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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended DECEMBER 26, 199625, 1997 Commission File No. 0-10394
DATA I/O CORPORATION
(Exact name of registrant as specified in its charter)
Washington 91-0864123
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10525 Willows Road N.E., Redmond, Washington, 98052
(address of principal executive offices, Zip Code)
Registrant's telephone number, including area code (206) 881-6444
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on
which registered
NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock (No Par)
Series A Junior Participating Preferred Stock
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X_X_ No --- ---___
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ][_]
Aggregate market value of voting stock held
by non-affiliates of the registrant as of February 25, 1997
$32,470,833
6,835,965March 2, 1998
$39,240,613
7,134,657 shares of no par value Common Stock outstanding as of February 25,
1997March 2, 1998
DOCUMENTS INCORPORATED BY REFERENCE
(1) Portions of the registrant's Proxy Statement relating to its May 13, 1997,12, 1998,
Annual Meeting of Stockholders are incorporated into Part III of this
annual report on Form 10-K.
Page 1 of 168128
Exhibit Index on Page 6056
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DATA I/O CORPORATION
FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 26, 1996For the Fiscal Year Ended December 25, 1997
INDEX
Part I Page
----
Item 1. Business 3
Item 2. Properties 21
Item 3. Legal Proceedings 21
Item 4. Submission of Matters to a Vote of Stockholders 21
Part II
Item 5. Market for Registrant's Common Stock and Related Stockholder
Matters 22
Item 6. Selected Five-Year Financial Data 23
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations 24
Item 8. Financial Statements and Supplementary Data 31
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosures 48
Part III
Item 10. Directors and Executive Officers of the Registrant 49
Item 11. Executive Compensation 49
Item 12. Security Ownership of Certain Beneficial Owners and
Management 49
Item 13. Certain Relationships and Related Transactions 49
Part IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K 50
Signatures 59
Exhibit Index 60
Page
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Part I
Item 1. Business 3
Item 2. Properties 16
Item 3. Legal Proceedings 16
Item 4. Submission of Matters to a Vote of Stockholders 16
Part II
Item 5. Market for Registrant's Common Stock and Related Stockholder Matters 17
Item 6. Selected Five-Year Financial Data 18
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 19
Item 7A. Quantitative and Qualitative Disclosure About Market Risk 26
Item 8. Financial Statements and Supplementary Data 26
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures 45
Part III
Item 10. Directors and Executive Officers of the Registrant 45
Item 11. Executive Compensation 45
Item 12. Security Ownership of Certain Beneficial Owners and Management 45
Item 13. Certain Relationships and Related Transactions 45
Part IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 46
Signatures 55
Exhibit Index 56
Page 2
PART I
ITEMItem 1. BUSINESS
GENERALBusiness
General
Data I/O-Registered Trademark-O(R) Corporation ("Data I/O" or the "Company") was incorporated in the
State of Washington in 1969. The Company manufactures hardware and software productsprogramming systems for
semiconductor manufacturers and users of programmable integrated circuits ("IC"
or "ICs"). Within this one predominant
business segment,its programming systems product group the Company offers three
major product groups:lines: (1) non-automated programming systems used by customers to handle, program, test and mark
programmable ICs;systems; (2) semiconductor equipment used to handle, transport and mark
ICs;non-automated
parallel programming systems; and (3) Electronic Design Automation ("EDA") software used to create
application designs for programmable ICs. These three product groups are
organized respectively under the Company's three divisions: (1) Programming
Systems, (2) Semiconductor Equipment,automated programming and (3) Synario-Registered Trademark-
Design Automation-TM-.handling
systems.
The Company is the world's leading provider of programming systems for
programmable ICs. It markets products to more than 15,000thousands of customers worldwide in a broad
range of industries including computers, communications, test and measurement,
medical, consumer electronics, military, transportation, aerospace and
semiconductors. All of these customers either manufacture ICs or design or
manufacture products which incorporate programmable ICs. FORWARD-LOOKING STATEMENTSThe Company's
programming systems are used primarily by electronic equipment manufacturers in
the design and manufacturing of equipment for industrial, commercial and
military applications. The Company estimates that during 1997, it sold products
to approximately 5,000 customers throughout the world, none of which accounted
for more than 10% of the Company's net sales. None of the Company's independent
distributors, resellers or OEMs accounted for more than 5% of the Company's net
sales.
Forward-Looking Statements
Although most of the information contained in this report is historical, certain
of the statements contain forward-looking information. To the extent these
statements
in this report involve, without limitation, product development and introduction
plans, the Company's expectations for growth, estimates of future revenue,
expenses, profit, cash flow, balance sheet items, sell-through or backlog,
forecasts of demand or market trends for the Company's various product
categoriesproducts and for the
industries in which the Company operates or any other guidance on future
periods, these statements are forward-looking and involve matters which are
subject to a number of risks and uncertainties that could cause actual results
to differ materially from those expressed in or implied byin such forward-looking
statements. These risks and uncertainties include product
development or production difficulties or delays due to supply constraints,
technical problems orReaders of this report should consider, along with other factors; technological changes;relevant
information, the effect of
global, national and regional economic conditions; changes in operating system
platforms of preference; the impact of competitive products and pricing; changes
in demand; increases in component prices or other costs; inventory risks due to
shifts in market demand, product obsolescence or otherrisk factors and a number of
other risks including those identified by the Company under the caption "Risk
Factors" in Item 1I and elsewhere in this report, and other risks identified from
time to time in the Company's filings with the Securities and Exchange
Commission, press releases and other communications. INDUSTRY OVERVIEW
GLOSSARY OF TERMS
ThroughoutAll forward looking
statements contained in this document industry-specific terminologyreport reflect the Company's expectations at the
time of this report only, and acronyms are usedthe Company disclaims any responsibility to facilitate understandingrevise
or update any such forward-looking statement except as may be required by law.
Strategic Transactions
During the fourth quarter of 1997 the Company completed two strategic
transactions and one agreement in principle aimed at enhancing and refining its
corporate focus on programming systems technology.
In November 1997, the Company's semiconductor equipment product group, which was
organized and managed as its Semiconductor Equipment Division, Reel-Tech(TM),
was sold to General Scanning Inc., headquartered in Watertown, Massachusetts,
for consideration of $15.5 million. Under the terms of the industries insale, General
Scanning, which supplies laser systems to Reel-Tech and the Company, operates. Below
certain termswill
maintain a continuing product development agreement with Data I/O for handler
technology. Reel-Tech was originally acquired by Data I/O in August of 1995 to
supply additional handler technology for Data I/O's line of automated
programming systems. While owned by Data I/O, Reel-Tech generated over $12
million in revenue for the Company (see Revenue History by Segment). The
transaction resulted in a pre-tax gain of approximately $10.4 million in the
fourth quarter of 1997. See "Management's Discussion and acronyms are defined.
IC INTEGRATED CIRCUITS produced by semiconductor manufacturers
including those which are programmableAnalysis of Financial
Condition and those which are
supplied by the manufacturer with a predetermined fixed function.
PLD A PROGRAMMABLE LOGIC DEVICE is a programmable logic IC that can
be configured or programmed by a system designer.
CPLD A COMPLEX PROGRAMMABLE LOGIC DEVICE is a programmable logic IC
that contains multiple programmable logic cells and a
programmable interconnect structure between the cells.
FPGA A FIELD PROGRAMMABLE GATE ARRAY is a sophisticated high-capacity
PLD.Results of Operations" in Item 7 of Part II below.
Page 3
PROM A PROGRAMMABLE READ ONLY MEMORYIn November 1997 the Company also announced that it had entered into a licensing
agreement and a purchase agreement for certain assets with MINC Incorporated, an
electronic design automation (EDA) software company based in Colorado Springs,
Colorado. Under this agreement MINC has integrated Data I/O's universal
Synario(R) product, as well as its ABEL(R) and ECS products, into the MINC line
to create a broad line of EDA tools aimed at the personal computer market. MINC
now controls the day-to-day operations of the former Synario Design Automation
Division including the sale and distribution of the Synario products as well as
software development and marketing. Most of the Synario Division staff joined
MINC to support these functions. Data I/O will retain certain licensing revenues
until December 31, 1999.
The Company believes that the dispositions of the Semiconductor Equipment and
Synario Design Automaton Divisions will allow management of the Company to focus
its attention on the Company's core programming systems business. The operating
results of these business segments have been accounted for as discontinued
operations in the accompanying financial statements. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" in
Item 7 of Part II below.
In November 1997 the Company also signed an Agreement in Principle with JTAG
Technologies, a Netherlands-based manufacturer and developer of boundary scan
test and programming solutions. Boundary scan programming, which enables
manufacturers of a wide range of electronics equipment to program IC's after
installation on a circuit board, is one of the fastest-growing segments of the
programming market. The Agreement in Principle contemplates that the Company
will be authorized to sell JTAG Technologies boundary scan in-system programming
products under the Data I/O name to engineering and manufacturing markets. JTAG
Technologies will continue to sell its test products under its own name to the
test and measurement instrument markets. Founded in 1993, JTAG Technologies was
the first company to offer in-system programming solutions based on the standard
established by the Boundary Scan Standard (IEEE 1149.1) established by the IEEE
(Institute of Electrical and Electronics Engineers). Conclusion of arrangements
with JTAG is subject to negotiation and execution of definitive agreements which
had not been completed as of the date of this report. If formal arrangements are
concluded, the Company anticipates initial sales of the JTAG products under the
Data I/O name in mid-1998. The Company believes that this strategic relationship
with JTAG Technologies will enhance the Company's position in the programming
systems market by offering its customers a programmable memory IC that
is a non-volatile data storage IC meaning it can retain data when
the power is shut off.
EPROM An ERASABLE PROM is a programmable memory IC, whichbroader choice of programming
solutions. However, there can be erased
and reused.
EEPROM An ELECTRICALLY ERASABLE PROM is a programmable memory ICno assurance that canthese arrangements with JTAG
will be electronically erased and reused.
Micro- A microcontroller is an IC that is a processor containing
controller programmable memory withinestablished.
Industry Overview
Rapid advances in semiconductor technology over the IC.
Device Refers to any of the various ICs referred to herein.
Package Package referspast few decades have
contributed to the physical shape, size and number and
arrangementwidespread adoption of pins of an IC.
Pins Pins areICs in the leads from the IC that connect the IC to the
circuitry on the printed circuit board.
PCB PRINTED CIRCUIT BOARDS are the boards on which ICs and other
electronic components are mounted in electronic products.
Conventional An IC package where the pins are inserted through holes drilled
Throughhole in a PCB. An example is a DIP (dual in line pin) package.
IC
Surface- An IC package where the pins from the IC connect to the surface
Mount IC of a PCB. Examples include PLCC (plastic leaded chip carrier),
SOIC (small outline IC) and TSOP (thin small outline package).
PROGRAMMABLE INTEGRATED CIRCUITS AND PROGRAMMING SYSTEMS
During the last 20 years, theelectronics manufacturing
industry. The semiconductor industry has developed processes
which continuallyevolved during this period to the point
where some combination of fixed and programmable ICs are used in virtually all
electronic equipment produced today. Fixed ICs have increased the number ofspecific functions
and memory onincorporated into them when they are manufactured, whereas a single
chip of silicon. These chips, called integrated circuits, are a tiny complex of
electronic components and connections which come in two types: fixed or
programmable. The fixed type have a specific design incorporated during the
manufacture of the circuit that cannot be changed and can only perform its
specific predetermined fixed function.
A programmable IC is manufactured without a specific function incorporated into
it and allowscan
be programmed at the discretion of the electronics design engineer to specify how it is to perform.
Programmable ICs are analogous to a blank cassette tape in that the programmable
IC can record and store a set of instructions similar to the way a blank
cassette tape can record and store music. Programmable ICs consist of either
memory or logic circuits. Programmable memory ICs are for non-volatile data
storage, meaning they retain data when the power supply to the circuit is off.
Memory ICs include PROMs, EPROMs and EEPROMs. Programmable logic ICs contain
logic elements by which the entire function of the IC can be changed by
programming changes to these elements. This means a given programmable logic IC
can perform a
variety of functions in an electronic design. Types of
programmable logic ICs include PLDs, CPLDs and FPGAs.
Today, some combination of programmable memory and logicfunctions. Programmable ICs are found in
virtually all electronic equipment. Programmable memory ICs are used most
extensively for the permanent storage of software programs in instruments,
control systems, consumer electronic equipment, computers and computer
peripherals. Most microprocessor and microcomputer-based systems use some form
of programmable memory IC. These systems are increasingly using programmable
logic ICs as well.
Programmable memory and logic ICs are housed in several different types of
packages with a wide variety of sizes, shapes and number and arrangement of pins
to connect the IC to the circuit board. These numerous packages are combined
into two distinct groups: conventional throughhole and surface-mount.
Conventional throughhole ICs have pins which are inserted through holes in a
circuit board and are soldered to the bottom of the board. Surface-mount ICs
are very small and delicate packages that can be mounted onto the surface of a
circuit board without drilling holes through the circuit board for the IC pins.
This allows ICs to be mounted to both sides of the board, doubling the board's
"real estate" for ICs and circuitry.
Page 4
The development of programmable ICs created the need for programming equipment
to load the instructions into the physical IC. To accommodate the expanding
variety of programmable ICs, programming equipment must have the capability to
program the type of IC technology (how it physically accepts the information),
the specific IC's set of features and functions, while also accommodating the
IC's package type, including its specific size, pin arrangement and number of
pins. Data I/O's programming equipment supports the vast majority of the
thousands of different programmable ICs presently on the market. Additionally,
as the number of programmable IC types and their applications expanded, and as
programmable ICs became increasingly miniaturized, the demand for automated
methods of handling, programming, and marking of programmable ICs increases.
These programmable ICs are being used in
high-volume manufacturing situations as the cost of programmable ICs declineshas
declined relative to that of fixed ICs, and as the competitive environment causesin
the electronic equipment industry has caused the time-to-market for their
products to be increasingly critical.
The abilityadvances made in programmable logic IC technology have enabled electronics
design engineers to fit an increasing number of manufacturers to shorten their product's time-to-market improves with
programmable ICs, as once the design for thecomplex functions into smaller,
more delicate programmable IC is finished it can
be programmed immediately into the programmable IC and changes can be readily
made. This avoids the expensive and time consuming process of setting up and
fabricating the fixed type of ICs where any changes require that the process be
restarted. Data I/O's automated programming and handling systems allow
manufacturers to program numerous types of programmable ICs in a variety of
packages in very high volumes.
SEMICONDUCTOR EQUIPMENT
IC manufacturersdevices. These advances have responded to the market demand for more powerful ICs and
increased miniaturization by producing smaller devices with an increased number
of more delicate pins. This trend has increased the need
for automated equipment used to handle these smaller, more delicateminiaturized device packages during
the IC manufacturing process, as well as after the ICs are completed and sold to
electronic equipment manufacturers. Such automated handling equipment is
critical for minimizing damage of the delicate lead pins of the ICs and increasesto
increase the speed of transferring ICs into and out of the protective media used
for transporting ICsthem (tubes, trays, and tape and reel).
ELECTRONIC DESIGN AUTOMATION ("EDA") SOFTWARE TOOLS
The evolution of programmable logic IC technology enabled engineers to fit an
increasing number of large, complex functions into a single programmable IC.
This higher level of integration reduces the size and cost, and increases the
quality and reliability, of the electronic systems using these programmable ICs.
With the adoption rate and complexity of programmable logic ICs growing rapidly,
design engineers need software tools to speed up and lower the cost of the
design process. EDA tools span the entire electronic design process from
initial design through final test simulation. Data I/O's EDA software tools
allow the design engineer to describe their design's behavior using concise,
easy-to-understand expressions. The software then "prepares" the design for
implementation in a particular programmable IC and stores the design in a
standard format that can be used by a programmer. The programmer records the
design into the programmable IC, and the programmed IC can then be used in the
particular product or system for which it was designed.
PRODUCTS
The table below details the contribution the Company's three principal divisions
made to total net sales for the last three fiscal years (in thousands of
Dollars):
Programming Systems Semiconductor Equipment Synario Design Automation
Division (1) Division (2) Division (1) Total Sales
------------------------- ---------------------------- ---------------------------- -----------------
Percent Percent Percent Percent Percent Percent Percent
Year Amount Growth of Total Amount Growth of Total Amount Growth of Total Amount Growth
- ---- ------ ------ -------- ------ ------ -------- ------ ------ -------- ------ ------
1996 $51,122 (16.2%) 84.6% $3,744 500% 6.2% $5,557 26.3% 9.2% $60,423 (8.5%)
1995 $61,005 4.6% 92.4% $625 N/A 0.9% $4,401 40.0% 6.7% $66,031 7.4%
1994 $58,335 (6.3%) 94.9% N/A N/A N/A $3,143 235.1% 5.1% $61,478 (2.7%)
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(1) Prior year's figures have been reclassified for comparability.
(2) The purchase of the assets of Reel-Tech-TM-, Inc. in August 1995 added
semiconductor equipment to the Company's existing product lines.
Semiconductor Equipment Division 1995 net sales are for four months
compared to twelve months for 1996.
Page 5
PROGRAMMING SYSTEMS
Data I/O's broad line of programming systems includes a wide variety of systems,
modules and accessories, which can be grouped into three general categories:
non-automated programming systems, non-automated parallel programming systems,
and automated programming and handling systems. Its non-automated programming
systems are single site IC programmers. Its non-automated parallel programming
systems program multiple ICs at the same time, providing higher throughput. Its
automated programming and handling systems program ICs, and also handle, test
and mark the ICs in high volumes. With this broad range of capabilities,
Data I/O's systems can program more than 6,000 programmable ICs, which is the
vast majority of the different types of programmable ICs currently on the market
for both engineering (prototyping) and manufacturing applications.
Because semiconductor manufacturers continually develop new programmable ICs,
the Company continually updates its programming systems line to provide support
for the newest programmable ICs. In addition to incorporating new programmable
IC support into the latest versions of its products, the Company packages and
sells programmable IC support updates to allow customers to keep their existing
products current.
Data I/O works closely with all major semiconductor manufacturers of
programmable ICs to ensure that the Company's programming systems use
programming methodology that complies with the manufacturers' specifications.
Many of these manufacturers perform some testing of Data I/O programming systems
and issue a letter of certification indicating that the Data I/O programming
system is able to program their programmable IC. In addition, many
semiconductor manufacturers endorse Data I/O programming systems as equipment
they recommend for end-user applications as well as for use in their own
development and production environments. These relationships enable Data I/O to
keep its product line up-to-date with the latest technology and to provide
end-users with broad and current programmable IC support.
NON-AUTOMATED PROGRAMMING SYSTEMS
The UniSite-TM- Universal Programmer, introduced in July 1986, is the Company's
top-of-the-line non-automated programming system. The UniSite, based on
Data I/O's proprietary pin-driver technology, allows any pin of any programmable
IC to perform any programming function. This gives the programming system its
universality, allowing programming of each programmable IC according to its
unique specifications. In 1990, the Company enhanced the UniSite by adding its
proprietary universal socketing technology, which permits the programming of the
programmable ICs in small and delicate surface-mount packages. This socketing
technology significantly reduces the need for costly and less-efficient adapters
for every different type of programmable IC, and at the same time, reduces
costly programming errors and IC damage.
The 2900 and 3900 Programming Systems, introduced in April 1990 and October
1991, respectively, use the same operating system as the UniSite and incorporate
the Company's proprietary universal socketing technology. Both can program the
most complex programmable ICs. The 2900 is a highly-advanced mid-priced
programming system that can program and test programmable memory and logic ICs
with up to 44 pins. The 3900 programs ICs with as many as 88 pins and provides
added capability at a price between the mid-priced 2900 and the top-of-the-line
UniSite.
The ChipLab-Registered Trademark- Project Programmer, introduced in August 1993,
is a programming system designed and priced for individual engineers purchasing
a programmer for a specific project. This contrasts with the 2900/3900 and
UniSite which are intended for groups or departments. ChipLab runs directly
from an engineer's personal computer as a peripheral, and is designed to be
intuitive and easy to use.
The 2700 Programming System, introduced in 1995, was designed specifically for
smaller engineering facilities. The 2700 is a lower-priced member of the
2900/3900 product family using the same proprietary universal socketing
technology. Unlike the 2900 and 3900, but like the ChipLab, the 2700 runs
directly from an engineer's personal computer as a peripheral.
The UniSite, 3900, 2900, 2700 and ChipLab share a similar software architecture
and are supported by Data I/O's proprietary algorithm development tool. This
tool, licensed by Data I/O to leading semiconductor manufacturers, allows
Data I/O and the manufacturers to work together efficiently and effectively to
develop support for new programmable ICs as quickly as possible. The
semiconductor manufacturers use this tool to develop programming instructions
exclusively for Data I/O programmers, enhancing both the time-to-market of their
programmable ICs, and Data I/O's support and enhancement efforts.
Page 6
The Company is redesigning its entire non-automated programming system product
line with a new generation of programmer technology which it expects to be
available in the second half of 1997. These new products, based on a new
proprietary programming architecture called DataSite-TM-, will include a family
of single socket solutions for engineering applications, a multi-socket solution
for use in production and programming support for the Company's new high-volume
programming and handling systems. In addition, the Company announced on
February 21, 1997 a worldwide distribution agreement with ICE Technology, Ltd.,
which produces a variety of low-priced non-automated IC programmers. The
agreement allows Data I/O Corporation to sell, under its brand name, the ICE
Technology-Registered Trademark-, Ltd. IC programmers on a worldwide basis.
This will provide Data I/O with a significant new entry to improve its
competitive position in the low-priced segment of the programmer market. Data
I/O expects to begin marketing these products by mid-1997.
NON-AUTOMATED PARALLEL PROGRAMMING SYSTEMS
Data I/O's PSX1000-TM- and PSX500-TM- non-automated parallel programming systems
were introduced in 1992 to serve the needs of mid- and high-volume manufacturing
users of programmable memory and microcontroller ICs. The PSX1000 and PSX500
can duplicate twenty or ten programmable ICs at a time, respectively, and
support numerous package types using Data I/O's proprietary socketing technology
of low-cost interchangeable modules. A large number of the major electronic
manufacturers and semiconductor manufacturers, who develop programmable memory
or microcontrollers, use this product line because of its durability and high
throughput.
The PSX400-TM- introduced in December 1994 is the Company's low-cost
non-automated parallel programming system able to program eight ICs at a time.
The PSX400 addresses low-volume manufacturing and engineering applications in
which designers use several ICs on a single board and want to program them all
in a single operation.
The BoardSite-Registered Trademark- In-Circuit Programmer, introduced in
November 1988, is a unique product that is designed to program or reprogram an
entire circuit board full of programmable ICs while they are mounted on the
board. This allows circuitry to be updated in the field, and also provides an
alternative way for manufacturing operations to deal with programmable ICs. The
product is available as a bench-top workstation or as a portable programmer for
field applications.
AUTOMATED PROGRAMMING AND HANDLING SYSTEMS
Data I/O's ProMaster-Registered Trademark- line of equipment provides
manufacturers with an automated method for handling, programming, testing and
marking programmable ICs whether the ICs are housed in conventional throughhole
or surface-mount packages. During manufacturing, the ProMaster's
"pick-and-place" technology feeds the programmable ICs out of their protective
media (trays or tubes); places them into the socket of the programmer; triggers
programming; applies a label or marks the IC with a laser; sorts out the ICs
which could not be programmed correctly; and loads correctly programmed ICs back
into trays, tubes or onto special tape which is rolled onto reels. The ICs are
then ready to be attached to printed circuit boards using other automated
equipment.
The ProMaster 3000, introduced in January 1990, and the ProMaster 7000,
introduced in July 1991, both address high throughput needs (a combination of
volume and yield of correctly programmed ICs) for programming, testing and
marking programmable ICs. They both support conventional throughhole and
surface-mount packages with proprietary socketing technology that offers
customers highly reliable production capacity at a relatively low-cost per IC.
The ProMaster 3000 applies printed labels, while the ProMaster 7000 marks ICs
with a laser. The ProMaster 7500, introduced in the fall of 1994, offers even
higher speed and capacity by extending the ProMaster 7000 to include a second
programmer allowing it to program two ICs at a time. Each of these ProMaster
products use the AutoSite-TM- Production Programmer, which was the Company's
first IC programmer specifically designed to be connected to and integrated with
automated programming and handling systems.
The ProMaster 2500, introduced in September 1993, was the world's first
fully-integrated system for programming, handling, testing and marking
programmable ICs. Designed for medium-volume manufacturing applications, the
ProMaster 2500 supports both conventional throughhole and popular surface-mount
IC packages. The ProMaster 2500 internalized and integrated the programmer
inside the system unlike the ProMaster 3000, 7000, and 7500 models that connect
an AutoSite programmer. It uses labels to mark the ICs and is the Company's
entry-level priced automated programming and handling system.
Page 7
The ProMaster 9500, introduced in February 1995, is an automated programming and
handling system for programming, testing and marking fine-pitch memory and
microcontroller programmable ICs. The ProMaster 9500 was created to address
extremely high-volume manufacturing of the new generation of highly miniaturized
and fragile programmable ICs. The Company's handling technology results in the
ProMaster 9500 touching the delicate pins of each IC only once, thereby greatly
reducing the risk of damage that can be caused by even moderate handling. Its
programming module features Data I/O's PSX-TM- parallel programming technology
and can program up to 16 ICs simultaneously. The ProMaster 9500's flexible,
modular design allows the user to create the configuration needed for the
specific manufacturing operation.
The Company introduced the ProMaster 970, in February of 1997, a new fine-pitch
automated programming and handling system. This product combines the newest
technology in materials-handling with Data I/O's new generation of programming
technology. It will allow electronics manufacturers to economically program and
mark programmable ICs (including logic ICs) in high volumes. The Company is
scheduled to begin production shipments of the ProMaster 970 in the third
quarter of 1997. For smaller-scale manufacturers, the Company expects to
introduce later in 1997 a new fine-pitch programming and handling system at a
lower price than the ProMaster 970. Both of these new programming and handling
systems will take advantage of the Company's new DataSite programming
technology.
The Company also provides a complete line of labels for use with its automated
programming and handling systems. These labels are custom manufactured by
Data I/O for the ProMaster 2500, the ProMaster 3000 and their predecessors, the
ProMaster 2000 and the AutoLabel 1000.
SOFTWARE
ABEL-Registered Trademark- (Advanced Boolean Expression Language), first
released in March 1984, is an industry standard behavioral design entry software
tool for PLDs and CPLDs. The Company also licenses, as options to ABEL, IC
"fitters," which can further optimize or "fit" the design for the specific IC
selected. The narrow focus of ABEL contrasts with the Company's
Synario-Registered Trademark- software product, which is a full-featured
integrated design tool that encompasses schematic design, behavioral design,
simulation and synthesis for PLDs, CPLDs, FPGAs and printed circuit board
designs.
PROGRAMMING SYSTEMS PRICING
The U.S. manufacturer's suggested list prices for Data I/O's non-automated
programming systems range from approximately $1,000 for the ChipLab to $27,000
for a fully configured UniSite Universal Programmer. The ProMaster 2500
automated programming and handling system sells for approximately $47,000, while
the ProMaster 9500 configured with tray, tube and tape and reel along with
programming modules sells for approximately $600,000. The U.S. manufacturer's
suggested retail price for the Company's ABEL software ranges from $500 for an
entry-level version to $2,000 for the latest Windows version.
SEMICONDUCTOR EQUIPMENT
In acquiring the assets of Reel-Tech, Inc. in August 1995, Data I/O increased
its range of products to include equipment used by semiconductor manufacturers
in the handling, marking and transporting of ICs during the latter stage of
their manufacturing process. Such automated equipment is critical when working
with fine-pitch parts which have many fine pins extending from the IC package
that can be easily damaged by improper handling. The Company's semiconductor
equipment products are designed to utilize standard modules that can be
configured to meet the specific needs of the customer. The technology used in
the Semiconductor Equipment Division is highly compatible with the technology
used in the Company's automated programming and handling system products.
Laser Markers:
The LM6000 is a high-volume in-tray laser marking system that marks all types of
surface-mount ICs without removing them from the protective tray, providing
maximum utilization of the laser and handling system and eliminating pin damage
caused by handling.
The LM4000, introduced in January of 1996, is a high-volume laser marking system
that handles ICs from tubes. It removes the ICs from the tubes, laser marks
them and puts them in an output tube.
Page 8
Media Transfer Equipment:
The TR3000MT is a tape and reel system which accommodates virtually all
surface-mount ICs with tape widths of 8 to 56 millimeters. The TR3000MT
transfers fine-pitch ICs from trays or tubes to tape and reel.
The MT7000 is a media transfer system for surface-mount ICs. This
pick-and-place IC handler picks up, precises and transports the IC from one
media type to another media type (trays, tubes or tape and reel) and can be
customized to include other value-added processes such as programming and
marking. The MT7000 is custom configured for each customer's specific
manufacturing process.
SEMICONDUCTOR EQUIPMENT PRICING
Due to the wide range of individual requirements and the degree of customization
for each system sold, prices are generally quoted individually for each specific
system. The manufacturer's suggested list prices for systems vary but range
from approximately $100,000 for a tape and reel system to as much as $325,000
for a laser marking station with options.
SYNARIO DESIGN AUTOMATION
The Company formed Synario Design Automation as an autonomous division in
November of 1995 to focus solely on the Windows-based EDA market. This
division's flagship product family, Synario, was originally introduced by the
Company in 1993. Synario is a suite of Windows-based EDA tools used for
designing applications for programmable PLDs through board-level design. The
Synario Design Automation Division will continue to target the "mainstream"
designers, many of whom are transitioning to new "top-down" design methodologies
required for the new generation CPLDs and FPGAs.
Engineers use the Synario system, an automated EDA design tool set, to design
custom applications for complex FPGAs and CPLDs, which are becoming increasingly
popular. The driving philosophy behind the Synario design system is to offer
"ready-to-use" solutions incorporating the best of each class of specific design
application tools operating in a seamless design flow. The Synario system
embodies a commitment to standards and to Windows-based personal computers
("PCs"). As a native Windows-based application, the Synario environment taps
the power of today's 32-bit microprocessors, and provides users an intuitive,
graphical interface and superior inter-tool communication.
Synario features include:
- - PROJECT NAVIGATOR which builds into the Synario environment an understanding
of the proper design flow for most major PLD, CPLD and FPGA architectures,
automatically reconfiguring the design flow each time a designer changes
architectures;
- - FLEXIBLE HDL (HARDWARE DESCRIPTION LANGUAGE) AND SCHEMATIC DESIGN ENTRY which
provides unsurpassed support for mixed-entry, allowing designers to start with
high-level block diagrams, then select the design entry method most appropriate
for each block, whether it's schematics, ABEL-HDL, VHDL (Very high-speed IC
HDL), equations, truth tables, state diagrams or any combination thereof;
- - HDL-BASED SIMULATION OPTIONS which allow designers to select either Verilog or
VHDL simulators from independent EDA tool developers, both of which are tightly
integrated components of the Synario environment;
- - DEVICE KITS for programmable IC architectures usually including: schematic
symbols, simulation models, logic synthesis and IC-fitting technology, and
place-and-route software, providing support from the major programmable IC
suppliers, including Actel, Altera-Registered Trademark-, Atmel-Registered
Trademark-, Cypress-Registered Trademark-, Lattice-Registered Trademark-,
Lucent-Registered Trademark-, Motorola-Registered Trademark-, Philips-Registered
Trademark-, QuickLogic-Registered Trademark-, Vantis-TM- and Xilinx-Registered
Trademark-;
- - SYNARIO ENGINEERING CAPTURE SYSTEM ("Synario ECS") which is a design capture
system used in the front-end design of schematic diagrams for specific
programmable ICs or an entire PCB, including a collection of on-line analysis
and productivity tools as well as integration with and interfaces to other
design and simulation tools and PCB packages;
- - PCB INTERFACE OPTIONS which support forward and backward annotation for the
most popular PCB design packages, with utilities for automatic packaging, gate
swapping, reference designation, creation of bill-of-materials and engineering
change notices.
Page 9
The Company continually updates and upgrades Synario to support new ICs offered
by semiconductor manufacturers and to ensure compatibility with both new and
existing computer systems. The Company offers software updates and upgrades to
enable customers to take advantage of many of the latest ICs as they become
available.
