<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
or
[ ] TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 0-29038
TANISYS TECHNOLOGY, INC.
(Exact name of registrant as specified in its charter)
WYOMING 74-2675493
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
12201 TECHNOLOGY BLVD., SUITE 130
AUSTIN, TEXAS 78727
(Address of principal executive offices) (Zip Code)
(512) 335-4440
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. [X] Yes [ ] No
Indicated below is the number of shares outstanding of the Registrant's
only class of common stock at May 8, 1998:
TITLE OF CLASS NUMBER OF SHARES OUTSTANDING
-------------- ----------------------------
Common Stock, no par value 20,729,714
<PAGE>
TANISYS TECHNOLOGY, INC. AND SUBSIDIARIES
INDEX
<TABLE>
<S> <C>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets - March 31, 1998 (unaudited) and September 30, 1997. . . 3
Consolidated Statements of Operations - For the Three and Six Month Periods
Ended March 31, 1998 and 1997 (unaudited). . . . . . . . . . . . . . . . . . . . . 4
Consolidated Statements of Cash Flows - For the Three and Six Month Periods
Ended March 31, 1998 and 1997 (unaudited). . . . . . . . . . . . . . . . . . . . . 5
Notes to Consolidated Financial Statements (unaudited) . . . . . . . . . . . . . . . 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
PART II OTHER INFORMATION
Item 1. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14
Item 4. Submission of Matters to a Vote of Security Holders. . . . . . . . . . . . . . . . .14
Item 5. Other Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . .14
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TANISYS TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
MARCH 31, SEPTEMBER 30,
1998 1997
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,764,882 $ 1,990,017
Restricted cash 150,774 1,539,448
Trade accounts receivable, net of allowance of $288,312 and
$180,157, respectively 4,267,739 3,519,369
Accounts receivable from related parties 12,371 12,371
Inventory, net of allowance of $250,923 and $317,023, respectively 3,548,770 4,489,050
Prepaid expenses and other current assets 538,248 364,042
- ---------------------------------------------------------------------------------------------------
Total current assets 10,282,784 11,914,297
- ---------------------------------------------------------------------------------------------------
Property and equipment, net of accumulated depreciation of
$2,194,500 and $1,730,832, respectively 4,551,278 2,539,324
Organization costs, net 256 512
Patents and trademarks, net 75,276 80,327
Goodwill, net of accumulated amortization of $6,872,207
and $5,079,457, respectively 298,791 2,091,541
Other noncurrent assets 541,807 605,957
- ---------------------------------------------------------------------------------------------------
Total Assets $ 15,750,192 $ 17,231,958
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 4,208,025 $ 3,917,786
Accounts payable to related parties - 250
Accrued liabilities 2,813,035 710,189
Revolving credit note 4,227,015 4,172,516
- ---------------------------------------------------------------------------------------------------
Total current liabilities 11,248,075 8,800,741
- ---------------------------------------------------------------------------------------------------
Obligations under capital lease 66,985 81,114
- ---------------------------------------------------------------------------------------------------
Total liabilities 11,315,060 8,881,855
- ---------------------------------------------------------------------------------------------------
Stockholders' equity:
Common stock, no par value, 50,000,000 shares
authorized, 20,729,714 and 20,334,714 shares issued and
outstanding, respectively 29,034,774 28,599,524
Foreign translation adjustment (2,625) -
Accumulated deficit (24,597,017) (20,249,421)
- ---------------------------------------------------------------------------------------------------
Total stockholders' equity 4,435,132 8,350,103
- ---------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $ 15,750,192 $ 17,231,958
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE INTERIM CONSOLIDATED
FINANCIAL STATEMENTS.
3
<PAGE>
TANISYS TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
FOR THE THREE FOR THE SIX
MONTHS ENDED MONTHS ENDED
MARCH 31, MARCH 31,
1998 1997 1998 1997
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 7,531,424 $12,057,378 $17,207,247 $27,321,039
Cost of goods sold 6,266,533 10,454,191 13,789,190 24,122,427
- ------------------------------------------------------------------------------------------------------------
Gross profit 1,264,891 1,603,187 3,418,057 3,198,612
- ------------------------------------------------------------------------------------------------------------
Operating expenses:
Research and development 666,550 653,634 1,477,115 1,172,342
Sales and marketing 682,234 736,344 1,353,906 1,434,330
General and administrative 1,269,488 884,181 2,287,851 1,743,655
Depreciation and amortization 1,064,621 1,042,892 2,131,826 2,063,482
Bad debt expense 133,000 1,759,806 241,943 1,806,647
- ------------------------------------------------------------------------------------------------------------
Total operating expenses 3,815,893 5,076,857 7,492,641 8,220,456
- ------------------------------------------------------------------------------------------------------------
Operating loss (2,551,002) (3,473,670) (4,074,584) (5,021,844)
- ------------------------------------------------------------------------------------------------------------
Other income (expense):
Interest income 14,684 2,690 34,210 14,399
Interest expense (152,090) (151,604) (307,222) (316,874)
- ------------------------------------------------------------------------------------------------------------
Net loss $(2,688,408) $(3,622,584) $(4,347,596) $(5,324,319)
- ------------------------------------------------------------------------------------------------------------
Basic and diluted loss from operations per share $ (0.13) $ (0.21) $ (0.21) $ (0.32)
- ------------------------------------------------------------------------------------------------------------
Weighted average shares outstanding:
Basic 20,580,936 16,937,045 20,488,203 16,539,432
Diluted 20,580,936 16,937,045 20,488,203 16,539,432
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE INTERIM CONSOLIDATED
FINANCIAL STATEMENTS.
4
<PAGE>
TANISYS TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
FOR THE THREE FOR THE SIX
MONTHS ENDED MONTHS ENDED
MARCH 31, MARCH 31,
1998 1997 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss ($2,688,408) ($3,622,584) ($4,347,596) ($5,324,319)
Adjustments to reconcile net loss to net cash earned (used) in
operating activities:
Depreciation and amortization 1,139,496 1,042,892 2,280,132 2,063,482
Issuance of stock options 123,000 - 123,000 -
(Increase) decrease in restricted cash (83,311) - 1,388,674 -
(Increase) decrease in accounts receivable 276,235 (671,822) (748,370) (1,985,764)
(Increase) decrease in inventory 228,349 (1,528,307) 940,280 (1,767,682)
Increase in prepaid expense (127,495) (156,164) (174,206) (329,753)
Decrease in other assets 52,428 - 64,150 -
Increase in accounts payable and accrued liabilities 3,193,407 3,689,199 2,392,835 3,119,438
- ------------------------------------------------------------------------------------------------------------------------------
Net cash earned (used) in operating activities 2,113,701 (1,246,786) 1,918,899 (4,224,598)
- ------------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Purchases of property and equipment (2,328,353) (434,353) (2,515,666) (870,043)
Proceeds from sale of property and equipment - - 21,637 -
Patent and trademark costs - - - (6,094)
- ------------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (2,328,353) (434,353) (2,494,029) (876,137)
- ------------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Draws (payments) on revolving credit note, net (96,304) 330,090 54,499 1,700,941
Principal payments on capital lease obligations (2,842) (21,534) (14,129) (33,475)
Increase in foreign translation adjustment (2,625) - (2,625) -
Net proceeds from issuance of common stock 107,000 - 182,000 -
Net proceeds from exercise of stock options - 22,460 128,250 32,900
Net proceeds from exercise of stock warrants 2,000 1,330,968 2,000 2,485,968
- ------------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 7,229 1,661,984 349,995 4,186,334
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
Decrease in cash and cash equivalents (207,423) (19,155) (225,135) (914,401)
Cash and cash equivalents, beginning of period 1,972,305 1,794,323 1,990,017 2,689,569
- ------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period $1,764,882 $1,775,168 $1,764,882 $1,775,168
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
Supplemental disclosure of cash flow information:
Cash paid for interest $152,090 $151,604 $307,222 $316,874
Cash received from interest $14,684 $2,690 $34,210 $14,399
Non-cash activity:
20,000 shares issued to satisfy accounts payable $32,000 - $32,000 -
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE INTERIM CONSOLIDATED
FINANCIAL STATEMENTS.
5
<PAGE>
TANISYS TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1: BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying consolidated financial statements present the financial
position, results of operations and cash flows of Tanisys Technology, Inc.
("Tanisys") and its wholly owned subsidiaries (collectively referred to as
the "Company") as of the dates and for the periods indicated. All material
intercompany accounts and transactions have been eliminated in consolidation.
All adjustments have been made to the accompanying interim consolidated
financial statements which are, in the opinion of the Company's management,
necessary for fair presentation of the Company's operating results.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
financial information and with the instructions to Form 10-Q and Article 10
of Regulation S-X. Accordingly, they do not include all of the information
and notes required by generally accepted accounting principles for complete
financial statements. It is recommended that these interim consolidated
financial statements be read in conjunction with the Company's consolidated
financial statements and the notes thereto for the fiscal year ended
September 30, 1997 contained in the Company's Form 10-K as filed with the
Securities and Exchange Commission on December 29, 1997.
NOTE 2: INVENTORY
Inventory consists of the following:
<TABLE>
March 31, September 30,
1998 1997
---------- -------------
<S> <C> <C>
Raw Materials $2,807,153 $3,976,488
Work-in-process 223,901 204,783
Finished goods 768,639 624,802
---------- ----------
3,799,693 4,806,073
Less inventory allowance (250,923) (317,023)
---------- ----------
Inventory, net $3,548,770 $4,489,050
---------- ----------
---------- ----------
</TABLE>
Inventory is stated at the lower of cost or market value. Inventory costs
include direct materials, direct labor and certain indirect manufacturing
overhead expenses.
6
<PAGE>
NOTE 3: STOCKHOLDERS' EQUITY
EARNINGS PER SHARE
In the first quarter of fiscal 1998, the Company adopted SFAS No. 128, "Earnings
per Share," which establishes standards for computing and presenting earnings
per share ("EPS") for entities with publicly held common stock or potential
common stock. This statement requires the restatement of historical earnings
per share amounts to conform with the new methodology. However, the adoption of
this statement did not change the calculation of Primary EPS to Basic or Diluted
EPS from prior years because of the antidilutive effect of the common stock
equivalents.
The following table sets forth the computation of basic and diluted earnings per
share:
<TABLE>
Three Months Ended Six Months Ended
March 31, March 31,
------------------------- -------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Numerator:
Net loss-numerator for basic and diluted
Earnings per share ($2,688,408) ($3,622,584) ($4,347,596) ($5,324,319)
Denominator:
Denominator for basic earnings per share-
Weighted average shares 20,580,936 16,937,045 20,488,203 16,539,432
Effect of dilutive securities:
None - - - -
----------- ----------- ----------- -----------
Denominator for diluted earnings per share-
Adjusted weighted average shares 20,580,936 16,937,045 20,488,203 16,539,432
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Basic earnings per share ($0.13) ($0.21) ($0.21) ($0.32)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Diluted earnings per share ($0.13) ($0.21) ($0.21) ($0.32)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Stock options and warrants not included in the
denominator for diluted earnings per share as
their effect would have been antidilutive 4,169,316 2,492,200 4,169,316 2,492,200
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
COMMON STOCK
During the three months ended March 31, 1998, 50,000 shares of common stock were
purchased by the Chief Executive Officer of the Company, as provided under his
employment agreement, for total gross proceeds of $75,000.
During the same time period, 20,000 shares of common stock were issued in
exchange for legal services in the amount of $32,000.
WARRANTS
During the three months ended March 31, 1998, warrants were exercised for the
purchase of 200,000 shares of common stock for total gross proceeds of $2,000.
At March 31, 1998, warrants for the purchase of 89,999 shares of common stock
were outstanding, of which 67,497 were exercisable.
7
<PAGE>
OPTIONS
During the three months ended March 31, 1998, the Board of Directors authorized
stock options exercisable for the purchase of 660,000 share of common stock to
be re-issued to former employees at the original exercise price, thus resulting
in $123,000 in compensation expense due to a market valuation adjustment.
NOTE 4: RELATED PARTY TRANSACTIONS
In accordance with the terms of his employment agreement, the Chief Executive
Officer purchased 50,000 shares of common stock for a total purchase price of
$75,000 in January 1998. (See Note 3)
In accordance with the terms of two separation agreements, stock options for the
purchase of 660,000 shares of common stock were re-issued to former senior
officers of the Company at the original exercise price. (See Note 3)
In February 1998, the Chairman of the Board of Directors exercised stock
warrants for the purchase of 200,000 shares of common stock for a net exercise
price of $2,000. (See Note 3)
NOTE 5: RECENT PRONOUNCEMENTS
The Financial Accounting Standards Board has issued SFAS No. 130, "Reporting
Comprehensive Income," SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information," and SFAS No. 132, "Employers' Disclosure
About Pension and Other Postretirement Benefits," All of which must be adopted
by the Company as of October 1, 1998. Management believes the adoption of these
new standards will have no material effect on the company's financial position
or results of operations.
