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 31, 1998 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:
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 March 2, 1999
$10,214,778
7,238,311 shares of no par value Common Stock outstanding as of March 2, 1999
Documents incorporated by reference
Portions of the registrant's Proxy Statement relating to its May 11,
1999 Annual Meeting of Stockholders are incorporated into Part III of
this Annual Report on Form 10-K.
Page 1 of 179
Exhibit Index on Page 59
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DATA I/O CORPORATION
FORM 10-K
For the Fiscal Year Ended December 31, 1998
INDEX
Part I Page
Item 1. Business 3
Item 2. Properties 15
Item 3. Legal Proceedings 15
Item 4. Submission of Matters to a Vote of Stockholders 15
Part II
Item 5. Market for Registrant's Common Stock and Related
Stockholder Matters 16
Item 6. Selected Five-Year Financial Data 17
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 18
Item 7A. Quantitative and Qualitative Disclosure About Market Risk 28
Item 8. Financial Statements and Supplementary Data 28
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 48
Item 11. Executive Compensation 48
Item 12. Security Ownership of Certain Beneficial Owners
and Management 48
Item 13. Certain Relationships and Related Transactions 48
Part IV
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K 49
Signatures 58
Exhibit Index 59
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PART I
Item 1. Business
This Annual Report on Form 10-K and the documents incorporated herein by
reference contain forward-looking statements based on current expectations,
estimates and projections about the Company's industry, management's beliefs and
certain assumptions made by management. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Forward Looking
Statements."
General
Data I/O(R) Corporation ("Data I/O" or the "Company") is engaged in the design,
manufacture, and sale of programming systems that are used by designers and
manufacturers of electronic products. The Company's programming system products
are used to program integrated circuits ("ICs" or "devices" or "semiconductors")
with the specific unique data for the product within which the ICs will be used,
and are an important tool for the electronics industry which is experiencing
growing use of programmable ICs. Data I/O markets and distributes its
programming systems worldwide, and is a global leader in this market. The
Company was incorporated in the state of Washington in 1969.
Strategic Initiatives
1998 was a turbulent year for Data I/O. During 1998, the Company engaged in an
extensive assessment of the overall market for device programming systems, the
strength of its product portfolio and product development programs, and the
strengths and vulnerabilities of competitors. This led to the conclusions that
the market for programming systems has become very fragmented and that the
overall market may be declining is size. In addition, with the increasing
emphasis in the market on low-cost, limited-purpose programming solutions, the
Company concluded that its product portfolio did not appear to be well matched
to the future requirements of the market. Also, the gross margins for products
in this market have eroded and are expected to continue to erode. As a result of
these assessments, continuing delays in and cancellations of product development
projects, the high costs associated with supporting aging products, declining
sales and other factors, the Board of Directors determined to commence a
significant restructuring of the Company's operations (described below),
discontinue certain products and development projects and investigate means to
improve the Company's competitive position. The transactions with SMS and
Unmanned Solutions, Inc. described below are intended to fill certain gaps on
the Company's product line and provide replacements for certain aging,
low-margin products, while the Company works on development of a next-generation
programming platform. The Company intends to continue to evaluate business
relationships or combinations in the programmer market or in parallel markets
and other strategic alternatives to enhance shareholder value. Also, the Company
is continuing efforts to reverse the decline in sales and to reduce expenses but
cannot predict when the Company might return to profitability. There can be no
assurance that these efforts will be successful.
Strategic Transactions
During 1998, the Company completed four strategic transactions aimed at
enhancing its corporate focus on programming systems technology.
In April 1998, the Company completed an Agreement with JTAG Technologies, a
Netherlands-based manufacturer and developer of Boundary Scan test and
programming solutions. The Agreement provides that the Company may resell JTAG
Technologies' Boundary Scan in-system programming products under the Data I/O
name to engineering and manufacturing markets. In addition, Data I/O acquired
one-third of the Common Stock of JTAG Technologies
In November 1998, the Company acquired SMS Holding GmbH ("SMS"), the largest
European-based programming equipment company. SMS, a privately held company
headquartered in Wangen, Germany, with revenues of approximately $5 million in
1997, specializes in device programmers for engineering and manufacturing. The
Company believes the addition of SMS's products will strengthen the Data I/O
product line, particularly in multi-site (gang) logic programmers and automated
programming systems. The SMS products have been incorporated into the Data I/O
family of products and will be sold through the Data I/O worldwide sales and
distribution channels starting in 1999. Some of Data I/O's own products, which
have experienced declining sales and low margins as they have aged, have been or
will be replaced in the Data I/O product line by SMS products. Also in November
1998, the Company acquired a license to the technology, manufacturing, and
worldwide distribution rights to the Unmanned Solutions, Inc. AH 400 robotic
handler. This handler is used in the SMS fine pitch automated programming system
and was acquired to ensure availability of the AH 400 in support of future sales
of this system.
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In October 1998, the Company acquired a license to the technology and
manufacturing rights for the CT-3000 robotic handler from AMTI/ESEC, after ESEC
announced plans to consolidate its AMTI operation into its North Carolina
facility. This robotic handler is used in the Company's ProMaster(R) 970
Automated Programming System. This agreement allows Data I/O the ability to
support existing ProMaster 970 customers.
Business Restructuring
During the third quarter of 1998, the Company began implementing a business
restructuring plan that included a downsizing of its work force by approximately
one-third, consolidation of Company operations in its headquarters facility onto
two floors, and other steps to reduce operations to a level more in line with
the lower sales it is experiencing. In the fourth quarter of 1998, the Company
announced and implemented further restructuring plans in tandem with the
acquisition of SMS (see "Strategic Transactions"). With this restructuring, the
Company has four principal objectives: (1) to reduce its corporate overhead; (2)
to reduce research and development expenses and to focus its on-going
development spending in the segments of the market that show the best potential
for growth and return on investment for the Company; (3) to create a more
variable cost operating structure including the out-sourcing of manufacturing
operations during 1999; and (4) to eliminate redundant products and operations
after the acquisition of SMS. Once this restructuring plan is fully implemented
through staff reductions, facility consolidation, reprioritization of research
and development efforts and outsourcing manufacturing, the Company intends to
focus much of its attention on identifying means to improve its competitive
position. The restructuring plan implementation is expected to be substantially
complete during the second or third quarter of 1999. During the third and fourth
quarters of 1998 the Company recorded charges aggregating $2.0 million for
in-process research and development related to the acquisition of SMS, $4.6
million of inventory write-downs and $4.4 million of other restructuring charges
related to the combination of the businesses and discontinuation of overlapping
and end-of-life products.
As part of the restructuring, the Company focused its research and development
efforts for the second half of 1998 on the ProMaster 970 and on sustaining
engineering for the Company's existing products, and discontinued development of
the ProMaster 870 and the application of the DataSite technology in the general
purpose programmer market. In manufacturing, the Company has discontinued
production of certain of its non-automated programming systems and is reviewing
the consolidation of its family of handlers. Together with consolidation of its
product offerings, the Company's outsourcing strategy is expected to result in a
lower, more flexible cost structure for the Company by reducing fixed overhead
costs and the infrastructure that is required for a manufacturing operation.
Industry Background
Data I/O Corporation operates in a narrow segment of the electronics equipment
industry that provides programming systems used to program specific design
information into programmable ICs. This business segment exists to support the
use of programmable ICs (an approximately $9 billion segment of the
semiconductor industry) by companies that design and manufacture electronic
products that utilize programmable ICs. These companies, who are Data I/O's
primary customers, design and manufacture a broad range of electronic products
for both consumer and industrial use.
Programmable ICs have grown more rapidly than the semiconductor industry as a
whole in recent years. They offer advantages to the electronic product designer
to bring products to market more quickly and inexpensively than using
fixed-function components, and can offer the advantage of simpler product
upgrades. They also offer additional functionality to the user of the product,
such as storing personal information or customizing product functionality. As a
result, use of programmable ICs is growing rapidly in both high-volume consumer
electronic products and more complex electronic systems.
Due to this growth, there are currently over 70 vendors of programmable ICs, and
there are thousands of different programmable ICs on the market. The technology
trends driving the programmable IC market result in a broad range of
requirements for programming design information into these devices. These trends
include complex and high pin-count programmable logic devices, smaller
chip-scale packages, lower-voltage operation, in-system programming protocols
designed into certain ICs, and multiple semiconductor technologies requiring
different programming methods.
These technology advances require advanced programming equipment to support this
broad range of programmable ICs. In addition, automated systems are increasingly
used to handle the miniaturized and fine-pitch IC packages for higher-volume
manufacturing. This automated handling equipment is critical for minimizing
damage to the delicate leads of the ICs and increasing the volume of programming
ICs. In certain types of electronic manufacturing, in-system programming of ICs
on printed circuit boards in manufacturing is being performed using Boundary
Scan systems or In-Circuit Test systems.
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Product Overview
In order to accommodate the expanding variety of programmable ICs being
manufactured today, programming systems must have the capability to program the
type of IC technology (how it electrically accepts the information), in addition
to the specific IC's set of features and functions, while also accommodating the
IC's package type, pin arrangement, and number of pins. The Company works
closely with major manufacturers of programmable ICs to develop its products in
accordance with these requirements. Many of these manufacturers endorse Data
I/O's programming systems as equipment they recommend for end-user applications,
as well as for use in their own environments. With their broad range of
capabilities, some of Data I/O's systems can program more than 7,000
programmable ICs, which accounts for the vast majority of the types of
programmable ICs currently available.
In November 1997, the Company disposed of its Semiconductor Equipment and
Synario Design Automation Divisions leaving the Company with operations in one
business segment, programming systems. Data I/O's line of programming systems
includes a broad range of products, systems, modules, and accessories, which the
Company groups into four general categories: non-automated programming systems,
automated programming systems, in-system programming systems, and software
support and service.
Non-Automated Programming Systems
The Company's line of non-automated programming systems provides solutions for
both engineering and low- to medium-volume manufacturing customers.
Non-automated programming systems require a user to physically handle the ICs
being programmed. Engineering customers typically use single-site programming
systems during the prototype phase of a new design, and may purchase inexpensive
systems for limited device needs or more expensive systems to support more
complex devices or a large variety of device types. Single-site programming
systems can perform programming on one programmable IC at a time. Data I/O
offers single-site programming systems from $995 for the ChipWriterTM up to
$17,000 for the UniSiteTM Programming System.
Low- to medium-volume manufacturing customers often use multi-site (or gang or
parallel) non-automated programming systems for increased volume. Multi-site
programming systems can program multiple devices simultaneously. Data I/O offers
multi-site programming systems from $1,195 for the ChipWriter Gang up to $15,000
for the MultiSyte gang systems.
The UniSite Universal Programming System supports over 7,000 devices, and has a
large installed base of customers who depend on regular software updates for
supporting new devices. The 3980 Programming System offers almost the same
breadth of device support at a lower price point, and is a mainstream product
for the Company. The LabSite Programming System is a lower-priced, single-site
programming system typically used for specific design projects. Under a
worldwide distribution agreement with ICE Technology, the Company sells a line
of low-priced programmers under the brand name ChipWriter. The ChipWriter,
ChipWriter Portable, and ChipWriter Gang offer very cost-effective programming
solutions.
Following the acquisition of SMS in November 1998, Data I/O incorporated the SMS
Sprint family of programmers and introduced them to the Data I/O distribution
channels in the first quarter of 1999. These Sprint products strengthen the
product offering with both single-site and multi-site models. The single-site
models start with the entry-level Plus48 programming system at $1,795. The
Optima line of products offers support for a broad range of programmable ICs and
a family of configurations including dual package support. The MultiSyte gang
programmer line has configurations including two-, four-, and eight-site
versions for low- to medium-volume manufacturing requirements with broad
programmable IC support including logic devices.
Automated Programming Systems
The Company offers a range of automated programming systems that provide
electronic equipment manufacturers with an automated pick and place method for
handling, programming, testing and marking programmable ICs. Automated
programmers are most frequently used by medium- to high-volume manufacturers to
automate the programming process, thereby reducing labor costs, to eliminate
potential damage to devices due to human handling, and to more accurately handle
more complex and delicate IC package types. The automated programming system
feeds the programmable IC out of its protective media (trays, tubes, or tape &
reel), places the IC into the socket of the programmer, completes programming,
applies a label or laser mark, rejects the ICs that could not be programmed
correctly, and loads correctly programmed ICs back into protective media (trays,
tubes or tape & reel). The IC is then ready to be assembled onto printed circuit
board using other automated production equipment. Data I/O offers automated
programming systems that range from approximately $50,000 for the ProMaster 2500
up to approximately $500,000 for the ProMaster 970.
Following the acquisition of SMS in November 1998, Data I/O incorporated the SMS
PP100 fine-pitch automated system into its product line and introduced it to the
Data I/O distribution channels in the first quarter of 1999. The PP100 offers a
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flexible range of programmer and device media options and requires only limited
floor space. The system can be configured with 4 to 12 programmer sites
utilizing the same programmer technology as the Sprint family of programmers to
support a wide range of programmable ICs including fine pitch logic devices. The
PP100 utilizes precise pick-and-place technology, has optional marking
capabilities, and can handle ICs in trays, tubes, or tape & reel media. System
pricing starts at under $200,000. This system is already in use among consumer,
medical and automotive electronics manufacturers, and is supporting contract
manufacturers and programming centers.
The Company also provides a complete line of labels for use with its automated
programming 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. Labels are also manufactured for use with non-Data I/O
automated programming systems.
In-System Programming Products
Data I/O offers the BoundarySite family of In-System programming products that
allow electronic manufacturers to program programmable logic devices and flash
memory devices after they have been mounted on printed circuit boards. Complete
system configurations start at under $10,000. Data I/O offers these products
through a strategic alliance formed with JTAG Technologies in 1998, which
provides Data I/O distribution rights for certain JTAG Technology products under
the Data I/O name.
Software and Service Support
The Company offers software updates, which contain the necessary algorithms to
program new devices as they are introduced by the semiconductor manufacturers.
These periodic updates may also include enhancements to existing algorithms and
may add new features and functionality to the programmers. The software updates
are essential to the Company's customers to keep the programmers current so that
new devices can be programmed. Customers may purchase update contracts that
entitle them to receive periodic updates throughout the year. Software update
contracts have been a significant source of revenue for the Company.
The Company also offers out-of-warranty service and repair of its products.
Service contracts are offered for repair, preventative maintenance and
calibration of the systems. This additional support enables the Company's
customers to keep their programming products at current support levels, and have
been a significant source of revenue for the Company.
Customers
The Company markets programming systems to thousands of customers worldwide in a
broad range of industries including telecommunications, consumer electronics,
computers, test and measurement, medical, transportation, military, aerospace,
electronic contract manufacturing, and semiconductors. These customers design
and/or manufacture electronic products that incorporate programmable ICs or
manufacture and/or provide services for these ICs. The engineering department
typically utilizes non-automated programming systems to program ICs for
prototype designs to facilitate product testing and development. The
manufacturing department (either in-house or at a contract manufacturing
facility) may use non-automated and/or automated programming systems to produce
the volume of programmable ICs necessary to support their production. In
addition, some manufacturing departments choose to outsource the programming of
ICs to a programming service company, who can also be a customer for the
Company's products. The Company estimates that during 1998, it sold products to
over 3,000 customers throughout the world, none of whom accounted for more than
10% of the Company's net sales. None of the Company's independent distributors
or representatives accounted for more than 5% of the Company's net sales.
Geographic Markets and Distribution
The Company markets and sells its products through a combination of direct
sales, internal telesales, and indirect sales representatives and distributors.
The Company continually evaluates its sales channels against its evolving
markets and customers.
U.S. Sales
The Company markets its products throughout the U.S. using a variety of sales
channels including its own field sales management personnel, independent sales
representatives, and a direct telesales organization. The Company's U.S.
independent sales representatives obtain orders on an agency basis, with
shipments made directly to the customer by the Company. The Company recognizes
sales at the time of shipment.
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Foreign Sales
Foreign sales represented approximately 52% of net sales of programming systems
in each of 1998, 1997 and 1996 (see Note 16 of "Notes to Consolidated Financial
Statements"). Foreign sales are made through the Company's wholly owned
subsidiaries in Germany and Canada, as well as through independent distributors
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
purchase Data I/O products in U.S. Dollars for resale; and the sale is
recognized at the time of shipment to the distributor. Distributors 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 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.
In February 1999, Data I/O sold its Japan sales and service subsidiary to
Synchro-Work Corporation, one of its sub-distributors in Japan. In connection
with this sale, the Company and Synchro-Work also entered into a new
distribution agreement under which Synchro-Work will continue to sell the
Company's products and assume and fulfill all warrantee, software update
contract, service contract and phone support obligations in Japan.
Competition
The competitors in the market for programming systems are highly fragmented,
consisting of a large number of companies in many regions of the world. The
Company believes that it has the leading market share for programming systems,
with approximately 25% of the total worldwide revenue. Although independent
market information is not available, this estimate is based on internal analysis
by the Company and supplemented with external research. Competitive factors
include product features, programmable IC support, brand awareness and
preference, price, ease of use, quality, reliability, throughput, distribution
channels, availability, post-sales support, and service. The Company's
competitiveness depends on offering the most effective combination of these
factors.
Many of the competitors in non-automated programming systems are small companies
that distribute their products in limited geographical regions, and compete
primarily on price, local support, and response to specific customer
programmable IC needs. Programmable IC companies who offer programming systems
for their own devices through their distribution channels hold a small portion
of the market. Data I/O competes in the non-automated programming systems area
primarily on the breadth of its product line and programmable IC support, the
strength of its worldwide distribution channels, brand awareness and preference,
post-sales support, and service. The Company competes against very low-price
products from many smaller companies with the ChipWriter product family. The
Company believes that the introduction of the programming products resulting
from the SMS acquisition will further enhance its competitive position. These
products offer competitive prices and the efficiency of a common operating
platform across all products, which is expected to allow more responsive support
for new devices.
There are fewer competitors in the automated programming systems category. This
category includes several companies that offer integrated systems, and other
companies that offer automated handling systems that require integration with a
programming system by the customer. The Company's largest competitor for
automated programming systems is BP Microsystems. The primary factors that the
competitors with integrated systems compete on include system price /
throughput, programmable IC support, post-sales support, and service. Data I/O
competes in this category primarily on the factors of breadth of product line,
brand awareness and preference, post-sales support, service, and distribution
channels. The Company believes that the PP 100 fine-pitch automated system will
significantly improve its competitive position in the factors of system price /
throughput, and device support.
Certain customers are using their in-circuit test equipment to also program ICs
after they have been assembled onto printed circuit boards. The Company believes
that the high cost of in-circuit test equipment may be a major disadvantage and,
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therefore, has introduced the lower-cost BoundarySite product family for
in-system programming. This product family has resulted from the strategic
relationship with JTAG Technologies (see "Strategic Transactions").
Revenue History by Segment
The table below details the contribution the Company's three principal business
segments made to total net sales for the last three fiscal years (in thousands
of Dollars):
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Programming Systems Division Semiconductor Equipment Synario Design Automation
Division (1) (2) Division (3) Total Sales
---------------------------- ----------------------- ------------------------- --------------------
Percent Percent Percent Percent Percent Percent Percent
Year Amount Growth of Total Amount Growth of Total Amount Growth of Total Amount Growth
---- ------ ------ -------- ------ ------ -------- ------ ------ -------- ------ ------
1998 $35,338 (23.6%) 100% $35,338 (42.2%)
1997 $46,284 (5.3%) 75.8% $7,640 104% 12.5% $7,172 (8.3%) 11.7% $61,096 1.1%
1996 $48,860 (15.0%) 80.9% $3,744 500% 6.2% $7,819 (1.2%) 12.9% $60,423 (8.5%)
</TABLE>
(1) The Semiconductor Equipment Division was sold in November 1997 and has
been accounted for in the financial statements as discontinued operations.
(2) Excludes inter-segment sales to the Programming Systems Division of
$1,876,000 in 1996.
(3) The Company disposed of its Synario Design Automation Division in November
1997. The Synario Design Automation Division has been accounted for in the
financial statements as discontinued operations.
Manufacturing, Raw Materials, and Backlog
During 1998, Data I/O conducted manufacturing operations at its principal
facility in Redmond, Washington, where it manufactures automated and
non-automated programming systems. 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 believes
that additional sources can 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.
The Company plans to outsource its Redmond manufacturing operations in the
second half of 1999. Together with consolidation of the product offerings, this
outsourcing strategy is expected to result in a lower, more flexible cost
structure for the Company by reducing fixed overhead costs and the
infrastructure that is required for a manufacturing operation.
Manufacturing of the SMS products is currently done by outside suppliers. This
practice will continue in 1999 and the Company will continue to search for
additional suppliers for these products.
Most orders are scheduled for delivery within one to 60 days after receipt of
order. The Company's backlog of pending orders was approximately $4.2 million,
$5.7 million, and $4.1 million as of December 31, 1998, December 25, 1997, and
December 26, 1996, respectively.
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 support of the
latest programmable ICs, the Company is committed to a substantial research and
development program. Research and development activities include design of new
products and continual enhancement and support of existing products. The Company
made expenditures for research and development of $9,109,000, $7,807,000, and
$8,121,000 in 1998, 1997 and 1996, respectively, representing 25.8%, 16.9%, and
16.6%, of net sales, respectively. The high level of research and development
spending in 1998 was due to continued spending to complete development of the
ProMaster 970, high levels of spending on new products, including products that
were cancelled, and lower revenue in 1998.
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During 1998, 1997, and 1996, the Company directed its primary product
development efforts toward a new generation programming technology and to new
automated programming and handling systems. The ProMaster 970, which
incorporates a version of the new DataSite programming system for automated
systems, was completed in the fourth quarter of 1998. However, development of
the DataSite new generation programming technology for the general purpose
programming market and the ProMaster 870 automated programming system were
cancelled during 1998. Substantial engineering resources were also devoted to
developing software updates for programming systems to provide support for new
programmable ICs from 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 typically 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 31, 1998, the Company had 270 total employees, of which 50 were
located outside the U.S. The Company anticipates additional headcount reductions
throughout 1999 in connection with its restructuring (see "Strategic
Initiatives"). 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, particularly in technical areas. There is no assurance that the
Company will be able to attract and retain qualified personnel 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.
Page 9
<PAGE>
Executive Officers of the Registrant
Set forth below is certain information concerning the executive officers of the
Company as of March 2, 1999:
Name Age Position
Frederick R. Hume 56 President and Chief Executive Officer
Helmut Adamski 38 Vice President
Marketing
Mark L. Edelsward 42 Vice President
Worldwide Sales
Joel S. Hatlen 40 Vice President
Finance
Chief Financial Officer
Secretary and Treasurer
Jim Rounds 50 Vice President
Engineering
Frederick R. Hume joined the Company as President and Chief Executive Officer in
February 1999. He was appointed to the Board of Directors of the Company in
January 1999. From 1988 until his retirement in 1998, Mr. Hume was Vice
President and General Manager of Keithley Instruments in Cleveland, Ohio. From
1972 to 1988, he held various management positions at Fluke Corporation,
including Group Vice President for Manufacturing and Research and Development.
Helmut Adamski joined the Company in November 1998 when the Company acquired SMS
GmbH. From 1994 until the acquisition, Mr. Adamski served as the Chief Executive
Officer of SMS GmbH. From 1991 to 1993, he was the Vice President of Operations
for Schnieder & Koch, a German manufacturer of networking products. Prior to
1991, he served in various management roles for Digital Equipment Corporation.
Mark L. Edelsward joined Data I/O Canada as Distribution Manager in 1987. He has
held a variety of sales-related positions with the Company, including European,
Pacific Region and USA Sales Management roles. In January 1998, he was promoted
to Vice President of Worldwide Sales. From 1978 until joining the Company, Mr.
Edelsward was employed by Allan Crawford Associates, a Canadian distributor of
test and measurement and scientific instrumentation.
Joel S. Hatlen joined the Company in September 1991 as a Senior Tax Accountant
and became Tax Manager in December 1992. He was promoted to Corporate Controller
in December 1993. In February 1997, he was named Chief Accounting Officer and
Corporate Controller. In January 1998, he was promoted to Vice President of
Finance and Chief Financial Officer, Secretary and Treasurer. From September
1981 until joining the Company, Mr. Hatlen was employed by Ernst & Young LLP,
where his most recent position was Senior Manager.
Jim Rounds joined the Company in September 1998. Prior to joining the Company,
Mr. Rounds spent 23 years at Hewlett-Packard Corporation, where he last served
as Research and Development Manager for one of the company's new business
initiatives from 1995 to 1998. Prior to that, he served as Research and
Development Manager for Hewlett-Packard's Lake Stevens Division from 1993 to
1995, which supported many product lines and introduced many new products.
Page 10
<PAGE>
Cautionary Factors That May Affect Future Results
Our disclosure and analysis in this report contain some forward-looking
statements. Forward-looking statements give our current expectations or
forecasts of future events. You can identify these statements by the fact that
they do not relate strictly to historical or current facts. In particular, these
include statements relating to future action, prospective products, new
technologies, future performance or results of current and anticipated products,
sales efforts, expenses, out-sourcing of functions, Year 2000 remediation
activities, the outcome of contingencies, and financial results.
Any or all of our forward-looking statements in this report or in any other
public statement we make may turn out to be wrong. They can be affected by
inaccurate assumptions we might make or by known or unknown risks and
uncertainties. Many factors -- for example, product competition and our product
development -- will be important in determining future results. Consequently, no
forward-looking statement can be guaranteed. Actual future results may
materially vary.
We undertake no obligation to publicly update any forward-looking statements,
whether as a result of new information, future events or otherwise. You are
advised, however, to consult any future disclosures we make on related subjects
in our 10-Q, 8-K and 10-K reports to the SEC and press releases. Also, note that
we provide the following cautionary discussion of risks, uncertainties and
possible inaccurate assumptions relevant to our business. These are factors that
we think could cause our actual results to differ materially from expected and
historical results. Other factors besides those listed here could also adversely
affect the Company. This discussion is permitted by the Private Securities
Litigation Reform Act of 1995.
Development, Introduction and Shipment of New Products
The Company currently is developing new engineering and automated programming
systems. Significant technological, supplier, manufacturing or other problems
may delay the development, introduction or production of these products.
For example, we may encounter these problems:
o technical problems in the development of a new programming system platform
or the robotics for new automated handing systems
o inability to hire qualified personnel
o delays or failures to perform by third parties involved in our development
projects
Our sales in the past two years have been significantly adversely affected by
delays in developing and releasing new products. Some customers waited for our
new products, while many others purchased products from our competitors. Delays
in the completion and shipment of new products, or failure of customers to
accept new products, including those acquired from SMS in late 1998, may result
in a decline in sales in 1999.
Variability in Quarterly Operating Results
Our operating results tend to vary from quarter to quarter. Our revenue in each
quarter is substantially dependent upon orders received within that quarter.
Conversely, our expenditures are based on investment plans and estimates of
future revenues. We may, therefore, be unable to quickly reduce our spending if
our revenues decline in a given quarter. As a result, operating results for that
quarter will suffer. Our results of operations for any one quarter are not
necessarily indicative of results for any future periods.
Other factors which may cause our quarterly operating results to fluctuate
include:
o increased competition
o timing of new product announcements
o product releases and pricing changes by us or our competitors
o market acceptance or delays in the introduction of new products
o production constraints
o the timing of significant orders
Page 11
<PAGE>
o customers' budgets
o foreign currency exchange rates
Due to all of the foregoing factors, it is possible that in some future quarters
our operating results will be below expectations of analysts and investors.
Rapid Technological Change
Product technology in our industry evolves rapidly, making timely product
innovation essential to success in the marketplace. The introduction of products
with improved technologies or features may render our existing products obsolete
and unmarketable. Technological advances that may negatively impact our business
include:
o new IC package types requiring hardware and software changes in order to be
programmed by our products
o electronics equipment manufacturing practices, such as widespread use of
in-circuit programming
o customer software platform preferences different from those on which our
products operate
o more rigid industry standards, which would decrease the value-added
element of our products and support services
If we cannot develop products in a timely manner in response to industry
changes, or if our products do not perform well, our business and financial
condition will be adversely affected. Also, our new products may contain defects
or errors which give rise to product liability claims against us or cause them
to fail to gain market acceptance.
Economic and Market Conditions
Our business is impacted by capital spending plans and other economic cycles
that affect the users and manufacturers of ICs. These industries are highly
cyclical and are characterized by rapid technological change, short product life
cycles, fluctuations in manufacturing capacity and pricing and gross margin
pressures. Our 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. These factors could have a material
adverse effect on our business and financial condition.
Competition
Technological advances have reduced the barriers of entry into the programming
systems markets. We expect competition to increase from both established and
emerging companies. Certain competitors have recently increased their market
share in our business. We believe this is due in part to our product development
delays. If we fail to compete successfully against current and future sources of
competition, our profitability and financial performance will be adversely
impacted.
Dependence on IC Manufacturers
We work closely with most semiconductor manufacturers to ensure that our
programming systems comply with their requirements. In addition, many
semiconductor manufacturers recommend our programming system for use by users of
their programmable devices. These working relationships enable us to keep our
programming systems product line up-to-date and provide end-users with broad and
current programmable IC support. Our business may be adversely affected if our
relationships with semiconductor manufactures deteriorate.
Out-Sourcing of Functions
In the third and fourth quarters of 1998, the Company announced several steps to
restructure its operations to reduce its costs to a level more in line with
current sales levels. One of these steps is the out-sourcing of certain of the
Company's manufacturing. The Company may encounter added costs, quality problems
or production delays as this process occurs.
Dependence on Suppliers
Certain parts used in our products are currently available from either a single
supplier or from a limited number of suppliers. If we cannot development
alternative sources of these components, or if we experience a deterioration in
our relationship with these suppliers, there may be delays or reductions in
product introductions or shipments, which may materially adversely effect our
operating results.
Page 12
<PAGE>
Because we rely on a small number of suppliers for certain parts, we are subject
to possible price increases by these suppliers. Also, we may be unable to
accurately forecast our production schedule. If we underestimate our production
schedule, suppliers may be unable to meet our demand for components. This delay
in the supply of key components may materially adversely affect our business.
Reliance on Third-Party Distribution Channels
We have a small internal sales force. We depend heavily on third-party
representatives, OEMs, VARs and distributors. Therefore, the financial stability
of these distributors is important to us. Highly skilled professional engineers
use most of our products. To be effective, third-party distributors must possess
significant technical, marketing and sales resources and must devote their
resources to sales efforts, customer education, training and support. These
required qualities limit the number of potential third-party distributors. Our
business will suffer if we cannot attract and retain a sufficient number of
qualified third-party distributors to market our products.
International Operations
International sales represented approximately 52% of our net revenue for the
fiscal year ended December 31, 1998. We expect that international sales will
continue to be a significant portion of our net revenue.
International sales may fluctuate due to various factors, including:
o unexpected changes in regulatory requirements
o tariffs and taxes
o difficulties in staffing and managing foreign operations
o longer average payment cycles and difficulty in collecting accounts
receivable
o fluctuations in foreign currency exchange rates
o compliance with applicable export licensing requirements
o product safety and other certification requirements
o political and economic instability
The European Community and European Free Trade Association have established
certain electronic emission and product safety requirements ("CE"). Certain of
our new products have not yet met these requirements. Failure to obtain either a
CE certification or a waiver for any product may prevent us from marketing that
product in Europe.
We operate subsidiaries in Germany and Canada. Our business and financial
condition is, therefore, sensitive to currency exchange rates or any other
restrictions imposed on their currencies. Currency exchange fluctuations in
Canada and Germany may adversely effect our investment in our subsidiaries.
Protection of Intellectual Property
Refer to the section captioned "Patents, Copyrights, Trademarks and Licenses" in
Item 1 above.
Acquisitions
In November 1998, the Company acquired SMS GmbH of Wangen, Germany, a former
competitor and the largest European-based programming equipment company. This
was a step to expand the Company's product line and, in some cases, replace
aging or otherwise non-competitive or low margin products. We are currently
working to integrate the two companies' product offerings. Integrating the
products and operations of SMS with ours during 1999 will place significant
burdens on our management and operating teams, and may divert management's
attention from other business concerns. If we fail to successfully integrate
SMS's products and operations with our own, our business and financial condition
may suffer. The SMS products may not be accepted by the Company's sales channels
or customers. Also, SMS's products have been manufactured to SMS's
specifications by a third-party contract manufacturer. The Company may not be
able to obtain a sufficient quantity of these products if and when needed, which
may result in lost sales. The acquisition of the SMS product line also
introduces the need for the Company to provide device support to its customers
for an additional proprietary architecture, which involves costs and management
attention.
Page 13
<PAGE>
We may pursue additional acquisitions of complementary technologies, product
lines or businesses. Future acquisitions may include risks like those involved
in our acquisition of SMS, as well as risks of entering markets where we have no
or limited prior experience, and the potential loss of key employees of the
acquired company. Future acquisitions may also impact our financial position.
For example, we may use significant cash or incur additional debt, which would
weaken our balance sheet. We may also amortize expenses related to the goodwill
and intangible assets acquired, which may reduce our profitability.
We cannot guarantee that future acquisitions will improve our business or
operating results.
Dependence on Key Personnel
Refer to the section captioned "Employees" above.
Potential Volatility of Stock Price
The stock prices of technology companies tend to fluctuate significantly. We
believe factors such as announcements of new products by us or our competitors
and quarterly variations in financial results may cause the market price of our
Common Stock to fluctuate substantially. In addition, overall volatility in the
stock market, particularly in the technology company sector, is often unrelated
to the operating performance of companies. If these market fluctuations continue
in the future, they may adversely affect the price of our Common Stock.
Risks of Year 2000 Non-compliance
Refer to the section captioned "Impact of Year 2000" in Item 7 below.
Page 14
<PAGE>
Item 2. Properties
In May 1997, the Company completed the sale of the land and building comprising
its Redmond, Washington corporate headquarters and is currently leasing the
96,000 square foot building back on a 10-year lease-back agreement with an
option to renew the lease for an additional 10 years. This lease requires base
annual rental payments in 1999 of approximately $981,000. See Note 7 of "Notes
to Consolidated Financial Statements." As part of its restructuring plan
implementation, the Company has vacated one floor of the leased Redmond facility
(approximately 25,000 square feet) and is seeking a tenant to sublet this space.
As the restructuring plan is fully implemented during 1999, the Company may have
an opportunity to sublet additional space within this facility.
In addition to the Redmond facility, approximately 8,500 square feet is leased
at two foreign sales and service locations.
In November 1998, the Company completed its acquisition of SMS GmbH located in
Wangen, Germany. At the date of this report, this subsidiary occupied a 5,000
square foot leased facility. The lease for this facility will terminate in
September 1999, at which time the Company expects to relocate SMS's operations
into a new 11,000 square foot building in Wangen. The new lease, which has been
signed, runs until October 2009. See Note 3 and Note 11 of "Notes to
Consolidated Financial Statements."
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 31, 1998.
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<PAGE>
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
1998 Fourth Quarter $2.63 $1.44
Third Quarter 4.13 2.13
Second Quarter 5.63 3.00
First Quarter 6.50 4.88
1997 Fourth Quarter $8.00 $6.13
Third Quarter 7.63 4.63
Second Quarter 6.50 4.50
First Quarter 5.50 4.38
The approximate number of shareholders of record and approximate number of
beneficial shareholders of record on March 2, 1999 was 873 and 3,500,
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, which is up for renewal in May 1999, restricts the payment
of cash dividends through a requirement for a minimum level of tangible net
worth of $15.0 million.
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<PAGE>
Item 6. Selected Five-Year Financial Data
The following selected consolidated financial data should be read in conjunction
with the consolidated financial statements and the notes thereto and the
information contained herein in Item 7, "Management's Discussion and Analysis of
Financial Condition and Results of Operations." Historical results are not
necessarily indicative of future results.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Year Ended
- -----------------------------------------------------------------------------------------------------------------------------
Dec. 31, Dec. 25, Dec. 26, Dec. 28, Dec. 29,
(in thousands, except employee and per share data) 1998 1997 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------------
For The Year:
Net sales $35,338 $46,284 $48,860 $57,496 $53,456
Gross margin 10,405 23,536 22,926 30,110 27,772
Research and development 9,109 7,807 8,121 6,581 6,282
Selling, general and administrative 14,386 13,924 14,618 15,719 15,627
Write-off acquired in-process R&D (1) 1,959 - - - -
Provision for business restructuring (2) 4,370 - - - -
Operating income (loss) (19,418) 1,805 187 7,810 5,863
Non-operating income (expense) 952 2,757 (59) 125 (134)
Income (loss) from continuing operations before income
taxes (18,466) 4,562 128 7,935 5,729
Income tax expense (58) (176) (121) (892) (975)
Income (loss) from continuing operations (18,524) 4,386 7 7,043 4,754
Income (loss) from discontinued operations (3) 894 7,114 (1,108) (2,282) (2,028)
Net income (loss) ($17,630) $11,500 ($1,101) $4,761 $2,726
- -----------------------------------------------------------------------------------------------------------------------------
At Year-end:
Working capital $15,084 $33,226 $10,054 $12,005 $10,038
Total assets $40,089 $57,736 $39,319 $44,776 $43,487
Long-term debt $0 $0 $1,500 $1,500 $1,500
Total debt $564 $2,000 $1,605 $1,617 $1,940
Stockholders' equity $18,909 $34,614 $22,559 $25,929 $24,343
Number of employees from continuing operations 270 328 332 349 345
- -----------------------------------------------------------------------------------------------------------------------------
Common Stock Data (4):
Basic earnings per share:
From continuing operations ($2.59) $0.63 $0.00 $0.94 $0.65
Net income (loss) ($2.46) $1.66 ($0.16) $0.64 $0.37
Diluted earnings per share:
From continuing operations ($2.59) $0.62 $0.00 $0.89 $0.64
Net income (loss) ($2.46) $1.62 ($0.16) $0.60 $0.37
Book value per share at year-end $2.63 $4.92 $3.33 $3.66 $3.28
Shares outstanding at year-end 7,187 7,039 6,778 7,084 7,432
Weighted-average shares outstanding 7,154 6,909 6,857 7,515 7,354
Weighted-average and potential shares outstanding 7,154 7,087 7,035 7,879 7,420
- -----------------------------------------------------------------------------------------------------------------------------
Key Ratios:
Current ratio 1.8 2.7 1.7 1.7 1.6
Gross margin to sales 29.4% 50.9% 46.9% 52.4% 52.0%
Operating income (loss) to sales (54.9%) 3.9% 0.4% 13.6% 11.0%
Income (loss) from continuing operations to sales (52.4%) 9.5% 0.0% 12.2% 8.9%
Return on average stockholders' equity (63.5%) 16.8% 0.0% 26.9% 21.4%
- -----------------------------------------------------------------------------------------------------------------------------
Footnotes:
(1) For further discussion, see Note 3 of "Notes to Consolidated Financial Statements."
(2) For further discussion, see Note 2 of "Notes to Consolidated Financial Statements."
(3) For further discussion, see Note 4 of "Notes to Consolidated Financial Statements."
(4) For further discussion, see Notes 1 and 13 of "Notes to Consolidated Financial Statements."
</TABLE>
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<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Forward-Looking Statements
This Annual Report on Form 10-K includes forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. This Act
provides a "safe harbor" for forward-looking statements to encourage companies
to provide prospective information about themselves as long as they identify
these statements as forward looking and provide meaningful cautionary statements
identifying important factors that could cause actual results to differ from the
projected results. All statements other than statements of historical fact made
in this Annual Report on Form 10-K are forward looking. In particular,
statements herein regarding industry prospects; future results of operations or
financial position; integration of acquired products and operations; market
acceptance of the Company's reconstituted products; development, introduction
and shipment of new products; completion of outsourcing of manufacturing and
certain sustaining engineering functions on favorable terms and without
significant disruption and achievement of cost savings from such outsourcing;
the assessment of the Company's year 2000 exposure and completion of remediation
efforts; and any other guidance on future periods are forward-looking
statements. Forward-looking statements reflect management's current expectations
and are inherently uncertain. The Company's actual results may differ
significantly from management's expectations. The following discussions and the
section entitled "Business - Additional Factors That May Affect Future Results"
describes some, but not all, of the factors that could cause these differences.
Strategic initiatives
In November 1998 the Company completed the acquisition of all products and the
business of SMS Holding GmbH ("SMS"), the largest European-based programmer
company. SMS, a privately-held company headquartered in Wangen, Germany, with
revenues of approximately $3.0 million for the 10 months ended October 1998 and
$4.7 million in 1997, specializes in device programmers for engineering and
manufacturing. The Company paid approximately $5.2 million in cash for SMS and
assumed approximately $1.5 million of liabilities. The acquisition was made to
add to Data I/O's product offerings, especially in multi-site (or gang) logic
programmers and automated handlers where the Company has sought to strengthen
its product portfolio. Some of Data I/O's own products, which have experienced
declining sales and low margins as they have aged, will be replaced in the Data
I/O product line by SMS products.
Related to the acquisition of SMS, in November 1998 the Company acquired a
license from Unmanned Solutions, Inc. ("USI"), a California company, for the
technology, manufacturing and worldwide distribution rights to Unmanned
Solutions' AH 400 robotic handler. For this license the Company paid $300,000.
The Unmanned Solutions handler is used in the SMS fine pitch automated
programming system, and is a high-performance, low-cost handler. These rights
were obtained in order to insure availability of the AH 400 in support of future
sales of SMS's fine pitch automated programmer.
The Company pursued these strategic initiatives after assessing the overall
market for device programming systems, the strength of the Company's product
portfolio and product development programs, and the strengths and
vulnerabilities of its competitors. This assessment led to the conclusions that
the market for programming systems has become very fragmented and that the
overall market may be declining in size. In addition, with the increasing
emphasis in the market on low-cost, limited purpose programming solutions, the
Company's product portfolio did not appear to be well matched to the future
requirements of the market. Also, the gross margins for the Company's products
in this market have eroded and are expected to continue to erode. As a result of
these conclusions, continuing delays in and cancellation of product development
projects, the high costs associated with supporting aging products, declining
sales and other factors, the Board of Directors determined to commence a
significant restructuring of the Company's operations, discontinue certain
products and development projects and investigate means to improve the Company's
competitive position. The SMS and USI transactions were intended to fill certain
gaps in the Company's product lines and provide replacements for certain aging,
low-margin products while focusing on development of a next-generation
programming platform. The Company intends to continue to evaluate business
relationships or combinations in the programmer market or in parallel markets
and other strategic alternatives to enhance shareholder value. Also, the Company
is continuing efforts to reverse the decline in sales and to reduce expenses but
cannot predict when the Company might return to profitability. There can be no
assurance that these efforts will be successful.
In September 1998 the Company announced that it had obtained a license to the
technology and manufacturing rights from AMTI/ESEC Inc. for the CT 3000 handler
used in the Company's ProMaster 970(R) Automated Fine Pitch Programming System.
This became necessary due to the decision of AMTI/ESEC to discontinue production
of the CT 3000 after it has completed a limited number of units currently in
production. The steps taken by AMTI/ESEC caused the Company to incur additional
expenses and increased the risks associated with the 970. In the fourth quarter
of 1998 the Company was able to record revenue on six 970 units after successful
completion of certain configuration requirements and performance enhancements.
Page 18
<PAGE>
Business Restructuring. During the third quarter of 1998 the Company began
implementing a business restructuring plan that included a downsizing of its
work force by approximately one-third, consolidation of Company operations in
its headquarters facility onto two floors, and other steps to reduce operations
to a level more in line with the lower sales it is experiencing. In the fourth
quarter 1998 the Company announced and implemented further restructuring plans
in tandem with the acquisition of SMS. With this restructuring, the Company has
four principal objectives: (1) to reduce its corporate overhead; (2) to reduce
research and development expenses and to focus its on-going development spending
in the segments of the market that show the best potential for growth and return
on investment for the Company; (3) to create in a more variable cost operating
structure including the out-sourcing of certain of its manufacturing operations
during the second or third quarter of 1999; and (4) to eliminate redundant
products and operations after the acquisition of SMS. Once this restructuring
plan is fully implemented through staff reductions, facility consolidation,
reprioritization of research and development efforts and outsourcing of
manufacturing, the Company intends to focus much of its attention on identifying
means to improve its competitive position. The restructuring plan implementation
is expected to be substantially complete by the end of the third quarter of
1999.
As part of the restructuring, the Company focused its research and development
efforts for the second half of 1998 on the ProMaster 970 and on sustaining
engineering for the Company's existing products, and discontinued development of
the ProMaster 870 and the application of the DataSite technology in the general
purpose programmer market. In manufacturing, the Company has discontinued
production of certain of its non-automated programming systems and is reviewing
the consolidation of its family of handlers. The Company is also planning to
outsource certain of its manufacturing operations during the second or third
quarter of 1999. Together with consolidation of its product offerings, this
outsourcing strategy is expected to result in a lower, more flexible cost
structure for the Company by reducing fixed overhead costs and the robust
infrastructure that is required for a manufacturing operation.
In February, the Company sold its Japan sales and service subsidiary to a former
sub-distributor who will now continue to distribute the Company's products in
Japan. Additionally, the Company continues to realign its operations in Germany
whereby SMS will become the German headquarters and Munich will continue as a
sales and service office.
Operating expenses for 1998 included restructuring charges of $4.4 million
related to these restructuring activities. Related primarily to its
restructuring plan, the Company recorded inventory reserves during 1998 of
approximately $4.6 million on products that will be discontinued as a result of
the business restructuring. These inventory reserves are included in cost of
goods sold for the third and fourth quarters. In addition, the Company incurred
operating expenses of approximately $220,000 related to facility consolidation
restructuring activities that were included in selling, general and
administrative expenses.
Cash payments related to this restructuring plan are estimated to be
approximately $3.9 million during the period from the third quarter 1998 through
1999. Approximately 80% of those cash payments will take place from the third
quarter of 1998 through the first quarter 1999.
Page 19
<PAGE>
Results of Continuing Operations
For all periods presented in this section, results of operations reflect the
classification of the Company's Semiconductor Equipment and Synario Design
Automation Divisions as discontinued operations (see "Discontinued Operations").
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Net Sales
(in thousands)
Net sales by product line: 1998 Change 1997 Change 1996
- ------------------------------------------------------------------------------------------------------------------------------
Non-automated programming systems $26,459 (13.2%) $30,498 (9.7%) $33,767
Automated programming systems 8,879 (43.8%) 15,786 4.6% 15,093
------------------ ----------------- ---------------
Total Programming Systems Division $35,338 (23.6%) $46,284 (5.3%) $48,860
================== ================= ===============
Net sales by location:
United States $16,900 (24.2%) $22,290 (5.4%) $23,554
% of total 47.8% 48.2% 48.2%
International $18,438 (23.2%) $23,994 (5.2%) $25,306
% of total 52.2% 51.8% 51.8%
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
1998 vs. 1997
Sales and orders decreased for the Company's programming system products during
1998 as compared to 1997. Orders during the year decreased approximately 35% to
$31.5 million, compared with $48.4 million in 1997. The sales and orders
declines during the year are attributable to both non-automated and automated
programming system products, but are primarily attributable to the decline in
automated programming systems sales. Sales of the Company's PM970 Fine Pitch
Automated Programming System, which was developed to replace the PM9500, were
negatively impacted during the year by delays in completion of certain
configuration requirements and performance enhancements. As a result, sales of
fine pitch automated programming systems declined $2.0 million from 1997. Sales
of the Company's other automated programming system products, accessories and
service contracts decreased by approximately $5.0 million compared to 1997 due
primarily to increased competition in areas where these products are nearing the
end of their product life cycles.
