment or human health, Tenant shall promptly take all actions at its sole
expense as are necessary to return the Property to the condition existing prior
to the release of any such Hazardous Substance and as may be required by
Environmental Laws.
Tenant shall indemnify, defend, and hold Landlord harmless from and against
any and all losses (including, without limitation, diminution in value of the
Property and loss of rental income from the Leased Premises), claims, demands,
actions, suits, damages, expenses (including, without limitation, remediation,
corrective action, or cleanup expenses), and costs
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(including, without limitation, actual attorneys' fees, consultant fees or
expert fees) which are brought or recoverable against, or suffered or incurred
by Landlord as a result of release of Hazardous Substances that Tenant is
required to remediate as provided above or any breach of the obligations under
this Section 23 by Tenant, its agents, employees, contractors, subtenants or
invitees, regardless of whether Tenant had knowledge of such noncompliance. This
Section 23 shall survive any termination of this Lease.
For purposes of this Section, the term "Hazardous Substances" shall include
substances now or hereafter designated as hazardous or toxic under any
applicable Federal, State or local law, regulation, ordinance or other
enactments of any governmental agency ("Environmental Laws"), including, without
limitation, petroleum, asbestos and PCB's.
24. RIGHT OF FIRST REFUSAL. So long as Tenant is not in material default
of the terms of this Lease and there has not been at that time a material
adverse change in the financial condition of Tenant as reflected in Tenant's
financial statements, Landlord shall deliver to Tenant written notice of the
speculative space to be constructed for lease in any building containing any
speculative space (as opposed to build to suit) to be constructed on the
Property no later than before Landlord first offers such space to any other
third party (the "Notice of Availability") and Tenant shall have an exclusive
right, for a period of sixty (60) days from the receipt of the Notice of
Availability, to negotiate a lease of space in such building which shall be
negotiated in good faith by Landlord and Tenant. Any such lease shall be at
market rent and on market terms and conditions and shall be for no less than the
greater of CONFIDENTIAL percent ( %) of the speculative space in such building
or CONFIDENTIAL square feet.
This benefit shall inure to the benefit of Tenant and Tenant's affiliates,
but shall terminate in the event of an assignment or subletting of an aggregate
of CONFIDENTIAL percent ( %) or more of the Building by Tenant (excluding
assignments or subletting to its affiliates).
25. ESTOPPEL CERTIFICATES. Each party hereto shall, within ten (10) days
of request from the other party or its lender, at any time and from time to time
execute, acknowledge and deliver to such party a written statement, in the form
generally acceptable to institutional purchasers or lenders certifying as
follows: that this Lease is unmodified and in full force and effect (or if
there has been modification thereof, that the same is in full force and effect
as modified and stating the nature thereof); that to the best of its knowledge
there are no uncured defaults on the part of the other party hereto (or if any
such default exists, the specific nature and extent thereof); the date to which
any rents and other charges have been paid in advance, if any; and such other
matters as are typically contained in such certificates. If a party does not
deliver the written statement within the ten (10) day period, the statements
contained in the requested statement shall be deemed to be correct and
conclusive upon the party who is to respond.
26. HOLDOVER BY TENANT. If Tenant remains in possession of the Leased
Premises after the expiration of this Lease, without the consent of the
Landlord, Tenant shall be deemed to be occupying the Leased Premises as a month-
to-month Tenant, subject to the terms of this Lease. During such tenancy,
Tenant shall pay to Landlord each month one hundred twenty percent (120%) of the
rent due during the last month of the expired Lease term.