8
<PAGE>
ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS
THIS QUARTERLY REPORT ON FORM 10-Q CONTAINS CERTAIN FORWARD-LOOKING
STATEMENTS AND INFORMATION RELATING TO TANISYS AND ITS SUBSIDIARIES THAT ARE
BASED ON THE BELIEFS OF THE COMPANY'S MANAGEMENT AS WELL AS ASSUMPTIONS MADE BY
AND INFORMATION CURRENTLY AVAILABLE TO THE COMPANY'S MANAGEMENT. WHEN USED IN
THIS REPORT, THE WORDS "ANTICIPATE," "BELIEVE," "ESTIMATE," "EXPECT," AND
"INTEND" AND WORDS OR PHRASES OF SIMILAR IMPORT, AS THEY RELATE TO THE COMPANY
OR ITS MANAGEMENT, ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS. SUCH
STATEMENTS REFLECT THE CURRENT RISKS, UNCERTAINTIES AND ASSUMPTIONS RELATED TO
CERTAIN FACTORS INCLUDING, WITHOUT LIMITATIONS, COMPETITIVE FACTORS, GENERAL
ECONOMIC CONDITIONS, CUSTOMER CONCENTRATIONS, CUSTOMER RELATIONSHIPS AND
FINANCIAL CONDITIONS, RELATIONSHIPS WITH VENDORS, THE INTEREST RATE ENVIRONMENT,
GOVERNMENTAL REGULATION AND SUPERVISION, SEASONALITY, DISTRIBUTION NETWORKS,
PRODUCT INTRODUCTIONS AND ACCEPTANCE, TECHNOLOGICAL CHANGE, CHANGES IN INDUSTRY
PRACTICES, ONE-TIME EVENTS AND OTHER FACTORS DESCRIBED HEREIN. BASED UPON
CHANGING CONDITIONS, SHOULD ANY ONE OF MORE OF THESE RISKS OR UNCERTAINTIES
MATERIALIZE, OR SHOULD ANY UNDERLYING ASSUMPTIONS PROVE INCORRECT, ACTUAL
RESULTS MAY VARY MATERIALLY FROM THOSE DESCRIBED HEREIN AS ANTICIPATED,
BELIEVED, ESTIMATED, EXPECTED OR INTENDED. THE COMPANY DOES NOT INTEND TO
UPDATE THESE FORWARD-LOOKING STATEMENTS.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The following is a discussion of the interim consolidated financial
condition and results of operations of the Company for the three and six-month
periods ended March 31, 1998 and 1997. It should be read in conjunction with
the Consolidated Financial Statements, the Notes thereto and other financial
information included elsewhere in this report, and also in the Company's Form
10-K as filed with the Securities and Exchange Commission on December 29, 1997.
For purposes of the following discussion, references to year periods refer to
the Company's fiscal year ended September 30, 1997 and references to quarterly
periods refer to the Company's fiscal quarters ended March 31, 1998 and 1997.
Effective February 1998, the Company established Tanisys (Europe), Ltd., a
wholly owned subsidiary of Tanisys located in Scotland. Tanisys (Europe), Ltd.
will offer its Comprehensive Logistics and Supply Solutions (CLASS) program,
build-to-order services, turn key manufacturing services and manufacture and
market products consisting of semiconductor memory modules. Tanisys (Europe),
Ltd will also serve as the European sales and marketing office for Darkhorse
tester products designed and produced by Tanisys Technology, Inc., including the
recently announced Sigma-3-TM- tester that offers module manufacturers truly
affordable, high-volume, production testing systems for 100 MHz SDRAM.
9
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth certain consolidated operations data of the
Company expressed as a percentage of net sales (unaudited) for the three and
six-month periods ended March 31, 1998 and 1997:
<TABLE>
THREE MONTHS ENDED SIX MONTHS ENDED
March 31, March 31,
------------------ ----------------
1998 1997 1998 1997
------ ------ ------ ------
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of goods sold 83.2 86.7 80.1 88.3
------ ------ ------ ------
Gross profit 16.8 13.3 19.9 11.7
------ ------ ------ ------
Operating expenses:
Research and development 8.9 5.4 8.6 4.3
Sales and marketing 9.1 6.1 7.9 5.2
General and administrative 16.8 7.3 13.3 6.4
Depreciation and amortization 14.1 8.7 12.4 7.6
Bad debt expense 1.8 14.6 1.4 6.6
------ ------ ------ ------
Total operating expenses 50.7 42.1 43.6 30.1
------ ------ ------ ------
Operating loss (33.9) (28.8) (23.7) (18.4)
Other expense, net (1.8) (1.2) (1.6) (1.1)
------ ------ ------ ------
Net loss (35.7)% (30.0)% (25.3)% (19.5)%
------ ------ ------ ------
------ ------ ------ ------
</TABLE>
NET SALES
Net sales consist of custom manufacturing services, custom memory modules,
standard memory modules, design engineering fees, memory module test solutions
and advanced technology services, less returns and discounts. Net sales
decreased to $7.5 million in the second quarter of fiscal 1998 from $12.1
million in the second quarter of fiscal 1997. Net sales decreased to $17.2
million in the first six months of fiscal 1998 from $27.3 million in the first
six months of fiscal 1997. The decrease in fiscal 1998 is primarily due to
changes in product mix. The Company is emphasizing its quick-turn manufacturing
program, Comprehensive Logistics and Supply Solutions ("C.L.A.S.S."), which is
designed to support the build-to-order ("BTO") and configuration-to-order
("CTO") emphasis currently in place or contemplated by all the major personal
computer manufacturers. The semiconductor memory chips used in this program,
primarily Dynamic Random Access Memory ("DRAM"), are supplied by the customer,
which reduces net sales and cost of sales by removing the highest cost component
in a memory module. An additional factor in the decrease of net sales in the
second quarter of fiscal 1998 is the February 1998 introduction of the
Sigma-3-TM- testing system. As a result of this announcement, many customers
postponed test equipment purchases until this product becomes available,
resulting in a short-term decrease in net sales relating to this product line.
Net sales are expected to increase significantly as the Sigma-3-TM- is placed
into mass production.
COST OF SALES AND GROSS PROFIT
Cost of sales includes the costs of all components and materials purchased
for the manufacture of products and the direct labor and overhead costs
associated with manufacturing. Gross profit decreased to $1.3 million in second
quarter fiscal 1998 from $1.6 million in the second quarter of fiscal 1997.
Gross profit increased to $3.4 million in the first six months of fiscal 1998
from $3.2 million in the first six months of fiscal 1997. Gross profit margin
increased to 16.8% in second quarter 1998 from 13.3% in second quarter fiscal
1997. Gross profit margin increased to 19.9% in the first six months of fiscal
1998 from 11.7% for the same time period in 1997. The increase in gross profit
as well as the increase in gross profit margin was due primarily to the
transition to the C.L.A.S.S. program and the continuing decline in the cost of
raw materials, as described in Net Sales above.
10
<PAGE>
RESEARCH AND DEVELOPMENT
Research and development expenses consist of the costs associated with
the design and testing of new technologies and products. These relate
primarily to the costs of materials, personnel, management and employee
compensation, and engineering design consulting fees. Research and
development expenses increased to $667 thousand in second quarter fiscal 1998
from $654 thousand in second quarter fiscal 1997. Expenses for the first six
months of fiscal 1998 increased to $1.5 million from $1.2 million in the
first six months of fiscal 1997. The increase was due primarily to the
development of new tester products and expenses related to the design of
standard and custom modules. Expenses relating to research and development
are expected to remain approximately the same in terms of absolute dollars
and to decrease as a percentage of revenue as the anticipated growth in
revenue occurs.
SALES AND MARKETING
Sales and marketing expenses include all compensation of employees and
independent sales personnel, as well as the costs of advertising, promotions,
trade shows, travel, direct support and overhead. Sales and marketing
expenses decreased to $682 thousand in second quarter fiscal 1998 from $736
thousand in second quarter fiscal 1997. Sales and marketing expenses have
remained at $1.4 million for the first six months of fiscal 1998 and fiscal
1997. Sales and marketing expenses expressed as a percentage of revenues
have increased to 7.9% in the first six months of fiscal 1998 from 5.2% in
the first six months of fiscal 1997, primarily due to decreased revenues.
Sales and marketing expenses are expected to increase slightly when expressed
as a percentage of revenue and to continue to increase in terms of absolute
dollars in future periods as revenues increase.
GENERAL AND ADMINISTRATIVE
General and administrative costs consist primarily of personnel costs,
including compensation and employee benefits, and support costs including
utilities, insurance, professional fees and all costs associated with a
reporting company. General and administrative expenses increased to $1.3
million in second quarter fiscal 1998 from $884 thousand in second quarter
fiscal 1997, an increase of 44%. In the first six months of fiscal years 1998
and 1997, general and administrative expenses were $2.3 million and $1.7
million, respectively. The increase in actual funds expended in fiscal 1998
is primarily due to the expansion of the Company's facilities and operation
hours and the addition of staff and contract labor. In second quarter fiscal
1998, compensation expense of $123 thousand was incurred in conjunction with
the re-issuance of stock options to former employees in accordance with the
terms of two separation agreements. Expenses associated with the general and
administrative area are expected to decrease significantly in absolute
dollars and as a percentage of revenue in future periods due to expense
containment programs currently in effect.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization includes the depreciation for all fixed
assets exclusive of those used in the manufacturing process and included as
part of "Cost of Sales" and the amortization of intangibles, including
goodwill incurred in the acquisitions of 1st Tech and DarkHorse.
Depreciation and amortization increased to $1.1 million in second quarter
fiscal 1998 from $1.0 million in second quarter fiscal 1997. Depreciation
and amortization expenses for the first six months of 1998 were $2.1 million,
an increase of 3% from the same time period in fiscal 1997. The increase is
due primarily to the purchases of additional network equipment and accounting
software. Depreciation expenses are expected to decrease as a percentage of
revenue and increase in terms of absolute dollars with additional facility
expansions and equipment purchases used in research and development.
Amortization expenses are expected to decrease significantly in the third
quarter of fiscal 1998 due to the complete amortization of goodwill relating
to the acquisition of 1st Tech and DarkHorse.
11
<PAGE>
OTHER INCOME (EXPENSE), NET
Other income (expense), net consists primarily of interest income less
interest expense. Interest expense is attributable to borrowings from a
revolving credit note. Substantially all of the interest expense relates to
credit line draws made for short-term inventory requirements and to fund
accounts receivable. Interest income relates to investment of available cash
in short-term interest bearing accounts and cash equivalent securities.
Other income (expense) decreased to $137 thousand of expense in the second
quarter of fiscal 1998 from $149 thousand in the second quarter of fiscal
1997, a net decrease of 8%. Other income (expense) has decreased 10% to $273
thousand in the first six months of fiscal 1998 from $302 thousand in the
first six months of fiscal 1997. The Company incurs net interest expense in
order to maintain increased balances of inventories and accounts receivable.
The Company expects to continue to require borrowings to fund growth in
accounts receivable in the future and therefore expects to continue to
reflect net interest expense. Interest expense is expected to increase
slightly in terms of absolute dollars due to debt related to short-term
borrowings for accounts receivable and inventory purchases to support the
increase in revenues.
PROVISION FOR INCOME TAXES
During fiscal 1997, the Company incurred consolidated net operating
losses for U.S. income tax purposes of approximately $6.0 million. The loss
carryforwards expire in 2012 and 2011, respectively. During 1997, the
Company had temporary differences resulting in future tax deductions of $513
thousand, principally representing tax basis in accrued liabilities and
intangible assets. Deferred income tax assets from the loss carryforwards and
asset basis differences aggregated $4.6 million and $2.2 million at September
30, 1997.
For financial reporting purposes, valuation allowances of $4.6 million
and $2.2 million have been recorded to offset the deferred tax assets due to
the uncertainty as to whether the benefits will be realized.