In November 1998 the Company completed two strategic transactions intended to
fill gaps in the Company's product lines and provide replacements for certain of
its aging, low-margin products while focusing on development of a
next-generation programming platform (see "Strategic Initiatives"). The
integration of the SMS products into the Company's product portfolio, combined
with the elimination of certain products, is expected to improve the Company's
competitive position in the market. This integration is expected to be largely
completed during the first half of 1999. However, there is no assurance that
this integration will be successful and will result in stabilized sales within
this timeframe.
During 1998 sales decreased in all geographic regions. These declines were
partially offset by exchange rate changes for the German Mark and the Japanese
Yen. The foreign currency exchange rate changes, primarily in the German Mark
and Japanese Yen, increased sales by approximately $480,000 during 1998 as
compared to 1997. When the U.S. Dollar is weaker, sales of the Company's
products in local currency translate into more U.S. Dollars. However, offsetting
the revenue translation impact is the translation of local currency costs and
expenses.
1997 vs. 1996
The Company experienced an overall decline in sales and orders for the Company's
Programming Systems Division products during 1997. Orders declined approximately
4.7% to $48.4 million in 1997, compared with $50.8 million in 1996.
Sales for the Programming Systems Division were negatively impacted due
primarily to delays in new product introductions by the Company. In addition,
the declines in non-automated programming systems also reflect the continuing
market shift away from the Company's traditional line of higher-price IC
programmers for the engineering market, toward lower-price programmers.
Page 20
<PAGE>
During 1997 international sales were slightly lower as compared to 1996. Sales
decreased in Europe, Canada and Japan, but increased slightly in other parts of
the world. The foreign currency exchange rate changes reduced sales by
approximately $1.1 million during 1997 compared to 1996. These declines were due
primarily to exchange rate changes for the German Mark and the Japanese Yen.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Gross Margin
(in thousands) 1998 Change 1997 Change 1996
- -------------------------------------------------------------------------------------------------
Gross margin $10,405 (55.8%) $23,536 2.7% $22,926
Percentage of net sales 29.4% 50.9% 46.9%
- -------------------------------------------------------------------------------------------------
</TABLE>
1998 vs. 1997
The gross margin decreased significantly in amount and as a percentage of sales
during 1998 compared to 1997. The decrease is primarily due to the 24% decrease
in sales volume and $4.6 million of inventory reserves for primarily dis-
continued products recorded during the year related to restructuring activities
(see "Strategic Initiatives"). The relatively high fixed component of cost of
goods sold causes any shift in total volume to have a significant impact on the
gross margin percentage. Also contributing to the decline in gross margins are
high costs associated with ProMaster 970 customer support during the year.
1997 vs. 1996
The gross margin increased in amount and as a percentage of sales during 1997
compared to 1996. The increase in gross margin is due primarily to less
inventory reserves recorded in 1997, offset by lower volumes and lower product
margins in 1997. 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 21% of the Company's
1997 sales were denominated.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Research and Development
(in thousands) 1998 Change 1997 Change 1996
- -------------------------------------------------------------------------------------------------
Research and development $9,109 16.7% $7,807 (3.9%) $8,121
Percentage of net sales 25.8% 16.9% 16.6%
- -------------------------------------------------------------------------------------------------
</TABLE>
1998 vs. 1997
Research and development spending increased both in amount and as a percentage
of sales. The increase in spending was primarily due to aggressive spending for
new product development through the first half of 1998 in engineering staff and
materials, and due to incentive programs that were implemented during the second
half of the year related to product development programs. Also, spending for
consultants used in new product development was increased during 1998, and a
Vice President of Engineering was hired in September 1998. As part of the
business restructuring plan that was implemented during the third and fourth
quarters of 1998, the Company shifted its focus to research and development
efforts on the ProMaster 970 and on sustaining engineering for the Company's
existing products, and discontinued development of the ProMaster 870 and the
application of the DataSite technology in the general purpose programmer market.
This restructuring plus the November 1998 acquisition of SMS has allowed the
Company to de-emphasis its support of certain old products that will be replaced
due to product overlap.
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 and
automated handling systems for the manufacturing environment. 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. At the time of
the acquisition of SMS in 1998 the Company recognized a charge for in-process
research and development of $2.0 million. Based on the analysis performed of the
in-process research and development, the Company estimates that approximately
$1.5 million to $2.0 million will be spent over the next one to two years before
this development results in commercially viable products.
Page 21
<PAGE>
1997 vs. 1996
Research and development spending decreased in amount but increased as a
percentage of sales in 1997 compared to 1996. The spending decrease is primarily
due to reduced spending on materials related to development projects and open
job positions. The increase as a percentage of sales is due to lower sales
volume.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Selling, General and Administrative
(in thousands) 1998 Change 1997 Change 1996
- -------------------------------------------------------------------------------------------------------
Selling, general and administrative $14,386 3.3% $13,924 (4.7%) $14,618
Percentage of net sales 40.7% 30.1% 29.9%
- -------------------------------------------------------------------------------------------------------
</TABLE>
1998 vs. 1997
The increase in selling, general and administrative expenditures in 1998 as
compared to 1997 is due primarily to a first quarter charge in the amount of
$540,000 related to the modification of stock options of a former CEO of the
Company, additional spending in marketing related to new products and promotions
during the first half of the year, incremental professional services engaged to
assist in strategic planning, additional expenses related to facility
consolidation, and expenses related to the search for a new Chief Executive
Officer in the first quarter. This additional spending was partially offset by
lower sales commissions due to the lower sales volume during 1998, and by lower
spending following the Company's restructuring initiatives in the third and
fourth quarters of 1998 (see "Strategic Initiatives"). The Company believes that
selling, general and administrative expenditures will decrease in amount in 1999
due to the 1998 restructuring and the sale of the Company's Japan subsidiary in
February 1999.
1997 vs. 1996
The decrease in selling, general and administrative expenses during 1997 as
compared to 1996 is primarily due to decreased costs related to the 1996 closure
of the UK office, decreased travel costs and decreased Dollar costs in the
Company's foreign offices due to the strengthened US Dollar, offset by increased
commissions due to an increased number of sales representatives in the US and
Canada.
Interest
(in thousands) 1998 Change 1997 Change 1996
- --------------------------------------------------------------------------------
Interest income $1,513 99.1% $760 281.9% $199
Interest expense ($138) (37.0%) ($219) (14.5%) ($256)
- --------------------------------------------------------------------------------
1998 vs. 1997
The increases in interest income in 1998 as compared to 1997 are due to an
increase in cash, cash equivalents and marketable securities, due primarily to
the proceeds received from the Company's land sale and business dispositions
during 1997 (see "Discontinued Operations" and "Sale of Headquarters Property").
1997 vs. 1996
Interest income increased during 1997 compared with 1996, primarily due to an
increase in the average level of funds available for investment primarily due to
the sale of the Company's headquarters property in May 1997 (see "Sale of
Headquarters Property") and a decrease in the average investment interest rates.
Page 22
<PAGE>
Income Taxes
(in thousands) 1998 1997 1996
- --------------------------------------------------------------------
Income tax expense $58 $176 $121
Effective tax rate (0.3%) 3.9% 94.5%
- --------------------------------------------------------------------
1998 vs. 1997
The effective income tax rate for 1998 differed from the expected provision at
the statutory 34% tax rate primarily due to operating losses incurred in 1998
(see Note 15 of "Notes to Consolidated Financial Statements"). The Company had
valuation allowances of $5.9 million at December 31, 1998 compared to $164,000
at December 25, 1997 and $3.2 million at December 26, 1996. The valuation
reserves may increase should the Company incur future losses or reverse as the
Company generates taxable income.
1997 vs. 1996
The effective income tax rate for 1997 differed from the expected provision at
the statutory 35% tax rate primarily due to the reversal of tax valuation
reserves. The adjustments to the valuation reserves were due to an ability to
record a benefit for the offset of reversing temporary differences against 1997
taxable income.
Sale Of headquarters property
In May 1997 the Company completed the sale of the land and building comprising
its Redmond, Washington corporate headquarters and excess land that had been
held for resale for approximately $13.8 million, less net transaction related
expenses and reimbursements of approximately $400,000. The sale includes a 10
year lease-back of the building to the Company, with an option to renew the
lease for an additional 10 years. The Company realized approximately $12 million
in cash after payment of transaction fees and taxes. The sale resulted in an
overall pre-tax gain of approximately $5.6 million, of which approximately $2.3
million related to the excess land was recognized in the second quarter of 1997.
The remainder will be amortized over the life of the lease.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Income and Earnings Per Share
(in thousands, except per share data) 1998 1997 1996
- ----------------------------------------------------------------------------------------------
Income (loss) from continuing operations ($18,524) $4,386 $7
Percentage of net sales (52.4%) 9.5% 0.0%
Earnings (loss) per share from continuing operations
Basic earnings per share ($2.59) $0.63 $0.00
Diluted earnings per share ($2.59) $0.62 $0.00
- ----------------------------------------------------------------------------------------------
</TABLE>
1998 vs. 1997
The decrease in income and earnings per share from continuing operations in 1998
compared with 1997 is primarily due to a combination of decreased sales volume,
the restructuring charges recorded during the year (see "Strategic
Initiatives"), a lower gross margin percentage attributable in part to large
inventory reserves related to discontinued products, and increased spending on
new development projects.
1997 vs. 1996
The increase in income and earnings per share from continuing operations in 1997
compared with 1996 is primarily due to the sale of the Company's headquarters
property (see "Sale of Headquarters Property"), increased gross margins and
lower operating expenses, offset by a decreased sales volume.
Page 23
<PAGE>
Discontinued Operations
Semiconductor Equipment Division
In November 1997, the Company sold the assets of its Semiconductor Equipment
Division, ReelIn November 1997, the Company sold the assets of its Semiconductor
Equipment Division, Reel-Tech(TM) Inc., to General Scanning Inc., for $15.5
million, consisting of $12 million in cash, $2 million in common stock of
General Scanning Inc. and $1.5 million in assumed liabilities. The assets of
Reel-Tech, Inc. were purchased by the Company in August 1995. Operating results
of the Semiconductor Equipment Division and the gain on the sale of this segment
are as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
(in thousands) 1998 1997 1996
----------- ---------- -----------
Net sales (1) $ - $7,640 $3,744
=========== ========== ===========
Income from operations, net of income tax $ - $ 926 $ 116
Gain (loss) on disposal, net of income tax (265) 8,329 -
----------- ---------- -----------
Total income (loss) on discontinued segment ($265) $9,255 $ 116
=========== ========== ===========
</TABLE>
(1) Excludes inter-segment sales to the Programming Systems Division of
$1,876,000 and $322,000 in 1996 and 1995, respectively.
Synario(R) Design Automation Division
Also in November 1997, the Company entered into a licensing agreement and an
agreement to sell certain assets of its Synario Design Automation Division.
Under this licensing agreement, the Company's Electronic Design Automation (EDA)
products are being integrated and sold with the EDA product line of MINC
Incorporated. This transaction discontinued the Synario Design Automation
Division operations of the Company. However, the Company is entitled to receive
and may realize certain licensing revenues related to its ABEL and ECS products
through December 31, 1999. Also, the Company negotiated a settlement to the OEM
Agreement with Synopsys Inc., which is reflected in the loss on disposal.
Operating results and the loss on the disposal of this segment are as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
(in thousands) 1998 1997 1996
----------- ---------- -----------
Net sales (1) $1,381 $7,172 $7,819
=========== ========== ===========
Gain (loss) from operations, net of income tax $1,344 ($1,358) ($1,224)
Loss on disposal, net of income tax (185) (783) -
----------- ---------- -----------
Total income (loss) on discontinued segment $1,159 ($2,141) ($1,224)
=========== ========== ===========
</TABLE>
(1) Includes net sales3 of $851,000 in 1997 for retained licensing rights
recognized after the disposition in 1997. All 1998 net sales are for
retained licensing rights.
Inflation and changes in Foreign currency exchange rates
Historically, the Company has been able to offset the impact of inflation
through efficiency increases and price adjustments. Increasing price
competition, especially in IC programmers, is currently diminishing and may
continue to diminish the Company's ability to offset the impacts of inflation in
the future.
Sales and expenses incurred by foreign subsidiaries are denominated 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
approximately 25% of the Company's sales are made by foreign subsidiaries and
independent currency fluctuations tend to minimize the translation 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 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 24
<PAGE>
Financial Condition
Liquidity and Capital Resources
(in thousands) 1998 Change 1997 Change 1996
- --------------------------------------------------------------------------------
Working capital $15,084 ($18,142) $33,226 $23,172 $10,054
Total debt $564 ($1,436) $2,000 $395 $1,605
- --------------------------------------------------------------------------------
Working capital decreased during 1998 primarily due to restructuring costs,
losses from operations, the early settlement of a long-term pension obligation,
spending on property, plant and equipment, the acquisition of SMS in the fourth
quarter and a minority interest investment in JTAG Technologies in the second
quarter. Cash, cash equivalents and marketable securities decreased by
approximately $14.1 million during the year funding these activities.
Inventory decreased by approximately $3.7 million due to $4.6 million of
inventory reserves primarily related to discontinued products, offset by an
increase in inventory primarily due to the acquisition of SMS. Recoverable
income taxes increased due to the 1998 loss carryback against 1997 income taxes
paid. Other current assets decreased $2.8 million in 1998 primarily due to the
collection of 1997 accounts receivable related to the Reel-Tech and Synario
Design Automation Divisions which were not sold as a part of the disposals of
these divisions in November 1997.
Accrued expenses increased by $2.5 million primarily due to accrual of
restructuring charges that will be paid out during 1999 as the restructuring
plan is fully implemented (see "Strategic Initiatives"). Income taxes payable
decreased during the year due to the payment of the income tax liability from
1997. Notes payable decreased due to the payment of a $1.5 million note paid in
the first quarter 1998.
As of December 31, 1998, the Company had total debt of $564,000 or approximately
3% of its $18.9 million in equity. This represented borrowings under its $1.0
million foreign line of credit which went away with the sale of the Company's
Japan subsidiary in February 1999. The Company also has another foreign line of
credit of $321,000 maturing March 31, 1999 with an interest rate of 8%.
At December 31, 1998, the Company had an unused $4.0 million U.S. secured line
of credit maturing in May 1999 under which borrowings would incur interest at
the bank's published prime rate or the LIBOR rate plus 250 basis points. This
line of credit has been structured as short-term and the Company expects to be
able to renew it on its maturity date under substantially the same terms as
those presently in place. No assurances can be made, however, in regard to the
renewal of this agreement.
The Company estimates that capital expenditures for property, plant and
equipment during 1999 will be approximately $1.8 million. Such expenditures are
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 31, 1998, the Company's material short-term unused sources of
liquidity consisted of approximately $18.9 million in cash, cash equivalents and
marketable securities and available borrowings of $4.0 million under its U.S.
line of credit. The Company believes these sources and cash flow from operations
will be sufficient during 1999 to fund working capital needs, service existing
debt and finance planned capital acquisitions.
Share repurchase program
Under a previously announced share repurchase program, the Company is authorized
to repurchase up to 1,123,800 shares (approximately 15.6%) 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, and may commence or be discontinued at any time. As of December
31, 1998, the Company has repurchased 1,016,200 shares under this repurchase
program at a total cost of approximately $7.1 million. The Company has not
repurchased shares under this plan since the second quarter of 1997 although it
still has the authority to do so.
Page 25
<PAGE>
General
Impact of Year 2000
Some of the Company's older computer programs were written using two digits
rather than four to define the applicable year. As a result, those computer
programs have time-sensitive software that recognize a date using "00" as the
year 1900 rather than the year 2000. This could cause a system failure or
miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoices, or engage
in similar normal business activities or failure of devices with imbedded
technology.
The Company has completed an assessment of its data processing systems and will
have to modify or replace portions of its software so that its computer systems
will function properly with respect to dates in the year 2000 and thereafter.
The total Year 2000 project budget was initially estimated and authorized for
approximately $1 million, which included approximately $200,000 for new hardware
to be capitalized and approximately $800,000 of costs to be expensed as
incurred. The Company has completed the most significant portion of this phase
of the Year 2000 project and currently estimates that the cost of this project
will be less than the initial budgeted amount. As of December 31, 1998, the
Company has incurred and expensed approximately $300,000 and capitalized
approximately $213,000 related to this project.
The Company believes, based on its current understanding of its systems, that
with modifications to the existing software and conversions to new software, the
Year 2000 issue should not pose significant operational problems for its
computer systems. However, if such modifications and conversions are not
properly made, or are not completed timely, the Year 2000 issue could have a
material adverse impact on the operations of the Company. The cost of the
project and the date on which the Company believes it will complete the Year
2000 modifications are based on management's best estimates, which were derived
utilizing numerous assumptions of future events, including the continued
availability of certain resources, cooperation of vendors and other factors.
However, there can be no guarantee that these estimates will be achieved and
actual results could differ materially from those anticipated. Specific factors
that might cause such material differences include, but are not limited to, the
availability and cost of personnel trained in the area, the ability to locate
and correct all relevant computer codes, and similar uncertainties.
The Company has also mailed letters to its significant vendors and service
providers and has verbally communicated with many strategic customers to
determine the extent to which interfaces with such entities are vulnerable to
Year 2000 issues and whether the products and services purchased from or by such
entities are Year 2000 compliant. As of December 1998 the Company had received
responses from approximately one-third of such third parties and is currently in
the process of analyzing the responses. The Company is also in the process of
following up with those vendors and service providers which have not responded
that are deemed to be critical suppliers, or whose response was unsatisfactory.
This phase of the Year 2000 project is expected to be completed by the second
quarter of 1999.
The Company is also in the process of evaluating its internal systems with
imbedded technology that are subject to the Year 2000 issue. This evaluation and
any required remediation are expected to be completed by December 31, 1999.
The Company presently believes that the Year 2000 issue will not pose
significant operational problems for the Company. However, if all Year 2000
issues are not properly identified, or assessment, remediation and testing are
not effected timely with respect to Year 2000 problems that are identified,
there can be no assurance that the Year 2000 issue will not materially adversely
impact the Company's results of operations or adversely affect the Company's
relationships with customers, vendors, or others. Additionally, there can be no
assurance that the Year 2000 issues of other entities will not have a material
adverse impact on the Company's systems or results of operations.
The Company has begun, but not yet completed, a comprehensive analysis of the
operational problems and costs (including loss of revenues) that would be
reasonably likely to result from the failure by the Company and certain third
parties to complete efforts necessary to achieve Year 2000 compliance on a
timely basis. A contingency plan has not been developed for dealing with the
most reasonably likely worst case scenario, and such scenario has not yet been
clearly identified. The Company currently plans to complete such analysis and
contingency planning by December 31, 1999.
Page 26
<PAGE>
European monetary conversion
On January 1, 1999, the European Economic and Monetary Union (the "EMU")
introduced the Euro, which became a functional legal currency of the EMU
countries. During the next three years, business in the EMU member states will
be conducted in both the existing national currency, such as the Franc or
Deutsche Mark, and the Euro. As a result, companies operating in or conducting
business in the EMU member states will need to ensure that their financial and
other software systems are capable of processing transactions and properly
handling these currencies, including the Euro.
The Company is still assessing the impact the EMU formation will have on both
its internal systems and its products sold. The Company plans to take
appropriate corrective actions based on the results of such assessment. The
costs related to addressing this issue have not been determined, however,
management believes that this issue and its related costs will not have a
material adverse effect on the Company's business, financial condition and
operating results.
SHAREHOLDER RIGHTS PLAN
In March 1998, the Company adopted a Shareholder Rights Plan (the "Rights Plan")
that went into effect simultaneously with the expiration of its previously
existing Shareholder Rights Plan. Under the Rights Plan, a dividend of one Share
Purchase Right (a "Right") was declared for each share of Company Common Stock
outstanding at the close of business on April 4, 1998. In the event that a
person or group (the "Acquirer") acquires 15% or more of the Company's Common
Stock without advance approval by the Company's Board of Directors (20% or more
in the case of one group of shareholders), each Right will entitle the holder,
other than the Acquirer, to buy Common Stock with a market value of twice the
Right's then current exercise price (initially $30, subject to adjustment). In
addition, if Rights are triggered by such a non-approved acquisition and the
Company is thereafter acquired in a merger or other transaction in which the
shareholders of the Company are not treated equally, shareholders with
unexercised Rights will be entitled to purchase common stock of the Acquirer
with a value of twice the exercise price of the Rights. This Rights Plan is
intended to protect the Company's shareholders in the case of an unapproved
acquisition by allowing the holder of a Right to purchase the Company's Common
Stock at 50% of the market price, thereby diluting the ownership percentage of
the Acquirer. The Company's Board of Directors may redeem the Rights for a
nominal amount at any time prior to an event that causes the Rights to become
exercisable. The Rights trade automatically with the underlying Common Stock
(unless and until a distribution event occurs under the Rights Plan) and expire
on April 4, 2008 if not redeemed earlier.
Page 27
<PAGE>
Item 7A. Quantitative and Qualitative Disclosure About Market Risk
The Company currently uses only foreign currency hedge derivative instruments
which, at a given date, are not material. However, the Company is exposed to
interest rate risk. The Company generally invests in high-grade commercial paper
with original maturity dates of twelve months or less and conservative money
market funds to minimize its exposure to interest rate risk on its marketable
securities, which are classified as available-for-sale as of December 31, 1998.
The Company believes that the market risk arising from holdings of its financial
instruments is not material. The table below provides information about the
Company's marketable securities, including principal cash flows for 1999 and
2000 and the related weighted average interest rates (in thousands):
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Estimated Fair
Value at
December 31,
1999 2000 Total 1998
---------------- ---------------- -------------- ----------------
Corporate bonds $4,913 $1,049 $5,962 $5,949
5.72% 5.65% 5.71%
Medium- and short-term notes 3,427 - 3,427 3,421
5.85% 5.85%
Euro-dollar bonds 4,276 798 5,074 5,063
5.77% 5.68% 5.75%
Zero coupon notes - 459 459 461
4.85% 4.85%
---------------- ---------------- -------------- ----------------
Total portfolio value $12,616 $2,306 $14,922 $14,894
================ ================ ============== ================
</TABLE>
Item 8. Financial Statements and Supplementary Data
See pages 29 through 47.
Page 28
<PAGE>
- --------------------------------------------------------------------------------
Report of Ernst & Young LLP, Independent Auditors
- --------------------------------------------------------------------------------
To the 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 31, 1998 and December 25, 1997, and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the three years in the period ended December 31, 1998. 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 financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Data I/O
Corporation at December 31, 1998 and December 25, 1997, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1998, 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.
Seattle, Washington //S// Ernst & young LLP
February 8, 1999 Ernst & young LLP
- --------------------------------------------------------------------------------
Report of Management
- --------------------------------------------------------------------------------
The Management of Data I/O Corporation is responsible for the preparation and
integrity of the Company's consolidated 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 control, which is designed to
safeguard the Company's assets and ensure that transactions are recorded in
accordance with Company policies.
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//Frederick R. Hume //S//Joel S. Hatlen
FREDERICK R. HUME JOEL S. HATLEN
President and Chief Executive Officer Vice President Finance
Chief Financial Officer
Secretary and Treasurer
Page 29
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
DATA I/O CORPORATION
CONSOLIDATED BALANCE SHEETS
- -------------------------------------------------------------------------------------------------
Dec. 31, Dec. 25,
1998 1997
- -------------------------------------------------------------------------------------------------
(in thousands, except share data)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 4,008 $ 8,113
Marketable securities 14,894 24,855
Trade accounts receivable, less allowance for
doubtful accounts of $445 and $394 5,352 5,678
Inventories 4,442 8,158
Recoverable income taxes 3,366 -
Deferred income taxes 331 1,990
Other current assets 1,117 3,910
------------- -------------
TOTAL CURRENT ASSETS 33,510 52,704
Property, plant and equipment - net 2,174 3,389
Other assets 4,345 532
Deferred income taxes 60 1,111
------------- -------------
TOTAL ASSETS $40,089 $57,736
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 3,781 $ 3,760
Accrued compensation 2,926 2,958
Deferred revenue 3,895 4,795
Other accrued liabilities 3,328 3,117
Accrued costs of business restructuring 2,339 -
Income taxes payable 1,593 2,848
Notes payable and current maturities of long-term debt 564 2,000
------------- -------------
TOTAL CURRENT LIABILITIES 18,426 19,478
Other long-term payables - 561
Deferred gain on sale of property 2,754 3,083
------------- -------------
TOTAL LIABILITIES 21,180 23,122
COMMITMENTS
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, 7,186,851
and 7,038,786 shares 17,637 16,412
Retained earnings 715 18,345
Accumulated other comprehensive income (loss) 557 (143)
------------- -------------
TOTAL STOCKHOLDERS' EQUITY 18,909 34,614
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $40,089 $57,736
============= =============
See notes to consolidated financial statements.
</TABLE>
Page 30
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
DATA I/O CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
- -------------------------------------------------------------------------------------------------------------------------------
Dec. 31, Dec. 25, Dec. 26,
For the years ended 1998 1997 1996
- -------------------------------------------------------------------------------------------------------------------------------
(in thousands, except per share data)
Net sales $35,338 $46,284 $48,860
Cost of goods sold 24,933 22,748 25,934
------------ ------------ ------------
Gross margin 10,405 23,536 22,926
------------ ------------ ------------
Operating expenses:
Research and development 9,109 7,807 8,121
Selling, general and administrative 14,386 13,924 14,618
Write-off acquired in-process R&D 1,959 - -
Provision for business restructuring 4,370 - -
------------ ------------ ------------
Total operating expenses 29,823 21,731 22,739
------------ ------------ ------------
Operating income (loss) (19,418) 1,805 187
Non-operating income (expense):
Interest income 1,513 760 199
Interest expense (138) (219) (256)
Foreign currency exchange (3) (51) (2)
Gain (loss) on dispositions and other (420) 2,267 -
------------ ------------ ------------
Total non-operating income (expense) 952 2,757 (59)
------------ ------------ ------------
Income (loss) from continuing operations before income taxes (18,466) 4,562 128
Income tax expense (58) (176) (121)
------------ ------------ ------------
Income (loss) from continuing operations (18,524) 4,386 7
Discontinued operations net of income taxes (Note 4):
Income (loss) from operations, net of income tax 1,344 (432) (1,108)
Gain (loss) on disposals, net of income tax (450) 7,546 -
------------ ------------ ------------
Income (loss) from discontinued operations 894 7,114 (1,108)
------------ ------------ ------------
Net income (loss) ($17,630) $11,500 ($ 1,101)
============ ============ ============
Basic earnings (loss) per share:
From continuing operations ($2.59) $0.63 $0.00
From discontinued operations 0.13 1.03 (0.16)
------------ ------------ ------------
Total basic earnings (loss) per share ($2.46) $1.66 $(0.16)
============ ============ ============
Diluted earnings (loss) per share:
From continuing operations ($2.59) $0.62 $0.00
From discontinued operations 0.13 1.00 (0.16)
------------ ------------ ------------
Total diluted earnings (loss) per share ($2.46) $1.62 $(0.16)
============ ============ ============
Weighted-average shares outstanding 7,154 6,909 6,857
============ ============ ============
Weighted-average and potential shares outstanding 7,154 7,087 7,035
============ ============ ============
See notes to consolidated financial statements.
</TABLE>
Page 31
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
DATA I/O CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
- ---------------------------------------------------------------------------------------------------------------------------------
Dec. 31, Dec. 25, Dec. 26,
For the years ended 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------------
(in thousands)
OPERATING ACTIVITIES:
Income (loss) from continuing operations ($18,524) $ 4,386 $ 7
Adjustments to reconcile income (loss) from continuing
operations to net cash provided by (used in) operating activities:
Depreciation and amortization 2,077 1,740 2,968
Write-off of acquired in-process R&D 1,959 - -
Net (gain) loss on dispositions 355 (2,267) -
Equity losses from investee 64 - -
Deferred income taxes 2,710 (459) (129)
Deferred revenue (900) 286 (60)
Amortization of deferred gain on sale (329) (213) -
Non-cash stock-based compensation expense 583 - -
Inventory write-downs due to business restructure 4,557 - -
Net change in:
Trade accounts receivable 315 1,547 3,993
Inventories (841) (618) 262
Recoverable income tax refund (3,366) - -
Other current assets 2,793 (3,277) (22)
Business restructure 2,339 (312) (653)
Accounts payable and accrued liabilities (1,632) 4,185 (1,481)
------------- -------------- -------------
Cash provided by (used in) operating activities of continuing operations (7,840) 4,998 4,885
Cash provided by (used in) operating activities of discontinued 894 (3,839) (761)
operations
-------------- ------------- -------------
Net cash provided by (used in) operating activities (6,946) 1,159 4,124
INVESTING ACTIVITIES:
Additions to property, plant and equipment (482) (1,197) (1,819)
Net proceeds on sale of property - 13,430 -
Acquisition of SMS GmbH and technology (5,224) - -
Investment in JTAG Technologies (979) - -
Additions to other assets - (14) -
Purchases of marketable securities (20,717) (45,687) -
Proceeds from sales of marketable securities 31,055 20,100 -
Proceeds from sale of discontinued operations - 15,525 -
Net investing activities of discontinued operations - - (492)
------------- -------------- -------------
Cash provided by (used in) investing activities 3,653 2,157 (2,311)
FINANCING ACTIVITIES:
Additions to (repayment of) notes payable (1,442) 412 (9)
Sale of common stock 259 344 321
Proceeds from exercise of stock options 383 824 426
Repurchase of common stock - (3) (3,028)
Net financing activities of discontinued operations - (854) -
------------- -------------- -------------
Cash provided by (used in) financing activities (800) 723 (2,290)
------------- -------------- -------------
Increase (decrease) in cash and cash equivalents (4,093) 4,039 (477)
Effects of exchange rate changes on cash (12) 26 29
Cash and cash equivalents at beginning of year 8,113 4,048 4,496
------------- -------------- -------------
Cash and cash equivalents at end of year $ 4,008 $ 8,113 $4,048
============= ============== =============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 88 $ 152 $ 120
Income taxes $ 2,145 $ 1,748 $ 564
See notes to consolidated financial statements.
</TABLE>
Page 32
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
DATA I/O CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Accumulated
Common Stock Other Total
--------------------------- Retained Comprehensive Stockholders'
Shares Amount Earnings Income (Loss) Equity
------------- ---------- ----------- ----------------- -----------------
(in thousands, except share data)
Balance at December 28, 1995 7,083,825 $17,528 $7,946 $455 $25,929
Stock options exercised 81,500 426 - - 426
Issuance of stock through
Employee Stock
Purchase Plan 65,695 321 - - 321
Purchase of common stock (453,300) (3,028) - - (3,028)
Comprehensive loss:
Net loss - - (1,101) - (1,101)
Cumulative translation
adjustment - - - 12 12
-----------------
Total comprehensive loss (1,089)
------------- ---------- ----------- ----------------- -----------------
Balance at December 26, 1996 6,777,720 15,247 6,845 467 22,559
Stock options exercised 168,125 735 - - 735
Issuance of stock through
Directors Fee Plan 13,508 89 - - 89
Issuance of stock through
Employee Stock
Purchase Plan 79,933 344 - - 344
Purchase of common stock (500) (3) - - (3)
Comprehensive income:
Net income - - 11,500 - 11,500
Cumulative translation
adjustment - - - 122 122
Unrealized loss on
marketable securities - - - (732) (732)
-----------------
Total comprehensive income 10,890
------------- ---------- ----------- ----------------- -----------------
Balance at December 25, 1997 7,038,786 16,412 18,345 (143) 34,614
Stock options exercised 55,000 276 - - 276
Issuance of stock through
Director Fee Plan 20,932 107 - - 107
Issuance of stock through
Employee Stock
Purchase Plan 72,133 259 - - 259
Stock-based compensation - 583 - - 583
Comprehensive loss:
Net loss - - (17,630) - (17,630)
Cumulative translation
adjustment - - - (32) (32)
Unrealized loss on
marketable securities - - - 732 732
-----------------
Total comprehensive loss (16,930)
------------- ---------- ----------- ----------------- -----------------
Balance at December 31, 1998 7,186,851 $17,637 $ 715 $557 $18,909
============= ========== =========== ================= =================
See notes to consolidated financial statements.
</TABLE>
Page 33
<PAGE>
DATA I/O CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
Data I/O Corporation (the "Company") manufactures hardware products for users of
programmable integrated circuits. The Company's principal customers use the
Company's programming systems to design and manufacture electronic equipment for
industrial, commercial and military applications. Customers for the Company's
programming system products are located around the world, primarily in the
United States, Europe and the Far East. All of the Company's manufacturing
operations are currently located in the United States, although the Company has
plans to outsource substantially all of its manufacturing to third parties in
future periods. See Note 2 - Provision for Business Restructuring.
During 1997, the Company disposed of its Semiconductor Equipment and Synario
Design Automation Divisions, which removed Electronic Design Software (EDA)
software products and semiconductor equipment products from the Company's
product offerings. See Note 4 - Discontinued Operations.
Principles of Consolidation
The consolidated financial statements include the accounts of Data I/O
Corporation and its wholly owned subsidiaries. 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 1998 are for a fifty-three week period, whereas results for 1997
and 1996 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 has elected to apply the disclosure-only provisions of the Statement
of Financial Accounting Standards (SFAS) No. 123, Accounting for Stock Based
Compensation. Accordingly, the Company accounts for stock-based compensation
using the intrinsic value method prescribed in Accounting Principles Board
Opinion (APB) No. 25, Accounting for Stock Issued to Employees, and related
interpretations. Compensation cost for stock options is measured as the excess,
if any, of the fair value of the Company's Common Stock at the date of the grant
over the stock option price.
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 31, 1998, the Company had approximately $293,000 in
foreign exchange contracts outstanding, with the contract exchange rates being
approximately equal to the market exchange rates.
These contract terms range from 4 to 74 days.
Page 34
<PAGE>
Cash and Cash Equivalents
Cash and cash equivalents are highly liquid investments with insignificant
interest rate risk. The Company generally invests in high-grade commercial paper
with original maturities of twelve months or less and conservative money market
funds. Interest earned is reported in non-operating income as interest income.
Marketable Securities
Marketable securities are primarily money market funds and high-grade commercial
paper, all of which are classified as available-for-sale and recorded at fair
value, as defined below. Unrealized holding gains and losses are recorded, net
of any tax effect, as a component of accumulated other comprehensive income
(loss) within stockholders' equity. Interest earned is reported in non-operating
income as interest income. Marketable securities are classified in the balance
sheet as current and noncurrent based on maturity dates and the Company's
expectation of sales and redemptions in the following year.
Fair Value of Financial Instruments
The carrying value of cash, cash equivalents and marketable securities
approximates fair value because of the short-term maturity of those instruments.
The fair value of the Company's marketable securities is based upon the quoted
market price on the last business day of the fiscal year plus accrued interest,
if any.
Inventories
Inventories are stated at the lower of cost or market with cost being the
currently adjusted standard cost, which approximates cost on a first-in,
first-out basis.
Property, Plant and Equipment
Property, plant and equipment, including leasehold improvements, are stated at
cost and depreciation is calculated over the estimated useful lives of the
related assets or lease terms on the straight-line basis.
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 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 advertising expenses
related to continuing operations were $1,121,000, $1,676,000 and $2,052,000 in
1998, 1997 and 1996, respectively.
Warranty Expense
The Company warrants its products against defects for periods ranging from
ninety days to one year. The Company provides 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 accounts for income taxes under the
liability method. Under the liability method, deferred tax assets and
liabilities are determined based on differences between financial reporting and
tax bases of assets and liabilities, and are measured using the enacted tax
rates and laws that will be in effect when the differences are expected to
reverse. Valuation allowances are established when necessary to reduce deferred
tax assets to the amounts expected to be realized.
Page 35
<PAGE>
Earnings (Loss) Per Share
Basic earnings per share excludes any dilutive effects of stock options. Basic
earnings per share is computed using the weighted-average number of common
shares outstanding during the period. Diluted earnings per share is computed
using the weighted-average number of common shares and common stock equivalent
shares outstanding during the period. Common stock equivalent shares are
excluded from the computation if their effect is antidilutive.
Diversification of Credit Risk
Financial instruments, which potentially subject the Company to concentrations
of credit risk, consist primarily of trade receivables. The Company's cash, cash
equivalents and marketable securities consist of high quality financial
instruments. 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.
Other Comprehensive Income
As of January 1, 1998, the Company adopted SFAS No. 130, Reporting Comprehensive
Income, which establishes standards for reporting and display of comprehensive
income and its components in the financial statements. The only items of other
comprehensive income (loss) which the Company currently reports are unrealized
gains (losses) on available-for-sale securities and foreign currency translation
adjustments.
Business Segments
As of January 1, 1998, the Company adopted SFAS No. 131, Disclosures about
Segments of an Enterprise and Related Information, which establishes standards
for reporting information about operating segments in annual financial
statements. It also establishes standards for related disclosures about products
and services, geographic areas and major customers. Information related to
segment disclosures is contained in Note 16.
Derivatives
In June 1998, the Company adopted SFAS No. 133, Accounting for Derivatives and
Hedging Activities, which established accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts (collectively referred to as derivatives), and for hedging
activities. The Company currently uses only foreign currency hedge derivative
instruments which, at a given date, are not material. Therefore adoption of SFAS
No. 133 has not had a significant effect on earnings or the financial condition
of the Company.
Page 36
<PAGE>
NOTE 2 - PROVISION FOR BUSINESS RESTRUCTURING
During the third quarter of 1998, the Company recorded a restructuring charge of
$2.0 million as the Company began the implementation of a plan to restructure
its Redmond and foreign subsidiary operations to a level more in line with the
lower sales it was experiencing. During the fourth quarter of 1998, the Company
recorded further restructuring charges of $2.4 million related to the continuing
restructure of the Company's Redmond operations and foreign subsidiaries and
related to activities directly associated with the fourth quarter acquisition of
SMS GmbH (see Note 3 - Acquisition of SMS GmbH). The acquisition of SMS created
certain redundancies in product offerings and in the operations of the combined
company. A restructuring plan was implemented after the acquisition was
completed to eliminate such redundant operations and to phase out overlapping
products.
With the implementation of the restructuring initiatives during 1998, the
Company had four objectives: (1) to reduce its corporate overhead costs; (2) to
reduce research and development expenses and to focus its on-going research and
development spending in the segments of the market that show the best potential
for growth and return on investment for the Company; (3) to create a more
variable cost operating structure including the out-sourcing of substantially
all of its manufacturing operations during 1999; and (4) to eliminate redundant
products and operations after the acquisition of SMS GmbH.
The total restructuring charge taken during 1998 consisted primarily of the
following activities shown below (in thousands):
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Total Reserve Expected
Restructuring 1998 Balance at Total Cash
Description Charges Activity 12/31/98 Flow Impact
- ---------------- ---------------- ----------- -------------- --------------
Downsizing U.S. Operations:
Employee severances $1,997 $ 947 $1,050 $1,997
Employee accrued vacation cashed out - - - 511
Fixed asset write-offs 835 566 269 -
Redmond facility consolidation and abandonment 407 151 256 407
Supplier-related settlements 404 155 249 248
Consulting and legal expenses 177 155 22 177
Other 36 22 14 34
Downsizing foreign subsidiaries 514 35 479 476
---------------- ----------- -------------- --------------
Total $4,370 $2,031 $2,339 $3,850
================ =========== ============== ==============
</TABLE>
The Company expects the plans associated with these costs to be substantially
completed by the second or third quarter of 1999. Many of the costs associated
with the reduction of work force were paid during the fourth quarter 1998 and
first quarter 1999. The total number of employees terminated due to the
restructure was 169 (approximately 50% of the total workforce), with 84 having
left as of December 31, 1998 and 50 expected to leave by the end of the first
quarter 1999 and the remainder expected to leave during the second and third
quarters 1999. Employees were terminated from almost all areas of the Company,
including manufacturing, engineering, selling, marketing and administration. The
Company expects to have substantially all of its manufacturing operations
outsourced by the third quarter 1999. The majority of the costs associated with
these outsourcing activities, including fixed asset write-offs and facility
consolidation and abandonment, will be incurred and paid by the third quarter
1999. In February, the Company sold its Japan sales and service subsidiary to a
former sub-distributor who will now continue to distribute the Company's
products in Japan. Additionally, the Company continues to realign its operations
in Germany whereby SMS will become the German headquarters and Munich will
continue as a sales and service office. The majority of the costs associated
with the foreign subsidiary downsizings will be incurred and paid during the
first half of 1999.
Related primarily to its restructuring plan, the Company recorded inventory
reserves during the third and fourth quarters of 1998 of approximately $4.6
million on products that will be discontinued as a result of the business
restructuring. These reserves are included in cost of goods sold for the third
and fourth quarters of 1998. In addition, the Company incurred operating
expenses of approximately $220,000 related to facility consolidation activities
that are not included in the restructuring charge because of the direct benefit
to future operations.
Page 37
<PAGE>
NOTE 3 - ACQUISITION of SMS Holding GMHB
In November 1998, the Company acquired SMS Holding GmbH ("SMS"), a privately
held programming equipment company located in Wangen, Germany. The acquisition
was accounted for using the purchase method of accounting with the Company
paying approximately $5.2 million in cash, including $456,000 of direct
acquisition costs. The Company recorded a charge in the fourth quarter 1998 of
approximately $2.0 million for in-process R&D relating to the acquisition.
The purchase price was allocated as follows (in thousands):
Assets acquired $1,804
Liabilities assumed (1,510)
Technology purchased 2,840
Other intangible assets 131
In-process R&D 1,959
-------------
$5,224
=============
Values assigned to acquired in-process research and development, developed
technology and non-compete agreements were determined using a discounted cash
flow analysis. The value assigned to the acquired workforce was based on
replacement cost. To determine the value of the in-process research and
development, the Company considered, among other factors, the state of
development of each project, the time and cost needed to complete each project,
the reliance of the new technology being developed on the existing technology,
expected income, and associated risks. Such risks included the inherent
difficulties and uncertainties in completing the project and thereby achieving
technological feasibility, and risks related to the viability of the potential
changes to future target markets. Based on the analysis performed of the
in-process research and development, the Company estimates that approximately
$1.5 million to $2.0 million will be spent over the next one to two years before
this development results in commercially viable products. To determine the value
of the developed technology, the expected future cash flows of the existing
technology products were discounted taking into account risks related to the
characteristics and applications of each product, existing and future markets,
and assessments of the life cycle stage of each product. Based on this analysis,
the existing technology that had reached technological feasibility was
capitalized. Amounts attributable to the capitalized technology and other
intangible assets will be amortized over their estimated useful lives of 3 to 5
years on a straight-line basis.
The unaudited pro forma combined historical results of operations, as if SMS had
been acquired on December 27, 1996, including incremental amortization of
purchased intangibles of $952,000 and $1,039,000 for the years 1998 and 1997,
respectively, and excluding the $1,959,000 one-time charge in 1998 for acquired
in-process technology, are as follows (in thousands, except per share data):
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Year Ended Year Ended
December 31, 1998 December 25, 1997
Actual Pro Forma Actual Pro Forma
------------ ------------- ------------ -------------
(unaudited) (unaudited)
Revenues $35,338 $38,288 $46,284 $51,028
Income (loss) from continuing operations ($18,524) ($18,534) $4,386 $4,028
Diluted earnings (loss) per share from
continuing operations ($ 2.59) ($ 2.59) $ 0.62 $ 0.57
</TABLE>
The pro forma information does not purport to be indicative of the results that
would have been attained had these events occurred at the beginning of the
period presented and is not necessarily indicative of future results.
Page 38
<PAGE>
NOTE 4 - DISCONTINUED OPERATIONS
In November 1997, the Company sold the assets of its Semiconductor Equipment
Division, Reel-Tech(TM) Inc., to General Scanning Inc., for $15.5 million,
consisting of $12 million in cash, $2 million in stock and $1.5 million in
assumed liabilities. The consolidated financial statements include the results
of operations of Reel-Tech, Inc. since the acquisition of this business on
August 31, 1995. Also in November 1997, the Company entered into a licensing
agreement and an agreement to sell certain assets of its Synario(R) Design
Automation Division. Under this licensing agreement, the Company's Electronic
Design Automation (EDA) products are being integrated and sold with the EDA
product line of MINC Incorporated. This transaction discontinues the Synario
Design Automation Division operations of the Company. However, the Company is
entitled to receive and may realize certain licensing revenues related to its
ABEL and ECS products through December 31, 1999.
The income from operations of these discontinued segments has been accounted for
as discontinued operations, and accordingly, their operations are segregated in
the accompanying statements of operations. Operating results of the discontinued
segments and the gain on the sale of these segments are as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Semiconductor Equipment Division Year Ended December
--------------------------------------- ----------------------------------------------
(in thousands) 1998 1997 1996
----------- ----------- ------------
Net sales (1) $ - $7,640 $3,744
=========== =========== ============
Income from operations before income taxes $ - $ 926 $ 225
Income tax expense - - (109)
----------- ----------- ------------
Income from operations - 926 116
----------- ----------- ------------
Gain (loss) on disposal before income taxes (25) 10,422 -
Income tax expense (240) (2,093) -
----------- ----------- ------------
Gain (loss) on disposal (265) 8,329 -
----------- ----------- ------------
Total income (loss) from discontinued segment ($265) $9,255 $ 116
=========== =========== ============
-----------------------------
(1) Excludes inter-segment sales to the Programming Systems Division of $1,876,000 in 1996.
Synario Design Automation Division Year Ended December
---------------------------------------- ----------------------------------------------
(in thousands) 1998 1997 1996 (3)
----------- ----------- ------------
Net sales (2) $1,381 $7,172 $7,819
=========== =========== ============
Income (loss) from operations before income taxes $1,344 ($ 2,088) ($1,224)
Income tax benefit - 730 -
----------- ----------- ------------
Income (loss) from operations 1,344 (1,358) (1,224)
----------- ----------- ------------
Loss on disposal before income taxes (185) (1,205) -
Income tax benefit - 422 -
----------- ----------- ------------
Loss on disposal (185) (783) -
----------- ----------- ------------
Total income (loss) from discontinued segment $1,159 ($ 2,141) ($1,224)
=========== =========== ============
-----------------------------
(2)Includes net sales of $851,000 in 1997 for retained licensing rights
recognized after the disposition in 1997. All 1998 net sales are for
retained licensing rights.
(3)Includes sales and operations of the ABEL product, which was previously
reported as part of the Programming Systems Division.
</TABLE>
The disposition transactions of these segments were completed prior to December
25, 1997.