SYNARIO PRICING
The U.S. manufacturer's suggested list price for Synario starts at $1,900 for
the single vendor version and $3,400 for the universal version. A typical price
for an advanced VHDL-based Synario design system including mixed-entry,
simulation and synthesis, and one vendor's device-specific software products,
sells for approximately $13,000. The U.S. manufacturer's suggested list price
for Synario ECS is $1,000. In addition, the Synario Design Automation Division
licenses products to other EDA and semiconductor companies as Original Equipment
Manufacturers ("OEMs") or distributors who bundle them with their product
offerings.
MARKETS AND CUSTOMERS
The Company's programming systems and EDA software products are used primarily
by electronic equipment manufacturers and programming/distribution centers in
the design and manufacturing of equipment for industrial, commercial and
military applications, and its semiconductor equipment products are used by
semiconductor manufacturers in manufacturing semiconductors. The Company
estimates that during 1996, it sold products to approximately 4,000 customers
throughout the world, none of which accounted for more than 10% of the Company's
net sales. None of the Company's independent distributors, resellers or OEMs
accounted for more than 5% of the Company's net sales.
PROGRAMMING SYSTEMS
In terms of total revenue, the Company believes that the worldwide market for
conventional non-automated programming systems for engineering applications has
been slightly declining or flat over the last several years due to a decline in
average selling prices offset by growth in the number of units sold,
particularly in the low-priced segment of the market. Over the last several
years, increasing use of low-priced, limited device "project" programmers has
lowered the barriers to entry in the IC programmer business. New competitors
enter the market regularly, each trying to carve out a niche, causing downward
price pressure and lowering the customers' perception of an acceptable price for
a conventional non-automated programming system. Technological improvements in
personal computers and design software tools cause engineering design teams to
shift spending away from hardware tools to software design tools. These
industry changes are adversely affecting the Company, especially because in the
past, Data I/O's product line has been heavily oriented toward hardware tools
and, within hardware tools, toward the higher-priced universal programming
systems. The Company expects these trends in the conventional programming
systems for the engineering market to continue for the foreseeable future. In
response to these market developments over the last few years, the Company
developed and released lower-cost product lines (ChipLab and 2700); entered into
an agreement in 1997 to begin worldwide distribution of low-priced IC
programmers from ICE Technology, Ltd.; added an entry-level non-automated
parallel programming system (PSX400); reorganized the Company's distribution
channels; and significantly reduced its overall cost structure.
However, the Company believes that recent changes in programmable IC technology, such as
increasingly complex logic ICs, lower voltage requirements and higher pin
counts, and the increasing need for higher quality and high volume programming
by users of programmable ICs means that a significant market need for more
sophisticated programmers will continue. The Company currently has development
projects underway for a new generation of programmer technology to address the
needs created by these technology changes.
Page 4
Revenue History by Segment
The table below details the contribution the Company's three principal business
segments made to total net sales for the last three fiscal years (in thousands
of Dollars):
Programming Systems Semiconductor Equipment Synario Design Automation
Division (1) Division (2) (3) Division (1) (4) Total Sales
---------------------------- --------------------------- --------------------------- -----------------
Percent Percent Percent Percent Percent Percent Percent
Year Amount Growth of Total Amount Growth of Total Amount Growth of Total Amount Growth
- ---- ------ ------ -------- ------ ------ -------- ------ ------ -------- ------ ------
1997 $46,284 (5.3%) 75.8% $7,640 104% 12.5% $7,172 (8.3%) 11.7% $61,096 1.1%
1996 $48,860 (15.0%) 80.9% $3,744 500% 6.2% $7,819 (1.2%) 12.9% $60,423 (8.5%)
1995 $57,496 7.6% 87.1% $625 N/A 0.9% $7,910 (1.4%) 12.0% $66,031 7.4%
- ----------
(1) Prior year's figures have been reclassified for comparability.
(2) Semiconductor Equipment Division 1995 net sales are for four months. The
Semiconductor Equipment Division was sold in November 1997 and has been
accounted for in the financial statements as discontinued operations. See
"Strategic Transactions."
(3) Excludes inter-segment sales to the Programming Systems Division of
$1,876,000 and $322,000 in 1996 and 1995, respectively.
(4) The Company disposed of its Synario Design Automation Division in November
1997. The Synario Design Automation Division has been accounted for in the
financial statements as discontinued operations. See "Strategic
Transactions."
Programming System Products
Data I/O's broad line of programming systems includes a wide variety of systems,
modules and accessories, which can be grouped into three general categories:
non-automated programming systems, non-automated parallel programming systems,
and automated programming and handling systems. Its non-automated programming
systems are single IC programmers, whereas its non-automated parallel
programming systems program multiple ICs at the same time, providing higher
throughput. Its automated programming and handling systems program multiple ICs
simultaneously, and also handle, test and mark the ICs in high volumes. To
accommodate the expanding variety of programmable ICs being manufactured today,
programming systems must have the capability to program the type of IC
technology (how it physically accepts the information), the specific IC's set of
features and functions, while also accommodating the IC's package type,
including its specific size, pin arrangement and number of pins. With their
broad range of capabilities, Data I/O's systems can program more than 7,000
programmable ICs, which is the vast majority of the different types of
programmable ICs currently on the market for both engineering (prototyping) and
manufacturing applications.
Because semiconductor manufacturers continually develop new programmable ICs,
the Company works closely with all major manufacturers of programmable ICs to
update its programming systems line to provide support for the major new
programmable ICs. In addition to incorporating new programmable IC support into
the latest versions of its products, the Company packages and sells support
updates to allow customers to keep their existing programmers current. Many
semiconductor manufacturers endorse Data I/O programming systems as equipment
they recommend for end-user applications as well as for use in their own
development and production environments.
The Company is the world's leading provider of programming systems for
programmable ICs. However, the programming systems market is highly competitive.
Important competitive factors include product features, price, quality,
reliability, throughput, distribution channels, availability, IC support,
post-sales support, service and the timely response to rapid technological
change with new and improved products. The Company believes its competitiveness
depends on offering the most effective combination of these capabilities.
Non-automated Programming Systems
The Company's line of non-automated programming systems provides engineering and
manufacturing programming solutions at a variety of price points. The
UniSite(TM) Universal Programmer is the Company's top-of-the-line non-automated
programming system and allows any pin of any programmable IC to perform any
programming function. This gives the
Page 5
programming system its universality. The Company's 3900 and 2900 Programming
Systems sell at price points below that of the UniSite, and are targeted for
engineering and manufacturing applications requiring less functionality. The
UniSite, 3900 and 2900 Programming Systems feature the Company's proprietary
socketing technology, which permits the programming of the programmable ICs in
small and delicate surface-mount packages, reduces the need for costly and
less-efficient adapters, and reduces programming errors and IC damage.
The Company's LabSite(TM) Programming System was introduced in June 1997 and
combines and supersedes the Company's 2700 Programming System and Chiplab(R)
Project Programmer. The LabSite is the Company's lowest priced proprietary
non-automated programming system, which was designed and priced for individual
engineers purchasing a programmer for a specific project.
In June 1997 the Company also began selling a line of low-priced non-automated
IC programmers under a worldwide distribution agreement with ICE Technology(R),
Ltd. Like the LabSite Programming System, this new line of low-priced products,
sold under the brand name ChipWriter(TM), provide Data I/O with a new entry to
improve its competitive position in the low-priced segment of the programmer
market. The Chipwriter programmer is a 48-pin universal programmer which
supports a full range of memory, microcontroller and programmable logic devices.
The Chipwriter(TM) Portable is a lightweight, battery-operated, fully portable
40-pin universal programmer, ideal for field engineering and service
applications. The Chipwriter(TM) Gang is a high-speed production programmer
supporting a wide range of memory devices.
The UniSite, 3900, 2900 and LabSite share a similar software architecture and
are supported by Data I/O's proprietary algorithm development tool. This tool,
licensed by Data I/O to leading semiconductor manufacturers, allows Data I/O and
the manufacturers to work together to develop support for new programmable ICs.
The semiconductor manufacturers use this tool to develop programming
instructions for Data I/O programmers, enhancing both the time-to-market of
their programmable ICs, and Data I/O's support and enhancement efforts.
The Company is redesigning its entire proprietary non-automated programming
system product line with a new generation of programmer technology which, at the
date of this report, is expected to be available in the second half of 1998.
These new products, based on a new proprietary programming architecture called
DataSite(TM), are planned to include a family of single socket solutions for
engineering applications, a multi-socket solution for use in production and
programming support for the Company's new high-volume programming and handling
systems. See "Risk Factors."
Markets, Customers and Competition
In terms of total revenue, the Company believes that the worldwide market for
conventional non-automated programming systems for engineering applications has
been slightly declining or flat over the last several years due to a decline in
average selling prices offset by a slow growth in the number of units sold. The
unit sales growth has been primarily in the lower end products. Over the last
several years technological improvements in personal computers and design
software tools have caused engineering design teams to shift away from hardware
tools to software design tools. Further, within the remaining hardware tools
market, demand has shifted toward lower-priced, project-specific programming
systems and single-point solutions. These industry changes are adversely
affecting the Company, especially because in the past, Data I/O's product line
has been heavily oriented toward hardware tools and, within hardware tools,
toward the higher-priced universal programming systems. The Company expects
these trends in the conventional programming systems for the engineering market
will continue for the foreseeable future. In response to these market
developments, the Company has recently enhanced its lower-priced product
offerings (LabSite and Chipwriter) and is in the process of redesigning its
entire non-automated programming system product line with a new generation of
programmer technology. However, there can be no assurance that this trend toward
lower-priced, project specific programming systems and single point solutions
will continue as anticipated, that the Company will be able to complete
development of its new generation of programming products, that its new products
will experience strong demand, that the Company will be able to anticipate and
respond to changes in customer needs and new technologies or that the Company
will otherwise effectively compete in the future.
Although independent market information is not available, the Company believes
that it has approximately 25% of the worldwide market share of revenue for
non-automated programming systems including both the engineering and the
parallel programming segments. This is based on information from studies
performed and estimates made each year internally by the Company. For the design
engineering segment of the market for non-automated programming systems the
Company has identified two groups of competitors. Based on information gathered
internally, the Company believes approximately 10% to 20% of this market is
served by vendor-specific non-automated programming systems supplied by the
semiconductor
Page 6
manufacturers themselves. The remainder of the market is divided among several
dozen, mostly regional, competitors. The most significant of these competitors
are BP Microsystems, Stag Microsystems, SMS, System General, Hi-Lo and Minato.
The Company believes that the principal competitive factors in the market for
non-automated programming systems include the breadth of programmable IC support
and price. Most new entrants compete based on price alone, because competing
against the more established companies' IC support is quite expensive.
The Company believes that maintaining close relationships with all major
programmable IC manufacturers, superior service, expertise in programming
applications, broad programmable IC support and the critical mass of a large
installed base will enable Data I/O to compete in the market for non-automated
programming systems. However, growth in the market may be limited, because much
of the remaining market is fragmented both geographically and technologically.
This situation will continue to allow smaller niche suppliers to exist and, in
some markets, to thrive. See "Management's Discussion and Analysis of Financial
Position and Results of Operations" in Item 7 below.
Interest in on-board or in-circuit programming techniques has continued to grow
within the engineering and manufacturing communities. The Company believes that
increasing numbers of manufacturers are using or considering using their
expensive test equipment to program ICs after they have been installed on
printed circuit boards. This process is known as in-circuit programming. The
Company believes that the high cost of in-circuit test equipment may be a major
disadvantage and has evaluated an alternative more cost-effective on-board
programming technique. Through an anticipated strategic relationship with JTAG
Technologies B. V. of The Netherlands (see "Strategic Transactions"), the
Company during 1998 intends to begin to exploit the alternative method, thereby
broadening the Company's product offering to include on-board programming as
well as automated and non-automated programming systems. (See "Risk Factors -
Technological Change.")
Non-automated Parallel Programming Systems
The Company's non-automated parallel programming systems provide high-speed gang
programming for maximizing throughput and minimizing cost per device. Its
PSX1000(TM) and PSX500(TM) Programming Systems serve the needs of mid- and
high-volume manufacturing users of programmable memory and microcontroller ICs.
The PSX1000 and PSX500 can duplicate twenty or ten programmable ICs at a time,
respectively, and support numerous package types using Data I/O's proprietary
socketing technology of low-cost interchangeable modules. The PSX400(TM), the
Company's low-cost non-automated parallel programmer able to program eight ICs
at a time, addresses low-volume manufacturing and engineering applications in
which designers use several ICs on a single board and want to program them all
in a single operation. The Company's BoardSite(R) In-Circuit Programmer is a
unique product that is designed to program or reprogram an entire circuit board
full of programmable ICs while they are mounted on the board. This allows
circuitry to be updated in the field and also provides an alternative way for
manufacturing operations to deal with programmable ICs.
Markets, Customers and Competition
The Company does not have independent market information but has commissioned
studies to obtain limited market data for the non-automated parallel programming
systems market. Principal competitors in the non-automated parallel programming
systems market are BP Microsystems, Elan, Minato, Hi-Lo, System General,
Needhams Electronics and SMS. The Company believes that other firms,
particularly in specific geographic regions, hold the dominant share of this
market. The Company believes this is primarily due to the Company historically
not having competitive products at the low-cost end of this market. The Company
believes that it has the largest market share in the high-volume end of the
non-automated parallel programming system market.
Automated Programming Systems
Data I/O's ProMaster(R) Automated Programming Systems line of products provide
electronic equipment manufacturers with an automated method for handling,
programming, testing and marking programmable ICs whether the ICs are housed in
conventional throughhole or surface-mount packages. During manufacturing, the
ProMaster's "pick-and-place" technology feeds the programmable ICs out of their
protective media (trays or tubes); places them into the socket of the
programmer; triggers programming; applies a label or marks the IC with a laser;
sorts out the ICs that could not be programmed correctly; and loads correctly
programmed ICs back into trays, tubes or onto special tape which is rolled onto
reels. The ICs are then ready to be attached to printed circuit boards using
other automated equipment.
Page 7
The ProMaster(R) 3000, ProMaster(R) 7000 and ProMaster(R) 7500 Automated
Programming Systems address medium- to high-volume manufacturing applications
for programming, testing and marking programmable ICs. These products support
conventional throughhole and surface-mount packages with proprietary socketing
technology that offers customers highly reliable production capacity at a
relatively low-cost per IC. The Company's AutoSite(TM) Production Programmer,
designed specifically to be integrated with a handling system, connects to the
ProMaster 3000, 7000 and 7500 and performs the programming function within these
automated programming and handling systemssystems. The ProMaster 7500 offers higher
speed and capacity by extending the ProMaster 7000 to include a second AutoSite
programmer allowing it to program two ICs at a time.
The ProMaster(R) 2500 Automated Programming System, introduced in September
1993, was the world's first fully-integrated system for programming, handling,
testing and marking programmable ICs. Designed for medium-volume manufacturing
applications, the ProMaster 2500 supports both conventional throughhole and
surface-mount IC packages. The ProMaster 2500 internalized and integrated the
programmer inside the system unlike the ProMaster 3000, 7000, and 7500 models
that connect an AutoSite programmer. It is the Company's entry-level priced
automated programming and handling system.
The ProMaster(R) 9500 Automated Fine Pitch Programming System, introduced in
February 1995, is a highly flexible automated programming and handling system
for programming, testing and marking fine-pitch programmable ICs. The ProMaster
9500 was created to address extremely high-volume manufacturing of the new
generation of highly miniaturized and fragile programmable ICs. The Company's
handling technology results in the ProMaster 9500 touching the delicate pins of
each IC only once, thereby greatly reducing the risk of damage that can be
caused by even moderate handling. Its programming module features Data I/O's
PSX(TM) parallel programming technology and can program up to 16 ICs
simultaneously. The ProMaster 9500's flexible, modular design allows the user to
create the configuration needed for the specific manufacturing environment decreased during 1996 dueoperation.
The Company introduced its ProMaster(R) 970 Automated Fine Pitch Programming
System in February 1997. The ProMaster 970 is designed to economic
conditionsbe a high-speed,
highly flexible automated programming and handling system designed for today's
most demanding manufacturing applications. It integrates the Company's latest
programming technology in configurations of either eight, ten or twelve
programming sites, and supports memory, microcontroller and logic devices in
most package types. The ProMaster 970 features two laser aligned pick-and-place
heads to optimize throughput at any programming time, supports tray, tube and
tape input and output, and has an optional laser marking system. The Company
anticipates that slowed down capital spending by electronics manufacturesthe ProMaster 970 will be available in production quantities in
the United Statessecond quarter of 1998. See "Risk Factors - Development, Introduction and
Europe.Shipment of New Products."
The Company believes this economic slowdown has
bottomed outintroduced the ProMaster(R) 870 Automated Fine Pitch Programming
System in March 1998. The ProMaster 870 is designed to be a highly flexible,
automated programming and an up trend has started.handling system designed for low- to mid-volume
manufacturing applications. Its state-of-the-art technology efficiently and
reliably programs, sorts, and marks a medium volume of fine-pitch devices. A
universal programming system supports memory, microcontroller and logic devices
in many package types. Available with two or four programming sites, the system
is designed to accommodate conventional input/output media. Device marking
options include labeling or laser marking. The Company anticipates that the
ProMaster 870 will be available in production quantities in the second half of
1998. See "Risk Factors - Development, Introduction and Shipment of New
Products."
The Company also provides a complete line of labels for use with its automated
programming and handling systems. These labels are custom manufactured by Data
I/O for the ProMaster 2500, the ProMaster 3000 and their predecessors, the
ProMaster 2000 and the AutoLabel 1000.
Markets, Customers and Competition
The Company believes that in the electronic manufacturing market, the expanded
use of programmable integrated circuits in the mid- to high-volume manufacturing
environment and the proliferation of hard-to-handle surface-mount packages in a
variety of types is causing a worldwide trend toward automation and integration
of manufacturing processes. The Company believes this trend is attributable to a
reduction in the cost of programmable ICs compared to fixed ICs, manufacturers'
desire to improve the time-to-market for new and improved products, and
increased functionality and miniaturization of programmable ICs. Because this is a newer
market for the Company, theThe Company's
participation in this growth depends upon the market's acceptance of its new
products, its ability to understand and meet the changing needs of this market,
and its response to and Page 10
development of changes in
Page 8
technology. In addition, service, corporate reputation and product reliability
are considered key decision making factors for customers considering automated
systems.
The market for automated programming and handling systems used in automated
manufacturing operations is shared primarily by Data I/O, BP Microsystems in
cooperation with Quad Systems, and Unmanned Solutions in cooperation with SMS.
In addition, Exatron manufactures handling systems that can be combined with a
programmer which can be configured by the customer. Although independent market
information is not available, the Company believes that it has approximately 65%
of the worldwide market share of revenue for automated programming systems. The
Company believes that increased competition, particularly in areas where new
Data I/O product introductions have been delayed, such as the ProMaster 970 and
ProMaster 870, or are not scheduled to occur until 1997, such as the ProMaster 970,1998, has affected its share
of the market. Data I/O believes the breadth of its line of non-automated
parallel programming systems and automated programming and handling systems, as
well as the products under development, its worldwide service capabilities and
technology leadership will keepenable the Company in a position to capitalize onrespond to the trend toward
automation and integration of manufacturing processes. However, there can be no
assurance that this trend toward automation will continue as anticipated, that
the Company will be able to complete development of its new generation of
programming products, that its new products will experience strong demand, that
the Company will be able to anticipate and respond to changes in customer needs
and new technologies or that the Company will otherwise effectively compete in
the future.
SEMICONDUCTOR EQUIPMENTSoftware
In connection with the disposition of the Company's Synario Design Automation
Division in November 1997, the Company retained certain rights to distribute
ABEL(R) (Advanced Boolean Expression Language), which was first released in
March 1984, and the ECS product. ABEL is a behavioral design entry software tool
for PLDs and CPLDs. The Company believes that economic conditions and capacity issuesABEL is the most "universal" tool
in its market with support for semiconductor manufacturers resulted in an economic slowdown in capital spending
for semiconductor manufacturing equipment in 1996. Reel-Tech, Inc. however,
grew by approximately 40% in 1996. From 1991 to 1995, the overall semiconductor
manufacturing equipment industry market grew at an average annual ratearchitectures of approximately 23% in terms of sales, according to VLSI Research. The Company
believes this to be a highly cyclical industry and believes that the economic
slowdown has bottomed out and that the market has the prospect of favorable
growth in 1997. The Company's semiconductor equipment products are used in the
latter stage of the semiconductor manufacturing process, after the IC packages
are virtually complete.most major programmable
logic manufacturers. See "Strategic Transactions". The Company does not have independent market data onexpect
significant revenues in future periods from this product.
Product Pricing
The U.S. manufacturer's suggested list prices for Data I/O's non-automated
programming systems range from approximately $1,000 for the specific industry niche markets in which it operates. However,ChipWriter to
$27,000 for a fully configured UniSite Universal Programmer. The ProMaster 2500
automated programming and handling system sells for approximately $47,000, while
the broader
market for material handling equipment in the semiconductor industry is
projected to grow at a compounded annual rate of 12.7% through the year 2001
according to VLSI Research.
The Company's laser marking products are used primarily by memory IC
manufacturers to mark ICs after the test stage of the manufacturing process.
The Company's media transfer products are sold primarily to semiconductor
manufacturersProMaster 9500 configured with tray, tube and are designed to be utilized in instances where there is a need
to switch between media transport types (e.g., tubes to trays) within the
manufacturing process. The Company's tape and reel products are used by
semiconductor manufacturersalong with
programming modules, sells for transferring high volumes of ICsapproximately $600,000. The U.S. manufacturer's
suggested retail price for the ABEL software ranges from either
tubes or trays$500 for an entry-level
version to tape and reel.$2,000 for the latest Windows(R) version.
Sales
The Company believes that it has positioned
itself well to take advantagemarkets and sells its products through a combination of growth in the semiconductor industry by
providing semiconductor manufacturers with high-quality, specialized equipment.
SYNARIO DESIGN AUTOMATION
The EDA industry experienced approximately 25% growth indirect and
indirect sales in 1996representatives, distributors, value added resellers (VARs) and
is
projected to grow approximately 25% in 1997, according to Needham & Company.
Based upon DataQuest market information published by ELECTRONIC ENGINEERING
TIMES, the Windows-based EDA segment of the industry is projected to grow at a
compound annual growth rate of approximately 40% from 1997 through 1999. A
major factor contributing to this growth is the advent of higher performance
microprocessors, such as the Intel-Registered Trademark- Pentium-Registered
Trademark- processor family, and dramatically increased memory capacity. These
advancements have made personal computers powerful enough to handle process
intensive tasks such as simulation and synthesis, which formerly could be done
only with UNIX-based tools with expensive workstations. With these advancements
in personal computers, Windows-based EDA tools are attractive, less expensive
options for design engineers.
Another significant factor contributing to the growth of the Windows-based EDA
market is the migration of FPGA and CPLD design engineers to higher levels of
design abstraction. FPGAs and CPLDs are growing more complex, requiring
designers to move away from schematic only based design to speed up the
programmable IC design process. These new demands have created a so-called "new
generation" of designers who require more sophisticated design tools.internal telesales. The Company believes that the quality and relative ease of use of Synario,
position it well in what the Company expects to be a growing market for
Windows-based EDA products. Anticipating growth, the Company has made
significant investments in new product development over the last few years, and
has created the Synario Design Automation Division to better focus its efforts
in this market.
Page 11
SALES
The Company incorporated a new subsidiary of Reel-Tech, Inc. in Singapore in
September of 1996 to provide sales and service support for its Semiconductor
Equipment Division in the southeast Asia region. The Company closed its United
Kingdom subsidiary at the end of 1996 and entered into an agreement with a
distributor in the UK to sell the Company's programming systems products in the
UK. This was a continuation of the Company's process of restructuringcontinually evaluates its sales operations that began in late 1993 to better align the Company withchannels against
its evolving markets and customers, and to better position itself for the future. The
Company has over this period increased its utilization of lower-cost telesales
channels and value-added resellers ("VARs") while reducing its direct sales
force.
A key element of the Company's distribution strategy for Synario is to partner
with semiconductor vendors. The Company has entered into distribution or OEM
agreements with several major semiconductor vendors whereby vendor-specific
Synario products are bundled with the semiconductor vendor's devices for resale
through their sales channels.customers.
U.S. SALESSales
The Company markets its products throughout the U.S. using a variety of sales
channels including its own direct field sales personnel, direct telesales
organization, independent sales representatives, OEMs, and VARs. The Company's
U.S. independent sales representatives obtain orders on an agency basis, with
shipments made directly to the customer by the Company. OEMs and VARs purchase
products directly from the Company for resale to customers. Sales are recognized
by the Company at the time of shipment.
FOREIGN SALESForeign Sales
Foreign sales represented approximately 51%52% of net sales of programming systems
in 1997, 52% in 1996, 47% of net
salesand 46% in 1995 and 46% of net sales in 1994 (see Note 1215 of "Notes to Consolidated
Financial Statements"). Foreign sales are made through the Company's wholly
owned subsidiaries in Japan, Germany, Canada, Singapore, and
through the end of 1996, the United Kingdom, as well as independent
distributors, VARs and sales
Page 9
representatives located in 32 other countries. Sales made through foreign
subsidiaries are denominated in local currency and recognized when the
subsidiary ships to the end-user. The Company's independent foreign distributors
and VARs purchase Data I/O products in U.S. Dollars for resale; and the sale is
recognized at the time of shipment to the distributor or VAR. Distributors and
VARs are allowed to return a portion of their Data I/O product inventory for
credit on future purchases, subject to limitations. As with U.S. sales
representatives, sales made by international sales representatives are on an
agency basis with shipments made directly to the customer by the Company. These
sales are denominated in U.S. Dollars and are recognized at the time of
shipment.
Total foreign sales are determined by the geographic area into which the
products are sold and delivered, and include not only sales by foreign
subsidiaries but also export sales from the U.S. to the Company's foreign
distributors, VARs and representatives' customers. Foreign sales do not include
transfers between the Company and its foreign subsidiaries. Export sales are
subject to U.S. Department of Commerce regulations. The Company has not,
however, experienced any difficulties to date as a result of these requirements.
Fluctuating exchange rates and other factors beyond the Company's control, such
as international monetary stability, tariff and trade policies, and U.S. and
foreign tax and economic policies, affect the level and profitability of foreign
sales. The Company is unable to predict the effect of such factors on its
business. The Company does hedge against certain currency exposures in order to
minimize their impact.
COMPETITION
GENERAL
The programming systems, semiconductor equipmentManufacturing and EDA software markets are
highly competitive. Important competitive factors include product features,
price, quality, reliability, throughput, distribution channels, availability, IC
support, post sales support, service and the timely response to rapid
technological change with new and improved products. The Company believes its
competitiveness depends on offering the most effective combination of these
capabilities.
Page 12
PROGRAMMING SYSTEMS
The Company believes that maintaining close relationships with programmable IC
manufacturers, superior service, broad programmable IC support and the critical
mass of a large installed base will enable Data I/O to maintain its leading
position in the market for non-automated programming systems. The Company
believes its share of this market may grow because of new technology and a
broader product line. However, growth in the market may be limited, because
much of the remaining market is fragmented both geographically and
technologically. This situation will always allow smaller niche suppliers to
exist and, in some markets, to thrive.
Although independent market information is not available, the Company believes
that it has approximately 30% of the worldwide market share of revenue for
non-automated programming systems including both the engineering and the
parallel programming segments. This is based on information from studies
performed and estimates made each year internally by the Company, brand
awareness and brand preference studies published by Electronic Design Marketing
Research and ECN Marketing, and market statistical information published by
ELECTRONIC ENGINEERING TIMES. For the design engineering segment of the market
for non-automated programming systems the Company has identified two groups of
competitors. Based on information gathered internally, the Company believes
approximately 10% to 20% of this market is served by vendor-specific
non-automated programming systems supplied by the semiconductor manufacturers
themselves. The remainder of the market is divided among several dozen, mostly
regional, competitors. The most significant of these competitors are BP
Microsystems, Logical Devices, Stag Microsystems, SMS, System General, Hi-Lo and
Minato. Today, the competition for programming business is based primarily on
the breadth of programmable IC support and price. Most new entrants compete
based on price alone, because competing against the more established companies'
IC support is quite expensive.
The Company does not have independent market information but has commissioned
studies to obtain limited market data for the non-automated parallel programming
systems market. Principal competitors in the non-automated parallel programming
systems market are BP Microsystems, Elan, Minato, Hi-Lo, System General,
Needhams Electronics and SMS. The Company believes that other firms,
particularly in specific geographic regions, hold the dominant share of this
market. The Company believes this is primarily due to the Company historically
not having competitive products at the low-cost end of the market. The Company
believes that it has the largest market share in the high-volume end of the
non-automated parallel programming system market.
The market for automated programming and handling systems used in automated
manufacturing operations is shared primarily by Data I/O, BP Microsystems in
cooperation with Quad Systems and Unmanned Solutions in cooperation with SMS. In
addition, Exatron manufactures handling systems that can be combined with a
programmer which can be configured by the customer. Although independent market
information is not available, the Company believes that it has approximately 70%
of the worldwide market share of revenue for automated programming systems. The
most important competitive criteria for this market segment are product
reliability, service, IC and package support, throughput, ease of use and cost
of ownership. The Company believes new Data I/O product introductions scheduled
to occur inBacklog
During 1997, such as the ProMaster 970, and its line of automated
programming and handling systems will help the Company better compete and
capitalize on the trend toward automation and integration of manufacturing
processes.
Recently, some high-volume manufacturers of products which incorporate
programmable ICs have developed procedures to use very expensive testing
equipment to program ICs after they have been installed on printed circuit
boards. The Company believes that this programming technique, which is known as
in-circuit programming, is currently being used to program a very small portion
of the programmable ICs currently in use. The Company does not currently offer
a programming product which is intended to be used for in-circuit programming by
high-volume manufacturers, but is evaluating possible applications of its
products and technologies to in-circuit programming. (See "Risk Factors -
Technological Change.")
ABEL, the Company's software for designing PLDs, is an industry standard. The
Company believes this reflects the fact that ABEL is the most "universal" tool
in its market with support for the architectures of most major programmable
logic manufacturers. Competitors of ABEL are products from MINC and Logical
Devices.
SEMICONDUCTOR EQUIPMENT
In the semiconductor equipment industry market niche, in addition to price,
there are four primary competitive factors: throughput, changeover time,
availability and size of "footprint". The Company believes that its
semiconductor equipment is
Page 13
superior to its primary competition with respect to availability and footprint.
In terms of throughput and changeover time, the Company believes that its
products compete well.
For all of its semiconductor equipment products, the Company competes with
custom system integrators who are often smaller, local companies. The Company
believes that other firms hold the dominant market share for the laser marking
and tape and reel markets. For laser marking equipment, the Company competes
with NEC, Toshiba, Lumonics, and Rofin Sinar. For tape and reel equipment, the
Company competes with Ismeca and Systemation. The Company is not currently aware
of any significant competitors for its media transfer system.
SYNARIO DESIGN AUTOMATION
In the Windows-based EDA industry market niche, key competitive factors include
the universality of the tools, semiconductor manufacturer relationships and
endorsements, integration with other tools and ease of use. The Company
believes Synario Design Automation has advantages over its competitors in value,
embedded expertise resulting in ease-of-use, distribution channels, tighter tool
integration and relationships with semiconductor companies. Synario products
provide a universal, easy-to-use, workstation-class design environment at a
fraction of the cost of UNIX-TM--based EDA tools. Most Windows-based EDA
suppliers provide limited tools at a comparable price or comparable tools at a
much higher price.
The Company developed the Synario products to address the industry's increasing
demand for broad-based integrated EDA software tools for the PC-based designer.
Until recently, there has been a limited list of PC-based EDA tool suppliers
with limited capabilities. Principal competitors to the Synario product family
have been Viewlogic-TM- Systems, Inc., semiconductor vendor-specific software
design systems for their device-specific applications, and, to a lesser extent,
OrCAD-Registered Trademark- and ALDEC. However, the introduction of
higher-performance, Pentium-class microprocessors has blurred the distinction
between workstation-class and PC-class machines. This has fueled new
Windows-based product introductions and new players in the market place.
Late in 1995 and during 1996, the Windows-based EDA market was further validated
with product development announcements from major EDA players including
Cadence-TM- Design Systems ("Cadence") and Mentor Graphics-Registered Trademark-
and Synopsys-Registered Trademark-. Cadence has released their PCB layout
product, Allegro, on Windows. Mentor Graphics announced a Windows based
schematic package. Synopsys has announced FPGA Express, a Windows based FPGA
synthesis solution, and has agreed to OEM the product to the Synario Design
Automation Division as part of the Synario product line.