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27. SUBORDINATION/LENDER PROTECTION. Tenant hereby agrees to subordinate
this Lease to any mortgage, deed of trust or other security instrument in favor
of an institutional mortgagee, beneficiary or other secured party ("Lender")
covering the Leased Premises, provided that, simultaneously with the execution
thereof, the Lender executes in favor of Tenant Lender's current standard non-
disturbance, attornment and subordination agreement, which agreement shall
provide that the tenancy and other rights of Tenant hereunder shall not be
disturbed so long as Tenant is not in default under this Lease and which
agreement shall not materially and adversely affect Tenant's rights under this
Lease. For the purposes of the foregoing, such an agreement shall not be deemed
to materially or adversely affect Tenant's rights under this Lease if it
provides that (a) insurance or condemnation proceeds will be applied as provided
in such mortgage, deed of trust or security instrument, (b) without affecting
Tenant's rights against Landlord under this Lease, Lender is not liable for any
defaults or offsets under this Lease occurring prior to the date that Lender
takes title to the Leased Premises and/or (c) without affecting Tenant's rights
against Landlord under this Lease, Lender's liability under the Lease shall be
limited to its interest in the Property.
28. BROKERAGE FEES/COMMISSIONS. Each party represents and warrants that
it has dealt with no broker, agent or other person in connection with this Lease
and that no broker, agent or other person brought about this transaction, and
each party shall defend, indemnify and hold the other harmless from and against
any claims by any other broker, agent or other person claiming a commission or
other form of compensation by virtue of having dealt with the indemnitor with
regard to this Lease.
29. TRANSFERS OF LANDLORD'S INTEREST. Upon the transfer of the Leased
Premises by Landlord, Landlord shall have no liability for obligations
thereafter accruing under the Lease provided that its obligations are assigned
and assumed by Landlord's successor; Landlord's liability for obligations prior
to the transfer will not be affected.
30. NOTICE. Any notice, demand, request or consent that the parties
hereto desire or is required to be given by this Lease shall be deemed
sufficient if sent by United States first class mail, facsimile, or delivered
via messenger or overnight delivery service to the following:
LANDLORD: CONFIDENTIAL
CONFIDENTIAL
CONFIDENTIAL
Attention: CONFIDENTIAL
TENANT: Data I/O Corporation
10525 Willows Road N.E.
P.O. Box 97046
Redmond, WA 98073-9746
Attention: Chief Financial Officer
cc: General Counsel
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Notices shall be effective upon receipt if delivered by facsimile,
messenger service or overnight delivery and upon the third day following deposit
if by United States first class mail.
31. SEVERABILITY. If any term, covenant, or provision of this Lease is
held by a court of competent jurisdiction to be void, invalid, or unenforceable,
the remainder of the provisions shall continue in full force and effect and
shall in no way be affected, impaired or invalidated.
32. CAPTIONS. The captions used in this Lease shall have no effect on its
interpretation.
33. ASSIGNMENTS AND SUBLEASES. Without Landlord's prior written consent,
Tenant shall not voluntarily or involuntarily assign this Lease or sublease the
Leased Premises or any part thereof or mortgage, pledge, or hypothecate its
leasehold interest. Landlord retains the absolute right to withhold its consent
to any assignment of this Lease other than to Tenant's affiliates. With respect
to subletting, Landlord's consent shall not be unreasonably withheld. It shall
be reasonable for Landlord to withhold its consent if the transferee's financial
condition is not acceptable to Landlord. For purposes of this Section 33, a
transfer of the ownership interests of Tenant shall be deemed an assignment of
this Lease unless Tenant's ownership interests are publicly traded.
Notwithstanding the above, Tenant may assign or sublet the Leased Premises, or
any part thereof, to any entity controlling Tenant, controlled by Tenant or
under common control with Tenant, without the prior consent of Landlord. No
subletting shall release Tenant from any liability under this Lease. Tenant
shall be entitled to any excess income from any subletting. Each sublease shall
be for not less than CONFIDENTIAL square feet of space. If Tenant defaults
under this Lease, Landlord can accept rent directly from any sublessee. Tenant
shall be relieved from all further liability under this Lease after the date of
an assignment of the Lease made by Tenant in accordance with the terms of this
Section 33, other than an assignment to an affiliate of Tenant (in which event
Tenant shall not be released from liability under this Lease). If at any time
Tenant desires to assign or sublet (other than to an affiliate of Tenant) space
in the Leased Premises, whether in one or more transactions, which would cause
the total space subleased or assigned by Tenant to exceed CONFIDENTIAL percent
( %) of the Leased Premises, then Landlord may, by written notice to Tenant
within thirty (30) days after receipt of Tenant's notice requesting Landlord's
consent to such assignment or sublease, terminate this Lease with respect to the
space described in Tenant's notice (and no other space) and may, if it so
elects, directly lease such space to the proposed transferee.