Page 39
<PAGE>
NOTE 5 - MARKETABLE SECURITIES
The estimated fair value of marketable securities consisted of the following (in
thousands):
Dec. 31, Dec. 25,
1998 1997
------------- -------------
Corporate bonds $5,949 $2,774
Medium- and short-term notes 3,421 2,934
Euro-dollar bonds 5,063 16,629
Zero coupon bonds 461 -
Taxable auction securities - 500
General Scanning Inc. common stock - 1,268
Cash held in escrow - 750
------------- -------------
$14,894 $24,855
============= =============
Certain of the bonds, notes and securities held have maturity dates beyond one
year. However, the Company does not anticipate holding these investments for
more than one year and have, therefore, classified them all as short-term,
available-for-sale investments as of December 31, 1998. At December 31, 1998,
cost approximated market value for the Company's portfolio of marketable
securities and there were no significant unrealized gains or losses. At December
25, 1997, the marketable security which had declined in value was the investment
in General Scanning common stock for which the Company recorded an unrealized
loss of $732,000 in 1997. In 1998, these securities were sold.
NOTE 6 - INVENTORIES
Net inventories consisted of the following components (in thousands):
Dec. 31, Dec. 25,
1998 1997
-------------- --------------
Raw material $1,357 $2,965
Work-in-process 877 2,470
Finished goods 2,208 2,723
------------- --------------
$4,442 $8,158
============== ==============
NOTE 7 - SALE OF LAND
In May 1997, the completed the sale of the land and building comprising its
Redmond, Washington, corporate headquarters for $13.8 million, less net
transaction-related expenses and reimbursements of approximately $400,000. The
sale includes a 10-year lease-back of the building to the Company, with an
option to renew the lease for an additional 10 years. The Company realized $12
million in cash after payment of transaction fees and taxes. The sale
represented an overall pre-tax gain to the Company of $5.6 million. Of this
amount, $2.3 million was recognized in 1997, with the remainder to be amortized
over the life of the lease.
NOTE 8 - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following components (in
thousands):
Dec. 31, Dec. 25,
1998 1997
-------------- --------------
Building and improvements $ 181 $ 83
Equipment 15,155 21,493
-------------- --------------
15,336 21,576
Less accumulated depreciation 13,162 18,187
-------------- --------------
Property, plant and equipment - net $2,174 $3,389
============== ==============
Page 40
<PAGE>
NOTE 9 - OTHER ASSETS
Other assets consisted of the following components (in thousands):
Dec. 31, Dec. 25,
1998 1997
-------------- --------------
Long-term lease deposits $ 245 $ 220
Investment in product lines: Quality Automation 3,749 3,749
Investment in product lines: SMS 3,271 -
Investment in JTAG Technologies 915 -
-------------- --------------
8,180 3,969
Less accumulated amortization 3,835 3,437
-------------- --------------
Other assets - net $4,345 $ 532
============== ==============
Total amortization recorded for 1998, 1997 and 1996 was $399,000, $470,000 and
$475,000, respectively.
Investment in Product Lines: Quality Automation
In September 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 $0 and
$310,000 at December 31, 1998, and December 25, 1997, respectively.
Investment in Product Lines: SMS
In November 1998, the Company acquired SMS Holding GmbH (see Note 3 -
Acquisition of SMS Holding GmbH). In related transactions, the Company acquired
a license to the technology, manufacturing and worldwide distribution rights to
Unmanned Solutions' AH 400 robotic handler, which is used in the SMS fine pitch
automated programming system. Of the total acquisition costs of these
transactions, approximately $3.3 million of developed technology and other
various 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 $3.2 million at
December 31, 1998.
Investment in JTAG Technologies
In April 1998, the Company signed an agreement for a strategic alliance with
JTAG Technologies, a Netherlands-based manufacturer and developer of boundary
scan test and programming solutions. Under the terms of the agreement, the
Company purchased a one-third interest in JTAG Technologies for approximately
$979,000, and began selling in-system programming products under the Data I/O
name. The investment in JTAG Technologies is being accounted for under the
equity method. The Company recorded net losses of $64,000 from this investment
in 1998, including amortization of intangible assets.
NOTE 10 - NOTES PAYABLE AND LONG-TERM DEBT
Notes payable as of December 31, 1998 and December 25, 1997 consisted of
borrowings under a $1.0 million unsecured foreign revolving line of credit with
balances outstanding of $564,000 and $500,000 at December 31, 1998 and December
25, 1997, respectively. This line of credit was assumed by the purchaser of the
Company's Japan sales and service subsidiary in February 1999. This line of
credit had weighted-average interest rates of 2.2% and 2.4% for the years ended
December 31, 1998 and December 25, 1997, respectively.
The Company had an unsecured note payable for $1.5 million as of December 25,
1997, which matured and was repaid on January 19, 1998, with variable interest
rates of 5.4% at December 25, 1997.
The Company also has another foreign line of credit of $321,000 maturing March
31, 1999 with a rate of 8% and has a U.S. revolving line of credit of $4 million
maturing May 31, 1999 with variable interest rates of the lender's prime rate or
LIBOR plus 2.5% at the Company's option. This U.S. line of credit is secured by
Page 41
<PAGE>
the assets of the Company and is subject to certain affirmative and negative
financial covenants. The Company was in compliance with all financial covenants
at December 31, 1998.
The Company anticipates renewing these lines of credit in 1999 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 11 - COMMITMENTS
The Company has commitments under non-cancelable operating leases and other
agreements, primarily for factory and office space, with initial or remaining
terms of one year or more are as follows (in thousands):
1999 $1,256
2000 1,256
2001 1,234
2002 1,306
2003 1,323
Thereafter 4,332
-------------
Total $10,707
=============
Lease and rental expense was $1,069,000, $1,060,000, and $809,000 in 1998, 1997
and 1996, respectively. The Company has renewal options on substantially all of
its major leases.
NOTE 12 - STOCK AND RETIREMENT PLANS
Stock Option Plans
At December 31, 1998, there were 1,296,375 shares of common stock reserved for
issuance and 46,625 shares available for future grant 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. Certain options granted during 1998 vest over two 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 1998, 1997 and 1996, a total of
72,133, 79,933 and 65,695 shares, respectively, were purchased under the plan at
average prices of $3.58, $4.30 and $4.88 per share, respectively. At December
31, 1998, a total of 332,679 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,
subject to the annual IRS limitation. In fiscal years 1998, 1997 and 1996, 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 contribution expense for the savings plan was approximately $315,000,
$432,000 and $478,000 in 1998, 1997 and 1996, respectively.
Page 42
<PAGE>
Share Repurchase Program
Under a previously announced share repurchase program, the Company is authorized
to repurchase up to 1,123,800 shares (approximately 15.5%) 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, and may commence or be discontinued at any time. As of December
31, 1998, the Company has repurchased 1,016,200 shares under this repurchase
program at a total cost of approximately $7.1 million. The Company has not
repurchased shares under this plan since the second quarter of 1997, although it
still has the authority to do so.
NOTE 13 - EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per
share (in thousands except per share data):
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Year Ended December
----------------------------------------------
1998 1997 1996
------------ ------------- -------------
Numerator for basic and diluted earnings per share:
Income (loss) from continuing operations ($18,524) $ 4,386 $ 7
Income (loss) from discontinued operations 894 7,114 (1,108)
------------ ------------- -------------
Net income (loss) ($17,630) $11,500 ($1,101)
============ ============= =============
Denominator:
Denominator for basic earnings per share -
weighted-average shares 7,154 6,909 6,857
Employee stock options (1) - 178 178
------------ ------------- -------------
Denominator for diluted earnings per share -
adjusted weighted-average shares and
assumed conversions 7,154 7,087 7,035
============ ============= =============
Basic earnings (loss) per share
From continuing operations ($2.59) $0.63 $0.00
From discontinued operations 0.13 1.03 (0.16)
------------ ------------- -------------
Total basic earnings per share ($2.46) $1.66 ($0.16)
============ ============= =============
Diluted earnings (loss) per share
From continuing operations ($2.59) $0.62 $0.00
From discontinued operations 0.13 1.00 (0.16)
------------ ------------- -------------
Total diluted earnings per share ($2.46) $1.62 ($0.16)
============ ============= =============
(1)Excludes employee stock options, which were antidilutive of 70,489, 71,000, and 374,000 in 1998, 1997
and 1996, respectively.
</TABLE>
NOTE 14 - STOCK-BASED COMPENSATION
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>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Employee Stock Employee Stock Director
Options Purchase Plan Options Fee Plan
------------------------------- -------------------------------- -------------------------------
1998 1997 1996 1998 1997 1996 1998 1997 1996
--------- --------- --------- --------- --------- ---------- --------- --------- ---------
Risk-free interest rates 4.90% 6.23% 6.40% 5.48% 5.58% 5.39% 5.52% 5.98% 5.33%
Volatility factors 1.86 1.28 0.49 1.86 1.28 0.49 1.86 1.28 0.49
Expected life of the option
in years 5.02 5.06 4.75 0.50 0.50 0.50 5.13 1.00 1.00
Expected dividend yield None None None None None None None None None
</TABLE>
Page 43
<PAGE>
For purposes of pro forma disclosures, the estimated fair value of the options
granted, which is estimated to be $1.86, $2.75 and $2.68 per share for 1998,
1997 and 1996, respectively, 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 per share data):
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Year Ended December
-------------------------------------------------
1998 1997 1996
--------------- -------------- ----------------
Net income (loss) - as reported ($17,630) $11,500 ($1,101)
Net income (loss) - pro forma ($18,856) $10,144 ($1,582)
Diluted earnings (loss) per share - as reported ($2.46) $1.62 ($0.16)
Diluted earnings (loss) per share - pro forma ($2.64) $1.43 ($0.22)
</TABLE>
A summary of the Company's stock option activity, and related information
follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
December 31, 1998 December 25, 1997 December 26, 1996
--------------------------- -------------------------- ---------------------------
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
-------------- -------------- -------------- -------------- -------------- --------------
Outstanding - beginning of year 917,000 $4.82 912,000 $5.22 859,125 $5.03
Granted 1,307,975 3.90 542,000 5.01 246,250 5.42
Exercised (55,000) 4.41 (168,125) 3.46 (81,500) 4.03
Expired or forfeited (920,225) 5.31 (368,875) 6.70 (111,875) 5.15
-------------- -------------- --------------
Outstanding - end of year 1,249,750 $3.51 917,000 $4.82 912,000 $5.22
============== ============== ==============
Exercisable at end of year 420,938 $3.86 433,313 $4.74 349,875 $4.13
</TABLE>
Options granted and expired include options which were repriced during the year.
In August 1998, the Company cancelled and regranted at a lower exercise price
469,125 options, which included most options that had an exercise price greater
than $3.60 at that time. The exercise price of those options regranted was
$3.48. In addition, in May 1998, the Company cancelled and regranted 214,000
options granted to the CEO at the time of his hiring.
In May 1998, the shareholders approved an amendment to the Company's 1986 Stock
Option Plan whereby the number of shares of the Company's Common Stock reserved
for reissuance under the Plan was increased by 300,000 shares.
These shares were registered on June 3, 1998.
The following table summarizes information about stock options outstanding at
December 31, 1998:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Options Outstanding Options Exercisable
------------------------------------------------------ -----------------------------------
Weighted-
Average Weighted- Weighted-
Number Remaining Average Number Average
Range of Outstanding at Contractual Exercise Exercisable at Exercise
Exercise Prices 12/31/98 Life in Years Price 12/31/98 Price
----------------- ------------------ ------------------ ---------------- ------------------
$1.59 - $3.19 252,875 3.92 $2.23 106,125 $2.62
$3.48 - $3.48 660,000 4.98 3.48 51,688 3.48
$3.50 - $5.00 321,250 2.92 4.51 258,750 4.42
$5.18 - $5.19 15,625 5.36 5.19 4,375 5.19
----------------- ----------------
$1.59 - $5.19 1,249,750 4.24 $3.51 420,938 $3.86
================= ================
</TABLE>
During the first quarter of 1998, the Company recorded a stock-based
compensation charge of $540,000 related to the modification of stock options of
a former CEO of the Company. Additionally, during the second quarter of 1998,
the Company recorded an additional charge of $43,000 related to stock option
modifications.
Page 44
<PAGE>
NOTE 15 - INCOME TAXES
Components of income (loss) from continuing operations before taxes:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Year Ended December
-----------------------------------------------------
(in thousands) 1998 1997 1996
--------------- --------------- ----------------
U.S. operations ($16,750) $4,034 ($842)
Foreign operations (1,716) 528 970
--------------- --------------- ----------------
($18,466) $4,562 $128
=============== =============== ================
Income tax expense (benefit) consists of:
Current tax expense (benefit):
U.S. federal ($ 2,719) $ 506 $247
State 28 58 (11)
Foreign 58 71 14
--------------- ---------------- ----------------
(2,633) 635 250
Deferred tax expense (benefit) - U.S. federal 2,691 (459) (129)
--------------- --------------- ----------------
Total income tax expense $ 58 $ 176 $121
=============== =============== ================
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 $35,000, $158,000, and $98,000
in 1998, 1997 and 1996, respectively.
</TABLE>
A reconciliation of the Company's effective income tax rate and the U.S. federal
tax rate is as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Year Ended December
----------------------------------------------------
1998 1997 1996
--------------- --------------- ---------------
Statutory rate (34.0%) 35.0% 34.0%
Foreign Sales Corporation tax benefit (0.7) (3.6) (139.9)
State and foreign income tax, net of
federal income tax benefit 2.0 1.5 (57.8)
Valuation allowance for deferred tax assets 32.9 (26.0) 443.5
Other (0.5) (3.0) (185.3)
--------------- --------------- ----------------
(0.3%) 3.9% 94.5%
=============== =============== ================
</TABLE>
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 thousands):
<TABLE>
<CAPTION>
<S> <C> <C>
Dec. 31, Dec. 25,
1998 1997
--------------- ----------------
Deferred income tax assets:
Allowance for doubtful accounts $ 124 $ 113
Inventory and product return reserves 3,027 1,298
Compensation accruals 409 235
Accrued liabilities 1,949 1,308
Book-over-tax depreciation and amortization 621 157
Other, net 206 154
--------------- ----------------
6,336 3,265
Valuation allowance (5,945) (164)
--------------- ----------------
Total deferred income tax assets $ 391 $3,101
=============== ================
Balance sheet classification:
Current assets $ 331 $1,990
Noncurrent assets 60 1,111
--------------- ----------------
$ 391 $3,101
=============== ================
The valuation allowance for deferred tax assets increased $5,781,000 during the year ended
December 31, 1998, due primarily to the loss generated in 1998, and decreased $3,074,000 during
the year ended December 25, 1997, due primarily tothe taxable income generated in 1997.
The net deferred tax assets recorded were limited to the estimated carryback benefit available
from temporary differences at the time of their expected reversal while the remaining net
deferred tax assets have a full valuation allowance provided due to uncertainty regarding the
Company's ability to utilize such assets.
</TABLE>
Page 45
<PAGE>
NOTE 16 - SEGMENT AND GEOGRAPHIC INFORMATION
Prior to 1998, Data I/O Corporation and its subsidiaries operated within three
major divisions: (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 (Reel-Tech); and (3) electronic
design automation software used to create designs for programmable ICs (Synario
Design Automation). The Reel-Tech and Synario Design Automation Divisions were
discontinued during 1997. See Note 4 - Discontinued Operations for further
discussion of these discontinued operations including results of these
operations and related balance sheet accounts.
No one customer accounted for more than 10% of the Company's revenues in 1998,
1997 and 1996. Major operations outside the U.S. include sales and service
support subsidiaries in Japan, Germany, Canada and, through the end of 1996, the
United Kingdom.
Geographic information of the continuing operations for the three years ended
December 31, 1998 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 $14,905,000, $21,207,000 and
$20,214,000 in 1998, 1997 and 1996, 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>
<S> <C> <C> <C>
Year Ended December
------------------------------------------------------------------
(in thousands) 1998 1997 1996
--------------- -------------- ----------------
Net sales:
U.S. $16,900 $22,290 $23,554
Europe 9,533 11,548 12,963
Other 8,905 12,446 12,343
--------------- -------------- ----------------
$35,338 $46,284 $48,860
=============== ============== ================
Operating income (loss) from continuing operations:
U.S. ($14,839) ($ 219) ($ 2,254)
Europe (2,838) 1,323 1,279
Other (1,741) 701 1,162
--------------- -------------- ----------------
($19,418) $ 1,805 $ 187
=============== ============== ================
Identifiable assets of the continuing operations:
U.S. $31,097 $51,539 $26,039
Europe 5,702 2,737 2,852
Other 3,290 3,460 4,050
--------------- -------------- ----------------
$40,089 $57,736 $32,941
=============== ============== ================
</TABLE>
Page 46
<PAGE>
NOTE 17 - QUARTERLY FINANCIAL INFORMATION (unaudited)
The following table sets forth unaudited selected quarterly financial data for
the Company for 1998 and 1997. 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>
<S> <C> <C> <C> <C>
(in thousands except per share data) Year Ended December 1998
-----------------------------------------------------------------
For the quarters ended: Mar. 26 June 25 Sept. 24 (1) Dec. 31 (1)
------------- ------------- ------------- ------------
Net sales $8,426 $8,782 $8,028 $10,102
Gross margin 3,656 3,528 1,103 2,118
Loss from continuing operations (2,233) (2,625) (6,378) (7,288)
Income from discontinued operations 180 527 158 29
Net loss (2,053) (2,098) (6,220) (7,259)
Diluted loss per share from continuing
operations (4) ($0.32) ($0.36) ($0.89) ($1.01)
Diluted loss per share ($0.29) ($0.29) ($0.87) ($1.01)
(in thousands except per share data) Year Ended December 1997
-----------------------------------------------------------------
For the quarters ended: Mar. 27 June 26 (2) Sept. 25 Dec. 25 (3)
------------- ------------- ------------- -------------
Net sales $11,867 $11,398 $11,762 $11,257
Gross margin 5,958 5,596 6,320 5,662
Income from continuing operations 432 2,018 1,436 500
Gain (loss) from discontinued operations (384) (639) (452) 8,589
Net income 48 1,379 984 9,089
Diluted earnings per share from continuing
operations (4) $0.06 $0.29 $0.20 $0.07
Diluted earnings per share $0.01 $0.20 $0.14 $1.26
</TABLE>
(1)During the third and fourth quarters of 1998, the Company recorded
restructuring charges of $2.0 million and $2.3 million, respectively. See
Note 2 - Provision for Business Restructuring. Related to the restructuring
activities, the Company also recorded inventory reserves during the third and
fourth quarters of $2.3 million and $2.3 million, respectively. These
inventory reserves are included in cost of goods sold.
(2)The Company completed the sale of its headquarters property resulting in a
$2.3 million pre-tax gain recognized during the second quarter of 1997.
(3)The Company disposed of its Semiconductor Equipment and Synario Design
Automation Divisions resulting in a gain from discontinued operations of $7.5
million net of tax during the fourth quarter of 1997.
(4)The sum of quarterly per share amounts may not equal per share amounts
reported for year-to-date periods. This is due to changes in the number of
weighted-average shares outstanding and the effects of rounding for each
period.
Page 47
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosures
None.
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 11, 1999 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 11, 1999 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 11, 1999 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 48
<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 10.9.
(2) Retirement Plan and Trust Agreement. See Exhibit 10.4, 10.5, 10.6,
10.15, 10.20, 10.21, and 10.22.
(3) 1985 Stock Option Plan. See Exhibit 10.1.
(4) 1984 FutureNet Employee Stock Option Plan. See Exhibit 10.2.
(5) Summary of Management Incentive Compensation Plan. See Exhibit 10.18.
(6) Amended and Restated 1983 Stock Appreciation Rights Plan.
See Exhibit 10.3.
(7) Amended and Restated 1986 Stock Option Plan. See Exhibit 10.23.
(8) Form of Change in Control Agreements. See Exhibit 10.51.
(9) 1996 Director Fee Plan. See Exhibit 10.17 and 10.25.
(11) Letter Agreement with William J. Haydamack. See Exhibit 10.8.
(12) Agreement and General Release with William J. Haydamack.
See Exhibit 10.26.
(13) Separation Agreement with William C. Erxleben. See Exhibit 10.27.
(14) Consulting Agreement with William C. Erxleben. See Exhibit 10.28.
(15) Service Agreement with Helmut Adamski. See Exhibit 10.38.
(16) Employment Agreement with Helmut Adamski. See Exhibit 10.39.
(17) Letter Agreement with Jim Rounds. See Exhibit 10.41.
(18) Letter Agreement with David C. Bullis as amended and supplemented.
See Exhibit 10.42.
<TABLE>
<CAPTION>
<S> <C>
(a) List of Documents Filed as a Part of This Report: Page
(1) Index to Financial Statements:
Report of Ernst & Young LLP, Independent Auditors 29
Report of Management 29
Consolidated Balance Sheets as of December 31, 1998 and December 25, 1997 30
Consolidated Statements of Operations for each of the three years ended December 31, 1998 31
Consolidated Statements of Cash Flows for each of the three years ended December 31, 1998 32
Page 49
<PAGE>
Consolidated Statements of Stockholders' Equity for each of the three years ended December 31, 1998 33
Notes to Consolidated Financial Statements 34
(2) Index to Financial Statement Schedules:
Schedule 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:
2 Plan of Acquisition, Reorganization, Arrangement, Liquidation or Succession:
2.1 Subsidiary Technology Purchase Agreement dated as of
November 19, 1998 between SMS-Mikrocomputer-Systeme GmbH
and Data I/O Corporation. 64
2.2 Excalibur Technology Purchase Agreement dated as of November 19,
1998 between SMS Holding GmbH and Data I/O Corporation. 70
2.3 Agreement Of Purchase And Transfer Of GmbH Shares dated as of
November 19, 1998 among Data I/O Corporation, Data I/O European
Operations GmbH and Shareholders of SMS Holding GmbH. 76
2.4 Amended and restated OEM Agreement dated December 16, 1998
between Data I/O Corporation and Unmanned Solutions, Inc. 103
2.5 Support Agreement dated December 16, 1998 between Data I/O
Corporation and Unmanned Solutions, Inc. 110
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 February 7, 1999. 116
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 March 13, 1998
(File No. 0-10394)). N/A
4 Instruments Defining the Rights of Security Holders, Including Indentures:
4.1 Rights Agreement, dated as of April 4, 1998, between Data I/O Corporation
and ChaseMellon Shareholder Services, L.L.C. as Rights Agent, which
includes: as Exhibit A thereto, the Form of Right Certificate; and, as
Exhibit B thereto, the Summary of Rights to Purchase Series A Junior
Participating Preferred Stock (Incorporated by reference to the Company's
Current Report on Form 8-K filed on March 13, 1998). N/A
4.2 Rights Agreement, dated as of March 31, 1988, between Data
I/O Corporation and First Jersey National Bank, as Rights
Agent, as amended by Amendment No. 1 thereto, dated as of
Page 50
<PAGE>
May 28, 1992 and Amendment No. 2 thereto, dated as of July
16, 1997 (Incorporated by reference to the Company's
current Report on Form 8-K filed on
March 13, 1998). N/A
4.3 Amendment No. 1, dated as of February 10, 1999, to Rights
Agreement, dated as of April 4, 1998, between Data I/O
Corporation and ChaseMellon Shareholder Services, L.L.C. as
Rights Agent (Incorporated by reference to Exhibit 4.1 of the
Company's Form 8-A/A dated February 10, 1999). N/A
10 Material Contracts:
10.1 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
10.2 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
10.3 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
10.4 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
10.5 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
10.6 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
10.7 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
10.8 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
10.9 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
10.10 Business Loan Agreement dated April 24, 1996, with Seattle
First National Bank for $8.0 million (Incorporated by
reference to Exhibit 10.30 of the Company's 1996 Annual
Report on Form 10K
(File No. 0-10394)). N/A
10.11 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) (Incorporated by reference to Exhibit 10.31 of
the Company's 1996 Annual Report on Form 10K
(File No. 0-10394)). N/A
Page 51
<PAGE>
10.12 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) (Incorporated by
reference to Exhibit 10.32 of the Company's 1996 Annual
Report on Form 10K (File No. 0-10394)). N/A
10.13 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)
(Incorporated by reference to Exhibit 10.33 of the
Company's 1996 Annual Report on Form 10K
(File No. 0-10394)). N/A
10.14 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)
(Incorporated by reference to Exhibit 10.34 of the
Company's 1996 Annual Report on Form 10K
(File No. 0-10394)). N/A
10.15 Third Amendment to the Data I/O Tax Deferred Retirement
Plan (Incorporated by reference to Exhibit 10.35 of the
Company's 1996 Annual Report on Form 10K
(File No. 0-10394)). N/A
10.16 Asset Purchase Agreement, by and between Data I/O
Corporation, a Washington corporation, Reel-Tech Inc., a
Washington corporation, and General Scanning Inc., a
Massachusetts corporation, dated November 28, 1997
(Incorporated by reference to Exhibit 2.1 of
the Company's Form 8-K Report dated November 28, 1997). N/A
10.17 Master Agreement, by and between Data I/O Corporation, a
Washington corporation, Minc, Incorporated, a Colorado
corporation, and Minc Washington Corp., a Colorado
corporation, dated November 12, 1997 (Incorporated by
reference to Exhibit 2.1 of the Company's Form 8-K Report
dated November 12, 1997). N/A
10.18 Amended and Restated Management Incentive Compensation
Plan dated January 1, 1997 (Incorporated by reference to
Exhibit 10.25 of the Company's 1997 Annual Report on
Form 10K (File No. 0-10394). N/A
10.19 Amended and Restated Performance Bonus Plan dated January
1, 1997 (Incorporated by reference to Exhibit 10.26 of the
Company's 1997 Annual Report on Form 10K
(File No. 0-10394). N/A
10.20 Fourth Amendment to the Data I/O Tax Deferred Retirement
Plan (Incorporated by reference to Exhibit 10.27 of the
Company's 1997 Annual Report on Form 10K
(File No. 0-10394). N/A
10.21 Fifth Amendment to the Data I/O Tax Deferred Retirement
Plan (Incorporated by reference to Exhibit 10.28 of the
Company's 1997 Annual Report on Form 10K
(File No. 0-10394). N/A
Page 52
<PAGE>
10.22 Sixth Amendment to the Data I/O Tax Deferred Retirement
Plan (Incorporated by reference to Exhibit 10.29 of the
Company's 1997 Annual Report on Form 10K
(File No. 0-10394). N/A
10.23 Amended and Restated 1986 Stock Option Plan dated May 13,
1997 (Incorporated by reference to Exhibit 10.30 of the
Company's 1997 Annual Report on Form 10K
(File No. 0-10394). N/A
10.24 Amendment, dated May 13, 1997, to the business loan
agreement dated April 24, 1996, with Seattle First
National Bank (Incorporated by reference to Exhibit 10.31
of the Company's 1997 Annual Report on Form 10K
(File No. 0-10394). N/A
10.25 Amended and Restated Data I/O Corporation 1996 Director
Fee Plan (Incorporated by reference to Exhibit 10.32 of
the Company's 1997 Annual Report on Form 10K
(File No. 0-10394). N/A
10.26 Agreement and General Release with William J. Haydamack
(Incorporated by reference to Exhibit 10.32 of the
Company's 1997 Annual Report on Form 10K
(File No. 0-10394). N/A
10.27 Separation Agreement with William C. Erxleben
(Incorporated by reference to Exhibit 10.33 of the
Company's 1997 Annual Report on Form 10K
(File No. 0-10394). N/A
10.28 Consulting Agreement with William C. Erxleben
(Incorporated by reference to Exhibit 10.35 of the
Company's 1997 Annual Report on Form 10K
(File No. 0-10394). N/A
10.29 First Amendment to the 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 (Incorporated by
reference to Exhibit 10.36 of the Company's 1997 Annual
Report on Form 10K (File No. 0-10394). N/A
10.30 Second Amendment to the 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 (Incorporated by
reference to Exhibit 10.37 of the Company's 1997 Annual
Report on Form 10K (File No. 0-10394). N/A
10.31 Third Amendment to the 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 (Incorporated by
reference to Exhibit 10.38 of the Company's 1997 Annual
Report on Form 10K (File No. 0-10394). N/A
10.32 Fourth Amendment to the 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 (Incorporated by
reference to Exhibit 10.39 of the Company's 1997 Annual
Report on Form 10K (File No. 0-10394). N/A
Page 53
<PAGE>
10.33 Standstill Agreement, dated as of February 10, 1999, among
Data I/O Corporation, Bisco Industries, Inc., Bisco
Industries, Inc. Profit Sharing and Savings Plan, and Glen
F. Ceiley (Incorporated by reference to Exhibit 10.1 of
the Company's Current Report on Form 8-K dated
February 12, 1999). N/A
10.34 Shareholders Agreement dated April 15, 1998 among JTAG
Technologies B.V., Data I/O Corporation, Harry Bleeker and
Peter Van Den Eijnden (Incorporated by reference to
Exhibit 2.1 of the Company's quarterly report on
Form 10Q/A dated February 16, 1999). N/A
10.35 Amendment, dated December 31, 1998, to the business loan
agreement and promissory note dated April 24, 1996, with
Seattle First National Bank. 131
10.36 Security Agreement dated December 31, 1998, related to the
business loan agreement dated April 24, 1996 and amended
December 31, 1998, with Seattle First National Bank. 133
10.37 Amended and Restated 1986 Stock Option Plan dated
May 12, 1998. 138
10.38 Service Agreement dated November 19, 1998 between SMS Holding
GmbH and Helmut Adamski. 148
10.39 Employment Agreement dated November 19, 1998 between SMS Holding
GmbH and Helmut Adamski. 154
10.40 Lease Agreement between Dipl. Ing. Hans Walter Ott GmbH and SMS
Holding GmbH. 161
10.41 Letter Agreement with Jim Rounds dated August 7, 1998. 171
10.42 Letter Agreement with David C. Bullis dated March 25, 1998
amended and supplemented by the letter agreement dated
August 19, 1998. 172
21 Subsidiaries of the Registrant 56
23 Consent of Ernst & Young LLP, Independent Auditors 57
</TABLE>
(b) Form 8-K:
A report on Form 8-K dated February 12, 1999 was filed relating to a press
release that the Company issued reporting, among other things, that (1) on
February 10, 1999 the Company entered into a Standstill Agreement with Bisco
Industries, Inc., Bisco Industries, Inc. Profit Sharing and Savings Plan and
Glen F. Ceiley (the "Bisco Parties"); (2) Mr. Ceiley has been added to the Board
of Directors of Data I/O; and (3) the Bisco Parties will be permitted to
increase their ownership of Data I/O's Common Stock from approximately 14% to up
to 19.99% pursuant to an amendment to the Company's Shareholder Rights Plan, a
copy of which amendment has been filed with the Securities and Exchange
Commission.
A report on Form 8-K dated February 8, 1999 was filed related to the selection
of Fred R. Hume as President and Chief Executive Officer as of February 23,
1999, and his addition to the Board of Directors effective January 29, 1999.
A report on Form 8-K dated December 4, 1998 was filed relating to a press
release announcing the Company's completion of its acquisition of SMS, the
leading European-based programming equipment company.
Page 54
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
DATA I/O CORPORATION
SCHEDULE II - CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS
Charged/
(Credited)
Balance at to Costs Balance at
Beginning and Deductions- End of
of Period Expenses Describe Period
---------------- ---------------- --------------- --------------------
(in thousands)
Year Ended December 26, 1996:
Reserves and allowances
deducted from asset accounts:
Allowance for bad debts $ 311 $ 101 ($ 50) (1) $ 362
Inventory reserves $1,421 $ 998 ($148) (2) $2,271
Year Ended December 25, 1997:
Reserves and allowances
deducted from asset accounts:
Allowance for bad debts $ 362 $ 53 ($ 21) (1) $ 394
Inventory reserves $2,271 ($ 225) ($398) (2) $1,648
Year Ended December 31, 1998:
Reserves and allowances
deducted from asset accounts:
Allowance for bad debts $ 394 $ 94 ($ 43) (1) $ 445
Inventory reserves $1,648 $4,529 (3) ($209) (2) $5,968
</TABLE>
(1) Uncollectable accounts written off, net of recoveries.
(2) Obsolete inventories disposed of.
(3) Primarily related to products which will be discontinued as a result of the
business restructuring implemented in 1998.
Page 55
<PAGE>
EXHIBIT 21
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 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%
Reel-Tech, Inc. Washington 100%
Reel-Tech Singapore Pte, Ltd. Singapore 100%
SMS Holding GmbH Germany 100%
SMS Mikrokomputer-Systeme GmbH Germany 100%
Page 56
<PAGE>
EXHIBIT 23
Consent of Ernst & Young LLP, Independent Auditors
To the Board of Directors and Stockholders
Data I/O Corporation
We consent to the incorporation by reference in the: (a) Registration
Statements (Form S-8 No. 333-20657 and No. No. 33-66824) pertaining to the
Company's 1982 Employee Stock Purchase Plan and Director Fee Plan, (b)
Registration Statements (Form S-8 No. 33-95608, No. 33-54422, and No. 333-55911)
pertaining to the Company's 1986 Stock Option Plan, (c) Registration Statement
(Form S-8 No. 33-03958) pertaining to the Company's 1985 Stock Option Plan, and
(d) Registration Statement (Form S-8 No. 33-02254) pertaining to the Company's
1984 FutureNet Employee Stock Option Plan, of our report dated February 8, 1999,
with respect to the consolidated financial statements and schedule of Data I/O
Corporation included in its Annual Report (Form 10-K) for the year ended
December 31, 1998.
//S//ERNST & YOUNG LLP
ERNST & YOUNG LLP
Seattle, Washington
March 29, 1999
Page 57
<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: March 29, 1999 By: //S//Frederick R. Hume
------------------------
Frederick R. Hume
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below on March 29, 1999 by the following persons on behalf of
the Registrant and in the capacities indicated.
NAME TITLE
By: //S//Frederick R. Hume President and Chief Executive Officer
Frederick R. Hume (Principal Executive Officer)
By: //S//Joel S. Hatlen Chief Financial Officer
Joel S. Hatlen Vice President of Finance
Secretary, Treasurer
(Principal Financial and Accounting Officer)
By: //S//Keith L. Barnes Director
Keith L. Barnes
By: //S//David C. Bullis Director
David C. Bullis
By: //S//Glen F. Ceiley Director
Glen F. Ceiley
By: //S//Paul A. Gary Director
Paul A. Gary
By: //S//Edward D. Lazowska Director
Edward D. Lazowska
Page 58
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
EXHIBITS INDEX
Exhibit Number Title Page Number
- -------------------- ---------------------------------------------------------------------------- -----------------
2 Plan of Acquisition, Reorganization, Arrangement, Liquidation or Succession:
2.1 Subsidiary Technology Purchase Agreement dated as of
November 19, 1998 between SMS-Mikrocomputer-Systeme GmbH
and Data I/O Corporation 64
2.2 Excalibur Technology Purchase Agreement dated as of November 19,
1998 between SMS Holding GmbH and Data I/O Corporation 70
2.3 Agreement Of Purchase And Transfer Of GmbH Shares dated as of
November 19, 1998 among Data I/O Corporation, Data I/O European
Operations GmbH and Shareholders of SMS Holding GmbH 76
2.4 Amended and restated OEM Agreement dated December 16, 1998
between Data I/O Corporation and Unmanned Solutions, Inc. 103
2.5 Support Agreement dated December 16, 1998 between Data I/O
Corporation and Unmanned Solutions, Inc. 110
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 February 7, 1999. 116
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 March 13, 1998
(File No. 0-10394)). N/A
4 Instruments Defining the Rights of Security Holders, Including Indentures:
4.1 Rights Agreement, dated as of April 4, 1998, between Data I/O Corporation
and ChaseMellon Shareholder Services, L.L.C. as Rights Agent, which
includes: as Exhibit A thereto, the Form of Right Certificate; and, as
Exhibit B thereto, the Summary of Rights to Purchase Series A Junior
Participating Preferred Stock (Incorporated by reference to the Company's
Current Report on Form 8-K filed on March 13, 1998). N/A
4.2 Rights Agreement, dated as of March 31, 1988, between Data
I/O Corporation and First Jersey National Bank, as Rights
Agent, as amended by Amendment No. 1 thereto, dated as of
May 28, 1992 and Amendment No. 2 thereto, dated as of July
16, 1997 (Incorporated by reference to the Company's
current Report on Form 8-K filed on March 13, 1998). N/A
4.3 Amendment No. 1, dated as of February 10, 1999, to Rights
Agreement, dated as of April 4, 1998, between Data I/O
Corporation and ChaseMellon Shareholder Services, L.L.C. as
Rights Agent (Incorporated by reference to Exhibit 4.1 of the
Company's Form 8-A/A dated February 10, 1999). N/A
Page 59
<PAGE>
10 Material Contracts:
10.1 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
10.2 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
10.3 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
10.4 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
10.5 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
10.6 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
10.7 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
10.8 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
10.9 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
10.10 Business Loan Agreement dated April 24, 1996, with Seattle
First National Bank for $8.0 million (Incorporated by
reference to Exhibit 10.30 of the Company's 1996 Annual
Report on Form 10K (File No. 0-10394)). N/A
10.11 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) (Incorporated by reference to Exhibit 10.31 of
the Company's 1996 Annual Report on Form 10K
(File No. 0-10394)). N/A
10.12 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) (Incorporated by
reference to Exhibit 10.32 of the Company's 1996 Annual
Report on Form 10K (File No. 0-10394)). N/A
Page 60
<PAGE>
10.13 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)
(Incorporated by reference to Exhibit 10.33 of the
Company's 1996 Annual Report on Form 10K (File No.
0-10394)). N/A
10.14 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)
(Incorporated by reference to Exhibit 10.34 of the
Company's 1996 Annual Report on Form 10K
(File No. 0-10394)). N/A
10.15 Third Amendment to the Data I/O Tax Deferred Retirement
Plan (Incorporated by reference to Exhibit 10.35 of the
Company's 1996 Annual Report on Form 10K (File No. 0-10394)). N/A
10.16 Asset Purchase Agreement, by and between Data I/O
Corporation, a Washington corporation, Reel-Tech Inc., a
Washington corporation, and General Scanning Inc., a
Massachusetts corporation, dated November 28, 1997
(Incorporated by reference to Exhibit 2.1 of
the Company's Form 8-K Report dated November 28, 1997). N/A
10.17 Master Agreement, by and between Data I/O Corporation, a
Washington corporation, Minc, Incorporated, a Colorado
corporation, and Minc Washington Corp., a Colorado
corporation, dated November 12, 1997 (Incorporated by
reference to Exhibit 2.1 of the Company's Form 8-K Report dated
November 12, 1997). N/A
10.18 Amended and Restated Management Incentive Compensation
Plan dated January 1, 1997 (Incorporated by reference to
Exhibit 10.25 of the Company's 1997 Annual Report on
Form 10K (File No. 0-10394). N/A
10.19 Amended and Restated Performance Bonus Plan dated January
1, 1997 (Incorporated by reference to Exhibit 10.26 of the
Company's 1997 Annual Report on Form 10K (File No. 0-10394). N/A
10.20 Fourth Amendment to the Data I/O Tax Deferred Retirement
Plan (Incorporated by reference to Exhibit 10.27 of the
Company's 1997 Annual Report on Form 10K (File No. 0-10394). N/A
10.21 Fifth Amendment to the Data I/O Tax Deferred Retirement
Plan (Incorporated by reference to Exhibit 10.28 of the
Company's 1997 Annual Report on Form 10K (File No. 0-10394). N/A
10.22 Sixth Amendment to the Data I/O Tax Deferred Retirement
Plan (Incorporated by reference to Exhibit 10.29 of the
Company's 1997 Annual Report on Form 10K (File No. 0-10394). N/A
Page 61
<PAGE>
10.23 Amended and Restated 1986 Stock Option Plan dated May 13,
1997 (Incorporated by reference to Exhibit 10.30 of the
Company's 1997 Annual Report on Form 10K (File No. 0-10394). N/A
10.24 Amendment, dated May 13, 1997, to the business loan
agreement dated April 24, 1996, with Seattle First
National Bank (Incorporated by reference to Exhibit 10.31
of the Company's 1997 Annual Report on Form 10K (File No. 0-10394). N/A
10.25 Amended and Restated Data I/O Corporation 1996 Director
Fee Plan (Incorporated by reference to Exhibit 10.32 of
the Company's 1997 Annual Report on Form 10K (File No. 0-10394). N/A
10.26 Agreement and General Release with William J. Haydamack
(Incorporated by reference to Exhibit 10.32 of the
Company's 1997 Annual Report on Form 10K (File No. 0-10394). N/A
10.27 Separation Agreement with William C. Erxleben
(Incorporated by reference to Exhibit 10.33 of the
Company's 1997 Annual Report on Form 10K (File No. 0-10394). N/A
10.28 Consulting Agreement with William C. Erxleben
(Incorporated by reference to Exhibit 10.35 of the
Company's 1997 Annual Report on Form 10K (File No. 0-10394). N/A
10.29 First Amendment to the 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 (Incorporated by
reference to Exhibit 10.36 of the Company's 1997 Annual
Report on Form 10K (File No. 0-10394). N/A
10.30 Second Amendment to the 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 (Incorporated by
reference to Exhibit 10.37 of the Company's 1997 Annual
Report on Form 10K (File No. 0-10394). N/A
10.31 Third Amendment to the 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 (Incorporated by
reference to Exhibit 10.38 of the Company's 1997 Annual
Report on Form 10K (File No. 0-10394). N/A
Page 62
<PAGE>
10.32 Fourth Amendment to the 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 (Incorporated by
reference to Exhibit 10.39 of the Company's 1997 Annual
Report on Form 10K (File No. 0-10394). N/A
10.33 Standstill Agreement, dated as of February 10, 1999, among
Data I/O Corporation, Bisco Industries, Inc., Bisco
Industries, Inc. Profit Sharing and Savings Plan, and Glen
F. Ceiley (Incorporated by reference to Exhibit 10.1 of
the Company's Current Report on Form 8-K dated February 12, 1999). N/A
10.34 Shareholders Agreement dated April 15, 1998 among JTAG
Technologies B.V., Data I/O Corporation, Harry Bleeker and
Peter Van Den Eijnden (Incorporated by reference to
Exhibit 2.1 of the Company's quarterly report on Form 10Q/A
dated February 16, 1999). N/A
10.35 Amendment, dated December 31, 1998, to the business loan
agreement dated April 24, 1996, with Seattle First National Bank. 131
10.36 Security Agreement dated December 31, 1998, related to the
business loan agreement dated April 24, 1996 and amended
December 31, 1998, with Seattle First National Bank. 133
10.37 Amended and Restated 1986 Stock Option Plan dated May 12, 1998. 138
10.38 Service Agreement dated November 19, 1998 between SMS Holding
GmbH and Helmut Adamski. 148
10.39 Employment Agreement dated November 19, 1998 between SMS Holding
GmbH and Helmut Adamski. 154
10.40 Lease Agreement between Dipl. Ing. Hans Walter Ott GmbH and SMS
Holding GmbH. 161
10.41 Letter Agreement with Jim Rounds dated August 7, 1998. 171
10.42 Letter Agreement with David C. Bullis dated March 25, 1998
amended and supplemented by the letter agreement dated
August 19, 1998. 172
</TABLE>
Page 63
Exhibit 2.1
Deed-Role-No.: ______________/1998
SUBSIDIARY TECHNOLOGY PURCHASE AGREEMENT
dated as of November 19, 1998
between
SMS-MIKROCOMPUTER-SYSTEME GMBH
and
DATA I/O CORPORATION
Today this
nineteenth day of November nineteen hundred ninety eight
-19.11.1998-
Appeared before me,
Dr. Michael Bohrer,
Notary with the official seat in 80333 Munich and, the office Briennerstr.
25, in the premises Briennerstr. 22, 80333 Munich:
1. Antoine Issaverdens, born: 20.11.1941, residing at: 24 Hameau Boileau,
F-75016 Paris, identified by French Identity Card No.: CC 75266 here not acting
in his own name, but in the name of SMS-Mikrocomputer-Systeme GmbH, a German
limited liability company (,,Mikrocomputer", HRB Ravensburg 585-W), subject to
the power of attorney dated 18.11.1998. A fax copy is attached to this Deed. The
original of the power shall be sent to the Notary.
2. Dr. Thomas Schulz, born: 05.10.1963, business address: Brienner Stra(beta)e
22, 80333 Munich, here not acting in his own name, but in the name of Data I/O
Corporation, a Washington corporation (,,Data I/O"), subject to the power of
attorney dated 18.11.1998. A fax copy is attached to this Deed. The original of
the power shall be sent to the Notary.
The Appeared requested the notarization of the following declarations. They
furthermore requested this Deed to be drawn up in the English language.
SUBSIDIARY TECHNOLOGY PURCHASE
AGREEMENT (,,AGREEMENT")
RECITALS
A. Data I/O desires to purchase the business and assets of SMS Holding GmbH (HRB
Ravensburg 596-W), Mikrocomputer's parent company (,,Company") in a series of
three transactions.
B. Mikrocomputer operates a business whereby it designs, develops, manufactures,
sells and distributes devices or systems used to program programmable integrated
circuits (the ,,IC Programmer Products Business").
C. In the first transaction, Mikrocomputer desires to sell to Data I/O, and Data
I/O desires to purchase from Mikrocomputer, all of the intellectual property and
related rights of Mikrocomputer on the terms and conditions set forth in this
Agreement. In the second transaction, Data I/O will purchase from Company the
Excalibur intellectual property and related rights currently being developed by
Company and Company will retain a license to such Excalibur intellectual
property in Germany, Austria, Liechtenstein and the predominantly
German-speaking portions of Switzerland and Italy pursuant to the ,,Excalibur
Technology Purchase Agreement." In the third transaction, Data I/O European
Operations GmbH, a subsidiary of Data I/O (AG Munchen HRB 103439), will purchase
all of the shares of Company's nominal share capital owned by the shareholders
of Company pursuant to the ,,SMS Stock Purchase Agreement," and collectively
with the Excalibur Technology Purchase Agreement, the ,,Related Agreements."
Page 64
<PAGE>
AGREEMENT
SECTION 1
PURCHASE AND SALE OF ASSETS; CLOSING
1.1 Purchase and Sale of Assets. Data I/O does hereby purchase, accept,
and acquire from Mikrocomputer, and Mikrocomputer does hereby sell, transfer,
assign, convey, and deliver to Data I/O, all right, title, and interest of every
kind whatsoever in and to the following assets (the ,,Assets"):
a. Technical Documentation. All technical and descriptive
materials and documentation (other than inventory) relating to the IC Programmer
Products Business, including, without limitation, schematics, parts lists,
supplier lists, board layouts, mask works, user manuals, assembly drawings,
notes, instructions and laboratory notebooks and computer files recording and
summarizing daily engineering development work (the ,,Technical Documentation").
b. Contracts. All contracts, agreements, licenses, and other
commitments and arrangements, oral or written, with any person or entity
respecting the ownership, license, acquisition, design, development,
distribution, marketing, use, or maintenance of the Technical Documentation or
the Intellectual Property (as defined below), in each case relating to or
arising out of the IC Programmer Products Business (the ,,Contracts"). The
Contracts are listed on Schedule 1.1.b.
c. Intellectual Property. All hardware, firmware and software
programming technology, and those features, enhancements, derivative works and
extensions of such technology relating to the IC Programming Products Business,
and all other intellectual property rights, trade secrets, and other proprietary
information, processes, and formulae used in the IC Programmer Products Business
or otherwise necessary for the ownership and use of the Assets and the conduct
of the IC Programmer Products Business, including without limitation,
trademarks, service marks, trade names, copyrights (including registrations,
licenses, and applications pertaining thereto), patents and patent applications
(the ,,Intellectual Property"). As of the date hereof, the Intellectual Property
includes the registered trademarks and service marks, the reserved trade names,
the registered copyrights, and the filed patent applications and issued patents
and other intellectual property listed in Schedule 1.1.c.