The availability of the net operating loss carryforward and future tax
deductions to reduce taxable income are subject to various limitations under
the Internal Revenue Code of 1986, as amended (the "Code"), in the event of
an ownership change as defined in Section 382 of the Code. The Company may
lose the benefit of such net operating loss carryforwards due to Internal
Revenue Service ("IRS") Code Section 382 limitations. This section states
that after reorganization or other change in corporate ownership, the use of
certain carryforwards may be limited or prohibited. The Company does not
believe that an IRS Code Section 382 limitation existed as of September 30,
1997.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, Tanisys has utilized the funds acquired in equity
financings of its common stock, the exercise of stock warrants and stock
options, capital leases, operating leases, vendor credits, certain bank
borrowings and funds generated from operations to support its operations,
carry on research and development activities, acquire capital equipment,
finance inventories, accounts receivable balances and pay its general and
administrative expenses. During the second quarter of fiscal 1998, the
Company generated $7 thousand in net cash from financing activities versus
$1.7 million in the second quarter of fiscal 1997. The $7 thousand in fiscal
1998 consisted primarily of $109 thousand from the purchase of common stock
and stock warrants net of $96 thousand in net payments on the Company's
revolving credit note. At March 31, 1998, the Company had $1.9 million of
cash and restricted cash.
Capital expenditures totaled approximately $2.3 million and $434
thousand in the second quarter of fiscal years 1998 and 1997, respectively.
These expenditures were primarily for the purchase of manufacturing
equipment, test equipment and the expansion of manufacturing facilities. The
Company plans to spend approximately $4.8 million in the remainder of fiscal
1998 in capital expenditures for additional manufacturing capacity through
working capital, operating leases and capital leases. At May 5, 1998, $1.7
million of the estimated $4.8 million had been committed for the purchase of
capital expenditures, to be financed through operating and capital leases.
12
<PAGE>
The Company has entered into certain capital lease arrangements. The
outstanding principal on these obligations at March 31, 1998 was $188
thousand.
The Company believes that its existing funds, anticipated cash flow from
operations and amounts available from future vendor credits, bank borrowings,
the exercise of outstanding warrants and stock options and equity financings
will be sufficient to meet its working capital and capital expenditure needs
for the next 12 months. There is no assurance that the Company will be able
to locate an alternate source or sources for the required increase in its
outstanding debt or that it will be successful in its attempts to raise a
sufficient amount of funds in a subsequent equity offering or offerings. In
such event, the Company's inability to raise needed funds could have a
material adverse effect on the Company.
SIGNIFICANT CUSTOMER CONCENTRATION
A significant percentage of the Company's net sales are produced by a
relatively small number of customers. In the second quarter of fiscal 1998
and 1997, the ten largest customers accounted for approximately 78% and 64%
of net sales, respectively. One customer produced 46% of sales in the second
quarter of fiscal 1998. The same customer produced 33% of sales for the six
months ended March 31, 1998. In the second quarter of fiscal 1997, one
customer produced 25% of net sales. The Company's two largest customers
accounted for 13% and 11% of total revenue for the first six months of fiscal
1997. While the Company expects to continue to be dependent on a relatively
small number of customers for a significant percentage of its net sales,
there can be no assurance that any of the top ten customers in fiscal 1998
will continue to utilize the Company's products or services. The actual
customers producing the sales are different between the two periods, and the
Company expects this type of variation of volume of purchases from a
particular customer to continue throughout this fiscal year.
The Company in general has no firm long-term volume commitments from its
customers and generally enters into individual purchase orders with its
customers. Customer purchase orders are subject to change, cancellation or
delay with little or no consequence to the customer. The Company has
experienced such changes and cancellations and expects to continue to do so
in the future. The replacement of canceled, delayed or reduced purchase
orders with new business cannot be assured. The Company's business,
financial condition and results of operations will depend significantly on
its ability to obtain purchase orders from existing and new customers, upon
the financial condition and success of its customers, the success of
customer's products and the general economy. Factors affecting the
industries of the Company's major customers could have a material adverse
effect on the Company's business, financial condition and results of
operations.
YEAR 2000 COMPLIANCE
The Company is currently in the process of evaluating its information
technology infrastructure for Year 2000 compliance. The Company does not
expect that the cost to modify its information technology infrastructure to
be Year 2000 compliant will be material to its financial condition or results
of operations. The Company does not anticipate any material disruption in
its operations as a result of any failure by the Company to be in compliance.
The Company does not currently have any information concerning Year 2000
compliance status of its suppliers and customers. In the event that any of
the Company's significant suppliers or customers do not successfully and
timely achieve Year 2000 compliance, the Company's business or operations
could be adversely affected.
13
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
At the date hereof, there are no pending, or to the best knowledge of
the Company, threatened matters involving litigation involving the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Annual Meeting of Stockholders held on March 24, 1998, the
following matters were adopted by the margins indicated:
1. To elect directors Charles T. Comiso and Gordon Matthews to serve until
the 2001 Annual Meeting of Stockholders.
<TABLE>
<S> <C>
For: 16,155,232
Against: N/A
Abstain: 15,300
</TABLE>
2. To ratify the appointment of Arthur Andersen LLP as independent public
accountants of the Company for the fiscal year ending September 30, 1998.
<TABLE>
<S> <C>
For: 14,896,487
Against: 6,000
Abstain: 1,295,045
</TABLE>
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS:
The exhibits listed below are filed as part of or incorporated by
reference in this report. Where such filing is made by incorporation by
reference to a previously filed document, such document is identified in
parentheses.
<TABLE>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
3.1 Articles of Continuance dated June 30, 1993 (Exhibit 3.1 to Form
10 Registration Statement filed November 27, 1996)
3.2 Articles of Amendment to Articles of Continuance dated July 11,
1994 (Exhibit 3.2 to Form 10 Registration Statement filed November 27,
1996)
3.3 Articles of Amendment dated April 28, 1995 (Exhibit 3.3 to Form 10
Registration Statement filed November 27, 1996)
3.4 Articles of Amendment dated April 15, 1996 (Exhibit 3.4 to Form 10
Registration Statement filed November 27, 1996)
3.5 Restated Bylaws of the Company (Exhibit 3.5 to Form 10 Registration
Statement filed November 27, 1996)
</TABLE>
14
<PAGE>
<TABLE>
<S> <C>
4.1 Form of Common Stock Certificate (Exhibit 4.6 to Form 10
Registration Statement filed November 27, 1996)
4.2 Form of Class S Warrant Certificate (Exhibit 4.2 to Form 10-Q for
the Quarterly period Ended December 31, 1997)
10.37 Manufacturing Service Agreement dated February 2, 1998 by and
between the Company and LG Semicon American, Inc. (filed herewith)
10.38 Manufacturing Service Agreement dated March 1, 1998 by and between
the Company and Toshiba America Electronic Components, Inc. (filed
herewith)
27.1 Financial Data Schedule (filed herewith)
</TABLE>
CURRENT REPORTS ON 8-K:
None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
TANISYS TECHNOLOGY, INC.
Date: May 8, 1988 By: /s/ JOE O. DAVIS
-------------------------------------------------
Joe O. Davis
SENIOR VICE PRESIDENT,
CHIEF FINANCIAL OFFICER AND CORPORATE SECRETARY
(Duly authorized and Principal Financial Officer)
Date: May 8, 1998 By: /s/ DONALD R. TURNER
-------------------------------------------------
Donald R. Turner
CORPORATE CONTROLLER
(Duly authorized and Principal Accounting Officer)
15
<PAGE>
MANUFACTURING SERVICES AGREEMENT
THIS MANUFACTURING SERVICES (the "Agreement") is entered into as of the
2nd day of February, 1998, by and between LG SEMICON AMERICA, INC., with
offices at 3003 North First Street, San Jose, California 95134, ("LGSA"), and
TANISYS TECHNOLOGY, INC., with offices at 12201 Technology Blvd., Suite 130,
Austin, Texas 78727-6101, ("Tanisys").
RECITALS
LGSA and its affiliates are suppliers of semiconductor memory products
worldwide to, among other customers, Compaq Computer Corporation ("Compaq").
Recently, Compaq and other customers have instituted new purchasing
procedures referred to as Configure to Order (CTO) and Build to Order (BTO)
programs which require LGSA and its affiliates to provide memory modules to
various customer locations throughout the world within forty-eight hours of
an order for such products. Tanisys has been qualified by Compaq to
manufacture memory modules for Compaq using LGSA component products.
Tanisys is establishing a manufacturing center in Scotland in the United
Kingdom to provide further manufacturing of memory modules. LGSA and its
affiliates wish to engage Tanisys through its new Scotland facilities and its
other facilities to provide manufacturing services for LGSA and its
affiliates for distribution to Compaq, as well as such other customers of
LGSA and its affiliates as may be requested from time to time, and Tanisys
wishes to be engaged by LGSA and its affiliates to provide such manufacturing
services, all in accordance with the terms and conditions set forth in this
Agreement.
NOW, THEREFORE, in consideration of these premises, and the mutual
promises, covenants, agreements, and terms and conditions set forth in the
Agreement, the parties hereto agree as follows:
1. PURPOSE OF THIS AGREEMENT; MANUFACTURING
1.1 The purpose of this Agreement is to set forth those terms and
conditions which shall be applicable to the manufacture by Tanisys in any of
its manufacturing facilities throughout the world of certain Memory Modules,
as defined herein, for LGSA and its affiliates, and to such other services to
be provided by Tanisys pursuant to this Agreement. Any terms and conditions
of any purchase order, acknowledgment, or other similar document of either
party related to such manufacture and/or other services which are not
consistent with the terms and conditions of this Agreement shall be void and
of no effect. Hereinafter all references to LGSA may also refer to those LGSA
affiliates listed on Exhibit F hereto, and each such affiliate shall have all
of the rights of LGSA hereunder. LGSA may add other affiliates to this
Agreement
1
Manufacturing Services Agreement
LG Semicon America, Inc./Tanisys Technology, Inc.
<PAGE>
from time to time with prior notice to Tanisys.
1.2 Tanisys shall perform manufacturing and other services and
manufacture Memory Modules pursuant to this Agreement, and maintain on a
rolling basis a sufficient inventory of finished Memory Modules equivalent to
one (1) months forecasted quantity to fill any purchase orders issued to
Tanisys by LGSA and/or its customers. Such Memory Modules shall conform to
the specifications therefor set forth in Exhibit B of this Agreement, and
completed Memory Modules will be shipped by Tanisys to the locations
designated by LGSA from time to time.
1.3 This Agreement creates no obligation, express or implied, for LGSA
to order or purchase any specific manufacturing services or quantity of
manufacturing services from Tanisys, nor does it limit in any way LGSA's
right to perform the manufacturing services itself or to have others to
perform the same or similar manufacturing services for any reason.
Notwithstanding this Section 1.3, it is anticipated that LGSA will require
manufacturing services for at least fifty thousand (50,000) Memory Modules
per month.
1.4 Tanisys shall at all times be and be deemed to be an independent
contractor with LGSA, and Tanisys shall have no right or authority to act
for, represent or to bind LGSA in any way, or to sign or take any action in
the name or on behalf of LGSA. Tanisys shall not be deemed an employee or
agent of LGSA for any purpose whatsoever. LGSA shall not be responsible for
the acts or omissions of Tanisys. Tanisys has no authority to create any
contract or obligation, express or implied, on behalf of, in the name of, or
binding upon LGSA, or to pledge LGSA's credit or to extend credit in LGSA's
name, and Tanisys shall not hold itself out to any party as having such right
or any other right with respect to LGSA or LGSA's business except as
expressly authorized by this Agreement. Tanisys agrees that in the context of
the service it is rendering to LGSA that it will not claim or represent that
it is operating or doing business as an LGSA sales office. Tanisys is and
shall be the sole employer and/or principal of any and all persons performing
services under this Agreement. Under no circumstances shall Tanisys or its
employees or agents be entitled to participate in the profit sharing,
pension, or other plans established for the benefit of LGSA's employees.
1.5 As this Agreement is intended for purposes of meeting the
requirements of LGSA's customers, Tanisys shall use its best efforts to
provide services hereunder consistent with each of LGSA's customer's CTO and
BTO programs, and any other or further requirements as any of LGSA's
customers may require, now or in the future.
1.6 In consideration for the execution of this Agreement by LGSA, and
for no other or further consideration, Tanisys hereby grants to LGSA and to
each of LGSA's affiliates on a non-exclusive basis the right to use and
modify any and all of the Memory Module specifications (the "Gerber Files").
Such grant is made without reservation and without limitations as to the uses
of the Gerber Files, and any modifications, improvements, or alterations
thereto made by or for LGSA shall be sole and exclusive property of LGSA,
unless Tanisys shall have made such
2
Manufacturing Services Agreement
LG Semicon America, Inc./Tanisys Technology, Inc.
<PAGE>
modifications, improvements, or alterations, in which case Tanisys shall have
exclusive ownership of the same and LGSA shall have the unrestricted right to
use and modify such modifications, improvements, or alterations.