34. ENTIRE AGREEMENT. This Lease together with the Exhibits attached
hereto comprise the entire agreement and understanding of the parties hereto
with respect to the subject matter hereof, and replace and supersede all prior
or contemporaneous written or oral agreements and understandings.
35. AMENDMENTS OR MODIFICATIONS. This Lease may not be varied or modified
except by written instrument signed by all parties.
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36. BINDING ON SUCCESSORS. Subject to the provisions of Section 33, this
Lease shall inure to the benefit of and be binding upon the heirs,
administrators, executors, successors and assigns of the parties.
37. ATTORNEYS' FEES. In any proceeding brought to enforce this Lease or
to determine the rights of the parties under this Lease, the most prevailing
party shall be entitled to collect, in addition to any judgment awarded by a
court, a reasonable sum as attorneys' fees, and all costs and expenses incurred
in connection with such a lawsuit, including attorneys' fees, expenses of
litigation, and costs of appeal. For purposes of this Lease, the most
prevailing party shall be that party in whose favor final judgment is rendered.
The term "proceeding" shall mean and include arbitration, administrative,
bankruptcy, and judicial proceedings including appeals.
38. COUNTERPARTS. This Lease may be executed simultaneously in
counterparts, each of which shall be an original, but all of which together
shall constitute one and the same instrument.
39. NO MERGER. The voluntary or other surrender of this Lease by Tenant,
or a mutual cancellation thereof, or a termination by Landlord, shall not be a
merger of the sublease, Lease or title to the Leased Premises, and shall, at the
option of Landlord, terminate all or any existing subtenancies or may, at the
option of Landlord, operate as an assignment to Landlord of any or all of such
subtenancies.
40. GOVERNING LAW. This Lease shall be governed by and construed in
accordance with the laws of the State of Washington without regard to conflicts
of law rules. The venue for any cause of action related to this Lease shall be
the state and federal courts sitting in King County, Washington.
41. NO WAIVER. No waiver by either party of any provision hereof shall be
deemed a waiver of any other provision hereof or of any subsequent breach by the
other party of the same or any other provision. Any waiver by either party
shall be in writing.
42. EASEMENTS. Landlord reserves to itself the right, from time to time,
to grant such easements, rights and dedications that Landlord deems necessary or
desirable, and to cause the recordation of Parcel Maps and restrictions, so long
as such easements, rights, dedications, Parcel Maps and restrictions do not
unreasonably interfere with the use of the Leased Premises by Tenant. Tenant
shall sign any of the aforementioned documents upon request of Landlord.
43. TIME OF ESSENCE. Time is of the essence with respect to the
obligations to be performed under this Lease.
44. NO OTHER TERMINATION. Except as expressly provided in this Lease,
this Lease shall not be terminable by Tenant for any reason, nor shall Tenant be
entitled to any abatement or reduction in the rent payable under this Lease. The
provisions of Sections 9, 14, 20 and 21 supersede any law to the contrary
regarding the matters set forth therein.
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45. LIMITATION ON LANDLORD'S LIABILITY. Tenant agrees that its recourse
against Landlord for a default or breach by Landlord of any of its obligations
under this Lease shall be limited to Landlord's interest in the Property or if
Landlord has sold or transferred the Property, to the amount of the net proceeds
of such sale or transfer received by Landlord; provided that if Landlord's
interest in the Property or the amount of the net proceeds is less than
$ CONFIDENTIAL, Tenant shall have recourse against Landlord's assets for such
default or breach up to a maximum amount equal to the $ CONFIDENTIAL less
Landlord's interest in the Property or the amount of the net proceeds. Except
as expressly provided herein, no recourse may be had against Landlord's assets
or other property for any default or breach by Landlord under this Lease.