MANUFACTURING AND BACKLOG
During 1996, Data I/O operated two principal manufacturing operations. Its
principal facility in Redmond, Washington manufactures automated and
non-automated programming systems including component parts assembly, final
assembly and testing. This facility was sold during 1997 and leased back from
the purchaser for a period of 10 years with an option to renew the lease for an
additional 10 years. The Company's second manufacturing facility, located in
Indianapolis, Indiana, which manufactures semiconductor equipment. The Company closed
its manufacturing facility in Anaheim, Californiaequipment, was also sold
during 1997 with the first quartersale of 1996 after having moved and consolidated the production of automated
programming and handling systems to Redmond, Washington. The Company recorded
the cost of this move and consolidation as part of a restructuring charge in
1993.Company's Reel-Tech Division (see "Strategic
Transactions").
In its manufacturing processes, the Company uses a combination of standard
components, proprietary custom ICs and fabricated parts manufactured to Data I/O
specifications. Most components used are available from a number of different
suppliers and subcontractors but certain items, such as some handler and
programmer subassemblies, custom ICs, hybrid circuits and connectors, are
purchased from single sources. The Company's policy is to maintain substantial
inventories of most single-source components. It believes that additional
sources could be developed for present single-source components without
significant difficulties in obtaining supplies. There can, however, be no
assurance that single-source components will continue to be readily available.
Most programming systems and software product orders are scheduled for delivery
within one to 60 days after receipt of order. The ProMaster 9500 is generally
scheduled for delivery within 60 to 90 days after receipt of order. Deliveries
of semiconductor equipment are generally scheduled within 60 to 120 days from
date of order. The
Company's backlog of pending orders was approximately $4.2$5.7 million and $4.1
million as of bothDecember 25, 1997 and December 26, 1996, and December 28, 1995.
Page 14
respectively.
In accordance with industry practices, generally all orders are subject to
cancellation prior to shipment without penalty except for contracts calling for
custom configuration. To date, such cancellations have not had a material effect
on the Company's sales volume. To meet customers' fast delivery requirements,
Data I/O manufactures certain of its products based upon a combination of
backlog and anticipated orders. The size of backlog at any particular date is
not necessarily a meaningful indicator of the trend of the Company's business.
RESEARCH AND DEVELOPMENTResearch and Development
Because Data I/O's future growth is, to a large extent, dependent upon the
timely development and introduction of new products and its extensive support of
the latest programmable ICs, the Company is committed to a substantial research
and development program. Research and development activities include applied
research, design of new products and continual enhancement and support of
existing products. Data I/O has focused its efforts on applied rather than basic
research, concentrating on technical innovation for long-term product
requirements. The Company made expenditures for research and
Page 10
development related to its Programming Systems Division of $10,944,000, $9,069,000$7,807,000,
$8,121,000 and $9,227,000$6,581,000 in 1997, 1996 1995 and 1994,1995, respectively, representing
18.1%16.9%, 13.7%16.6%, and 15.0%11.4% of net sales, respectively. The percentage of research
and development spending was abnormallyremained high in 19961997 because of the development of the
new generation of products, particularly in programming systems.
TheDuring 1997 and 1996 the Company has currently directed its main product development efforts
toward a new programming technology for a new generation of programming systems
and for its automated programming and handling system products, enhancements to
its semiconductor equipment products, and enhancements for its EDA software
products. Substantial engineering resources are also being devoted to developing
updates and upgrades for both programming systems and software products and
providing IC support for new programmable ICs as they are introduced by
semiconductor manufacturers.
PATENTS, COPYRIGHTS, TRADEMARKS AND LICENSESPatents, Copyrights, Trademarks and Licenses
Intellectual property rights applicable to various Data I/O products include
patents, copyrights, trade secrets and trademarks. However, rather than depend
on patents and copyrights, which are frequently outdated by rapid technological
advancements in the electronics industry, Data I/O relies primarily on product
development, engineering, manufacturing and marketing skill to establish and
protect its market position.
The Company attempts to protect its rights in proprietary software products by
retaining the title to and copyright of the software and documentation, by
including appropriate contractual restrictions on use and disclosure in its
licenses and by requiring its employees to execute non-disclosure agreements.
The Company's software products are shipped in sealed packages on which notices
are prominently displayed informing the end-user that, by breaking the seal of
the packaging, the end-user agrees to be bound by the license agreement
contained in the package. The license agreement includes limitations on the
end-user's authorized use of the product, as well as restrictions on disclosure
and transferability. The legal and practical enforceability and extent of
liability for violations of license agreements that purport to become effective
upon opening of a sealed package are unclear. The Company is not aware of any
situation where a license agreement restricting an end-user's authorized use of
a licensed product resulted in enforcement action.
Because of the rapidly changing technology in the semiconductor, electronic
equipment and software industries, there is a possibility that portions of the
Company's products might infringe upon existing patents or copyrights, and the
Company may therefore be required to obtain licenses or discontinue the use of
the infringing technology. The Company believes that any exposure it may have
regarding possible infringement claims is a reasonable business risk similar to
that being assumed by other companies in the electronic equipment and software
industries. However, any claim of infringement, with or without merit, could be
costly and a diversion of management's attention, and an adverse determination
could adversely affect the Company's reputation, preclude it from offering
certain products, and subject it to substantial liability.
EMPLOYEESEmployees
As of December 26, 1996,25, 1997, the Company had 403328 total employees, of which 3833 were
located outside the U.S. Many of Data I/O's employees are highly skilled and the
Company's continued success will depend in part upon its ability to attract and
retain employees who are in great demand within the industry. At times, the
Company, along with most other electronic equipment manufacturers and software
developers, experiences difficulty in hiring and retaining experienced
personnel. To
Page 15
date, the Company believes it has been successfulpersonnel, particularly in its efforts to recruit
qualified employees, but theretechnical areas. There is no assurance that itthe
Company will continuebe able to be as
successfulattract and retain qualified personnel in the future.
None of the Company's employees are represented by a collective bargaining unit
and the Company believes relations with its employees are favorable.
ENVIRONMENTAL COMPLIANCEEnvironmental Compliance
The Company's facilities are subject to numerous laws and regulations concerning
the discharge of materials or otherwise relating to the environment. Compliance
with environmental laws has not had, nor is it expected to have, a material
effect on capital expenditures, the financial position, the results of
operations or the competitive position of the Company.
EXECUTIVE OFFICERS OF THE REGISTRANTPage 11
Executive Officers of the Registrant
Set forth below is certain information concerning the executive officers of the
Company as of February 28, 1996:March 11, 1998:
Name Age Position
---- --- --------
William C. Erxleben 54 President
Chief Executive Officer
Secretary
James J. David 53 Vice54 President
Worldwide Sales and Marketing
Programming Systems Division
William J. Haydamack 54 Senior Vice President
Synario Design Automation
Division
Susan S. Webber 4243 Vice President
Customer Service, Quality and
Human Resources
Larry D. Vandendriessche 39 Vice President
Programming Systems Division
Domenico Picone 5859 Vice President
Operations
Joel S. Hatlen 38 Corporate Controller39 Vice President
Finance
Chief AccountingFinancial Officer
Secretary and Treasurer
William C. Erxleben becameRichard A. Mayes 51 Vice President
Marketing
Acting Vice President
Engineering
Mark L. Edelsward 41 Vice President
Worldwide Sales
James J. David resigned from his position of Vice President of Worldwide Sales
and Chief Executive Officer ofMarketing in December 1997, but returned to the Company on October 29, 1993. He has been a member of the Board of Directors of Data I/O
since 1979.as President in
January 1998. Mr. Erxleben was a partner with the Seattle-based law firm of Lane
Powell Spears Lubersky from March 1991 until joining the Company. From March
1985 to March 1991 he was a partner with the Seattle law firm of Foster Pepper &
Shefelman. Prior to 1985, he was a member of the faculty of the University of
Washington Graduate School of Business and a Regional Director of the Federal
Trade Commission.
James J. David joined the Company in May 1996 as Vice President of
Worldwide Sales, Programming Systems Division, and became Vice President of
Worldwide Sales and Marketing in December 1996. From 1992 until joining the
Company, Mr. David served as Vice President of U.S. Operations for Aldus
Corporation, a software company. From 1989 until 1992, Mr. David was employed by
ButtonWare, Inc., a software company, where in his last position he served as
President. Prior to ButtonWare, Mr. David served in sales and marketing
management positions with Egghead, Inc. and IBM.
Page 16
William J. Haydamack joined the Company in August 1993 as Vice President and
General Manager of the Design Software Division. In December 1995 he was
promoted to Senior Vice President and General Manager of the Synario Design
Automation Division. From 1986 until joining the Company, Mr. Haydamack served
in various senior management positions with Cadence Design Systems, an EDA
software company. Prior to Cadence Design Systems, Mr. Haydamack served in
management positions with Waferscale Integration, Inc., Hewlett Packard and
General Dynamics.
Susan S. Webber joined the Company in April 1994 as Director of Quality and was
given the responsibility for Human Resources in November of 1994. In December
1995, Ms. Webber was promoted to Vice President of Quality and Human Resources.
In July 1997 she was given responsibility for Customer Service. From 1985 until
joining the Company, Ms. Webber was employed by AG Communication Systems, a
designer and manufacturer of telecommunications systems. Her most recent
position was Quality Director. Prior to AG Communication Systems, Ms. Webber was
with Motorola and was an Assistant Professor at the University of Nebraska.
Larry D. Vandendriessche joined the Company in January 1996 as Vice President
and General Manager of the Programming Systems Division. From 1994 until
joining the Company, Mr. Vandendriessche served as Vice President of Product
Development for Plasti-Line, Inc., a producer of electronic and
electromechanical display systems. From 1984 to 1994 Mr. Vandendriessche held
various management positions at AT&T, most recently as the Director of Graphic
Products in the NCR Microelectronic Products Division.
Domenico Picone joined the Company in May 1995 as Director of Operations. In
December 1996, Mr. Picone was promoted to Vice President of Operations. From
1994 until joining the Company, Mr. Picone was employed by Spacelabs Medical, a
manufacturer of emergency room medical electronics. His most recent position was
Manufacturing and Engineering Director. From 1979 to 1994, Mr. Picone was
employed by Eldec Corporation, a manufacturer of avionics, where his last
position was Director of Operations. Prior to Eldec Corporation, Mr. Picone held
various manufacturing management positions at Diagnostic Information, Inc., Sony
Corporation and Tektronix, Inc.
Joel S. Hatlen joined the Company in September 1991 as a Senior Tax Accountant
and became Tax Manager in December of 1992. He was promoted to Corporate
Controller in December 1993. In February 1997, he was named Chief Accounting
Officer and Treasurer on February 20,
1997. Mr. Hatlen first joined Data I/O in September of 1991 as a Senior Tax
Accountant. HeCorporate Controller. In January 1998, he was promoted to Tax Manager in NovemberVice
President of 1992Finance and Corporate
Controller in December of 1993.Chief Financial Officer, Secretary and Treasurer. From
September 1981 to 1991until joining the Company, Mr. Hatlen was employed by Ernst &
Young LLP a certified public accounting and consulting firm. Hiswhere his most recent position there was Senior Manager.
RISK FACTORSPage 12
Richard A. Mayes joined the Company in February 1996 as Director of Strategic
Planning, and was given the responsibility as Director of Marketing in June
1996. He was promoted to Vice President of Strategic Marketing in December 1997.
Prior to joining the Company, Mr. Mayes was Director of Marketing at Advanced
Technology Laboratories, Inc. From 1977 to 1993, he was employed by
Hewlett-Packard Company, including positions as Marketing Manager for a
Workstation Division and the San Diego Division.
Mark L. Edelsward joined Data I/O Canada as Distribution Manager in 1987. He has
held a variety of sales related positions with the Company, including European
and USA Sales Management roles. Mr. Edelsward has most recently had
responsibility for Asia, Latin America and Canada as the Director of Sales of
the Pacific region. From 1978 until joining the Company, Mr. Edelsward was
employed by Allan Crawford Associates, a Canadian distributor of test and
measurement and scientific instrumentation.
Risk Factors
In addition to the other information in this report, the following risk factors
should be carefully considered in evaluating the Company. See also the sections
captioned "Forward-Looking Statements" in Item 1 and Item 7.
DEVELOPMENT, INTRODUCTION AND SHIPMENT OF NEW PRODUCTSDevelopment, Introduction and Shipment of New Products
The Company is scheduled to complete development of, introduce and ship several
key new engineering and automated programming and handling system products in 1997.
Successful introduction of these products requires the Company to complete
development of a new programming system architecture which will be common to all
of these new products. In addition, the Company relies on third parties for key
portions of the robotics to be used in its new automated handling and
programming systems.1998. There can
be no assurance the Company will not encounter significant technological,
supplier, manufacturing or other problems which will cause the introduction or
production of its new products to be delayed. Also,
asFor example, introduction of a new
family of non-automated programming systems and of certain key configurations of
new automated programming systems is dependent on completion of development of
the Company's new DataSite programming system. Also, the ability of DataSite to
program a sufficient number of programmable devices to make the new system
competitive is dependent on translation of a large number of algorithms into the
new DataSite operating system. The schedule for completion of the DataSite
development project has been delayed on several occasions due to technical and
other difficulties. In addition, the Company needs to hire additional qualified
software engineers to accelerate the DataSite algorithm development project.
Also, the Company relies on third parties for key portions of the robotics used
in the new ProMaster 970 Automated Fine Pitch Programming System. The Company
believes that its sales in 1997 were adversely affected by the delay in
completion of DataSite and other key new products as customers anticipate the introductionwithheld orders
for old products in anticipation of availability of new products sales of
the Company's existing products may be adversely affected.and as
competitors captured orders from customers with requirements which could not
wait for new product availability. Accordingly, delays in the completion and
shipment of new products, or unfavorable customer acceptance of such products,
will likely result in a decline in sales in 1997.
VARIABILITY IN QUARTERLY OPERATING RESULTS1998.
Variability in Quarterly Operating Results
The Company's quarterly operating results have in the past varied and may in the
future vary significantly depending on factors such as increased competition,
timing of new product announcements, releases and pricing changes by the Company
or its competitors, market acceptance or delays in the introduction of new
products, production lead times, production constraints, timing of significant
orders, seasonal factors, capital budgets of customers, foreign currency
exchange rates, and economic conditions, as well as all of the other risk
factors discussed in this report. Historically, a substantial portion of the
Company's revenue in each quarter results from orders booked in that quarter.
The Company's expense levels are based, in part, on its expectations as to
future revenue. If anticipated shipments in any quarter do not occur or are
delayed, expenditure Page 17
levels could be disproportionately high, and the Company's
operating results for that quarter would be adversely affected. As a result, the
Company's results of operations for any quarter are not necessarily indicative
of results for any future period. Due to all of the foregoing factors, it is
possible that in some future quarter the Company's operating results will be
below expectations of analysts and investors.
TECHNOLOGICAL CHANGETechnological Change
The markets for the Company's programming systems semiconductor equipment and
EDA software products are characterized by rapid
technological change and evolving industry standards, and are highly competitive
with respect to timely product innovation. The introduction of products
embodying new technology and the emergence of new industry standards can render
existing products obsolete and unmarketable. New and changed technologies may
result in products that contain defects or errors which may give rise to product
liability claims or be detrimental to market acceptance of such products. The
Company's success depends on its ability to anticipate changes in
Page 13
technology, IC package types, electronics equipment manufacturing practices,
software platform preferences and industry standards and to develop and
successfully introduce successfully new and enhanced products on a timely basis. For example,
widespread use of in-circuit programming would likely have an adverse effect on
sales of the Company's traditional programming systems. Also, to the extent that
more rigid standards are established in the programmable IC industry, the
value-added element of the Company's products and support services could be
decreased. If such decreases occur, or if the Company is unable, for
technological or other reasons, to develop products in a timely manner in
response to changes in the industry or if products or product enhancements that
the Company develops contain defects or errors or do not achieve market
acceptance, the Company's business, financial condition and results of
operations will be materially and adversely affected.
DEPENDENCE ON BROAD ACCEPTANCE OF MS WINDOWS OPERATING SYSTEM IN THE DESKTOP EDA
MARKET
The Company believes that the desktop EDA market is at the beginning of a trend
toward the use of the Microsoft-Registered Trademark- Windows operating systems,Economic and anticipates that the use of Windows-based products in the EDA market will
continue to expand. Accordingly, all of the new EDA software products
introduced by the Company during 1996, and all of the EDA software products the
Company is currently developing, are designed for use on Microsoft's Windows 3.1
and 3.11, Windows NT and Windows 95 operating systems. Any factor adversely
affecting the demand for, or use of, the Microsoft Windows operating systems for
EDA applications or in general, could have a material adverse effect on the
Company. Further, any changes to the underlying components of the Microsoft
Windows operating systems that would require changes to the Company's products
would have a material adverse effect on the Company's business if the Company
were unable to successfully develop and implement such changes in a timely
fashion, or if the Company's products, as changed, failed to gain market
acceptance.
ECONOMIC AND MARKET CONDITIONSMarket Conditions
The Company's business depends on capital spending and other economic cycles
that affect the users and manufacturers of ICs. This industry is highly cyclical
and characterized by rapid technological change, short product life cycles,
fluctuations in manufacturing capacity and pricing and gross margin pressures.
Segments of this industry, in each of the United States, Europe and Japan, have
from time to time experienced significant economic downturns characterized by
decreased product demand, reductions in capital expenditures, production
over-capacity, price erosion, work slowdowns and layoffs. In addition, portions
of this industry have experienced downturns at different times. The Company believes that there was a slowdown in capital spending by
electronics manufacturers in the United States and Europe during 1996. The
Company's
operations may in the future reflect substantial fluctuations from
period-to-period as a consequence of such industry patterns, general economic
conditions affecting the timing of orders from major customers, and other
factors affecting capital spending. There can be no assurance that such factors
will not have a material adverse effect upon the Company's business, financial
condition and results of operations.
COMPETITIONCompetition
The markets for the Company's products are highly competitive. Competitors for
the Company's semiconductor equipment and EDA software products include a number
of established companies that may have significantly greater financial,
technical, manufacturing and marketing resources than the Company. The
Company's competitors may have well established relationships or strategic
affiliations which give them certain competitive advantages. Advances in
technology have reduced the barriers of entry into the programming systems
markets, resulting in new competitors who compete for certain market niches. The
Company expects competition to increase from both established and emerging
companies. Recent delays in product development projects have enabled certain
competitors to improve their competitive position by increasing their market
share. There
Page 18
can be no assurance that the Company will be able to compete
successfully against current and future sources of competition or that the
competitive pressures faced by the Company will not adversely affect its
profitability or financial performance.
DEPENDENCE ONDependence on IC MANUFACTURERSmanufacturers
The Company maintains close working relationships with semiconductor
manufacturers to ensure that the Company's programming systems use programming
methodology that complies with each semiconductor manufacturer's specifications.
In addition, many semiconductor manufacturers endorse Data I/O programming
systems as equipment that they recommend for end-user applications as well as
for use in their own development and production environments. These
relationships enable Data I/O to keep its programming systems product line
up-to-date with the latest technology and to provide end-users with broad and
current programmable IC support. Any adverse change in the relationships that
the Company maintains with semiconductor manufacturers could have a material
adverse effect on the Company's business, financial condition and results of
operations.
DEPENDENCE ON SUPPLIERSDependence on Suppliers
Certain components used in the Company's products, including but not limited to
robotics and certain other custom components, are currently available only from
single sources, and other components are available from only a limited number of
sources. To date the Company has been able to obtain adequate supplies of these
components and maintain inventories of its more critical components, in certain
instances through negotiated contractual relationships or parts allocations from
suppliers. However, the Company's inability in the future to develop alternative
sources or to obtain sufficient single or limited-source components could result
in delays or reductions in product introductions or shipments, which could have
a material adverse effect on the Company's operating results. The Company has
limited ability to avoid or offset future price increases by suppliers of key
components. Accurate production forecasts are required to ensure that adequate
component supplies are available in a timely manner, particularly in those
instances where component suppliers require long lead times. There can be no
assurance that the Company will be able to accurately forecast its production
schedule in the future. If the Company were to experience significant delays,
interruptions or reductions in its supply of key components, or unfavorable
price terms, its business, financial condition and results of operations could
be materially adversely affected.
RELIANCE ON THIRD PARTY DISTRIBUTION CHANNELSPage 14
Reliance on Third Party Distribution Channels
The Company has limited internal sales personnel. The Company is dependent on
third party manufacturers' representatives, OEMs, VARs and international
distributors (collectively, "Third Party Distributors") for the majority of its
domestic and international sales. Accordingly, the Company is dependent upon the
continued viability and financial stability of these Third Party Distributors.
Because most of the Company's products are used by highly skilled professional
engineers, effective Third Party Distributors must possess sufficient technical,
marketing and sales resources and must devote their resources to sales efforts,
customer education, training and support. Only a limited number of potential
Third Party Distributors meet these criteria. In addition, the Company's
relationship with its Third Party Distributors is usually established through a
formal contractual agreement, which generally may be terminated by either party
without cause upon minimal notice. There can be no assurance that the Company
will be able to attract and retain a sufficient number of qualified Third Party
Distributors to successfully market the Company's products, and the failure to
do so would have a material adverse effect on the Company's business, financial
condition and results of operations.
INTERNATIONAL OPERATIONSInternational Operations
International sales represented approximately 51%52% of the Company's total revenue
for the fiscal year ended December 26, 1996,25, 1997, and the Company expects that
international sales will continue to account for a significant portion of its
net revenue in future periods. International sales are subject to inherent
risks, including unexpected changes in regulatory requirements, tariffs and
taxes, difficulties in staffing and managing foreign operations, longer payment
cycles, greater difficulty in accounts receivable collection, compliance with
any applicable export licensing requirements and other trade barriers, as well
as political and economic instability. The European Community and European Free
Trade Association have established certain electronic emission and product
safety requirements ("CE"). Certain of the Company's new products have not yet
met these requirements. Failure to obtain either a CE mark or a waiver for any
products may prevent the Company from marketing such products in Europe.
Moreover, gains and losses on the conversion to U.S. Dollars of receivables and
payables arising from international operations may contribute to fluctuations in
the Company's results of operations. In Page 19
addition, if for any reason exchange or
price controls or other restrictions on their currencies were imposed, the
Company's business, financial condition and results of operations could be
adversely affected. Moreover, currency exchange fluctuations in countries in
which the Company has wholly owned subsidiaries may have a material adverse
effect on the Company's investment in those subsidiaries.
PROTECTION OF INTELLECTUAL PROPERTYProtection of Intellectual Property
Refer to the section captioned "Patents, Copyrights, Trademarks and Licenses"
above.
MANAGEMENT OF GROWTHManagement of Growth
The Company plans to continue to expand its product lines, focus increased
efforts on marketing and distribution and pursue strategic acquisitions and
relationships. The Company's growth plans will present management, competitive
and other challenges to the Company's executive management and employees. There
can be no assurance that the Company will be able to achieve its planned
expansion goals or manage its growth effectively. The Company's failure to
manage growth effectively could have a material adverse effect on its business,
financial condition and results of operations.
FUTURE ACQUISITIONSFuture Acquisitions
The Company may in the future pursue acquisition of complementary technologies,
product lines or businesses. Future acquisitions by the Company may result in
potentially dilutive issuances of equity securities, the incurrence of
additional debt and amortization expenses related to goodwill and intangible
assets that could adversely affect the Company's profitability. In addition,
acquisitions involve numerous risks, including difficulties in the assimilation
of the operations and products of the acquired company, the diversion of
management's attention from other business concerns, risks of entering markets
in which the Company has no or limited direct prior experience, and the
potential loss of key employees of the acquired company. In the event that such
an acquisition does occur, there can be no assurance as to theits effect thereof on the
Company's business or operating results.
DEPENDENCE ON KEY PERSONNELPage 15
Dependence on Key Personnel
Refer to the section captioned "Employees" above.
POTENTIAL VOLATILITY OF STOCK PRICEPotential Volatility of Stock Price
There has been significant volatility in the market price of securities of
technology companies. The Company believes factors such as announcements of new
products by the Company or its competitors and quarterly variations in financial
results could cause the market price of the Company's Common Stock to fluctuate
substantially. In addition, the stock market has experienced volatility that has
particularly affected the market prices for many technology companies' stock and
that often has been unrelated to the operating performance of such companies.
These market fluctuations may continue in the future and may adversely affect
the price of the Company's Common Stock.
Page 20
ITEMItem 2. PROPERTIES
Data I/O'sProperties
In May 1997, The Company completed the sale of the land and building comprising
its Redmond, Washington corporate headquarters and principal facility is acurrently leasing the
96,000 square foot building back on approximately 79 acres of land, which is owned bya 10 year lease-back agreement with an
option to renew the Company and located in
Redmond, Washington. In September 1991, the Company engaged the services of a
real estate broker and began a formal process of negotiating to sell excess land
at its headquarters. This land has been classified as Land Held for Sale in the
Company's financial statements. In order to enhance the land's marketability,
the Company listed its entire Redmond headquarters property in 1995, including
the building, as available for sale with long-term lease back provisions on the
building. The Company announced on July 18, 1996 that it had entered into an
agreement to sell the headquarters property and enter into a ten year lease back
arrangement of the building with options for an additional ten10 years. Closing
of this transaction had been expected to occur by the end of 1996 but has been
postponed due to delays in receiving regulatory approvals necessary for
development of the property. Closing of the sale remains subject to a number of
conditions and contingencies. The Company has granted an extension of the due
diligence period to April 20, 1997, subject to certain payments from the buyer. See Note 46 of "Notes to
Consolidated Financial Statements."
The Company currently leases approximately 12,000 square feet of space for its
semiconductor equipment manufacturing facility in Indianapolis, Indiana.Statements". In addition, approximately 15,000 square
feet is leased at four foreign sales and service locations.
ITEMItem 3. LEGAL PROCEEDINGSLegal Proceedings
Nothing to report.
ITEMItem 4. SUBMISSION OF MATTERS TO A VOTE OF STOCKHOLDERSSubmission of Matters to a Vote of Stockholders
No matters were submitted for a vote of stockholders of the Company during the
fourth quarter of the fiscal year ended December 26, 1996.25, 1997.
Page 2116
PART II
ITEMItem 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERSMarket for the Registrant's Common Stock and Related Stockholder
Matters
The following table shows, for the periods indicated, the market sales price
range for the Company's common stock as reported by the Nasdaq National Market
tier of The Nasdaq Stock Market (Nasdaq symbol is DAIO).
Period High Low
------ ---- ---
1997 Fourth Quarter $8.00 $6.13
Third Quarter 7.63 4.63
Second Quarter 6.50 4.50
First Quarter 5.50 4.38
1996 Fourth Quarter $5.63 $4.00
Third Quarter 6.00 4.38
Second Quarter 6.88 5.13
First Quarter 7.75 5.38
1995 Fourth Quarter $8.88 $6.00
Third Quarter 12.63 7.63
Second Quarter 9.63 4.88
First Quarter 6.00 4.38
The approximate number of shareholders of record and approximate number of
beneficial shareholders of record at February 25, 1997March 2, 1998 was 1,019927 and 4,7004100
respectively.
Except for a special cash dividend of $4.15 per share paid on March 8, 1989, the
Company has not paid cash dividends on its common stock and does not anticipate
paying regular cash dividends in the foreseeable future. The Company's U.S. line
of credit agreement restricts the payment of cash dividends through a
requirement for minimum levels of tangible net worth.
Page 2217
ITEMItem 6. SELECTED FIVE-YEAR FINANCIAL DATASelected Five-Year Financial Data
YEAR ENDEDYear Ended
- -------------------------------------------------------------------------------------------------------------
DEC.-----------------------------------------------------------------------------------------------------------------------------
Dec. 25, Dec. 26, DEC.Dec. 28, DEC.Dec. 29, DEC.Dec. 30, DEC. 31,
(in thousands, except employee and per share data) 1997 1996 1995 1994 1993
1992 (1)
- ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
FOR THE YEAR:For The Year:
Net sales $60,423 $66,031 $61,478 $63,186 $69,337$46,284 $48,860 $57,496 $53,456 $55,147
Gross margin 29,897 35,433 33,094 31,775 39,29223,536 22,926 30,110 27,772 25,801
Research and development 10,944 9,069 9,227 9,700 7,7977,807 8,121 6,581 6,282 6,600
Selling, general and administrative 19,765 20,411 20,032 26,094 26,872
Write-off of acquired in-process R&D (2) 82513,924 14,618 15,719 15,627 22,369
Provision for business restructuring (3) (400)(1) 6,120
Operating income (loss) (812) 5,528 3,835 (10,139) 4,6231,805 187 7,810 5,863 (9,288)
Non-operating (income) expense 59 (125) 134 2,218 310income (expense) 2,757 (59) 125 (134) (2,218)
Income (loss) from continuing operations before income
taxes extraordinary item and cumulative effect of accounting change (871) 5,653 3,701 (12,357) 4,3134,562 128 7,935 5,729 (11,506)
Income tax expense (benefit) 230 892 975 (700) 1,445(expense) benefit (176) (121) (892) (975) 700
Income (loss) from continuing operations before extraordinary item and
cumulative effect of accounting change (1,101) 4,761 2,726 (11,657) 2,868
Extraordinary item, net of tax (4) (1,675)4,386 7 7,043 4,754 (10,806)
Income (loss) from discontinued operations (2) 7,114 (1,108) (2,282) (2,028) (851)
Cumulative effect of accounting change (5)(3) 400
Net income (loss) 11,500 ($1,101) $4,761 $2,726 ($11,257)
$1,193
- -------------------------------------------------------------------------------------------------------------
AT YEAR-END:-----------------------------------------------------------------------------------------------------------------------------
At Year-end:
Working capital $33,226 $10,054 $12,005 $10,038 $3,582
$9,940
Total assets $57,736 $39,319 $44,776 $43,487 $43,025
$49,702
Long-term debt (6) $1,500 $1,500 $1,500 $1,500
Total debt $2,000 $1,605 $1,617 $1,940 $3,867
$3,422
Stockholders' equity $34,614 $22,559 $25,929 $24,343 $21,183
$31,343
Number of employees 403 401 379 445 517from continuing operations 328 332 349 345 414
- -------------------------------------------------------------------------------------------------------------
COMMON STOCK DATA:
Earnings-----------------------------------------------------------------------------------------------------------------------------
Common Stock Data (4):
Basic earnings per share:
Income (loss) before extraordinary item and
cumulative effect of accounting changeFrom continuing operations $0.63 $0.00 $0.94 $0.65 ($0.16) $0.60 $0.37 ($1.63) $0.401.45)
Net income (loss) $1.66 ($0.16) $0.64 $0.37 ($1.57)
Diluted earnings per share:
From continuing operations $0.62 $0.00 $0.89 $0.64 ($1.45)
Net income (loss) $1.62 ($0.16) $0.60 $0.37 ($1.57) $0.17
Book value per share at year end $4.92 $3.33 $3.66 $3.28 $2.92 $4.46
Shares outstanding at year end 7,039 6,778 7,084 7,432 7,250
7,030
Weighted average shares outstanding 6,909 6,857 7,515 7,354 7,170
Weighted average and potential shares outstanding 7,087 7,035 7,879 7,420 7,170
7,117
- -------------------------------------------------------------------------------------------------------------
KEY RATIOS:-----------------------------------------------------------------------------------------------------------------------------
Key Ratios:
Current ratio 2.7 1.7 1.7 1.6 1.2
1.6
Gross margin to sales 49.5% 53.7% 53.8% 50.3% 56.7%50.9% 46.9% 52.4% 52.0% 46.8%
Operating income (loss) to sales (1.3%3.9% 0.4% 13.6% 11.0% (16.8%)
8.4% 6.2% (16.0%) 6.7%
Net incomeIncome (loss) from continuing operations to sales (7) (1.8%9.5% 0.0% 12.2% 8.9% (19.6%) 7.2% 4.4% (18.4%) 4.1%
Return on average total assets (7) (2.6%) 10.4% 6.4% (23.7%) 6.1%
Return on average stockholders' equity (7) (4.6%(5) 16.8% 0.0% 26.9% 21.4% (36.4%)
18.2% 12.3% (39.3%) 9.5%
- ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
FOOTNOTES:Footnotes:
(1) Fiscal 1992 was a 53 week year.
(2) For further discussion, see Note 63 of "Notes to Consolidated Financial
Statements."
(3)(2) For further discussion, see Note 2 of "Notes to Consolidated Financial
Statements."
(4) Net of tax write down of the value of land due to a Sensitive Area
Ordinance by the City of Redmond.
(5)(3) Cumulative effect of a change in accounting for income taxes to SFAS 109.