2. TERM AND TERMINATION
2.1 This Agreement shall be effective from the date first above
written, and it shall continue in full force and effect for an initial term
of three (3) years. It shall be automatically renewed for successive periods
of one (1) year each unless either party provides the other with written
notice of its intent not to renew at least ninety (90) days prior to the
initial or applicable successive expiration dates.
2.2 Either party may terminate this Agreement at any time for any
reason or for no reason by providing written notice of termination to the
other party at least ninety (90) days prior to the effective date of
termination.
2.3 Either party may immediately terminate this Agreement at any
time for cause in the event of any incurable material breach of this
Agreement by the other party or in the event the other party files or has
filed against it any bankruptcy, insolvency, or receivership proceeding. If
a material breach of this Agreement can be cured, then the non-breaching
party shall provide the breaching party with written notice of the material
breach specifying the conditions constituting the breach and the corrective
action which must be undertaken to cure such breach. If the material breach
is not cured within thirty (30) days of the written notice thereof, then this
Agreement shall terminate as set forth in the written notice of material
breach.
2.4 The provisions of Sections 1.6, 2, 3, 10, 11, 12, 13, 14, 16,
17 and 18 shall survive any termination of this Agreement.
2.5 After notice of termination is tendered, the parties shall
cooperate with each other and prepare for an orderly termination of this
Agreement, and for the return of any Consigned Components, as defined herein,
other property, records, specifications, and Confidential Information, as
defined herein, provided by one party to the other pursuant to this Agreement.
2.6 Upon termination of this Agreement for any reason other than
cause, LGSA shall purchase from Tanisys all of Tanisys' actual work-in-process
for LGSA, and/or all raw materials or piece parts required for such work, but
only for the quantities of Memory Modules, as defined herein, forecasted by
LGSA for the ninety (90) day forecast period referenced in Section 8.1, and
only if the purchase of such raw materials or piece parts could not be
canceled by Tanisys. At LGSA's sole option, LGSA may purchase any
work-in-process, raw materials and/or piece parts in excess of forecasted
quantities, to the extent that Tanisys has such items. At LGSA's further
option, LGSA may require Tanisys to cancel or return any raw materials and/or
piece parts, provided, however, that LGSA shall pay for any cancellation
charges. Notwithstanding anything in this Agreement to the contrary, if
termination of this Agreement by LGSA is for cause, then LGSA may, but shall
not be obligated to, purchase any such work-in-process, raw materials, or
3
Manufacturing Services Agreement
LG Semicon America, Inc./Tanisys Technology, Inc.
<PAGE>
piece parts, and Tanisys shall sell to LGSA such items as LGSA may request.
3. CONSIGNMENT OF COMPONENTS TO TANISYS
3.1 As used in this Agreement, the term "Consigned Components"
shall mean those products listed on Exhibit A to this Agreement which will be
supplied by LGSA to Tanisys for the performance of the manufacturing services
pursuant to this Agreement. Title to the Consigned Components shall at all
times remain in LGSA, but risk of loss and damage to any item of the
Consigned Components shall pass to Tanisys during all such times as the items
are in the possession of Tanisys, or any employee, subcontractor, or agent of
Tanisys.
3.2 LGSA shall provide to Tanisys on a consignment basis such
quantities of Consigned Components as shall be sufficient for Tanisys to
manufacture the quantity of Memory Modules forecasted by LGSA pursuant to
Section 8 of this Agreement. Tanisys agrees to develop, implement, and
utilize procedures to fully account for any Consigned Component as it is
transferred from LGSA to Tanisys, and to comply with all of LGSA's reasonable
written instructions regarding inventory accounting procedures.
3.3 Tanisys shall immediately inspect any transferred Consigned
Components and promptly notify LGSA in writing no later than three (3)
business days after receipt of such Consigned Components of any inventory
issues related to or defects in the packaging of Consigned Components. With
such notice, and when appropriate, Tanisys shall request a Return Merchandise
Authorization ("RMA") for the return of such defective Consigned Component.
3.4 LGSA and Tanisys shall conduct monthly reviews of the
inventory of Consigned Components held by Tanisys to determine if any of such
inventory is obsolete or whether there is an excess of such inventory beyond
current or next quarter's forecasted requirements. Upon notice, LGSA shall
have the right to enter Tanisys' premises at any time during regular business
hours to inspect and remove any Consigned Components.
3.5 Tanisys shall store the Consigned Components in a safe and
secure location and use reasonable security measures to prevent any theft or
damage of such Consigned Components. Tanisys shall keep the Consigned
Components separate from any other components or materials received from any
other source. Tanisys acknowledges and agrees that Consigned Components may
be received from LGSA or any of its affiliates, and Tanisys shall treat all
such Consigned Components in the manner set forth herein.
4. SPECIFICATIONS
4.1 Tanisys shall use the Consigned Components to manufacture the
Memory Modules according to the specifications set forth in Exhibit B
attached hereto, which exhibit is by this
4
Manufacturing Services Agreement
LG Semicon America, Inc./Tanisys Technology, Inc.
<PAGE>
reference incorporated into and made a part of this Agreement. All such
Memory Modules and the manufacturing and other services provided by Tanisys
pursuant to this Agreement shall fully conform to the technical
specifications and requirements of LGSA's customers, as well as LGSA's
visual/mechanical, marking, electrical and packaging specifications, all as
may be reasonably requested by LGSA from time to time. During the term
hereof, Tanisys shall be and remain qualified as a components or module
manufacturer for each of LGSA's customers for which manufacturing services
hereunder are requested, and if Tanisys shall ever cease to be so qualified
for any one or all of LGSA's customers, then LGSA may immediately terminate
this Agreement, for cause pursuant to Section 2.3 hereof.
4.2 LGSA may change any specifications by providing written notice to
Tanisys. If any such change is incompatible with Tanisys' existing equipment
or would adversely affect Tanisys existing productivity rates, Tanisys shall
promptly notify LGSA, and the parties shall in good faith negotiate a
reasonable, mutually acceptable solution. LGSA may request technical changes
of the Memory Modules to be manufactured and Tanisys must comply with such
change request. Tanisys will inform LGSA within ten (10) working-days after
receiving such requests of the result of its evaluation of the change in
writing. The parties shall mutually agree upon prices and implementation
schedules for such changes.
4.3 If Tanisys is required to apply LGSA's or its customers' name,
trademark, logo, or similar information ("Marks") on any units or packaging
of the Memory Modules manufactured under this Agreement, Tanisys agrees that
it will not acquire or claim any right, title, or interest thereto nor will
it use any of the Marks in any other manner except as has been specifically
authorized in writing by LGSA or its customer, as the case may be. All Marks
shall be the property of LGSA or its customer, as the case may be.
5. PROCESS CHANGES
5.1 Should any changes regarding processes or materials become
necessary in order to maintain qualification with Compaq or with any of
LGSA's other customers, or to improve quality or yield, but without affecting
qualification, either party may initiate such changes of processes or
materials by sending a notice of such changes to the other party. Tanisys
hereby covenants and agrees that it shall do everything possible and make its
best efforts to maintain the qualification of the Memory Module design and
specifications with Compaq, or with any other of LGSA's customers, and it
shall do nothing that may cause the disqualification of Tanisys or its Memory
Module design and specifications by any of LGSA's customers. The party
initiating such change will document and transmit the proposed changes to the
other party, who shall acknowledge receipt of such notice. Notice of any
changes shall be provided at least ninety (90) days before the implementation
of any such process change. The parties shall mutually discuss in good faith
any proposed changes and any associated pricing impact, and MUTUALLY AGREE TO
ANY change before it may be implemented.
5
Manufacturing Services Agreement
LG Semicon America, Inc./Tanisys Technology, Inc.
<PAGE>
5.2 After any changes in any processes or materials under Section 5.1
of this Agreement, Tanisys shall use its best efforts to obtain or to
maintain its qualification with Compaq or any other affected customer of
LGSA. As stated elsewhere in this Agreement, failure to obtain or maintain
such qualification shall be sufficient grounds to immediately terminate this
Agreement for cause pursuant to Section 2.3 of this Agreement.
6. YIELD AND SCRAP
6.1 Tanisys' yield for manufacture of Tanisys shall dispose of any
scrap (non LGSA component related) generated while performing the
manufacturing service in accordance with applicable law. Tanisys will
indemnify and hold LGSA harmless from any and all claims, liability or damage
of any kind or nature arising from Tanisys' disposal of any scrap hereunder.
6.2 Tanisys shall account for every Consigned Component on the monthly
inventory reports and indicate the number of such Consigned Component that
becomes scrap during the manufacturing process. Tanisys shall use its best
efforts to meet a goal of scrap equal to 0.00% of the total monthly Consigned
Component usage. If scrap is equal to or greater than 0.02% of the total
monthly Consigned Component usage, but less than 0.05%, Tanisys shall conduct
a failure analysis and develop a corrective action plan, but Tanisys shall
not be required to send any such scrap to LGSA. If scrap is equal to or
greater than 0.05% of the total monthly Consigned Component usage, Tanisys
shall obtain RMA numbers for all such scrap and ship the scrap to LGSA.
Thereafter, LGSA, with Tanisys' cooperation and assistance, will conduct a
failure analysis of such returned scrap. If the defects or problems resulting
in the scrap arose from a defect in the Consigned Components, then Tanisys
shall have no liability for such defective Consigned Component. However, if
any such scrap did not result from a defect in the Consigned Component, then
Tanisys shall be liable for the nondefective Consigned Component at the then
current price for such Consigned Components, as well as any and all shipping
charges related to the nondefective Consigned Component returned to LGSA
hereunder.
6.3 Tanisys shall provide a report of all scrap returns per Section
6.2, which shall be reviewed monthly by the parties.
7. PACKAGING
7.1 All packaging of the Memory Modules manufactured by Tanisys shall
be of antistatic materials, and shall conform to LGSA's and/or its customer's
specifications as described in Exhibit B to this Agreement, or as may be
reasonably requested from time to time by LGSA. Unless more stringent
standards are required in Exhibit B or requested from time to time by LGSA,
such packaging shall at least be resistant to any damage which may result
from the normal handling of similar products by common carriers. LGSA must be
notified of changes in existing packaging, even if still within LGSA's
specifications.
6
Manufacturing Services Agreement
LG Semicon America, Inc./Tanisys Technology, Inc.
<PAGE>
7.2 Except and only to the extent otherwise specified in writing by
LGSA, Tanisys shall make no reference or identification in its packaging of
any goods, boxes, or containers, which would indicate that Tanisys is the
manufacturer of the goods.
8. SCHEDULING AND DELIVERY
8.1 LGSA shall supply Tanisys on a monthly basis with rolling forecasts
of its anticipated requirements for Memory Modules for the subsequent ninety
(90) day period. Such forecasts are for Tanisys' convenience only and they
shall not be binding on LGSA. LGSA shall have no obligation for any products
manufactured by Tanisys, whether or not forecasted, unless the manufacture of
such products was expressly requested by LGSA through a purchase order, or
other means permitted hereunder, properly delivered or transmitted to Tanisys
pursuant to this Agreement. Such forecasts shall show the anticipated
requirements of Memory Modules by customer and location.
8.2 LGSA shall also provide Tanisys with blanket purchase orders
covering at least a ninety (90) day period, however, no portion of such
blanket purchase order shall be binding on LGSA unless and until LGSA has
issued a written request for the manufacture and/or release of all or any
portion of the Memory Modules listed on such blanket purchase order. LGSA's
written request for the manufacture and/or release of Memory Modules shall,
when appropriate or necessary, provide Tanisys with purchase order numbers
and instructions to cover all deliveries of products manufactured by Tanisys
pursuant to LGSA's express request, including detailed delivery information
such as delivery addresses of LGSA's customers or their other delivery sites.
Tanisys shall promptly and timely manufacture the products so requested by
LGSA and timely deliver such products to the places and pursuant to the
delivery terms requested in LGSA's purchase order or through any other means
as permitted herein. LGSA may, by written notification, make changes to
shipping instructions, quantities, or delivery schedules specified in any
blanket purchase order, estimate or forecast.
8.3 Tanisys acknowledges and agrees that its stated manufacturing
philosophy is to utilize just sixty percent (60%) of manufacturing line
capacity, withholding the remaining forty percent (40%) of capacity to
address upside requests. Tanisys hereby grants to LGSA a right of first
refusal to at least fifty percent (50%) of the upside capacity (or twenty
percent (20%) of total capacity) for the initial production line installed in
Tanisys' Scotland facility. This upside capacity is intended to respond to
LGSA's requirements for Memory Modules to meet its customers' upside
requirements, not forecasted production, within forty-eight (48) hours of
receiving a purchase order for such upside requirements. Tanisys will make
every commercially reasonable effort to achieve LGSA's goal of fulfilling
upside orders for Memory Modules within forty-eight (48) hours after receipt
of a purchase order.