1.2 Purchase Price; Payment. The aggregate purchase price for the
Assets (the ,,Purchase Price") is US$500,000, the payment of which is made in
U.S. Dollars concurrent with the execution of this Agreement. This Agreement
constitutes a bill of sale for the benefit of Data I/O with respect to the
Assets.
1.3 Taxes. Any and all sales, excise, transfer or similar taxes payable
by reason of the sale and transfer of the Assets shall be paid by the party on
which the obligation to pay any such taxes is imposed by the statute or
ordinance imposing such tax.
1.4 Allocation of Purchase Price. The Purchase Price shall be
allocated to the Intellectual Property.
Page 65
<PAGE>
SECTION 2
MISCELLANEOUS
2.1 Publicity. Mikrocomputer agrees that no public release or
announcement concerning this Agreement, the Related Agreements or the
transactions contemplated hereby or thereby shall be issued by it without the
prior consent of Data I/O, such consent not to be unreasonably withheld, except
as such release or announcement may be required by applicable law, rules or
regulations.
2.2 Further Assurances. Mikrocomputer will from time to time after the
date hereof, at Data I/O's request and without further consideration, use all
efforts to assist Data I/O in obtaining any required consents of third parties
relating to the Assets and will execute and deliver such other instruments of
conveyance, assignment and transfer and take such other actions as Data I/O may
reasonably request in order more effectively to convey, assign, transfer to,
evidence and vest in Data I/O, the Assets or the transactions contemplated
hereby or in the Related Agreements. If any required consents cannot be
obtained, Data I/O and Mikrocomputer shall treat the transfer as having taken
place economically and Mikrocomputer shall use such rights in its own name but
for the account of Data I/O.
2.3 Expenses. Except as otherwise stated in the SMS Stock Purchase
Agreement, each of the parties shall each pay such party's respective expenses,
costs and fees (including, without limitation, attorneys' and accountants' fees)
incurred in connection with the negotiation, preparation, execution and delivery
of this Agreement and the Related Agreements and the consummation of the
transactions contemplated hereby and thereby.
2.4 Modification. No waiver or modification of this Agreement shall be
valid unless in writing and duly executed by all parties hereto. No evidence of
any waiver or modification shall be offered or received in evidence in any
proceedings, arbitration, or litigation between any of the parties arising out
of or affecting this Agreement, or the rights or obligations of the parties
hereunder, unless such waiver or modification is in writing and duly executed by
all parties hereto. The parties further agree that the provisions of this
Section 2.4 may not be waived except as set forth herein.
2.5 No Waiver. Failure or delay on the part of any party in exercising
any rights, power or privileges under this Agreement shall not be deemed a
waiver of any exercise of any right, power or privilege of such party.
2.6 Binding Effect; Assignment. This Agreement and the Related
Agreements to which it is a party shall be binding upon and inure to the benefit
of Mikrocomputer and Data I/O and their respective successors and assigns,
except that Mikrocomputer shall not have the right to delegate its obligations
hereunder or to assign its rights hereunder or any interest herein without the
prior written consent of Data I/O.
2.7 Survival. All of the representations and warranties set forth in
this Agreement or the Related Agreements shall survive the execution and
delivery of this Agreement or such Related Agreements, as the case may be, and
the consummation of the transactions contemplated hereby and thereby in
accordance with the terms hereof or of the Related Agreements, as the case may
be (regardless of any investigation, inquiry or examination made by or on behalf
of any party, or the acceptance by any party of any delivery of property or any
writing delivered hereunder or thereunder).
Page 66
<PAGE>
2.8 Notices. All notices, demands and other communications called for
or required by this Agreement shall be in writing and shall be addressed to the
parties at their respective addresses stated below or to such other address as a
party may subsequently designate by ten days' advance written notice to the
other parties. Communications hereunder shall be deemed to have been received
(i) upon delivery in person, (ii) five days after mailing it by certified mail,
return receipt requested and postage prepaid, (iii) the second business day
after depositing it with a commercial overnight carrier which provides written
verification of delivery or (iv) the day of transmission by telefacsimile if
sent before 2:00 p.m. recipient's time (or if the day of transmittal is not a
business day for the recipient, the next business day), provided that a copy of
such notice is sent on the same day by certified mail, return receipt requested
and postage prepaid, with an indication that the original was sent by facsimile
and the date of its transmittal.
To Data I/O: Data I/O Corporation
Attention: President & CEO
10525 Willows Road N.E.
P.O. Box 97046
Redmond, WA 98073-9746
U.S.A.
Phone: (425) 881-6444
Fax: (425) 881-2917
CC: General Counsel
Phone: (425) 867-6897
Fax: (425) 881-2917
To Mikrocomputer: SMS-Mikrocomputer-Systeme GmbH
Attention: Helmut Adamski
Im Grund 15
D-88239 Wangen
GERMANY
Phone: 011 49 7522 97280
Fax:011 49 7522 972850
2.9 Full Understanding. In executing this Agreement, each party fully,
completely, and unconditionally acknowledges and agrees that it (a) has had an
equal opportunity to participate in drafting this Agreement, (b) has consulted
with, and had the advice and counsel of a duly licensed and competent attorney
and that it has executed this Agreement after independent investigation,
voluntarily and without fraud, duress, or undue influence, (c) expressly
consents that this Agreement be given full force and effect according to each
and every of its express terms and provisions and (d) agrees that no ambiguity
shall be construed against any party based upon a claim that party drafted the
applicable language.
2.10 Entire Agreement; Condition Subsequent. This Agreement (including
all Schedules hereto) and the Related Agreements contain all of the terms and
conditions agreed upon by the parties relating to the subject matter hereof and
supersede and cancel all other prior agreements, negotiations, correspondence,
undertakings, communications and understandings of the parties, whether written
or oral, respecting that subject matter. This Agreement shall be conditional
upon the validity of the SMS Stock Purchase Agreement.
2.11 Captions and Construction. Captions in this Agreement are for the
convenience of the reader and are not to be considered in the interpretation of
the terms.
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<PAGE>
2.12 Severability. If any one or more of the provisions of this
Agreement, or the applicability of any such provision to a specific situation,
shall be held invalid or unenforceable, such provision shall be modified to the
minimum extent necessary to make it or its application valid and enforceable,
and the validity and enforceability of all other provisions of this Agreement
and all other applications of any such provision shall not be affected thereby.
2.13 Governing Law. This Agreement and any Related Agreements shall be
subject to the laws of the Federal Republic of Germany, excluding its laws of
its international conflict of law rules and excluding the UN Convention on the
International Sale of Goods. If any dispute, controversy or claim arises between
the parties out of or in relation to this Agreement or the Related Agreements or
concerning the interpretation, enforceability, performance, breach, termination
or validity hereof or thereof, including without limitation, this Section 2.13,
the parties shall attempt, by mutual negotiation, to come to a reasonable
settlement of the same as soon as possible. If no settlement is reached within
30 days from the first notification of a dispute in writing by either party, the
same and all disputes arising from or in connection with this Agreement and the
Schedules attached hereto and the Related Agreements shall be subject to the
exclusive jurisdiction of the Landgericht Munchen I, as far as legally
permissible.
2.14 Costs of Notary. All notarization costs of this Agreement shall
be borne by Data I/O.
2.15 German Language. To the extent German terms are used in this
Agreement or the Related Agreements and conflict with the English terms used in
this Agreement or the Related Agreements, the German terms shall prevail and
take precedence over the English translation.
The parties refer to the Schedules mentioned above; these Schedules were read
out by the Notary.
THIS DEED has been read aloud in the English language by the acting
Notary to the persons appeared, approved by the persons appeared, and signed by
the persons appeared and the Notary in their own hands as follows:
Page 68
<PAGE>
OMITTED SCHEDULES FROM EXHIBIT 2.1
The following Schedules have been omitted from Exhibit 2.1 in accordance with
Item 601(b)(2) of Regulation S-K. The Registrant will furnish supplementally a
copy of any omitted Schedule to the Commission upon request.
Schedule Number Description
1.1b Contracts
1.1c Intellectual Property
Page 69
Exhibit 2.2
Deed-Role-No.: ______________/1998
EXCALIBUR TECHNOLOGY PURCHASE AGREEMENT
dated as of November 19, 1998
between
SMS HOLDING GMBH
and
DATA I/O CORPORATION
Today this
nineteenth day of November nineteen hundred ninety eight
-19.11.1998-
Appeared before me,
Dr. Michael Bohrer,
Notary with the official seat in 80333 Munich and, the office Briennerstr.
25, in the premises Briennerstr. 22, 80333 Munich:
1. Antoine Issaverdens, born: 20.11.1941, residing at: 24 Hameau Boileau,
F-75016 Paris, identified by French Identity Card No.: CC 75266 here not acting
in his own name, but in the name of SMS Holding GmbH (HRB Ravensburg 596-W), a
German limited liability company (,,Company"), subject to the power of attorney
dated 18.11.1998. A fax copy is attached to this Deed. The original of the power
shall be sent to the Notary.
2. Dr. Thomas Schulz, born: 05.10.1963, business address: Brienner Stra(beta)e
22, 80333 Munich, here not acting in his own name, but in the name of Data I/O
Corporation, a Washington corporation (,,Data I/O"), subject to the power of
attorney dated 18.11.1998. A fax copy is attached to this Deed. The original of
the power shall be sent to the Notary.
The Appeared requested the notarization of the following declarations. They
furthermore requested this Deed to be drawn up in the English language.
EXCALIBUR TECHNOLOGY PURCHASE
AGREEMENT (,,AGREEMENT")
RECITALS
A. Data I/O desires to purchase the business and assets of Company in a series
of three transactions.
B. Company operates a business whereby it designs, develops, manufactures, sells
and distributes devices or systems used to program programmable integrated
circuits (the ,,IC Programmer Products Business").
C. In the first transaction, prior to the execution of this Agreement Data I/O
purchased from SMS-Mikrocomputer-Systeme GmbH, a wholly-owned subsidiary of
Company registered with the Commercial Registry at the Amtsgericht [local court]
Ravenburg under number HRB 585W (,,Mikrocomputer"), all of the intellectual
property and related rights of Mikrocomputer pursuant to the ,,Subsidiary
Technology Purchase Agreement" (Deed No. ________/98 of the acting notary). In
the second transaction, Company desires to sell to Data I/O, and Data I/O
desires to purchase from Company the Excalibur intellectual property and related
rights currently being developed by Company and Company will retain a license to
such Excalibur intellectual property in Germany, Austria, Liechtenstein and the
predominately German-speaking portions of Switzerland and Italy on the terms and
conditions set forth in this Agreement. In the third transaction, Data I/O
European Operations GmbH, a subsidiary of Data I/O (AG Munchen HRB 103439) will
purchase all of the shares of Company's nominal share capital owned by the
shareholders of Company pursuant to the ,,SMS Stock Purchase Agreement," and
collectively with the Subsidiary Technology Purchase Agreement, the ,,Related
Agreements."
Page 70
<PAGE>
AGREEMENT
SECTION 1
PURCHASE AND SALE OF ASSETS; CLOSING
1.1 Purchase and Sale of Assets. Data I/O does hereby purchase, accept,
and acquire from Company, and Company does hereby sell, transfer, assign,
convey, and deliver to Data I/O (subject to Section 1.2), all right, title, and
interest of every kind whatsoever in and to the following assets (the
,,Assets"):
a. Technical Documentation. All technical and descriptive materials and
documentation (other than inventory) relating to IC Programmer Products
Business, including, without limitation, schematics, parts lists, supplier
lists, board layouts, mask works, user manuals, assembly drawings, notes,
instructions and laboratory notebooks and computer files recording and
summarizing daily engineering development work (the ,,Technical Documentation").
b. Contracts. All contracts, agreements, licenses, and other
commitments and arrangements, oral or written, with any person or entity
respecting the ownership, license, acquisition, design, development,
distribution, marketing, use, or maintenance of the Technical Documentation or
the Intellectual Property (as defined below), in each case relating to or
arising out of the IC Programmer Products Business (the ,,Contracts"). The
Contracts are listed on Schedule 1.1.b.
c. Intellectual Property. All hardware, firmware and software
programming technology, and those features, enhancements, derivative works and
extensions of such technology relating to the IC Programming Products Business,
and all other intellectual property rights, trade secrets, and other proprietary
information, processes, and formulae used in the IC Programmer Products Business
or otherwise necessary for the ownership and use of the Assets and the conduct
of the IC Programmer Products Business, including without limitation,
trademarks, service marks, trade names, copyrights (including registrations,
licenses, and applications pertaining thereto), patents and patent applications
(the ,,Intellectual Property"). As of the Closing Date, the Intellectual
Property includes the registered trademarks and service marks, the reserved
trade names, the registered copyrights, and the filed patent applications and
issued patents and other intellectual property listed in Schedule 1.1.c.
1.2 Company Rights. Company, for its own benefit and the benefit of its
successors and assigns, shall have in perpetuity (or for the longest time
permitted by law) the exclusive, royalty-free right and license to use, copy,
manufacture, modify, and distribute the Technical Documentation and the
Intellectual Property for the IC Programmer Products Business in Germany,
Austria, Liechtenstein and the predominately German-speaking portions of
Switzerland and Italy.
1.3 Purchase Price; Payment. The aggregate purchase price for the
Assets (the ,,Purchase Price") is US$ 2,000,000. The payment of the Purchase
Price shall be made concurrent with the execution of this Agreement, but shall
be reduced by any amounts paid or to be paid by Data I/O or Data I/O European
Operations GmbH on behalf of Company to Mrs. Wiltrud Steudel or other third
parties to be agreed under the SMS Stock Purchase Agreement. This Agreement
constitutes a bill of sale for the benefit of Data I/O with respect to the
Assets.
1.4 Taxes. Any and all sales, excise, transfer or similar taxes payable
by reason of the sale and transfer of the Assets shall be paid by the party on
which the obligation to pay any such taxes is imposed by the statute or
ordinance imposing such tax.
1.5 Allocation of Purchase Price. The Purchase Price shall be
allocated to the Intellectual Property.
Page 71
<PAGE>
SECTION 2
MISCELLANEOUS
2.1 Publicity. Company agrees that no public release or announcement
concerning this Agreement, the Related Agreements or the transactions
contemplated hereby or thereby shall be issued by it without the prior consent
of Data I/O, such consent not to be unreasonably withheld, except as such
release or announcement may be required by applicable law, rules or regulations.
2.2 Further Assurances. Company will from time to time after the date
hereof, at Data I/O's request and without further consideration, use all efforts
to assist Data I/O in obtaining any required consents of third parties relating
to the Assets and will execute and deliver such other instruments of conveyance,
assignment and transfer and take such other actions as Data I/O may reasonably
request in order more effectively to convey, assign, transfer to, evidence and
vest in Data I/O, the Assets or the transactions contemplated hereby or in the
Related Agreements. If any required consents cannot be obtained, Data I/O and
Company shall treat the transfer as having taken place economically and Company
shall use such rights in its own name but for the account of Data I/O.
2.3 Expenses. Except as otherwise stated in the SMS Stock Purchase
Agreement, each of the parties shall each pay such party's respective expenses,
costs and fees (including, without limitation, attorneys' and accountants' fees)
incurred in connection with the negotiation, preparation, execution and delivery
of this Agreement and the Related Agreements and the consummation of the
transactions contemplated hereby and thereby.
2.4 Modification. No waiver or modification of this Agreement shall be
valid unless in writing and duly executed by all parties hereto. No evidence of
any waiver or modification shall be offered or received in evidence in any
proceedings, arbitration, or litigation between any of the parties arising out
of or affecting this Agreement, or the rights or obligations of the parties
hereunder, unless such waiver or modification is in writing and duly executed by
all parties hereto. The parties further agree that the provisions of this
Section 2.4 may not be waived except as set forth herein.
2.5 No Waiver. Failure or delay on the part of any party in exercising
any rights, power or privileges under this Agreement shall not be deemed a
waiver of any exercise of any right, power or privilege of such party.
2.6 Binding Effect; Assignment. This Agreement and the Related
Agreements to which it is a party shall be binding upon and inure to the benefit
of Company and Data I/O and their respective successors and assigns, except that
Company shall not have the right to delegate its obligations hereunder or to
assign its rights hereunder or any interest herein without the prior written
consent of Data I/O.
2.7 Survival. All of the representations and warranties set forth in
this Agreement or the Related Agreements shall survive the execution and
delivery of this Agreement or the Related Agreements, as the case may be, and
the consummation of the transactions contemplated hereby or thereby in
accordance with the terms hereof or the Related Agreements, as the case may be
(regardless of any investigation, inquiry or examination made by or on behalf of
any party, or the acceptance by any party of any delivery of property or any
writing delivered hereunder or thereunder).
Page 72
<PAGE>
2.8 Notices. All notices, demands and other communications called for
or required by this Agreement shall be in writing and shall be addressed to the
parties at their respective addresses stated below or to such other address as a
party may subsequently designate by ten days' advance written notice to the
other parties. Communications hereunder shall be deemed to have been received
(i) upon delivery in person, (ii) five days after mailing it by certified mail,
return receipt requested and postage prepaid, (iii) the second business day
after depositing it with a commercial overnight carrier which provides written
verification of delivery or (iv) the day of transmission by telefacsimile if
sent before 2:00 p.m. recipient's time (or if the day of transmittal is not a
business day for the recipient, the next business day), provided that a copy of
such notice is sent on the same day by certified mail, return receipt requested
and postage prepaid, with an indication that the original was sent by facsimile
and the date of its transmittal.
To Data I/O: Data I/O Corporation
Attention: President & CEO
10525 Willows Road N.E.
P.O. Box 97046
Redmond, WA 98073-9746
U.S.A.
Phone: (425) 881-6444
Fax: (425) 881-2917
CC: General Counsel
Phone: (425) 867-6897
Fax: (425) 881-2917
To Company: SMS Holding GmbH
Attention: Helmut Adamski
Im Grund 15
D-88239 Wangen
GERMANY
Phone: 011 49 7522 97280
Fax:011 49 7522 972850
2.9 Full Understanding. In executing this Agreement, each party fully,
completely, and unconditionally acknowledges and agrees that it (a) has had an
equal opportunity to participate in drafting this Agreement, (b) has consulted
with, and had the advice and counsel of a duly licensed and competent attorney
and that it has executed this Agreement after independent investigation,
voluntarily and without fraud, duress, or undue influence, (c) expressly
consents that this Agreement be given full force and effect according to each
and every of its express terms and provisions and (d) agrees that no ambiguity
shall be construed against any party based upon a claim that party drafted the
applicable language.
2.10 Entire Agreement; Condition Subsequent. This Agreement (including all
Schedules hereto) and the Related Agreements contain all of the terms and
conditions agreed upon by the parties relating to the subject matter hereof and
supersede and cancel all other prior agreements, negotiations, correspondence,
undertakings, communications and understandings of the parties, whether written
or oral, respecting that subject matter. This Agreement shall be conditioned
upon the validity of the SMS Stock Purchase Agreement.
Page 73
<PAGE>
2.11 Captions and Construction. Captions in this Agreement are for the
convenience of the reader and are not to be considered in the interpretation of
the terms.
2.12 Severability. If any one or more of the provisions of this Agreement, or
the applicability of any such provision to a specific situation, shall be held
invalid or unenforceable, such provision shall be modified to the minimum extent
necessary to make it or its application valid and enforceable, and the validity
and enforceability of all other provisions of this Agreement and all other
applications of any such provision shall not be affected thereby.
2.13 Governing Law. This Agreement and the Related Agreements shall be subject
to the laws of the Federal Republic of Germany, excluding its laws of its
international conflict of law rules and excluding the UN Convention on the
International Sale of Goods. If any dispute, controversy or claim arises between
the parties out of or in relation to this Agreement or the Related Agreements or
concerning the interpretation, enforceability, performance, breach, termination
or validity hereof or thereof, including without limitation, this Section 2.13,
the parties shall attempt, by mutual negotiation, to come to a reasonable
settlement of the same as soon as possible. If no settlement is reached within
30 days from the first notification of a dispute in writing by either party, the
same and all disputes arising from or in connection with this Agreement and the
Schedules attached hereto and the Related Agreements shall be subject to the
exclusive jurisdiction of the Landgericht Munchen I, as far as legally
permissible.
2.14 Costs of Notary. All notarization costs of this Agreement shall be borne by
Data I/O.
2.15 German Language. To the extent German terms are used in this Agreement or
the Related Agreements and conflict with the English terms used in this
Agreement or the Related Agreements, the German terms shall prevail and take
precedence over the English translation.
THIS DEED has been read aloud in the English language by the acting
Notary to the persons appeared, approved by the persons appeared, and signed by
the persons appeared and the Notary in their own hands as follows:
Page 74
<PAGE>
OMITTED SCHEDULES FROM EXHIBIT 2.2
The following Schedules have been omitted from Exhibit 2.2 in accordance with
Item 601(b)(2) of Regulation S-K. The Registrant will furnish supplementally a
copy of any omitted Schedule to the Commission upon request.
Schedule Number Description
1.1b Contracts
1.1c Intellectual Property
Page 75
Exhibit 2.3
Deed-Role-No.: ___________/1998
AGREEMENT OF PURCHASE AND TRANSFER OF GMBH SHARES
dated as of November 19, 1998
among
DATA I/O CORPORATION,
DATA I/O EUROPEAN OPERATIONS GMBH
and
SHAREHOLDERS OF SMS HOLDING GMBH
SET FORTH IN SECTION 1.1
Today this
nineteenth day of November nineteen hundred ninety eight
- 19.11.1998 -
Appeared before me,
Dr. Michael Bohrer
Notary with the official seat in 80333 Munich and, the office Briennerstr. 25,
in the premises Briennerstr. 22, 80333 Munich:
1. Dr. Thomas Schulz, born: 05.10.1963, business address: Brienner
Stra(beta)e 22, 80333 Munich, here not acting in his own name,
but in the name of
(a) Data I/O European Operations GmbH, a German limited liability
company with its registered place of business in Grafelfing (HRB Munich
103439) (,,Purchaser"), subject to the attached power of attorney dated
19.11.1998
(b) Data I/O Corporation, a Washington corporation (,,DAIO"), subject
to the attached power of attorney dated 18.11.1998.
The powers were presented in fax copy. The originals of the powers
shall be sent to the Notary.
2. Gotz Steudel, born: 27 April 1942, residing at: Im Morgental 13,
D-88145 Hergatz, identified by German Identity Card No.:
9336025222, here acting
(a) in his own name,
(b) as well as in the name of
- Bernd Steudel, born: 21 July 1967, residing at: Marschallstr. 11,
D-40477 Dusseldorf,
- Daniel Steudel, born: 23 September 1973, residing at:
Im Morgental 13, D-88145 Hergatz,
subject to the attached powers of attorney dated 14.11.1998.
Page 76
<PAGE>
3. Antoine Issaverdens, born: 20 November 1941, residing at: 24, Hameau
Boileau, F-75016 Paris, personally known to me, here acting
(a) on his own name, as well as
(b) in the name of
- Nicolas ver Hulst, born: 21 August 1953, residing at: 20, Cite
Malesherbes, F-75009 Paris,
- Dominique Peninon, born: 21 February 1948, residing at: 38, Rue
Guersant, F-75017 Paris,
- Mrs. Florence Fesnau, born: 16 February 1962, residing at: 89, Avenue
Emile Zola, F-75015 Paris,
- Fonds Commun de Placement a Risque Alpha Ventures IV, a French
partnership (,,Alpha IV"),
- Fonds Commun de Placement a Risque Alpha Ventures V, a French
partnership (,,Alpha V"),
- Ste civile FINAB, a French civil law partnership (,,Finab")
(registered at the Paris Commercial Register D 348 155 508),
- Helmut Adamski, born: 19 October 1960, residing at: Am Engelberg 30,
D-88239 Wangen,
- Hans Schlegel, born: 06 February 1961, residing at: Fichtenstr. 19,
D-88907 Eriskirchen-Schussenreute,
- Roland Schuler, born: 03 October 1964, residing at: Schulthei(beta)-
Trenkle-Str. 9, D-88239 Wangen,
- Jurgen Tschogl, born: 08 May 1968, residing at: Hopfenstrasse 10,
D-85368 Moosburg,
subject to the attached powers of attorney. Mr. Adamski's power was
presented in fax copy. The original of this power shall be sent to the Notary.
(Messrs. G. Steudel, B. Steudel, D. Steudel, Adamski, Schlegel, Schuler,
Tschogl, ver Hulst, Peninon and Issaverdens, and Mrs. Fesnau, together with
Alpha IV, Alpha V and Finab are jointly referred to as ,,Shareholders" and
individually referred to as a ,,Shareholder.")
The Appeared requested the notarization of the following declarations:
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AGREEMENT (,,AGREEMENT") OF
PURCHASE AND TRANSFER OF GMBH SHARES
RECITALS
A. Shareholders own beneficially and of record 100% of the issued and
outstanding nominal share capital of Company (as defined in Section 1.1).
B. DAIO desires to purchase, and Company desires to sell, the business
and assets of Company related to the design, development, manufacture, sale or
distribution of any device or system used to program programmable integrated
circuits (,,IC Programmer Products Business") in a series of three transactions.
C. In the first transaction, prior to execution of this Agreement DAIO
purchased all of the intellectual property and related rights of
SMS-Mikrocomputer-Systeme GmbH, a wholly-owned subsidiary of Company registered
with the Commercial Registry at the Amtsgericht [local court] Ravensburg under
number HRB 585W (,,Mikrocomputer"), pursuant to the ,,Subsidiary Technology
Purchase Agreement" (Deed No. _______/1998 of the acting notary). In the second
transaction, prior to the execution of this Agreement DAIO purchased all of the
Excalibur intellectual property and related rights currently being developed by
Company and Company retained a license to such Excalibur intellectual property
in Germany, Austria, Lichtenstein and the predominantly German-speaking portions
of Switzerland and Italy pursuant to the ,,Excalibur Technology Purchase
Agreement" (Deed No. _______/1998 of the acting notary) which, together with the
Subsidiary Technology Purchase Agreement, are referred to as the ,,Related
Agreements."
D. In the third transaction, after execution of the Related Agreements,
Purchaser desires to purchase, and Shareholders desire to sell, all of the
shares of Company's nominal share capital owned by Shareholders on the terms and
conditions set forth in this Agreement.
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AGREEMENT
1. COMPANY; PURCHASE AND SALE OF SHARES
1.1 The Shares. SMS Holding GmbH ("Company") is registered with the
Commercial Registry at the Amtsgericht [local court] Ravensburg under number
HRB 596W with a nominal share capital in the amount of DM 1,500,000. The
registered seat of Company is Wangen (Allgau). This nominal share capital is
being held as follows:
Gotz Steudel: with shares in the nominal amount of DM 200,000.
DM 31,700.
DM 127,000.
DM 6,300.
Bernd Steudel: with shares in the nominal amount of DM 5,800.
DM 23,000.
DM 1,200.
Daniel Steudel: with shares in the nominal amount of DM 5,800.
DM 23,000.
DM 1,200.
Helmut Adamski: with shares in the nominal amount of DM 20,200.
DM 81,000.
DM 3,800.
Hans Schlegel: with shares in the nominal amount of DM 5,800.
DM 23,000.
DM 1,200.
Roland Schuler: with shares in the nominal amount of DM 5,800.
DM 23,000.
DM 1,200.
Jurgen Tschogl: with shares in the nominal amount of DM 1,400.
DM 5,600.
DM 500.
Nicolas ver Hulst: with a share in the nominal amount of DM 8,300.
Dominique Peninon: with a share in the nominal amount of DM 4,100.
Antoine Issaverdens: with shares in the nominal amount of DM 2,100.
DM 1,000.
Mrs. Florence Fesnau: with a share in the nominal amount of DM 3,100.
Alpha IV: with shares in the nominal amount of DM 6,800
DM 166,600.
Alpha V: with shares in the nominal amount of DM 27,900.
DM 60,400.
DM 86,700.
DM 260,000.
DM 260,000.
Finab: with shares in the nominal amount of DM 6,500.
DM 4,000.
DM 2,000.
DM 1,500.
DM 1,500.
The share capital has been fully paid up.
1.2 Purchase and Sale. Shareholders do hereby sell all outstanding shares
in Company (the ,,Shares"), as described in Section 1.1 (a) - (n) with a nominal
value of DM 1,500,000, to Purchaser. Shareholders do hereby transfer all right,
title and interest in all of the Shares to Purchaser. Purchaser does hereby
accept said sales and said transfers.
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1.3 Agreements Relating to Transfer. Relating to all the above sales and
transfers, the parties agree as follows:
(a) All sales and transfers shall be effected with economic effect
as of the date hereof.
(b) The profits for the year 1998 for Company will be attributed to
Purchaser. As far as profits for previous years have not been distributed among
Shareholders, those profits shall also be due to Purchaser.
(c) The transfer of the Shares under this Agreement is subject to the
condition precedent of the payment of the purchase price as set forth in
Section 1.4. Representative will infrom the Notary in writing as soon as the
conditon has been fulfilled.
(d) Each Shareholder hereby consents to the sales and transfers
described in Section 1.2 and hereby waives any and all rights relating to any
rights of consent, first refusal, bring-along and any other right such
Shareholder may have in relation to the Shares according to law or otherwise,
including but not limited to, any rights covered by Section 10 of the articles
of association of Company, and such waiver is hereby accepted by all
Shareholders entitled to do so.
1.4 Purchase Price.
(a) The aggregate purchase price to be paid by Purchaser or DAIO to
Shareholders for the Shares (the ,,Purchase Price") is US$2,268,337.42. The
Purchase Price is equal to US$3,825,000 minus the difference, if any,
obtained by subtracting from the Liabilities (as hereinafter defined) of
Company and its subsidiaries (,,Subsidiaries") as of September 30, 1998 the
Transfer Value (as hereinafter defined) of Company and its Subsidiaries as
of September 30, 1998 and applying an exchange rate of 1.65 DM per US$1.00,
minus the Estimated Company Expenses (as defined in Section 7.3(b)), minus
the amount paid to Alliant Partners under Section 1.5(a)(iii). The
,,Liabilities" shall be the total liabilities of Company and its
Subsidiaries (including without limitation, any Shareholder debt) as
calculated on the basis of the unaudited balance sheet dated September 30,
1998 of Company and its Subsidiaries (the ,,September Balance Sheet") as
attached in Schedule 2.6(a)(ii). The ,,Transfer Value" shall be DM
3,032,846.84, calculated as the sum of (i) the amount of Company's cash at
September 30, 1998 plus the amount of Company's accounts receivable at
September 30, 1998, net of applicable reserves, plus (ii) the book value of
all inventory at September 30, 1998 which is used in the business of
Company in the ordinary course, net of applicable reserves, plus (iii) the
book value of all property, plant and equipment owned by Company and its
Subsidiaries at September 30, 1998, plus (iv) those prepaid expenses and
deposits recorded on Company's books at September 30, 1998, plus (v)
one-half of the DM 375,000 dividend to be paid by Mikrocomputer to Company.
Liabilities, Transfer Value and appropriate reserves were determined in
accordance with generally accepted accounting principles in Germany as in
effect from time to time (,,GoB") consistently applied.
(b) The calculation of the Purchase Price, which is as set forth in
Schedule 1.4, excludes any amounts paid by DAIO pursuant to the Related
Agreements. The amounts paid by Purchaser or DAIO on behalf of Company described
in Sections 1.5(a)(i) and (ii) shall reduce the amount payable by DAIO to
Company under Section 1.3 of the Excalibur Technology Purchase Agreement.
(c) Concurrent with the execution of this Agreement, Purchaser or
DAIO does herewith pay the Purchase Price to Alpha Associes S.A., acting as
representative for Shareholders (,,Representative"), in U.S. Dollars, by
certified or cashier's check to be distributed by Representative to Shareholders
in accordance with Section 1.6. Shareholders hereby expressly agree that the
appeared Mr. Issaverdens is authorized to collect such check for Shareholders.
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1.5 Additional Payments.
(a) In addition to payment of the Purchase Price as described in
Section 1.4, concurrent with the execution of this Agreement, Purchaser or
DAIO does herewith:
(i) pay, on behalf of Company, to Representative DM 2,257,475,
representing the aggregate amount of principal and accrued interest payable
by Company to Alpha IV, Alpha V, Finab, Messrs. Peninon, ver Hulst,
Issaverdens and Mrs. Fesnau (the ,,Alpha Payees") by certified or cashier's
check in U.S. Dollars made payable to Representative (it being understood
and agreed by the parties that if there is any difference due to the
conversion of such amount from U.S. Dollars into Deutschmarks, the
respective party will pay such difference to the other party within 15 days
from the date hereof), and Shareholders hereby expressly agree that the
appeared Mr. Issaverdens is authorized to collect such check for
Shareholders;
(ii) pay, on behalf of Company, to Mrs. Wiltrud Steudel
DM 451,837, representing the balance of the purchase price and accrued
interest owed by Company for the shares of stock purchased by Company from
Mrs. Steudel by certified or cashier's check in U.S. Dollars made payable
to Mrs. Steudel (it being understood and agreed by the parties that if
there is any difference due to the conversion of such amount from U.S.
Dollars into Deutschmarks, the respective party will pay such difference to
the other party within 15 days from the date hereof), Mr. Steudel expressly
declares that he is authorized to collect the check for Wiltrud Steudel;
and
(iii) pay to Alliant Partners Palo Alto, CA, USA US$188,886.00,
in U.S. Dollars, by certified or cashier's check made payable to Alliant
Partners.
(b) In addition to payment of the amounts described in Sections 1.4
and 1.5(a), after the date hereof Purchaser will pay the Company Expenses
(as defined in Section 7.3(a)) to the third parties owed such Company Expenses
when such Company Expenses are due in accordance with their terms.
(c) Concurrent with the execution of this Agreement, Representative,
on behalf of the Alpha Payees, in its attached receipt and release dated the
date hereof substantially in the form of Exhibit 1.5(c)(i), has acknowledged
that upon its receipt of the amount described in (a)(i) above, the Alpha Payees
shall have no further claims or rights whatsoever against Company or its
Subsidiaries, and Mrs. Steudel, in her attached receipt and release dated
the date hereof in the form of Exhibit 1.5(c)(ii), has acknowledged that
upon her receipt of the amount described in (a)(ii) above, she shall have
no further claims or rights whatsoever against Company or its Subsidiaries.
1.6 Distribution by Representative. Alpha Associes S.A. is hereby
irrevocably constituted and appointed by each Shareholder as the representative
of Shareholders through whom all actions on behalf of Shareholders relating to
this Agreement after the date hereof, including those acts as are required,
authorized or contemplated by Sections 1.4, 1.5, 1.6 and 6 hereof, shall be made
or directed, and hereby acknowledges that Representative shall be the only
person authorized to take any action so required, authorized or contemplated by
this Agreement on behalf of Shareholders and to receive notice on behalf of
Shareholders under this Agreement. Shareholders further acknowledge that the
foregoing appointment and designation shall be deemed to be coupled with an
interest and shall survive the dissolution, disability, death or incompetency of
any or all of Shareholders. Without limiting the generality of the foregoing,
Representative is authorized, in its sole discretion, to dispute, refrain from
disputing, consent to, assume the defense of, arbitrate, litigate or settle any
claims for indemnification under Section 6 and to negotiate and compromise any
dispute which may arise under, and exercise or refrain from exercising remedies
available under, and make any determinations under Section 6, and to sign any
releases or other documents with respect to such dispute or remedy. Shareholders
shall be bound by all notices received, agreements and determinations made by
and documents executed and delivered by Representative under this Agreement.
Representative has declared that it accepts its appointment and authorization to
act as Representative on behalf of Shareholders in accordance with the terms of
this Agreement. Shareholders shall be solely responsible for instructing
Representative to split the amount paid to Representative pursuant to Section
1.4 among Shareholders in accordance with their respective pro rata
shareholdings in the aggregate share capital of Company as set forth in Section
1.1. Neither Purchaser nor DAIO shall have any liability or responsibility for
any breach by Shareholders or Representative of its obligations under this
Section 1.6.
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2. REPRESENTATIONS AND WARRANTIES RELATING TO COMPANY
As used in this Agreement, ,,knowledge" or ,,best knowledge" of a
Shareholder shall be deemed to be the actual knowledge of each other Shareholder
and Company's managing director (Geschaftsfuhrer). At the time of execution of
this Agreement (or at such other time expressly set forth in a particular
representation and warranty in this Section 2), each Shareholder, severally, but
not jointly, hereby represents and warrants (in the form of selbstandige
Garantieversprechen) to Purchaser as follows, it being understood and agreed by
Shareholders that the representations and warranties contained in this Section 2
are the basis upon which DAIO has entered into each of the Related Agreements:
2.1 Corporate Existence and Power. Each of Company and its Subsidiaries
is a duly organized and validly existing entity under the laws of its
jurisdiction of incorporation or formation; has all corporate power and
authority to conduct its business as now conducted; and is duly qualified to
transact business as aforeign corporation and is in good standing in each
jurisdiction where the character of the property owned or leased by it or the
nature of its activities make such qualification necessary. Attached as
Schedule 2.1(a) and Schedule 2.1(b) are true and correct copies of the local
trade registry excerpt for Company and the articles of association of Company,
respectively. Both of such documents correctly show the present status of
Company and no application to the commercial register is pending with respect
to Company or any Subsidiary.
2.2 Authority. The execution, delivery and performance by Company and
Mikrocomputer of the Related Agreements to which it is a party, and the
consummation of the transactions contemplated thereby at the time of their
execution were within Company's and Mikrocomputer's corporate power and were
duly authorized by all necessary corporate actions on the part of Company and
Mikrocomputer, as the case may be, and their respective shareholders. Each
Related Agreement to which Company or Mikrocomputer is a party when executed
and delivered by it was a valid and binding obligation of Company or
Mikrocomputer, as the case may be, enforceable against it in accordance with
its terms, except as may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, and other similar laws relating to creditors'
rights generally and by general equitable principles.
2.3 No Conflict. Except as set forth on Schedule 2.3, the execution,
delivery and performance by Company and Mikrocomputer of each Related
Agreement to which it is a party, and the consummation by Company and
Mikrocomputer of the transactions contemplated thereby did not and will not: (a)
contravene or conflict with its respective articles of association or the
internal regulations of its management; (b) contravene or conflict with or
constitute a material violation of any provision of any German law, rule,
regulation, order, judgment, injunction or decree binding upon or applicable to
Company, any Subsidiary or any of their respective property or assets; (c)
constitute a material default under or give rise to any right of termination,
cancellation or acceleration of any right or obligation of Company or any
Subsidiary or to a loss of any benefit to which Company or any Subsidiary is
entitled under any provision of any material contract, agreement or
understanding binding upon Company or any Subsidiary or to which Company or any
Subsidiary is a party by which Company, any Subsidiary or any of their
respective assets are or may be bound, or constitute a default (or an event
which, with the lapse of time or the giving of notice, or both, would constitute
a default) thereunder, or violate any material license, franchise, permit or
other similar authorization held by Company or any Subsidiary; (d) result in the
creation or imposition of any material lien, security interest, charge or
encumbrance of any nature on any property of Company or any Subsidiary; or (e)
give to others any material interest or rights, including rights of termination,
acceleration or cancellation, in or with respect to any Contract (as defined in
Section 2.16) or any agreement by which any of the property or assets of Company
or any Subsidiary is bound.
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2.4 Capitalization. The nominal share capital of Company consists of the
shares as set forth in Section 1.1. All of the shares of nominal share
capital of Company have been duly authorized and validly issued, are fully paid
and non-assessable, and have not been issued in violation of any preemptive
rights of subscription, rights of first refusal or similar rights arising by law
or under the articles of association of Company or any agreement to which
Company is a party. Except as set forth in Schedule 2.4, no repayments of
capital have been made, nor have any hidden profit distributions been made
relating to the shares of Company or any Subsidiary. There are no silent
interests, loans with profit participation, special participation or other
rights which grant an entitlement in respect of profits or liquidation proceeds
of Company or its Subsidiaries. Except as set forth on Schedule 2.4, there are
no outstanding preemptive, conversion or other rights, liens, options, warrants
or agreements granted or issued by or binding upon Company, any Subsidiary or
any Shareholder for the purchase or acquisition of any shares of capital stock
of Company (or any Subsidiary) or any other securities convertible into,
exchangeable for or evidencing the right to acquire or dispose of any shares of
such capital stock. All outstanding shares of capital stock, convertible
securities, rights, options and warrants of Company are owned by Shareholders in
the numbers specified in Section 1.1. Except as required in the articles of
association (or articles of incorporation, as the case may be) of Company or any
Subsidiary (the ,,Articles"), neither Company nor any Subsidiary is subject to
any obligation (contingent or otherwise) to repurchase or otherwise acquire or
retire any shares of its capital stock or any convertible securities, rights or
options. Neither Company nor any Subsidiary is a party to any agreement granting
registration rights to any person with respect to equity or debt securities of
Company or any Subsidiary. Except as set forth in any of the Articles, none of
Company, any Subsidiary or any Shareholder is a party to, and has no knowledge
of, any agreement restricting the voting or transfer of any shares of the
capital stock of Company or any Subsidiary. All outstanding securities of
Company and each Subsidiary have been issued and, at the date hereof, the Shares
will have been sold and transferred to Purchaser in compliance with applicable
securities laws of Germany.
2.5 Subsidiaries. Company does not have any branches, affiliates or
subsidiaries except as set forth on Schedule 2.5(a). Company is the sole
legal and beneficial owner of each Subsidiary. All outstanding shares of capital
stock, convertible securities, rights, options and warrants of each Subsidiary
are owned by Company as specified on Schedule 2.5(a), free and clear of any
mortgages, pledges, charges, liens, security interests, assessments, taxes or
other encumbrances (,,Liens"). Attached as Schedule 2.5(b), Schedule 2.5(c)(i)
and Schedule 2.5(c)(ii) are true and correct copies of the local trade registry
excerpt for Mikrocomputer, the Articles of Mikrocomputer and the Articles of
each other Subsidiary, respectively. All of such documents correctly show the
respective present status of each Subsidiary. All of the shares of nominal share
capital of Mikrocomputer and all of the shares of capital stock of each other
Subsidiary have been duly authorized and validly issued, are fully paid and
non-assessable, and have not been issued in violation of any preemptive rights
of subscription, rights of first refusal or similar rights arising by law or
under such Subsidiary's Articles or any agreement to which Company or such
Subsidiary is a party. No repayments of capital have been made, nor have any
hidden profit distributions been made relating to the shares of any Subsidiary.
Company does not own, control, hold or have any rights or options to subscribe
for, purchase or acquire, whether directly or indirectly, any shares of stock,
partnership interest, join venture interest, equity participation or any other
security or interest in any other person or entity other than the Subsidiaries.
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2.6 Financial Statements.
(a) As set forth on Schedule 2.6(a)(i) and Schedule 2.6(a)(ii), the
(i) audited balance sheet of Company and its Subsidiaries for the fiscal
year ended December 31, 1997 (the ,,1997 Balance Sheet") and the related income
statements of Company and its Subsidiaries for such year, and (ii) the September
Balance Sheet and the related income statements of Company and its Subsidiaries
for such nine (9)-month period (collectively, the ,,Financial Statements"),
respectively, are true and complete in all material respects and accurately and
fairly present the asset, liability, financial and revenue positions of Company
and its Subsidiaries, including without limitation, the tax and social security
premiums relating to Company and its Subsidiaries, at such dates and for the
periods indicated. The Financial Statements were prepared in accordance with the
relevant statutory provisions prevailing from time to time, the Articles of
Company and GoB consistently applied, except, in the case of the interim
financial statements referenced above, for the absence of footnote disclosures
(that, if presented, would not materially differ from those included in the 1997
Balance Sheet). No financial statements of any person or entity other than
Company and its Subsidiaries are required by GoB to be included in the financial
statements of Company.
(b) Except as set forth on Schedule 2.6(b), neither Company nor any
Subsidiary had on September 30, 1998, any obligations or liabilities of any
nature (whether known or unknown and whether fixed or contingent, including
without limitation, any tax liabilities due or any obligation of Company or any
Subsidiary to supply products or services for which there is not a corresponding
liability recorded in the September Balance Sheet) that were not fully
disclosed, reflected or reserved against in the September Balance Sheet. Company
and each Subsidiary has maintained since September 30, 1998 a system of
accounting established and administered in accordance with GoB.
2.7 Actions Pending. Except as set forth on Schedule 2.7, there is no
action, suit, investigation or proceeding pending or, to the knowledge of
such Shareholder, threatened before any administrative or arbitration or civil
court, against Company, any Subsidiary or any of their respective property or
assets, and such Shareholder is not aware of any events which might form the
basis for any such action, suit, investigation or proceeding. There are no
outstanding orders, judgments, writs or decrees against Company or any
Subsidiary.
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2.8 Required Consents. Except as set forth on Schedule 2.8, at the time
of execution of this Agreement or any Related Agreement there are (or were)
no consents, approvals, authorizations, orders, registrations or qualifications
of or with any person, court, regulatory authority or governmental body which
are (or were) required for the consummation of the transactions contemplated by
this Agreement or any Related Agreement.
2.9 Taxes. Company and each Subsidiary have accurately prepared and timely
filed all tax returns and social insurance contribution declarations
required by applicable law to be filed by them. Neither Company nor any
Subsidiary has failed to timely pay any taxes, social insurance liabilities or
assessments. The September Balance Sheet includes adequate reserves for all
taxes and social insurance liabilities accrued but not yet payable on September
30, 1998. Except as set forth on Schedule 2.9, no tax returns of Company or any
Subsidiary are currently being audited by any taxing authorities, and such
Shareholder is not aware of any threatened or pending audits. No deficiency
assessment with respect to or proposed adjustment of Company's or any
Subsidiary's taxes or social insurance liabilities is pending or, to the best
knowledge of such Shareholder, threatened. Additional payments of taxes and/or
social security premiums due to tax and/or social security audits relating to
Company and its Subsidiaries for the period through September 30, 1998 which
were not fully disclosed, reflected or provided for in the September Balance
Sheet shall be borne by Shareholders if and to the extent they are attributable
to such period.
2.10 Employee Plans. Schedule 2.10 lists each employee benefit plan,
pension benefit plan and any other bonus, severance or termination pay,
stock option or stock purchase, incentive pay or other similar plan, program or
arrangement covering present or former employees of Company which is maintained
or contributed to by Company or any Subsidiary (the ,,Plans"). Company and each
Subsidiary are in compliance with all applicable laws and regulations relating
to the Plans. Except as set forth on Schedule 2.10, no employee has been granted
a bonus which is not customary for companies of this type in Germany, or any
other share in the results of Company or any Subsidiary in whatever manner
calculated nor has any employee received any retirement or pension entitlement
against Company or any Subsidiary.