(6) For further discussion, see(4) All amounts restated to comply with SFAS 128, Earnings Per Share. See Note
712 of "Notes to Consolidated Financial Statements."
(7)(5) Computed based on net income (loss) from continuing operations before
cumulative effect of accounting changechange.
Page 18
Item 7. Management's Discussion and extraordinary item.
Page 23
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
SHARE REPURCHASE PROGRAM
The Company announced on October 27, 1995 a share repurchase program which
authorized the Company to repurchase up to 7.5% (approximately 570,000 shares)Analysis of its outstanding sharesFinancial Condition and
Results of common stock. The Company announced on February 21,
1996 that the Board of Directors had authorized the Company to repurchase up to
an additional 8% (approximately 570,000 shares) of its outstanding common stock.
These purchases may be executed through open market purchases at prevailing
market prices, through block purchases or in privately negotiated transactions.
Purchases may commence or be discontinued at any time and the Board may withdraw
its authorization at any time. At December 26, 1996, the Company had
repurchased an aggregate of 1,015,700 shares for approximately $7.1 million
since October of 1995.
SALE OF HEADQUARTERS PROPERTY
The Company announced on July 18, 1996 that it had reached an agreement to sell
the approximately 79 acres of land and 96,000 square foot building comprising
its Redmond, Washington headquarters campus for approximately $14.0 million to a
major real estate company. The transaction will include a leaseback of the
building by Data I/O for ten years with options for an additional ten years.
The Company had been marketing a portion of the land on its headquarters campus
for the past five years and in 1995 decided to market the building with
long-term leaseback provisions on the building to enhance the value of the
entire property.
Closing of this transaction had been expected to occur by the end of 1996 but
has been postponed due to delays in receiving regulatory approvals necessary for
development of the property. Closing of the sale remains subject to a number of
conditions and contingencies. The Company has granted an extension of the due
diligence period to April 20, 1997, subject to certain payments from the buyer.
As closing of the sale is subject to a number of conditions and government
approvals, there can be no assurance that the sale will be consummated. If
consummated, this sale is expected to result in a pre-tax gain of approximately
$5.8 million. Approximately $2.0 million of this gain would be recognized upon
the closing of the sale, with the balance amortized over the initial ten-year
lease term. The Company expects to realize approximately $12.0 million in cash
after payment of transaction fees and income taxes.Operations
FORWARD-LOOKING STATEMENTS
Although most of the information contained in this report is historical, certain
of the statements contain forward-looking information. To the extent these
statements
in this report involve, without limitation, product development and introduction
plans, the Company's expectations for growth, estimates of future revenue,
expenses, profit, cash flow, balance sheet items, sell-through or backlog,
forecasts of demand or market trends for the Company's various product
categoriesproducts and for the
industries in which the Company operates or any other guidance on future
periods, these statements are forward-looking and involve matters which are
subject to a number of risks and uncertainties that could cause actual results
to differ materially from those expressed in or implied by such forward-looking
statements. These risks and uncertainties include product development or
production difficulties or delays due to supply constraints, technical problems
or other factors; technological changes; the effect of global, national an
regional economic conditions; changes in operating system platforms of
preference; the impact of competitive products and pricing; changes in demand;
increases in component prices or other costs; inventory risks due to shifts in
market demand, product obsolescence or other factors and a number of other risks
including those identified by the Company under the caption "Risk Factors" in
Item 1 and elsewhere in this report, and other risks identified from time to
time in the Company's filings with the Securities and Exchange Commission, press
releases and other communications. Page 24
RESULTS OF OPERATIONSThere can be no assurance the Company will
not encounter significant technological, supplier, manufacturing or other
problems which will cause the introduction or production of its new products to
be delayed. All forward looking statements contained in this report reflect the
Company's expectations at the time of this report only, and the Company
disclaims any responsibility to revise or update any such forward-looking
statement except as may be required by law.
Results of Continuing Operations
For all periods presented in this section, results of operations have been
reclassified to reflect the classification of the Company's Semiconductor
Equipment and Synario Design Automation Divisions as discontinued operations
(see "Discontinued Operations"). Prior year's figures have been reclassified for
comparability.
NET SALES
(in thousands) Years Ended Years Ended
-------------------------------- --------------------------------------------------------------------- --------------------------------------
Net sales by division (in thousands)1997 1996 % Change 1996 1995 % Change
1995 1994 % Change
- ------------------------------------- ------- ------- -------- ------- ------- ---------------------------------------------------- ------------- ------------ ----------- ------------- ------------- ----------
Programming Systems Division:
Non-automated programming systems $36,029 $41,400 (13.0%$30,498 $33,767 (9.7%) $41,400 $43,756 (5.4%$33,767 $37,891 (10.9%)
Automated programming systems 15,786 15,093 4.6% 15,093 19,605 (23.0%)
19,605 14,579 34.5%
------- ------- ------- ------- ------- -------------------- ------------ ----------- ------------- ------------- ----------
Total Programming Systems Division 51,122 61,005 (16.2%$46,284 $48,860 (5.3%) 61,005 58,335 4.6%
Synario Design Automation Division 5,557 4,401 26.3% 4,401 3,143 40.0%
Semiconductor Equip. Div. (Reel-Tech) 3,744 625 500.0% 625
------- ------- ------- ------- ------- -------
Net sales $60,423 $66,031 (8.5%$48,860 $57,496 (15.0%)
$66,031 $61,478 7.4%
------- ------- ------- ------- ------- -------
Years Ended Years Ended
-------------------------------- --------------------------------------------------------------------- --------------------------------------
Net sales by location (in thousands)1997 1996 % Change 1996 1995 % Change
1995 1994 % Change
- -------------------------------------- ------- ------- -------- ------- ------- ---------------------------------------------------- ------------- ------------ ----------- ------------- ------------- ----------
United States $29,572 $35,280 (16.2%$22,290 $23,554 (5.4%) $35,280 $32,930 7.1%$23,554 $31,125 (24.3%)
% of total 48.9% 53.4% 53.4% 53.6%48.2% 48.2% 48.2% 54.1%
International $30,851 $30,751 0.3% $30,751 $28,548 7.7%$23,994 $25,306 (5.2%) $25,306 $26,371 (4.0%)
% of total 51.1% 46.6% 46.6% 46.4%51.8% 51.8% 51.8% 45.9%
- ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
1997 vs. 1996 VS. 1995
The Company experienced an overall decline in sales and orders for the Company's
Programming Systems Division products during 1996.1997. Orders declined approximately
11%4.7% to $58.5$48.4 million in 1996,1997, compared with $65.7$50.8 million in 1995.1996.
Page 19
Sales for the Programming Systems Division are expected to continue to
experience pressure due primarily to delays in new product introductions by the
Company. The Company believes that increased competition in the areas where new
Data I/O product introductions are not scheduled to occur until 1998, or where
these new products will not be available in production volumes until 1998, or
where products are nearing the end of their product life cycles, adversely
affected sales in 1997 and will continue to do so. In addition, the declines in
non-automated programming systems also reflect the continuing market shift away
from the Company's traditional line of higher-price IC programmers for the
engineering market, toward lower-price programmers. As a result, the Company
believes that until its new products are released and shipping in production
quantities, overall demand for its programming systems will likely be flat or
may decrease in 1998. Recent changes in programmable IC technology, such as
increasingly complex logic ICs, lower voltage requirements and higher pin
counts, and the increasing need for higher quality and high-volume programming
by users of programmable ICs means that there is a significant market need for
more sophisticated programmers with new programming technology and automated
programming systems. The Company currently has development projects underway for
new programmer and automation technology designed to address the needs perceived
by the Company to be created by these technology changes. In addition, the
Company released four new low-cost programming products late in the second
quarter, consisting of the ChipWriter(TM), the ChipWriter(TM) Portable, the
ChipWriter(TM) Gang and the LabSite(TM) Programming Systems DivisionSystem. There can be no
assurance that the Company will complete development of planned new products as
scheduled or that new products will generate significant sales. See "Risk
Factors" in Item 1 of Part I above.
During 1997 international sales were slightly lower as compared to 1996. Sales
decreased in Europe, Canada and Japan, but increased slightly in other parts of
the world. The foreign currency exchange rate changes reduced sales by
approximately $1.1 million during 1997 compared to 1996. These declines were due
primarily to exchange rate changes for the German Mark and the Japanese Yen.
When the U.S. Dollar is stronger, sales of the Company's products in local
currency translate into fewer U.S. Dollars. However, offsetting the revenue
translation impact is the translation of local currency costs and expenses.
1996 vs. 1995
The decline in overall automated handling systems sales and orders werein 1996 was
primarily due to a slowdown in capital spending by electronics manufacturing
companies incompanies. However, the United States and Europe which reduced the demand
for the Division's products. The Company believes that the economic slowdown in
capital spending for electronics manufacturing equipment has bottomed out and is
beginning to turn upward. The Company believes that increased competition in areas
where new Data I/O product introductions arewere not scheduled to occur until
1997,future periods, or where products are nearing the end of their product life cycles, is
also
affecting sales.had a negative affect on sales in 1996.
The Company's current expectations are that these new
products will not be available in production quantities until the second half of
1997 and early 1998. In addition, the Company believes the declines in non-automated programming systems also
reflect the continuing market shift away from the Company's traditional line of
higher-priced IC programmers for the engineering market, toward lower-priced
programmers. The Company believes the marketThis shift toward lower-priced IC programmers has been caused in part by advances in semiconductor
processing technology that have lowered the barriers to entry in the programmer
business over the last several years. This has caused new market entrants to
appear regularly, each trying to carve out a niche. New entrants cause downward
price pressure, and each cycle of new competitors lowers the acceptable price of
a conventional IC programmer in the customer's view. In addition, the Company
believes that technological improvements in personal computers and design
software tools have caused a shift in the demand for IC design tools by
engineering design teams away from hardware tools in favor of increased software
design tools. These industry changes had, and are continuing to have, an adverse
effect on the Company's IC programmer sales and gross margins, especially
because the Company's products historically have been oriented toward hardware
tools and, within hardware tools, toward higher-priced IC programmers.
Page 25
However, the Company believes that recent changes in programmable IC technology,
such as increasingly complex logic ICs lower voltage requirements and higher pin
counts, and the increasing need for higher quality and high volume programming
by users of programmable ICs means that there is a significant market need for
more sophisticated programmers and automated programming systems. The Company
currently has development projects underway for new programmer and automation
technology to address the needs created by these technology changes.
The Company believes the decline in overall automated handling systems sales and
orders in 1996 were primarily due to the slowdown in capital spending by
electronics manufacturing companies. The Company believes that in the
electronic manufacturing market, the expanded use of programmable integrated
circuits in the mid- to high-volume manufacturing environment and the
proliferation of hard-to-handle surface-mount packages in a variety of types is
causing a worldwide trend toward automation and integration of manufacturing
processes. The Company believes that increased competition, in areas where new
Data I/O product introductions are not scheduled to occur until 1997, such as
the ProMaster 970, is affecting sales. The Company continues to believe that
its product line, as well as the products under development, its worldwide
service capabilities, and technology leadership will keep the Company in a
position to capitalize on the trend toward automation and integration of
manufacturing processes.
The Company believes the sales growth in the Synario Design Automation
Division's software products, including Synario and ECS, is due to greater
market acceptance of Windows based EDA software products as well as continued
product enhancements. Synario is targeted at the change in the industry demand
toward greater usage of software products and at the Company's belief in the
emerging Windows-based EDA market. The Company believes Synario is well
positioned to take advantage of the adoption of the Windows environment by users
of EDA software tools.
Sales growth in the Company's Semiconductor Equipment Division products was due
to having a full year of sales in 1996 after the purchase of Reel-Tech in August
of 1995. Sales for the fourth quarter of 1996 grew 55% compared to the fourth
quarter of 1995. During April of 1996, the Company moved and expanded the
Indianapolis, Indiana factory to provide additional capacity. The Company
believes that a slowdown in capital spending due to overcapacity and price
competition by DRAM semiconductor manufacturers, among Reel-Tech's primary
customers, has slowed the growth of Reel-Tech in recent quarters. The Company
believes that this slowdown has bottomed out, which is supported by Reel-Tech,
Inc. experiencing increased bookings in the fourth quarter.
The Company experienced a small increasedecrease in international sales during 1996 due
to increased sales in Asia, which were partially offset by declininglower sales in Europe due to the slowdown in capital spending by electronics
manufacturing companies in Europe and the negative impact of foreign currency exchange
rate changes.changes, which were partially offset by increased sales in Asia. The
foreign currency exchange rate changes reduced sales by approximately $1.3$1.0
million during 1996 compared to 1995. These declines were due primarily to rate
changes for the German Mark and the Japanese Yen. When the U.S. Dollar is
stronger, sales of the Company's products in local currency translate into fewer
U.S. Dollars. However, offsetting the revenue translation impact is the
translation of local currency costs and expenses.
1995 VS. 1994
Programming Systems Division products experienced year-over-year revenue growth
due primarily to increased sales of automated programming and handling systems
which was partially offset by a decline in sales of the Company's non-automated
programming systems and the Company's older software design tools. The addition
of Semiconductor Equipment Division products, obtained as part of the Reel-Tech
acquisition in August of 1995, also provided incremental sales growth.
The Company experienced decreased sales for the non-automated programming
systems products used primarily in the engineering market. Partially offsetting
this decline was an increase in sales of non-automated parallel programming
systems used in the manufacturing market. The overall decline reflects the
continuing market shift, technology changes and competitive situation discussed
above for 1996. Sales of the Company's Programming Systems Division software
products decreased by 28% in 1995 compared to 1994 which contributed to the
decline in the non-automated programming systems products. The Company's older
software design tools, including ABEL and FutureNet, declined due to competitive
pricing pressures, product aging and the discontinuation of the FutureNet
product.
The Company believes the growth in sales of the Company's automated programming
and handling systems for the manufacturing environment increased due to a trend
toward the expanded use of programmable ICs in high-volume manufacturing
situations. The Company believes this trend is due to a reduction in the cost
of programmable ICs relative to
Page 2620
fixed ICs, the desire of manufacturers to improve the time-to-market for new and
improved products, and the increased functionality and miniaturization of
programmable ICs. A market shift in the ProMaster product mix toward
higher-priced models also contributed to the sales increase. The Company's most
recently introduced products, ProMaster 9500, ProMaster 7500, ProMaster 2500 and
Tape and Reel, provided this growth during 1995.
The Company believes the sales growth in the Synario Design Automation Division
software products, including Synario and ECS, was due to greater market
acceptance of Windows-based EDA software products as well as product
enhancements.
Sales of the Company's Semiconductor Equipment Division products, acquired as
part of the Reel-Tech acquisition, were approximately $625,000. The Company
believes the market for semiconductor equipment experienced strong growth in
1995 as semiconductor manufacturers expanded capacity in response to demand for
ICs.
International sales were favorably impacted by foreign currency translation
which increased sales by approximately $1.3 million in 1995 compared to 1994,
primarily due to rate changes for the German Mark and the Japanese Yen which
strengthened relative to the U.S. Dollar during 1995.
GROSS MARGIN
(in thousands) 1997 Change 1996 Change 1995
- -----------------------------------------------------------------------------------------------------------------------
Gross margin $23,536 2.7% $22,926 (23.9%) $30,110
Percentage of net sales 50.9% 46.9% 52.4%
- -----------------------------------------------------------------------------------------------------------------------
1997 vs. 1996 Change 1995 Change 1994
- --------------------------------------------------------------------------------
Gross margin $29,897 (15.6%) $35,433 7.1% $33,094
Percentage of net sales 49.5% 53.7% 53.8%
- --------------------------------------------------------------------------------
1996 VS. 1995
The gross margin decreasedincreased in Dollars and as a percentage of sales during 19961997
compared to 1995.1996. The decreaseincrease in gross margin is due primarily to less
inventory reserves recorded in 1997, offset by lower volumes and lower product
margins and increases in inventory reserves.1997. The relatively high fixed component of cost of goods sold
causes any swingshift in total volume to have a significant impact on gross margin.
The shift in mix of product revenues from higher-priced and higher-margin
non-automated programming systems to the lower-priced alternatives has lowered
the overall product gross margins. Also contributing to the decline of gross
margin was the strengthening of the U.S. Dollar in relation to the Japanese Yen
and the German Mark, in which approximately 17%21% of the Company's 1997 sales arewere
denominated.
1996 vs. 1995 VS. 1994
The gross margin increaseddecreased in Dollars during 1995 compared to 1994 while staying
approximately the same as a percentage of sales. The increase in gross margin
Dollars is due primarily to the increase in sales volume. The Company
experienced improved gross margins on automated programming and handling system
products in 1995 due to increased volume and a shift toward higher-priced
models. Offsetting this improvement is a shift in the mix of sales of the
Company's non-automated programming systems products from higher-priced,
higher-margined products toward lower-priced alternatives which has lowered the
overall margins for this product line. The shift in the product mix to a lower
overall percentage of software sales, which have higher gross margins, has had
an additional offsetting impact. In addition, the gross margin on the ProMaster
9500 was below that of the Company's traditional automated programming and
handling systems due to higher material and labor costs. Finally, gross margin
was favorably affected by improvements due to the positive currency effects of a
weaker U.S. Dollar.
Page 27
RESEARCH AND DEVELOPMENT
(in thousands) 1996 Change 1995 Change 1994
- --------------------------------------------------------------------------------
Research and development $10,944 20.7% $9,069 (1.7%) $9,227
Percentage of net sales 18.1% 13.7% 15.0%
- --------------------------------------------------------------------------------
1996 VS. 1995
Research and development spending increased both in amount and as a percentage of sales induring 1996
compared to 1995. The decrease in gross margin was due primarily to lower
volumes, lower product margins and increases in inventory reserves in 1996. The
shift in mix of product revenues from higher-priced and higher-margin
non-automated programming systems to the lower-priced alternatives also lowered
the overall product gross margins. Also contributing to the decline of gross
margin was the strengthening of the U.S. Dollar in relation to the Japanese Yen
and the German Mark, in which approximately 18% of the Company's sales were
denominated.
RESEARCH AND DEVELOPMENT
(in thousands) 1997 Change 1996 Change 1995
- -----------------------------------------------------------------------------------------------------------------------
Research and development $7,807 (3.9%) $8,121 23.4% $6,581
Percentage of net sales 16.9% 16.6% 11.5%
- -----------------------------------------------------------------------------------------------------------------------
1997 vs. 1996
Research and development spending increasedecreased in amount but increased as a
percentage of sales in 1997 compared to 1996. The spending decrease is primarily
due to the inclusion of expenses for the Company's Reel-Tech subsidiary acquired in
August of 1995, additional productreduced spending on materials related to development projects including those relatedand open
job positions. The increase as a percentage of sales is due to products slated for introduction in 1997, and additional engineering staff
compensation costs.lower sales
volume. The Company expects to continue its significant investment in research
and development, especially for projects related to planned 19971998 product
introductions.
The Company believes it is essential to invest in research and development to
support its existing products and to create new products as markets develop and
technologies change. The Company is focusing its research and development
efforts in its strategic growth markets, namely new programming technology and
automated handling systems for the manufacturing environment, Windows-based EDA
software design tools and semiconductor handling equipment.environment. The Company
expects to continue this focus in the future and believes that it is essential
to invest in research and development to support its existing products and to
create new products as markets develop and technologies change.
1996 vs. 1995 VS. 1994
Research spending declined slightlyincreased both in Dollars and as a percentage of sales. The
declineincrease was primarily due to additional product development projects, including
those related to products introduced in 1997, and additional engineering staff
compensation costs.
Page 21
SELLING, GENERAL AND ADMINISTRATIVE
(in thousands) 1997 Change 1996 Change 1995
- -----------------------------------------------------------------------------------------------------------------------
Selling, general
and administrative $13,924 (4.8%) $14,618 (7.0%) $15,719
Percentage of net sales 30.1% 29.9% 27.3%
- -----------------------------------------------------------------------------------------------------------------------
1997 vs. 1996
The decrease in selling, general and administrative expenses during 1997 as
compared to 1996 is primarily due to lower personneldecreased costs which relate
primarilyrelated to open job positions during the year. The Company focused its
research and development efforts in 1995 on its strategic growth markets, namely
automated programming and handling systems, Windows-based EDA software design
tools, low-priced project specific IC programmers and semiconductor equipment.
The charge for in-process research and development acquired as part1996 closure
of the August 1995 Reel-Tech acquisitionUK office, decreased travel costs and decreased Dollar costs in the
Company's foreign offices due to the strengthened US Dollar, offset by increased
commissions due to an increased number of $825,000 is not includedsales representatives in researchthe US and
development expense.
SELLING, GENERAL AND ADMINISTRATIVE
(in thousands)Canada.
1996 Change 1995 Change 1994
- --------------------------------------------------------------------------------
Selling, general and
administrative $19,765 (3.2%) $20,411 1.9% $20,032
Percentage of net sales 32.7% 30.9% 32.6%
- --------------------------------------------------------------------------------
1996 VS.vs. 1995
The decrease in selling, general and administrative expenditures during 1996
relative to 1995 iswas primarily due to decreased commissions, incentive
compensation and decreased expenses in the Company's foreign offices, due in
part to currency rate changes.
Partially offsetting this is the inclusion of
expenses for the Company's Reel-Tech subsidiary acquired in August of 1995.
1995 VS. 1994
The actual DollarINTEREST
(in thousands) 1997 Change 1996 Change 1995
- -----------------------------------------------------------------------------------------------------------------------
Interest income $760 281.9% $199 (50.0%) $398
Interest expense $219 (14.5%) $256 (6.2%) $273
- -----------------------------------------------------------------------------------------------------------------------
1997 vs. 1996
Interest income increased during 1997 compared with 1996, primarily due to an
increase in selling, general and administrative expenditures
in 1995 was due to increased marketing and promotion expenditures, increased
commissions resulting from the sales volume increase and increased expenses in
the Company's foreign offices due to currency rate changes. Partially offsetting
this increase were reductions in spendingaverage level of funds available for investment primarily due to
the Company's restructuring
efforts.
Page 28
BUSINESS RESTRUCTURING
During the fourth quarter of 1993, the Company recorded a pretax charge of $6.1
million related to the restructure of its sales and distribution channels,
downsizing its operations to a level consistent with anticipated lower sales and
product margins, and consolidation and outsourcing certain manufacturing
processes. Of the total $6.1 million restructuring charge, the Company paid
approximately $1.5 million in cash in 1993 (including approximately $300,000 of
previously accrued vacation and pension payments), $2.1 million in 1994
(including approximately $200,000 of previously accrued vacation and pension
payments), $855,000 in 1995, $653,000 in 1996 and expects to pay the balance of
approximately $312,000 in 1997. In addition, since inceptionsale of the restructuring, the Company recorded approximately $800,000Company's headquarters property in asset write-downs
related to its restructuring.
During the fourth quarterMay 1997 (see "Sale of
1996, the Company continued its restructuring
activities related to its salesHeadquarters Property") and distribution channels by closing its sales
and service operationa decrease in the United Kingdom. The lease termination, loss on
equipment disposition, severance, and closure expenses of approximately $285,000
were charged to operations. Offsetting this charge was a reversal of certain
amounts provided for in the original restructuring for outsourcing certain
manufacturing processes which will not be used. Other than remaining abandoned
lease obligations which runs out over the next year, the 1993 restructuring has
been completed.
During the fourth quarter of 1995, asset and accrued liability accounts
associated with the plan were adjusted such that the total restructuring costs
were lowered by $400,000 or 7% of the original plan. The restructuring plan
changed, in 1995, primarily as the Company experienced difficulties in
proceeding as planned on outsourcing certain manufacturing processes. The
effect of this in 1995, was a delay in accomplishing portions of the outsourcing
plan, resulting in continued usage of certain production equipment beyond the
time that was originally planned, as well as reductions in originally
contemplated costs.
INTEREST
(in thousands)average investment interest rates.
1996 Change 1995 Change 1994
- --------------------------------------------------------------------------------
Interest income $199 (50.0%) $398 176.4% $144
Interest expense $256 (6.2%) $273 0.0% $273
- --------------------------------------------------------------------------------
1996 VS.vs. 1995
Interest income decreased during 1996 compared with 1995, primarily due to a
decrease in the average level of funds available for investment and a decrease
in the average investment interest rates.
1995 VS. 1994
Net interest income increased in 1995 to $125,000. This increase relates to
increased interest income from investment of higher cash balances and from funds
being invested at higher average interest rates during the year.
INCOME TAXES
(in thousands) 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------
Income tax expense $176 $121 $892
Effective tax rate 3.9% 94.5% 11.2%
- -----------------------------------------------------------------------------------------------------------------------
1997 vs. 1996
Change 1995 Change 1994
- --------------------------------------------------------------------------------
Income tax expense $230 (74.2%) $892 (8.5%) $975
EffectiveThe effective income tax rate 26.4% 15.8% 26.3%
- --------------------------------------------------------------------------------for 1997 differed from the expected provision at
the statutory 35% tax rate primarily due to the reversal of tax valuation
reserves. The adjustments to the valuation reserves were due to an ability to
record a benefit for the offset of reversing temporary differences against 1997
taxable income. See Note 14 of "Notes to Consolidated Financial Statements."
The Company had valuation allowances of $164,000 at December 25, 1997 compared
to $3,238,000 at December 26, 1996 VS.and $2,292,000 at December 28, 1995. The
valuation reserves may increase should the Company incur future losses or
reverse as the Company recognizes income.
Page 22
1996 vs. 1995
The effective income tax rate for 1996 differed from the expected benefitprovision at
the statutory 34% tax rate primarily due to the establishmentaddition of additional tax valuation
reserves. The additionalincrease in valuation reserves werewas due to an inability to record a
benefit for foreign tax credit carryforwards and alternative minimum tax credit
carryforwards as well as the reduced ability to offset reversing temporary
differences against 1995 taxable income after carrying back the 1996 tax loss.
See Note 1114 of "Notes to Consolidated Financial Statements."
Page 29
SALE OF HEADQUARTERS PROPERTY
On May 13, 1997 the Company announced the completion of the sale of land and
building comprising its Redmond, Wash., corporate headquarters and excess land
that had been held for resale for approximately $13.8 million, less net
transaction related expenses and reimbursements of approximately $400,000. The
sale includes a 10 year lease-back of the building to the Company, with an
option to renew the lease for an additional 10 years. The Company had valuation allowancesrealized
approximately $12 million in cash after payment of $3,555,000 at December 26, 1996 compared
to $2,571,000 at December 28, 1995transaction fees and $3,358,000 at December 29, 1994.taxes.
The valuation reserves may increase should the Company continue to experience losses
or reverse as the Company records income. The potential reversalsale resulted in an overall pre-tax gain of these
valuation allowances may significantly reduce the Company's effective tax rate
in 1997.
1995 VS. 1994
The effective income tax rate for 1995 differed from the statutory 34% tax rate
primarily due to reversalapproximately $5.6 million, of
tax valuation reserves established in 1993. The
reversal of valuation reserves was duewhich approximately $2.3 million related to the utilizationexcess land was recognized in
the second quarter of foreign subsidiary
loss carryforwards and alternative minimum tax credit carryforwards as well as1997. The remainder will be amortized over the offsetlife of reversing temporary differences against 1995 taxable income. See
Note 11 of "Notes to Consolidated Financial Statements."
NETthe
lease.
INCOME AND EARNINGS PER SHARE
(in thousands)thousands, except per share data) 1997 1996 Change 1995 Change 1994
- --------------------------------------------------------------------------------
Net:
Income (loss) ($1,101) (123.1%) $4,761 74.7% $2,726from continuing operations $4,386 $7 $7,043
Percentage of net sales (1.8%) 7.2% 4.4%9.5% 0.0% 12.2%
Earnings (loss) per share ($0.16) (126.7%) $0.60 62.2% $0.37from continuing operations
Basic Earnings per share $0.63 $0.00 $0.94
Diluted earnings per share $0.62 $0.00 $0.89
- --------------------------------------------------------------------------------
1997 vs. 1996
VS.The increase in income and earnings per share from continuing operations in 1997
compared with 1996 is primarily due to the sale of the Company's headquarters
property (see "Sale of Headquarters Property"), increased gross margins and
lower operating expenses, offset by a decreased sales volume.
1996 vs. 1995
The decrease in net income and earnings per share from continuing operations in 1996
compared with 1995 is primarily due to a combination of decreased sales volume,
a lower gross margin percentage, increased costs and operating expenses resulting from the Company's
acquisition of Reel-Tech as well as spending on new development projects
and recording of deferred tax valuation reserves.
Page 23
DISCONTINUED OPERATIONS
Semiconductor Equipment Division
In November 1997, the Company sold the assets of its Semiconductor Equipment
Division, Reel-Tech(TM) Inc., to General Scanning Inc., for $15.5 million,
consisting of $12 million in cash, $2 million in common stock of General
Scanning Inc. and $1.5 million in assumed liabilities. The assets of Reel-Tech,
Inc. were purchased by the Company in August 1995. Operating results of the
Semiconductor Equipment Division and the gain on the sale of this segment are as
follows:
(in thousands) 1997 1996 1995
-------- -------- --------
Net Sales (1) $7,640 $3,744 $625
======== ======== ========
Income (loss) from operations before income taxes 926 225 (890)
Income tax expense (109)
-------- -------- --------
Income (loss) from operations 926 116 (890)
-------- -------- --------
Gain on disposal before income taxes 10,422
Income tax expense (2,093)
-------- -------- --------
Gain on disposal 8,329
-------- -------- --------
Total income (loss) on discontinued segment $9,255 $116 ($890)
======== ======== ========
(1) Excludes inter-segment sales to the Programming Systems Division of
$1,876,000 and $322,000 in 1996 and 1995, VS. 1994
The changerespectively.
Synario(R) Design Automation Division
Also in November 1997, the Company entered into a licensing agreement and an
agreement to sell certain assets of its Synario Design Automation Division.
Under this licensing agreement, the Company's Electronic Design Automation (EDA)
products are being integrated and sold with the EDA product line of MINC
Incorporated. This transaction discontinues the Synario Design Automation
Division operations of the Company. However, the Company is entitled to receive
and may realize certain licensing revenues related to its ABEL and ECS products
through December 31, 1999. Also, the Company negotiated a settlement to the OEM
Agreement with Synopsys Inc., which is reflected in the Company's profitability was due primarily to the increased
sales volume, the reversal of a portion of the restructure accrual, reduced
costs and operating expenses resulting from the Company's 1993 restructureloss on disposal.
Operating results and the reversal of deferred tax valuation reserves. Offsetting a portionloss on the disposal of this wassegment are as follows:
(in thousands) 1997 1996 1995
------- ------- -------
Net Sales (1) $7,172 $7,819 $7,910
======= ======= =======
Loss from operations before income taxes (2,088) (1,224) (1,392)
Income tax benefit 730
------- ------- -------
Loss from operations (1,358) (1,224) (1,392)
------- ------- -------
Loss on disposal before income taxes (1,205)
Income tax benefit 422
------- ------- -------
Loss on disposal (783)
------- ------- -------
Total loss on discontinued segment (2,141) (1,224) (1,392)
======= ======= =======
(1) Includes net sales of $851,000 for retained licensing rights recognized
after the charge of $660,000 net of tax for in-process research and development
related to the Reel-Tech acquisition.disposition in 1997.
INFLATION AND CHANGES IN FOREIGN CURRENCY EXCHANGE RATES
In the past,Historically, the Company has been able to offset the impact of inflation
withthrough efficiency increases and price adjustments. Heightened competition has made the
Company's products subject to moreIncreasing price
competition, especially in IC programmers, is currently diminishing and has diminished itsmay
continue to diminish the Company's ability to offset the impacts of inflation.inflation in
the future.
Sales and expenses incurred by foreign subsidiaries are denominated in the
subsidiary's local currency and translated into U.S. Dollar amounts at average
rates of exchange during the year. To date the foreign currency rate changes
have not significantly impacted the Company's profitability. This is because
only
approximately one-quarter25% of the Company's sales are made by foreign subsidiaries and
independent currency fluctuations tend to minimize the translation effect of any
individual currency exchange fluctuations, and the
Page 24
effect of individual rate changes on sales and expenses tend to offset each
other. Additionally, the Company hedges its foreign currency exposure on the sales
of inventory and certain loans to its foreign subsidiaries through the use of
foreign exchange contracts. See Note 1 of "Notes to Consolidated Financial
Statements."