8.4 In addition to the manufacturing services described herein, Tanisys
shall also provide warehousing, inventory control, assembly and test services
for finished Memory Modules, and ship completed Memory Modules to LGSA or any
designated customer or location on a same day basis, and in no event later
than twenty-four (24) hours of Tanisys' receipt of a
7
Manufacturing Services Agreement
LG Semicon America, Inc./Tanisys Technology, Inc.
<PAGE>
purchase order therefor from LGSA or any of its designated customers. Tanisys
acknowledges and agrees that its timely performance is essential to LGSA's
meeting its obligations to its customers, and Tanisys shall use its best
efforts to timely perform all of Tanisys' obligations hereunder, including
but not limited to the manufacture and delivery of the Memory Modules under
this Agreement.
8.5 Tanisys shall include with every shipment of the Memory Modules a
packing slip stating the quantity of each type of Memory Modules being
shipped and the shipment date, and describing the Memory Modules by Tanisys',
LGSA's, and/or LGSA's customer's Memory Module part numbers, as may be
required.
8.6 Tanisys shall deliver the finished Memory Modules F.O.B. Tanisys'
facilities wherever such facilities may be located. Shipments of such Memory
Modules shall be delivered to such address(es) as may be designated by LGSA.
8.7 LGSA may request manufacturing services via electronic means. The
parties hereto agree to discuss in good faith appropriate procedures for such
electronic communication consistent with the requirements of LGSA's customers
and in order to maximize the efficiency and speed of the order and delivery
process for finished Memory Modules. Tanisys agrees to adopt any EDI or
similar program which may be requested by LGSA or any of its customers.
9. PRICE AND PAYMENT
9.1 Prices for the manufacturing services will be fixed for a calendar
quarter and shall initially be as specified in Exhibit D (Tanisys Technology:
Quotation for Contract Manufacturing Services). All prices shall be exclusive
of freight, insurance, and the costs of any Consigned Components or other
components supplied by LGSA, unless the same is purchased by Tanisys and
titled thereto passes to Tanisys. Such prices shall also not include taxes of
any kind, and Tanisys shall be responsible for all taxes unless LGSA fails to
obtain the proper resale permits. Risk of loss for any and all Consigned
Components and completed or partially completed Memory Modules shall be and
remain with Tanisys unless and until delivered by Tanisys to a freight
carrier designated by LGSA at Tanisys' facilities.
9.2 Price negotiations shall be conducted during the second month of
any ninety (90) forecast period, unless both parties mutually agree not to
change the price from the last agreed price, for manufacturing services to be
provided in the following ninety (90) day forecast period.
9.3 If the parties fail to agree in writing on actual prices for any
Memory Module within thirty (30) days after commencing pricing negotiations,
then the prices for the Memory Modules shall be the last agreed price.
Tanisys hereby agrees to make every effort on an ongoing basis to reduce the
costs of manufacturing the Memory Modules and the price for the services to
be provided hereunder. Any and all efforts at cost and price reduction shall
be subject to periodic review by LGSA.
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<PAGE>
9.4 Tanisys shall invoice LGSA for the manufacture of Memory Modules
upon completion of the manufacturing and delivery of the finished Memory
Modules to Tanisys' finished Memory Module inventory location within its
facilities. All invoicing will be in United States dollars. Such invoices
shall be sent to the Accounts Payable Departments of LGSA or its affiliates,
as the case may be, at the addresses set forth on Exhibit F. Such invoices
shall be paid within thirty (30) days after receipt of such invoice. Any
payment due under any invoice may be off-set by any amounts due from Tanisys
to LGSA or its affiliates, respectively, for returns, refunds or any other
payments.
9.5 Notwithstanding the above, if an opportunity shall arise for an
order of Memory Modules significantly in excess of the quantities forecasted,
Tanisys agrees to negotiate the pricing for the manufacturing services for
such order in good faith with a view toward providing LGSA with a pricing
advantage to assist LGSA in winning such order.
10. WARRANTIES
10.1 Tanisys warrants that, for a period of three (3) years following
acceptance of any unit of the Memory Modules by LGSA or any of its customers,
each such unit shall conform to the specifications set forth in Exhibit B and
shall be free from any defects in materials or workmanship, unless such
defects are caused by a Consigned Component.
10.2 Tanisys farther represents and warrants that all services to be
provided under this Agreement, and the performance of all of Tanisys'
obligations hereunder, shall be performed in a careful and efficient manner
by fully qualified workers in a workmanlike manner, and all such services
shall fully conform to the Class II Standards of the Institute for
Interconnecting and Packaging of Electronic Circuits (IPC Class II).
10.3 For any breach of the warranties set forth in this Section 10,
Tanisys shall either re-manufacture the unit if returned, replace the unit,
pay LGSA for the cost of the unit, or accept an off-set against Tanisys'
invoices, as determined by LGSA in its sole discretion. All costs associated
with returns, replacements, rework, and corrections shall be at Tanisys' sole
expense, including all labor, materials, installation, repair, service,
transportation, and other charges. Tanisys expressly assumes all the risk of
loss or damage to units returned while the same are in transit or in Tanisys'
possession.
10.4 The above warranties shall not apply to Memory Modules which are
altered or repaired, or which have been subjected to misuse, negligence, or
over-stress due to circuit or system design. The above warranties shall also
not apply to defective Memory Modules if the defect is solely attributable to
a defect in the Consigned Component incorporated into the Memory Module.
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<PAGE>
10.5 All warranties shall survive the acceptance of and the payment for
the Memory Module by LGSA.
11. INSURANCE
11.1 Tanisys shall have and shall maintain, in fall force and effect,
and at its sole expense, the following forms of insurance:
(A) All risks insurance to cover any and all toss and/or damage to the
Consigned Components, Memory Modules, and works-in-process, however
such loss and/or damage may be caused, including, but not limited to,
by fire or theft, in the amount of the full replacement cost thereof
with coverage limits equal to the higher of $2,000,000 or the total
aggregate value of the entire inventory of Consigned Components in
Tanisys' possession based on its full replacement value
(B) Adequate worker's compensation and occupational disease insurance as
may be required by law and within statutory limits; and
(C) Public liability, products liability and property damage liability
insurance, under the comprehensive general liability form, with
limits of liability of no less than $2,000,000 including contractual
liability coverage for the indemnity obligations specified in the
Agreement, and a Products/Completed Operations Endorsement.
LGSA shall be made a loss payee and co-insured on any and all such or
similar insurance policies as may be appropriate.
11.2 Tanisys shall not accept a purchase order or perform any of the
manufacturing services until such time as it may have in force insurance in
the forms and of the types specified in the preceding paragraph.
11.3 LGSA reserves the right to require other reasonable forms of
insurance and/or faithful performance guarantee bonds by giving Tanisys
written notice of said additional requirements.
11.4 The procurement and maintenance of insurance specified in this
section shall not limit or affect any liability which Tanisys might have by
virtue of this Agreement or otherwise.
12. RECORDS AND AUDITS
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<PAGE>
12.1 Tanisys shall implement and utilize such records, procedures, and
systems as may be specified by LGSA in writing from time to time to document,
record, and account for Tanisys' performance under this Agreement, compliance
with the specifications attached as Exhibit B, the location and use of the
Consigned Components, the location and quantity of finished Memory Modules,
quality control and reliability processes, shipment and delivery history,
invoicing and payment history, cost and price reductions and similar matters.
Tanisys shall provide to LGSA reports of such records, procedures, and
systems, and any other information or reports reasonably requested by LGSA,
through the methods, at the times, and in the formats described in Exhibit G
attached hereto, which exhibit may be changed from time to time upon the
mutual consent of the parties. Tanisys agrees to permit representatives of
LGSA to inspect, audit, and copy such books, records, and documentation in
Tanisys' possession or control.
12.2 Tanisys shall also send to LGSA, via personal computer interface or
other acceptable means on a daily basis, updated inventory reports for
Consigned Components, finished Memory Modules, and Memory Modules in process,
which shall include at least the following:
(1) the month ending inventory of Consigned Components, by device
type:
(2) the total number of defective Consigned Components shipped by
LGSA to Tanisys and the total number of defective Memory Modules
during the fiscal month, by device type.
Tanisys shall account for every unit of Consigned Components and
finished Memory Modules on the daily inventory reports.
13. CONFIDENTIALITY/NON-DISCLOSURE AGREEMENT
13.1 In the course of doing business under this Agreement, one party may
furnish to the other party software, data, designs, drawing, tracings, plans,
layouts, specifications, samples, equipment, and other written information
which may be confidential and proprietary to the furnishing party, and which
is clearly and conspicuously marked as "Confidential" or "Proprietary"
(hereinafter called "Confidential Information"). Tanisys hereby acknowledges
and agrees that any and all information related to the price of the Consigned
Components and of the Memory Modules are trade secrets of LGSA, and all such
information shall be included in the definition of Confidential Information,
regardless of whether clearly marked as such. Any Confidential Information
which is furnished orally shall be confirmed in writing within thirty (30)
days of the disclosure. It is agreed that during the term of this Agreement
and for a period of two (2) years after termination of this Agreement, the
receiving party shall: (1) restrict dissemination of Confidential Information
to only those employees who must be directly involved in using the
Confidential Information in the performance of the services described
hereunder; and (2) use the same degree of care as it uses for its own
information of like importance, but at least reasonable care, in safeguarding
against the unauthorized disclosure of
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<PAGE>
Confidential Information.
13.2 Notwithstanding any provision to the contrary, during the term of
this Agreement nothing received by the receiving party shall be construed as
Confidential Information which is now available or which becomes available to
the public through no breach of this Agreement by the receiving party, is
released in writing by the furnishing party, is lawfully obtained from a
third party or parties, or is known to the receiving party prior to such
disclosure by the furnishing party, or is at any time developed by the
receiving party prior to such disclosure, or is at any time developed by the
receiving party independently of such disclosure or disclosures by the
furnishing party.
13.3 The parties shall not disclose the terms of this Agreement to
others, except by mutual agreement and as required by law and various
regulatory agencies or as may be necessary to enforce the terms of this
Agreement.
13.4 Each party agrees not to disclose to the other party the
confidential or proprietary information of any third parties.
13.5 Tanisys shall within thirty (30) days after the termination or
expiration of the Agreement, forward to LGSA, or to its designee, all
Confidential Information of LGSA which may be in its possession, and Tanisys
shall thereafter make no farther use, either directly or indirectly, of such
Confidential Information.
13.6 The only rights or licenses which either party may claim as being
granted hereunder are those which are expressly granted hereunder, and no
rights or licenses are conveyed to either party or to any third party by
implication, waiver, or estoppel.
13.7 Any breach of the provisions in this Section 13 shall be deemed a
material breach of the Agreement.
14. SECURITY
14.1 Tanisys agrees to take all necessary precautions to secure the
areas in its facility related to the performance of the manufacturing
services and storage of Consigned Components. LGSA shall have the right to
audit Tanisys' security practices, policies, procedures, and measures as they
relate to the performance of the Work, and to specify such changes as may be
reasonably required to protect the manufacturing services or the Consigned
Components.
14.2 Tanisys shall immediately report to LGSA any breaches or suspected
breaches of its security, but such reporting shall not relieve Tanisys of its
responsibilities hereunder.
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<PAGE>
15. NOTICES
15.1 In any case where a notice or other communications is to be given
or made pursuant to any provision of this Agreement, such notice or
communication will be deemed to be given when made or as follows: if by hand
delivery, on the day delivered; if by telex, cable, fax, or telegraph, upon
confirmation of receipt, the next business day following the date sent, or if
by mail, on the third calendar day following posting by certified or
registered mail, return receipt requested.
15.2 All such notices mailed to LGSA will be sent postage prepaid and
addressed as follows:
LG SEMICON AMERICA, INC
3003 North First Street
San Jose, CA 95134
Attn: President
with a copy to:
LG SEMICON AMERICA, INC.
20405 State Highway 249, Suite 350
Houston, Texas 77070
Attn: Compaq Global Account Manager
Notices to any of LGSA's affiliates shall be sent postage prepaid to the
addresses for each such affiliate set forth in Exhibit F hereto, with a copy
to LGSA's Compaq Global Account Manager at the address set forth immediately
above.
15.3 All such notices mailed to Tanisys will be sent postage prepaid and
addressed to:
TANISYS TECHNOLOGY, INC.
Unit B, Hamilton International Technology Park
Hamilton, Scotland, U.K
Attn:__________________
or
24 Langlands Avenue
East Kilbride, Scotland
with a copy to:
TANISYS TECHNOLOGY, INC.