LANDLORD: CONFIDENTIAL
By _________________________
Its ___________________
TENANT: DATA I/O CORPORATION
By _________________________
Its ___________________
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STATE OF WASHINGTON )
) ss.
COUNTY OF KING )
On this _____ day of __________________, 1996, before me, a Notary Public
in and for the State of Washington, duly commissioned and sworn, personally
appeared ________________________________________________________, to me known
to be the ___________________________ of the corporation named in and which
executed the foregoing instrument, and she/he acknowledged to me that she/he
signed the same as the free and voluntary act and deed of said corporation for
the uses and purposes therein mentioned, being authorized so to do.
WITNESS my hand and official seal the date and year in this certificate
above written.
---------------------------------------------
Notary Public in and for the State of
Washington, residing at
---------------------------------------------
STATE OF _______________ )
) ss.
COUNTY OF _______________ )
On this _____ day of __________________, 1996, before me, a Notary Public
in and for the State of _______________, duly commissioned and sworn, personally
appeared ________________________________________________________, to me known
to be the ___________________________ of the corporation named in and which
executed the foregoing instrument, and she/he acknowledged to me that she/he
signed the same as the free and voluntary act and deed of said corporation for
the uses and purposes therein mentioned, being authorized so to do.
WITNESS my hand and official seal the date and year in this certificate
above written.
---------------------------------------------
Notary Public in and for the State of
_______________, residing at
---------------------------------------------
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EXHIBIT A
REAL PROPERTY
Legal Description of Property
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CONFIDENTIAL PORTIONS OF THIS DOCUMENT HAVE BEEN
OMITTED AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION.
EXHIBIT B
PARKING AREA
Map of Parking Area
CONFIDENTIAL Lease (07/12/96)
Page 156
<PAGE>
CONFIDENTIAL PORTIONS OF THIS DOCUMENT HAVE BEEN
OMITTED AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION.
EXHIBIT C
BUILDING SITE PLAN
Map of Building Site Plan
CONFIDENTIAL Lease (07/12/96)
Page 157
<PAGE>
CONFIDENTIAL PORTIONS OF THIS DOCUMENT HAVE BEEN
OMITTED AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION.
EXHIBIT D
LEASED PREMISES AND TENANT LANDSCAPE MAINTENANCE AREA
Map of Leased Premises and Tenant Landscape Maintenance Area
CONFIDENTIAL Lease (07/12/96)
Page 158
<PAGE>
CONFIDENTIAL PORTIONS OF THIS DOCUMENT HAVE BEEN
OMITTED AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION.
EXHIBIT E
ALTERATIONS AND IMPROVEMENTS
Recarpet first and second floor
Remove and relocate internal offices and workstations on first, second and third
floors
Refurbish remaining restrooms (second and third floors)
Refurbish food prep area (flooring and cabinets)
or remove from Building if food services facilities developed on the
Property, and reconfigure area for open work station environment
Replace phone switch
Replace and upgrade security system
Replace ceiling tiles
Interior painting various locations
CONFIDENTIAL Lease (07/12/96)
Page 159
<PAGE>
CONFIDENTIAL PORTIONS OF THIS DOCUMENT HAVE BEEN
OMITTED AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION.