Page 30
FINANCIAL CONDITIONFinancial Condition
LIQUIDITY AND CAPITAL RESOURCES
(in thousands) 1997 Change 1996 Change 1995 Change 1994
- --------------------------------------------------------------------------------
Working capital $33,226 $23,712 $10,054 ($1,951) $12,005
$1,967 $10,038
Total debt $2,000 $395 $1,605 ($12) $1,617 ($323) $1,940
- --------------------------------------------------------------------------------
Working capital decreasedincreased significantly during the 19961997 primarily due to funds
used to
repurchase common stock as discussed above. This decrease was partially offset
by funds provided by operations.received from the sale of the Company's Semiconductor Equipment Division (see
"Discontinued Operations") and the sale of the corporate headquarters property
(see "Sale of Headquarters Property").
The Company's trade accounts receivable related to continuing operations
decreased by approximately $3.3$1.5 million during 1996. This decrease was1997 primarily due to more
successful collections toward year-end and decreased sales volume in 1996.1997. The
Company decreasedincreased its inventory level by $279,000$618,000 during 1996. The Company
had experienced an inventory increase during the first half of 1996,1997, primarily due to
having purchasedthe ProMaster 970 beta units in inventory at year-end 1997. Other current assets
increased $3.3 million in anticipation of a higher sales volume than
occurred, to support anticipated growth in the Semiconductor Equipment products
as well as to provide a level of safety stock during the Anaheim factory
relocation which was completed in March 1996. The Company expects to continue
to reduce its inventories during the next year to better align inventory levels
to the sales volume. Accrued expenses declined compared to the prior year1997 primarily due to decreasedaccounts receivable related to
the Reel-Tech and Synario Design Automation Divisions which were not sold as a
part of the disposals of these divisions in November 1997.
Accounts payable and accrued expenses increased by $4.2 million primarily due to
accrual of additional contingent payments related to the 1995 acquisition of
Reel-Tech, accrued incentive compensation, income taxes payable, and payment of accrued
restructure costs. The use of $3.0 million of cashemployee separation and relocation costs and remaining accounts payable and
accruals related to repurchase 453,300 shares
of Common Stock during 1996 was partially offset by stock sale proceeds of
$747,000 under the Company's employee stock benefit plans.disposed business segments.
As of December 26, 1996,25, 1997, the Company had total debt of $1.6$2.0 million or
approximately 7%6% of its $22.6$34.6 million in equity. Of this total, approximately
$105,000 is current debt, consisting entirely$1.5
million was for the balance of the purchase price of the CAD/CAM Group that was
paid in January 1998 and the balance was borrowings on its foreign line of
credit. The $1.5 million of long-term debt consists of a note due in 1998
for the balance of the purchase price for CAD/CAM (see Note 6 of "Notes to
Consolidated Financial Statements"). At December 26, 1996,25, 1997, the Company also had an unused $8.0 million U.S.
line of credit maturing in May 19971998 under which borrowings would incur interest
at the bank's published prime rate or the LIBOR rate plus 110 basis points.
The foreign line of credit of $1.4$1.3 million matures in November 1997.August 1998. Historically,
this debt and the U.S. line of credit, have been structured as short-term and
have been continuously renewed on their maturity dates. The Company currently expects to be able to
renew these lines of credit on maturity under substantially the same terms as
those presently in place. No assurances can be made, however, in regard to the
renewal of these agreements.
The Company has accrued a $666,000 payment obligation in connection with the
acquisition of Reel-Tech which is expected to be paid during 1997. Additional
contingent acquisition-related payments of $1,334,000 are dependent on future
operating results which may be achieved and become payable in whole or in part
in 1997 or 1998.
The Company estimates that capital expenditures for property, plant and
equipment during 19971998 will be approximately $2.0$2.1 million. Such expenditures are
currently
expected to be funded from internally generated funds and, if necessary,
borrowings from the Company's existing credit lines. Although the Company fully
expects that such expenditures will be made, it has commitments for only a small
portion of these amounts.
At December 26, 1996,25, 1997, the Company's material short-term unused sources of
liquidity consisted of approximately $4.0$33.0 million in cash, and cash equivalents and
marketable securities and available borrowings of $8.0 million under its U.S.
line of credit and approximately $1.3 million$769,000 under its foreign line of credit. The
Company believes these sources and cash flow from operations will be sufficient
during 19971998 to fund working capital needs, service existing debt and finance
planned capital acquisitions, fund the Reel-Tech contingent payment obligations and fund
its remaining restructure accrued liabilities. Additional capital will also be
provided ifacquisitions.
SHARE REPURCHASE PROGRAM
The Company announced on October 27, 1995 a share repurchase program which
authorized the Company successfully disposesto repurchase up to 7.5% (approximately 570,000 shares)
of its Redmond headquarters
property (see Note 4outstanding shares of "Notescommon stock. On February 21, 1996 and May 13, 1997
the Company announced an extension of the share repurchase program which
authorized the Company to Consolidatedrepurchase up to an additional 8% (approximately
570,000 shares) and approximately 14.5% (up to 1,000,000 shares) respectively of
its outstanding common stock. These purchases may be executed through open
market purchases at prevailing market prices,
Page 25
through block purchases or in privately negotiated transactions. Purchases may
commence or be discontinued at any time. As of December 25, 1997, the Company
had repurchased 1,016,200 shares at a total cost of approximately $7.1 million.
General
IMPACT OF YEAR 2000
Some of the Company's older computer programs were written using two digits
rather than four to define the applicable year. As a result, those computer
programs have time-sensitive software that recognize a date using "00" as the
year 1900 rather than the year 2000. This could cause a system failure or
miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoices, or engage
in similar normal business activities.
The Company has completed an assessment of its data processing systems and will
have to modify or replace portions of its software so that its computer systems
will function properly with respect to dates in the year 2000 and thereafter.
The total Year 2000 project cost is estimated at approximately $1 million, which
includes approximately $200,000 for new hardware that will be capitalized and
approximately $800,000 that will be expensed as incurred. As of December 25,
1997, the Company had incurred and expensed approximately $300,000 related to
this project.
The Company believes that the project should be completed by June 30, 1998,
which is prior to any anticipated impact on its operating systems. The Company
believes, based on its current understanding of its systems, that with
modifications to the existing software and conversions to new software, the Year
2000 Issue should not pose significant operational problems for its computer
systems. However, if such modifications and conversions are not properly made,
or are not completed timely, the Year 2000 Issue could have a material impact on
the operations of the Company. The cost of the project and the date on which the
Company believes it will complete the Year 2000 modifications are based on
management's best estimates, which were derived utilizing numerous assumptions
of future events, including the continued availability of certain resources,
cooperation of vendors and other factors. However, there can be no guarantee
that these estimates will be achieved and actual results could differ materially
from those anticipated. Specific factors that might cause such material
differences include, but are not limited to, the availability and cost of
personnel trained in the area, the ability to locate and correct all relevant
computer codes, and similar uncertainties.
Item 7A. Quantitative and Qualitative Disclosure About Market Risk
Not applicable.
Item 8. Financial Statements").
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATAStatements and Supplementary Data
See pages 3227 through 48.44.
Page 3126
- --------------------------------------------------------------------------------
R E P O R T O F E R N S TREPORT OF ERNST & Y O U N G L L P ,
I N D E P E N D E N T A U D I T O R SYOUNG LLP, INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------
To the Board of Directors and Stockholders
Data I/O Corporation
We have audited the accompanying consolidated balance sheets of Data I/O
Corporation as of December 26, 1996,25, 1997, and December 28, 1995,26, 1996, and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the three years in the period ended December 26, 1996.25, 1997. Our audits also
included the financial statement schedule listed in the Index at Item 14(A)14(a).
These financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Data
I/O Corporation at December 26, 1996,25, 1997, and December 28, 1995,26, 1996, and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended December 26, 1996,25, 1997, in conformity with generally
accepted accounting principles. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
/s/ Ernst & Young LLP
Seattle, Washington /s/ ERNST & YOUNG LLP
February 7, 199710, 1998 ERNST & YOUNG LLP
- --------------------------------------------------------------------------------
R E P O R T O F M A N A G E M E N TREPORT OF MANAGEMENT
- --------------------------------------------------------------------------------
The Management of Data I/O Corporation is responsible for preparingthe preparation and
integrity of the Company's consolidated financial statements and related
information that appears in this annual reportAnnual Report on Form 10-K. Management believes
that the financial statements fairly reflect the form and substance of
transactions and reasonably present the Company's financial condition and
results of its operations in conformity with generally accepted accounting
principles. Management has included in the Company's financial statements
amounts that are based on estimates and judgments, which it believes are
reasonable under the circumstances.
The Company maintains a system of internal accounting policies, procedurescontrol which is designed to
safeguard the Company's assets and controls intended to provide reasonable assurance, at appropriate cost,ensure that transactions are executedrecorded in
accordance with Company authorization and are
properly recorded and reported in the financial statements, and that assets are
adequately safeguarded.
Independent audits of the Company's financial statements are performed in
accordance with generally accepted auditing 0standards and provide an objective,
independent review of the fairness of reported financial condition and results
of operations.policies.
The Board of Directors of the Company has an Audit Committee composed of
non-management Directors. The Committee meets with financial management and the
independent auditors to review internal accounting controls and accounting,
auditing and financial reporting matters.
/s/ William C. ErxlebenJAMES J. DAVID /s/ JoelJOEL S. Hatlen
WILLIAM C. ERXLEBENHATLEN
JAMES J. DAVID JOEL S. HATLEN
President Corporate ControllerVice President Finance
Chief ExecutiveFinancial Officer
Chief Accounting OfficerSecretary and Treasurer
Page 3227
DATA I/O CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
Dec. 26, Dec. 28, Dec. 29,
FOR THE YEARS ENDED 1996 1995 1994
- --------------------------------------------------------------------------------
(in thousands, except per share data)
Net sales $60,423 $66,031 $61,478
Cost of goods sold 30,526 30,598 28,384
------- ------- -------
Gross margin 29,897 35,433 33,094
Operating expenses:
Research and development 10,944 9,069 9,227
Selling, general and administrative 19,765 20,411 20,032
Write-off of acquired in-process R&D 825
Provision for business restructuring (400)
------- ------- -------
Total operating expenses 30,709 29,905 29,259
------- ------- -------
Operating income (loss) (812) 5,528 3,835
Non-operating income (expense):
Interest income 199 398 144
Interest expense (258) (273) (278)
------- ------- -------
Total non-operating income (expense) (59) 125 (134)
------- ------- -------
Income (loss) before income taxes (871) 5,653 3,701
Income tax expense 230 892 975
------- ------- -------
Net Income (loss) ($1,101) $4,761 $2,726
------- ------- -------
------- ------- -------
Net income (loss) per share: ($0.16) $0.60 $0.37
------- ------- -------
------- ------- -------
Weighted average common and equivalent
shares outstanding 6,857 7,879 7,420
------- ------- -------
------- ------- -------
==============================================================================================
Dec. 25, Dec. 26, Dec. 28,
FOR THE YEARS ENDED 1997 1996 1995
- ----------------------------------------------------------------------------------------------
(in thousands, except per share data)
Net sales $46,284 $48,860 $57,496
Cost of goods sold 22,748 25,934 27,386
-------- -------- --------
Gross margin 23,536 22,926 30,110
Operating expenses:
Research and development 7,807 8,121 6,581
Selling, general and administrative 13,924 14,618 15,719
-------- -------- --------
Total operating expenses 21,731 22,739 22,300
-------- -------- --------
Operating income 1,805 187 7,810
Non-operating income (expense):
Interest income 760 199 398
Interest expense (219) (256) (273)
Foreign currency exchange (51) (2)
Net gain on dispositions 2,267
-------- -------- --------
Total non-operating income (expense) 2,757 (59) 125
-------- -------- --------
Income from continuing operations
before income taxes 4,562 128 7,935
Income tax expense (176) (121) (892)
-------- -------- --------
Income from continuing operations 4,386 7 7,043
Discontinued operations net of income taxes (Note 2):
Loss from operations, net of income tax benefit (432) (1,108) (2,282)
Gain on disposals, net of income taxes 7,546
-------- -------- --------
Income (loss) from discontinued operations 7,114 (1,108) (2,282)
-------- -------- --------
Net income (loss) $11,500 ($1,101) $4,761
======== ======== ========
Basic earnings (loss) per share:
From continuing operations $0.63 $0.00 $0.94
From discontinued operations 1.03 (0.16) (0.30)
-------- -------- --------
Total basic earnings per share $1.66 $(0.16) $0.64
======== ======== ========
Diluted earnings (loss) per share:
From continuing operations $0.62 $0.00 $0.89
From discontinued operations 1.00 (0.16) (0.29)
-------- -------- --------
Total diluted earnings per share $1.62 $(0.16) $0.60
======== ======== ========
Weighted average shares outstanding 6,909 6,857 7,515
======== ======== ========
Weighted average and potential shares outstanding 7,087 7,035 7,879
======== ======== ========
See notes to consolidated financial statements.
Page 3328
DATA I/O CORPORATION
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
Dec. 26, Dec. 28,
1996 1995
- --------------------------------------------------------------------------------
(in thousands, except share data)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $4,048 $4,496
Trade accounts receivable,
less allowance for doubtful
accounts of $362 and $311 9,796 13,115
Inventories 8,260 8,539
Recoverable income taxes 474
Deferred income taxes 762 976
Other current assets 997 893
--------- ---------
TOTAL CURRENT ASSETS 24,337 28,019
Land held for sale 2,437 2,095
Property, plant and equipment - net 9,430 10,240
Other assets 3,115 4,422
--------- ---------
TOTAL ASSETS $39,319 $44,776
--------- ---------
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $1,906 $2,071
Accrued compensation 2,587 3,612
Deferred revenue 5,494 5,436
Other accrued liabilities 3,102 2,672
Accrued costs of business restructuring 312 965
Income taxes payable 777 1,141
Notes payable 105 117
--------- ---------
TOTAL CURRENT LIABILITIES 14,283 16,014
LONG-TERM DEBT 1,500 1,500
LONG-TERM OTHER PAYABLES 503 1,117
DEFERRED INCOME TAXES 474 216
COMMITMENTS (Note 8)
STOCKHOLDERS' EQUITY:
Preferred stock -
Authorized, 5,000,000 shares, including
200,000 shares of Series A Junior Participating
Issued and outstanding, none
Common stock, at stated value -
Authorized, 30,000,000 shares
Issued and outstanding, 6,777,720
and 7,083,825 shares 15,247 17,528
Retained earnings 6,845 7,946
Currency translation adjustments 467 455
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 22,559 25,929
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $39,319 $44,776
--------- ---------
--------- ---------
- -------------------------------------------------------------------------------------
Dec. 25, Dec. 26,
1997 1996
- -------------------------------------------------------------------------------------
(in thousands, except share data)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $8,113 $4,048
Marketable securities 24,855
Trade accounts receivable, less allowance for
doubtful accounts of $394 and $362 5,678 7,168
Inventories 8,158 7,540
Recoverable income taxes 474
Deferred income taxes 1,990 762
Other current assets 3,910 630
Current assets from discontinued operations 3,715
-------- --------
TOTAL CURRENT ASSETS 52,704 24,337
Land held for sale 2,437
Property, plant and equipment - net 3,389 8,866
Other assets 532 1,016
Deferred income taxes 1,111
Other assets from discontinued operations 2,663
-------- --------
TOTAL ASSETS $57,736 $39,319
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $3,760 $1,606
Accrued compensation 2,958 2,220
Deferred revenue 4,795 4,509
Other accrued liabilities 3,117 2,095
Accrued costs of business restructuring 312
Income taxes payable 2,848 777
Notes payable and current maturities of long-term debt 2,000 105
Current liabilities from discontinued operations 2,659
-------- --------
TOTAL CURRENT LIABILITIES 19,478 14,283
Long-term debt 1,500
Long-term other payables 561 503
Deferred gain on sale of property 3,083
Deferred income taxes 474
-------- --------
TOTAL LIABILITIES 23,122 16,760
COMMITMENTS
STOCKHOLDERS' EQUITY:
Preferred stock -
Authorized, 5,000,000 shares, including
200,000 shares of Series A Junior Participating
Issued and outstanding, none
Common stock, at stated value -
Authorized, 30,000,000 shares
Issued and outstanding, 7,038,786
and 6,777,720 shares 16,412 15,247
Retained earnings 18,345 6,845
Unrealized loss on marketable securities (732)
Cumulative translation adjustment 589 467
-------- --------
TOTAL STOCKHOLDERS' EQUITY 34,614 22,559
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $57,736 $39,319
======== ========
See notes to consolidated financial statements.
Page 3429
DATA I/O CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Dec. 25, Dec. 26, Dec. 28,
Dec. 29,
For the years ended 1997 1996 1995
1994
- --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
(in thousands)
(in thousands)
OPERATING ACTIVITIES:
Net income (loss) ($1,101) $4,761 $2,726Income from continuing operations $4,386 $7 $7,043
Adjustments to reconcile income (loss)from continuing
operations to net cash provided by operating activities:
Depreciation and amortization 3,990 4,285 4,671
Write-off of acquired in-process R&D 825
Income and deferred1,740 2,968 3,503
Net gain on dispositions (2,267)
Deferred income taxes and refunds (365) 39 2,133(459) (129) 120
Deferred revenue 58 184 937
Changes in current items other
than cash and cash equivalents:286 (60) 150
Amortization of deferred gain on sale (213)
Net change in:
Trade accounts receivable 3,370 (1,712) (741)1,547 3,993 (2,378)
Inventories 279 (1,469) 1,345(618) 262 (960)
Other current assets (101) 474 (218)(3,277) (22) 762
Business restructure (312) (653) (925) (1,936)(855)
Accounts payable and accrued liabilities (1,353) (354) 38
------- ------- -------4,185 (1,481) (434)
-------- -------- --------
Cash provided by operating activities of continuing operations 4,998 4,885 6,951
Cash used by operating activities of discontinued operations (3,839) (761) (843)
-------- -------- --------
Net cash provided by operating activities 1,159 4,124 6,108 8,955
INVESTING ACTIVITIES:
Additions to property, plant and equipment (2,311) (2,654) (1,876)
Investment in assets(1,197) (1,819) (2,369)
Net proceeds on sale of acquired business (2,055)property 13,430
Additions to other assets (14) (104)
(53)
------- ------- -------
Cash used forPurchases of marketable securities (45,687)
Proceeds from sales of marketable securities 20,100
Proceeds from sale of discontinued operations 15,525
Net investing activities of discontinued operations (492) (2,340)
-------- -------- --------
Cash provided by (used in) investing activities 2,157 (2,311) (4,813)
(1,929)
FINANCING ACTIVITIES:
Repayment ofAdditions to (repayment of) notes payable 412 (9) (921) (1,931)(351)
Sale of common stock 344 321 333 327
Proceeds from exercise of stock options 824 426 585 160
Repurchase of common stock (3) (3,028) (4,119)
------- ------- -------
Cash used forNet financing activities of discontinued operations (854) (570)
-------- -------- --------
Cash provided by (used in) financing activities 723 (2,290) (4,122)
(1,444)
------- ------- --------------- -------- --------
Increase (decrease) in cash and cash equivalents 4,039 (477) (2,827) 5,582
Effects of exchange rate changes on cash 26 29 44 (7)
Cash and cash equivalents - Beginningat beginning of year 4,048 4,496 7,279
1,704
------- ------- -------======== ======== ========
Cash and cash equivalents - Endat end of year $8,113 $4,048 $4,496
$7,279
------- ------- -------
------- ------- -------======== ======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $152 $120 $121
$255
Income taxes $1,748 $564 $923 $405
See notes to consolidated financial statements.
Page 3530
DATA I/O CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
- -------------------------------------------------------------------------------------------------
CurrencyUnrealized
Common Stock Loss on Cumulative
---------------------------- Retained Marketable Translation
Shares Amount Earnings Securities Adjustment
----------- ----------- ----------- ----------- -----------
(in thousands, except share data)
- -------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 30, 1993 7,250,036 $20,242 $459 $482
Net income 2,726
Stock options exercised 44,875 160
Issuance of stock through
Employee Stock Purchase Plan 136,990 327
Currency translation adjustment, net of
tax of $27 (53)
--------- --------- --------- ---------
BALANCE AT DECEMBER
Balance at December 29, 1994 7,431,901 20,729 3,185 429$20,729 $3,185 $429
Net income 4,761
Stock options exercised 118,125 585
Issuance of stock through
Employee Stock Purchase Plan 96,199 333
RepurchasePurchase of Common Stock (562,400) (4,119)
CurrencyCumulative translation adjustment net of
tax benefit of $2 26
--------- --------- --------- ---------
BALANCE AT DECEMBER----------- ----------- ----------- ----------- -----------
Balance at December 28, 1995 7,083,825 17,528 7,946 455
Net Lossloss (1,101)
Stock options exercised 81,500 426
Issuance of stock through
Employee Stock Purchase Plan 65,695 321
RepurchasePurchase of Common Stock (453,300) (3,028)
CurrencyCumulative translation adjustment net of
tax of $6 12
--------- --------- --------- ---------
BALANCE AT DECEMBER----------- ----------- ----------- ----------- -----------
Balance at December 26, 1996 6,777,720 $15,247 $6,845 $467
--------- --------- --------- ---------
--------- --------- --------- ---------15,247 6,845 467
Net income 11,500
Stock options exercised 168,125 735
Issuance of stock through Directors Fee Plan 13,508 89
Issuance of stock through
Employee Stock Purchase Plan 79,933 344
Purchase of Common Stock (500) (3)
Unrealized loss on marketable
securities ($732)
Cumulative translation adjustment 122
----------- ----------- ----------- ----------- -----------
Balance at December 25, 1997 7,038,786 $16,412 $18,345 ($732) $589
=========== =========== =========== =========== ===========
See notes to consolidated financial statements.
Page 3631
DATA I/O CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NATURENOTE 1 - SUMMARY OF OPERATIONSSIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
Data I/O Corporation (the "Company") manufactures hardware and software products for users of
programmable integrated circuits, and manufactures equipment used
by integrated circuit manufacturers.circuits. The Company's principal customers use the
Company's programming systems and software programs to design and manufacture electronic equipment for
industrial, commercial and military applications. The
Company also sells its semiconductor equipment products to semiconductor
manufacturers. Customers for the Company's
programming systems, software and
semiconductor equipmentsystem products are located around the world, primarily in the
United States, Europe and the Far East. All of the Company's manufacturing
operations are located in the United States. NOTE 1During 1997 the Company disposed of
its Semiconductor Equipment and Synario Design Automation Divisions, which
removed Electronic Design Software (EDA) software products and semiconductor
equipment products from the Company's product offerings. See Note 2 -
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATIONDiscontinued Operations.
Principles of Consolidation
The consolidated financial statements include the accounts of Data I/O
Corporation and its wholly owned subsidiaries. The consolidated financial
statements include the results of operations of Reel-Tech, Inc. since the
acquisition of this business on August 31, 1995. All significant intercompany
accounts and transactions have been eliminated in consolidation.
REPORTING PERIODReporting Period
The Company reports on a fifty-two, fifty-three week basis. Results of
operations for 1997, 1996 1995 and 19941995 are for fifty-two week periods.
USE OF ESTIMATESUse of Estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
STOCK-BASED COMPENSATIONStock-Based Compensation
The Company grantshas elected to apply the disclosure-only provisions of the Statement
of Financial Accounting Standards (SFAS) No. 123, Accounting for Stock Based
Compensation. Accordingly, the Company accounts for stock-based compensation
using the intrinsic value method prescribed in Accounting Principles Board
Opinion (APB) No. 25, Accounting for Stock Issued to Employees, and related
interpretations. Compensation cost for stock options for a fixed numberis measured as the excess,
if any, of shares to employees with
an exercise price equal to the fair value of the sharesCompany's Common Stock at the date of grant.
The Company accounts forthe grant
over the stock option grants in accordance with APB Opinion No.
25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES. Accordingly, the Company
recognizes no compensation expense for its stock option grants.
FOREIGN CURRENCY TRANSLATIONprice.
Foreign Currency Translation
Assets and liabilities denominated in foreign currencies are translated at the
exchange rate on the balance sheet date. Revenues, costs and expenses are
translated at average rates of exchange prevailing during the year. Translation
adjustments resulting from this process are charged or credited to stockholders'
equity, net of taxes. Realized and unrealized gains and losses on foreign
currency transactions are included in non-operating expense as Foreign Currency
Exchange.
In an effort to minimize the effect of exchange rate fluctuations on the results
of its operations, the Company hedges certain portions of its foreign currency
exposure through the use of forward exchange contracts, none of which are
speculative. At December 26, 1996,25, 1997, the Company had approximately $1,040,000$375,000 in
foreign exchange contracts outstanding, with the contract exchange rates being
approximately equal to the market exchange rates. These contract terms range
from 7 to 9060 days.
Page 3732
CASH AND CASH EQUIVALENTSCash and Cash Equivalents
Cash and cash equivalents are highly liquid investments with insignificant
interest rate risk. The Company invests in the highest grade commercial paper
with original maturities of three months or less and conservative money market
funds. Interest earned is reported in non-operating income (expense) as interest income.
Marketable Securities
Marketable securities are primarily money market funds and high-grade commercial
paper, all of which are classified as available-for-sale and recorded at fair
value, as defined below. Unrealized holding gains and losses are recorded, net
of any tax effect, as a component of stockholders' equity. Interest Income.
INVENTORIESearned is
reported in non-operating income as interest income. Marketable securities are
classified in the balance sheet as current and noncurrent based on maturity
dates and the Company's expectation of sales and redemptions in the following
year.
Fair value of Financial Instruments
The carrying value of cash, cash equivalents and marketable securities
approximates fair value because of the short-term maturity of those instruments.
The fair value of the Company's marketable securities is based upon the quoted
market price on the last business day of the fiscal year plus accrued interest,
if any.
Inventories
Inventories are stated at the lower of cost or market. Cost is computed on amarket with cost being the
currently adjusted standard basis,cost, which approximates actual cost on an average
or first-in/a first-in,
first-out basis.
PROPERTY, PLANT AND EQUIPMENTProperty, Plant and Equipment
Property, plant and equipment, isincluding leasehold improvements, are stated at
cost and depreciated usingdepreciation is calculated over the
straight-line method over estimated useful lives as follows:
Building 40 years
Equipment 3 to 7 years
Leasehold improvements Lesser of the
related assets or lease term or estimated useful life
REVENUE RECOGNITIONterms on the straight-line basis.
Revenue Recognition
Revenue from product sales is recognized at the time of shipment or customer
acceptance, if an acceptance clause is specified in the sales terms. Revenue
from software products licensed to original equipment manufacturers is
recognized when earned per the terms of the contracts. Revenue from the sale of
service and update contracts is recorded as deferred revenue and recognized as
earned revenue on a
straight-line basis over the contractual period.
RESEARCH AND DEVELOPMENTResearch and Development
Research and development costs are expensed as incurred. No software development
costs have been capitalized due to immateriality.
ADVERTISING EXPENSEAdvertising Expense
The Company expenses advertising costs as incurred. Total advertising expenses
related to continuing operations were $2,409,000, $2,261,000,$1,676,000, $2,052,000, and $1,771,000$1,663,000 in
1997, 1996 and 1995, and 1994, respectively.
WARRANTY EXPENSEWarranty Expense
The Company warrants its products against defects for periods ranging from
ninety days to one year. The Company provides currently for the estimated cost which may
be incurred under its product warranties.
INCOME TAXESPage 33
Income Taxes
Income tax expense includes U.S., state and foreign income taxes. Certain items
of income and expense are not reported in both the tax returns and financial
statements in the same year. The Company uses the liability method of accountingaccounts for income taxes under which deferred taxes are provided for the
temporary
differences betweenliability method. Under the financial reporting basis and the tax basis of the
Company's assets and liabilities. Theseliability method, deferred tax assets and
liabilities are determined based on differences between financial reporting and
tax bases of assets and liabilities, and are measured byusing the provisions of currently enacted tax
laws.
Page 38
EARNINGS PER SHARE
The Company calculatesrates and reports earnings per share based onlaws that will be in effect when the weighted
average commondifferences are expected to
reverse. Valuation allowances are established when necessary to reduce deferred
tax assets to the amounts expected to be realized.
Earnings Per Share
In 1997, the Financial Accounting Standards Board issued SFAS No. 128, Earnings
Per Share. SFAS 128 replaced the calculation of primary and common stock equivalent shares outstanding during the period
(using the treasury stock method). Common stock equivalents which are
antidilutive are not considered. Stock options are common stock equivalents.
Fullyfully diluted
earnings per share approximateswith basic and diluted earnings per share. Unlike primary
earnings per share, basic earnings per share excludes any dilutive effects of
options, warrants and convertible securities. Diluted earnings per share is very
similar to the previously reported fully diluted earnings per share. On February 21, 1996,All
earnings per share amounts for all periods presented have been restated to
conform to the Company's BoardSFAS 128 requirements and such effects were not material.
Diversification of Directors extended the Share
Repurchase Program. This extension authorizes the repurchase of up to an
additional 8% (approximately 570,000 shares) of the Company's outstanding common
stock through open market purchases at prevailing market prices or through block
purchases or through privately negotiated transactions. During 1996, the
Company repurchased 453,300 shares of its common stock under a Share Repurchase
Program. Purchases may commence or be discontinued at any time and the Board of
Directors may withdraw this authorization at any time.
DIVERSIFICATION OF CREDIT RISKCredit Risk
Financial instruments which potentially subject the Company to concentrations of
credit risk consist primarily of trade receivables. The Company's cash, cash
equivalents and marketable securities consist of high quality financial
instruments. The Company's trade receivables are geographically dispersed and
include customers in many different industries. Management believes that any
risk of loss is significantly reduced due to the diversity of its end-customers
and geographic sales areas. The Company performs on-going credit evaluations of
its customers' financial condition and requires collateral, such as letters of
credit and bank guarantees, whenever deemed necessary.
RECLASSIFICATIONSReclassifications
Certain prior years' balances have been reclassified to conform to the current
year presentation.
Recently Issued Accounting Pronouncements
The FASB issued SFAS 130, Reporting Comprehensive Income and SFAS 131,
Disclosures About Segments of an Enterprise and Related Information. SFAS 130
established standards for reporting comprehensive income in annual and interim
financial statements. SFAS 131 establishes standards for the way that public
business enterprises report information about operating segments in annual
financial statements and requires that those enterprises report selected
information about operating segments in interim financial reports issued to
shareholders. It also establishes standards for related disclosures about
products and services, geographic areas, and major customers. The Company will
adopt SFAS 130 and 131 in 1998 and does not anticipate any impact on the
Company's consolidated results of operations, financial position or cash flows.
NOTE 2 - DISCONTINUED OPERATIONS
In November 1997, the Company sold the assets of its Semiconductor Equipment
Division, Reel-Tech(TM) Inc., to General Scanning Inc., for $15.5 million,
consisting of $12 million in cash, $2 million in stock and $1.5 million in
assumed liabilities. The consolidated financial statements include the results
of operations of Reel-Tech, Inc. since the acquisition of this business on
August 31, 1995. Also in November 1997, the Company entered into a licensing
agreement and an agreement to sell certain assets of its Synario(R) Design
Automation Division. Under this licensing agreement, the Company's Electronic
Design Automation (EDA) products are being integrated and sold with the EDA
product line of MINC Incorporated. This transaction discontinues the Synario
Design Automation Division operations of the Company. However, the Company is
entitled to receive and may realize certain licensing revenues related to its
ABEL and ECS products through December 31, 1999.
Page 34
The income from operations of these discontinued segments have been accounted
for as discontinued operations, and accordingly, their operations are segregated
in the accompanying statements of operations. Operating results of the
discontinued segments and the gain on the sale of these segments are as follows:
Semiconductor Equipment Division
- --------------------------------
(in thousands) 1997 1996 1995
----------- ---------- -----------
Net sales (1) $7,640 $3,744 $625
=========== ========== ===========
Income (loss) from operations before income taxes 926 225 (890)
Income tax expense (109)
----------- ---------- -----------
Income (loss) from operations 926 116 (890)
----------- ---------- -----------
Gain on disposal before income taxes 10,422
Income tax expense (2,093)
----------- ---------- -----------
Gain on disposal 8,329
----------- ---------- -----------
Total income (loss) from discontinued segment $9,255 $116 ($890)
=========== ========== ===========
(1) Excludes inter-segment sales to the Programming Systems Division of
$1,876,000 and $322,000 in 1996 and 1995, respectively.