12201 Technology Blvd., Suite 130
Austin, Texas 78727-6101
Attn: Mr. Chris Efstathiou
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<PAGE>
16. OTHER OBLIGATIONS OF TANISYS
16.1 Tanisys shall permit LGSA to communicate directly with its
manufacturing facilities wherever located for all matters and services
described herein. Tanisys shall at all times maintain contact persons at such
manufacturing facilities as well as its main facilities in Austin, Texas, for
purposes of coordinating manufacturing, deliveries, and all other matters
related to this Agreement.
16.2 In the performance of this Agreement, Tanisys shall comply with all
applicable federal, state, and local laws and ordinances, and rules,
regulations, and orders of any duly constituted authority including, but not
limited to, those relating to social security and income taxes, workers'
compensation insurance, unemployment compensation insurance, environmental
regulation, transportation, and occupational safety and health.
16.3 The parties shall not export, directly or indirectly, any technical
data acquired from the furnishing party under this Agreement, or any
products utilizing any such data, to any country for which the U.S.
Government or any agency thereof at the time of export requires an
export license or other government approval without first obtaining
such license or approval.
17. MISCELLANEOUS PROVISIONS
17.1 This Agreement contains the complete and exclusive statement of the
agreement and understanding of LGSA and Tanisys relating to the subject
matter of this Agreement, and it supersedes all other agreements,
understandings, communications, and proposals, oral or written, between the
parties. Any amendment of this Agreement must be in writing and signed by
authorized representatives of LGSA and Tanisys.
17.2 If any provision of this Agreement should become fully or partially
invalid or unenforceable for any reason whatsoever, or violate any applicable
law, this Agreement is to be considered divisible as to such provision and
such provision shall be deemed deleted from this Agreement, and the remainder
of this Agreement shall be valid and binding as if such provision were not
included herein. A new provision shall be substituted for any such deleted
provision which shall come as close as what the parties intended, as far as
legally possible, according to the sense and purpose of this Agreement.
17.3 No waiver of any right, or failure to exercise any remedy, with
respect to any matter or event which is subject to this Agreement, shall
serve or be deemed to be a waiver of such right or remedy with respect to any
other matter or event, or to constitute a precedent for purposes of the
interpretation of this Agreement.
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<PAGE>
17.4 Neither party shall be liable for damages to the other for any
delay in performance or failure to perform, in whole or in part, when due to
labor dispute, strike, war or act of war (whether an actual declaration is
made or not), insurrection, riot, civil commotion, act of public enemy,
accident, fire, flood, or other act of God, act of any government authority,
judicial action, or similar causes beyond the reasonable control of such
party. If such an event of force majeure occurs, the other party shall be
immediately notified.
17.5 Neither this Agreement, LGSA's Purchase Orders, or any of the
manufacturing services shall be assigned or subcontracted by Tanisys without
the prior written approval of LGSA.
17.6 This Agreement may be executed by the parties in counterpart, and
each fully executed counterpart shall be deemed an original.
17.7 Headings appearing in this Agreement are used for convenience only
and shall not be used in any manner whatsoever for purposes of interpretation
of this Agreement.
17.8 This Agreement shall be interpreted in all respects in accordance
with the laws of the State of California, except for that body of law known
as conflicts of laws.
18. DISPUTE RESOLUTION
18. LGSA and Tanisys shall attempt in good faith to resolve any dispute
arising out of or relating to this Agreement promptly by negotiation between
executives who have authority to settle the controversy. The executives shall
be of sufficiently high level and will not have had direct responsibility for
administration of this Agreement.
18.2 If a dispute should arise between the parties that cannot be
resolved in the ordinary course of business, then either party may give the
other written notice of such dispute. Within fifteen (15) days after delivery
of the notice, the party receiving the notice shall submit to the other a
written response. The notice and response shall include a statement of the
party's positions regarding the matter in dispute, a summary of arguments in
support, and the name and title of the executive who will represent that
party and any other person who will accompany that executive. Within thirty
(30) days after delivery of the initial notice, the designated executives
shall meet at a mutually acceptable time and place, and thereafter as often
as they reasonably deem necessary to attempt to resolve the dispute. All
reasonable requests for information made by one party to the other shall be
honored in a timely fashion.
18.3 MI negotiations conducted pursuant to this Section 18 (and any of
the party's submissions in contemplation hereof) shall be kept confidential
by the parties and shall be treated by the parties and their respective
representatives as compromise and settlement negotiations for purposes of the
Federal Rules of Evidence and any similar state rules.
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<PAGE>
18.4 If either party believes in good faith that the negotiations
between the two executives are not or will not be successful, the party may
request that the dispute be mediated before a mediator mutually agreeable to
the parties. If the parties fail to resolve the dispute through mediation,
then either party request binding arbitration of the dispute
18.5 In order to initiate binding arbitration, one party (the claimant)
may give written notice to the other (respondent) of its intention to
arbitrate, which notice shall contain a statement setting forth the nature of
the dispute, the amount involved, if any, and the remedy sought, and file
with the appropriate office of the American Arbitration Association three
copies of the notice and three copies of the arbitration provision of this
Agreement.
18.6 The arbitration shall be conducted pursuant to the Commercial
Arbitration Rules of the American Arbitration Association, as amended, and as
farther modified or revised by the provisions herein, shall govern these
proceedings. The arbitration shall be conducted by three arbitrators, one
selected by each party and the third selected by those two arbitrators. After
the arbitrators are selected, the parties agree to try in good faith to
settle the dispute by mediation administered by the American Arbitration
Association under its Commercial Mediation Rules.
18.7 The place of the arbitration proceedings shall in San Jose,
California. The decision of the arbitration panel shall be rendered in
writing.
18.8 The parties agree that procedural rules will be those of the State
in which the arbitration is to occur, as amended by this Agreement. In
addition, in an attempt to keep combined legal expenses to a minimum, the
parties agree that discovery will take place informally to the extent
possible through document production, interrogatories limited to
identification of witnesses and documents and no more than five (5)
depositions per side.
19. SUBSTANTIVE LAW
19.1 All disputes shall be settled in accordance with the provisions of
this Agreement and all other Agreements regarding its performance, in
accordance with the substantive law of the State of California (except for
its conflict of laws provision) without reference to other law. The United
Nations Convention on contracts for the International Sale of Goods of April
1, 1980 shall not apply.
20. LIMITATION OF LIABILITY
20.1 NEITHER PARTY SHALL BE LIABLE TO THE OTHER FOR ANY INCIDENTAL,
SPECIAL OR CONSEQUENTIAL DAMAGES THAT RESULT FROM PERFORMANCE UNDER THIS
AGREEMENT, EVEN IF THE PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH
DAMAGES. WITHOUT LIMITING THE ABOVE, TANISYS RECOGNIZES THAT LGSA'S ABILITY
TO MEET ITS OBLIGATIONS
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<PAGE>
TO ITS CUSTOMERS DEPENDS UPON THE TIMELY PERFORMANCE BY TANISYS OF ITS
MATERIAL OBLIGATIONS. SIMILARLY, LGSA RECOGNIZES THAT TANISYS DEPENDS ON
THIRD PARTIES TO PERFORM ITS OBLIGATIONS HEREUNDER. NOTWITHSTANDING THE
ABOVE, TANISYS AGREES TO INDEMNIFY LGSA FOR AND HOLD IT HARMLESS FROM ANY AND
ALL LIABILITIES, CLAIMS AND/OR DAMAGES ARISING FROM TANISYS'S INABILITY TO
TIMELY PERFORM ITS OBLIGATIONS UNDER THIS AGREEMENT. THIS LIMITED
INDEMNIFICATION SHALL IN NO EVENT COVER INCIDENTAL, SPECIAL, OR CONSEQUENTIAL
DAMAGES.
IN WITNESS THEREOF, the parties hereto have caused this Manufacturing
Services Agreement to be executed by their duly authorized representatives as
of the date first written above.
TANISYS TECHNOLOGY, INC LG SEMICON AMERICA, INC.
/s/ Chris Efstathiou /s/ Jae Hoon Bae
- -------------------------------- ------------------------------
Charles T Comiso, President Jae Hoon Bae, President
Chief Executive Officer
Chris Efstathiou
Vice President & General Manager
17
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<PAGE>
EXHIBIT A
CONSIGNED COMPONENTS LIST
Manufacturing services shall be provided by Tanisys for the following
Consigned Components:
<TABLE>
LGSA Part No. Description
- --------------------------------------------------------
<S> <C>
1. GM 7IV 164O3 CJ- 6 4M x 4,3.3V, EDO
2. GM 72V 161621 CT - 10K 1M x 16, 66 Mhz, DSRAM
3. GM 72V 16821 BT - 10K 2M x 8, 66 Mhz, SDRAM
</TABLE>
1
Manufacturing Services Agreement
LG Semicon America, Inc./Tanisys Technology, Inc.
<PAGE>
EXHIBIT B
MEMORY MODULE SPECIFICATIONS AND PACKAGING SPECIFICATIONS
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<PAGE>
EXHIBIT B
MEMORY MODULE SPECIFICATIONS AND PACKAGING SPECIFICATIONS
<TABLE>
Description LG Semicon Compaq Specification
- ----------------------------------------------------------------------------
<S> <C> <C>
4Mx72 EDO Unbuff GMMT7734243C5G6 247288-002
4Mx72 EDO Buff GMMT7734240CSG6 228468-001
8Mx72 EDO Unbuff GMMT7738243CSG6 247289-002
8Mx72 EDO Buff GMMT7738240CSG6 228469-001
IMx64 SDRAM DJMM GMMT2641233CTG-1OK 278029-002
286546-001
2Mx64 SDRAM DIMM GMMT2642233CTG-1OK 278030-002
286547-001
4Mx64 SDRAM DJMM GMMT2644233CTG-1OK 278031-002
286548-001
8Mx72 SDRAM REG GMMT2739210CTG-7J 333143-001
</TABLE>
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<PAGE>
EXHIBIT C
[Intentionally Left Blank]
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<PAGE>
EXHIBIT D
TANISYS TECHNOLOGY: QUOTATION FOR CONTRACT MANUFACTURING SERVICES
2
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<PAGE>
EXHIBIT E
[Intentionally Left Blank]
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<PAGE>
EXHIBIT F
LGSA'S AFFILIATES
LG Semicon Wales Ltd.
4th Floor, C.P. House, 97-107 Uxbridge Road
Ealing, London W5 5TL, U.K.
Attn: C. S. Chung
---------------------
LG Semicon Co., Ltd.
Taiwan Office
Rm. 1212, 12F., International Trade Bldg., No.333
Sec. 1, Keelung Road, Taipei, 10548
Attn:
---------------------
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<PAGE>
EXHIBIT G
PROCEDURES AND FORMATS FOR REPORTS TO LGSA
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<PAGE>
MANUFACTURING SERVICES AGREEMENT
between
TANISYS TECHNOLOGY, INC.
12201 Technology Blvd.
Austin, TX 78727
and
TOSHIBA AMERICA ELECTRONIC COMPONENTS, INC.
9775 Toledo Way
Irvine, CA 92618-1811
-1-
<PAGE>
MANUFACTURING SERVICES AGREEMENT
This Manufacturing Services Agreement (the "Agreement") is entered into
effective March 1, 1998 (the "Effective Date") by and between Toshiba America
Electronic Components, Inc., incorporated in the state of California, with
offices at 9775 Toledo Way, Irvine, California 92618-1811 (hereinafter
referred to as "Toshiba") and Tanisys Technology, Inc., incorporated in the
state of Wyoming, with offices at 12201 Technology Blvd., Suite 125, Austin,
Texas 78727-6101 (hereinafter referred to as "Tanisys").
WITNESSETH:
WHEREAS, Toshiba desires to enter into a business relationship involving
the regular performance of certain manufacturing services, including, but not
limited to, printed circuit board design and layout, material procurement,
assembly, test and marking operations for Toshiba memory products, and;
WHEREAS, Tanisys desires to enter into such a business relationship to
perform such services for Toshiba.
NOW, THEREFORE, in consideration of the mutual promises, covenants, and
agreements contained in the Agreement, and other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged,
Toshiba and Tanisys hereby agree to the following terms and conditions for the
performance of manufacturing services by Tanisys for Toshiba.
1. PURPOSE OF THIS AGREEMENT
(A) The purpose of this Agreement is to provide certain terms and
conditions which shall be applicable to the manufacturing services ("Services").
All terms and conditions on Toshiba's purchase orders for such Services shall
apply to the Services except to the extent such terms and conditions are changed
or modified by this Agreement.
(B) This Agreement creates no obligation, express or implied, for Toshiba
to order or purchase any specific Services or quantity of Services from Tanisys,
nor does it limit in any way Toshiba's right to perform the Services itself or
to have others to perform the same or similar Services for any reason.