EXHIBIT F
RETAINED EQUIPMENT
Cafeteria Equipment
3 Refrigerators in food preparation area
Salad bar
Serving bar
2 Ovens
Hotplate
Ice machine
Meat slicer
Microwave oven in food preparation area
Miscellaneous counter equipment
2 Refrigerators in lunch room/meeting area
Espresso machine
Cash register
Manufacturing Air Compressor
Vacuum Pump
50Hz Generator
2 Thermatrons
Telephone System (excluding interior wiring)
Dytel Automated Answering System
Security System (excluding interior wiring and permanently installed card
readers and door strikes)
Synchronized Clock System
Trash Compactor
Supplier owned Equipment, including but not limited to,
Vending machines
3 microwave ovens
Ice cream freezer
Soft drink dispenser
Drink refrigeration cases
CONFIDENTIAL Lease (07/12/96)
Page 160
<PAGE>
CONFIDENTIAL PORTIONS OF THIS DOCUMENT HAVE BEEN
OMITTED AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION.
Computer Network Hubs/Routers (excluding interior wiring)
Computer Room Equipment and Halon System
CONFIDENTIAL Lease (07/12/96)
Page 161
<PAGE>
CONFIDENTIAL PORTIONS OF THIS DOCUMENT HAVE BEEN
OMITTED AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION.
EXHIBIT G
RESTRICTED BUILDING AREA
Map of Restricted Building Area
CONFIDENTIAL Lease (07/12/96)
Page 162
<PAGE>
CONFIDENTIAL PORTIONS OF THIS DOCUMENT HAVE BEEN
OMITTED AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION.
EXHIBIT 10.33
December 20, 1996
CONFIDENTIAL
CONFIDENTIAL
CONFIDENTIAL
CONFIDENTIAL
CONFIDENTIAL
VIA Facsimile ( ) CONFIDENTIAL and U.S. Mail
RE: Fin/Admin/Real Estate; Headquarters
Dear CONFIDENTIAL:
This letter confirms the following terms of an amendment (the "First
Amendment") and extension of the Closing Date under that certain Purchase and
Sale Agreement (the "Agreement") dated July 9, 1996, by and between CONFIDENTIAL
("Purchaser") and Data I/O Corporation ("Seller") :
1. All capitalized terms used in the First Amendment shall have the same
meaning as in the Agreement;
2. Purchaser shall have the option to extend the Closing Date for the
following periods: to a date no later than January 9, 1997 ("Extension
Period 1"); January 19, 1997 ("Extension Period 2"); February 18, 1997
("Extension Period 3"); and March 20, 1997 ("Extension Period 4")
(each an "Extension Period"); provided, however, the Closing Date
shall in no event be later than CONFIDENTIAL( ) days from the date
Purchaser obtains SEPA, Concurrency and Design Review Board Approval,
unless otherwise agreed in writing;
3. Purchaser shall notify Seller in writing prior to any Extension Period
of its intention to extend the Closing Date for such Extension Period.
Extension Period 1 shall not require any payments by Purchaser.
Extension Periods 2 and 3 require the payment to Seller directly of $
CONFIDENTIAL and $ CONFIDENTIAL to the Escrow Agent concurrently with
Purchaser's notice of its intention to extend the Agreement. Extension
Period 4 requires the payment to Seller directly of $ CONFIDENTIAL,
with no additional amounts payable to the Escrow Agent. Each such
payment is referred to herein as an "Extension Payment". Extension
Payments paid to Seller will only be refundable to Purchaser in the
event of a termination of the Agreement by Purchaser pursuant to
Section 8.2(g) of the Agreement or material breach of the Agreement by
Seller after notice thereof from Purchaser and with reasonable
opportunity to cure, but will be creditable to the Purchase Price if
the transaction closes by the Closing Date. Extension Payments paid
to the Escrow Agent will be creditable to the Purchase Price
Page 163
<PAGE>
CONFIDENTIAL PORTIONS OF THIS DOCUMENT HAVE BEEN
OMITTED AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION.
if the transaction closes by the Closing Date, but will be refundable
to Purchaser only if the transaction fails to close by the Closing
Date because Purchaser is unable to obtain SEPA, Concurrency or Design
Review Board Approval or in the event of a termination of the
Agreement by Purchaser pursuant to Section 8.2(g) of the Agreement or
material breach of the Agreement by Seller after notice thereof from
Purchaser and with reasonable opportunity to cure; otherwise, such
amounts shall be payable to Seller;
4. The Phase II Contingency Period is hereby extended to the Closing
Date, as the same may be extended pursuant to the terms of this First
Amendment;
5. The First Amendment shall be effective as of December 20, 1996; and
6. By returning a copy of this letter as described below, Purchaser
hereby exercises its option to extend the Closing Date to a date no
later than January 9, 1997.