Synario Design Automation Division
- ----------------------------------
(in thousands) 1997 1996 (2) 1995 (2)
----------- ---------- -----------
Net sales (1) $7,172 $7,819 $7,910
=========== ========== ===========
Loss from operations before income taxes (2,088) (1,224) (1,392)
Income tax benefit 730
----------- ---------- -----------
Loss from operations (1,358) (1,224) (1,392)
----------- ---------- -----------
Loss on disposal before income taxes (1,205)
Income tax benefit 422
----------- ---------- -----------
Loss on disposal (783)
----------- ---------- -----------
Total loss from discontinued segment (2,141) (1,224) (1,392)
=========== ========== ===========
(1) Includes net sales of $851,000 for retained licensing rights recognized
after the disposition in 1997.
(2) Includes sales and operations of the ABEL product which was previously
reported as part of the Programming Systems Division.
The disposition transactions of these segments were completed prior to December
25, 1997. The Company retained the existing trade accounts receivable and
certain liabilities related to the disposed segments, which are classified as
other current assets and other current liabilities in the Consolidated Balance
Sheet at December 25, 1997. The components of assets and liabilities of these
discontinued segments included in the Consolidated Balance Sheet at December 26,
1996, are as follows:
(in thousands)
Trade accounts receivable $2,628
Inventory 720
Other current assets 367
------------
Total current assets 3,715
------------
Properties, plant and equipment, net 564
Other assets 2,099
------------
Total assets 6,378
------------
Accounts payable and accrued expenses 1,674
Deferred revenue 985
------------
Total current liabilities 2,659
------------
Net assets of discontinued operations $3,719
============
Page 35
NOTE 3 - PROVISION FOR BUSINESS RESTRUCTURING
During the fourth quarter of 1993, the Company recorded a pretax charge of $6.1
million related to the restructure of its sales and distribution channels,
downsizing its operations to a level consistent with anticipated lower sales and
product margins, and consolidation and outsourcing of certain manufacturing
processes. Of the total $6.1 million restructuring charge, the Company paid
approximately $1.5 million in cash in 1993, (including approximately $300,000 of
previously accrued vacation and pension payments), $2.1 million in 1994,
(including approximately $200,000 of previously accrued vacation and pension
payments), $855,000 in
1995, $653,000 in 1996 and expects to pay the balance of
approximately $312,000 in 1997. In addition, since inception of the
restructuring, the Company recorded approximately $800,000 in asset write-downs
related to its restructuring.
DuringNOTE 4 - MARKETABLE SECURITIES
Marketable securities as of December 25, 1997 consist of the fourth quarterfollowing (in
thousands):
Unrealized Unrealized Estimated
Cost Gains Losses Fair Value
------------ ------------- ------------ --------------
Corporate bonds $2,774 $2,774
Medium- and short-term notes 2,934 2,934
Euro-dollar bonds 16,629 16,629
Taxable auction securities 500 500
General Scanning Inc. common stock 2,000 ($732) 1,268
Cash held in escrow 750 750
------------ ------------- ------------ --------------
$25,587 ($732) $24,855
============ ============= ============ ==============
Certain of 1996,the bonds, notes and securities held have maturity dates beyond one
year. However, the Company continued its restructuring
activities related to its salesdoes not anticipate holding these investments for
more than one year and distribution channels by closing its sales
and service operationhave therefore classified them all as short-term,
available-for-sale investments as of December 25, 1997.
The Company received 75,118 shares of General Scanning Inc. common stock as
consideration in the United Kingdom. The lease termination,sale of the assets of the Company's Semiconductor Equipment
Division in November 1997 (see Note 2 - Discontinued Operations). As of December
25, 1997, the market value of the General Scanning Inc. common stock had
decreased. This unrealized loss on
equipment disposition, severance, and closure expenses of approximately $285,000
were charged to operations. Offsetting this charge was a reversal of certain
amounts provided for in the original restructuring for outsourcing certain
manufacturing processes which will not be used. Other than remaining abandoned
lease obligations which runs out over the next year, the 1993 restructuring has been completed.
During the fourth quarterreported as a separate component of
1995, asset and accrued liability accounts
associatedshareholders equity, net of tax. Also in connection with the plan were adjusted such that the total restructuring costs
were lowered by $400,000 or 7%Company's sale of
the original plan. The restructuring plan
changed, in 1995, primarily as the Company experienced difficulties in
proceeding as planned on outsourcing certain manufacturing processes. The
effectassets of this in 1995, was a delay in accomplishing portionsits Semiconductor Equipment Division, $750,000 of the outsourcing
plan, resultingproceeds
were placed in continued usageescrow for a period of certain production equipment beyondone year after the time that was originally planned, as well as reductions in originally
contemplated costs.
Page 39
transaction date.
NOTE 35 - INVENTORIES
InventoriesNet inventories consisted of the following components (in thousands):
Dec. 25, Dec. 26,
Dec. 28,1997 1996
1995
------------ ------------------------------ -----------------
Raw material $3,947 $4,839$2,965 $3,523
Work-in-process 2,480 2,1252,470 2,184
Finished goods 2,723 1,833
1,575
------------ ------------
$8,260 $8,539
------------ ------------
------------ ------------------------------
=================
$8,158 $7,540
================== =================
Page 36
NOTE 46 - LAND HELD FOR SALE The Company owns 79.4 acres of land at its headquarters site in Redmond,
Washington, which it purchased in various parcels between 1979 and 1986. In
1990, the Company decided to market and sell excess land which was then
reclassified to Land Held for Sale in the Company's financial statements. In
order to enhance the property's marketability, the Company listed its entire
Redmond headquarters property as available for sale with long-term lease back
provisions on the building in 1995.OF LAND
The Company announced on July 18, 1996 that
it had entered into an agreement to sellMay 13, 1997, the sale of the land and building
comprising its Redmond, Washington, corporate headquarters property for $13.8 million,
less net transaction related expenses and reimbursements of approximately
$14 million and enter into$400,000. The sale includes a ten10 year lease back arrangement forlease-back of the building to the Company,
with optionsan option to renew the lease for an additional ten10 years. Closing of the sale is
subject to a number of conditions and contingencies.
The Company has granted an
extension of the due diligence period to April 20, 1997, subject to certain
payments from the buyer. If consummated, this sale is expected to result in a
pre-tax gain of approximately $5.8 million. Approximately $2.0 million of this
gain would be recognized on the closing of the sale, with the balance amortized
over the initial ten-year lease term. The Company expects to realize
approximatelyrealized $12 million in cash after payment of transaction fees and
income
taxes. The sale represents an overall pre-tax gain to the Company of $5.6
million. Of this amount, $2.3 million was recognized in 1997 with the remainder
to be amortized over the life of the lease.
NOTE 57 - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following components (in
thousands):
Dec. 25, Dec. 26,
Dec. 28,1997 1996
1995
------------ --------------------------- ---------------
Land $ 910 $ 910
Building and improvements 7,605$ 83 7,539
Equipment 21,554 22,329
------------ ------------
30,069 30,77821,493 20,372
--------------- ---------------
21,576 28,821
Less accumulated depreciation 20,639 20,538
------------ ------------18,187 19,955
--------------- ===============
Property, plant and equipment - net $9,430 $10,240
------------ ------------
------------ ------------$3,389 $8,866
=============== ===============
NOTE 68 - OTHER ASSETS
Other assets consisted of the following components (in thousands):
Dec. 25, Dec. 26,
Dec. 28,1997 1996
1995
------------ --------------------------- ---------------
Long-term lease deposits $ 234220 $ 262234
Investment in product lines 8,629 8,629
------------ ------------
8,863 8,8913,749 3,749
--------------- ---------------
3,969 3,983
Less accumulated amortization 5,748 4,469
------------ ------------3,437 2,967
--------------- ===============
Other assets - net $3,115 $4,422
------------ ------------
------------ ------------$532 $1,016
=============== ===============
Total amortization recorded for 1996, 1995 and 1994 was $1,279,000, $1,324,000
and $1,399,000, respectively.
Page 40
INVESTMENT IN PRODUCT LINES
The Company's investment in product lines includes intangible assets, the value
of which are dependent upon future technological trends. The Company amortizes
these intangible assets over their estimated useful lives. However, there is no
assurance that the actual lives will not materially differ from their estimated
useful lives. Periodically, the Company assesses and would adjust, if deemed
appropriate, the carrying value and the estimated lives of its investment in
product lines.
REEL-TECH, INC.
On August 31, 1995, the Company acquired the assets of Reel-Tech, Inc.
(Reel-Tech) of Indianapolis, Indiana, and entered into employment and
non-compete agreements with its two founding technologists. The purchase price
for the assets of Reel-Tech included an initial cash payment of $2.0 million and
the assumption of certain liabilities of approximately $1.2 million. The
Company has agreed to make additional payments of up to a maximum of $2.0
million over the next three years, with these payments contingent upon the
acquired operation achieving specified performance goals.
The transaction was accounted for using the purchase method of accounting based
upon an independent appraisal. In addition to the initial cash payment, the
Company accrued a $666,000 payment obligation. The remaining payments of
$1,334,000 are considered contingent as they are dependent on future operating
results and would result in a charge to earnings at the time a determination is
made that the payments are probable. The Company recorded approximately $1.3
million of tangible assets consisting of approximately $1.2 million of trade
receivables and approximately $100,000 of inventories. As part of the purchase
price allocation, intangible assets of approximately $1.7 million were recorded,
consisting of established technology, customer base, workforce and
non-competition agreements which are being amortized over their estimated useful
lives of five to seven years. In addition, the Company recorded a charge in the
third quarter of 1995 of $825,000 relating to that portion of the purchase price
representing the estimated fair value of in-process research and development.
The net book value of the assets capitalized in Other Assets related to this
acquisition was approximately $1.4 million and $1.7 million at December 26,1997, 1996 and December 28, 1995 was $470,000, $475,000 and
$669,000, respectively.
CAD/CAM GROUP, INC.
On January 19, 1993, the Company acquired substantially all of the assets of
CAD/CAM Group, Inc. and entered into non-compete agreements with its two
founding technologists. The acquisition was accounted for under the purchase
method of accounting. Of the total purchase price of $3.0 million to be paid to
CAD/CAM Group, Inc. and its two founding technologists, $1.5 million was paid
during 1993 and the balance plus accrued interest payable at the U.S. Treasury
Bill rate is payable in 1998. Of the total consideration, approximately $2.9
million plus approximately $200,000 of transaction costs were allocated to
various identifiable intangible assets. These are reported in the accompanying
balance sheet as Other Assets and are being amortized ratably over the economic
life of the specific assets acquired (two to eight years). The net book value
of the assets capitalized in Other Assets related to this acquisition was
$700,000 and $1.2 million at December 26, 1996 and December 28, 1995,
respectively.
QUALITY AUTOMATION, INC.Investment In Product Lines: Quality Automation
On September 25, 1992, the Company exercised options acquired in 1990 to
purchase the assets, technology and rights in the products of Quality Automation
Inc., and Q.A. Engineering, Inc. (both herein combined and referred to as
"Quality Automation" or "QA"). Of the total acquisition cost, approximately $3.8
million of various identifiable intangible assets were reported as Other Assets
in the accompanying balance sheets and are being amortized ratably over the
economic life of the specific assets acquired (three to five years). The net
book value of the assets capitalized in Other Assets related to this acquisition
is $310,000 and $780,000 at December 25, 1997, and $1.3 million at December 26, 1996,
and December 28,
1995, respectively.
Page 37
NOTE 79 - NOTES PAYABLE AND LONG-TERM DEBT
Notes payable as of December 26, 199625, 1997 and December 28, 199526, 1996 consisted of
borrowings under a $1.4$1.3 million unsecured foreign revolving line of credit
maturing in November 19971998 with variable interest rates of 1.8% to 4.0%3.5% and
weighted-average interest rates of 2.4% and 1.8% at December 25, 1997 and 3.1% at
December 26, 1996, respectively.
Current maturities of long-term debt and December 28, 1995, respectively.
Long termlong-term debt as of December 25, 1997
and December 26, 1996 and December 28, 1995 relatedrelate to an unsecured note payable to the CAD/CAM Group, Inc. for $1.5 million,
maturing in
fullwhich matured and was repaid on January 19, 1998, with variable interest rates
based on one-year U.S. Treasury Bills (5.54%(5.4% at December 25, 1997 and 5.5% at
December 26, 1996 and 5.15% at December 28, 1995)1996).
Page 41
The Company also has a U.S. unsecured revolving line of credit of $8 million
maturing May 31, 19971998 with variable interest rates of the lender's prime rate or
LIBOR plus 1.1% at the Company's option.
Historically, the U.S. and foreign lines of credit have been structured as
short-term and have been continuously renewed on their maturity dates. The
Company anticipates renewing these lines of credit in 19971998 under substantially
the same terms. No assurance can be made, however, in regard to the renewal of
these agreements if the Company again experiences losses.
NOTE 810 - COMMITMENTS
The Company has commitments under non-cancelable operating leases and other
agreements, primarily for factory and office space, with initial or remaining
terms of one year or more as follows (in thousands):
1997 $428
1998 374$1,435
1999 1401,233
2000 931,183
2001 231,167
2002 1,244
Thereafter 05,032
Lease and rental expense was $890,000, $977,000,$1,060,000, $809,000, and $1,169,000$967,000 in 1997, 1996
1995
and 1994,1995, respectively. The Company has renewal options on substantially all of
its major leases.
In January of 1997, the Company made a commitment to purchase approximately $1.4
million of product, after initial product acceptance by the Company, with
payments scheduled to be completed by approximately the middle of 1998.
NOTE 911 - STOCK AND RETIREMENT PLANS
STOCK OPTION PLANSStock Option Plans
At December 26, 1996,25, 1997, there were 966,2501,058,250 shares of common stock reserved for
issuance and 141,250 shares available for future grant under the Company's
employee stock option plans. Pursuant to these plans, options are granted to
officers and key employees of the Company with exercise prices equal to the fair
market value of the common stock at the date of grant and generally vest over
four years. Options granted under the plans have a maximum termination date of
six years from the date of grant.
EMPLOYEE STOCK PURCHASE PLANEmployee Stock Purchase Plan
Under the Employee Stock Purchase Plan, eligible employees may purchase shares
of the Company's common stock at six-month intervals at 85% of the lower of the
fair market value on the first or the last day of each six-month period.
Employees may purchase shares having a value not exceeding 10% of their gross
compensation during an offering period. During 1997, 1996 1995 and 1994,1995, a total of
79,933, 65,695 96,199 and 136,99096,199 shares were purchased under the plan at average prices
of $5.10,$4.30, $4.88 and $3.46 and $2.39 per share, respectively. At December 26, 1996,25, 1997, a total
of 484,745404,812 shares were reserved for future issuance.
STOCK APPRECIATION RIGHTS PLANStock Appreciation Rights Plan
The Company has a Stock Appreciation Rights Plan ("SAR") under which each
director, executive officer or holder of 10% or more of the Company's common
stock has a SAR with respect to each exercisable stock option. The SAR entitles
the SAR holder to receive cash from the Company for the difference between the
market value of the stock and the exercise price of the option in lieu of
exercising the related option. SARs are only exercisable following a tender
offer or exchange offer for the Company's stock, or following approval by
stockholders of the Company of any merger, consolidation, reorganization or
other transaction providing for the conversion or exchange of more than 50% of
the common shares outstanding. As no event
Page 38
has occurred which would make the SARs exercisable, no compensation expense has
been recorded under this plan.
RETIREMENT SAVINGS PLANRetirement Savings Plan
The Company has a savings plan that qualifies as a cash or deferred salary
arrangement under Section 401(k) of the Internal Revenue Code. Under the plan,
participating U.S. employees may defer up to 17% of their pre-tax salary,
but no
more than approximately $9,500 per plan year.subject to the annual IRS limitation. In fiscal years 1997, 1996 1995 and 1994,1995, the
Company contributed one Dollar for each Dollar contributed by a participant,
with a maximum contribution of 4% of a participant's earnings. The Company's
matching Page 42
contribution expense for the savings plan was approximately $432,000,
$478,000 $455,000and$455,000 in 1997, 1996 and $384,000 in 1996, 1995, and 1994, respectively.
DIRECTOR FEE PLANDirector Fee Plan
The Company has a Director Fee Plan which provides for the payment of the annual
retainer fees to directors who are not employees of Data I/O Corporation by
delivery of shares of the Company's common stock. The number of shares is
determined by dividing the fee by the share price on the first trading day of
the year or as of the date such Director is elected to the Board of Directors. A
total of 200,000 shares were authorized in 1996 for the plan,plan. During 1997 a
total of which 13,508 shares were issued at a weighted-average price of $6.58 will be issued in 1997 for fees
related to 1996.1996, and during 1998 a total of 20,932 shares will be issued at a
weighted-average price of $5.13 for fees related to 1997. Compensation expense
recorded in 1997 and 1996 related to these shares was approximately $89,000.$107,000 and
$89,000, respectively.
Share Repurchase Program
On May 13, 1997 the Company's Board of Directors extended the Share Repurchase
Program. This extension authorizes the repurchase of up to an additional 14.5%
(approximately 1,000,000 shares) of the Company's outstanding common stock
through open market purchases at prevailing market prices or through block
purchases or through privately negotiated transactions. During 1997, the Company
repurchased 500 shares of its common stock under the Share Repurchase Program.
Purchases may commence or be discontinued at any time and the Board of Directors
may withdraw this authorization at any time.
NOTE 1012 - EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per
share (in thousands except per share data):
1997 1996 1995
---------- ---------- ----------
Numerator for basic and diluted earnings per share:
Income from continuing operations $4,386 $7 $7,043
Income (loss) from discontinued operations 7,114 (1,108) (2,282)
========== ========== ==========
Net income (loss) $11,500 ($1,101) $4,761
========== ========== ==========
Denominator:
Denominator for basic earnings per share -
weighted-average shares 6,909 6,857 7,515
Employee stock options (1) 178 178 364
---------- ---------- ----------
Denominator for diluted earnings per share -
adjusted weighted-average shares and
assumed conversions 7,087 7,035 7,879
========== ========== ==========
Basic earnings (loss) per share
From continuing operations $0.63 $0.00 $0.94
From discontinued operations 1.03 (0.16) (0.30)
---------- ---------- ----------
Total basic earnings per share $1.66 ($0.16) $0.64
========== ========== ==========
Diluted earnings (loss) per share
From continuing operations $0.62 $0.00 $0.89
From discontinued operations 1.00 (0.16) (0.29)
---------- ---------- ----------
Total diluted earnings per share $1.62 ($0.16) $0.60
========== ========== ==========
(1) Excludes employee stock options which were antidilutive of 71,000, 374,000,
and 249,000 in 1997, 1996 and 1995, respectively.
Page 39
NOTE 13 - STOCK-BASED COMPENSATION
The Company has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB 25) and related Interpretations
in accounting for its employee stock options because, as discussed below, the
alternative fair value accounting provided for under FASB Statement No. 123,
"Accounting for Stock-Based Compensation requires the use of option valuation
models that were not developed for use in valuing employee stock options. Under
APB 25, because the exercise price of the Company's employee stock options
equals the market price of the underlying stock on the date of grant, no
compensation expense is recognized.
Pro forma information regarding net income and earnings per share is required by
Statement 123, and has been determined as if the Company had accounted for its
employee stock options, employee stock purchase plan options and directors fee
shares under the fair value method of that Statement. The fair value for these
options was estimated at the date of grant using a Black-Scholes option pricing
model with the following weighted average assumptions:
Employee Stock Employee Stock Director
Options Purchase Plan Options Fee Plan
---------------------------- ------------------------- ---------------
1997 1996 1995 1997 1996 1995 1997 1996
---- ---- ---- ---- ---- ---- ---- ----
Risk-free interest rates 6.23% 6.40% 5.94% 5.58% 5.39% 5.95% 5.98% 5.33%
Volatility factors of the expected market price
of the Company's common stock .49 .49 .49 .49 .491.28 0.49 0.49 1.28 0.49 0.49 1.28 0.49
Expected life of the option in years 5.06 4.75 4.75 0.5 0.5 10.50 0.50 0.50 1.00 1.00
Expected dividend yield None None None None None None None None
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's employee stock options, employee stock purchase plan options, and
director fee shares have characteristics significantly different from those of
traded options, and because changes in the subjective input assumptions can
materially affect the fair value estimate, in management's opinion, the existing
models do not necessarily provide a reliable single measure of the fair value of
its options.
For purposes of pro forma disclosures, the estimated fair value of the options
granted, which is estimated to be $2.75, $2.68 and $4.01 per share for 1997,
1996 and 1995, respectively, is amortized to expense over the options' vesting
period. During the phase in period of Statement 123, which has been applied only
for options granted after 1994, the effects of applying the Statement for
providing pro forma disclosure are not indicative of future amounts until the
new rules are applied to all outstanding nonvested awards. The Company's pro
forma information follows (in thousands, except earning per share information)data):
1997 1996 1995
---- ----
Pro Forma------- ------- ------
Net Income (Loss) ( $1,582)income (loss) - as reported $11,500 ($1,101) $4,761
Net income (loss) - pro forma $10,144 ($1,582) $4,574
Pro Forma Net Income (Loss)Diluted earnings per share - as reported $1.62 ($0.23) $ 0.58
Page 43
0.16) $0.60
Diluted earnings per share - pro forma $1.43 ($0.22) $0.58
A summary of the Company's stock option activity, and related information
follows:
December 25, 1997 December 26, 1996 December 28, 1995
---------------------------- --------------------------- Weighted-Average Weighted-Average--------------------------- ------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Options Exercise Price Options ExercisePrice Options Price
------- --------------------- ------- --------------------- ------- -----
Outstanding - beginning of year 912,000 $5.22 859,125 $5.03 816,000 $3.39
Granted 542,000 5.01 246,250 5.42 280,750 8.21
Exercised (168,125) 3.46 (81,500) 4.03 (118,125) 3.02
Expired or Forfeited (109,375) 5.16(368,875) 6.70 (111,875) 5.15 (119,500) 3.49
Expired (2,500) 4.50
-------- ----------- -------- ----------- -------- -----
Outstanding - end of year 917,000 $4.82 912,000 $5.22 859,125 $5.03
======== ======== ========
Exercisable at end of year 433,313 $4.74 349,875 $4.13 267,250 $3.55
December 29, 1994
-----------------------------
Range of
Options Exercise Price
------- --------------
Outstanding - beginning of year 746,750 $2.06 - $6.38
Granted 413,000 $2.44 - $3.59
Exercised (44,875) $2.06 - $3.75
Forfeited (258,875) $2.06 - $5.88
Expired (40,000) $4.75 - $5.75
--------
Outstanding - end of year 816,000 $2.06 - $6.38
Exercise prices forThe following table summarizes information about stock options outstanding as ofat
December 26, 1996 ranged from
$2.44 to $8.63.25, 1997:
For options outstanding at December 26, 1996:Options Outstanding Options Exercisable
------------------------------------------------ ------------------------------
Weighted
Average Weighted Weighted
Number Remaining Average Number Average
Range of option exercise prices
----------------------------------------------
Less than $4 From $4 to $6 Over $6 Total
------------Outstanding at Contractual Exercise Exercisable at Exercise
Exercise Prices 12/25/97 Life in Years Price 12/25/97 Price
-------------- ------------- ------- ------------- -------------- --------
Number of options outstanding 418,250 194,750 299,000 912,000
Weighted-average exercise price $ 3.28 $ 5.06 $ 8.02 $ 5.22
Weighted-average remaining contractual life in years 3.00 5.45 4.80 4.11
Number of options exercisable 286,375 5,000 58,500 349,875
Weighted-average exercise price for exercisable $ 3.23 $ 5.58 $ 8.42 $ 4.13
$2.44 - $3.75 219,000 2.31 $3.17 179,625 $3.12
$4.56 - $4.56 235,250 3.93 $4.56 70,938 $4.56
$4.69 - $5.00 332,250 5.62 $4.99 105,000 $5.00
$5.56 - $8.63 130,500 4.42 $7.63 77,750 $8.33
------------- ------- ---- ----- ------ -----
$2.44 - $8.63 917,000 4.23 $4.82 433,313 $4.74
======= =======
Page 4440
NOTE 1114 - ACCOUNTING FOR INCOME TAXES
(in thousands) Year Ended December
--------------------------------------------------------------------
1997 1996 1995
1994
----- ----- ------------ ------- -------
Components of income (loss) from continuing operations before taxes:
U.S. operations $4,034 ($1,762) $ 4,703 $2,615842) $6,985
Foreign operations 891528 970 950
1,086
------ ------- ------
($871) $ 5,653 $3,701
------ ------- ------
------ -------
------$4,562 $128 $7,935
======= ======= =======
Income tax expense (benefit) consists of:
Current tax expense (benefit)
U.S. federal ($246) $ 1,284 ($103)$506 $247 $606
State 58 (11) 77
127
Foreign 71 14 89
78
------ ------- ------
(243) 1,450 102------- -------
635 250 772
Deferred tax expense (benefit)
U.S. federal 473 (573) 859(459) (129) 105
Foreign 0 0 15
14
------ ------- ------
473 (558) 873
------ ------- -------------
(459) (129) 120
------- ------- -------
Total income tax expense (benefit) $230 $ 892 $ 975
------ ------- ------
------ ------- ------$176 $121 $892
======= ======= =======
For federal income tax purposes, a deduction is received for stock option
compensation gains. The benefit of this deduction, which is recorded in common
stock, was $158,000, $98,000, and $222,000 in 1997, 1996 and $15,000 in1995, respectively.
A reconciliation of the Company's effective income tax rate and the U.S. federal
tax rate is as follows:
Year Ended December
----------------------------
1997 1996 1995
----- ----- -----
Statutory rate 35.0% 34.0% 34.0%
Foreign Sales Corporation tax benefit (3.6%) (139.9%) (3.2%)
State and 1994, respectively.
Foreign currency translation adjustments, which were recorded directly in
equity, were recordedforeign income tax, net of
the relatedfederal income tax benefit 1.5% (57.8%) .9%
Valuation allowance for deferred tax liabilities of $6,000 in
1996 and $2,000 in 1995 and a deferred tax asset of $27,000 in 1994.assets (26.0%) 443.5% (19.2%)
Other (3.0%) (185.3%) (1.3%)
----- ----- -----
3.9% 94.5% 11.2%
===== ===== =====
Page 4541
The tax effects of temporary differences that gave rise to significant portions
of the deferred tax assets and deferred tax liabilities are presented below in
accordance with SFAS 109 (in
thousands):
Dec. 25, Dec. 26,
Dec. 28, Dec. 29,1997 1996
1995 1994
-------- -------- --------------- -------
Deferred income tax assets:
Receivables allowanceAllowance for doubtful accounts $ 113 $ 114
$ 89 $ 79
Inventory and product return reserves and basis differences 1,298 1,470 1,077 1,079
Land basis 1,509
1,522 966
Compensation accruals 235 277 283 253
Intercompany profit 187 174 163 308
Pension and retirement accruals 206 240
239 127
Restructure assetAccrued liabilities 1,308 347
Book over tax depreciation and liability reserves 106 275 606
Accrued liability reserves 241 253 270
Reel-Tech amortization 322 279157
Foreign net operating loss carryforwards 4 184 350 720
Tax credit carryforwards 9 283 275
Other, net 262 61 9354 267
------- -------
-------
5,182 4,591 4,7763,571 4,865
Valuation allowance (3,555) (2,571) (3,358)(164) (3,238)
------- -------
-------
$Total deferred income tax assets 3,407 1,627 $ 2,020 $ 1,418
------- ------- -------
-------
------- -------
Deferred income tax liabilities:
Tax acceleratedover book depreciation and amortization $ 1,072 $ 949 $ 798
Foreign currency translation 306 267 310 279
Other 138
------- -------
-------Total deferred income tax liabilities 306 1,339
======= =======
Net deferred income tax assets $ 1,3393,101 $ 1,259288
======= =======
Balance sheet classification:
Current assets $ 1,215
------- ------- -------
------- ------- -------1,990 $ 762
Noncurrent assets 1,111
Noncurrent liabilities (474)
======= =======
$ 3,101 $ 288
======= =======
The valuation allowance for deferred tax assets decreased $3,074,000 during the
year ended December 25, 1997 due primarily to the taxable income generated in
1997, and increased $984,000$946,000 during the year ended December 26, 1996 due
primarily to the Company's loss generated in the current period1996 and the inability to utilize foreign tax
credits. The net deferred tax assets recorded were limited to the estimated
carryback benefit available from temporary differences at the time of their
expected reversal.
A reconciliation of the Company's effective income tax rate and the U.S. federal
tax rate is as follows:
Year Ended
December
------------------------------------
1996 1995 1994
------ ------ ------
Statutory rate (34.0%) 34.0% 34.0%
Foreign Sales Corporation tax benefit (20.6%) (4.5%) (2.7%)
State and foreign income tax, net of
federal income tax benefit (8.5%) 1.2% 5.1%
Valuation allowance for deferred assets 113.0% (12.9%) (10.7%)
Other (23.5%) (2.0%) 0.6%
------ ------ ------
26.4% 15.8% 26.3%
------ ------ ------
------ ------ ------
The Company has foreign net operating loss ("NOLs") carryforwards of
approximately $535,000, with the following expirations: $166,000 in 1998 and
$369,000 available indefinitely. Deferred tax assets arising from these foreign
NOLs are fully provided for in the valuation allowance.
Page 4642
NOTE 1215 - GEOGRAPHIC SEGMENT INFORMATION
Historically, Data I/O Corporation and its subsidiaries operate predominantlyoperated within a single
industry segment and offer three
major product groups:divisions: (1) electronic programming systems used by customers to handle,
program, test and mark programmable ICs; (2) semiconductor equipment used to
handle, transport and mark integrated circuits;circuits (Reel-Tech); and (3) electronic
design automation software used to create designs for programmable ICs.ICs (Synario
Design Automation). The Reel-Tech and Synario Design Automation Divisions were
discontinued during 1997. See Note 2 for further discussion of these
discontinued operations including results of these operations and related
balance sheet accounts.
No one customer accounted for more than 10% of the Company's revenues in the years ended December 26,1997,
1996 December
28, 1995 and December 29, 1994.1995. Major operations outside the U.S. include sales and service
support subsidiaries in Japan, Germany, Canada, Singapore and, through the end
of 1996, the United Kingdom.
Geographic information for the three years ended December 26, 199625, 1997 is presented
in the table that follows. Net sales, as shown in the table below, are based
upon the geographic area into which the products were sold and delivered. As
such, U.S. export sales of $24,578,000, $22,160,000$21,207,000, $20,214,000 and $18,522,000$18,914,000 in 1997,
1996 1995 and 1994,1995, respectively, have been excluded from U.S. reported net sales.
Transfers between geographic areas are made at prices consistent with rules and
regulations of governing tax authorities. The profit on transfers between
geographic areas is not recognized until sales are made to non-affiliated
customers. For purposes of the table below, the profit on the transfers between
geographic areas has been shown in operating income in the geographic area where
the final sale to non-affiliated customers took place. Certain general corporate
expenses are charged to the U.S. segment. Identifiable assets are those assets
that can be directly associated with a particular geographic area.
Year Ended December
--------------------------------------------------------------------------
(in thousands) 1997 1996 1995 1994
-------- -------- --------
Net sales:
U.S.U.S $ 29,57222,290 $ 35,28023,554 $ 32,93031,125
Europe 14,096 16,555 16,22111,548 12,963 15,373
Other 16,755 14,196 12,32712,446 12,343 10,998
-------- -------- --------
$ 60,42346,284 $ 66,03148,860 $ 61,478
-------- -------- --------
-------- -------- --------57,496
======== ======== ========
Operating income (loss):
U.S. from continuing operations:
U.S ($3,158) 219) ($ 2,254) $ 1,245 $ 1,2353,425
Europe 1,429 2,202 2,0121,323 1,279 2,517
Other 917 2,081 588
-------- -------- --------
($812) $ 5,528 $ 3,835
-------- -------- --------
-------- -------- --------
Identifiable assets:
U.S. $ 32,365 $ 35,604 $ 35,790
Europe 2,645 5,280 4,284
Other 4,309 3,892 3,413701 1,162 1,868
-------- -------- --------
$ 39,3191,805 $ 44,776187 $ 43,4877,810
======== ======== ========
Identifiable assets of the continuing operations:
U.S $ 51,539 $ 26,039 $ 29,390
Europe 2,737 2,852 5,049
Other 3,460 4,050 4,114
-------- -------- --------
-------- -------- --------$ 57,736 $ 32,941 $ 38,553
======== ======== ========
Page 4743
NOTE 1316 - QUARTERLY FINANCIAL INFORMATION (UNAUDITED)(unaudited)
The following table sets forth unaudited selected quarterly financial data for
the Company for 19961997 and 1995.1996. Although the Company's business is not seasonal,
growth rates of sales and earnings have varied from quarter to quarter as a
result of factors such as stocking orders from international distributors, the
timing of new product introductions, business acquisitions, and short-term
industry and general U.S. and international economic conditions. Information as
to any one or more quarters is therefore not necessarily indicative of trends in
the Company's business or profitability.