(C) It is the mutual intention of the parties that Tanisys is and shall be
an independent contractor for the Services and the sole employer and/or
principal of any and all persons performing the Services. Under no circumstances
shall Tanisys or its employees or agents be entitled to participate in the
profit sharing, pension, or other plans established for the benefit of Toshiba's
employees.
-2-
<PAGE>
2. DURATION AND TERMINATION
(A) This Agreement shall be effective from the date first written above,
and it shall continue in full force and effect for an initial term of one year.
It shall be automatically renewed for successive periods of one year each unless
either party provides the other with written notice of termination at least
ninety (90) days prior to the initial or applicable successive termination
dates.
(B) After the initial one year term, either party may terminate this
Agreement by providing written notice of termination to the other of at least
one hundred and eighty (180) days in advance.
(C) Either party may terminate this Agreement at any time for cause, in the
event that any material breach by the other remains uncured for more than thirty
(30) days after notice of such condition, or in the event the other party files
or has filed against it any bankruptcy, insolvency, or receivership proceeding.
The written notice of material breach or unreasonable default shall specify the
conditions constituting the breach or default and the corrective action, if any,
which must be undertaken to cure such breach or default. If, by the date of
termination set forth in the written notice, the party providing such notice
determines that the condition has been cured or that satisfactory arrangements
have been undertaken to cure such condition, then this Agreement shall continue
in force and effect. Otherwise, this Agreement may be terminated by such party
by written notice to the other party.
(D) The provisions of Articles 2, 12, 13(C), 16, 17 and 18 shall survive
termination of this Agreement regardless of reason.
(E) After notice of termination is tendered, each parties' representative
shall prepare for an orderly termination of the Agreement, and for return to the
owning party its property, records, specifications, and Confidential
Information. The parties agree to provide as orderly a transition toward the
effective date of termination as is possible.
(F) Upon orderly termination, Toshiba shall purchase from Tanisys all of
its actual work process for Toshiba, and all raw materials or piece parts
required for such work for up to the ninety (90) day forecast period referenced
in Article 8(A), if the purchase of such raw materials or piece parts could not
be canceled by Tanisys or for any charges upon cancellation of such orders.
Freight expense of all supplied hardware and materials shall be borne by
Toshiba. Termination of this Agreement shall not relieve Toshiba of its
obligation to pay for all goods shipped, services performed, and other amounts
invoiced hereunder prior to termination.
3. CONSIGNMENT OF COMPONENTS TO TANISYS
(A) As used in this Agreement, the term "Consigned Components" shall mean
and include any and all material or components owned by Toshiba and provided to
Tanisys for the performance of the Services.
-3-
<PAGE>
Title to the Consigned Components shall at all times remain in Toshiba, but risk
of loss and damage to any item of the Consigned Components shall pass to Tanisys
during such time as the item is in the possession of Tanisys or any employee,
subcontractor or agent of Tanisys. Consigned Components may be shipped directly
to Tanisys under this contract. Any Consigned Components not used in the
manufacturing process will be immediately returned to Toshiba's inventory and
added to the inventory records. Any Consigned Component that fails in the
manufacturing process will be returned immediately to Toshiba with a complete
explanation of the cause of the failure. Upon completion of the Tanisys and
Toshiba Inventory Management Service Agreement ("IMSA"), the Consigned
Components shipping instructions by Toshiba may be taken directly from Toshiba's
inventory which is managed by Tanisys under the terms of the executed IMSA.
(B) Tanisys agrees to develop, implement, and utilize procedures to fully
account for Consigned Components as it is transferred between the parties, and
to comply with Toshiba's reasonable written instructions regarding inventory
accounting procedures.
(C) Upon any transfer, the receiving party shall be responsible for
inspecting of any transferred material and notifying the other in writing
immediately, but not later than three (3) business days thereafter, of any item
which is not in good, proper working condition.
(D) Upon notice, Toshiba shall have the right to enter Tanisys' premises
at any time during regular business hours to inspect the Consigned Components.
4. SPECIFICATIONS FOR THE SERVICES
(A) Tanisys agrees that the Services shall conform to Toshiba's
visual/mechanical marking, and electrical and packaging specifications set forth
in each purchase order.
(B) Toshiba may change any specifications by providing written notice to
Tanisys. If any such change is incompatible with Tanisys' existing equipment or
would adversely affect Tanisys' existing productivity rates, Tanisys shall
promptly notify Toshiba, and the parties shall in good faith negotiate a
reasonable, mutually acceptable solution. Toshiba may request technical changes
of the items to be manufactured and Tanisys must comply with such change
request. Tanisys will inform Toshiba within ten (10) working days after
receiving such requests of the result of its evaluation of the change in
writing. The parties shall mutually agree upon prices and implementation
schedules for such changes.
(C) If Tanisys is required to apply Toshiba's name, trademark, logo, or
similar information ("Marks") on any units of the manufacturing assembly ("DRAM
Modules"), Tanisys agrees that it will not acquire or claim any right, title, or
interest thereto nor will it use any of the Marks in any other manner except as
has been specifically authorized in writing by Toshiba. All Marks shall be the
property of Toshiba.
-4-
<PAGE>
5. PROCESS CHANGES
(A) During and after any qualification period for the Services, either
party may initiate change notices regarding processes or materials. The party
initiating such change notices will document and transmit the proposed change to
the other party, who shall acknowledge receipt. Any change notice shall provide
at least ten (10) business days before proposed implementation. The parties
shall discuss any change notices and any associated pricing impact and mutually
agree to any change before it may be implemented.
(B) After any qualification period, Tanisys shall not change any processes
or materials which might affect the Services without having first obtained prior
written approval from Toshiba.
6. SCRAP
(A) Tanisys shall dispose of any scrap (non-Toshiba component related)
generated while performing the Services in accordance with applicable law.
(B) Tanisys shall account for and return on a lot build basis, but not to
exceed one week, all defective components or similar items of the Consigned
Components to Toshiba, inside boxes separate from any Services and clearly
marked so as to identify non-product.
(C) Tanisys shall account for every scrap Consigned Component on the
monthly inventory reports and indicate percentage scrap of the total monthly
Consigned Component usage. Tanisys shall use best efforts to meet a goal of
scrap being less than or equal to 0.03% of the total monthly Consigned Component
usage. If scrap is equal to or greater than 0.05% of the total monthly Consigned
Component usage, but less than 0.08%, Tanisys shall conduct a failure analysis
and develop a corrective action plan. If scrap is equal to or greater than 0.08%
of the total monthly Consigned Component usage, Tanisys and Toshiba shall
conduct a joint failure analysis and mutually determine an appropriate remedy.
(D) Tanisys shall provide a report of all scrap returns per Article 6(B),
which shall be reviewed monthly by the parties.
7. PACKAGING
(A) All packaging by Tanisys relating to the Services shall be of
antistatic materials, and shall be resistant to any damage which may result in a
failure to meet specifications. Toshiba must be notified of changes in existing
packaging, even if still within Toshiba specifications.
(B) Except and only to the extent otherwise specified in writing by
Toshiba, Tanisys shall make no reference or identification in its packaging of
any goods, boxes, or containers, which would indicate that Tanisys is the
manufacturer of the goods.
-5-
<PAGE>
8. SCHEDULING AND DELIVERY
(A) Toshiba shall supply Tanisys with monthly rolling forecasts for its
anticipated requirements for the Services for the subsequent ninety (90) days.
Actual orders, however, shall be made only by purchase orders or releases
against existing purchase orders.
(B) Toshiba and Tanisys shall conduct monthly reviews of Tanisys'
inventory of Consigned Components to determine if any inventory is obsolete
and/or excess beyond the current or next quarter's forecasted requirements.
Toshiba shall request Tanisys to return any inventory that has been mutually
determined to be obsolete and/or excess.
(C) Toshiba shall provide Tanisys with existing purchase order numbers, to
cover all deliveries of the Services. Toshiba may, by written notification, make
changes to shipping instructions, quantities, or delivery schedules specified in
any blanket purchase orders, estimates or rolling forecasts.
(D) Toshiba shall deliver the corresponding equivalent Consigned
Components to Tanisys for the daily Services for DRAM Modules. Tanisys in turn
shall provide assembly and test services for such Consigned Components and ship
completed DRAM Modules to Toshiba within two (2) weeks of receipt of purchase
order and Consigned Components. Time is of the essence in the delivery of DRAM
Modules under this Agreement.
(E) Tanisys shall include with every shipment a packing slip stating the
purchase order number and the shipment date, and describing the DRAM Modules
shipped, identified by Tanisys and Toshiba DRAM Modules part numbers, with
quantity and of each type of DRAM Modules, and if included, the defective
Consigned Components identified by Toshiba part number, with the quantity of
each and a description of the defect.
(F) Freight to ship the Services shall be F.O.B. Tanisys dock. All
shipments shall be delivered to such address(es) as may be designated by
Toshiba.
9. PAYMENT FOR THE SERVICES
(A) Prices for the Services will be fixed for a calendar quarter and
include the appropriate packaging as specified by Toshiba. The title and risk of
loss to the DRAM Modules will be transferred from Tanisys at the time at which
Tanisys deposits the properly packed DRAM Modules with the freight carrier
designated by Toshiba at Tanisys' facilities.
(B) Price negotiations shall be conducted during the second month prior to
the new quarter, initially in May 1998, unless mutually agreed by both parties
not to change pricing from the last agreed price.
-6-
<PAGE>
(C) If the parties cannot or fail to agree in writing on actual prices
for any DRAM Modules product line(s) within thirty (30) days after commencing
pricing negotiations, then either Tanisys or Toshiba shall have the right to
cancel that DRAM Modules product line(s), effective at the end of the
following calendar quarter. The prices for DRAM Modules product line(s) in
the circumstance shall be the last agreed price.
(D) Tanisys shall submit all original invoices upon shipment, referencing
Toshiba's purchase order number, to Toshiba's Accounts Payable department, at
Toshiba America Electronic Components, Inc., Attn: Accounts Payable, 9775 Toledo
Way, Irvine, CA 92618-1811. Toshiba shall pay Tanisys Net 30 days from the date
of Tanisys' invoice. Payment shall not preclude refund or additional payment
found due after any audit of Tanisys' records by Toshiba.
10. WARRANTIES
(A) Tanisys warrants that, for a period of one (1) year following
acceptance of any DRAM Modules of the Services by Toshiba, such DRAM Modules
shall conform to the specifications, and shall be free from any defects in
materials or workmanship supplied by Tanisys. If any DRAM Modules fail at
Toshiba's or Toshiba's customers incoming test, it will be returned to Tanisys
immediately for analysis and rework. Tanisys will rework and/or repair these
DRAM Modules and return them to Toshiba or the Toshiba customer on a timely
basis, as specified in 10(D) below. In addition, Tanisys will provide to
Toshiba a written failure analysis report within one (1) week.
(B) Tanisys further warrants that all services provided for the Services
shall be performed by careful, efficient, and qualified workers in a workmanlike
manner that conforms to the best quality standards for comparable work practiced
by service providers.
(C) For any DRAM Modules of the Services not as warranted, Tanisys shall
either remanufacture the DRAM Modules if returned, replace the DRAM Modules, pay
Toshiba for the cost of the DRAM Modules, or accept an offset against Tanisys'
billings, as mutually agreed. All costs associated with returns, replacements,
rework, and corrections shall be at Tanisys sole expense, including all labor,
materials, installation, repair, service, transportation, and other charges.
Tanisys expressly assumes all the risk of loss or damage to DRAM Modules
returned while same are in transit.
(D) The above warranties shall not apply to DRAM Modules which become
defective as a result of a defect of any kind in die and/or any other piece
parts supplied by Toshiba, Toshiba's alteration or repair, or which have been
subjected to misuse, negligence, or overstress due to circuit or system design.
(E) All warranties shall survive the acceptance and payment by Toshiba.
-7-
<PAGE>
11. INSURANCE
(A) Tanisys shall have and shall maintain, in full force and effect, and
at its sole expense, the following forms of insurance:
(1) at least $1,000,000 of Insurance to cover any loss, theft, and/or
damage to the Consigned Components in the amount of the full replacement cost
thereof;
(2) worker's compensation and occupational disease insurance within
statutory limits; and
(3) public liability and property damage liability insurance, under
the comprehensive general liability form, with limits of liability of no less
than $1,000,000 including contractual liability coverage for the indemnity
obligations specified in the Agreement, and a Products/Completed Operations
Endorsement.
(B) Tanisys shall not accept a purchase order or perform any of the
Services until such time as it may have in force insurance in the forms and of
the types specified in the preceding paragraph.