7. All other terms and conditions of the Agreement shall remain in full
force and effect.
If the terms described in this letter are acceptable to CONFIDENTIAL,
please have an authorized representative of CONFIDENTIAL retain one original for
CONFIDENTIAL's records and return two signed originals of this letter to my
attention. We will then forward an original to the Escrow Agent. If we have
not received a signed facsimile copy of this letter today 2:00PM, Pacific
Standard Time, our offer as contained in this letter shall expire.
Sincerely,
//S// Steve M. Gordon
Steve M. Gordon
Vice President, Chief Financial Officer
SMG/TMH/mk
Acknowledged and agreed:
CONFIDENTIAL
By //S// Purchaser
----------------
Printed Name CONFIDENTIAL
------------
Title CONFIDENTIAL
------------
cc: CONFIDENTIAL
CONFIDENTIAL
CONFIDENTIAL
CONFIDENTIAL
CONFIDENTIAL
CONFIDENTIAL
CONFIDENTIAL
Page 164
<PAGE>
CONFIDENTIAL PORTIONS OF THIS DOCUMENT HAVE BEEN
OMITTED AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION.
EXHIBIT 10.34
February 17, 1997
Mr. Bill Erxleben
Data I/O Corporation
10525 Willows Road, N.E.
Redmond, Washington 98073
RE: DATA I/O HEADQUARTERS
Dear Bill:
This letter confirms the following terms of an amendment (the "Second
Amendment") and extension of the Closing Date under that certain Purchase and
Sale Agreement (the "Agreement") dated July 9, 1996, as amended by First
Amendment dated December 20, 1996 (the "First Amendment"), by and between
CONFIDENTIAL ("Purchaser") and Data I/O Corporation ("Seller") :
1. All capitalized terms used in the Second Amendment shall have the same
meaning as in the Agreement;
2. The Purchase Price for the Property is hereby amended to be $
CONFIDENTIAL.
3. Paragraph 2 of the First Amendment is hereby amended to read in its
entirety as follows:
Purchaser shall have the option to extend the Closing Date for the
following period: to a date no later than January 9, 1997 ("Extension
Period 1"); January 19, 1997 ("Extension Period 2"); February 18, 1997
("Extension Period 3"); March 20, 1997 ("Extension Period 4"); and
April 20, 1997 ("Extension Period 5") (each an "Extension Period");
provided, however, the Closing Date shall in no event be later than
CONFIDENTIAL ( ) days from the date Purchaser obtains SEPA, unless
otherwise agreed in writing.
4. Purchaser acknowledges that SEPA approval is the only Developmental
Approval remaining as a contingency under the Agreement. Purchaser
further agrees to waive sections 8 (2) (b) (1) and 8 (2) (b) (2) of
the Agreement and all objections contained in CONFIDENTIAL's letter of
CONFIDENTIAL, regarding Section CONFIDENTIAL of the Agreement.
5. Paragraph 3 of the First Amendment is hereby amended to add the
following sentence as the third sentence thereof:
Extension Period 5 shall not require any payment by Purchaser.
6. All other terms and conditions of the Agreement shall remain in full
force and effect.
Page 165
<PAGE>
CONFIDENTIAL PORTIONS OF THIS DOCUMENT HAVE BEEN
OMITTED AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION.
If the terms described in this letter are acceptable to Seller, please have
an authorized representative of Seller retain one original for Seller's records
and return two signed originals of this letter to my attention. We will then
forward an original to the Escrow Agent.