(in thousands except per share data) 1997
-------------------------------------------------------
For the quarters ended: Mar. 27 June 26 Sept. 25 Dec. 25
------- ------- ------- -------
Net sales $11,867 $11,398 $11,762 $11,257
Gross margin 5,958 5,596 6,320 5,662
Income from continuing operations 432 2,018 1,436 500
Income (loss) from discontinued operations (384) (639) (452) 8,589
Net income 48 1,379 984 9,089
Earnings per share from continuing operations:
Basic $0.06 $0.29 $0.21 $.07
Diluted $0.06 $0.29 $0.20 $.07
Total earnings per share :
Basic $0.01 $0.20 $0.14 $1.30
Diluted $0.01 $0.20 $0.14 $1.26
Market price per share:
High $5.50 $6.50 $7.63 $8.00
Low $4.38 $4.50 $4.63 $6.13
(in thousands except per share data) 1996
-----------------------------------------------------------------------------------------------------------
For the quarters ended: Mar. 28 June 27 Sept. 26 Dec. 26
------- ------- --------------- -------
Net sales $15,656 $15,308 $14,529 $14,930$12,819 $12,732 $11,525 $11,784
Gross margin 7,551 7,583 7,185 7,5785,882 5,999 4,977 6,068
Income (loss) from continuing operations 365 (79) (559) 280
Income (loss) from discontinued operations (303) (627) 301 (479)
Net income (loss) 62 (706) (258) (199)
Earnings (loss) per share from continuing operations:
Basic $0.05 ($0.01) ($0.08) $0.04
Diluted $0.05 ($0.01) ($0.08) $0.04
Total earnings (loss) per share:
Net income (loss) $ 0.01Basic $0.01 ($0.10) ($0.04) ($0.03).03)
Diluted $0.01 ($0.10) ($0.04) ($.03)
Market price per share:
High $ 7.75 $ 6.88 $ 6.00 $ 5.63$7.75 $6.88 $6.00 $5.63
Low $ 5.38 $ 5.13 $ 4.38 $ 4.00
(in thousands except per share data) 1995
----------------------------------------------------
For the quarters ended: Mar. 30 June 29 Sept. 28 Dec. 28
------- ------- -------- -------
Net sales $16,208 $16,126 $15,648 $18,049
Gross margin 8,837 8,803 7,985 9,808
Net income (loss) 1,141 1,189 244 2,187
Earnings per share:
Net income (loss) $ 0.15 $ 0.15 $ 0.03 $ 0.28
Market price per share:
High $ 6.00 $ 9.63 $ 12.63 $ 8.88
Low $ 4.38 $ 4.88 $ 7.63 $ 6.00$5.38 $5.13 $4.38 $4.00
During 1996,The Company completed the Company was unable to recordsale of its headquarters property resulting in a benefit for its$2.3
million pre-tax losses,
or offset its foreign taxes, due to carryback limitations associated with its
1993 loss.
The thirdgain recognized during the second quarter of 1995 reflects the charge1997. The Company
disposed of $660,000its Semiconductor Equipment and Synario Design Automation Divisions
resulting in a gain from discontinued operations of $7.5 million net of tax
forduring the
acquisition of in-process research and development. The fourth quarter of 1995
reflects the $350,000 net of tax reversal of a portion of the restructure
accrual. For the first three quarters of 1995, the Company recorded taxes at an
effective tax rate of 20%. The effective tax rate in the fourth quarter was 10%
due to the reversal of additional valuation allowances.1997.
Data I/O Corporation's common stock trades on the Nasdaq National Market tier of
The Nasdaq Stock Market under the symbol DAIO and is quoted in many financial
publications, including the WALL STREET JOURNAL.Wall Street Journal. The per share prices reported
in the table above are those reported by NASDAQ. The approximate number of
stockholders of record and the approximate number of beneficial stockholders of
record at February 25, 1997,March 2, 1998, was 1,019927 and 4,700,4100, respectively.
Except for a special cash dividend of $4.15 per share paid on March 8, 1989, the
Company has not paid cash dividends on its common stock and does not anticipate
paying regular cash dividends in the foreseeable future. The Company's U.S. line
of credit agreement restricts the payment of cash dividends through a
requirement for minimum levels of tangible net worth.
ITEMPage 44
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURESChanges in and Disagreements with Accountants on Accounting and
Financial Disclosures
None.
Page 48
PART III
ITEMItem 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANTDirectors and Executive Officers of the Registrant
Information regarding the Registrant's directors is set forth under "Election of
Directors" in the Company's Proxy Statement relating to the Company's annual
meeting of shareholders to be held on May 13, 1997,12, 1998, and is incorporated herein
by reference. Such Proxy Statement will be filed within 120 days of the
Company's year end. Information regarding the Registrant's executive officers is
set forth in Item 1 of Part I herein under the caption "Executive Officers of
the Registrant".
ITEMItem 11. EXECUTIVE COMPENSATIONExecutive Compensation
Information called for by Part III, Item 11, is included in the Company's Proxy
Statement relating to the Company's annual meeting of shareholders to be held on
May 13, 1997,12, 1998, and is incorporated herein by reference. The information appears
in the Proxy Statement under the caption "Executive Compensation." Such Proxy
Statement will be filed within 120 days of the Company's year end.
ITEMItem 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENTSecurity Ownership of Certain Beneficial Owners and Management
Information called for by Part III, Item 12, is included in the Company's Proxy
Statement relating to the Company's annual meeting of shareholders to be held on
May 13, 1997,12, 1998, and is incorporated herein by reference. The information appears
in the Proxy Statement under the caption "Voting Securities and Principal
Holders." Such Proxy Statement will be filed within 120 days of the Company's
year end.
ITEMItem 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONSCertain Relationships and Related Transactions
None.
Page 4945
PART IV
ITEMItem 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORMExhibits, Financial Statement Schedules, and Reports on Form 8-K
EXECUTIVE COMPENSATION PLANS AND ARRANGEMENTSExecutive Compensation Plans and Arrangements
The following list is a subset of the list of exhibits described below and
contains all compensatory plans, contracts or arrangements in which any
director or executive officer of the Company is a participant, unless the
method of allocation of benefits thereunder is the same for management and
non-management participants:
(1) Amended and Restated 1982 Employee Stock Purchase Plan. See Exhibit
10.1 and 10.29.10.16.
(2) 1984 Deferred Compensation Plan. See Exhibit 10.2.
(3) Retirement Plan and Trust Agreement. See Exhibit 10.7, 10.9, 10.12,
10.18, 10.2510.22, 10.27, 10.28, and 10.35.
(4)10.29.
(3) 1985 Stock Option Plan. See Exhibit 10.3.
(5)10.1.
(4) 1984 FutureNet Employee Stock Option Plan. See Exhibit 10.4.
(6)10.2.
(5) Summary of Management Incentive Compensation Plan. See Exhibit 10.11,
10.1310.6,
10.10 and 10.19.
(7)10.25.
(6) Amended and Restated 1983 Stock Appreciation Rights Plan. See Exhibit
10.7.
(8)10.5.
(7) Amended and Restated 1986 Stock Option Plan. See Exhibit 10.8 and
10.21.
(9)10.30.
(8) Form of Change in Control Agreements. See Exhibit 10.17.
(10)10.8.
(9) 1996 Director Fee Plan. See Exhibit 10.26.
(11)10.13 and 10.32.
(10) Synario Division Proceeds Sharing Plan. See Exhibit 10.27.
(12)10.14.
(11) Letter Agreement with William J. Haydamack. See Exhibit 10.28.
(A) LIST OF DOCUMENTS FILED AS A PART OF THIS REPORT: PAGE
----
(1) INDEX TO FINANCIAL STATEMENTS:
Report10.15.
(12) Agreement and General Release with William J. Haydamack. See Exhibit
10.33.
(13) Separation Agreement with William C. Erxleben. See Exhibit 10.34.
(14) Consulting Agreement with William C. Erxleben. See Exhibit 10.35.
(a) List of Independent Auditors 32
ReportDocuments Filed as a Part of Management 32
Consolidated Statements of Operations for each of the
three years ended December 26, 1996 33
Consolidated Balance Sheets as of December 26, 1996
and December 28, 1995 34
Consolidated Statements of Cash Flows for each of
the three years ended December 26, 1996 35
Consolidated Statements of Stockholders' Equity
for each of the three years ended December 26, 1996 36
Notes to Consolidated Financial Statements 37This Report:
Page
----
(1) Index to Financial Statements:
Report of Ernst & Young LLP, Independent Auditors 27
Report of Management 27
Consolidated Statements of Operations for each of the three years ended December 25, 1997 28
Consolidated Balance Sheets as of December 25, 1997 and December 26, 1996 29
Consolidated Statements of Cash Flows for each of the three years ended December 25, 1997 30
Page 5046
(2) INDEX TO FINANCIAL STATEMENT SCHEDULES:
II Consolidated Valuation and Qualifying Accounts 55
All other schedules not listed above have been omitted because the
required information is included in the consolidated financial
statements or the notes thereto, or is not applicable or required.
(3) INDEX TO EXHIBITS:
3 ARTICLES OF INCORPORATION:
Consolidated Statements of Stockholders' Equity for each of the three years ended December 25, 1997 31
Notes to Consolidated Financial Statements 32
(2) Index to Financial Statement Schedules:
II Consolidated Valuation and Qualifying Accounts 52
All other schedules not listed above have been omitted because the
required information is included in the consolidated financial
statements or the notes thereto, or is not applicable or required.
(3) Index to Exhibits:
3 Articles of Incorporation:
3.1 The Company's restated Articles of Incorporation filed November 2, 1987
(Incorporated by reference to Exhibit 3.1 of the Company's 1987 Annual Report on
Form 10-K (File No. 0-10394)). N/A
3.2 The Company's Bylaws as amended and restated as of March 12, 1998. 60
3.3 Certificate of Designation, Preferences and Rights of Series A Junior Participating
Preferred Stock (Incorporated by reference to Exhibit 1 of the Company's
Registration Statement on Form 8-A filed April 5, 1988 (File No. 0-10394)). N/A
4 Instruments Defining the Rights of Security Holders, Including Indentures:
4.1 Rights Agreement, dated as of April 4, 1998, between Data I/O Corporation and
ChaseMellon Shareholder Services, L.L.C. as Rights Agent, which includes: as
Exhibit A thereto, the Form of Right Certificate; and, as Exhibit B thereto, the
Summary of Rights to Purchase Series A Junior Participating Preferred Stock
(Incorporated by reference to the Company's Current Report on Form 8-K filed on
March 13, 1998). N/A
4.2 Rights Agreement, dated as of March 31, 1988, between Data I/O Corporation
and First Jersey National Bank, as Rights Agent, as amended by Amendment
No. 1 thereto, dated as of May 28, 1992 and Amendment No. 2 thereto, dated
as of July 16, 1997 (Incorporated by reference to the Company's current
Report on Form 8-K filed on March 13, 1998). N/A
10 Material Contracts:
10.1 1985 Stock Option Plan (Incorporated by reference to Exhibit 10.22 of the Company's
1984 Annual Report on Form 10-K (File No. 0-10394)). N/A
3.2 The Company's Bylaws as amended and restated
as of December 11, 1996. 64
3.3 Certificate of Designation, Preferences and
Rights of Series A Junior Participating Pre-
ferred Stock (Incorporated by reference to
Exhibit 1 of the Company's Registration
Statement on Form 8-A filed April 5, 1988
(File No. 0-10394)). N/A
4 INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS, INCLUDING
INDENTURES:
4.1 Form of Rights Agreement, dated as of March
31, 1988, between the Company and ChaseMellon
Shareholder Services (formerly Chemical
Mellon Shareholder Services and Chemical Trust
Company of California) which includes as Exhibit
B thereto the form of Rights Certificate
(Incorporated by reference to the Company's
Registration Statement Form 8-A filed on
April 5, 1988 (File No. 0-10394)). N/A
10 MATERIAL CONTRACTS:
10.1 Amended and restated 1982 Employee Stock
Purchase Plan (Incorporated by reference to
Exhibit 10.1 to the Company's Registration
Statement of Form S-8 (File No. 33-42010,
filed August 1, 1991)). N/A
10.2 1984 Deferred Compensation Plan (Incorporated
by reference to Exhibit 10.22 of the Company's
1983 Annual Report on Form 10-K (File No. 0-10394)). N/A
10.3 1985 Stock Option Plan (Incorporated by
reference to Exhibit 10.22 of the
Company's 1984 Annual Report on Form
10-K (File No. 0-10394)). N/A
10.4 1984 FutureNet Employee Stock Option Plan (Incorporated by reference to Exhibit
10.23 of the Company's 1984 Annual Report on Form 10-K (File No. 0-10394)). N/A
10.5 Asset Purchase Agreement, dated as of
December 31, 1992, by and among Data I/O
Corporation, CAD/CAM Group, Inc., and certain
of its shareholders, and an Amendment thereto,
dated January 19, 1993 (Incorporated by
reference to Exhibit 10.21 of the Company's
1992 Annual Report on Form 10-K (File No.
0-10394)). N/A
Page 5147
10.6 Software Development Agreement, dated as of
January 19, 1993, by and among Data I/O
Corporation, Michael J. Mendelsohn and Peter
C. Niday (Incorporated by reference to
Exhibit 10.22 of the Company's 1992 Annual
Report on Form 10-K (File No. 0-10394)). N/A
10.7 Amended and Restated 1983 Stock Appreciation
Rights Plan dated February 3, 1993 (Incorporated
by reference to Exhibit 10.23 of the Company's
1992 Annual Report on Form 10-K (File No.
0-10394)). N/A
10.8 Amended and Restated 1986 Stock Option Plan dated
February 3, 1993 (Incorporated by reference to
Exhibit 10.24 of the Company's 1992 Annual Report
on Form 10-K (File No. 0-10394)). N/A
10.9 Amendment, dated April 30, 1993, to the business
loan agreement dated November 25, 1992, with
Seattle First National Bank. (Incorporated by
reference to Exhibit 10.22 of the Company's 1993
Annual Report on Form 10K (File No. O-10394)). N/A
10.10 Business loan agreement dated February 28, 1994,
with Seattle First National Bank for $8.0 million.
(Incorporated by reference to Exhibit 10.24 of
the Company's 1993 Annual Report on Form 10K
(File No. O-10394)). N/A
10.11 Summary of 1994 Management Incentive Compensation
Plan. (Incorporated by reference to Exhibit
10.25 of the Company's 1993 Annual Report on
Form 10K (File No. O-10394)). N/A
10.12 Amended and Restated Retirement Plan and Trust
Agreement. (Incorporated by reference to Exhibit
10.26 of the Company's 1993 Annual Report on
Form 10K (File No. O-10394)). N/A
10.13 Management Incentive Compensation Plan.
(Incorporated by reference to Exhibit 10.16 of
the Company's 1994 Annual Report on Form 10K
(File No. 0-10394)). N/A
10.14 Performance Bonus Plan (Incorporated by
reference to Exhibit 10.17
10.3 Asset Purchase Agreement, dated as of December 31, 1992, by and among Data I/O
Corporation, CAD/CAM Group, Inc., and certain of its shareholders, and an Amendment
thereto, dated January 19, 1993 (Incorporated by reference to Exhibit 10.21 of the
Company's 1992 Annual Report on Form 10-K (File No. 0-10394)). N/A
10.4 Software Development Agreement, dated as of January 19, 1993, by and among Data
I/O Corporation, Michael J. Mendelsohn and Peter C. Niday (Incorporated by reference
to Exhibit 10.22 of the Company's 1992 Annual Report on Form 10-K (File No. 0-10394)). N/A
10.5 Amended and Restated 1983 Stock Appreciation Rights Plan dated February 3, 1993
(Incorporated by reference to Exhibit 10.23 of the Company's 1992 Annual Report on
Form 10-K (File No. 0-10394)). N/A
10.6 Summary of 1994 Management Incentive Compensation Plan. (Incorporated by
reference to Exhibit 10.25 of the Company's 1993 Annual Report on Form 10K
(File No. O-10394)). N/A
10.7 Amended and Restated Retirement Plan and Trust Agreement. (Incorporated by
reference to Exhibit 10.26 of the Company's 1993 Annual Report on Form 10K
(File No. O-10394)). N/A
10.8 Form of Change in Control Agreements (Incorporated by reference to Exhibit 10.20
of the Company's 1994 Annual Report on Form 10K (File No. 0-10394)). N/A
10.9 First Amendment to the Data I/O Tax Deferred Retirement Plan (Incorporated
by reference to Exhibit 10.21 of the Company's 1994 Annual Report on Form
10K (File No. 0-10394)). N/A
10.10 Amended and Restated Management Incentive Compensation Plan dated January
1, 1996 (Incorporated by reference to Exhibit 10.20 of the Company's 1995
Annual Report on Form 10K (File No. 0-10394)). N/A
10.11 Amended and Restated Performance Bonus Plan dated January 1, 1996 (Incorporated
by reference to Exhibit 10.21 of the Company's 1995 Annual Report on Form 10K
(File No. 0-10394)). N/A
10.12 Second Amendment to the Data I/O Tax Deferred Retirement Plan (Incorporated by
reference to Exhibit 10.26 of the Company's 1995 Annual Report on Form 10K
(File No. 0-10394)). N/A
10.13 Data I/O Corporation 1996 Director Fee Plan (Incorporated by reference to
Exhibit 10.27 of the Company's 1995 Annual Report on Form 10K (File No.
0-10394)). N/A
10.14 Synario Division Proceeds Sharing Plan (Confidential treatment has been
requested for certain portions of this exhibit) (Incorporated by reference
to Exhibit 10.28 of the Company's 1995 Annual Report on Form 10K (File No.
0-10394)). N/A
10.15 Amendment, dated July 22, 1994, to the business
loan agreement dated February 28, 1994, with
Seattle First National Bank (Incorporated by
reference to Exhibit 10.18 of the Company's
1994 Annual Report on Form 10K (File No. 0-10394)). N/A
10.16 Amendment, dated November 16, 1994 to the
Business Loan Agreement dated February 28, 1994,
with Seattle First National Bank (Incorporated
by reference to Exhibit 10.19 of the Company's
1994 Annual Report on Form 10K (File No. 0-10394)). N/A
10.17 Form of Change in Control Agreements (Incorporated
by reference to Exhibit 10.20 of the Company's
1994 Annual Report on Form 10K (File No. 0-10394)). N/A
10.18 First Amendment to the Data I/O Tax Deferred
Retirement Plan (Incorporated by reference to
Exhibit 10.21 of the Company's 1994 Annual Report
on Form 10K (File No. 0-10394)). N/A
Page 52
10.19 Amended and Restated Management Incentive
Compensation Plan dated January 1, 1996
(Incorporated by reference to Exhibit 10.20 of
the Company's 1995 Annual Report on Form 10K
(File No. 0-10394)). N/A
10.20 Amended and Restated Performance Bonus Plan
dated January 1, 1996 (Incorporated by reference
to Exhibit 10.21 of the Company's 1995 Annual
Report on Form 10K (File No. 0-10394)). N/A
10.21 Amended and Restated 1986 Stock Option Plan
dated February 22, 1995 (Incorporated by
reference to Exhibit 10.22 of the Company's
1995 Annual Report on Form 10K (File No. 0-10394)). N/A
10.22 Business Loan Agreement dated May 12, 1995,
with Seattle First National Bank for $8.0 million
(Incorporated by reference to Exhibit 10.23 of the
Company's 1995 Annual Report on Form 10K
(File No. 0-10394)). N/A
10.23 Asset Purchase Agreement dated as of August 31,
1995 among Reel-Tech, Inc., an Indiana corporation,
Norris R. Hall, Douglas R. Hall, and Reel-Tech,
Inc., a Washington corporation, a wholly owned
subsidiary of Data I/O Corporation (Confidential
treatment has been requested for certain portions
of this exhibit)(Incorporated by reference to Exhibit
2.1 of to the Company's Form 8-K Report dated November
6, 1995). N/A
10.24 Escrow Agreement dated as of August 31, 1995,
among Reel-Tech, Inc., a Washington corporation,
Reel-Tech, Inc., an Indiana corporation, and Seattle
First National Bank (Incorporated by reference to
Exhibit 2.2 of to the Company's Form 8-K Report dated
November 6, 1995). N/A
10.25 Second Amendment to the Data I/O Tax Deferred
Retirement Plan (Incorporated by reference to
Exhibit 10.26 of the Company's 1995 Annual
Report on Form 10K (File No. 0-10394)). N/A
10.26 Data I/O Corporation 1996 Director Fee Plan
(Incorporated by reference to Exhibit 10.27
of the Company's 1995 Annual Report on Form 10K
(File No. 0-10394)). N/A
10.27 Synario Division Proceeds Sharing Plan
(Confidential treatment has been requested
for certain portions of this exhibit)
(Incorporated by reference to Exhibit 10.28 of
the Company's 1995 Annual Report on Form 10K
(File No. 0-10394)). N/A
10.28 Letter Agreement with William J. Haydamack (Confidential treatment has
been requested for certain portions of this exhibit) (Incorporated by
reference to Exhibit 10.29 of the Company's 1995 Annual Report on Form
10K (File No. 0-10394)). N/A
10.29 Data I/O Corporation 1982 Employee Stock Pur-
chase Plan Amended and Restated December 11, 1996
(Incorporated by reference to Exhibit 10.1 to
the Company's Registration Statement of Form S-8
(File No. 333-20657, filed January 29, 1997)). N/A
10.30 Business Loan Agreement dated April 24, 1996,
with Seattle First National Bank for $8.0 million. 75
Page 5348
10.31
10.16 Data I/O Corporation 1982 Employee Stock Purchase Plan Amended and Restated
December 11, 1996 (Incorporated by reference to Exhibit 10.1 to the Company's
Registration Statement of Form S-8 (File No. 333-20657, filed January 29, 1997)). N/A
10.17 Business Loan Agreement dated April 24, 1996, with Seattle First National
Bank for $8.0 million (Incorporated by reference to Exhibit 10.30 of the
Company's 1996 Annual Report on Form 10K (File No. 0-10394)). N/A
10.18 OEM Agreement between Synopsys, Inc. and Synario Design Automation a Division of
Data I/O Corporation. (Portions of this exhibit have been omitted pursuant to an
application for an order granting confidential treatment. The omitted portions
have been separately filed with the Commission) (Incorporated by reference to
Exhibit 10.31 of the Company's 1996 Annual Report on Form 10K (File No.0-10394)). N/A
10.19 Purchase and Sale Agreement dated as of July 9, 1996 (Relating to the sale
of Data I/O Corporation's headquarters property in Redmond, Washington
consisting of approximately 79 acres of land and an approximately 96,000
square foot building. (Portions of this exhibit have been omitted pursuant
to an application for an order granting confidential treatment. The
omitted portions have been separately filed with the Commission)
(Incorporated by reference to Exhibit 10.32 of the Company's 1996 Annual
Report on Form 10K (File No. 0-10394)). N/A
10.20 Letter dated as of December 20, 1996, First Amendment and extension of the
Closing Date under that certain Purchase and Sale Agreement dated as of
July 9, 1996. (Portions of this exhibit have been omitted pursuant to an
application for an order granting confidential treatment. The omitted
portions have been separately filed with the Commission) (Incorporated by
reference to Exhibit 10.33 of the Company's 1996 Annual Report on Form 10K
(File No. 0-10394)). N/A
10.21 Letter dated as of February 17, 1997, Second Amendment and extension of the
Closing Date under that certain Purchase and Sale Agreement dated as of July 9,
1996. (Portions of this exhibit have been omitted pursuant to an application for
an order granting confidential treatment. The omitted portions have been
separately filed with the Commission) (Incorporated by reference to Exhibit
10.34 of the Company's 1996 Annual Report on Form 10K (File No. 0-10394)). N/A
10.22 Third Amendment to the Data I/O Tax Deferred Retirement Plan (Incorporated
by reference to Exhibit 10.35 of the Company's 1996 Annual Report on Form
10K (File No. 0-10394)). N/A
10.23 Asset Purchase Agreement, by and between Data I/O Corporation, a Washington
corporation, Reel-Tech Inc., a Washington corporation, and General Scanning
Inc., a Massachusetts corporation, dated November 28, 1997 (Incorporated by
reference to Exhibit 2.1 of the Company's Form 8-K Report dated November 28, 1997). N/A
Page 49
10.24 Master Agreement, by and between Data I/O Corporation, a Washington corporation,
Minc, Incorporated, a Colorado corporation, and Minc Washington Corp., a
Colorado corporation, dated November 12, 1997 (Incorporated by reference to
Exhibit 2.1 of the Company's Form 8-K Report dated November 12, 1997). N/A
10.25 Amended and Restated Management Incentive Compensation Plan dated January
1, 1997. 71
10.26 Amended and Restated Performance Bonus Plan dated January 1, 1997. 75
10.27 Fourth Amendment to the Data I/O Tax Deferred Retirement Plan. 78
10.28 Fifth Amendment to the Data I/O Tax Deferred Retirement Plan. 79
10.29 Sixth Amendment to the Data I/O Tax Deferred Retirement Plan. 80
10.30 Amended and Restated 1986 Stock Option Plan dated May 13, 1997. 81
10.31 Amendment, dated May 13, 1997, to the business loan agreement dated April
24, 1996, with Seattle First National Bank. 89
10.32 Amended and Restated Data I/O Corporation 1996 Director Fee Plan. 91
10.33 Agreement and General Release with William J. Haydamack. 96
10.34 Separation Agreement with William C. Erxleben. 98
10.35 Consulting Agreement with William C. Erxleben. 103
10.36 First Amendment to the Asset Purchase Agreement dated as of August 31, 1995,
among Reel-Tech, Inc., an Indiana corporation, Norris R. Hall, Douglas R. Hall,
and Reel-Tech, Inc., a Washington corporation, a wholly owned subsidiary of Data
I/O Corporation. 107
10.37 Second Amendment to the Asset Purchase Agreement dated as of August 31, 1995,
among Reel-Tech, Inc., an Indiana corporation, Norris R. Hall, Douglas R. Hall,
and Reel-Tech, Inc., a Washington corporation, a wholly owned subsidiary of Data
I/O Corporation. 115
10.38 Third Amendment to the Asset Purchase Agreement dated as of August 31, 1995,
among Reel-Tech, Inc., an Indiana corporation, Norris R. Hall, Douglas R. Hall,
and Reel-Tech, Inc., a Washington corporation, a wholly owned subsidiary of Data
I/O Corporation. 119
10.39 Fourth Amendment to the Asset Purchase Agreement dated as of August 31, 1995,
among Reel-Tech, Inc., an Indiana corporation, Norris R. Hall, Douglas R. Hall,
and Reel-Tech, Inc., a Washington corporation, a wholly owned subsidiary of Data
I/O Corporation. 127
22 Subsidiaries of the Registrant 53
24 Consent of Ernst & Young LLP, Independent Auditors 54
Page 50
(b) Form 8-K:
A report on Form 8-K dated November 12, 1997 was filed relating to the
disposition of the Synario Design Automation a Division of Data I/O Corporation.
(Portions of this exhibit have been omitted pursuant
to an application for an order granting confidential
treatment. The omitted portions have been separately
filed with the Commission). 89
10.32 Purchase and Sale Agreement dated as of July 9,
1996 (Relating to the sale of Data I/O Corporation's
headquarters property in Redmond, Washington con-
sisting of approximately 79 acres of land and an
approximately 96,000 square foot building. (Portions
of this exhibit have been omitted pursuant to an
application for an order granting confidential
treatment. The omitted portions have been
separately filed with the Commission). 111
10.33 Letter dated as of December 20, 1996, First
Amendment and extension of the Closing Date under
that certain Purchase and Sale Agreement dated
as of July 9, 1996. (Portions of this exhibit
have been omitted pursuant to an application for
an order granting confidential treatment. The
omitted portions have been separately filed with
the Commission). 163
10.34 Letter dated as of February 17, 1997, Second
Amendment and extension of the Closing Date
under that certain Purchase and Sale Agreement
dated as of July 9, 1996. (Portions of this
exhibit have been omitted pursuant to an
application for an order granting confidential
treatment. The omitted portions have been
separately filed with the Commission). 165
10.35 Third Amendment to the Data I/O Tax Deferred
Retirement Plan. 167
11 STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE 56
22 SUBSIDIARIES OF THE REGISTRANT 57
24 INDEPENDENT AUDITORS' CONSENT 58
(B) FORM 8-K:
No reportsDivision.
A report on Form 8-K weredated November 28, 1997 was filed duringrelating to the
fourth quarterdisposition of 1996.the assets of Reel-Tech, Inc.
Page 5451
DATA I/O CORPORATION
SCHEDULE II - CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS
ALLOWANCE FOR DOUBTFUL ACCOUNTS
SCHEDULE II
Charged/
(Credited) Charged to
Balance at to Costs Other Balance at
Beginning and Accounts- Deductions- End of
of Period Expenses Describe Describe Period
- --------------------------------- --------- ---------- ----------- ----------- ---------
(in thousands)
Year Ended December 28, 1995:
Reserves and allowances
deducted from asset accounts:
Allowance for bad debts $277 $55 $12(1) $33(2) $311
Inventory reserves $1,437 $100 $116(3) $1,421
Year Ended December 26, 1996:
Reserves and allowances
deducted from asset accounts:
Allowance for bad debts $311 $101 $16(1) $66(2) $362
Inventory reserves $1,421 $998 $148(3) $2,271
Year Ended December 25, 1997:
Reserves and allowances
deducted from asset accounts:
Allowance for bad debts $362 $53 $7(1) $28(2) $394
Inventory reserves $2,271 $225 $398(3) $1,648
(1) Collection Charged/ of (Credited) Accounts
Balance at to Costs Previously Accounts Balance at
Beginning and Written Written Endaccounts previously written off.
(2) Uncollectable accounts written off.
(3) Obsolete inventories written off, net of Year Ended of Period Expenses Off Off Period
- -----------------------------------------------------------------------------
(in thousands)
December 29, 1994: $332 $4 $12 ($71) $277
---------- ------- -------- ------ ------
---------- ------- -------- ------ ------
December 28, 1995: $277 $55 $12 ($33) $311
---------- ------- -------- ------ ------
---------- ------- -------- ------ ------
December 26, 1996: $311 $101 $16 ($66) $362
---------- ------- -------- ------ ------
---------- ------- -------- ------ ------recoveries.
Page 55
EXHIBIT 11
DATA I/O CORPORATION
COMPUTATION OF EARNINGS PER SHARE
Earnings per share reported in Form 10-K for the three years ended December 26,
1996 are based on the following (in thousands):
Primary and Fully Diluted: 1996 1995 1994
- ------------------------------------- ---- ---- -----
Weighted Average Shares Outstanding 6,857 7,514 7,354
Dilutive Effect of Stock Options 365 66
----- ----- -----
Weighted Average Common and Equivalent
Shares Outstanding 6,857 7,879 7,420
----- ----- -----
----- ----- -----
Page 5652
EXHIBIT 22
DATA I/O CORPORATION
SUBSIDIARIES OF THE REGISTRANT
The following table indicates the name, jurisdiction of incorporation and basis
of ownership of each of the Company's subsidiaries:
State or Percentage
Jurisdiction of Voting
of Securities
Name of Subsidiary Organization Owned
------------------ ------------ ---------------
Data I/O Japan Company, Limited Japan 100%
Data I/O International, Inc. Washington 100%
Data I/O European Operations GmbH Germany 100%
Data I/O FSC International, Inc. Territory of Guam 100%
Data I/O Canada Corporation Canada 100%
Data I/O GmbH Germany 100%
Data I/O Limited United Kingdom 100%
Reel-Tech, Inc. Washington 100%
Reel-Tech Singapore Pte, Ltd. Singapore 100%
Page 5753
EXHIBIT 24
- --------------------------------------------------------------------------------
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------
To the Board of Directors and Stockholders
Data I/O Corporation
We consent to the incorporation by reference in the Registration Statements (Formson
Form S-8 No. 333-20657 33-2254, 33-3958, 33-26472, 33-42010,pertaining to the Company's 1982 Employee Stock Purchase
Plan and Director Fee Plan, Forms S-8 No. 33-95608 and No. 33-54422 pertaining
to the Company's 1986 Stock Option Plan, Form S-8 No. 33-66824 pertaining to the
Company's 1982 Employee Stock Purchase Plan, Form S-8 No. 33-03958 pertaining to
the Company's 1985 Stock Option Plan, and 33-95608)Form S-8 No. 33-02254 pertaining to
the Company's 1984 FutureNet Employee Stock Option Plan, of our report dated
February 7, 1997,10, 1998, with respect to the consolidated financial statements and
schedule of Data I/O Corporation included in theits Annual Report (Form 10-K) for
the year ended December 26, 1996.