(C) Toshiba reserves the right to require other reasonable forms of
insurance and/or faithful performance guarantee bonds by giving Tanisys written
notice of said additional requirements.
(D) The procurement and maintenance of insurance specified in this Article
shall not limit or affect any liability which the Tanisys might have of virtue
of this Agreement or otherwise.
12. RECORDS AND AUDITS
(A) Tanisys shall implement and utilize such records, procedures, and
systems as may be specified by Toshiba in writing from time to time to document,
record, and account for the performance of the Services, compliance with
specifications, the location and use of the Consigned Components, quality
control and reliability processes, shipment and delivery history, invoicing and
payment history, and similar matters. Tanisys agrees to permit representatives
of Toshiba to inspect, audit, and copy such books, records, and documentation in
Tanisys' possession or control.
(B) Tanisys shall send to Toshiba, via personnel computer interface within
two (2) working days of the last day of each calendar month, an inventory report
which shall include the following:
(1) the month ending inventory of Consigned Components, by device type,
and
(2) the total number of defective Consigned Components shipped to
Toshiba during the fiscal month, by device type.
Tanisys shall account for every Consigned Component on the monthly
inventory reports.
-8-
<PAGE>
13. CONFIDENTIALITY/NON-DISCLOSURE AGREEMENT
(A) In the course of doing business under this Agreement, one party may
furnish to the other party software, data, designs, drawing, tracings, plans,
layouts, specifications, samples, equipment, and other written information which
may be confidential and proprietary to the furnishing party, which is
hereinafter called "Confidential Information". All Confidential Information
shall be marked CONFIDENTIAL or the equivalent by the furnishing party. Any
Confidential Information which is furnished orally shall be confirmed in writing
within thirty (30) days of the disclosure. It is agreed that during the term of
the contract and for a period of five (5) years after termination of this
Agreement, the receiving party shall: (1) restrict dissemination of Confidential
Information to only those employees who must be directly involved in using the
Confidential Information in the performance of the Services; and (2) use the
same degree of care as for its own information of like importance, but at least
use reasonable care, in safeguarding against disclosure of Confidential
Information.
(B) During the term of this Agreement, and not withstanding any other
provisions of this Agreement, nothing received by the receiving party shall be
construed as Confidential Information which is now available or becomes
available to the public through no breach of this Agreement by the receiving
party, is released in writing by the furnishing party, is lawfully obtained from
a third party or parties or is known to the receiving party prior to such
disclosure by the furnishing party, or is at any time developed by the receiving
party prior to such disclosure, or is at any time developed by the receiving
party independently of such disclosure or disclosures by the furnishing party.
(C) The parties shall not disclose the terms of this Agreement to others,
except by mutual agreement and as required by law and various regulatory
agencies or as may be necessary to enforce the terms of this Agreement.
(D) Each party agrees not to disclose to the other party the confidential
or proprietary information of others.
(E) Tanisys shall within thirty (30) days after the termination or
expiration of the Agreement, forward to Toshiba, or to its designee, all
Confidential Information of Toshiba which may be in its possession, and Tanisys
shall thereafter make no further use, either directly or indirectly, of such
Confidential Information.
(F) The only rights or licenses which either party may claim as being
granted hereunder are those which are expressly granted hereunder, and no rights
or licenses are conveyed to either party or to any third party by implication,
waiver, or estoppel.
(G) Any breach of the provisions in this Article shall be a material
breach of the Agreement.
-9-
<PAGE>
14. SECURITY
(A) Tanisys agrees to take an necessary precautions to secure the areas in
its facility related to the performance of the Services and to the Consigned
Components. Toshiba shall have the right to audit Tanisys security practices,
policies, procedures, and measures as they relate to the performance of the
Services, and to specify such changes as may be reasonably required to protect
the Services or the Consigned Components.
(B) Tanisys shall immediately report to Toshiba any breaches or suspected
breaches of its security, but such reporting shall not relieve Tanisys of its
responsibilities hereunder.
15. NOTICES
(A) In any case where a notice or other communications is to be given or
made pursuant to any provision of this Agreement, such notice or communication
will be deemed to be received when given or made as follows: if by hand
delivery, on the day delivered; if by telex, cable, fax, or telegraph, on the
next business day following the date sent, or if by mail, on the third calendar
day following posting by certified or registered mail, return receipt requested.
(B) All such notices mailed to Toshiba will be sent postage prepaid and
addressed to each of the following:
Toshiba America Electronic Components, Inc.
9775 Toledo Way
Irvine, CA 92618-1811
Attn: North American Manufacturing, Ted Bruce
(C) All such notices mailed to Tanisys will be sent postage prepaid and
addressed to:
Tanisys Technology, Inc.
12201 Technology Blvd., Suite 125
Austin, Texas 78727-6101
Attention: Vice President Sales & Service, John Bennett
16. OTHER OBLIGATIONS OF TANISYS
In the performance of this Agreement, the parties shall comply with all
applicable federal, state, and local laws and ordinances, and rules,
regulations, and orders of any duly constituted authority including, but not
limited to, those relating to social security and income taxes, workers'
compensation insurance, unemployment compensation insurance, environmental
regulation, transportation, and occupational safety and health.
The parties shall not export, directly or indirectly, any technical data
acquired from the furnishing party under this Agreement, or any products
utilizing any such data, to any county for which the U.S. Government or any
agency thereof at the time of export requires an export license or other
government approval without first obtaining such license or approval.
-10-
<PAGE>
17. MISCELLANEOUS PROVISIONS
(A) This Agreement contains the complete and exclusive statement of the
agreement and understanding of Toshiba and Tanisys relating to the subject
matter of this Agreement, and it supersedes all other agreements,
understandings, communications, and proposals, oral or written, between the
parties. Any amendment of this Agreement must be in writing and signed by
authorized representatives of Toshiba and Tanisys.
(B) If any provision of this Agreement should become fully or partially
invalid or unenforceable for any reason whatsoever, or violate any applicable
law, this Agreement is to be considered divisible as to such provision and such
provision deleted from this Agreement, and the reminder of this Agreement shall
be valid and binding as if such provision were not included herein. A new
provision shall be substituted for any such deleted provision which shall come
as close as what the parties intended, as far as legally possible, according to
the sense and purpose of this Agreement.
(C) No waiver of any right, or failure to exercise any remedy, with
respect to any matter or even which is subject to this Agreement, shall serve or
be deemed to be a waiver of such right or remedy with respect to any other
matter or event, or to constitute a precedent for purposes of the interpretation
of this Agreement.
(D) Neither party shall be liable in damages to the other for any delay in
performance or failure to perform, in whole or in part, when due to labor
dispute, strike, war or act of war (whether an actual declaration is made or
not), insurrection, riot, civil commotion, act of public enemy, accident, fire,
flood, or other act of God, act of any government authority judicial action, or
similar causes beyond the reasonable control of such party. If an event of force
majeure occurs, the other party shall be immediately notified.
(E) Neither this Agreement, Toshiba's purchase orders, or any of the
Services shall he assigned or subcontracted by Tanisys without prior written
approval of Toshiba.
(F) More than one counterpart of this Agreement may be executed by the
parties, and each fully executed counterpart shall be deemed an original.
(G) Headings appearing in this Agreement are used for convenience only and
shall not be used in any manner whatsoever for purposes of interpretation of
this Agreement.
(H) This Agreement shall be interpreted in all respects in accordance with
the laws of the State of Texas, except for that body of law known as conflicts
of laws.
18. ARBITRATION
(A) Toshiba and Tanisys shall attempt in good faith to resolve any dispute
arising out of or relating to this Agreement promptly by negotiation between
executives who have authority to settle the controversy. The executive will
be at the CEO, CEO or COO level and will not have had direct responsibility
for administration of this Agreement.
-11-
<PAGE>
Either party may give the other written notice of any dispute not resolved in
the ordinary course of business. Within fifteen (15) business days after
delivery of the notice the party receiving the notice shall submit to the other
a written response.
The notice and response shall include a statement of the party's positions
regarding the matter in dispute, a summary of arguments in support, and the name
and title of the executive who will represent that party and any other person
who will accompany that executive. Within 30 days after delivery of the initial
notice, the designated executives shall meet at a mutually acceptable time and
place, and thereafter as often as they reasonably deem necessary to attempt to
resolve the dispute. All reasonable request for information made by one party to
the other shall be honored in a timely fashion.
All negotiations conducted pursuant to this Section 18 (and any of the
party's submissions in contemplation hereof) shall be kept confidential by the
parties and shall be treated by the parties and their respective representatives
as compromise and settlement negotiations for purposes of the Federal Rules of
Evidence and any similar state rules.
(B) If any matter in dispute arising under this Agreement has not been
resolved within sixty (60) days after delivery of the notice or if the parties
fail to meet within thirty days (30) days, the matter will be submitted to
binding arbitration. Either party may initiate binding arbitration as
contemplated herein.
Either party (the claimant) may give written notice to the other
(respondent) of its intention to arbitrate, which notice shall contain a
statement setting forth the nature of the dispute, the amount involved, if any,
and the remedy sought, and file with the appropriate office of the American
Arbitration Association three copies of the notice and three copies of the
arbitration provision of this Agreement, together with the appropriate filing
fee as provided in the Schedule on page 21 of the AAA Commercial Rules as
Amended and Effective on November 2, 1993.
The AAA shall give notice of such filing to the respondent which may file
an answering statement in duplicate with the AAA within ten days after notice
from the AAA, in which event the respondent shall at the same time send a copy
of the answering statement to the claimant. If a counterclaim is asserted, it
shall contain a statement setting forth the nature of the counterclaim, the
amount involved, if any, and the remedy sought. If a counterclaim is made, the
appropriate fee shall be forwarded to the AAA with the answering statement. If
no answering statement is filed within the stated time, it will be treated as a
denial of the claim. Failure to file an answering statement shall not operate to
delay the arbitration.
(C) The AAA Commercial Arbitration Rules, as modified or revised by the
provisions herein, shall govern these proceedings. The arbitration shall be
conducted by three arbitrators, one selected by each party and the third
selected by those two arbitrators. After the arbitrators are selected, the
parties agree to try in good faith to settle the dispute by mediation
administered by the American Arbitration Association under its Commercial
Mediation Rules.
-12-
<PAGE>
(D) The place of the arbitration proceedings shall in Austin, Texas. The
decision of the arbitration panel shall be rendered in writing.
(E) The parties agree that procedural rules will be those of the State in
which the arbitration is to occur, as amended by this Agreement. In addition,
the parties agree that discovery will take place informally to the extent
possible through document production, interrogatories limited to identification
of witnesses and documents and no more than five (5) depositions per side.
IN WITNESS THEREOF, the parties hereto have caused this Manufacturing Services
Agreement to be executed by their duly authorized representatives as of the date
first written above.
TANISYS TECHNOLOGY, INC. TOSHIBA AMERICA ELECTRONIC
COMPONENTS, INC.
By: /s/ Charles T. Comiso By: /s/ Robert J. Brown
- ------------------------------------------ ------------------------------
Printed Name: Charles T. Comiso Printed Name: Robert J. Brown
Title: President & Chief Executive Officer Title: President/COO
- ------------------------------------------ ------------------------------
Date: 3/19/98 Date: 3/23/98
- ------------------------------------------ ------------------------------
By: /s/ Joe O. Davis
- -------------------------------
Printed Name: Joe O. Davis
Title: Chief Financial Officer
- -------------------------------
Date: March 19, 1998
- ------------------------------
-13-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS FOR TANISYS TECHNOLOGY,
INC. AND SUBSIDIARIES AS OF AND FOR THE SIX MONTHS ENDED MARCH 31, 1998 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS AND THE
NOTES THERETO.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 1,764,882
<SECURITIES> 0
<RECEIVABLES> 4,267,739
<ALLOWANCES> 288,312
<INVENTORY> 3,548,770
<CURRENT-ASSETS> 10,282,784
<PP&E> 4,551,278
<DEPRECIATION> 2,194,500
<TOTAL-ASSETS> 15,750,192
<CURRENT-LIABILITIES> 11,214,742
<BONDS> 0
0
0
<COMMON> 29,034,774
<OTHER-SE> (24,599,643)
<TOTAL-LIABILITY-AND-EQUITY> 15,750,192
<SALES> 17,207,247
<TOTAL-REVENUES> 17,207,247
<CGS> 13,789,190
<TOTAL-COSTS> 13,789,190
<OTHER-EXPENSES> 7,492,641
<LOSS-PROVISION> 241,943
<INTEREST-EXPENSE> 307,222
<INCOME-PRETAX> (4,347,596)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,347,596)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,347,596)
<EPS-PRIMARY> (0.21)
<EPS-DILUTED> (0.21)
</TABLE>