2.11 Employees. Neither Company nor any Subsidiary has any collective
bargaining arrangements or agreements covering any of its respective
employees. Except as set forth on Schedule 2.11, neither Company nor any
Subsidiary has any employment contract or other agreement relating to the right
of any managing director, employee, or consultant to be employed or engaged by
Company or such Subsidiary. Except as set forth on Schedule 2.11, no former or
present managing director or employee has any claims against Company or any
Subsidiary and there are no liabilities resulting from the termination of any
employment contract or such other agreement.
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2.12 Intellectual Properties.
(a) Ownership. Each of Schedule 2.12(a)(i) and Schedule 2.12(a)(ii)
sets forth a true and complete list of all patents, patent applications,
registrations, applications for registration, assignments, intellectual
property-related contracts (whether written or oral), copyrights, trademarks,
trade names, service marks, computer software, trade secrets (including
compositions, know-how, drawings, specifications, designs and processes),
inventions or other intellectual property rights which are (or were at the time
of execution of any Related Agreement) used in the conduct of Company's business
(the ,,Company Intellectual Properties") and Mikrocomputer's business (the
,,Mikrocomputer Intellectual Properties"), respectively, at the time of
execution of this Agreement or any Related Agreement.
(b) Adequacy of Technical Documentation. At the time of execution of
this Agreement or any Related Agreement, the respective technical and
descriptive materials and documentation (other than inventory) relating to the
respective IC Programmer Products Business of Company and Mikrocomputer,
including without limitation, schematics, parts lists, supplier lists, board
layouts, mask works, user manuals and assembly drawings, notes and instructions
(the ,,Company Documentation" and ,,Mikrocomputer Documentation," respectively),
include the respective source codes, system documentation, bills of material,
drawings, statements of principles of operation and schematics related to any of
the Company Intellectual Properties and Mikrocomputer Intellectual Properties,
as well as any accompanying commentary or explanation.
(c) Protection; No Infringement. Company and its Subsidiaries have
taken reasonable steps and precautions to protect and preserve the
confidentiality of all of the trade secrets and confidential information of
Company, its Subsidiaries or others entrusted to Company. To the best knowledge
of such Shareholder, the operations of Company and its Subsidiaries as conducted
at the time of execution of this Agreement or any Related Agreement do (or did)
not infringe any copyright, trademark, service mark, trade name, patent rights
or any other right of any person, whether registered or unregistered, nor do (or
did) they involve the misappropriation of any trade secret of any person.
Neither Company nor any Subsidiary has received notice from any person alleging
that such infringement or misappropriation has occurred or is continuing.
(d) Personnel Agreements. All personnel, including employees, agents,
consultants, and contractors, who have contributed to or participated in
the conception and development of the Company Intellectual Properties,
Mikrocomputer Intellectual Properties, Company Documentation and Mikrocomputer
Documentation on behalf of Company or any of its Subsidiaries, as the case may
be, either (1) have been party to a ,,work-for-hire" arrangement or agreement
with Company or such Subsidiary, as the case may be, in accordance with
applicable law, that has accorded Company or such Subsidiary full, effective,
exclusive, and original ownership of all tangible and intangible property
thereby arising or (2) have executed appropriate instruments of assignment in
favor of Company or such Subsidiary, as the case may be, as assignee that have
conveyed to Company or such Subsidiary full, effective, and exclusive ownership
of all tangible and intangible property thereby arising, in each case subject to
the restrictions of applicable law, including the German Act on Inventions by
Employees (Arbeitnehmererfindungsgesetz).
(e) Third-Party Materials and Rights. To the best knowledge of such
Shareholder, except as set forth in Schedule 2.12(e)(i) and Schedule
2.12(e)(ii), at the time of execution of this Agreement or any Related Agreement
each of Company and Mikrocomputer possesses (or possessed) full right and
authority to use all know-how, proprietary information, copyrights, trademarks,
patent rights and other proprietary and intellectual properties necessary to the
conduct of its respective business as conducted at the time of execution of this
Agreement or any Related Agreement, without infringing the rights of others,
including without limitation, the Company Intellectual Properties and
Mikrocomputer Intellectual Properties, all of which will be (or were)
transferred to Purchaser at the time of execution of this Agreement or any
Related Agreement free and clear of all Liens, claims, options, or claims of
ownership of any person or of any obligation to pay royalties. Except as set
forth on Schedule 2.12(e)(i) and Schedule 2.12(e)(ii), at the time of execution
of this Agreement or any Related Agreement neither Company nor any Subsidiary
has (or had) granted licenses or other rights to any third party (including any
employees of Company or any Subsidiary) with respect to the Company Intellectual
Properties or Mikrocomputer Intellectual Properties.
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2.13 Assets. At the time of execution of this Agreement or any Related
Agreement, Company and its Subsidiaries have (or had) good and marketable
title to, or a valid leasehold interest in, or a valid right to use, all
material assets and properties (including without limitation, the Company
Intellectual Properties, Company Documentation, Mikrocomputer Intellectual
Properties and Mikrocomputer Documentation), tangible or intangible, used by it
at the time of execution of this Agreement or any Related Agreement, located on
its premises or, if applicable, shown on the September Balance Sheet or acquired
thereafter, free and clear of all Liens except those indicated on Schedule 2.13
and except for inventory disposed of in the ordinary course of business since
the date of the September Balance Sheet. The September Balance Sheet reflects
all material assets and properties, tangible or intangible, which are required
by Company for its business as conducted at the time of execution of this
Agreement or any Related Agreement, except for inventory disposed of in the
ordinary course of business since the date of the September Balance Sheet or for
retention of title in the ordinary course of business arising under applicable
law. Except as set forth on Schedule 2.13, all of Company's material equipment
and other tangible assets (whether owned or leased) are in good condition
(except for ordinary wear and tear) and are fit for use in the ordinary course
of business. Except as set forth on Schedule 2.13, at the time of execution of
this Agreement or any Related Agreement, Company shall own (or owned), or have
(or had) a valid leasehold interest in, or a valid right to use, all the
material assets or rights necessary for the conduct of its business.
2.14 Compliance with Laws. To the best knowledge of such Shareholder,
neither Company nor any Subsidiary has materially violated any applicable
law or governmental regulation or requirement, including without limitation, any
environmental and securities laws and laws restricting the export of goods and
services, and neither Company nor any Subsidiary has received notice of or claim
alleging any such material violation.
2.15 Licenses. Company and each Subsidiary have all licenses, permits,
approvals and any similar authority necessary for their respective business
operations, and to the best knowledge of such Shareholder, all such licenses are
valid and in full force and effect. No violations have been communicated to
Company in respect of such licenses. Such Shareholder is not aware of the
existence of any facts or circumstances which might constitute any such
violations, and no proceeding is pending or, to such Shareholder's best
knowledge, threatened toward the revocation, termination or limitation of any
such licenses, or the imposition of conditions thereon.
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2.16 Material Agreements. Schedule 2.16 sets forth a true and complete
list, at the time of execution of this Agreement or any Related Agreement,
of all agreements, understandings, instruments, contracts or proposed
transactions, whether written or oral, to which Company or any Subsidiary is (or
was) a party or by which it is (or was) bound (i) which individually involve
obligations of or payments to Company or any Subsidiary in excess of DM 85,000,
or (ii) which will not be (or was not) terminated at the time of execution of
this Agreement or any Related Agreement, or in the case of termination, provide
(or provided) for liabilities on the part of Company or any Subsidiary, and
involve any Shareholder, such Shareholder's relatives within the meaning of
Section 15 of the German Tax Code (Abgabenordnung) or such Shareholder's
affiliated companies within the meaning of Section 15 of the German Stock
Corporation Act (Aktiengesetz) or (iii) which are (or were) control and profit
distribution agreements within the meaning of Section 291 of the German Stock
Corporation Act (Aktiengesetz) with any third party (the ,,Contracts"). True and
complete copies of all written Contracts (with all supplements and amendments
thereto) have been delivered to Purchaser. At the time of execution of this
Agreement or any Related Agreement, Company and such Subsidiary, as the case may
be, have (or had) complied with all material provisions of the Contracts to
which it is (or was) a party, are (or were) not in arrears with respect to any
amounts owed thereunder and are (or were) not otherwise in default under any
thereof nor has any party asserted that Company or such Subsidiary, as the case
may be, is (or was) in default under any thereof, and to the best knowledge of
such Shareholder, no condition exists which with the passage of time or the
giving of notice would constitute a default under any thereof. Such Shareholder
has no knowledge of any breach or anticipated breach by the other parties to any
Contract. To the best knowledge of such Shareholder, at the time of execution of
this Agreement or any Related Agreement all of the Contracts are (or were)
legal, valid, binding, in full force and effect, and enforceable by Company or
such Subsidiary in accordance with their respective terms. Except as set forth
on Schedule 2.16, execution of this Agreement or any Related Agreement and
consummation of the transactions contemplated hereby or thereby shall not give
any third party the right to terminate any Contract.
2.17 Insurance. Schedule 2.17 sets forth a list of each insurance policy
maintained by Company and each Subsidiary with respect to its respective
properties, assets and business and to the best knowledge of such Shareholder,
each such policy is in full force and effect, valid, unchallenged, incontestable
and no notice of termination has been given or is expected to be given with
respect thereto. Neither Company nor any Subsidiary is in default with respect
to its obligations under any such insurance policy and nor has it been denied
insurance coverage.
2.18 Suppliers and Customers. Schedule 2.18 accurately sets forth a list
of the top ten suppliers and the top ten customers of Company for the first
nine months of 1998. Except as set forth in Schedule 2.18, no material supplier,
vendor or service provider of Company or any Subsidiary has given Company notice
that it shall stop, or materially decrease the rate of, or materially and
adversely change the terms with respect to, supplying materials, products or
services to Company or any Subsidiary. Except as set forth on Schedule 2.18, no
material customer or distributor of Company or any Subsidiary has given Company
or such Subsidiary notice that it shall stop, or materially decrease the rate
of, buying any materials, products or services from Company or such Subsidiary.
Except as set forth in Schedule 2.18, execution of this Agreement or any Related
Agreement and consummation of the transactions contemplated hereby or thereby
shall not give any customer, supplier, vendor or service provider the right to
terminate any contract or agreement it may have with Company or any Subsidiary.
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2.19 Accounts Receivable. Except as set forth on Schedule 2.19, all of the
accounts receivable, net of the reserves applicable thereto, reflected on
the September Balance Sheet are good and valid receivables, unchallenged by the
debtors thereof and insured by the accounts receivable insurance described in
Schedule 2.17 in accordance with the terms of such insurance.
2.20 Inventory. The inventory of Company shown on the September Balance
Sheet and the inventory of the Company at the date hereof, net of the
reserves applicable thereto determined in accordance with GoB and included in
the September Balance Sheet, consists of a quantity and quality usable and
salable in the ordinary course of business, is not obsolete or damaged, is
merchantable and fit for its intended use, and is not defective.
2.21 Transactions with Affiliates. Except as set forth on Schedule 2.21,
there are no loans, leases, agreements, contracts, or other continuing
transactions between Company or any Subsidiary and (a) any employee, consultant,
shareholder or managing director of Company or any Subsidiary or (b) any
individual, corporation, partnership, joint venture, trust, university,
unincorporated organization, or a government or any agency or political
subdivision thereof owning any capital stock of Company or any Subsidiary or (c)
any member of the immediate family of such employee, consultant, shareholder or
managing director, or (d) any corporation or other entity controlled by such
employee, consultant, shareholder or managing director, or a member of the
immediate family of such officer, employee, consultant, director or shareholder
(collectively, an ,,Affiliate").
2.22 No Material Adverse Change. Except as set forth on Schedule 2.22,
since the date of the 1997 Balance Sheet, there has not been: (a) any
material adverse change in the condition (financial or otherwise), business,
assets, liabilities or prospects of Company or any Subsidiary or any material
decline in the rate of sales of Company or any Subsidiary; (b) any material
damage, destruction or loss of any of the assets of Company or any Subsidiary
(whether or not covered by insurance) or any write-down in the value of any
material inventory or write-off as uncollectible of any material notes or
accounts receivable; (c) any material increase in compensation payable to or for
the benefit of or committed to be paid to or for the benefit of, any director,
shareholder or officer of Company or any Subsidiary; (d) any modification,
waiver, change, amendment, release, rescission, accord and satisfaction or
termination of, or with respect to, any material term, condition or provision of
any Contract or material license, other than any satisfaction by performance in
accordance with the terms thereof; or (e) any action, suit or proceeding pending
or threatened wherein an unfavorable judgment, decree, injunction, order or
ruling would prevent the performance of this Agreement or any of the
transactions contemplated hereby or materially and adversely affect the right of
Purchaser to own, operate or control Company or any Subsidiary.
2.23 Indebtedness. Schedule 2.23 sets forth all indebtedness of Company or
any Subsidiary as of September 30, 1998, or for which Company or any Subsidiary
had commitments at such date. Neither Company nor any Subsidiary is in default
with respect to any such indebtedness. To the extent Company or any Subsidiary
has granted any security in favor of a third party, such security is only
securing debt or obligations of Company or any of its Subsidiaries.
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2.24 Year 2000 Compliance. At the time of execution of this Agreement or
any Related Agreement, all computer hardware and software produced by
Company or any Subsidiary, including but not limited to system and application
programs, files, databases and computer services, the failure or
disfunctionality of which would either individually or in the aggregate have a
material adverse effect on Company's or any Subsidiary's condition (financial or
otherwise), business, assets, liabilities or prospects or any material decline
in the rate of sales of Company or any Subsidiary, is Year 2000 compliant.
,,Year 2000 compliant" means that such hardware or software will (a) process
date data from at least the years 1900 through 2101 without error or
interruption; (b) maintain functionality with respect to the introduction,
processing or output of records containing dates falling on or after January 1,
2000; and (c) be interoperable with other Year 2000 compliant hardware or
software which may deliver records to, receive records from or interact with
such hardware or software in the course of processing data.
2.25 Brokerage Fees. Other than the fee payable to Alliant Partners
pursuant to Section 1.5(a)(iii), no broker's, finder's or financial
management fees or commissions will be payable, nor are there similar
arrangements in place, with respect to this Agreement or any Related Agreement
or the transactions contemplated hereby or thereby based on any agreement,
arrangement or understanding with any Shareholder, Company or any Subsidiary.
2.26 Disclosure. At the time of execution of this Agreement or any Related
Agreement, this Agreement, including all Schedules hereto and any
certificates and instruments delivered pursuant hereto, when taken as a whole,
does (or did) not contain any untrue statement of a material fact or omit to
state a material fact necessary in order to make the statements contained herein
and therein not misleading.
2.27 Other Agreements. Except as set forth on Schedule 2.27, there are no
agreements, understandings, instruments, contracts or proposed
transactions, whether written or oral, to which Company or any Subsidiary is a
party or by which it is bound which obligate or bind Company or any Subsidiary
to supply future products at a discount, accept returns or exchanges of past or
future products, or grant allowances or credits with respect to past or future
products except in the ordinary course of business consistent with past
practices and in accordance with Company's standard return or warranty policy.
3. FURTHER REPRESENTATIONS AND WARRANTIES OF SHAREHOLDERS
Each Shareholder severally, but not jointly, represents and warrants
(in the form of selbstandige Garantieversprechen) to Purchaser as follows:
3.1 Title to Shares. Shareholder is the unrestricted and sole legal and
beneficial owner of the Shares set forth in Section 1.1 across from
Shareholder's name. Shareholder does hereby transfer to Purchaser good and
marketable title to such Shares, free and clear of all Liens. The Shares to be
transferred to Purchaser by Shareholder do not constitute all or substantially
all of Shareholder's assets within the meaning of Section 419 of the German
Civil Code.
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3.2 Corporate Existence and Power. If Shareholder is other than a natural
person, such Shareholder is a duly organized and validly existing entity under
the laws of France and has all corporate power and authority to conduct its
business as now conducted.
3.3 Authority.
(a) If Shareholder is other than a natural person, that the
execution, delivery and performance of this Agreement and the consummation
of the transactions contemplated hereby are within Shareholder's power and have
been duly authorized by all necessary actions on the part of Shareholder and its
shareholders, partners or members. If Shareholder is a natural person, that
Shareholder has full power and authority to execute, deliver and perform this
Agreement, and to consummate the transactions contemplated hereby.
(b) This Agreement when executed and delivered by each Shareholder
is a valid and binding obligation of Shareholder, enforceable against
Shareholder in accordance with its terms, except as may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium, and other similar laws
relating to creditors' rights generally and by general equitable principles.
3.4 No Conflict. The execution, delivery and performance of this Agreement
by Shareholder, and the consummation by Shareholder of the transactions
contemplated hereby does not and will not (a) contravene or conflict with its
formation documents or the internal regulations of Shareholder's management
board or (b) contravene or conflict with or constitute a material violation of
any provision of any law, rule, regulation, order, judgment, injunction or
decree binding upon or applicable to Shareholder or Company or any of its
respective property or assets.
3.5 Actions Pending. There is no action, suit, investigation or legal or
administrative proceeding pending or, to the best knowledge of Shareholder,
threatened, against Shareholder which would adversely affect Shareholder's
performance under this Agreement, and Shareholder is not aware of any events
which might form the basis for any such action, suit, investigation or
proceeding.
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4. REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser hereby represents and warrants to Shareholders as follows:
4.1 Corporate Existence and Power. Purchaser is a limited liability
company duly organized and validly existing under the laws of Germany; has
all corporate power and authority to conduct its business as now conducted and
as proposed to be conducted; and is duly qualified to transact business as a
foreign corporation and is in good standing in each jurisdiction where the
character of the property owned or leased by it or the nature of its activities
make such qualification necessary, except where failure to be so qualified will
not, individually or in the aggregate, have any material adverse effect on its
financial condition, operations or prospects.
4.2 Authority. The execution, delivery and performance by Purchaser of
this Agreement, and the consummation of the transactions contemplated hereby by
Purchaser are within its corporate power and have been duly authorized by all
necessary corporate actions on the part of Purchaser. This Agreement when
executed and delivered by Purchaser is a valid and binding obligation of
Purchaser, enforceable against Purchaser in accordance with its terms, except as
may be limited by applicable bankruptcy, insolvency, reorganization, moratorium,
and other similar laws relating to creditors' rights generally and by general
equitable principles.
4.3 No Conflict. The execution, delivery and performance by Purchaser of
this Agreement and the consummation by Purchaser of the transactions
contemplated hereby does not and will not: (a) contravene or conflict with its
articles of association or the internal regulations of Purchaser's management
board, (b) contravene or conflict with or constitute a material violation of any
provision of any law, rule, regulation, order, judgment, injunction or decree
binding upon or applicable to Purchaser or any of its property or assets, (c)
constitute a material default under or give rise to any right of termination,
cancellation or acceleration of any right or obligation of Purchaser or to a
loss of any benefit to which Purchaser is entitled under any provision of any
material contract, agreement or understanding binding upon Purchaser or to which
Purchaser is a party by which Purchaser or any of its assets are or may be
bound, or constitute a default (or an event which, with the lapse of time or the
giving of notice, or both, would constitute a default) thereunder, or violate
any material license, franchise, permit or other similar authorization held by
Purchaser, (d) result in the creation or imposition of any material lien,
security interest, charge or encumbrance of any nature on any property of
Purchaser, or (e) give to others any interest or rights, including rights of
termination, acceleration or cancellation, in or respect to any agreement to
which Purchaser is a party or by which Purchaser is bound or by which any of its
material property or assets are bound.
4.4 Actions Pending. There is no action, suit, investigation or legal or
administrative proceeding pending or, to the knowledge of Purchaser, threatened,
against Purchaser or any of its property or assets which would adversely affect
Purchaser's performance under this Agreement and Purchaser is not aware of any
facts which might form the basis for any such action, suit, investigation or
proceeding. There are no outstanding orders, judgments, writs or decrees against
Purchaser which would adversely affect Purchaser's performance under this
Agreement.
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4.5 Brokerage Fees. Other than the fee payable to Alliant Partners
pursuant to Section 1.5(a)(iii), no broker's, finder's or financial
management fees or commissions will be payable with respect to this Agreement,
any Related Agreement or the transactions contemplated hereby or thereby based
on any agreement, arrangement or understanding with Purchaser.
4.6 Receipt of Information. Purchaser has been furnished access to the
business records of Company and its Subsidiaries and such additional information
and documents as it has requested and has been afforded an opportunity to ask
questions of, and receive answers from, representatives of Shareholder, Company
and its Subsidiaries concerning the terms and conditions of this Agreement, the
business, operations, market potential, capitalization, financial condition and
prospects of Company and its Subsidiaries, and all other matters deemed
relevant.
4.7 DAIO 1997 Revenue. DAIO's total revenue and revenue from continuing
operations for its 1997 fiscal year were US$61,096,000 and US$46,284,000,
respectively.
4.8 Taxes. DAIO or Purchaser agrees to pay all taxes due from DAIO and
Purchaser relating to this Agreement or the Related Agreements and to cause
Company and Mikrocomputer to pay all taxes due from them relating to this
Agreement or the Related Agreements, as the case may be.
5. NON-COMPETITION
5.1 Non-competition. Until the second anniversary of the date hereof, each
Shareholder who is an employee of Company and Mr. Gotz Steudel agrees vis-a-vis
Purchaser and Company that such Shareholder will not, directly or indirectly,
own, manage, operate, join, control or participate in the ownership, management,
operation or control of or be connected with, in any manner, any person or
entity engaged in competition with Company or its Subsidiaries with respect to
any product or service sold or activity engaged in by Company or its
Subsidiaries at the date hereof, including, without limitation, products or
services used in the IC Programmer Products Business in any geographical area in
which such product or service is sold or activity is engaged in at the date
hereof. Such Shareholder shall be deemed to be connected with such business if
such business is carried on by a partnership, corporation or association of
which such Shareholder is a partner, shareholder, member or agent, provided that
nothing herein shall prevent the purchase or ownership by such Shareholder of
shares which constitute less than five percent (5%) of the outstanding equity
securities of a publicly-held corporation.
5.2 Injunctive Relief. Each Shareholder acknowledges that the provisions
of Section 5.1 are essential to Purchaser, that Purchaser would not enter into
this Agreement if it did not include covenants not to compete or solicit and
that damages sustained by Purchaser and its Affiliates as a result of a breach
of such covenants cannot be adequately remedied by money damages, and such
Shareholder agrees that Purchaser, notwithstanding any other provision of this
Agreement, in addition to any other remedy Purchaser may have under this
Agreement or at law, shall be entitled to injunctive and other equitable relief
to prevent or curtail any breach of any provision of Section 5.1. Each
Shareholder acknowledges that the covenants in this Section 5 are reasonable.
5.3 Mr. Gotz Steudel. For the purposes of this Section 5 Mr. Gotz Steudel is
treated like an employee of the Company.
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6. INDEMNIFICATION
6.1 Indemnification. Each Shareholder agrees to indemnify and hold
harmless Purchaser, DAIO and their respective directors, officers,
affiliates, successors and assigns (a ,,Purchaser Party") from and against any
and all losses, liabilities, deficiencies, costs, damages and expenses
(including, without limitation, reasonable attorneys' fees, charges and
disbursements) incurred by such persons as a result of any breach of the
representations, warranties or covenants made by any Shareholder herein or made
by Company or Mikrocomputer in the Related Agreements, it being expressly agreed
that no tax liability of Company or Mikrocomputer in connection with the amounts
paid by Purchaser or DAIO, as the case may be, under the Related Agreements
shall give rise to indemnification under this Agreement or any Related
Agreement, or to any other claim against Shareholders by a Purchaser Party.
Purchaser agrees to indemnify and hold harmless each Shareholder from and
against any and all losses, liabilities, deficiencies, costs, damages and
expenses (including, without limitation, costs of investigation and reasonable
attorneys' fees, charges and disbursements) incurred by such Shareholder as a
result of any breach of the representations, warranties or covenants made by
Purchaser herein.
6.2 Indemnification Remedies. Claims for indemnification by a Purchaser
Party arising from a breach of the representations, warranties or covenants
made in this Agreement by Shareholders, other than Section 3 or 5, shall be
borne by the Shareholders severally, but not jointly, in accordance with their
respective pro rata shareholdings in the aggregate share capital of Company as
set forth in Section 1.1 and shall be payable in cash by wire transfer in
immediately available funds to an account designated by the Purchaser Party.
Claims for indemnification by a Purchaser Party arising from a breach of the
representations, warranties or covenants made in Section 3 or 5 shall be borne
by the Shareholder or Shareholders responsible for such breach, severally, but
not jointly, and shall be payable in cash by wire transfer in immediately
available funds to an account designated by the Purchaser Party. Claims for
indemnification by a Shareholder or Shareholders arising from a breach of the
representations, warranties or covenants made in this Agreement by Purchaser or
DAIO shall be borne by Purchaser and shall be payable in cash by wire transfer
in immediately available funds to an account designated by Representative.
6.3 Indemnification Procedure for Third Party Claims. The following
procedures shall apply to claims for indemnification brought against a
party entitled to indemnification under Section 6.1 arising from a dispute with
or a claim asserted by a third party:
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(a) Notice of Indemnification for Third Party Claims. Any party
entitled to indemnification under Section 6.1 (,,Indemnified Party") will
give written notice to the indemnifying party (,,Indemnifying Party") of any
third party claim with respect to which it seeks indemnification promptly after
the discovery by such party of any matters giving rise to a claim for
indemnification; provided that the failure of any Indemnified Party to give
notice as provided herein shall not relieve the Indemnifying Party of its
obligations under this Section 6, except to the extent that the Indemnifying
Party is actually prejudiced by such failure to give notice. In case any action,
proceeding or claim is brought by a third party against an Indemnified Party in
respect of which indemnification is sought hereunder, the Indemnifying Party
shall be entitled to participate in and, unless in the reasonable judgment of
the Indemnified Party a conflict of interest between it and the Indemnifying
Party exists in respect of such action, proceeding or claim, to assume the
defense thereof, with counsel reasonably satisfactory to the Indemnified Party.
In the event that the Indemnifying Party advises an Indemnified Party that it
will contest such a claim for indemnification hereunder, or fails, within 15
days of receipt of any indemnification notice to notify, in writing, such person
of its election to defend, settle or compromise, at its sole cost and expense,
any action, proceeding or claim (or discontinues its defense at any time after
it commences such defense), then the Indemnified Party may, at its option,
defend, settle or otherwise compromise or pay such action or claim. In any
event, unless and until the Indemnifying Party elects in writing to assume and
does so assume the defense of any such claim, proceeding or action, the
Indemnified Party's reasonable costs and expenses arising out of the defense,
settlement or compromise of any such action, claim or proceeding shall be losses
subject to indemnification hereunder.
(b) Cooperation; Settlement. The Indemnified Party shall cooperate
fully with the Indemnifying Party in connection with any negotiation or
defense of any such third party action or claim by the Indemnifying Party and
shall furnish to the Indemnifying Party all information reasonably available to
the Indemnified Party which relates to such action or claim. The Indemnifying
Party shall keep the Indemnified Party fully apprised at all times as to the
status of the defense or any settlement negotiations with respect thereto. If
the Indemnifying Party elects to defend any such third party action or claim,
then the Indemnified Party shall be entitled to participate in such defense with
counsel of its choice at its sole cost and expense. The Indemnifying Party shall
not be liable for any settlement of any action, claim or proceeding effected
without its written consent, provided, however, that the Indemnifying Party
shall not unreasonably withhold, delay or condition its consent. Anything in
this Section 6 to the contrary notwithstanding, the Indemnifying Party shall
not, without the Indemnified Party's prior written consent, settle or compromise
any third party claim or consent to entry of any judgment in respect thereof
which imposes any future obligation on the Indemnified Party or which does not
include, as an unconditional term thereof, the giving by the claimant or the
plaintiff to the Indemnified Party, a release from all liability in respect of
such claim.
(c) Payment of Indemnification Claims. The indemnification required
by this Section 6 shall be made by periodic payments of the amount thereof
during the course of the investigation or defense, as and when bills are
received or expense, loss, damage or liability is incurred. The indemnity
agreements contained herein shall be in addition to (i) any cause of action or
similar right of the Indemnified Party against the Indemnifying Party or others,
and (ii) any liabilities the Indemnifying Party may be subject to pursuant to
the law. Any payment not made when due shall bear interest from the date of
written notice of the amount due at a rate of two percent (2%) above the
Diskontsatz of the Deutsche Bundesbank (or any similar interest rate replacing
the Diskontsatz).
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6.4 Indemnification Procedure for Other Claims. A claim for
indemnification not involving a third party shall be asserted by written notice
from the Indemnified Party to the Indemnifying Party.
6.5 Limitations on Indemnification.
(a) Threshold Amount. Notwithstanding the provisions of Section 6.1,
Shareholders shall not be liable for such losses, damages, liabilities,
costs and expenses until such time as the aggregate amount thereof reaches
US$75,000 (but then Shareholders shall be liable for the entire US$75,000
plus any such liability in excess of US$75,000), subject to the limitations
set forth in Section 6.2 and (b) below.
(b) Maximum Amount. Notwithstanding the provisions of Section 6.1,
the aggregate amount payable by all Indemnifying Parties pursuant to this
Section 6 with respect to all claims for indemnification shall not exceed (i)
US$2,500,000 for a breach of Subsection 2.1, 2.2, 2.3(a), 2.4, 2.5, 2.7, 2.12,
3.1, 3.2, 3.3, 3.4(a), 3.5, 4.1, 4.2, 4.3(a) or 4.4 and (ii) US$1,250,000 for a
breach of any other Section or Subsection not listed in (i) above; provided,
that the aggregate amount payable by Purchaser, on the one hand, and
Shareholders, on the other hand, as the Indemnifying Party pursuant to this
Section 6 shall in no event exceed US$2,500,000 and any payments made by such
Indemnifying Party under (i) or (ii) above shall reduce any amount payable by
such Indemnifying Party in the future under (i) or (ii) above.
(c) Statute of Limitations. Claims for breach of the representations
and warranties under this Agreement may be made until the first anniversary
of the date hereof. As far as claims relate to unpaid taxes and/or social
security or other administrative payments, such claims may be made against
Shareholders until six (6) months after the final and conclusive assessment of
such taxes and/or payments, provided that Purchaser is aware of the assessment,
and the foregoing sentence shall not apply.
(d) Exclusion. Section 460 of the German Civil Code is hereby
expressly excluded.
7. MISCELLANEOUS
7.1 Publicity. Each Shareholder agrees that no public release or
announcement concerning this Agreement, any Related Agreement or the
transactions contemplated hereby or thereby shall be issued by such party
without the prior consent of Purchaser, such consent not to be unreasonably
withheld, except as such release or announcement may be required by applicable
law, rules or regulations. Purchaser agrees that no public release or
announcement concerning this Agreement, any Related Agreement or the
transactions contemplated hereby or thereby shall be issued by it without the
prior consent of Representative, such consent not to be unreasonably withheld,
except as such release or announcement may be required by applicable law, rules
or regulations.
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7.2 Further Assurances. Each Shareholder will from time to time after the
date hereof, at Purchaser's request and without further consideration,
execute and deliver such other instruments of conveyance, assignment and
transfer and take such other actions as Purchaser may reasonably request in
order more effectively to convey, assign, transfer to, evidence and vest in
Purchaser, the Shares or the transactions contemplated hereby or in any Related
Agreement.
7.3 Expenses.
(a) Except as otherwise specified in this Agreement, each of the
parties shall each pay such party's respective expenses, costs and fees
(including, without limitation, attorneys' and accountants' fees) incurred in
connection with the negotiation, preparation, execution and delivery of this
Agreement and the Related Agreements and the consummation of the transactions
contemplated hereby and thereby. All expenses, costs and fees (including,
without limitation, attorneys' and accountants' fees) incurred by Company or any
Subsidiary in connection with the negotiation, preparation, execution and
delivery of this Agreement and the Related Agreements and the consummation of
the transactions contemplated hereby and thereby (the ,,Company Expenses") shall
be shared by Shareholders in accordance with the respective pro rata
shareholdings in the aggregate share capital of Company of each Shareholder as
set forth in Section 1.1, except that all notarization costs for this Agreement
and any Related Agreement shall be paid by Purchaser or DAIO.
(b) Not later than the close of business two (2) business days prior
to the date hereof, Company shall have provided to Purchaser an estimate in
good faith of the total amount of the Company Expenses (the ,,Estimated Company
Expenses") based upon the bills and/or fee estimates provided to Company by
Company's attorney(s) and other professionals, if any. Concurrently with the
execution of this Agreement, Purchaser shall deduct the Estimated Company
Expenses from the consideration payable to Shareholders pursuant to Section
1.4(a). A final account of the Company Expenses shall be made by Purchaser and
delivered in writing to Representative. If the Estimated Company Expenses are
different from the Company Expenses, then the difference between the Estimated
Company Expenses and the Company Expenses shall be paid by Shareholders to
Purchaser, or vice versa, as the case may be, in U.S. Dollars within 15 days
after Representative's receipt of such final account by certified or cashier's
check or wire transfer in immediately available funds.
7.4 DAIO Guaranty. DAIO hereby guarantees to Shareholders unconditionally,
irrevocably and upon first demand all payment obligations of Purchaser in
connection with this Agreement and the Related Agreements.
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7.5 Resignations. Concurrent with execution of this Agreement,
Shareholders shall provide to Purchaser letters of resignation for all members
of Company's advisory board (Beirat), effective as of the date hereof.
7.6 Modification. No waiver or modification of this Agreement shall be
valid unless in writing and duly executed by all parties hereto. No evidence of
any waiver or modification shall be offered or received in evidence in any
proceedings, arbitration, or litigation between any of the parties arising out
of or affecting this Agreement, or the rights or obligations of the parties
hereunder, unless such waiver or modification is in writing and duly executed
by all parties hereto. The parties further agree that the provisions of this
Section 7.6 may not be waived except as set forth herein.
7.7 No Waiver. Failure or delay on the part of any party in exercising
any rights, power or privileges under this Agreement shall not be deemed a
waiver of any exercise of any right, power or privilege of such party.
7.8 Binding Effect; Assignment. This Agreement and each Related Agreement
to which it is a party shall be binding upon and inure to the benefit of
Company, DAIO, each Shareholder and Purchaser and their respective heirs,
successors and assigns. No party shall have the right to delegate its
obligations hereunder or to assign its rights hereunder or any interest herein
without the prior written consent of the other parties; provided that no consent
will be required in connection with any assignment by Purchaser (i) relating to
the sale of all or substantially all of DAIO's, Purchaser's or any of their
Affiliates' assets, equity interests or business, whether by means of a sale,
merger, consolidation, reorganization or other similar transaction or (ii) to an
entity controlling, under the control of, or under common control with
Purchaser.
7.9 Survival. All of the representations and warranties set forth in this
Agreement or any Related Agreement shall survive the execution and delivery
of this Agreement or such Related Agreement, as the case may be, and the
consummation of the transactions contemplated hereby and thereby in accordance
with the terms hereof or of such Related Agreements, as the case may be
(regardless of any investigation, inquiry or examination made by or on behalf of
any party, or the acceptance by any party of any delivery of property or any
writing delivered hereunder or thereunder).
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7.10 Notices. All notices, demands and other communications called for or
required by this Agreement shall be in writing and shall be addressed to
the parties at their respective addresses stated below or to such other address
as a party may subsequently designate by ten days' advance written notice to the
other parties. Communications hereunder shall be deemed to have been received
(i) upon delivery in person, (ii) five days after mailing it by certified mail,
return receipt requested and postage prepaid, (iii) the second business day
after depositing it with a commercial overnight carrier which provides written
verification of delivery or (iv) the day of transmission by telefacsimile if
sent before 2:00 p.m. recipient's time (or if the day of transmittal is not a
business day for the recipient, the next business day), provided that a copy of
such notice is sent on the same day by certified mail, return receipt requested
and postage prepaid, with an indication that the original was sent by facsimile
and the date of its transmittal.
To Purchaser: Data I/O Corporation
Attention: President & CEO
10525 Willows Road N.E.
Redmond, WA
U.S.A.
Phone: (425) 881-6444
Fax: (425) 881-2917
CC: General Counsel
Phone: (425) 867-6897
Fax: (425) 881-2917
To Shareholders: Alpha Associes S.A.
89 Rue Taitbout
75009 Paris FRANCE
Phone: 33-(0)-1-53-21-88-88
Fax: 33-(0)-1-40-16-43-23
7.11 Full Understanding. In executing this Agreement, each party fully,
completely, and unconditionally acknowledges and agrees that it (a) has had
an equal opportunity to participate in drafting this Agreement, (b) has
consulted with, and had the advice and counsel of a duly licensed and competent
attorney and that it has executed this Agreement after independent
investigation, voluntarily and without fraud, duress, or undue influence, (c)
expressly consents that this Agreement be given full force and effect according
to each and every of its express terms and provisions and (d) agrees that no
ambiguity shall be construed against any party based upon a claim that party
drafted the applicable language.
7.12 Entire Agreement. This Agreement (including all Exhibits and Schedules
hereto) and the Related Agreements contain all of the terms and conditions
agreed upon by the parties relating to the subject matter hereof and supersede
and cancel all other prior agreements, negotiations, correspondence,
undertakings, communications and understandings of the parties, whether written
or oral, respecting that subject matter.
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7.13 Captions and Construction. Captions in this Agreement are for the
convenience of the reader and are not to be considered in the interpretation
of the terms.
7.14 Severability. If any one or more of the provisions of this Agreement,
or the applicability of any such provision to a specific situation, shall be
held invalid or unenforceable, such provision shall be modified to the minimum
extent necessary to make it or its application valid and enforceable, and the
validity and enforceability of all other provisions of this Agreement and all
other applications of any such provision shall not be affected thereby.
7.15 Governing Law. This Agreement and any Related Agreement shall be
subject to the laws of the Federal Republic of Germany, excluding its laws
of its international conflict of law rules and excluding the UN Convention on
the International Sale of Goods. If any dispute, controversy or claim arises
between the parties out of or in relation to this Agreement or any Related
Agreement or concerning the interpretation, enforceability, performance, breach,
termination or validity hereof or thereof, including without limitation, this
Section 7.15, the parties shall attempt, by mutual negotiation, to come to a
reasonable settlement of the same as soon as possible. If no settlement is
reached within 30 days from the first notification of a dispute in writing by
either party, the same and all disputes arising from or in connection with this
Agreement and the Exhibits and Schedules attached hereto and any Related
Agreement shall be subject to the exclusive jurisdiction of the Landgericht
Munchen I, as far as legally permissible.
7.16 German Language. To the extent German terms are used in this Agreemen
or any Related Agreement and conflict with the English terms used in this
Agreement or such Related Agreement, the German terms shall prevail and take
precedence over the English translation.
7.17 Confidentiality. Each Shareholder agrees that it will, and it will
cause its Affiliates to, keep confidential and not disclose or divulge any
confidential or proprietary information relating to Company, any of its
Subsidiaries, Purchaser or DAIO, including without limitation, financial
statements, business plans, designs, programs, know-how, customer lists and
other non-public information; provided, however, that Shareholder may disclose
such information (a) on a confidential basis to its attorneys, accountants,
consultants and other professionals to the extent necessary to obtain their
services in connection with this Agreement or the transactions contemplated
hereby so long as such consultants and other professionals are subject to
confidentiality obligations with respect to such information consistent with
this Section 7.17, (b) to any entity controlling, controlled by or under common
control with such Shareholder, or to any partner or stockholder of such
Shareholder, (c) if and when such information becomes generally known to the
public through no wrongful act or omission of such Shareholder or any Affiliate
or other person acting on behalf of such Shareholder or (d) as required by
applicable law so long as Purchaser is given prior written notice before
disclosure if reasonably possible and such Shareholder agrees to use reasonable
efforts to cooperate with any attempts made by Purchaser to prevent such
disclosure.
7.18 Taxes. Any and all sales, excise, transfer or similar taxes payable
by reason of the sale and transfer of the Shares shall be paid by the party
on which the obligation to pay any such taxes is imposed by the statute or
ordinance imposing such tax. DAIO acknowledges that the taxes, if any, related
to the Related Agreements are liabilities of Company and Mikrocomputer and are
being transferred as part of this Agreement.
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8. DEFINITIONS AND ACCOUNTING TERMS
8.1 Definitions. As used in this Agreement, the following terms shall
have the meaning stated in the Section referenced opposite the term:
Definition Section
1997 Balance Sheet 2.6(a)
Affiliate 2.21
Alpha Payees 1.5(a)(i)
Articles 2.4
Company 1.1
Company Documentation 2.12(b)
Company Expenses 7.3(a)
Company Intellectual Properties 2.12(a)
Contracts 2.16
DAIO Introduction
Estimated Company Expenses 7.3(b)
Excalibur Technology Purchase Agreement Recitals
Financial Statements 2.6(a)
GoB 1.4(a)
IC Programmer Products Business Recitals
Indemnified Party 6.3(a)
Indemnifying Party 6.3(a)
Liabilities 1.4(a)
Liens 2.5
Mikrocomputer Recitals
Mikrocomputer Documentation 2.12(b)
Mikrocomputer Intellectual Properties 2.12(a)
Plans 2.10
Purchase Price 1.4(a)
Purchaser Introduction
Purchaser Party 6.1
Related Agreements Recitals
Representative 1.4(c)
September Balance Sheet 1.4(a)
Shareholder(s) Introduction
Shares 1.2
Subsidiaries 1.4(a)
Subsidiary Technology Purchase Agreement Recitals
Transfer Value 1.4(a)
8.2 Accounting Terms. All accounting terms not specifically defined herein
shall be construed in accordance with GoB consistently applied, and all
financial data submitted pursuant to this Agreement, unless otherwise specified,
shall be prepared in accordance with GoB.
Reference is hereby made to all Exhibits and Schedules attached to this
present record. All Exhibits and Schedules have been read aloud by the Notary.
As far as Schedules 2.1(a), 2.1(b), 2.5(b), 2.5(c)(i), 2.5(c)(ii),
2.6(a)(i) as well as 2.6(a)(ii) are concerned, those are contained in a Deed of
Reference of today by the acting Notary (Deed Role No. 2-3826/1998) which is
hereby referenced as well. The original of that Deed was inspected by the
parties. They waive their right to have that Deed read out again and to enclose
a copy to this Deed. Schedule 2.6(a)(ii) [SMS Holding GmbH] page 12: 4th line
reads as follows: "Decrease in finished good and work in progress DM 138.862,39
instead of DM 45.368,82).
Neither of the companies own real estate, inheritable building rights
or buildings on third party owned real property.
THIS DEED has been read aloud in the English language by the acting
Notary to the persons appeared, approved by the persons appeared, and signed by
the persons appeared and the acting Notary in their own hands as follows:
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OMITTED EXHIBITS AND SCHEDULES FROM EXHIBIT 2.3
The following Exhibits and Schedules have been omitted from Exhibit 2.3 in
accordance with Item 601(b)(2) of Regulation S-K. The Registrant will furnish
supplementally a copy of any omitted Exhibit or Schedule to the Commission upon
request.
Exhibit Number Description
1.5(c)(i) Receipt and Release (Alpha Payees)
1.5(c)(ii) Receipt and Release (Mrs. Wiltrud Steudel)
Schedule Number Description
1.4 Purchase Price Calculation
2.1(a) Local Trade Registry Excerpt of Company
2.1(b) Articles of Company
2.3 No Conflict
2.4 Capitalization
2.5(a) Subsidiaries
2.5(b) Local Trade Registry Excerpt of Mikrocomputer
2.5(c)(i) Articles of Mikrocomputer
2.5(c)(ii) Articles of Each Other Subsidiary
2.6(a)(i) 1997 Balance Sheet and Related Income Statements
2.6(a)(ii) September Balance Sheet and Related Income Statements
2.6(b) Undisclosed Liabilities
2.7 Actions Pending
2.8 Required Consents
2.9 Taxes
2.10 Employee Plans
2.11 Employees
2.12(a)(i) Company Intellectual Properties
2.12(a)(ii) Mikrocomputer Intellectual Properties
2.12(e)(i) Company Third Party Materials and Rights
2.12(e)(ii) Mikrocomputer Third Party Materials and Rights
2.13 Assets
2.16 Material Agreements
2.17 Insurance
2.18 Suppliers and Customers
2.19 Accounts Receivable
2.21 Transactions with Affiliates
2.22 No Material Adverse Change
2.23 Indebtedness
2.27 Other Agreements
Page 102
Exhibit 2.4
AMENDED AND RESTATED OEM AGREEMENT
This Amended and Restated OEM Agreement (the "Agreement") is entered
into and effective as of December 16, 1998 by and between Unmanned Solutions,
Inc. ("USI") located at 940 Auburn Court, Fremont, California 94538, and Data
I/O Corporation ("DATA I/O") located at 10525 Willows Road NE, P.O Box 97046,
Redmond, Washington 98073-9746.
In consideration of the mutual promises contained herein, it is agreed as
follows:
1. DEFINITIONS. As used herein:
1.1 "Current Specifications" shall mean the functional capabilities
and hardware compatibility, as described in ATTACHMENT 1.1 hereto, of the
Licensed Technology, as defined below.
1.2 "End-User Documentation" shall mean the end-user guides,
technical reference guides, and installation guides relevant to the Licensed
Technology.
1.3 "Licensed Technology" shall mean the current version of USI's
proprietary handler product, commonly known as the AH 400 Handler, and all
related drawings, mechanical drawings, assembly drawings, bills of material,
schematics, MRP database, specifications, purchased component specification
sheets, software, firmware, lasers, printers, input/output media, Autopack
software and technology, designs, documentation and other written material
necessary or useful in the manufacture, modification, or use of the AH 400
Handler (collectively, the "Manufacturing Documentation"), in both Object and
Source Code, as defined below, if available, and other deliverables described in
ATTACHMENT 1.3 hereto. Licensed Technology shall also include the End-User
Documentation.
1.4 "Licensed Technology Modifications" shall mean modifications to
the Licensed Technology in accordance with the terms of this Agreement.
1.5 "Object Code" shall mean the machine readable form of any USI
computer programs contained in the Licensed Technology.
1.6 "Source Code" shall mean the human readable form of any USI
computer programs contained in the Licensed Technology.
2. GRANT OF LICENSE AND DELIVERY OF MATERIALS.
2.1 Subject to the terms and conditions hereof, USI hereby grants to
DATA I/O, under USI's intellectual property rights (including but not limited
to, all patents, patent applications, copyrights, mask works, trade secrets and
works in progress), a fully paid, world-wide and perpetual license (the
"License") to (i) make, have made, reproduce, use, display, market, distribute
and support the Licensed Technology and to modify and create derivative works
from the Licensed Technology and (ii) translate the End-User and Manufacturing
Documentation into foreign languages; provided, however, DATA I/O shall be
solely responsible for the form and content of any such translation made by or
for DATA I/O. The License shall be exclusive in the "IC Programmer Products
Market" and non-exclusive in all other markets. "IC Programmer Products Market"
shall mean the design, development, manufacture, sale or distribution of any
device or system used to program programmable, integrated circuits.
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2.2 USI has delivered to DATA I/O, F.O.B. DATA I/O's place of
business, one electronic copy of the Licensed Technology (or hard copy for items
not available electronically), in accordance with the schedule set forth in
ATTACHMENT 2.2 hereto.