Sincerely,
CONFIDENTIAL
//S// Purchaser
CONFIDENTIAL
Acknowledged and agreed:
Data I/O Corporation
By //S// William C. Erxleben
-------------------------
Printed Name William C. Erxleben
-------------------
Title Pres/CEO
--------
Date February 17, 1997
-----------------
cc: CONFIDENTIAL
CONFIDENTIAL
CONFIDENTIAL
CONFIDENTIAL
Page 166
<PAGE>
EXHIBIT 10.35
THIRD AMENDMENT TO THE
DATA I/O
TAX DEFERRAL RETIREMENT PLAN
The DATA I/O Tax Deferral Retirement Plan ("Plan"), as amended and restated
effective January 1, 1993 is amended as follows pursuant to Section 11.1 of the
Plan, effective
January 1, 1995:
1. Effective for Employees hired on or after January 1, 1995, Section 1.14(a)
ELIGIBLE EMPLOYEE shall be replaced in its entirety by the following:
(a) U.S. EMPLOYEES
For United States-based employees, "Eligible Employee" means any
regular Employee who is enrolled on the active, regular payroll of the
Employer, who is not a non-resident alien, who is not a leased
employee and who is not covered under a collective bargaining
agreement where retirement benefits were the subject of good faith
bargaining, which does not provide for retirement benefits under this
Plan
2. Effective for Employees hired on or after January 1, 1995, Section 7.1
VESTING shall be replaced in its entirety by the following:
VESTING
a) Tax-Deferred Account and Rollover Account
Each Participant shall have a 100% vested, nonforfeitable right to his
or her Tax-deferred Account and Rollover Account
b) Incentive Account
Each Participant shall earn a vested, nonforfeitable right to his or
her Incentive Account based on his or her service during which salary
deferral contributions were made to the Plan on behalf of the
Participant multiplied by the appropriate vesting percentage in
accordance with the following table:
Years of Service Percent Vested
---------------- --------------
Less than 3 0%
3 or more 100%
Page 167
<PAGE>
In addition, each Participant shall have a 100% vested, nonforfeitable
right to his or her Incentive Account upon death, becoming Disabled or
the attainment of age 591/2, provided he or she is an Employee on such
date.
c) Discretionary Contribution Account
Each time the Employer makes a discretionary contribution to the Plan,
the Employer shall designate in the Appendix which describes the
discretionary contribution that it shall be immediately 100% vested or
bested in the same manner as the Incentive Account pursuant to
subparagraph (b).
FOR DATA I/O CORPORATION FOR THE TRUSTEES
/s/William C. Erxleben /s/W. Hunter Simpson
- --------------------------- -----------------------------------
President
/s/Milton F. Zeutschel
-----------------------------------
/s/Steven M. Gordon /s/Donald R. Stenquist
- --------------------------- -----------------------------------
Witness
-----------------------------------
- --------------------------------------------------------------------------------
Page 168
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0000351998
<NAME> DATA I/O CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-26-1996
<PERIOD-START> DEC-29-1995
<PERIOD-END> DEC-26-1996
<CASH> 4,048
<SECURITIES> 0
<RECEIVABLES> 10,158
<ALLOWANCES> 362
<INVENTORY> 8,260
<CURRENT-ASSETS> 24,337
<PP&E> 30,069
<DEPRECIATION> 20,639
<TOTAL-ASSETS> 39,319
<CURRENT-LIABILITIES> 14,283
<BONDS> 1,500
15,247
0
<COMMON> 0
<OTHER-SE> 7,312
<TOTAL-LIABILITY-AND-EQUITY> 39,319
<SALES> 60,423
<TOTAL-REVENUES> 60,423
<CGS> 30,526
<TOTAL-COSTS> 30,590
<OTHER-EXPENSES> (199)
<LOSS-PROVISION> 119
<INTEREST-EXPENSE> 258
<INCOME-PRETAX> (871)
<INCOME-TAX> 230
<INCOME-CONTINUING> (1,101)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,101)
<EPS-PRIMARY> (0.16)
<EPS-DILUTED> (0.16)
</TABLE>