2.3 USI reserves the right, in its sole discretion, to modify,
improve or discontinue any or all of the Licensed Technology at any time or from
time-to-time; provided, however, such activities shall not impact DATA I/O's
rights hereunder.
3. LICENSED TECHNOLOGY MODIFICATIONS. Licensed Technology Modifications
developed by or on behalf of DATA I/O shall be owned by DATA I/O and may be
licensed to USI upon mutual agreement of the parties. Licensed Technology
Modifications developed by or on behalf of USI shall be owned by USI and may be
licensed to DATA I/O upon mutual agreement of the parties. Any Licensed
Technology Modifications developed by or on behalf of USI during the warranty
period, as described below, shall be provided to DATA I/O and included in the
Licensed Technology.
4. RESPONSIBILITIES OF DATA I/O. DATA I/O shall be solely responsible, at its
own expense, for determining whether its customer's requirements and application
will be served by the Licensed Technology, and for providing its customers with
training in the installation and use of, and for providing warranty, technical
support and trouble-shooting services to its customers with respect to, the
Licensed Technology. DATA I/O shall remain fully responsible for the product
knowledge and technical support skills of its staff. All end-user warranty
claims and support inquiries from DATA I/O's customers must be made to DATA I/O.
5. RESPONSIBILITIES OF USI. USI will provide servicing suggestions,
trouble-shooting guides and other service information for the Licensed
Technology. USI will sell Autopack units to DATA I/O for the amounts listed on
ATTACHMENT 5.1 hereto per unit and will deliver such units to DATA I/O within
six (6) weeks lead time of DATA I/O's order. Provided USI meets this six (6)
week lead time, USI will be DATA I/O's preferred source for Autopack units.
6. LICENSE FEE; PAYMENTS.
6.1 In consideration of the licenses granted herein, DATA I/O has
paid the license fee as described in ATTACHMENT 6.1 hereto as a one-time license
fee ("License Fee") for the License.
6.2 In addition to all other amounts due to USI hereunder, DATA I/O
shall pay to or reimburse USI the amount of any sales taxes which USI is at any
time obligated to pay or collect in connection with or arising out of the
transactions contemplated by this Agreement.
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7. LIMITED WARRANTY.
7.1 Until the later of one-hundred twenty (120) days after delivery
by USI of the Licensed Technology to DATA I/O USI warrants that the Licensed
Technology shall perform substantially in accordance with the Current
Specifications for such Licensed Technology. For purposes of this Agreement, a
"defect" is a failure of the Licensed Technology to perform substantially in
accordance with the applicable Current Specifications. During the warranty
period, USI shall use its best efforts to correct reported defects in the
Licensed Technology provided that USI is given written notice specifying the
defect. All corrections to software contained in the Licensed Technology shall
be delivered to DATA I/O in Source and Object Code form. USI shall have no
responsibility for any defects attributable to improper installation, operation,
misuse or abuse of the Licensed Technology. If USI has not fixed or provided a
suitable work around for a defect within thirty (30) days after its receipt of
notice thereof, DATA I/O shall thereafter have the right to terminate its
license of the Licensed Technology and, AS ITS SOLE AND EXCLUSIVE REMEDY,
RECEIVE A REFUND EQUAL TO THE LICENSE FEE PAID TO USI.
7.2 USI will provide to DATA I/O during the period referred to in
Section 7.1 any bug fixes or work arounds in Object and Source Code form and
related documentation for any bugs reported by USI's customers and repaired by
USI and for any bugs which are reported to USI by DATA I/O during the period
referred to in Section 7.1.
7.3 Except as listed in ATTACHMENT 7.3 hereto, USI warrants that the
Licensed Technology constitutes all of the documentation, software and materials
used by USI to manufacture and support the AH 400 Handler. USI warrants it has
all right, power and authority to grant the License and rights granted under
this Agreement; provided however, the parties acknowledge that third party
rights to those materials listed in ATTACHMENT 7.3 hereto must also be acquired
by DATA I/O. USI will use its best efforts in assisting DATA I/O in acquiring
such rights.
7.4 USI will defend and indemnify DATA I/O for any damages and costs
finally awarded against DATA I/O, or the settlement related thereto, on the
grounds that the Licensed Technology, in the form and condition delivered by USI
to DATA I/O hereunder, infringes any patents, copyrights, trade secrets or
proprietary rights of any third party, provided that DATA I/O notifies USI in
writing of any such claim promptly after learning thereof and that DATA I/O
gives USI full control over the defense and settlement of the claim and
reasonably cooperates with USI with respect thereto. If any such claim is
brought or appears to USI likely to be brought, USI, at its option, may replace
or modify the Licensed Technology to make it non-infringing. Thereafter DATA I/O
shall discontinue all use of any portion of the Licensed Technology that has
been replaced or modified. USI's obligations hereunder shall not apply to any
claim to the extent based on use of the Licensed Technology which has been
modified by DATA I/O, or based on combination of the Licensed Technology with
any products not supplied by USI and where, but for such combination, no
infringement would have occurred. THE FOREGOING STATES USI'S SOLE
RESPONSIBILITY, AND DATA I/O'S SOLE REMEDY, FOR ANY INFRINGEMENT BY THE LICENSED
TECHNOLOGY OF ANY PROPRIETARY RIGHTS OR ANY BREACH OR BREACHES OF ANY WARRANTY
OF TITLE.
7.5 DATA I/O will defend and indemnify USI for any damages and costs
finally awarded against USI, or the settlement related thereto, on the grounds
that the Licensed Technology Modifications developed by or on behalf of DATA I/O
("DATA I/O Licensed Technology Modifications") infringe any valid patents,
copyrights, trade secrets or proprietary rights of any third party, provided
that USI notifies DATA I/O in writing of any such claim promptly after learning
thereof and that USI gives DATA I/O full control over the defense and settlement
of the claim and reasonably cooperates with DATA I/O with respect thereto. THE
FOREGOING STATES DATA I/O'S SOLE RESPONSIBILITY, AND USI'S SOLE REMEDY, FOR ANY
INFRINGEMENT BY THE DATA I/O LICENSED TECHNOLOGY MODIFICATIONS OF ANY
PROPRIETARY RIGHTS OR ANY BREACH OR BREACHES OF ANY WARRANTY OF TITLE.
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7.6 USI DOES NOT WARRANT THAT THE LICENSED TECHNOLOGY WILL MEET DATA
I/O'S OR ITS CUSTOMER'S REQUIREMENTS OR THAT OPERATION OF THE LICENSED
TECHNOLOGY WILL BE UNINTERRUPTED OR ERROR FREE. THE WARRANTIES SET FORTH ABOVE
ARE THE ONLY WARRANTIES MADE BY USI, AND THE LICENSED TECHNOLOGY IS OTHERWISE
PROVIDED ON AN "AS IS" BASIS WITH ALL FAULTS. USI EXPRESSLY DISCLAIMS AND
EXCLUDES ALL OTHER WARRANTIES, INCLUDING THE WARRANTIES OF MERCHANTABILITY, AND
FITNESS FOR A PARTICULAR PURPOSE.
7.7 IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER PARTY, ITS
CUSTOMERS, OR ANY OTHER PERSON FOR INCIDENTAL, INDIRECT, SPECIAL, CONSEQUENTIAL
OR PUNITIVE DAMAGES, INCLUDING WITHOUT LIMITATION, LOSS OF USE, LOSS OR
ALTERATION OF DATA, DELAYS, LOST PROFITS OR SAVINGS, ARISING OUT OF THE BREACH
OF WARRANTY OR THE PERFORMANCE OR BREACH OF THIS AGREEMENT OR THE USE OR
INABILITY TO USE THE LICENSED TECHNOLOGY, LICENSED TECHNOLOGY MODIFICATIONS, OR
ANY PORTION THEREOF, EVEN IF SUCH PARTY HAS BEEN ADVISED AS TO THE POSSIBILITY
OF SUCH DAMAGES AND EVEN IF THE LIMITED REMEDIES STATED ABOVE ARE FOUND TO FAIL
OF THEIR ESSENTIAL PURPOSE. EACH PARTY FURTHER AGREES THAT, EXCEPT AS STATED IN
SECTIONS 7.4 AND 7.5 HEREOF, THE LIABILITY OF THE OTHER PARTY ON ANY CLAIM OF
ANY KIND, WHETHER BASED ON CONTRACT OR TORT (INCLUDING BUT NOT LIMITED TO STRICT
LIABILITY, PRODUCT LIABILITY, NEGLIGENCE, OR FOR INDEMNIFICATION) OR RESULTING
FROM THIS AGREEMENT OR ANYTHING FURNISHED HEREUNDER SHALL NOT EXCEED $300,000.
7.8 DATA I/O ACKNOWLEDGES THAT USI HAS NOT MADE, AND DATA I/O IS NOT
RELYING UPON, ANY EXPRESS OR IMPLIED WARRANTIES OR REPRESENTATIONS REGARDING THE
VALUE OF THIS AGREEMENT OR THE MARKETABILITY OF THE LICENSED TECHNOLOGY.
7.9 This Section shall survive termination of this Agreement.
8. PROPRIETARY INFORMATION; INTELLECTUAL PROPERTIES.
8.1 See ATTACHMENT 8.1.
8.2 DATA I/O agrees that all rights, title and interest in and to
any trademark, trade name, service mark, patent, copyright or other proprietary
rights in the Licensed Technology are and shall remain vested solely in USI.
DATA I/O shall not attempt to register any name, symbol or mark of USI, nor any
name, symbol or mark confusingly similar thereto. DATA I/O shall in no event use
the word USI or any of the trademarks, trade names or service marks of USI
related to the Licensed Technology as part of its corporate or business name.
DATA I/O may use USI's trademarks related to the Licensed Technology in
connection with the marketing and distribution of the Licensed Technology and
will retain and not obscure or alter in any way the copyrights, proprietary
rights and trademark notices in the Licensed Technology.
8.3 This Section shall survive termination of this Agreement.
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9. TERMINATION.
9.1 Either party may terminate this Agreement immediately upon
notice to the other party if the other party ceases to function as a going
concern, becomes insolvent, makes an assignment for the benefit of creditors,
files a petition or has a petition filed against it under any bankruptcy or
similar law.
9.2 Upon termination of this Agreement, all rights and obligations
of the parties arising under this Agreement shall cease unless otherwise stated
in this Agreement, except that neither DATA I/O nor USI shall be relieved of (i)
its respective obligations to pay any monies due, or to become due, as of or
after the date of termination (ii) any other undischarged, accrued obligations
existing at the date of termination or (iii) any and all provisions of this
Agreement or otherwise with respect to the ownership, protection, and
confidentiality of the Licensed Technology and Licensed Technology
Modifications.
10. INDEPENDENT CONTRACTORS. DATA I/O and USI are independent contractors as to
each other, and at no time shall either be deemed to be or hold itself out as
the agent, partner or representative of the other.
11. ENTIRE AGREEMENT. This Agreement, including all Attachments hereto, sets
forth the entire agreement between the parties with respect to the subject
matter hereof, and replaces, supersedes and terminates all prior or
contemporaneous discussions or agreements, written or oral, as to the subject
matter, including without limitation, the Letter Agreement between the parties
dated September 21, 1998 and the OEM Agreement between the parties dated
November 4, 1998. Unless otherwise stated in this Agreement, any remedy set
forth in this Agreement is in addition to any other remedy afforded to the
parties by law or otherwise. No modifications or amendments shall be binding
upon the parties unless made in writing and signed by both parties.
12. WAIVER. A waiver of any breach, the acceptance of any order inconsistent
with the terms of this Agreement, or the making of deliveries pursuant to such
order shall not be deemed a modification of this Agreement, nor shall any
failure to enforce any right hereunder or a waiver in one instance constitute a
waiver of that right or of any other right under this Agreement.
13. ASSIGNMENT AND SUBLICENSING.
13.1 USI may at any time assign all or a portion of its rights and
duties hereunder to a company or companies wholly owned by or in common
ownership with USI, or to a buyer of all or substantially all of the assets
relevant to USI's performance under this Agreement and may at any time after the
end of the warranty period described in Section 7.1 assign all or a portion of
its rights and duties hereunder. DATA I/O may at any time assign all or a
portion of its rights and duties hereunder and may sublicense any of its rights
hereunder.
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13.2 Subject to the foregoing restrictions, this Agreement will bind
and benefit the parties and their successors and assigns.
14. ATTORNEYS' FEES. In the event any dispute arising hereunder is submitted for
judicial determination to a court of competent jurisdiction, the substantially
prevailing party therein shall recover its reasonable attorneys' fees and costs
at all levels of proceedings. This Section shall survive termination of this
Agreement.
15. APPLICABLE LAW. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of Washington without regard
to its conflict of law rules. The parties agree that the exclusive jurisdiction
and venue of any lawsuit shall be the state or federal courts sitting in King
County, Washington. This Section shall survive termination of this Agreement.
16. NOTICES. All notices and other communications called for or required by this
Agreement shall be in writing and shall be addressed to the parties at their
respective addresses stated in the first paragraph of this Agreement or to such
other address as a party may subsequently specify and shall be deemed to have
been received (i) five days after mailing if by U.S. certified mail, return
receipt requested and postage prepaid or (ii) upon transmittal if by facsimile.
This Section shall survive termination of this Agreement.
17. SEVERABILITY. If any provision of this Agreement is held to be invalid,
illegal or unenforceable, it shall nevertheless be enforced to the fullest
extent allowed by law and the validity and enforceability of the remainder of
this Agreement shall not in any way be impaired. This Section shall survive
termination of this Agreement.
18. EXPORTS. DATA I/O agrees to obtain all applicable government export licenses
and to comply with all rules and regulations of the U.S. Department of Commerce,
Office of Export Administration and any other applicable export controls and
regulations relating to its export of the Licensed Technology, DATA I/O Licensed
Technology Modifications or any technical information related thereto.
EACH OF THE PARTIES AFFIRMS THAT IT UNDERSTANDS THE TERMS AND CONDITIONS SET
FORTH ABOVE, INCLUDING THE EXCLUSIONS OF WARRANTIES AND LIMITATIONS OF REMEDIES
STATED HEREIN, AND ACKNOWLEDGES THAT THE SAME CONSTITUTE AN AGREED ALLOCATION OF
RISK REFLECTED IN THE PRICING HEREUNDER.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be signed
by their authorized representatives as of the date written above. This Agreement
may be executed in counterparts.
UNMANNED SOLUTIONS, INC. DATA I/O CORPORATION
BY //S// James Fishman BY //S// David C. Bullis
TITLE President TITLE CEO
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OMITTED SCHEDULES FROM EXHIBIT 2.4
The following Attachments have been omitted from Exhibit 2.4 in accordance with
Item 601(b)(2) of Regulation S-K. The Registrant will furnish supplementally a
copy of any omitted Attachment to the Commission upon request.
Attachment Number Description
1.1 Current Specifications
1.3 Description of Licensed Technology
1.3A Parts List
1.3B Object Code
1.3C Source Code
2.2 Delivery Schedule
5.1 Autopack Pricing
6.1 License Fee and Training and Support Fee
7.3 third Party Materials and Documentation
8.1 Mutual Non-Disclosure Agreement Dated
August 18, 1998
Page 109
Exhibit 2.5
SUPPORT AGREEMENT
This Support Agreement (the "Agreement") is entered into and
effective as of December 16, 1998 by and between Unmanned Solutions, Inc.
("USI") located at 940 Auburn Court, Fremont, California 94538, and Data I/O
Corporation ("DATA I/O") located at 10525 Willows Road NE, P.O Box 97046,
Redmond, Washington 98073-9746. Because USI has not been able to provide the
training and support as originally described in the OEM Agreement between the
parties dated November 4, 1998 (the "OEM Agreement"), Data I/O will not be
requesting the optional AH400 Handler training and support from USI and shall
not be required to pay the Training and Support Fee as described in the OEM
Agreement. However, USI is willing to provide AH400 Handler training and support
and Data I/O is willing to receive such training and support as described in
this Agreement.
In consideration of the mutual promises contained herein, it is agreed as
follows:
1. DEFINITIONS. As used herein:
1.1 "Current Specifications" shall mean the functional capabilities
and hardware compatibility, as described in ATTACHMENT 1.1 hereto, of the
Licensed Technology, as defined below.
1.2 "End-User Documentation" shall mean the end-user guides,
technical reference guides, and installation guides relevant to the Licensed
Technology.
1.3 "Licensed Technology" shall mean the current version of USI's
proprietary handler product, commonly known as the AH 400 Handler, and all
related drawings, mechanical drawings, assembly drawings, bills of material,
schematics, MRP database, specifications, purchased component specification
sheets, software, firmware, lasers, printers, input/output media, Autopack
software and technology, designs, documentation and other written material
necessary or useful in the manufacture, modification, or use of the AH 400
Handler (collectively, the "Manufacturing Documentation"), in both Object and
Source Code, as defined below, if available. Licensed Technology shall also
include the End-User Documentation.
1.4 "Licensed Technology Modifications" shall mean modifications to
the Licensed Technology in accordance with the terms of this Agreement.
1.5 "Object Code" shall mean the machine readable form of any USI
computer programs contained in the Licensed Technology.
1.6 "Source Code" shall mean the human readable form of any USI
computer programs contained in the Licensed Technology.
1.7 "Support Period" shall mean the period from the date hereof
until the date on which DATA I/O has successfully manufactured the first five
(5) units of the AH400 Handler with the assistance of USI at Data I/O's
facility.
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2. LICENSED TECHNOLOGY MODIFICATIONS. Licensed Technology Modifications
developed by or on behalf of DATA I/O shall be owned by DATA I/O and may be
licensed to USI upon mutual agreement of the parties. Licensed Technology
Modifications developed by or on behalf of USI shall be owned by USI and may be
licensed to DATA I/O upon mutual agreement of the parties. Any Licensed
Technology Modifications developed by or on behalf of USI during the Support
Period and any materials developed by or on behalf of USI during this Support
Period pursuant to Section 4.2 below shall be provided to DATA I/O and included
in the Licensed Technology.
3. RESPONSIBILITIES OF DATA I/O.
3.1 DATA I/O shall be solely responsible, at its own expense, for
determining whether its customer's requirements and application will be served
by the Licensed Technology, and for providing its customers with training in the
installation and use of, and for providing warranty, technical support and
trouble-shooting services to its customers with respect to, the Licensed
Technology. DATA I/O shall remain fully responsible for the product knowledge
and technical support skills of its staff. All end-user warranty claims and
support inquiries from DATA I/O's customers must be made to DATA I/O.
3.2 All reasonable travel, food and lodging expenses incurred in
providing such support shall be borne by DATA I/O, provided all such expenses
must be approved in advance and in writing by DATA I/O.
3.3 As an accommodation to USI, DATA I/O shall pay to USI on the
next business day following the end of each week of the Support Period, the
amounts for labor provided by the following USI personnel under this Agreement:
USI Employee Regular Rate Overtime Rate
------------ ------------ -------------
Vancy Banouvang $32.40 hr. $34.43
Philip Banouvang $32.40 hr. $34.43
Rick Carson $50.34 $61.34
Ricardo Cardenas $50.30 $61.28
The overtime rate shall be paid for any time worked by any employee under this
Agreement in excess of forty (40) hours per week. A week shall mean the period
from Sunday through Saturday of a particular week. Any amounts paid by DATA I/O
to USI under this Section 3.3 shall be deducted by DATA I/O from the Training
and Support Fee, as described below.
4. RESPONSIBILITIES OF USI.
4.1 USI will provide training and support to DATA I/O at its
facility in Redmond, Washington regarding the use and manufacture of the
Licensed Technology and the manufacture of the first five (5) units of the
AH400 Handler and to facilitate DATA I/O's exercise of its rights under this
Agreement
4.2 USI will work with DATA I/O to and will propose and develop
designs for cost reduction alternatives for the AH400 Handler.
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5. SUPPORT FEE; PAYMENTS.
5.1 The fee for the training and support (the "Training and Support
Fee") as described in this Agreement shall be as stated in ATTACHMENT 5.1.
5.2 In addition to all other amounts due to USI hereunder, DATA I/O
shall pay to or reimburse USI the amount of any sales taxes which USI is at any
time obligated to pay or collect in connection with or arising out of the
transactions contemplated by this Agreement.
6. LIMITED WARRANTY.
6.1 Until the end of the Support Period USI warrants that the
Licensed Technology shall perform substantially in accordance with the Current
Specifications for such Licensed Technology. For purposes of this Agreement, a
"defect" is a failure of the Licensed Technology to perform substantially in
accordance with the applicable Current Specifications. During the applicable
warranty period, USI shall use its best efforts to correct reported defects in
the Licensed Technology provided that USI is given written notice specifying the
defect. All corrections to software contained in the Licensed Technology shall
be delivered to DATA I/O in Source and Object Code form. USI shall have no
responsibility for any defects attributable to improper installation, operation,
misuse or abuse of the Licensed Technology. If USI has not fixed or provided a
suitable work around for a defect within thirty (30) days after its receipt of
notice thereof, DATA I/O shall thereafter have the right to terminate its
license of the Licensed Technology and, AS ITS SOLE AND EXCLUSIVE REMEDY,
RECEIVE A REFUND EQUAL TO THE TRAINING AND SUPPORT FEE.
6.2 USI will provide to DATA I/O during the Support Period any bug
fixes or work arounds in Object and Source Code form and related documentation
for any bugs reported by USI's customers and repaired by USI and for any bugs
which are reported to USI by DATA I/O during the Support Period.
6.3 USI DOES NOT WARRANT THAT THE LICENSED TECHNOLOGY WILL MEET DATA
I/O'S OR ITS CUSTOMER'S REQUIREMENTS OR THAT OPERATION OF THE LICENSED
TECHNOLOGY WILL BE UNINTERRUPTED OR ERROR FREE. THE WARRANTIES SET FORTH ABOVE
ARE THE ONLY WARRANTIES MADE BY USI, AND THE LICENSED TECHNOLOGY IS OTHERWISE
PROVIDED ON AN "AS IS" BASIS WITH ALL FAULTS. USI EXPRESSLY DISCLAIMS AND
EXCLUDES ALL OTHER WARRANTIES, INCLUDING THE WARRANTIES OF MERCHANTABILITY, AND
FITNESS FOR A PARTICULAR PURPOSE.
6.4 IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER PARTY, ITS
CUSTOMERS, OR ANY OTHER PERSON FOR INCIDENTAL, INDIRECT, SPECIAL, CONSEQUENTIAL
OR PUNITIVE DAMAGES, INCLUDING WITHOUT LIMITATION, LOSS OF USE, LOSS OR
ALTERATION OF DATA, DELAYS, LOST PROFITS OR SAVINGS, ARISING OUT OF THE BREACH
OF WARRANTY OR THE PERFORMANCE OR BREACH OF THIS AGREEMENT OR THE USE OR
INABILITY TO USE THE LICENSED TECHNOLOGY, LICENSED TECHNOLOGY MODIFICATIONS, OR
ANY PORTION THEREOF, EVEN IF SUCH PARTY HAS BEEN ADVISED AS TO THE POSSIBILITY
OF SUCH DAMAGES AND EVEN IF THE LIMITED REMEDIES STATED ABOVE ARE FOUND TO FAIL
OF THEIR ESSENTIAL PURPOSE. EACH PARTY FURTHER AGREES THAT THE LIABILITY OF THE
OTHER PARTY ON ANY CLAIM OF ANY KIND, WHETHER BASED ON CONTRACT OR TORT
(INCLUDING BUT NOT LIMITED TO STRICT LIABILITY, PRODUCT LIABILITY, NEGLIGENCE,
OR FOR INDEMNIFICATION) OR RESULTING FROM THIS AGREEMENT OR ANYTHING FURNISHED
HEREUNDER SHALL NOT EXCEED $135,000.
6.5 DATA I/O ACKNOWLEDGES THAT USI HAS NOT MADE, AND DATA I/O IS NOT
RELYING UPON, ANY EXPRESS OR IMPLIED WARRANTIES OR REPRESENTATIONS REGARDING THE
VALUE OF THIS AGREEMENT OR THE MARKETABILITY OF THE LICENSED TECHNOLOGY.
6.6 This Section shall survive termination of this Agreement.
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7. TERMINATION.
7.1 Either party may terminate this Agreement immediately upon
notice to the other party if the other party ceases to function as a going
concern, becomes insolvent, makes an assignment for the benefit of creditors,
files a petition or has a petition filed against it under any bankruptcy or
similar law.
7.2 Upon termination of this Agreement, all rights and obligations
of the parties arising under this Agreement shall cease unless otherwise stated
in this Agreement, except that neither DATA I/O nor USI shall be relieved of (i)
its respective obligations to pay any monies due, or to become due, as of or
after the date of termination (ii) any other undischarged, accrued obligations
existing at the date of termination or (iii) any and all provisions of this
Agreement or otherwise with respect to the ownership, protection, and
confidentiality of the Licensed Technology and Licensed Technology
Modifications.
8. INDEPENDENT CONTRACTORS. DATA I/O and USI are independent contractors as to
each other, and at no time shall either be deemed to be or hold itself out as
the agent, partner or representative of the other.
9. ENTIRE AGREEMENT. This Agreement, including all Attachments hereto, sets
forth the entire agreement between the parties with respect to the subject
matter hereof, and replaces, supersedes and terminates all prior or
contemporaneous discussions or agreements, written or oral, as to the subject
matter, including without limitation, the Letter Agreement between the parties
dated September 21, 1998 and the OEM Agreement. Unless otherwise stated in this
Agreement, any remedy set forth in this Agreement is in addition to any other
remedy afforded to the parties by law or otherwise. No modifications or
amendments shall be binding upon the parties unless made in writing and signed
by both parties.
10. WAIVER. A waiver of any breach, the acceptance of any order inconsistent
with the terms of this Agreement, or the making of deliveries pursuant to such
order shall not be deemed a modification of this Agreement, nor shall any
failure to enforce any right hereunder or a waiver in one instance constitute a
waiver of that right or of any other right under this Agreement.
11. ASSIGNMENT AND SUBLICENSING.
11.1 USI may at any time assign all or a portion of its rights and
duties hereunder to a company or companies wholly owned by or in common
ownership with USI, or to a buyer of all or substantially all of the assets
relevant to USI's performance under this Agreement and may at any time after the
end of the Support Period assign all or a portion of its rights and duties
hereunder. DATA I/O may at any time assign all or a portion of its rights and
duties hereunder and may sublicense any of its rights hereunder.
11.2 Subject to the foregoing restrictions, this Agreement will bind
and benefit the parties and their successors and assigns.
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12. ATTORNEYS' FEES. In the event any dispute arising hereunder is submitted for
judicial determination to a court of competent jurisdiction, the substantially
prevailing party therein shall recover its reasonable attorneys' fees and costs
at all levels of proceedings. This Section shall survive termination of this
Agreement.
13. APPLICABLE LAW. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of Washington without regard
to its conflict of law rules. The parties agree that the exclusive jurisdiction
and venue of any lawsuit shall be the state or federal courts sitting in King
County, Washington. This Section shall survive termination of this Agreement.
14. NOTICES. All notices and other communications called for or required by this
Agreement shall be in writing and shall be addressed to the parties at their
respective addresses stated in the first paragraph of this Agreement or to such
other address as a party may subsequently specify and shall be deemed to have
been received (i) five days after mailing if by U.S. certified mail, return
receipt requested and postage prepaid or (ii) upon transmittal if by facsimile.
This Section shall survive termination of this Agreement.
15. SEVERABILITY. If any provision of this Agreement is held to be invalid,
illegal or unenforceable, it shall nevertheless be enforced to the fullest
extent allowed by law and the validity and enforceability of the remainder of
this Agreement shall not in any way be impaired. This Section shall survive
termination of this Agreement.
16. EXPORTS. DATA I/O agrees to obtain all applicable government export licenses
and to comply with all rules and regulations of the U.S. Department of Commerce,
Office of Export Administration and any other applicable export controls and
regulations relating to its export of the Licensed Technology, DATA I/O Licensed
Technology Modifications or any technical information related thereto.
EACH OF THE PARTIES AFFIRMS THAT IT UNDERSTANDS THE TERMS AND CONDITIONS SET
FORTH ABOVE, INCLUDING THE EXCLUSIONS OF WARRANTIES AND LIMITATIONS OF REMEDIES
STATED HEREIN, AND ACKNOWLEDGES THAT THE SAME CONSTITUTE AN AGREED ALLOCATION OF
RISK REFLECTED IN THE PRICING HEREUNDER.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be signed
by their authorized representatives as of the date written above. This Agreement
may be executed in counterparts.
UNMANNED SOLUTIONS, INC. DATA I/O CORPORATION
BY //S// James Fishman BY //S// David C. Bullis
TITLE President TITLE CEO
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OMITTED SCHEDULES FROM EXHIBIT 2.5
The following Attachments have been omitted from Exhibit 2.5 in accordance with
Item 601(b)(2) of Regulation S-K. The Registrant will furnish supplementally a
copy of any omitted Attachment to the Commission upon request.
Attachment Number Description
1.1 Current Specifications
5.1 Training and Support Fee
Page 115
Exhibit 3.2
AMENDED AND RESTATED
BYLAWS
OF
DATA I/O CORPORATION
As of February 7, 1999
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.
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(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 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.
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(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.
(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.
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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.
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(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 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.
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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 six (6) 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 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.
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(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.
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(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 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.
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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. If no person holds the
office of Chairman of the Board of Directors, the President shall preside at all
meetings of shareholders and 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 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.
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(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.
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.
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(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 distributio
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.
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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
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.
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(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 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.
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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 February 7, 1999.
//S//JOEL S. HATLEN
Joel S. Hatlen, Secretary
Page 130
Exhibit 10.35
AMENDMENT TO BUSINESS LOAN AGREEMENT
This Agreement is made between Bank of America National Trust and Savings
Association, doing business as Seafirst Bank ('Bank"), and Data 1/0 Corporation,
a Washington Corporation ('Borrower"). Bank and Borrower are parties to a
Business Loan Agreement dated May 14, 1996, as amended on May 13, 1997 and May
29, 1998, and wish to make certain revisions to their loan arrangements as set
forth in that Agreement. Upon execution hereof, that Agreement shall be amended
as follows effective immediately:
Part A: Total Amount Available is hereby amended as follows
The maximum amount Borrower may borrow, repay and reborrow shall be
decreased to Four Million Dollars ($4,000,000.00) from the previous maximum
amount of Eight Million Dollars ($8,000,000.00).
Part A: Interest Rate is hereby amended as follows
The spread over the adjusted LIBOR rate shall be increased to 2.50% from
1.10%.
Part B, Section 3.9 is hereby amended to list Borrower's chief place of business
as follows:
Data 1/0 Corporation
10525 Willows Road N. E.
P. 0. Box 97046
Redmond, WA 98073-9746
Part 8, Section 4.2 is hereby amended in its entirety as follows:
Maintain quick assets in an amount at least equal to 1. 1 0 times current
liabilities. Quick assets shall be defined as current assets less total
inventory. Current assets and current liabilities shall be determined in
accordance with generally accepted accounting principles and practices,
consistently applied;
Part B, Section 4.3 is hereby amended as follows.
The minimum amount of tangible net worth shall be reduced to $15,000,000
from $25,000,000.
Part B, Section 4.15 is hereby amended as follows:
The minimum amount of Liquidity shall be increased to $6,000,000 from
$3,000,000.
Part B, Section 5.2 is hereby added in its entirety as follows:
Borrower will not, without the prior written consent of Bank, mortgage,
assign, or otherwise encumber any of Borrowee's assets, nor sell, transfer
or otherwise hypothecate any such assets except in the ordinary course of
business. For purposes of this paragraph, the sale or assignment of
accounts receivable, or the granting of a security interest therein, shall
be deemed the incurring of indebtedness for borrowed money;
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Part B, Section 5.5 is hereby added in its entirety as follows:
Borrower will not, without the prior written consent of Bank, make any loan
or advance to any person(s) or purchase or otherwise acquire the capital
stock, assets or obligations of, or any interest in, any person, except:
(a) commercial bank time deposits, (b) marketable general obligations of
the United States or a State, or marketable obligations fully guarantied by
the United States, (c) short-term commercial paper with the highest rating
of a generally recognized rating service, and (d) other investments related
to the Borrowee's business which do not, in the aggregate, exceed the sum
of $4,500,000 during the fiscal year 1999 or any year thereafter;
Except as specifically set forth herein, all provisions of the Agreement remain
in full force and effect.
This Amendment to Business Loan Agreement is executed by the parties on this
31day of December, 1998.
SEAFIRST BANK
Western Commercial Banking Division
By: //S//STEVEN F. MELBY
Steven F. Melby
Vice President
DATA 1/0 CORPORATION
By: //S//JOEL S. HATLEN
Joel S. Hatlen
Vice President & Chief Financial Officer
Page 132
Exhibit 10.36
SEAFIRST BANK
SECURITY AGREEMENT: INVENTORY
ACCOUNTS, CONTRACT RIGHTS
CHATTEL PAPER, GENERAL INTANGIBLEE
THE UNDERSIGNED, DATA I/O CORPORATION, hereinafter, and whether one or more
persons are parties' called "Debtor," hereby grants to Bank of America National
Trust and Savings Association, doing business as SEAFIRST BANK, (), hereinafter
called 'Secured Party"), its successors assigns, a security interest in the
following described property, now owned or hereafter acquired by Debtor, (i) all
inventory or stock in trade of Debtor including raw materials, work in progress,
materials used or consumed in Debtor's business, finished goods, returned goods,
goods traded-in and all increases and products thereof; (ii) all accounts
receivable of Debtor and all rights to payment for goods or services provided or
to be provided or performed or to be performed; (iii) all general intangibles of
Debtor including all rights to payments which are not accounts, and (iv) all
cash and non-cash proceeds of any of the foregoing, Including but not limited to
instruments, chattel paper, title documents, deposits and funds. Any and all
cash or other property including without limitation instruments, documents,
policies and certificates of Insurance, securities and chattel paper (whether or
not the same are security, as defined here) owned by Debtor or in which Debtor
has an interest, which now or at any time hereafter or are in the possession or
control of Secured Party or in the possession of any person acting for Secured
Party , regardless of whether Secured Party received the same in pledge, for
safekeeping, as agent for collection or transmission, or otherwise, and whether
Secured Party has conditionally released the same, shall at all times constitute
additional security for payment of the obligations of the Debtor and may be
applied to such obligations when due. Any deposits or any other money now or
hereafter owed by Secured Party to Debtor at any of the branches/offices of
Secured Party shall (as collateral in the possession of Secured Party)
constitute additional security for obligations secured hereby and irrespective
of the adequacy of security interests or collateral therefore otherwise held by
Secured Party. Without limiting the generality of the foregoing, rights which
Debtor now or hereafter may have against persons who guarantee payment or
collection of any account, contract or item covered hereby shall be included as
a general intangible hereunder, as shall present and future rights to rental
income, tax refunds, causes of action and proceeds of judgment. All of the
foregoing is the collateral or types of collateral may (but need not) be more
particularly described [insert more specific description of major collateral
items, if desired]:
This Security Agreement and the security Interests hereby granted are to secure
to Secured Party the full and punctual payment and performance. Debtor of all
indebtedness and obligations of Debtor to Secured Party now existing or
hereafter arising, direct or indirect, and interest thereon.
DEBTOR HEREBY REPRESENTS, COVENANTS AND AGREES WITH SECURED PARTY AS FOLLOWS:
1. Debtor's Status and Ownership. Debtor (if a natural person or persons) is of
legal age, (if a corporation) is duly organized and existing under laws of the
state of its incorporation; owns the collateral and it is free and clear of all
security interests and encumbrances of every nature. Debtor will transfer or
create or permit the existence of any lien or security interest other than that
created hereby upon the collateral without the written consent of Secured Party,
excepting only the sales of Debtor's inventory in the ordinary course of
Debtor's business.
Debtor will notify Secured Party prior to any change in ownership of
business or principals responsible for its management or any change in name or
of an assumed name.
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<PAGE>
2. Performance, Valid Transactions. Debtor will fully and punctually perform all
duties required of Debtor under or in connection with any contract delivery or
performance which gives rise to accounts or general intangibles in which
security interests are hereby granted, to the end that each thereof will be and
remain valid and enforceable without set-off, defense or counterclaim in respect
thereof. Debtor warrants that accounts and general intangibles hereby or in the
future assigned hereunder, are and will arise in bona fide transaction in the
ordinary course of business and without impediment to the enforcement and
collection thereof.
3. Collateral Condition, Insurance. Debtor will take all needful and
appropriate action to preserve all inventory and tangible collateral in good
merchantable and saleable condition and will keep the same continuously insured
by an insurer approved by Secured Party against fire, theft and, hazards
designated at any time by Secured Party, in an amount equal to the full value
thereof, with such form of loss payable clause as designated by and in favor of
Secured Party. In event of loss, Secured Party shall have full power to collect
any and all insurance upon such property and to apply the same at its option to
any obligations secured hereby, whether or not matured, or to the restoration,
reconditioning or replacement of collateral. Secured Party shall have no
responsibility for any loss that may occur by reason of omission or lack of
coverage of any such insurance.
4. Taxes. Debtor will pay before delinquency all taxes or other governmental
charges that are or may become a lien or charge on the property and will pay
any tax which may be levied on any obligations secured hereby.
5. Accounting, Inspection. Secured Party may, by Its designee, inspect the
inventory and Debtor's books and records at any reasonable times and intervals,
and for this purpose shall have access to Debtor's place of business and its
records. Debtor shall also furnish such financial data and financial statements
as Secured Party may require from time to time. Debtor will maintain full and
accurate books of account covering all accounts and contract rights assigned
hereby, will maintain the same in fireproof vault storage or adequately insured
against loss, and will deliver to Secured Party such books as relate to the
collateral hereunder if so requested by Secured Party after or in connection
with termination of Debtor's authority to collect as herein provided. Debtor
agrees to deliver to Secured Party on demand, or upon the termination of the
Debtor's authority to collect by Secured Party, all of the pipers In Debtor's
possession relating to the collateral covered by this Security Agreement which
will facilitate collection or enforcement thereof by Secured Party, including
but not limited to correspondence, invoices, shipping documents, and records,
sales slips, orders and order acknowledgements, contracts and all other
instruments relating thereto. Secured Party or Secured Party's authorized agent
shall have the right to contact directly account debtors and payment obligors
in order to verify the existence and value of the collateral. Whenever any of
the collateral is stored in a warehouse, the warehouse receipts evidencing such
storage shall be appropriately endorsed by Debtor and shall be immediately
assigned by Debtor and delivered to Secured Party as security for the
indebtedness secured hereby.
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<PAGE>
6. Sales Collections, Collateral Account. Without prior written consent of
Secured Party, Debtor will not remove the inventory from the State of Washington
except on shipments in sales giving rise to assigned accounts hereunder. Debtor
may sell and dispose of inventory In the ordinary course of business so long as
the terms and conditions of this Security Agreement are kept and performed by
Debtor. Sales shall be for cash or upon credit or terms no exceeding ninety (90)
days. Upon demand of Secured Party, all cash proceeds shall immediately be
deposited in an account with Secured Party designated as "collateral account"
over which Debtor shall have no control and which shall be hold as security for
the indebtedness of Debtor, and all proceeds consisting of negotiable
instruments and chattel paper shall immediately be endorsed and delivered to
Secured Party with authority to collect the same. From time to time, Secured
party, at its discretion, shall make application from the collateral account
onto any indebtedness or obligation secured hereby whether matured or not.
Debtor agrees not to see or collect any part of the intangible collateral save
as provided in this Security Agreement or with prior consent of the Secured
Party. Upon notification by Secured Party to Debtor to cease collecting on the
collateral assigned hereby, Secured Party will proceed to collect said
collateral in a commercially reasonable manner and may deduct from the proceeds
its reasonable expenses of collection, being further authorized to receive in
full satisfaction of the account obligor's obligation a sum less than the face
amount thereof. Debtor agrees to hold Secured Party harmless from all claims for
loss or damage caused by any failure to collect any account or to enforce any
contract or by any acts or omissions on the part of the Secured Party, its
agents and employees, except willful misconduct.
7. Expenses. Secured Party is not required to, but may at its option, pay
any tax or other charge or expense payable by the Debtor and any filing or
recording fees and any amounts so paid shall be repayable by Debtor upon demand.
Debtor will also repay upon demand all of Secured Party's expenses incurred in
collecting, insuring, conserving or protecting the collateral or in any
inventories, audits, inspections or other examination by Secured Party in
respect of the collateral. All such sums shall bear interest at the lesser of 2%
per month or the maximum rate permitted by law from the date of payment by the
Secured Party until repaid by the Debtor and such sums and interest thereon
shall be secured hereby. The rights granted by this paragraph are not a waiver
of any other rights of Secured Party arising from breach of any of Debtor's
covenants.
8. Debtor's Business. Debtor's business is an will be conducted in accordance
with law. Indebtedness and obligations secured hereby are and will be solely
for business and commercial.
9. Waivers. This Security Agreement shall not be qualified or supplemented
by course of dealing. No waiver or modification by Secured Party of any of the
terms or conditions hereof shall be effective unless In writing signed by
Secured Party. No waiver or indulgence by Secured Party as to any required
performance by Debtor shall constitute a waiver as to any subsequent required
performance or other obligations of the Debtor hereunder.
10. Notice to Obligors/Appointment as Agent. Debtor authorized Secured
Party to notify account obligors and to effect direct collection of accounts and
irrespective of whether there be an event of default hereunder. The undersigned
Debtor does hereby designate and appoint Secured Party, its successors and
assigns, its true and lawful attorney or attorneys, with power irrevocable, for
it and in its name, place and stead to ask, demand, receive receipt and give
acquittance for any and all amounts which may be or become due or payable to
Debtor pursuant to the Collateral or any amendments or supplements thereto, to
endorse on its behalf any check, draft, order receipt, documents or instrument
and in it discretion to file any claim or take any action or proceeding, or
either in its own name or in the name of the undersigned, or otherwise, which to
the Secured Party or any successor or assignee may seem necessary or desirable
in order to collect or enforce payment of any and all amounts which may become
due or owing pursuant to said Collateral, or any amendment or supplement
thereto. The acceptance of this appointment by Secured Party shall not obligate
it to perform any duty, covenant or obligation required to be performed by
Debtor under or by virtue of said Collateral or any amendments or supplements
thereto. Secured Party, its successors and assigns may also execute or endorse,
on behalf of Debtor, any financing statements or other instruments, which in the
opinion of Secured Party, its successors or assigns, may be desirable to
collect, perfect, or protect its position in the above Collateral.
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<PAGE>
11. Default. Time is of the essence in this Security Agreement, and in any
of the following events, hereinafter called "Events of Default" to-wit: (a) Any
failure to pay when due the full amount of any payment of principal, interest,
taxes insurance premiums or other charges which are or may be secured hereby; or
(b) Any failure to perform as required by any covenant or agreement herein; or
(c) Falsity of any representation by Debtor herein or in any credit application
or financial statement given by Debtor to Secured Party as a basis for any
extension of credit secured hereby; or (d) If the collateral or any material
part thereof should be seized or levied upon or the subject of attachment under
any legal or governmental process against Debtor or against the collateral; or
(e) If Debtor becomes insolvent or is the subject of a petition in bankruptcy,
either voluntary or involuntary, or in any other proceeding under federal
bankruptcy laws; or makes an assignment for the benefit of creditors; or if the
Debtor is named in or collateral is subjected to a suit for the appo8intment of
a receiver; or (f) The accounts assigned hereunder or proceeds thereof for any
reason whatsoever, become uncollectable in material part or in their entirety;
or (g) Entry of any judgment against Debtor; or (h) Dissolution or liquidation
of Debtor; or (i) The Secured Party deems itself insecure. On the occurrence of
any such events of default, the entire amount of indebtedness secured hereby and
interest thereon shall then or at any time thereafter, at the option of the
Secured Party, become immediately due and payable without notice or demand or
period of grace, and the Secured Party shall have an immediate right to pursue
the remedies provided herein or at law.
12. Remedies. On the occurrence of an event of default hereunder and the
election of Secured Party to pursue its remedies hereunder, Secured Party shall
have all remedies provided by law, and without limiting the generality of the
foregoing, shall be entitled as follows: (a) Debtor agrees to put Secured Party
in possession of the collateral upon demand; and (b) Secured Party is authorized
to enter any premises where the collateral or records thereof is situated and to
take possession of said collateral and records without notice or demand and
without legal proceedings; and (c) At the request of Secured Party, Debtor will
assemble the collateral and records thereof and make it available to Secured
Party at a place designated by Secured Party which is reasonably convenient to
both parties; and Secured Party may make notification as provided by this
Security Agreement and pursue collection, or, at Secured Party's option, sell
all or part of the collateral and make application of all proceeds or sums due
on accounts as provided for in this Security Agreement; and (d) Debtor agrees to
pay, if this Security Agreement or any obligation secured by it is referred to
an attorney for collection or realization, a reasonable attorney's fee
(including those incurred in either trial court of appellate court or without
suite), expenses of title search, all court costs and all other legal expenses,
and sums so obligated are secured thereby; and (e) Debtor agrees that a period
of fifteen (15) days from the time the notice is sent shall be a reasonable
period of notification of a sale or other disposition of collateral by or for
Secured Party. Any notice or other communication from the Secured Party to the
Debtor under or pursuant to this Security Agreement or required by any statute
shall be addressed to the mailing address of the Debtor as herein stated; and
(f) Debtor agrees that, at the option of Secured Party, Secured Party shall be
entitled to apply for and obtain the appointment of a receiver of Debtor's
business, properties and interest, or any thereof, the proceeds of such
receivership after the expenses thereof to be applied to the indebtedness and
obligations secured hereby; and (g) Debtor agrees to pay an deficiency remaining
after collection of or realization by the Secured Party on the collateral.
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<PAGE>
13. Controlling Law, Assignments. This Security Agreement and the
indebtedness and obligations hereby secured are subject to the laws of the State
of Washington and are to be construed in accordance therewith. All rights of
Secured Party hereunder extend to the successors and assigns of Secured Party
and to the holder of any note evidencing indebtedness hereby secured.
Obligations of Debtor hereunder extend to and are binding upon Debtor's heirs,
representatives, successors and assigns.
14. Location of Debtor; Collateral; Records. The address appearing next to
Debtor's signature below is the address of Debtor's chief executive office or,
if Debtor has no place of business, Debtor's residence. If the collateral is not
located at the Debtor's address appearing below, it will be located: NO OTHER
ADDRESSES ARE APPLICABLE
If Debtor does not keep his records concerning the collateral at the address
appearing below, those records will be located at:
NO OTHER ADDRESSES ARE APPLICABLE
Debtor will give Secured Party prior written notice of any change in either
Debtor's chief executive office, or if Debtor has no place of business, Debtor's
residence and any change in location of inventory or records.
15. Special Terms and Conditions.
When executed by more than one party, the Obligations hereunder
shall be several as well as joint.
Signed: December 31, 1998 DATA I/O CORPORATION
105 WILLOWS ROAD, NE G-46 Redmond //S//JOEL S. HATLEN
- ------------------------------------------- ----------------------------------
Street City Joel S. Hatlen
KING WA 98052 Vice President/CFO
- ------------------------------------------- ----------------------------------
County State Zip (Signature of Debtor)
NOTE: UCC-1 Filing Form attachment omitted from exhibit 10.36.
Page 137
Exhibit 10.37
DATA I/O CORPORATION
1986 STOCK OPTION PLAN
AMENDED AND RESTATED
AS OF MAY 12, 1998
This Stock Option Plan (the "Plan") provides for the grant of
options (the "Options") to acquire shares of common stock (the "Common Stock")
of Data I/O Corporation (the "Corporation"). Stock options granted under this
plan that qualify under Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code") are referred to in this Plan as "Incentive Stock Options."
Incentive Stock Options and stock options that do not qualify under Section 422
of the Code ("Non-Qualified Options") granted under this Plan are referred to as
"Options."
1. PURPOSES.
The purposes of this Plan are to retain the services of valued key
employees of the Corporation, to encourage such employees to acquire a greater
proprietary interest in the Corporation, thereby strengthening their incentive
to achieve the objectives of the shareholders and to serve as an aid and
inducement in the hiring of new key employees.
2. ADMINISTRATION.
The Plan shall be administered by the Board of Directors of the
Corporation (the "Board"), if each director is a "disinterested person" (as
defined below). If all directors are not "disinterested persons," the Plan shall
be administered by a committee designated by the Board composed of two or more
members of the Board, each of whom is a "disinterested person", which committee
(the "Committee") may be an executive, compensation or some other committee,
including a separate committee especially created for this purpose. Any such
Committee shall have the powers and authority vested in the Board hereunder
(including the power and authority to interpret any provision of the Plan or of
any Option). The members of any such Committee shall serve at the pleasure of
the Board. A majority of the members of the Committee shall constitute a quorum,
and all actions of the Committee shall be taken by a majority of the members
present. Any action may be taken by a written instrument signed by all of the
members of the Committee and any action so taken shall be fully as effective as
if it had been taken at a meeting. The Board, or any committee thereof appointed
to administer the Plan, is referred to herein as the "Plan Administrator."
"Dis-interested person" shall be defined by reference to in the rules and
regulations promulgated under Section 16(b) of the Securities Exchange Act of
1934, as amended (the "Act").
Subject to the provisions of the Plan, and with a view to effecting
its purpose, the Plan Administrator shall have sole authority, in its absolute
discretion, (a) to construe and interpret the Plan; (b) to define the terms used
herein; (c) to prescribe, amend, and rescind rules and regulations relating to
the Plan; (d) to determine the individuals to whom Options to purchase shares of
Common Stock shall be granted under the Plan and whether the Options are
Incentive Stock Options or Non-Qualified Options; (e) to determine the time or
times at which Options shall be granted under the Plan; (f) to determine the
number of shares of Common Stock subject to each Option, the Option price, the
duration of each Option granted under the Plan and the times at which each
Option shall become exercisable; (g) to determine all of the other terms and
conditions of Options granted under the Plan; and (h) to make all other
determinations necessary or advisable for the administration of the Plan and do
everything necessary or appropriate to administer the Plan. All decisions,
determinations, and interpretations made by the Committee shall be binding and
conclusive on all participants in the Plan and on their legal representatives,
heirs, and beneficiaries.
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<PAGE>
The Board or the Committee may delegate to one or more executive
officers of the Corporation the authority to grant Options under this Plan to
employees of the Corporation who, at the time of grant, are not subject to
Section 16(b) of the Exchange Act with respect to the Common Stock
("Non-Insiders"), and in connection therewith the authority to determine: (a)
whether the Option in an Incentive Stock Option or a Non-Qualified Stock Option;
(b) the number of shares of Common Stock subject to such Option; (c) the
duration of the Option; (d) the vesting schedule for determining the times at
which such Option shall become exercisable; and (e) all other terms and
conditions of such Options. The exercise price for any Option granted by action
of an executive officer pursuant to such delegation of authority shall not be
less than the fair market value per share of the Common Stock on the Date of
Grant as determined in accordance with procedures established by the Plan
Administrator. Unless expressly approved in advance by the Board or the
Committee, such delegation of authority shall not include the authority to
accelerate the vesting, extend the period for exercise or otherwise alter the
terms of outstanding Options. The term "Plan Administrator" when used in any
provision of this Plan other than Sections 2, 5(f), 5(m), 5(n) and 11 shall be
deemed to refer to the Board or the Committee, as the case may be, and such
senior executive officer, insofar as such provision may be applied to
Non-Insiders and Options granted to Non-Insiders.
3. ELIGIBILITY.
Options may be granted to any individual who, at the time the Option
is granted, is an employee of the Corporation or any "related corporation" (as
defined below) and may be granted in substitution for outstanding options of
another corporation in connection with the merger, consolidation, acquisition of
property or stock, or other reorganization between such other corporation and
the Corporation or any subsidiary thereof. Options may also be granted in
exchange for outstanding Options. No person shall be granted Options to purchase
more than 250,000 shares of Common Stock (subject to adjustment as set forth in
Section 5(m) hereof) in any calendar year. Any person to whom an Option is
granted under this Plan is referred to herein as an "Optionee."
As used in this Plan, the term "related corporation," when referring
to a subsidiary corporation, shall mean any corporation (other than the
Corporation) in an unbroken chain of corporations beginning with the Corporation
if, at the time of the granting of the Option, each of the corporations other
than the last corporation in the unbroken chain owns stock possessing fifty
percent (50%) or more of the total combined voting power of all classes of stock
of one of the other corporations in such chain. When referring to a parent
corporation, the term "related corporation" shall mean any corporation (other
than the Corporation) in an unbroken chain of corporations ending with the
Corporation if, at the time of granting of the Option, each of the corporations
other than the Corporation owns stock possessing fifty percent (50%) or more of
the total combined voting power of all classes of stock of one of the other
corporations in such chain.
4. STOCK.
The Plan Administrator is authorized to grant Options to acquire one
million four hundred thirty thousand (1,430,000) shares of the authorized but
unissued, or reacquired, Common Stock plus the number of Options which remain
available for grant from time-to-time pursuant to the Corporation's FutureNet
Employee Stock Option Plan or the Corporation's 1985 Stock Option Plan (the
"Existing Plans"), both of which have already been approved by the Corporation's
shareholders. The number of shares with respect to which Options may be granted
hereunder is subject to adjustment as set forth in Section 5(m) hereof. In the
event that any Option granted pursuant to this Plan or the Existing Plans
expires or is terminated for any reason, those shares of Common Stock allocable
to the unexercised portion of such terminated Option may again be subject to an
Option granted to the same or to a different Optionee under either this Plan or
the Existing Plans.
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<PAGE>
5. TERMS AND CONDITIONS OF OPTIONS.
Each Option granted pursuant to this Plan shall be evidenced by a
written agreement approved by the Plan Administrator (the "Agreement").
Agreements may contain such additional provisions, not inconsistent herewith, as
the Plan Administrator in its discretion, may deem advisable. All Options shall
also comply with the following requirements:
(a) Number of Shares.
Each Agreement shall state the number of shares of
Common Stock to which it pertains and whether the Option is intended to be an
Incentive Stock Option or a Non-Qualified Stock Option. In the absence of action
to the contrary by the Plan Administrator in connection with the grant of an
Option, all Options shall be Non-Qualified Options. The aggregate fair market
value (determined at the Date of Grant, as defined below) of the stock with
respect to which Incentive Stock Options are exercisable for the first time by
the Optionee during any calendar year (granted under this Plan and all other
incentive stock option plans of the Corporation, a related corporation or a
predecessor corporation) shall not exceed $100,000, or such other limit as may
be prescribed by the Code as it may be amended from time to time. Any Option
which exceeds the annual limit shall not be void, but rather shall be a
Non-Qualified Option.
(b) Date of Grant.
Each Agreement shall state the date which the Plan
Administrator has deemed to be the effective date of the Option for purposes
of this Plan (the "Date of Grant").
(c) Option Price.
Each Agreement shall state the price per share of Common
Stock at which it is exercisable. Common Stock issued under this Plan may be
issued for any lawful consideration as determined by the Plan Administrator;
provided, that the per share exercise price for any Incentive Stock Option
shall not be less than the fair market value per share of the Common Stock on
the Date of Grant as determined by the Plan Administrator in good faith and
provided, further, that with respect to Incentive Stock Options granted to
greater-than-10% shareholders of the Corporation (as determined with reference
to Section 424(d) of the Code), the exercise price per share shall not be less
than 110% of the fair market value per share of the Common Stock at the Date
of Grant.
(d) Duration of Options.
At the time of the grant of the Option, the Plan
Administrator shall designate, subject to paragraph 5(g) below, the expiration
date of the Option, which shall not be later than ten years from the Date of
Grant in the case of Incentive Stock Options; provided, that the expiration date
of any Incentive Stock Option granted to a greater-than-10% shareholder of the
Corporation (as determined with reference to Section 424(d) of the Code) shall
not be later than five years from the Date of Grant. In the absence of action
to the contrary by the Plan Administrator in connection with the grant of a
particular Option, and except as otherwise required by the preceding sentence,
all Options granted hereunder shall expire six years from the Date of Grant.
Page 140
<PAGE>
(e) Vesting Schedule.
In order to ensure that the Corporation will receive the
benefits contemplated in exchange for the Options granted pursuant hereto, no
Option shall be exercisable until it has vested. Subject to paragraph 5(f)
below, the vesting schedule or other events for vesting for each Option, such
as performance goals, shall be specified by the Plan Administrator at the time
of the grant of the Option and shall be set forth or referenced in the
Agreement. If no vesting schedule is specified by the Plan Administrator at the
time of the grant of an Option hereunder, the following schedule shall apply:
Years of Service
Following Date of Percent
Grant Vested
1 25
2 50
3 75
4 100
(f) Acceleration of Vesting.
The vesting of one or more outstanding Options may be
accelerated by the Plan Administrator at such times and in such amounts as it
shall determine in its sole discretion. The vesting of Options shall also be
accelerated under the circumstances described in Section 5(n) below.
(g) Term of Option.
Each Option shall terminate, to the extent not
previously exercised, upon the occurrence of the first of the following
events: (i) the expiration of the duration of the Option, as designated by the
Plan Administrator in accordance with Section 5(d) above; (ii) the expiration of
90 days from the date of the Optionee's termination of employment with the
Corporation for any reason whatsoever other than death or disability unless, in
the case of a Non-Qualified Option, the exercise period is extended by the Plan
Administrator until a date not later than the expiration date of the Option; or
(iii) the expiration of one year from (A) the date of death of the Optionee or
(B) cessation of employment by reason of "disability" unless, in the case of a
Non-Qualified Option, the exercise period is extended by the Plan Administrator
until a date not later than the expiration date of the Option. For purposes of
the Plan, "disability" shall mean any physical, mental or other health condition
which substantially impairs the employee's ability to perform her or his
assigned duties for 60 days or more in any 120 day period or that can be
expected to result in death. The Plan Administrator shall determine whether an
Optionee has incurred a disability on the basis of medical evidence acceptable
to the Plan Administrator. Upon making a determination of disability, the Plan
Administrator shall, for purposes of the Plan, determine the date of an
Optionee's termination of employment. Unvested Options shall terminate
immediately upon the termination of employment of the Optionee by the
Corporation for any reason whatsoever, including death or disability.
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<PAGE>
(h) Exercise of Options.
Options shall be exercisable, either all or in part,
at any time after vesting. If less than all of the shares included in the
vested portion of any Option are purchased, the remainder may be purchased at
any subsequent time prior to the expiration of the Option term. No portion of
any Option of less than one hundred (100) shares (as adjusted pursuant to
Section 5(m) hereof) may be exercised, provided that if the vested portion of
any Option is less than one hundred (100) shares, it may be exercised with
respect to all Shares for which it is vested. Only whole shares may be issued
pursuant to an Option, and to the extent that an Option covers a fraction of a
share, it is unexercisable. Options or portions thereof may be exercised by
giving written notice to the Corporation, which notice shall specify the number
of shares to be purchased, and be accompanied by payment in the amount of the
aggregate Option exercise price for the Common Stock so purchased, which payment
shall be in the form specified in Section 5(i) hereof. The Corporation shall not
be obligated to issue, transfer, or deliver a certificate of Common Stock to any
Optionee, or to his personal representative, until the aggregate Option price
has been paid for all shares for which the Option shall have been exercised and
adequate provision has been made by the Optionee for satisfaction of any tax
withholding obligations associated with such exercise. During the lifetime of an
Optionee, Options are exercisable only by the Optionee.
(i) Payment upon Exercise of Option.
Upon exercise of any Option the aggregate Option
exercise price shall be paid to the Corporation in cash or by certified or
cashier's check. In addition, an Optionee may pay for all or any portion of the
aggregate Option exercise price for any shares of Common Stock purchased upon
the exercise of any Option by delivering to the Corporation shares of Common
Stock previously held by such Optionee or by complying with any other payment
mechanism which the Plan Administrator may approve from time to time. The shares
of Common Stock received or withheld by the Corporation as payment for shares of
Common Stock purchased upon the exercise of Options shall have a fair market
value at the date of exercise (as determined by the Plan Administrator) equal to
the aggregate Option exercise price (or portion thereof) to be paid by exchange
or withholding of shares of Common Stock.
(j) Rights as a Shareholder.
An Optionee shall have no rights as a shareholder with
respect to any shares covered by the Option until the Optionee becomes a
record holder of such shares, irrespective of whether he has given notice of
exercise. Subject to the provisions of Section 5(m) hereof, no rights shall
accrue to an Optionee and no adjustments shall be made on account of dividends
(ordinary or extraordinary, whether in cash, securities or other property) or
distributions or other rights declared on, or created in, the Common Stock for
which the record date is prior to the date the Optionee becomes a record holder
of the shares of Common Stock covered by the Option, irrespective of whether the
Optionee has given notice of exercise.
(k) Transfer of Option.
Options granted under this Plan and the rights and
privileges conferred hereby may not be transferred, assigned, pledged, or
hypothecated in any manner (whether by operation of law or otherwise) other than
by will or by the applicable laws of descent and distribution or, in the case of
Non-Qualified Options (but not Incentive Stock Options), pursuant to a qualified
domestic relations order, and shall not be subject to execution, attachment or
similar process. Upon any attempt to transfer, assign, pledge, hypothecate or
otherwise dispose of any Option under this Plan or of any right or privilege
conferred hereby, contrary to the provisions hereof, or upon the sale, levy or
any attachment or similar process upon the rights and privileges conferred
hereby, such Option shall thereupon terminate and become null and void.
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<PAGE>
(1) Securities Regulation and Tax Withholding.
(1) Shares shall not be issued with respect to an
Option unless the exercise of such Option and the issuance and delivery of
such shares pursuant thereto shall comply with all relevant provisions of law,
including, without limitation, any applicable state securities laws, the
Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as
amended, the rules and regulations promulgated thereunder and the requirements
of any stock exchange upon which such shares may then be listed and shall be
further subject to the approval of counsel for the Corporation with respect to
such compliance, including the availability of an exemption from registration
for the issuance and sale of any shares upon exercise of any Option. Inability
of the Corporation to obtain from any regulatory body having jurisdiction the
authority deemed by the Corporation to be necessary for the lawful issuance and
sale of any shares hereunder, or the unavailability of an exemption from
registration for the issuance and sale of any shares hereunder, shall relieve
the Corporation of any liability in respect of the non-issuance or sale of such
shares as to which such requisite authority shall not have been obtained.
As a condition to the exercise of an Option, the
Corporation may require the Optionee to represent and warrant in writing at
the time of such exercise that the shares are being purchased only for
investment and without any present intention to sell or distribute such shares.
At the Option of the Corporation, a stop-transfer order against any shares of
stock may be placed on the official stock books and records of the Corporation,
and a legend indicating that the stock may not be pledged, sold or otherwise
transferred unless an opinion of counsel is provided stating that such transfer
is not in violation of any applicable law or regulation, may be stamped on stock
certificates in order to assure exemption from registration. The Plan
Administrator may also require such other actions or agreements by the Optionees
as may from time-to-time be necessary to comply with federal and state
securities laws. THE CORPORATION SHALL BE UNDER NO OBLIGATION TO UNDERTAKE
REGISTRATION OF THE OPTIONS OR SHARES OF STOCK ISSUABLE UPON EXERCISE THEREOF.
(2) As a condition to the exercise of any
Option granted hereunder, the Optionee shall make such arrangements as the
Plan Administrator may require for the satisfaction of any federal, state or
local withholding tax obligations that may arise in connection with such
exercise.
(3) Issue, transfer or delivery of certificates
of Common Stock pursuant to the exercise of Options may be delayed, at the
discretion of the Plan Administrator until the Plan Administrator is satisfied
that the applicable requirements of the federal and state securities laws and
the withholding provisions of the Code have been met.
(m) Stock Dividend, Reorganization or Liquidation.
The aggregate number and class of shares for which
Options may be granted under this Plan, the number and class of shares
covered by each outstanding Option and the exercise price per share thereof (but
not the total price) shall all be proportionately adjusted for any increase or
decrease in the number of issued shares of Common Stock of the Corporation
resulting from a split-up or consolidation of shares or any like capital
adjustment, or the payment of any stock dividend, and to the extent that such
actions shall include an increase or decrease in the number of shares of Common
Stock subject to outstanding Options, the number of shares available under
Section 4 of this Plan shall automatically be increased or decreased, as the
case may be, proportionately, without further action on the part of the Plan
Administrator, the Corporation or the Corporation's shareholders.
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<PAGE>
In the event of any adjustment in the number of shares
covered by any Option, any fractional shares resulting from such adjustment
shall be disregarded and each such Option shall cover only the number of full
shares resulting from such adjustment.
The foregoing adjustments in the shares subject to
Options shall be made by the Plan Administrator or by any successor
administrator of the Plan, or by the applicable terms of any assumption or
substitution document, and any adjustmentsso made shall be final, binding
and conclusive.
Except as provided in this Section 5(m) or Section 5(n)
below, no Optionee shall have rights by reason of any subdivision or
consolidation of shares of any class including shares of Common Stock, or the
payment of any Common Stock dividend on shares of Common Stock or any other
increase or decrease in the number of shares of Common Stock, or by reason of
any liquidation, dissolution, corporate combination or division; and any
issuance by the Corporation of shares of any class including shares of Common
Stock, or securities convertible into shares of any class including shares of
Common Stock, shall not affect, and no adjustment by reason thereof shall be
made with respect to, the number or price of shares of Common Stock subject to
any Option.
The grant of an Option shall not affect in any way the
right or power of the Corporation to make adjustments, reclassifications,
reorganizations or changes in its capital or business structure, or to merge,
consolidate, dissolve or liquidate, or to sell or transfer all or any part of
its business or assets.
(n) Change in Control.
(1) Any and all Options that have been outstanding
under the Plan for at least six (6) months at the time of occurrence of any
of the events described in Paragraphs (A), (B) and (C) below (an "Eligible
Option") shall become exercisable in full for the periods indicated (each such
exercise period referred to as an "Acceleration Window") in connection with the
following events:
(A) For a period of 45 days beginning on the day on which any
Person, together with all Affiliates and Associates of such Person (as
such terms are defined below) shall become the Beneficial Owner (also
as defined below), directly or indirectly, of 25% or more of the
combined voting power of the then outstanding securities of the Company
ordinarily (and apart from rights accruing under special circumstances)
having the right to vote in the election of directors (calculated as
provided in Rule 13d-3(d) under the Exchange Act in the case of rights
to acquire the Company's securities), but shall not include the
Corporation, any subsidiary of the Corporation, any employee benefit
plan of the Corporation or of any subsidiary of the Corporation, or any
Person or entity organized, appointed or established by the Corporation
for or pursuant to the terms of any such employee benefit plan;
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<PAGE>
(B) Beginning on the date that a tender or exchange
offer for Common Stock by any Person (other than the Corporation, any
subsidiary of the Corporation, any employee benefit plan of the
Corporation or of any subsidiary of the Corporation, or any Person or
entity organized, appointed or established by the Corporation for or
pursuant to the terms of any such employee benefit plan) is first
published or sent or given within the meaning of Rule 14d-2 under the
Securities Exchange Act of 1934, as amended, and continuing so long as
such offer remains open (including any extensions or renewals of such
offer), unless by the terms of such offer the offeror, upon
consummation thereof, would be the Beneficial Owner of less than 30% of
the shares of Common Stock then outstanding; or
(C) Immediately prior to consummation of (i) any merger,
consolidation, reorganization or other transaction pursuant to which
the persons who hold shares of Common Stock immediately prior to the
transaction have immediately following the transaction less than forty
percent (40%) of the combined voting power of the outstanding
securities of the surviving entity ordinarily (and apart from rights
accruing under special circumstances) having the right to vote in the
election of directors; or (ii) any sale, lease, exchange or other
transfer not in the ordinary course of business (in one transaction or
a series of related transactions) of all, or substantially all, of the
assets of the Company (the foregoing transactions being referred to as
"Approved Transactions"). The Company shall provide to each Optionee
notice of the pendency of any Approved Transaction at least twenty (20)
days prior to the expected date of consummation thereof. Each Optionee
shall thereupon be entitled to exercise his or her Options in full or
in part at any time prior to consummation of the Approved Transaction.
Any such exercise as to any portion of his or her Options that will
only become vested immediately prior to the consummation of the
Approved Transaction in accordance with this acceleration provision
shall be contingent on such consummation. Any such exercise as to any
other portion of the Option will not be contingent on such consummation
unless so elected by the Optionee in a notice delivered to the Company
simultaneously with the exercise.
PROVIDED, HOWEVER, that the Plan Administrator may determine (by the
affirmative vote of a majority of all of the members thereof, excluding
for such purposes the votes of directors who are directors, officers,
Affiliates or Associates of, or have a material financial interest in,
any Person (other than the Corporation ) who is a party to the event
specified in items (A), (B) or (C) above which otherwise would trigger
acceleration of vesting) that acceleration shall not occur in
connection with any one or any combination of the foregoing events; and
PROVIDED, FURTHER, that no Option which is to be converted into an
Exchange Stock Option to purchase shares of Exchange Stock as stated at
item (3) below shall be accelerated pursuant to this Section 5(n).
(2) The exercisability of any Eligible
Option which remains outstanding following expiration of an Acceleration
Window shall be governed by the vesting schedule and other terms of the
Agreement representing such Option.
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(3) If the shareholders of the Corporation
receive shares of capital stock of another Person ("Exchange Stock") in
exchange for or in place of shares of Common Stock in any transaction involving
any merger, consolidation, reorganization or other transaction providing for the
conversion or exchange of all or substantially all outstanding shares of Common
Stock into Exchange Stock, then at the closing of such transaction all Options
granted hereunder which have not been exercised as of the effective date of such
exchange transaction shall be converted into options to purchase shares of
Exchange Stock ("Exchange Stock Options") whereupon all rights to acquire shares
of Common Stock pursuant to Options shall end. The number of shares of Exchange
Stock issuable upon exercise of an Exchange Stock Option and the exercise price
therefor shall be determined by the Plan Administrator by adjusting the number
of shares of Common stock issuable upon exercise of the Option converted into
such Exchange Stock Option, and the exercise price therefor, in the same
proportion as used for determining the shares of Exchange Stock received by
holders of Common Stock in connection with a transaction described in this
Section 5(n)(3). Unless altered by the Plan Administrator, the vesting schedule
set forth in the Option Agreement shall continue to apply to the Exchange Stock
Options.
(4) For the purpose of this Section 5(n): "Person"
shall include any individual, firm, corporation, partnership or other
entity; (ii) "Affiliate" and "Associate" shall have the meanings assigned to
them in Rule 12b-2 under the Exchange Act; and (iii) "Beneficial Owner" shall
have the meaning assigned to it in Rule 16a-1 under the Exchange Act.
6. EFFECTIVE DATE; TERM.
This Plan shall be effective as of December 16, 1986 and Incentive
Stock Options may be granted by the Plan Administrator from time to time
thereafter until December 14, 2006; provided, however, that termination of the
Plan shall not terminate any Option granted prior thereto. Non-Qualified Stock
Options may be granted hereunder until this Plan is terminated by the Board in
its sole discretion.
7. NO OBLIGATIONS TO EXERCISE OPTION.
The granting of an Option shall impose no obligation upon the
Optionees to exercise such Option.
8. NO RIGHT TO OPTIONS OR EMPLOYMENT.
Whether or not any Options are to be granted hereunder shall be
exclusively within the discretion of the Committee, and nothing contained herein
shall be construed as giving any Optionee any right to participate hereunder.
Granting of an Option hereunder shall in no way constitute any form of agreement
or understanding binding on the Corporation, express or implied, that the
Corporation will employ or contract with an Optionee for any length of time.
9. APPLICATION OF FUNDS.
The proceeds received by the Corporation from the sale of Common
Stock, pursuant to Options granted hereunder, will be used for general corporate
purposes, unless otherwise directed by the Board.
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10. INDEMNIFICATION OF PLAN ADMINISTRATOR.
In addition to all other rights of indemnification they may have as
members of the Board or of any Committee, the Plan Administrators shall be
indemnified by the Corporation for all reasonable expenses and liabilities of
any type or nature, including attorneys' fees, incurred in connection with any
action, suit or proceeding to which they or any of them are a party by reason
of, or in connection with, the Plan or any Option granted hereunder, and against
all amounts paid by them in settlement thereof (provided such settlement is
approved by independent legal counsel selected by the Corporation), except to
the extent that such expenses relate to matters for which it is adjudged that
such Plan Administrator member is liable for willful misconduct; provided that
within fifteen (15) days after the institution of any such action, suit or
proceeding, the Plan Administrator involved therein shall, in writing, notify
the Corporation of such action, suit or proceeding, so that the Corporation may
have the opportunity to make appropriate arrangements to prosecute or defend the
same.
11. AMENDMENT OF THE PLAN.
The Plan Administrator may, at any time, modify or amend this Plan
and Options granted hereunder, except that no amendment with respect to an
outstanding Option shall be made over the objection of the Optionee thereof; and
provided, further, that any amendment for which shareholder approval is required
by Securities and Exchange Commission Rule 16b-3, as amended from time to time,
or any successor rule or regulatory requirements (the "Rule"), in order for the
Plan to be eligible or continue to qualify for the benefits of the Rule, shall
be subject to approval of the shareholders of the Corporation in accordance with
the Rule.
Effective as of December 16, 1986.
Amended and restated as of May 12, 1998.
DATA I/O CORPORATION
By://S//JOEL S. HATLEN
Joel S. Hatlen, Vice President - Finance
Page 147
Exhibit 10.38
Service Agreement for the Managing Director
This Agreement made and entered into by and between
SMS Holding GmbH, Im Grund 15,
88239 Wangen
(hereinafter: Company)
and
Mr. Helmut Adamski
Am Engelberg 30, 88239 Wangen
(hereinafter: Managing Director)
Mr. Adamski became appointed Geschaftsfuhrer of the Company on
September 14, 1994. The shares of the Company were acquired by Data I/O
Corporation (sometimes referred to as "DATA I/O") and the Company became part of
the DATA I/O group on November 18, 1998. Therefore, this Agreement shall set
forth all terms and conditions of his employment as of November 19, 1998 with
SMS Holding GmbH; it replaces all former agreements made between the parties:
Article 1
Managing Director's Duties
(1) The Managing Director shall be entitled and obligated to represent
the Company jointly with a further Managing Director or 'Prokurist'
and, if there is no further managing director or 'Prokurist', solely,
in compliance with the laws, the Articles of Association, and - if
available - the management's rules of procedure. The Managing
Director shall not be exempted from the restrictions according to
Sec. 181 BGB (German Civil Code). The Company has the right to
appoint further managing directors and Geschaftsfuhrer.
(2) Within the framework of his management and representation, the
Managing Director shall observe the resolutions of the
shareholders meeting.
(3) The Managing Director shall be obligated to manage the Company's
affairs in accordance with the principles of a prudent businessman.
(4) The Managing Director shall be obligated to arrange for preparation
of the Company's balance sheet within the DATA I/O reporting schedule
after the end of the respective business year and to perform all acts
and make all declarations which are necessary therefor.
The Managing Director shall be obligated, promptly after submission
of the balance sheet, to send the same together with the notice of a
shareholders' meeting to the Company by registered letter with return
receipt.
(5) The Managing Director shall report to the President of DATA I/O or
other appropriate official as designated by the Company or the
shareholders meeting. The Managing Director shall at all times keep
the shareholders promptly and fully informed of the business affairs
of the Company in compliance with the group's general policy and
shall provide additional information if required by the shareholders.
(6) The Managing Director shall be obligated to perform the employer's
duties for the Company, in particular to ensure that the wage and
salary tax and social security contributions are paid in due time.
(7) The Company shall indemnify and hold the Managing Director harmless
from any applicable German taxes due from the Company which have not
been paid by the Company.
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Article 2
Limitation of Management
For all transactions going beyond the ordinary course of business, the
Managing Director shall obtain prior approval of the shareholder according to
the then-current DATA I/O rules of authorization. This shall apply, in
particular, to the
2.1. determination and variation of the long-term business policy of the
company, in particular determination and variation of the marketing-
and pricing policy,
2.2. granting of guaranties and other securities to third persons,
2.3. acquisition and sale of business operations and parts of business
operations, establishment and closure of places of plants,
2.4. acquisition, sale and encumbrance of shares in other companies,
2.5. conclusion, alteration or termination of contracts for the
acquisition or sale of industrial property rights (patents, patent
applications, trade-marks), secret processes, business secrets,
know-how and equivalent rights as well as the conclusion, the
alteration and the termination of license contracts,
2.6. conclusion, alteration or termination of inter-company-agreements,
2.7. complete or partial dislocation of development and production of
products and software, which are made by the Company or its
affiliates in Germany,
2.8. execution of the power of control vis-a-vis affiliates and execution
of voting-rights in affiliates, in particular appointment and
revocation of managing directors, conclusion, alteration and
termination of their service agreements, adoption of the annual
statement of account and any decision concerning the appropriation of
profits,
2.9. the taking and granting of loans, except for loans which are
necessary for the current business operations,
2.10. the acquisition, sale and encumbrance of real property and equivalent
rights,
2.11. hiring of permanent employees exceeding the annual budget plan for
the Company,
2.12. contracts with shareholders and their relatives,
2.13. salary-increases exceeding the annual budget plan for the Company,
2.14. bonus payments exceeding the annual budget plan for the Company,
2.15. disposition of goods of the Company with a book value of more than
DM 100,000.--,
2.16 the granting and revocation of "Prokura" or commercial signing rights.
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Article 3
Second Occupation, Prohibition of Competition
(1) The Managing Director shall be obligated to devote his full working
capacity to the Company. The Managing Director shall not be entitled
to engage in a second occupation which interferes with the Company's
interests without the shareholders' express approval given through
shareholder resolution.
(2) The Managing Director agrees that he will not, directly or
indirectly, during his employment and for a period until the later of
November 30, 2000 or six (6) months from the date on which his
employment with the Company terminates or this Agreement expires for
any reason (the "Term"), directly or indirectly be employed by, own,
manage, operate, join, control or participate in the ownership,
management, operation or control of or be connected with, in any
manner, any person or entity engaged in competition with Company,
Data I/O or its subsidiaries with respect to any product or service
sold or activity engaged in by Company, Data I/O or its subsidiaries
(including without limitation, products or services used in the "IC
Programmer Products Market" as defined below) up to the time of
expiration or termination of this Agreement in any geographical area
in which at the time of expiration or termination of this Agreement
such product or service is sold or activity is engaged in. "IC
Programmer Products Market" means the design, development,
manufacture, sale or distribution of any device or system used to
program programmable integrated circuits. The Managing Director shall
be deemed to be connected with such business if such business is
carried on by a partnership, corporation or association of which he
is an employee, officer, director, shareholder, partner, member,
consultant or agent; provided, however, that nothing herein shall
prevent the purchase or ownership by the Managing Director of shares
which constitute less than five percent (5%) of the outstanding
equity securities of a publicly-held corporation.
If the Managing Director breaches this non-competition commitment,
the Managing Director hereby covenants with the Company to pay in
each instance of breach a contractual penalty of DM 30,000.--. In
case the breach is continued, the contractual penalty will have to be
paid whenever a calendar month begins. The Company reserves its right
to claim for higher damages accrued.
Article 4
Remuneration
(1) The Managing Director shall receive a gross salary of
DM 260,000.00 per year.
DM 20,000.00 of the salary reduced by statutory deductions shall be
due and payable on or before the end of each calendar month. An
additional DM 20,000 of the salary reduced by statutory deductions
(for the thirteenth month) shall be due and payable together with the
salary for November.
(2) Moreover, the Managing Director shall receive an annual bonus of up
to 25 % of his annual salary pursuant to and in accordance with the
DATA I/O Management Incentive Compensation Program as determined by
the DATA I/O board of directors according to their discretion from
time to time.
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<PAGE>
(3) The Company undertakes to pay the employer's share of the statutory
social security pension scheme.
(4) The Company undertakes to make available to the Managing Director a
middle-class company car which he may also use privately. The private
use of the car shall not exceed the business use of the car;
therefore the Managing Director will keep a vehicle log.
Except for the petrol costs of the Managing Director's private use,
the Company shall bear the costs of this company car.
The Managing Director shall be obligated to pay tax on the pecuniary
advantage resulting from such private use and shall bear the tax
burden resulting therefrom.
If, in case of termination of the employment relationship, the
Managing Director is released from his duty to work, he shall be
obligated to return the car together with all keys and documents to
the Company the day the release becomes effective. The same shall
apply if the Managing Director is prevented from work for more than
six weeks without interruption due to illness if the Company requires
the return of the car.
(5) The Managing Director shall be reimbursed all reasonable expenses and
charges incurred by him within the framework of his activities for
the Company and according to DATA I/O's policies. The Managing
Director shall be obligated to submit to the Company the vouchers and
documents in support of these expenses.
Article 5
Illness, Death
(1) In case of serious illness or disability not due to his fault which
substantially impairs the performance of the Managing Director's
duties, this Agreement shall terminate and the Managing Director
shall receive continued payment of his remuneration for a period of
three (3) months.
(2) If the Managing Director dies during the term of this Agreement, this
Agreement shall terminate and his wife or, if he has no wife, his
heirs shall receive continued payment of his remuneration for a
period of one (1) month after the date of death of the Managing
Director.
Article 6
Holidays
(1) The Managing Director shall have a right to holidays of thirty (30)
working days. He shall coordinate his holidays with the further
managing director - if there is any.
(2) If not all of the holiday claim is granted due to business reasons
until March 31 of the following year, the claim will be discharged by
a payment of the Company. This payment will be based on the fixed
salary according to Art.4.1.
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Article 7
Duty of Confidentiality
The Managing Director undertakes to treat all matters of the
Company, DATA I/O and its subsidiaries, such as trade and business
secrets, know-how, production methods, design and software developments
and non-public financial, marketing and operating information strictly
confidentially and shall not disclose the same to third parties. This
duty of confidentiality shall survive the termination of this
Agreement.
Article 8
Developments and Inventions
(1) The Managing Director hereby grants the Company the exclusive right
to use any and all technical, artistic and organizational
developments. No special remuneration shall be owed for the grant of
this right.
(2) The above provisions shall apply mutatis mutandis to inventions of
the Managing Director made by him in connection with the fulfillment
of his contractual obligations or on the basis of developments of the
Company.
Article 9
Commencement and Term
This Agreement takes effect on November 19, 1998 and shall be valid for
an indefinite period of time.
Article 10
Termination
(1) Either party hereto may give notice of termination of this Agreement
subject to six (6) months' notice with the notice of termination
being effective at the end of a calendar month. The notice shall be
in writing.
A recall of the Managing Director shall be deemed a notice of
termination by the Company as well, with the notice being effective
at the next possible date, and shall also be in writing.
(2) Either party shall have the right to terminate this Agreement for
good cause with immediate effect; good cause shall include, but shall
not be limited to
a) violation of the duty of confidentiality pursuant to
Article 7 or the prohibition of competition pursuant to
Article 3 hereof,
b) the Managing Director contravenes against directives of the
advisory board and/or shareholders' meeting of Company, the
board of Directors of DATA I/O or the President of DATA I/O
where such contravention has an adverse effect on the
Company or DATA I/O.
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(3) The Managing Director has agreed with DATA I/O Corporation to
relocate to the US and become an employee of DATA I/O Corporation at
a mutually agreed date during the first nine (9) months of 1999.
Accordingly, in case of such relocation, this Agreement shall
automatically come to an end, if and when the Managing Director
becomes an employee on the payroll of DATA I/O.
(4) In case that the notice of termination has been given, the Company
shall be entitled to release the Managing Director from his work
duties, with unused holidays to be taken into consideration and
payment of remuneration to be continued for the periods as stated in
Article 5 if the termination is pursuant to Article 5, and for the
six (6) months' notice period if the termination is pursuant to
Article 10, paragraph 1. No remuneration is to be continued if
termination is pursuant to Article 10, paragraph 2.
(5) The Managing Director shall be obligated to return, on the day of
termination hereof, all documents, models and keys concerning the
Company together with all copies or duplicates thereof as well as the
company car made available to him.
Insofar, the Managing Director shall have no right of retention.
Article 11
Final Provisions
(1) This Agreement has been approved through resolution of the
shareholder. It shall replace all former agreements between the
parties, which agreements are cancelled hereby.
(2) Modifications of, supplements to and termination of this Agreement
shall be legally valid only if in writing. This shall also apply to
waiver of this clause requiring written form.
(3) The parties hereto agree that German law shall be applicable.
(4) If any provision of this Agreement is invalid or void, this shall not
affect the validity of the remaining provisions hereof. In this case,
the parties hereto shall be obligated to agree on a regulation which
most nearly achieves the purpose of the invalid or void provision.
(5) Neither of the parties shall assign or delegate or in any way
transfer any rights, interests or obligations hereunder without the
prior written consent of the other parties, except that the parties
agree that this Agreement: (A) shall be transferred or assigned by
Company to (i) an entity resulting from any merger, consolidation or
other reorganization to which Company is a party or (ii) a buyer of
all or substantially all of Company's assets relevant to Company's
performance under this Agreement, whereupon such assignee or
transferee shall succeed to the rights and obligations of Company
hereunder, and (B) may be transferred or assigned by Company to any
entity in which Company has a controlling interest or which is under
common control with Company, whereupon such assignee or transferee
shall succeed to the rights and obligations of Company hereunder.
Subject to the foregoing restrictions, this Agreement will be fully
binding upon, inure to the benefit of, and be enforceable by the
parties hereto and their respective successors and permitted assigns.
IN WITNESS WHEREOF, the parties hereto have hereunto set their hands
the day and year hereinafter written.
Date: 04.12.1998 (December 4, 1998)
SMS Holding GmbH Helmut Adamski
By://S//DAVID C. BULLIS //S//HELMUT ADAMSKI
Title:PRESIDENT/CEO
Page 153
Exhibit 10.39
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is entered into as of
November 19, 1998 between Data I/O Corporation, a Washington corporation ("Data
I/O"), and Helmut Adamski ("Employee") and will be effective as of the date
Employee becomes an employee on the U.S. payroll of Data I/O after Employee's
relocation from Germany to the U.S.
In consideration of the mutual covenants and promises contained
herein, Data I/O and the Employee agree as follows:
1. Employment. Data I/O will employ the Employee and the Employee
agrees to relocate to the U.S. at a mutually agreed date during the first nine
(9) months of 1999 and to serve as Data I/O's Vice President, Marketing, subject
to the direction and control of the Board of Directors, or President of Data
I/O. The Employee will perform such additional duties as may be assigned from
time to time by the Board of Directors or President of Data I/O which relate to
the business of Data I/O or any business ventures in which Data I/O may
participate. The Employee will devote his full business time, attention and
effort to Data I/O's business and will use his skills and render services to the
best of his ability to serve the interests of Data I/O. The Employee and Data
I/O agree that adequate consideration has been given for the Employee to enter
into this Agreement and assume the obligations contained in this Agreement.
2. Term. Unless otherwise terminated pursuant to this Agreement, the
Employee's term of employment under this Agreement (the "Term") shall commence
on the date when Employee becomes an employee on the U.S. payroll of Data I/O
and shall expire on November 30, 2000.
3. Compensation.
3.1 Salary. As compensation for his services to Data I/O and
as payment for Employee's covenants herein, Employee shall receive an
annual base salary based on Employee's then-current salary in Germany converted
to U.S. Dollars (currently DM 260,000), and an increase in such salary of $7,200
USD for car-related expenses, all before customary payroll deductions (the
"Salary"). The Salary shall be paid in substantially equal installments at the
same intervals as other employees of Data I/O are paid. The President of Data
I/O shall annually (in accordance with Data I/O's then-current procedure and
schedule) determine any increases in the Salary for future periods.
3.2 Bonus. Employee shall be eligible to receive a bonus
(the "Bonus") beginning in 1999 in an amount of up to twenty-five percent
(25%) of the Salary pursuant to and in accordance with the terms of the Data I/O
Corporation Management Incentive Compensation Plan.
3.3 Right of Offset. Data I/O may deduct from Employee's
compensation any amounts due Data I/O for any advance on salary, mistaken
overpayment, products purchased from Data I/O or for similar reasons,
substantiated by Data I/O's business records and specifically identified in a
written notice to Employee at least five (5) days in advance of any such
deduction. Nevertheless, any such unpaid debt shall become immediately due in
full upon termination or expiration of Employee's employment, payable by payroll
deduction or otherwise, at Data I/O's option. This paragraph 3.3 shall not be
interpreted to allow Data I/O to lower Employee's Salary set forth in paragraph
3.1 above, the percentage of Employee's bonus set forth in paragraph 3.2 above
or any Employee reimbursements set forth in paragraph 4.2 below.
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4. Location, Expenses and Benefits.
4.1 Location. The Employee shall be located at Data
I/O's headquarters.
4.2 Expenses. Data I/O shall reimburse the Employee for all
reasonable and necessary business, relocation (both to and from the U.S.),
temporary living (up to 3 months) and immigration related expenses (including
reasonable attorney fees) as determined by Data I/O's policies and incurred and
advanced by him in carrying out his duties under this Agreement. The Employee
shall present to Data I/O from time to time an itemized account of such expenses
in such form as may be required by Data I/O or Company may pay such expenses
directly. Data I/O shall reimburse all above expenses within thirty (30) days of
receipt of an itemized account.
4.3 Benefits. During the Term, and on satisfaction of any
applicable eligibility and contribution requirements, the Employee shall be
entitled to participate in any benefit plans, programs, policies and any fringe
benefits which are or may be made available to the employees of Data I/O
generally, including but not limited to, medical, dental, disability, stock
purchase, 401(k), holiday pay, personal time off and life insurance.
5. Termination. Employment of the Employee pursuant to this
Agreement may be terminated as follows, but in any case, the provisions relating
to non-competition, non-solicitation and confidential information set forth in
Section 7 and paragraph 8.1 of this Agreement shall survive the termination of
the Employee's employment or the expiration of the Term:
5.1 Termination by Data I/O with Cause. With Cause (as
defined below), Data I/O may terminate the employment of the Employee at any
time during the Term upon giving Notice of Termination, as defined below.
5.2 Automatic Termination. Employment shall terminate
automatically upon death or total disability of the Employee. The term
"total disability" as used herein, shall mean any illness or physical or mental
condition that substantially impairs his performance of his assigned duties for
a period or periods aggregating 180 calendar days in any 12-month period, unless
the Employee is granted a leave of absence by Data I/O. Employee and Company
hereby acknowledge that the Employee's ability to perform the assigned duties is
of the essence of this Agreement. Termination hereunder shall be deemed to be
effective immediately upon the Employee's death or immediately upon Notice of
Termination, as defined below, based upon a reasonable determination by Data I/O
of the Employee's total disability.
5.3 Notice of Termination. The term "Notice of Termination"
shall mean written notice of termination of employment. The effective date of
the termination of employment hereunder shall be the date specified in such
Notice of Termination.
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5.4 Cause. Wherever reference is made in this Agreement to
termination being with Cause, "Cause" means cause given by the Employee to
Data I/O and is limited to the following:
(i) Repeated failure or refusal to carry out the lawful
and reasonable directions of the Board of Directors or
President of Data I/O where such failure or refusal has
an adverse effect on Data I/O;
(ii) Violation of a state or federal law involving the
commission of a crime against Data I/O or a felony;
(iii)Misuse of alcohol or controlled substances which
causes a significant injury to Data I/O;
(iv) Willful misrepresentation to the Board of
Directors or officers of Data I/O;
(v) Any other intentional conduct which has a material
adverse effect on Data I/O;
(vi) Habitual absence from work for reasons unrelated
to illness or physical disability; or
(vii)Violation of Section 7 or paragraph 8.1.
6. Termination Payments. In the event of termination of the
employment of the Employee, all compensation and benefits set forth in this
Agreement shall terminate except as specifically provided below in paragraphs
6.1, 6.2, 6.3 and 6.4.
6.1 Termination by Data I/O with Cause. If Data I/O
terminates the Employee's employment with Cause at any time during the
Term, the Employee shall be entitled to receive only any unpaid Salary which has
accrued for services already performed as of the effective date of the Notice of
Termination, any reasonable relocation expenses related to Employee and his
family relocating to Germany and expenses described in paragraph 4.2 above.
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<PAGE>
6.2 Expiration of the Term. In the case of a
termination of the Employee's employment as a result of the expiration of
the Term unless this Agreement is extended or employment is otherwise continued,
the Employee shall not be entitled to receive any payments hereunder other than
any unpaid Salary or Bonus which have accrued for services already performed as
of the Agreement expiration date, any expenses related to Employee and his
family relocating to Germany and expenses described in paragraph 4.2 above.
6.3 Termination Because of Death or Total Disability.
In the event of a termination of the Employee's employment because of his
death or total disability, the Employee or his personal representative shall not
be entitled to receive any amounts hereunder other than any Salary or Bonus
which have accrued for services already performed as of the date of such death
or total disability and one (1) month's Salary following the date of such death
or three (3) months' Salary following the date of such disability and, in either
case, any reasonable relocation expenses related to Employee and/or his family
relocating to Germany and expenses described in paragraph 4.2 above.
6.4 Other Termination by Company. In the event of any
other termination of the Employee's employment by Company for any other
reason not specified in Section 5 of the Agreement, Employee shall receive as
severance the remainder of his Salary until November 30, 2000, any reasonable
relocation expenses related to Employee and his family relocating to Germany and
expenses described in paragraph 4.2 above.
7. Non-Competition and Non-Solicitation. The following
non-competition and non-solicitation provisions shall apply to this
Agreement:
7.1 Non-Competition. The Employee agrees that he will not,
directly or indirectly, during his employment and for a period until the later
of November 30, 2000 or six (6) months from the date on which his employment
with Data I/O terminates or this Agreement expires for any reason (the "Term"),
directly or indirectly be employed by, own, manage, operate, join, control or
participate in the ownership, management, operation or control of or be
connected with, in any manner, any person or entity engaged in competition with
Data I/O or its subsidiaries with respect to any product or service sold or
activity engaged in by Data I/O or its subsidiaries (including without
limitation, products or services used in the "IC Programmer Products Market" as
defined below) up to the time of expiration or termination of this Agreement in
any geographical area in which at the time of expiration or termination of this
Agreement such product or service is sold or activity is engaged in. "IC
Programmer Products Market" means the design, development, manufacture, sale or
distribution of any device or system used to program programmable integrated
circuits. The Employee shall be deemed to be connected with such business if
such business is carried on by a partnership, corporation or association of
which he is an employee, officer, director, shareholder, partner, member,
consultant or agent; provided, however, that nothing herein shall prevent the
purchase or ownership by the Employee of shares which constitute less than five
percent (5%) of the outstanding equity securities of a publicly-held
corporation.
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<PAGE>
7.2 Non-Solicitation. The Employee shall not, in addition,
directly or indirectly solicit, influence or entice any employee or
consultant of Data I/O or its subsidiaries to cease his relationship with Data
I/O or its subsidiaries or solicit, entice or in any way divert any customer or
supplier of Data I/O or its subsidiaries to do business with the Employee or any
entity described herein. This paragraph 7.2 shall apply during the time period
and geographic region described in paragraph 7.1 of this Agreement.
7.3 Equitable Relief. The Employee acknowledges that the
provisions of this Agreement are essential to Data I/O, that Data I/O would
not enter into this Agreement if the Employee did not agree to covenants not to
compete or solicit and with respect to confidentiality and that damages
sustained by Data I/O as a result of a breach of such covenants cannot be
adequately remedied by money damages, and the Employee agrees that Data I/O,
notwithstanding any other provision of this Agreement , in addition to any other
remedy it may have under this Agreement or at law, shall be entitled to
injunctive and other equitable relief to prevent or curtail any breach of any
provision of this Agreement, including without limitation, paragraphs 7.2 or
7.3. The Employee acknowledges that the covenants in this Agreement are
reasonable and that compliance with such covenants will not prevent him from
pursuing his livelihood.
8. Other Conditions. As a condition of his employment hereunder
the following shall also apply as of the effective date of this Agreement:
8.1 Confidentiality and Intellectual Property Assignment
Agreement. The Employee has executed and delivered to Data I/O and will comply
with Data I/O's form of Confidentiality and Intellectual Property Assignment
Agreement.
8.2 Immigration Matters. The Employee has executed and
delivered to Data I/O the I-9 immigration form and is authorized to work in the
U.S. Data I/O will continue to use its reasonable efforts to assist Employee in
obtaining the required authorization to work in the U.S., including without
limitation, obtaining a L1A visa for the Employee and/or "Green Cards" for the
Employee and his family.
9. Notices. Every notice required by the terms of this Agreement
shall be given in writing by serving the same upon the party to whom it was
addressed personally, by courier, by facsimile transmission (with hard copy
delivered by overnight courier) or by registered or certified mail, return
receipt requested, at the address set forth below or at such other address as
may hereafter be designated by notice given in compliance with the terms hereof:
If to the Employee: Helmut Adamski
If to Data I/O: Data I/O Corporation
10525 Willows Road N.E.
P.O. Box 97046
Redmond, Washington 98073-9746
Attention: President
FAX: (206) 881-2917
CC: General Counsel
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<PAGE>
Notice shall be effective upon personal delivery, delivery by courier, receipt
of facsimile transmission or three days after mailing.
10. Assignment. Neither of the parties shall assign or delegate or
in any way transfer any rights, interests or obligations hereunder without the
prior written consent of the other parties, except that the parties agree that
this Agreement: (A) shall be transferred or assigned by Data I/O to (i) an
entity resulting from any merger, consolidation or other reorganization to which
Data I/O is a party or (ii) a buyer of all or substantially all of Data I/O's
assets relevant to Data I/O's performance under this Agreement, whereupon such
assignee or transferee shall succeed to the rights and obligations of Data I/O
hereunder, and (B) may be transferred or assigned by Data I/O to any entity in
which Data I/O has a controlling interest or which is under common control with
Data I/O, whereupon such assignee or transferee shall succeed to the rights and
obligations of Data I/O hereunder. Subject to the foregoing restrictions, this
Agreement will be fully binding upon, inure to the benefit of, and be
enforceable by the parties hereto and their respective successors and permitted
assigns.
11. Waiver. No waiver of any of the provisions hereof shall be valid
unless in writing and signed by the party against whom such claim or waiver is
sought to be enforced. Failure to enforce any right hereunder shall not
constitute a continuing waiver of the same or a waiver of any other right
hereunder.
12. Amendments in Writing. No amendment, modification, waiver,
termination or discharge of any provision of this Agreement, nor consent to any
departure therefrom by either party hereto, shall in any event be effective
unless the same shall be in writing, specifically identifying this Agreement and
the provision intended to be amended, modified, waived, terminated or discharged
and signed by Data I/O and the Employee, and each such amendment, modification,
waiver, termination or discharge shall be effective only in the specific
instance and for the specific purpose for which it is given. No provision of
this Agreement shall be varied, contradicted or explained by any oral agreement,
course of dealing or performance or any other matter not set forth in an
agreement in writing and signed by Data I/O.
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13. Applicable Law and Attorneys' Fees. This Agreement shall be
governed by the substantive laws of the State of Washington, without regard to
its conflict of law provisions. The parties agree that the exclusive
jurisdiction and venue of any lawsuit between them shall be the state or federal
courts sitting in King County, Washington. In any action or proceeding brought
by any party against the other arising out of or relating in any way to this
Agreement, the most prevailing party shall, in addition to other allowable
costs, be entitled to an award of reasonable attorneys' fees.
14. Severability. In the event that any provision of this Agreement
shall be determined by any court or arbitrator of competent jurisdiction to be
unenforceable or otherwise invalid for any reason, including but not limited to,
the duration of such provision, its geographical scope or the extent of the
activities prohibited or required by it, such provision shall be enforced and
validated to the extent permitted by law, and the court or arbitrator shall have
the power to reform such provision to the extent necessary for such provision to
be enforceable under applicable law. All provisions of this Agreement are
severable, and the unenforceability or invalidity of any single provision hereof
shall not affect the remaining provisions.
15. Survival. Paragraphs 4.2 and 8.1 and Sections 5, 6, 7 and 9
through 17 shall survive the termination of Employee's employment with Data I/O
or the expiration of the Term.
16. Headings. All headings or titles in this Agreement are for the
purpose of reference only and shall not in any way affect the interpretation or
construction of this Agreement.
17. Complete Agreement. This Agreement comprises the entire
agreement between Data I/O and Employee with respect to his terms of employment
and supersedes and merges within it all prior agreements and understandings
between them concerning such employment, whether written or oral, express or
implied. In interpreting and construing this Agreement, the fact that either
party may have drafted this Agreement or any provisions hereof shall not be
given any weight or relevance.
IN WITNESS WHEREOF, the parties have entered into this Agreement as
of November 19, 1998.
DATA I/O CORPORATION EMPLOYEE:
By//S//DAVID C. BULLIS //S//HELMUT ADAMSKI
Printed Name David C. Bullis Helmut Adamski
Title President/CEO
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Exhibit 10.40
Hans Walter Ott, Eng., Inc. Complete construction and building management
Rental Contract
between
Hans Walter Ott, Eng., Inc., Complete Construction and Bldg. Management,
Vincenz-Gekle-Weg 10, 88279 Amtzell
- - represented by Mr. Hans Walter Ott, Engineer, Martinstra(beta)e 1, 88279
Amtzell - - Lessor -
and
SMS Holding GmbH, Im Grund 15, 88239 Wangen im Allgau
- - represented by company director Mr. Helmut Adamski -
- - Lessee -
ss.1 Rental Property
1.1 The object of this rental contract is the building to be erected by the
lessor on the property in Amtzell-Gieselharz, in the district of Amtzell, on the
basis of the development plans (see Attachments 3 - 5) and the floor plans with
building description (see Attachment 2) by the planning office of Hans Walter
Ott, Eng., Inc., Vincenz-Gekle-Weg 10, 88279 Amtzell. The building is to have 12
m2 net floor space per DIN [German Industrial Standard] 277, with exterior
features including the number of ground level, uncovered parking places required
by the LBO/building permit (at least 30 in any case).
Extent and equipment of the rental object to be supplied by the lessor at his
cost are taken from the Attachments listed under ss.14 Item 14.2 of this
contract.
1.2 Special items not contained in the floor plan or the other attachments to
the offering (ss.14) up to now, as well as later changes desired by the lessee
that extend beyond the scope of the floor plan, will be limited to the amount
absolutely necessary, and will be implemented only within the cost structure
(for building and exterior features) set forth in the rent payment calculation
(see ss. 3 Item 3.7)
1.3 The lessor is obligated to proceed with planning and construction of the
rental object in a timely manner, so that it can be presented to the lessee,
ready to occupy, no later than September 30, 1999.
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1.4 In case this completion deadline is not met, the lessor will pay a
contractual penalty of 300.- DM for every day it is late, without demonstration
of fault. The contractual penalty has no time limit. The contractual penalty
does not exclude additional damage claims. The lessor is responsible for any
subcontractors engaged by him.
ss.2 Rental Period, Cancellation
2.1 The rental relationship begins with the transfer of the rental object to the
lessee in acceptable condition (after acceptance). It is fixed for the period of
10 years, beginning with the first of the month following the transfer. The
lessee is entitled to extend the rental relationship twice, by 5 years each
time, by written request to the lessor (Option). The written request must be
received by the lessor 1 year in advance each time. If the option is not
exercised, the rental relationship ends after the 10-year lease period.
2.2 Thereafter, the rental relationship is extend for an undetermined amount of
time, as long as it is not cancelled with 12 months notice. Cancellation must be
in writing to be valid and must be presented to the other party no later than
the 3rd working day of the first month of the cancellation notice period.
ss.3 Rent Amount
3.1 The rent amount for basement, ground floor, upper floor, and roof is
12.50 DM / m2 of net floor space per month.
The monthly rent for ca. 1200.00 m2 net floor space is therefore 15,000 DM
(in words: Fifteen Thousand Deutsche Mark),
The monthly rent for the basement areas (cellar and underground garage)
is 4.00 DM / m2 of net floor space per month, but despite this
determination it is set by mutual agreement at a rate of 900 DM per
month.
Therefore the total annual rent is 190,800 DM (in words: One Hundred Ninety
Thousand Eight Hundred Deutsche Mark)
The above amounts are net sums; the VAT due is to be added at the
current rate, now 16%.
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The exact rent amount for basement, ground floor, upper floor, and roof
is determined by the finished plan and is to be calculated by both
parties together based on the actual floor space after construction.
This square meter amount will be used to calculate the final rent
amount and will then become addended to the rental contract. The basis
for all floor space calculations is the DIN.
3.2 The rent is to be paid in advance every month, without charge, no later than
the 3rd working day of the month, into an account to be named by the lessor.
3.3 To secure the rent amount, the lessee will transfer a bank guarantee from a
large German bank, in the amount of two years' rent, within 14 days of signing
the rental contract. The lessor will pay 0.75 percent of the guarantee amount
annually. The costs of the guarantee described above are calculated with the
rent each July.
3.4 Each contractual party can demand negotiations about a new determination of
the rent amount for use of the building (building rent portion), if, after the
beginning of the contract, the monthly price index for the cost of living for a
four-person household of laborers and salaried employees, with average income,
in Baden-Wurttemberg, as determined by the Baden-Wurttemberg Statistical Office,
has increased or decreased by 5 per cent relative to its level at the beginning
of the rental relationship, but not before 18 months have passed. The parties
agree upon a basis amount for the cost of living index, in the month in which
the contract period begins, of 1991 = 100 as an index.
3.5 After a new rent amount is set, the next new setting is possible no sooner
than 12 months later, according to the rent adjustment clause in Item 3. If the
cost of living index for 1991 = 100 no longer be available, then it will be
converted on the basis of the new cost of living index published at the time; in
all other ways it will be handled as described above.
3.6 A change in the rent amount is to be validated in writing by both parties.
3.7 During the course of planning and construction, the lessee will only request
those changes that can be financed, from the financial basis of the rental value
calculation, by canceling or changing other positions. If this is not possible
(for example, because they are deemed by the future user/lessee to be
indispensable after the fact as deviations from usage-neutral furnishings), then
special contractual regulations are to be made. Subsequent demands by the lessor
because of inaccurate planning, or changes in planning or furnishings, are
excluded.
3.8 The new set rent amount, underss.3 Item 3.4, 3.5, and 3.6 of this contract,
is due on the first of the month following the rent adjustment request.
3.9 The lessee is entitled to tax deductions. The rent receipts are subject to
sales taxes.
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ss.4 Operating Costs
4.1 The lessee pays all operating costs, as listed in the current edition of
Attachment 10 (Attachment 3 to ss.27 paragraph 1 II. Calculation Arrangements),
of 10/12/1990, (BGBH, I S. 2179 ff.).
4.2 If costs listed under Item 1 are presented to the lessor by a third party
entitled to payment, then the lessee is to be informed promptly of these and any
payments made. The payment obligations arising from these are to be repaid by
the end of the month in which the information was shared.
ss.5 Use of the Rental Space, Sublets
5.1 The lessee will use the rental object commercially as office space with an
integrated storeroom and workshop, as well as two one-room apartments including
underground garage and cellar rooms. Notice is clearly given that the
installation of an elevator is not included in the scope to be provided by the
lessor. It will, however, be ensured that an elevator shaft is present. If the
lessee should install an elevator, then the residual cost of the elevator (time
value) at the end of rental relationship will be paid by the lessor.
5.2 The lessee is entitled to allow others to use the rental object, with the
agreement of the lessor, or to sublet it in whole or in part.
The lessor can only deny permission to sublet for important reasons.
ss.6 Building Maintenance
6.1 Maintenance of the rental property is the responsibility of the lessor. The
lessee is obligated to promptly inform the lessor of any damages discovered that
fall under the maintenance responsibility of the lessor. The lessor is obligated
to maintain the rental property, including accessories, in constant good
condition, fit for its intended purpose. If this obligation is not or is
insufficiently met within an appropriate time frame, despite warnings, then the
lessee is entitled to arrange for the required work to be done at the lessor's
cost.
6.2 Performance of cosmetic repairs is the responsibility of the lessee. The
cosmetic repairs particularly include interior paint, wallpaper, plastering or
painting of walls and ceilings, painting or finishing of radiators, heating
pipes, other supply lines, interior doors, windows, and the interior side of
exterior doors.
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6.3 Small repairs to items permanently attached to the building (blinds,
shutters, radiators, sanitary facilities, and window and door hardware) are to
be repaired by the lessee at his cost, up to 1,000.- DM per case, but not more
than 1 per cent of the annual rent in a calendar year.
ss.7 Safety Obligations, Liability
7.1 The lessee takes responsibility for safety within the rental object. This is
not the case if the lessor does not repair damages in the rental object, despite
having been informed of them by the lessee.
7.2 The lessee takes responsibility for safety, as well as for normal cleaning,
clearing, and spreading responsibilities for the walkways, entrances to the
rental object, with regard to local legal requirements. The required materials
are to be obtained by the lessee at his cost.
7.3 The lessee is responsible for all damages caused by his fault, or the fault
of his employees or visitors. He is also responsible for damages that result
from improper use of supply utilities (water, sewer, and electrical
installations).
7.4 The lessor is responsible for all damages to the lessee, his employees or
visitors, or to objects brought in, that result from the lessor violating the
responsibility for maintenance and safety. This is unless the lessee has failed
to meet his responsibility to inform the lessor under ss.6 Item 6.1 of this
contract.
ss.8 Installations and Modifications
The lessee can, at his cost, perform installations and modifications to the
rental property, as long as the lessor has agreed to them in writing. If the
lessee performs installations or modifications, he is to maintain them properly
and, at the request of the lessor, to remove them and restore the original
condition.
ss.9 Entry to the Rental Areas
The lessor and his agents can enter the rental object during business hours with
prior notice to the user, and, in case of danger, also outside business hours.
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ss.10 Chargebacks, Rent Reduction, Right of Withholding
The lessee can only charge against his rent, reduce the rent, or withhold
payment because of a counter-claim if he has informed the lessor of this in,
writing, at least 1 month before the rent is due. Chargebacks are only valid if
the claim has been legally determined. An additional requirement is that he is
not in arrears on the rent payments.
ss.11 Ending the Rental Relationship
11.1 At the end of the rental relationship, the lessee is to return the rental
object completely empty and swept clean. He is to return all keys, including
those made during the period of the rental relationship, to the lessor. The
lessor and lessee will prepare a joint document regarding the return of the
rental object.
11.2 Damages that clearly took place during the rental period and that are the
responsibility of the lessee are to be described in more detail in the document
- - as long as they are not the result of normal wear and tear. They are to be
repaired by the lessee at his cost within a reasonable amount of time.
11.3 The lessor can retain the installations and modifications performed by the
lessee by paying their depreciated value.
The lessor has a two-month declaration limit upon request by the lessee.
11.4 The lessee is obligated, in case no agreement is reached with the lessor,
to remove the fixed installations that he installed in the rental object, by
restoring the original condition.
ss.12 Further Offering of the Rental Property
12.1 The rental property may be offered for sale to a third party.
12.2 The lessor is obligated, in case of a further offering of the rental
property, to ensure that the new owner enters into the rental contract made with
the lessee, with all rights and obligations.
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ss.13 Right of Purchase, Option
Can be guaranteed if desired.
ss.14 Changes and Additions, Attachments
14.1 Changes and additions to this rental contract must be in writing to be
valid.
14.2 The following attachments are included as integral parts of the rental
contract:
Any attachments still missing are to be provided as soon as possible,
and to be signed by both parties.
Attachment 1: Map, scale 1:500, from the State Measurement Office
of Wangen,
Attachment 2: Floor plan with building description, from the
planning office of Hans Walter Ott, Eng., Inc.,
88279 Amtzell, including floor space calculations
per DIN 277, with building permit from the State
Office in Ravensburg, as well as proof of thermal
insulation,
Attachment 3: Draft plans for the building (floor plans,
elevations, sections), scale 1:100 and 1:20, from
the planning office of Hans Walter Ott, Eng., Inc.,
88279 Amtzell,
Attachment 4: Draft plans for the structure, scale 1:100, from
the planning office of Hans Walter Ott, Eng.,
Inc., 88279 Amtzell,
Attachment 5: Draft plans for the exterior features with
parking lot, scale 1:200 and 1:250, from the
planning office of Hans Walter Ott, Eng., Inc.,
88279 Amtzell,
Attachment 6: Installation plan,
Attachment 7: Plans for the installation of heating, sanitary
facilities, and ventilation,
Attachment 8: Plans for the electrical installations,
Attachment 9: Management requirements of the Interior Ministry
for fire protection requirements for pipes and
piping systems (VwV pipes) GABI. 1990 Page 597 ff.
dated 09/05/1990,
Attachment 10: List of operating costs
ss.15 Use of the BGB
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<PAGE>
As long as no other regulation is agreed to in this contract, the requirements
of the BGB regarding rent will be valid. If a single contractual requirement
becomes invalid or is changed by a future change in the law, this will not cause
the entire contract to become invalid. The individual invalid requirement is to
be modified under consideration of existed or changed legal requirements, such
that it meets the intent of the contractual parties, as determined under
consideration of best belief.
ss.16 Fulfillment Location, Jurisdiction
The fulfillment location for rent payment is Amtzell. Jurisdiction for all
disputes under this contract is Ravensburg.
ss.17 Final Agreement
This rental contract is made in 4 copies. Each contractual partner receives 2
copies, as well as one copy of the attachments listed under ss.14 Item 14.2.
Amtzell, 12/22/98 Wangen, _________
[Stamp: OTT
Hans Walter Ott, Eng., Inc.
Complete Construction and Bldg. Management
Vincenz-Gekle-Weg 10 88279 Amtzell
Tel. 0 75 20 / 95 66-0 Fax 95 66 29]
[Signature] //S// Helmut Adamski
Lessor Lessee
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List of Operating Costs
(Attachment 3 to ss.27 paragraph 1 II. Calculation requirements) dated
10/12/1990 (BGB 1 I S. 2179 ff.)
Operating costs are the following costs to the owner (entitled to build) that
arise continuously from the ownership (right to build) of the property, or from
proper use of the building or the economic unit, the outbuildings, features,
equipment, and property, unless they are normally borne directly by the lessee
in addition to the rent:
1. Continuous public burdens on the property
2. Costs of water supply
This includes the costs of water usage, basic costs, and rent of
meters, costs of use of intermediate meters, costs of operating a
dedicated water supply system, and a water preparation system,
including preparation materials.
3. Costs of water removal
This includes fees for building and property water removal, the costs
of operating a similar non-public system, and the costs of operating a
water removal pump.
4. Costs of operating the central heating system, including exhaust
system
This includes the costs for consumable fuel and its delivery, costs of
operating electricity, costs of operating, monitoring, and maintaining
the system, regular inspection of its fitness for use and safety,
including adjustment by a professional, cleaning of the system and the
utility room, costs for measuring in accordance with the Federal
Emissions Protection Law, costs of renting or otherwise obtaining the
use of a device to measure usage, as well as the costs of the use of a
device to measure usage, including the costs of calculation and
division.
5. Costs of operating the central hot water supply system
This includes the costs of the water supply, as under item 2, to the
extent that they are not already covered there, and the costs of
heating the water, as under item 4.
6. Costs of operating the mechanical passenger or freight elevator
(if present)
This includes the costs of operating electricity, costs for inspection,
operating, monitoring, and maintenance of the system, regular
inspection of its fitness for use and safety, including adjustment by a
professional, as well as costs for cleaning the system.
7. Costs for street cleaning and trash removal
This includes fees payable for public street cleaning and trash
removal, or the costs for appropriate, non-public services.
Page 169
<PAGE>
8. Costs for building cleaning and pest control
Building cleaning costs include costs for cleaning the areas used
jointly by the residents, such as entrances, hallways, stairs, cellars,
floor rooms, laundry rooms, elevator passenger compartment.
9. Costs of garden maintenance
This includes costs for care of planted areas, including replacement of
plants and trees, care of play areas including replacement of sand, and
care of areas and entrances that serve non-public access.
10. Lighting Costs
This includes costs of electricity for exterior lighting and lighting
of the areas used jointly by the residents, such as entrances,
hallways, stairs, cellars, floor rooms, laundry rooms.
11. Costs of chimney cleaning
This includes sweeping charges, according to the ruling charge
schedule, to the extent that they are not already included as costs
under No. 4.
12. Costs of property and liability insurance
This includes namely the costs for insurance of the building against
fire, storm, and water damage, glass insurance, liability insurance for
the building, the oil tank, and the elevator.
13. Costs for building management
This includes wages, social contributions, and all similar benefits
provided by the owner to the building manager for his work, to the
extent that these do not apply to the maintenance, repair, renewal,
cosmetic repairs, or building administration.
To the extent that work is done by the building manager, the costs
for work performed under numbers 2 to 10 may not be charged.
14. Costs
14.a) of operating the joint antenna system;
This includes the costs for operating electricity and costs for regular
inspection of its fitness for use, including adjustment by a
professional, or a usage fee for an antenna system that does not belong
to the economic unit.
Or
14.b) of operating the private distribution system connected to a broadcast
cable network;
This includes the costs as under letter a), and the regular monthly
basic charges for broadcast connections.
15. Other operating costs
For other costs not named here, the appropriate legal regulation will
prevail.
Amtzell, 12/22/98
[Stamp: OTT
Hans Walter Ott, Eng., Inc.
Complete Construction and Bldg. Management
Vincenz-Gekle-Weg 10 88279 Amtzell
Tel. 0 75 20 / 95 66-0 Fax 95 66 29]
[Signature]
Signature of Lessor Signature of Lessee
Page 170
Exhibit 10.41
August 7, 1998
Mr. Jim Rounds
12326 Marine View Drive
Edmonds, WA 98026
Dear Jim:
We would like to offer you the position of Vice President of Engineering for
Data I/O Corporation. You will serve as a corporate officer on the Executive
Committee. We would like your start date to be September 16, if this is
acceptable to you.
The total cash compensation for this position is comprised of two elements, an
annual base salary of $200,000, plus participation in the Management Incentive
Compensation Plan ("MICP") at 30% of your base salary ($60,000) for performance
at target. The elements of this incentive plan are outlined in the attachment.
For 1998, your bonus will be pro-rated (based on your actual 1998 earnings) and
will be guaranteed.
An award of 71,000 shares of non-qualified options will be granted to you. These
options have a two year vesting period and are priced at the average Fair Market
Value of our stock on the later of the board approval date or your start date.
In addition, should Data I/O undergo any change in control (for example, be
acquired by another company), these options will fully vest.
If you are subject to a lay-off, you will receive one year salary (base plus
bonus) as severance and your options will immediately vest.
You will be eligible for all company benefit programs as outlined in the Data
I/O Team Member Handbook. Your medical, dental, vision, and life insurance
benefits are effective on your first day of employment. You will have 30 days
after you begin work to choose the type of coverage you would like. We also have
a generous Person Time Off ("PTO") policy which gives every employee twenty days
per year of vacation/sick leave.
Your employment is conditional upon execution of our Employment Agreement (see
attached) and completion of an I-9 Form. In order to comply with the Immigration
Reform and Control Act of 1986, we must make sure that all new team members have
the right to legally work in the United States. Please bring sufficient
documents to complete the I-9 Form on your first day of work (e.g.: (1) passport
(2) drivers license and social security card, or (3) drivers license and
original birth certificate).
While this offer does not express or imply an employment contract between you
and Data I/O for any specific period time, we believe that the relationship will
be productive and mutually beneficial.
Your signature below indicates acceptance of this offer. The terms and
conditions outlined above are all of the terms and conditions of this offer.
Sincerely,
//S//DAVID C. BULLIS
Dave Bullis
President and CEO
enclosures
==================================================================
I agree to the offer as stated above.
Signed //S//JIM ROUNDS Date Sept. 8, 1998
Page 171
Exhibit 10.42
March 25, 1998
Mr. David Bullis
16020 SW Cormorant Drive
Beaverton, OR 97007
Dear Dave:
We would like to offer you the position of CEO/President for Data I/O
Corporation. We would like you to start on or before May 1, 1998, prior to the
date of our Annual Meeting (May 13, 1998).
The total cash compensation for this position is comprised of two major
elements, an annual base salary of $250,000 plus participation in a 1998 bonus
for you at 40% of your base salary ($100,000). As agreed, this bonus will cover
the period from 5/1/98 to 4/30/99. The elements of this incentive plan for you
for 1998 are defined below:
o 30% of the bonus will be based on the release and customer shipment (Data
I/O's Quality Gate 6) for 3 key products at 10% each - PM 870 (Coyote), PM 970
(Piranha), DataSite Single Site.
o 30% of the bonus will be based on achieving the revenue plan for 1998.
o 20% of the bonus will be based on meeting agreed upon customer satisfaction
goals.
o 20% of the bonus will be based on successful completion of a Strategic
Marketing Plan that is approved by the Board of Directors.
For your bonus, more specific goals and metrics for the elements specified above
will be defined between you and the Board of Directors within 60 days of your
start date. If mutually agreed, we may decide to re-set your bonus for 1999 and
thereafter to a calendar year basis to be coincidental to other company bonus
plans. We can determine if this would be desirable after your start date.
An award of 3% of the outstanding shares (214,000) of non qualified options will
be granted to you. These options have a four year vesting period and are priced
at the average Fair Market Value of our stock on the effective date of your
written acceptance of our offer. We will put you on Data I/O's payroll
immediately after your written acceptance of our offer on a part-time basis at
an hourly rate of $120.19.
In addition, there would be accelerated vesting if there is a change in control
as follows:
o 50% of your options would vest if there is a change in control;
o 25% more of your options would vest if there is a change in control with an
acquisition price of $10 per share;
o 25% more of your options would vest if there is a change in control with an
acquisition price of $15 per share.
Page 172
<PAGE>
Our normal policy is to annually vest options, however, the compensation
committee of the Board of Directors has decided to quarterly vest the 214,000
options granted to you.
The Board of Directors has authorized the reimbursement of up to $100,000 in
direct relocation expenses. This includes, but is not limited to, real estate
fees for selling both Portland residences, closing costs at origin and
destination, movement of household goods, temporary storage and delivery of
household goods, house hunting expenses, temporary living and commuting expenses
until primary residence is sold. Data I/O will gross up to cover all tax
consequences of the relocation package. The board is flexible on the maximum
amount should additional resources be required for the relocation.
You will be eligible for all company benefit programs as outlined in the Team
Member Handbook. Your medical, dental, vision, and life insurance benefits are
effective on your first day of employment. You will have 30 days after you begin
work to choose the type of coverage you desire. You are eligible to participate
in our 401(k) plan after three months of employment. This plan provides the
opportunity for salary deferrals and a company match.
You made a very favorable impression with the Board of Directors as well as the
management team. We will be delighted to have you as the leader of the Data I/O
team.
While this offer doe snot express or imply an employment contract between you
and Data I/O for any specific period time, we believe that the relationship will
be productive and mutually beneficial.
Your employment is conditional upon execution of our Employment Agreement (see
attached) and completion of an I-9 Form. Your signature below indicates
acceptance of this offer. The terms and conditions outlined above are all of the
terms and conditions of this offer. Your signature below indicates acceptance of
this offer.
Best regards,
//S//Keith Barnes
Keith Barnes
Board of Directors, Data I/O
cc: Susan Webber, Data I/O
==================================================================
I agree to the offer as stated above.
Signed //S// David C. Bullis Date April 4, 1998
Page 173
<PAGE>
August 19, 1998
Mr. David Bullis
16020 SW Cormorant Drive
Beaverton, OR 97007
Dear Dave:
This letter agreement ("Agreement") is to confirm our understanding
about certain benefits that Data I/O Corporation (the "Company") has agreed to
provide you in connection with your agreement to continue to serve as the
Company's President and CEO for a period of six (6) months after the date hereof
(the "Minimum Period") or longer.
1. The Company will pay you the full amount of the cash bonus you are entitled
to regarding the 1998 calendar year (the "1998 Bonus"), provided that you
continue to serve as the Company's President and CEO for at least the Minimum
Period (the "Condition"). The 1998 Bonus is $58,333.00 and shall be payable in
lump sum during the month of February, 1999 but no later than February 28, 1999.
2. You will be the opportunity to exchange your current options for options with
an exercise price based on the closing price of the Company's common stock on
The Nasdaq National Market on August 3, 1998 pursuant to the terms of a letter
agreement to be entered into between you and the Company concurrently with the
execution of this letter agreement in the form of Exhibit A to this letter
agreement (the "Repricing Letter")
3. In accordance with the Executive Agreement between you and the Company in the
form of Exhibit B to this letter agreement (the "Executive Agreement'), upon the
occurrence of a Control Event (as defined in the Executive Agreement) which
occurs during your employment by Company, the Company shall pay you a severance
payment (the "Change of Control Severance Payment"). The terms and conditions of
the Change of Control Severance Payment are set forth in the Executive
Agreement.
4. The Company will enter into an option agreement with you relating to your
options outstanding under the Company's 1986 Stock Option Plan, as amended and
restated (the "Plan") substantially in the form attached to the Repricing
Letter. Such option agreement shall provide that upon the occurrence of certain
events related to a change of control of the Company as more specifically
described in Section 5(n) of the Plan, all options outstanding under the Plan
held by you will accelerate in accordance with the terms of Section 5(n) of the
Plan, without regard to the six-month holding requirement set forth in Section
5(n) of the Plan.
5. At any time after satisfaction of the Condition, you will have the right to
resign for any or no reason upon at least 120 days' prior written notice to the
Company (a "Permitted Resignation"). Within 60 days after a Permitted
Resignation, the Company will pay you a severance payment in an amount equal to
fifty percent (50%) of the sum of (i) your annual base salary as of the
effective date of the Permitted Resignation, plus (ii) the cash bonus you would
be entitled to receive under any bonus plan that has been approved by the
Company's Board of Directors regarding the then current fiscal year; provided,
however, that if a Control Event (as defined in the Executive Agreement) occurs
which obligates the Company to pay you the Change of Control Severance Payment
under the Executive Agreement, then the Company shall not be obligated to pay
you any severance payment relating to a Permitted Resignation under this
Paragraph 5. If and to the extent the cash bonus described in clause (ii) is
dependent upon the Company's achievement of certain performance goals stated in
such bonus plan, the Company will assume that the relevant targets set forth in
the Company's operating plan for such fiscal year have been met but not exceeded
solely in order to calculate the amount of such bonus.
Page 174
<PAGE>
6. The Company acknowledges that you will have sole discretion as to whether you
will relocate your primary residence to the Seattle area in connection with and
during your employment by the Company. If you decide to relocate your permanent
residence to the Seattle area in connection with your employment by the Company,
the Company will pay for your relocation expenses in accordance with the terms
of the offer letter dated March 25, 1998, from the Company to you relating to
certain terms of your employment (the "Offer Letter"). If, instead, you do not
move your principal residence to the Seattle area and decide to lease a
temporary residence in the Seattle area in connection with and during your
employment by the Company (a "Temporary Lease"), then in the event of a
Permitted Resignation which occurs prior to expiration of the term of the
Temporary Lease, the Company agrees to be responsible for any future rent
payments under the Temporary Lease for the remaining term thereof; provided,
however, that (i) you have vacated the premises being leased under the Temporary
Lease and (ii) in no event shall the Company's obligations under this Paragraph
6 exceed eight (8) months' rent under the Temporary Lease.
7. The Company will withhold all applicable federal, state, local and foreign
withholding taxes from all payments and benefits to be provided to you
hereunder.
8. Notwithstanding any provision of this letter agreement to the contrary, if,
in the good faith judgment of the Company, any payment, benefit or right payable
or accruing to you under this letter agreement, the Plan, Executive Agreement,
Repricing Letter, the Company's option plans or any other benefit plan of the
Company (collectively, the "Severance Payments") would constitute a "parachute
payment" as defined in Section 280G(b)(2) of the Internal Revenue Code of 1986,
as amended (the "Code"), then the total amount of payments under this letter
agreement and, if necessary, under the Plan, Executive Agreement, Repricing
Letter, the Company's option plans or any other benefit plan shall be reduced so
that the total of all Severance Payments is not greater than 2.99 times your
"base amount" as defined in Code Section 280G(b)(3).
9. Nothing contained in this letter agreement shall be construed as giving you
the right to employment by the Company. Notwithstanding any provision of this
letter agreement to the contrary, the Company shall have the right to terminate
your employment for any or no reason, whether during or after the Minimum
Period. No term of any employment agreement between you and the Company shall be
construed to conflict with, lessen or expand the obligations of the parties
under this letter agreement.
10. Your rights under this letter agreement are personal to you and are not
assignable. The Company may assign its rights under this letter agreement in
connection with any merger or consolidation of the Company or any sale of all or
any portion of the Company's assets (including, without limitation, any division
or product line), provided that any such successor or assignee expressly assumes
in writing the Company's obligations under this letter agreement.
11. This letter agreement, together with the Offer Letter, Repricing Letter and
Executive Agreement, constitute the entire agreement of the parties with respect
to the subject matter hereof, and supersede all prior agreements, conversations
and understandings of the parties with respect to such subject matter. In the
event of a conflict between any provision of this letter agreement and the Offer
Letter, the provisions of this letter agreement shall control. In the event of a
conflict between any provision of this letter agreement and the Executive
Agreement and/or Repricing Letter, the provisions of the Executive Agreement
and/or Repricing Letter, as the case may be, shall control.
12. This letter agreement shall be governed by and construed in accordance with
the local laws of the State of Washington, without regard to its conflict of
laws principles, and may be executed in one or more counterparts, all of which
shall be deemed one agreement. This letter agreement may not be modified except
in a writing signed by the parties.
If the terms of this letter agreement are acceptable to you, please
indicate your acceptance by signing in the space provided below and returning it
to the Company by August 26, 1998.
DATA I/O CORPORATION
By: //S// Frances M. Conley
Its: Chairman of the Board
Accepted and agreed:
//S//David C. Bullis
David Bullis
Page 175
<PAGE>
DATA I/O CORPORATION
10525 Willows Road N.E.
Redmond, WA 98052
CONFIDENTIAL
August 19, 1998
Mr. David Bullis
16020 SW Cormorant Drive
Beaverton, OR 97007
Dear Dave,
You are a key member of the Data I/O Team. Your worth to the Company has been
recognized by the Company granting you stock options reflecting your
contribution to the success of the Company. The Board of Directors, in
recognition of the worth of key Team members, and with the desire to motivate
and retain you, has authorized the grant to you of a new option with an exercise
price of $3-11/32 (the "New Option Price") which is offered in exchange for your
outstanding options with an exercise price greater than the New Option Price
("Old Options").
The new lower-price option would entitle you to purchase the same number of
shares covered by your Old Options. The other terms of the new option, such as
the vesting schedule and expiration date, are identical to those of your Old
Options except that the new option and the currently vested portions will not be
exercisable until February 19, 1999. You are under no obligation to surrender
your Old Options for the new one. If you do not wish to take advantage of this
offer, your stock options will retain the vesting and pricing they had prior to
this offer.
In order to take advantage of this offer, please sign below and return this
letter by August 26, 1998 to Human Resources. By your signature and the
Company's signature below, you and the Company agree that your Old Options are
canceled and your new replacement option is granted under and governed by the
terms and conditions of the Company's Stock Option Plan, as amended and the
Option Agreement, the latter of which is attached hereto and made a part of this
document. Also, please return to Human Resources all copies of the option
agreements that are being exchanged and canceled.
I want to personally thank you for your continuing contribution to the Company.
I am pleased to be able to be in a position to extend this substitution offer
for your stock options, adjusting them down to a current market price.
Data I/O Corporation Agreed to and accepted by:
//S// Frances M. Conley //S// David C. Bullis
- --------------------------------- --------------------------------
Name: Frances M. Conley David Bullis
Title: Chairman of the Board
Page 176
<PAGE>
EXECUTIVE AGREEMENT
FOR
DATA I/O CORPORATION
This Agreement is entered into this 19th day of August, 1998, by and
between DATA I/O CORPORATION ("the Company") and DAVID BULLIS ("Executive").
Executive is an at-will employee of the Company. The parties wish to provide
Executive with severance benefits upon a change in control in the Company.
NOW, THEREFORE, in consideration of the foregoing recitals and the
covenants and conditions contained herein, the parties hereby agree as follows:
1. Change of Control.
(a) Upon the occurrence of a Control Event (as
defined below) which occurs during Executive's employment by the Company as
its Chief Executive Officer, regardless of whether the Company terminates
Executive's employment, the Company shall pay to Executive the Severance Payment
(as hereinafter defined) in immediately available funds. The Severance Payment
shall be equal to the sum of (i) Executive's annual base salary as of the date
of the occurrence of the Control Event, plus (ii) the cash bonus that Executive
is entitled to receive under any bonus plan that has been approved by the
Company's Board of Directors regarding the current fiscal year of the Company
during which Executive was employed by the Company in his current position. If
and to the extent the cash bonus described in clause (ii) is dependent upon the
Company's achievement of certain performance goals stated in such bonus plan,
the Company will assume that the relevant targets set forth in the Company's
operating plan for such fiscal year have been met but not exceeded solely in
order to calculate the amount of such bonus. The Severance Payment is due on the
twentieth (20) business day following the date of occurrence of the Control
Event.
(b) Each of the following shall constitute a "Control
Event":
(1) the acquisition of Common Stock
of the Company (the "Common Stock") by any "Person" (as such term is
defined in Section 1.21 of the Rights Agreement dated as of April 4, 1998
between the Company and ChaseMellon Shareholder Services, L.L.C., as amended
(the "Rights Plan"), together with all Affiliates and Associates (as such terms
are defined in Section 1.5 of the Rights Plan) of such Person, such that such
Person becomes, after the date of this Agreement, the Beneficial Owner (as
defined in the Rights Plan) of a majority of the shares of Common Stock then
outstanding, but shall not include the Company, any subsidiary of the Company,
any employee benefit plan of the Company or of any subsidiary of the Company, or
any Person or entity organized, appointed or established by the Company for or
pursuant to the terms of any such employee benefit plan; or
(2) the approval by the Company's
shareholders (or, if later, approval by the shareholders of any Person) of
any merger, consolidation, reorganization or other transaction providing for the
conversion or exchange of more than fifty percent (50%) of the outstanding
shares of Common Stock into securities of any Person, or cash, or property, or a
combination of any of the foregoing; or
(3) The approval by the Company's
shareholders (or, if later, approval by the shareholders of any Person) of
any sale, lease, exchange or other transfer not in the ordinary course of
business (in one transaction or a series of related transactions) of all, or
substantially all, of the assets of the Company.
Page 177
<PAGE>
(a) Notwithstanding any other provision of this
Agreement to the contrary, in the event that any severance or other
payment, benefit or right payable or accruing to Executive hereunder or under
the Company's Amended and Restated 1986 Stock Option Plan ("Option Plan") would
constitute a "parachute payment" as defined in Section 280G(b)(2) of the
Internal Revenue Code of 1986, as amended (the "Code"), then the total amount of
severance and other payments or benefits payable to Executive hereunder, under
the letter agreement concurrently being entered into by Executive and the
Company regarding certain benefits that the Company will provide to Executive in
connection with Executive's continued employment as President and Chief
Executive Officer (the "Master Letter Agreement"), under the letter to Executive
from the Company relating to the repricing certain stock options of Executive,
under the Option Plan and under any other benefit plan of the Company which is
deemed to constitute a "parachute payment" shall not exceed and shall, if
necessary, be reduced to an amount (the "Revised Severance Payment") equal to
2.99 times Executive's "base amount" as defined in Code Section 28G(b)(3). In
the event of a disagreement between the Company and Executive as to whether the
provisions of Code section 280G are applicable or the amount of the Revised
Severance Payment, such determination shall be made by the Company's independent
public accountants or, if such firm is unable or unwilling to render such a
determination, then by a law firm mutually acceptable to Executive and the
Company. All costs relating to such determination shall be borne by the Company.
The Company and the Executive shall cooperate in good faith to make the
determination required by this Subsection 1(c) by mutual agreement not later
than the later of: (i) the fifth day preceding the date that the Severance
Payment is or would be due or (ii) the earlier of (x) the tenth day following
the expiration of any period of accelerated vesting of options to purchase the
Company's Common Stock provided by Section 5(n) of the Option Plan or (y) the
tenth day following the date of exercise by Executive of his or her last
remaining option which was exercisable solely due to the application of Section
5(n) of the Option Plan. Pending the final calculation of the Severance Payment
or Revised Severance Payment, the Company shall pay the amounts described under
subsection (b) above at the time and in the manner provided herein; provided
that, pending such determination, such payments shall be reduced by such amounts
as the Company estimates in good faith to be necessary to satisfy its tax
(including excise tax) withholding obligations and effect the reduction in the
amount of the Severance Payment, as contemplated by this Subsection 1(c). The
aggregate amount of any compensation actually paid or provided to Executive
under the terms of this Agreement and in excess of the Revised Severance Payment
shall be deemed, to the extent of such excess, a loan to Executive payable upon
demand and bearing interest at the rate of 8% per annum.
2. Term of Agreement.
The Company's obligations under Section 1 of this
Agreement shall expire with respect to
Control Events occurring on or after the third anniversary of the date of this
Agreement unless the term hereof is extended by the Board of Directors of the
Company by a majority vote of those members of the Board who are not parties to
this or a similar agreement.
3. At Will Employment. Unless and to the extent otherwise agreed by
the Company and Executive in a separate written employment agreement,
Executive's employment shall be "at will", with either party permitted to
terminate the employment at any time, with or without cause. No term of any
employment agreement between the Company and Executive shall be construed to
conflict with, lessen or expand the obligations of the parties under this
Agreement.
Page 178
<PAGE>
4. Notices. All notices and other communications called for or
required by this Agreement shall be in writing and shall be addressed to the
parties at their respective addresses stated below or to such other address as a
party may subsequently specify by written notice and shall be deemed to have
been received (i) upon delivery in person, (ii) five days after mailing it by
U.S. certified or registered mail, return receipt requested and postage prepaid,
or (iii) two days after depositing it with a commercial overnight carrier which
provides written verification of delivery:
To the Company: 10525 Willows Road, N.E.
Redmond, Washington 98052
Attention: President
To Executive: 16020 SW Cormorant Drive
Beaverton, OR 97007
5. Withholding. Except as described in subsection 1(c) of this
Agreement, all payments due to and all benefits to be provided to Executive
hereunder shall be subject to reduction for any applicable withholding taxes,
including excise taxes.
6. Assignment. Executive's rights and duties hereunder are personal
to Executive and are not assignable to others, but Executive's obligations
hereunder will bind his/her heirs, successors, and assigns. The Company may
assign its rights under this Agreement in connection with any merger or
consolidation of the Company or any sale of all or any portion of the Company's
assets (including, without limitation, any division or product line), provided
that any such successor or assignee expressly assumes in writing the Company's
obligations hereunder.
7. No Duty to Mitigate. Executive shall not be required to mitigate
the amount of any payment made or benefit provided hereunder. The Company may
offset any payment due hereunder by the amount of damages to the Company
resulting from any breach of this Agreement by Executive.
8. General. This Agreement and the Master Letter Agreement
constitute the entire agreement of the parties with respect to the subject
matter hereof and supersede all prior agreements, conversations and
understandings of the parties with respect to such subject matter. No waiver of
or forbearance to enforce any right or provision hereof shall be binding unless
in writing and signed by the party to be bound, and no such waiver or
forbearance in any instance shall apply to any other instance or to any other
right or provision. This Agreement shall be governed by the laws of the State of
Washington, without regard to its conflicts of law principles. The parties
hereby consent to the exclusive jurisdiction and venue of the state and federal
courts sitting in King County, Washington for all matters and actions arising
under this Agreement. The prevailing party shall be entitled to reasonable
attorneys' fees and costs incurred in connection with such litigation. No term
hereof shall be construed to limit or supersede any other right or remedy of the
Company under applicable law with respect to the protection of trade secrets or
otherwise. If any provision of this Agreement is held to be invalid or
unenforceable to any extent in any context, it shall nevertheless be enforced to
the fullest extent allowed by law in that and other contexts, and the validity
and force of the remainder of this Agreement shall not be affected thereby.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
signed as of the date first above written.
DATA I/O CORPORATION EXECUTIVE:
By: //S// Frances M. Conley Signature: //S// David C. Bullis
Its: Chairman of the Board David Bullis
Page 179
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<NAME> DATA I/O CORPORATION
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<S> <C>
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<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> DEC-26-1997
<PERIOD-END> DEC-31-1998
<CASH> 4,008
<SECURITIES> 14,894
<RECEIVABLES> 5,797
<ALLOWANCES> 445
<INVENTORY> 4,442
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<PP&E> 15,336
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<CURRENT-LIABILITIES> 18,426
<BONDS> 0
0
0
<COMMON> 17,637
<OTHER-SE> 1,272
<TOTAL-LIABILITY-AND-EQUITY> 40,089
<SALES> 35,338
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<CGS> 24,933
<TOTAL-COSTS> 29,725
<OTHER-EXPENSES> 1,090
<LOSS-PROVISION> 94
<INTEREST-EXPENSE> 138
<INCOME-PRETAX> (18,466)
<INCOME-TAX> 58
<INCOME-CONTINUING> (18,524)
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<NET-INCOME> (17,630)
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