//S//25, 1997 filed with the Securities and Exchange
Commission.
/s/ ERNST & YOUNG LLP
ERNST & YOUNG LLP
Seattle, Washington
February 28, 1996March 20, 1998
Page 5854
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
DATA I/O CORPORATION
(REGISTRANT)
DATED: February 28, 1997March 11, 1998 By: //S//WILLIAM C. ERXLEBEN
--------------------------
William C. Erxleben/s/ James J. David
--------------------
James J. David
President
Chief Executive Officer
Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below on February 28, 1996,March 11, 1998, by the following persons on behalf of
the Registrant and in the capacities indicated.
NAME TITLE
By: //S//WILLIAM C. ERXLEBEN/s/James J. David President
------------------------
Chief Executive
William C. Erxleben Officer
DirectorJames J. David
By: //S//W. HUNTER SIMPSON Director
----------------------
W. Hunter Simpson
By: //S//DONALD R. STENQUIST/s/Frances M. Conley Director
------------------------ Donald R. Stenquist
By: //S//MILTON F. ZEUTSCHEL Director
------------------------
Milton F. Zeutschel
By: //S//FRANCES M. CONLEY Director
----------------------Chairman of the Board
Frances M. Conley
By: //S//EDWARD/s/Edward D. LAZOWSKALazowska Director
-----------------------------------------------
Edward D. Lazowska
By: //S//KEITH/s/Keith L. BARNESBarnes Director
--------------------------------------------
Keith L. Barnes
By: //S//JOEL S. HATLEN Corporate Controller
------------------- Chief Accounting
/s/Joel S. Hatlen Chief Financial Officer
------------------------ Vice President of Finance
Joel S. Hatlen Secretary, Treasurer
Page 5955
EXHIBITS INDEX
Exhibit Number Title Page Number
- -------------- ------------------------------------------------ ------------
3 ARTICLES OF INCORPORATION:
Exhibit Number Title Page Number
- -------------- ---------------------------------------------------------------------------------------------- -----------
3 Articles of Incorporation:
3.1 The Company's restated Articles of Incorporation filed November 2, 1987 (Incorporated by
reference to Exhibit 3.1 of the Company's 1987 Annual Report on Form 10-K (File No. 0-10394)). N/A
3.2 The Company's Bylaws as amended and restated as of March 12, 1998. 60
3.3 Certificate of Designation, Preferences and Rights of Series A Junior Participating Preferred
Stock (Incorporated by reference to Exhibit 1 of the Company's Registration Statement on Form
8-A filed April 5, 1988 (File No. 0-10394)). N/A
4 Instruments Defining the Rights of Security Holders, Including Indentures:
4.1 Rights Agreement, dated as of April 4, 1998, between Data I/O Corporation and ChaseMellon
Shareholder Services, L.L.C. as Rights Agent, which includes: as Exhibit A thereto, the Form
of Right Certificate; and, as Exhibit B thereto, the Summary of Rights to Purchase Series A
Junior Participating Preferred Stock (Incorporated by reference to the Company's Current
Report on Form 8-K filed on March 13, 1998). N/A
4.2 Rights Agreement, dated as of March 31, 1988, between Data I/O Corporation and First Jersey
National Bank, as Rights Agent, as amended by Amendment No. 1 thereto, dated as of May 28,
1992 and Amendment No. 2 thereto, dated as of July 16, 1997 (Incorporated by reference to the
Company's current Report on Form 8-K filed on March 13, 1998). N/A
10 Material Contracts:
10.1 1985 Stock Option Plan (Incorporated by reference to Exhibit 10.22 of the Company's 1984
Annual Report on Form 10-K (File No. 0-10394)). N/A
3.2 The Company's Bylaws as amended and restated as
of December 11, 1996. 64
3.3 Certificate of Designation, Preferences and Rights
of Series A Junior Participating Preferred Stock
(Incorporated by reference to Exhibit 1 of the
Company's Registration Statement on Form 8-A filed
April 5, 1988 (File No. 0-10394)). N/A
4 INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS, INCLUDING
INDENTURES:
4.1 Form of Rights Agreement, dated as of March 31, 1988,
between the Company and ChaseMellon Shareholder
Services (formerly Chemical Mellon Shareholder
Services and Chemical Trust Company of California)
which includes as Exhibit B thereto the form of Rights
Certificate (Incorporated by reference to the Company's
Registration Statement Form 8-A filed on April 5, 1988
(File No. 0-10394)). N/A
10 MATERIAL CONTRACTS:
10.1 Amended and restated 1982 Employee Stock Purchase Plan
(Incorporated by reference to Exhibit 10.1 to the
Company's Registration Statement of Form S-8
(File No. 33-42010, filed August 1, 1991)). N/A
10.2 1984 Deferred Compensation Plan (Incorporated by
reference to Exhibit 10.22 of the Company's 1983
Annual Report on Form 10-K (File No. 0-10394)). N/A
10.3 1985 Stock Option Plan (Incorporated by reference
to Exhibit 10.22 of the Company's 1984 Annual Report
on Form 10-K (File No. 0-10394)). N/A
10.4 1984 FutureNet Employee Stock Option Plan (Incorporated by reference to Exhibit 10.23 of the
Company's 1984 Annual Report on Form 10-K (File No. 0-10394)). N/A
10.3 Asset Purchase Agreement, dated as of December 31, 1992, by and among Data I/O Corporation,
CAD/CAM Group, Inc., and certain of its shareholders, and an Amendment thereto, dated January
19, 1993 (Incorporated by reference to Exhibit 10.21 of the Company's 1992 Annual Report on
Form 10-K (File No. 0-10394)). N/A
10.4 Software Development Agreement, dated as of January 19, 1993, by and among Data I/O
Corporation, Michael J. Mendelsohn and Peter C. Niday (Incorporated by reference to Exhibit
10.22 of the Company's 1992 Annual Report on Form 10-K (File No. 0-10394)). N/A
10.5 Asset Purchase Agreement, dated as of December 31,
1992, by and among Data I/O Corporation, CAD/CAM
Group, Inc., and certain of its shareholders, and
an Amendment thereto, dated January 19, 1993
(Incorporated by reference to Exhibit 10.21 of
the Company's 1992 Annual Report on Form 10-K
(File No. 0-10394)). N/A
10.6 Software Development Agreement, dated as of
January 19, 1993, by and among Data I/O
Corporation, Michael J. Mendelsohn and Peter C. Niday
(Incorporated by reference to Exhibit 10.22 of the
Company's 1992 Annual Report on Form 10-K
(File No. 0-10394)). N/A
10.7 Amended and Restated 1983 Stock Appreciation Rights Plan dated February 3, 1993 (Incorporated
by reference to Exhibit 10.23 of the Company's 1992 Annual Report on Form 10-K (File No.
0-10394)). N/A
Page 6056
10.8 Amended and Restated 1986 Stock Option Plan dated
February 3, 1993 (Incorporated by reference to Exhibit
10.24 of the Company's 1992 Annual Report on Form 10-K
(File No. 0-10394)). N/A
10.9 Amendment, dated April 30, 1993, to the business loan
agreement dated November 25, 1992, with Seattle First
National Bank. (Incorporated by reference to Exhibit
10.22 of the Company's 1993 Annual Report on Form 10K
(File No. O-10394)). N/A
10.10 Business loan agreement dated February 28, 1994, with
Seattle First National Bank for $8.0 million.
(Incorporated by reference to Exhibit 10.24 of the
Company's 1993 Annual Report on Form 10K
(File No. O-10394)). N/A
10.11 Summary of 1994 Management Incentive Compensation Plan.
(Incorporated by reference to Exhibit 10.25 of the
Company's 1993 Annual Report on Form 10K
(File No. O-10394)). N/A
10.12 Amended and Restated Retirement Plan and Trust Agreement.
(Incorporated by reference to Exhibit 10.26 of the
Company's 1993 Annual Report on Form 10K
(File No. O-10394)). N/A
10.13 Management Incentive Compensation Plan. (Incorporated
by reference to Exhibit 10.16
10.6 Summary of 1994 Management Incentive Compensation Plan. (Incorporated by reference to Exhibit
10.25 of the Company's 1993 Annual Report on Form 10K (File No. O-10394)). N/A
10.7 Amended and Restated Retirement Plan and Trust Agreement. (Incorporated by
reference to Exhibit 10.26 of the Company's 1993 Annual Report on Form 10K
(File No. O-10394)). N/A
10.8 Form of Change in Control Agreements (Incorporated by reference to Exhibit 10.20 of the
Company's 1994 Annual Report on Form 10K (File No. 0-10394)). N/A
10.9 First Amendment to the Data I/O Tax Deferred Retirement Plan (Incorporated by reference to
Exhibit 10.21 of the Company's 1994 Annual Report on Form 10K (File No. 0-10394)). N/A
10.10 Amended and Restated Management Incentive Compensation Plan dated January 1, 1996
(Incorporated by reference to Exhibit 10.20 of the Company's 1995 Annual Report on Form 10K
(File No. 0-10394)). N/A
10.11 Amended and Restated Performance Bonus Plan dated January 1, 1996 (Incorporated by reference
to Exhibit 10.21 of the Company's 1995 Annual Report on Form 10K (File No. 0-10394)). N/A
10.12 Second Amendment to the Data I/O Tax Deferred Retirement Plan (Incorporated by reference to
Exhibit 10.26 of the Company's 1995 Annual Report on Form 10K (File No. 0-10394)). N/A
10.13 Data I/O Corporation 1996 Director Fee Plan (Incorporated by reference to Exhibit 10.27 of the
Company's 1995 Annual Report on Form 10K (File No. 0-10394)). N/A
10.14 Synario Division Proceeds Sharing Plan (Confidential treatment has been requested for certain
portions of this exhibit) (Incorporated by reference to Exhibit 10.28 of the Company's 1995
Annual Report on Form 10K (File No. 0-10394)). N/A
10.15 Letter Agreement with William J. Haydamack (Confidential treatment has been requested for
certain portions of this exhibit) (Incorporated by reference to Exhibit 10.29 of the Company's
1995 Annual Report on Form 10K (File No. 0-10394)). N/A
10.16 Data I/O Corporation 1982 Employee Stock Purchase Plan Amended and Restated December 11, 1996
(Incorporated by reference to Exhibit 10.1 to the Company's Registration Statement of Form S-8
(File No. 333-20657, filed January 29, 1997)). N/A
10.17 Business Loan Agreement dated April 24, 1996, with Seattle First National Bank for $8.0
million (Incorporated by reference to Exhibit 10.30 of the Company's 1996 Annual Report on
Form 10K (File No. 0-10394)). N/A
10.18 OEM Agreement between Synopsys, Inc. and Synario Design Automation a Division of Data I/O
Corporation. (Portions of this exhibit have been omitted pursuant to an application for an
order granting confidential treatment. The omitted portions have been separately filed with
the Commission) (Incorporated by reference to Exhibit 10.31 of the Company's 1996 Annual
Report on Form 10K (File No. 0-10394)). N/A
10.14 Performance Bonus Plan (Incorporated by reference to
Exhibit 10.17 of the Company's 1994 Annual Report on
Form 10K (File No. 0-10394)). N/A
10.15 Amendment, dated July 22, 1994, to the business loan
agreement dated February 28, 1994, with Seattle First
National Bank (Incorporated by reference to Exhibit
10.18 of the Company's 1994 Annual Report on Form 10K
(File No. 0-10394)). N/A
10.16 Amendment, dated November 16, 1994 to the Business
Loan Agreement dated February 28, 1994, with Seattle
First National Bank (Incorporated by reference to
Exhibit 10.19 of the Company's 1994 Annual Report on
Form 10K (File No. 0-10394)). N/A
10.17 Form of Change in Control Agreements (Incorporated
by reference to Exhibit 10.20 of the Company's 1994
Annual Report on Form 10K (File No. 0-10394)). N/A
10.18 First Amendment to the Data I/O Tax Deferred
Retirement Plan (Incorporated by reference to
Exhibit 10.21 of the Company's 1994 Annual Report
on Form 10K (File No. 0-10394)). N/A
10.19 Amended and Restated Management Incentive Compensation
Plan dated January 1, 1996 (Incorporated by reference
to Exhibit 10.20 of the Company's 1995 Annual Report
on Form 10K (File No. 0-10394)). N/A
10.20 Amended and Restated Performance Bonus Plan dated
January 1, 1996 (Incorporated by reference to
Exhibit 10.21 of the Company's 1995 Annual Report
on Form 10K (File No. 0-10394)). N/A
Page 6157
10.21 Amended and Restated 1986 Stock Option Plan dated
February 22, 1995 (Incorporated by reference to
Exhibit 10.22 of the Company's 1995 Annual Report
on Form 10K (File No. 0-10394)). N/A
10.22 Business Loan Agreement dated May 12, 1995, with
Seattle First National Bank for $8.0 million
(Incorporated by reference to Exhibit 10.23 of the
Company's 1995 Annual Report on Form 10K
(File No. 0-10394)). N/A
10.23 Asset Purchase Agreement dated as of August 31, 1995
among Reel-Tech, Inc., an Indiana corporation,
Norris R. Hall, Douglas R. Hall, and Reel-Tech, Inc.,
a Washington corporation, a wholly owned subsidiary
of Data I/O Corporation (Confidential treatment has been
requested for certain portions of this exhibit)
(Incorporated by reference to Exhibit 2.1 of to the
Company's Form 8-K Report dated November 6, 1995). N/A
10.24 Escrow Agreement dated as of August 31, 1995, among
Reel-Tech, Inc., a Washington corporation, Reel-Tech,
Inc., an Indiana corporation, and Seattle First
National Bank (Incorporated by reference to Exhibit
2.2 of to the Company's Form 8-K Report dated
November 6, 1995). N/A
10.25 Second Amendment to the Data I/O Tax Deferred
Retirement Plan (Incorporated by reference to
Exhibit 10.26 of the Company's 1995 Annual Report
on Form 10K (File No. 0-10394)). N/A
10.26 Data I/O Corporation 1996 Director Fee Plan
(Incorporated by reference to Exhibit 10.27 of
the Company's 1995 Annual Report on Form 10K
(File No. 0-10394)). N/A
10.27 Synario Division Proceeds Sharing Plan (Confidential
treatment has been requested for certain portions of
this exhibit) (Incorporated by reference to Exhibit
10.28 of the Company's 1995 Annual Report on Form
10K (File No. 0-10394)). N/A
10.28 Letter Agreement with William J. Haydamack
(Confidential treatment has been requested for
certain portions of this exhibit) (Incorporated
by reference to Exhibit 10.29 of the Company's 1995
Annual Report on Form 10K (File No. 0-10394)). N/A
10.29 Data I/O Corporation 1982 Employee Stock Purchase Plan
Amended and Restated December 11, 1996 (Incorporated
by reference to Exhibit 10.1 to the Company's
Registration Statement of Form S-8 (File No. 333-20657,
filed January 29, 1997)). N/A
10.30 Business Loan Agreement dated April 24, 1996, with
Seattle First National Bank for $8.0 million. 75
10.31 OEM Agreement between Synopsys, Inc. and Synario
Design Automation a Division of Data I/O Corporation.
(Portions of this exhibit have been omitted pursuant
to an application for an order granting confidential
treatment. The omitted portions have been separately
filed with the Commission). 89
10.19 Purchase and Sale Agreement dated as of July 9, 1996 (Relating to the sale of Data I/O
Corporation's headquarters property in Redmond, Washington consisting of approximately 79
acres of land and an approximately 96,000 square foot building. (Portions of this exhibit have
been omitted pursuant to an application for an order granting confidential treatment. The
omitted portions have been separately filed with the Commission) (Incorporated by reference to
Exhibit 10.32 of the Company's 1996 Annual Report on Form 10K (File No. 0-10394)). N/A
10.20 Letter dated as of December 20, 1996, First Amendment and extension of the Closing Date under
that certain Purchase and Sale Agreement dated as of July 9, 1996. (Portions of this exhibit
have been omitted pursuant to an application for an order granting confidential treatment. The
omitted portions have been separately filed with the Commission) (Incorporated by reference to
Exhibit 10.33 of the Company's 1996 Annual Report on Form 10K (File No. 0-10394)). N/A
10.21 Letter dated as of February 17, 1997, Second Amendment and extension of the Closing Date under
that certain Purchase and Sale Agreement dated as of July 9, 1996. (Portions of this exhibit
have been omitted pursuant to an application for an order granting confidential treatment. The
omitted portions have been separately filed with the Commission) (Incorporated by reference to
Exhibit 10.34 of the Company's 1996 Annual Report on Form 10K (File No. 0-10394)). N/A
10.22 Third Amendment to the Data I/O Tax Deferred Retirement Plan (Incorporated by reference to
Exhibit 10.35 of the Company's 1996 Annual Report on Form 10K (File No. 0-10394)). N/A
10.23 Asset Purchase Agreement, by and between Data I/O Corporation, a Washington corporation,
Reel-Tech Inc., a Washington corporation, and General Scanning Inc., a Massachusetts
corporation, dated November 28, 1997 (Incorporated by reference to Exhibit 2.1 of the
Company's Form 8-K Report dated November 28, 1997). N/A
10.24 Master Agreement, by and between Data I/O Corporation, a Washington corporation, Minc,
Incorporated, a Colorado corporation, and Minc Washington Corp., a Colorado corporation, dated
November 12, 1997 (Incorporated by reference to Exhibit 2.1 of the Company's Form 8-K Report
dated November 12, 1997). N/A
10.25 Amended and Restated Management Incentive Compensation Plan dated January 1, 1997. 71
10.26 Amended and Restated Performance Bonus Plan dated January 1, 1997. 75
10.27 Fourth Amendment to the Data I/O Tax Deferred Retirement Plan. 78
10.28 Fifth Amendment to the Data I/O Tax Deferred Retirement Plan. 79
10.29 Sixth Amendment to the Data I/O Tax Deferred Retirement Plan. 80
Page 6258
10.32 Purchase and Sale Agreement dated as of July 9, 1996
(Relating to the sale of Data I/O Corporation's
headquarters property in Redmond, Washington consisting
of approximately 79 acres of land and an approximately
96,000 square foot building. (Portions of this exhibit
have been omitted pursuant to an application for an
order granting confidential treatment. The omitted
portions have been separately filed with the Commission). 111
10.33 Letter dated as of December 20, 1996, First
Amendment and extension of the Closing Date under
that certain Purchase and Sale Agreement dated as
of July 9, 1996. (Portions of this exhibit have been
omitted pursuant to an application for an order granting
confidential treatment. The omitted portions have been
separately filed with the Commission). 163
10.34 Letter dated as of February 17, 1997, Second Amendment
and extension of the Closing Date under that certain
Purchase and Sale Agreement dated as of July 9, 1996.
(Portions of this exhibit have been omitted pursuant
to an application for an order granting confidential
treatment. The omitted portions have been separately
filed with the Commission). 165
10.35 Third Amendment to the Data I/O Tax Deferred Retirement
Plan. 167
10.30 Amended and Restated 1986 Stock Option Plan dated May 13, 1997. 81
10.31 Amendment, dated May 13, 1997, to the business loan agreement dated April 24, 1996, with
Seattle First National Bank. 89
10.32 Amended and Restated Data I/O Corporation 1996 Director Fee Plan. 91
10.33 Agreement and General Release with William J. Haydamack. 96
10.34 Separation Agreement with William C. Erxleben. 98
10.35 Consulting Agreement with William C. Erxleben. 103
10.36 First Amendment to the Asset Purchase Agreement dated as of August 31, 1995, among Reel-Tech,
Inc., an Indiana corporation, Norris R. Hall, Douglas R. Hall, and Reel-Tech, Inc., a
Washington corporation, a wholly owned subsidiary of Data I/O Corporation. 107
10.37 Second Amendment to the Asset Purchase Agreement dated as of August 31, 1995, among Reel-Tech,
Inc., an Indiana corporation, Norris R. Hall, Douglas R. Hall, and Reel-Tech, Inc., a
Washington corporation, a wholly owned subsidiary of Data I/O Corporation. 115
10.38 Third Amendment to the Asset Purchase Agreement dated as of August 31, 1995, among Reel-Tech,
Inc., an Indiana corporation, Norris R. Hall, Douglas R. Hall, and Reel-Tech, Inc., a
Washington corporation, a wholly owned subsidiary of Data I/O Corporation. 119
10.39 Fourth Amendment to the Asset Purchase Agreement dated as of August 31, 1995, among Reel-Tech,
Inc., an Indiana corporation, Norris R. Hall, Douglas R. Hall, and Reel-Tech, Inc., a
Washington corporation, a wholly owned subsidiary of Data I/O Corporation. 127
Page 6359
EXHIBIT 3.2
AMENDED AND RESTATED
BYLAWS
OF
DATA I/O CORPORATION
As of December 11, 1996March 12, 1998
ARTICLE I
OFFICESOffices
(1) REGISTERED OFFICE AND REGISTERED AGENT:Registered Office and Registered Agent: The registered office of the
corporation shall be located in the State of Washington at such place as may be
fixed from time to time by the Board of Directors upon filing of such notices as
may be required by law, and the registered agent shall have a business office
identical with such registered office.
(2) OTHER OFFICES:Other Offices: The corporation may have other offices within or outside
the State of Washington at such place or places as the Board of Directors may
from time to time determine.
ARTICLE II
SHAREHOLDERS' MEETINGSShareholders' Meetings
(1) MEETING PLACE:Meeting Place: All meetings of the shareholders shall be held at the
registered office of the corporation, or at such other place as shall be
determined from time to time by the Board of Directors, and the place at which
any such meeting shall be held shall be stated in the notice of the meeting.
(2) ANNUAL MEETING TIME:Annual Meeting Time: The annual meeting of the shareholders for the
election of directors and for the transaction of such other business as may
properly come before the meeting, shall be held each year during the month of
May on such date and at such time as may be determined each year by the Board of
Directors.
(3) SPECIAL MEETINGS:Special Meetings: Special meetings of the shareholders for any purpose
may be called at any time by the President, Board of Directors, or the holders
of not less than one-tenth of all shares entitled to vote at the meeting in
accordance with RCW 23B.07.020.
(4) NOTICE:Notice:
(a) Notice of the time and place of the annual meeting of shareholders
shall be given by delivering personally or by mailing a written or printed
notice of the same, at least ten days, and not more than sixty days, prior
to the meeting to each shareholder of record entitled to vote at such
meeting.
(b) At least ten days and not more than sixty days prior to the
meeting, written or printed notice of each special meeting of shareholders,
stating the place, day and hour of such meeting, and the purpose or
purposes for which the meeting is called, shall be delivered personally, or
mailed to each shareholder of record entitled to vote at such meeting.
(c) Notice of a shareholders' meeting at which the shareholders will
be called to act on an amendment to the articles of incorporation, a plan
of merger or share exchange, a proposed sale of assets other than in the
regular course of business or the dissolution of the Corporation shall be
given not fewer than twenty days and not more than sixty days before the
meeting date.
(5) VOTING RECORD:Voting Record: At least ten days and not more than seventy days before
each meeting of shareholders, a complete record of the shareholders entitled to
vote at such meeting, or any adjournment thereof, shall be made, arranged in
Page 64
alphabetical order, with the address of and number of shares held by each, which
record shall be kept on file at the registered office of the corporation for a
period of ten days prior to such meeting. The record shall be kept on file at
the registered office of the Corporation for a period beginning ten days prior
to such meeting and shall be kept open at the time and place of such meeting for
the inspection of any shareholder, or any shareholder's agent or attorney.
Page 60
(6) QUORUM:Quorum: Except as otherwise required by law:
(a) A quorum at any annual or special meeting of shareholders shall
consist of shareholders representing, either in person or by proxy, a
majority of the votes entitled to be cast on the matter by each voting
group.
(b) The votes of a majority in interest of those present at any
properly called meeting or adjourned meeting of shareholders at which a
quorum as in this paragraph defined is present shall be sufficient to
transact business.
(7) VOTING OF SHARES:Voting of Shares:
(a) Except as otherwise provided in these Bylaws or to the extent that
voting rights of the shares of any class or classes are limited or denied
by the Articles of Incorporation, each shareholder, on each matter
submitted to a vote at a meeting of shareholders, shall have one vote for
each share of stock registered in his name in the books of the corporation.
(b) If a quorum exists, action on a matter, other than the election of
directors, is approved by a voting group if the votes cast within the
voting group favoring the action exceed the votes cast within the voting
group opposing the action, unless the question is one which by express
provision of law, of the Articles of Incorporation or of these Bylaws a
greater number of affirmative votes is required.
(c) Unless otherwise provided in the Articles of Incorporation, in any
election of directors the candidates elected are those receiving the
largest numbers of votes cast by the shares entitled to vote in the
election, up to the number of directors to be elected by such shares.
(8) CLOSING OF TRANSFER BOOKS AND FIXING RECORD DATE:Closing of Transfer Books and Fixing Record Date: For the purpose of
determining shareholders notice of or to vote at any meeting of shareholders, or
any adjournment thereof, or entitled to receive payment of any dividend, the
Board of Directors may provide that the stock transfer books shall be closed for
a stated period not to exceed seventy days nor be less than ten days preceding
such meeting. In lieu of closing the stock transfer books, the Board of
Directors may fix in advance a record date for any such determination of
shareholders, such date to be not more than fifty days and, in case of a meeting
of shareholders, not less than ten days prior to the date on which the
particular action requiring such determination of shareholders is to be taken.
(9) PROXIES:Proxies: A shareholder may vote either in person or by proxy executed
in writing by the shareholder or his duly authorized attorney-in-fact or agent.
An appointment of a proxy is effective when received by the person authorized to
tabulate votes for the Corporation. No proxy shall be valid after eleven months
from the date of its execution, unless otherwise provided in the proxy.
(10) ACTION BY SHAREHOLDERS WITHOUT A MEETING:Action by Shareholders without a Meeting: Any action required or which
may be taken at a meeting of shareholders of the corporation may be taken
without a meeting if a consent in writing, setting forth the action so taken,
shall be signed by all of the shareholders entitled to vote with respect to the
subject matter thereof, and delivered to the Corporation for inclusion in the
minutes or filing with the Corporation's records. Such consent shall have the
same force and effect as a unanimous vote of shareholders. Action taken in
accordance with this section shall be effective when all written consents are in
the possession of the Corporation unless the consent specifies a later effective
date.
(11) WAIVER OF NOTICE:Waiver of Notice: A waiver of any notice required to be given any
shareholder, signed by the person or persons entitled to such notice, whether
before or after the time stated therein for the meeting shall be equivalent to
the giving of such notice provided that such waiver has been delivered to the
Corporation for inclusion in the minutes or filing with the Corporation's
records. A shareholder's attendance at a meeting waives any notice required,
unless the shareholder at the beginning of the meeting objects to holding the
meeting or transacting business at the meeting.
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(12) ACTION OF SHAREHOLDERS BY COMMUNICATIONS EQUIPMENT:Action of Shareholders by Communications Equipment: Shareholders may
participate in a meeting of shareholders by means of a conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other at the same time, and participation by such
means shall constitute presence in person at a meeting.
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(13) NOTICE OF SHAREHOLDER NOMINEES:Notice of Shareholder Nominees: Nominations of persons for election to
the Board of Directors shall be made only at a meeting of shareholders and only
(i) by the Board of Directors or a committee appointed by the Board of Directors
or (ii) by any shareholder entitled to vote in the election of directors at the
meeting who complies with the notice procedures set forth in this Section 13.
Such nominations, other than those made by or at the direction of the Board of
Directors, shall be made pursuant to timely notice in writing to the Secretary
of the corporation. To be timely, a shareholder's notice shall be delivered to
or mailed and received at the principal executive offices of the corporation (i)
with respect to an election to be held at an annual meeting of shareholders,
ninety days prior to the date one year from the date of the immediately
preceding annual meeting of shareholders, and (ii) with respect to an election
to be held at a special meeting of shareholders for the election of directors,
the close of business on the tenth day following the date on which notice of
such meeting is first given to shareholders. For purposes of this Section 14,
any adjournment(s) or postponement(s) of the original meeting whereby the
meeting will reconvene within thirty days from the original date shall be deemed
for purposes of notice to be a continuation of the original meeting, and no
nominations by a shareholder of persons to be elected directors of the
corporation may be made at any such reconvened meeting unless pursuant to a
notice which was timely for the meeting on the date originally scheduled. Each
such notice shall set forth: (a) the name and address of the shareholder who
intends to make the nomination and of the person or persons to be nominated; (b)
a representation that the shareholder is a holder of record of stock of the
corporation entitled to vote at such meeting and intends to appear in person or
by proxy at the meeting to nominate the person or persons specified in the
notice; (c) a description of all arrangements or understandings between the
shareholder and each nominee and any other person or persons (naming such person
or persons) pursuant to which the nomination or nominations are to be made by
the shareholder; (d) such other information regarding each nominee proposed by
such shareholder as would be required to be disclosed in solicitations of
proxies for election of directors, or is otherwise required, in each case
pursuant to the Securities Exchange Act of 1934, as amended; and (e) the consent
of each nominee to serve as a director of the corporation if so elected.
Notwithstanding the foregoing, nothing in this Section 13 shall be
interpreted or construed to require the inclusion of information about any such
nominee in any proxy statement distributed by, at the direction of, or on behalf
of the Board of Directors. The Chairman of the meeting shall, if the facts
warrant, determine and declare to the meeting that a nomination was not made in
accordance with the foregoing procedures, and if he should so determine, he
shall so declare to the meeting and the defective nomination shall be
disregarded.
(14) SHAREHOLDER PROPOSALS AT ANNUAL MEETING:Shareholder Proposals at Annual Meeting: Business may be properly
brought before an annual meeting by a shareholder only upon the shareholder's
timely notice thereof in writing to the Secretary of the corporation. To be
timely, a shareholder's notice must be delivered to or mailed and received at
the principal executive offices of the corporation not later than ninety days
prior to the date one year from the date of the immediately preceding annual
meeting of shareholders. For purposes of this Section 14, any adjournment(s) or
postponement(s) of the original meeting whereby the meeting will reconvene
within thirty days from the original date shall be deemed for purposes of notice
to be a continuation of the original meeting, and no business may be brought
before any reconvened meeting unless pursuant to a notice which was timely for
the meeting on the date as originally scheduled. Each such notice shall set
forth: (a) the name and address of the shareholder who intends to make the
proposal; (b) a representation that the shareholder is a holder of record of
stock of the corporation entitled to vote at such meeting and intends to appear
in person or by proxy at the meeting to vote for the proposal; (c) any material
interest of such shareholder in such proposal; and (d) such other information
regarding such proposal as would be required to be disclosed in solicitations of
proxies pursuant to the Securities Exchange Act of 1934, as amended.
Notwithstanding the foregoing, nothing in this Section 14 shall be
interpreted or construed to require the inclusion of information about any such
proposal in any proxy statement distributed by, at the discretion of, or on
behalf of the Board of Directors. The Chairman of the meeting shall, if the
facts warrant, determine and declare to the meeting that a proposal was not made
in accordance with the foregoing procedures, and if he should so determine, he
shall so declare to the meeting, and any such business not properly brought
before the meeting shall be disregarded.
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ARTICLE III
STOCKStock
(1) ISSUANCE OF SHARES:Issuance of Shares: No shares of the Corporation shall be issued unless
authorized by the Board of Directors. Such authorization shall include the
number of shares to be issued, the consideration to be received and a statement
regarding the adequacy of the consideration.
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(2) CERTIFICATES:Certificates: Certificates of stock shall be issued in numerical order,
and each shareholder shall be entitled to a certificate signed by the President,
or a Vice President, and the Secretary or an Assistant Secretary, and may be
sealed with the seal of the corporation or a facsimile thereof. The signatures
of such officers may be facsimiles if the certificate is manually signed on
behalf of a transfer agent, or registered by a registrar, other than the
corporation itself or an employee of the corporation. If an officer who has
signed or whose facsimile signature has been placed upon such certificate ceases
to be an officer before the certificate is issued, it may be issued by the
corporation with the same effect as if the person were an officer on the date of
issue.
At a minimum each certificate of stock shall state:
(a) the name of the Corporation;
(b) that the Corporation is organized under the laws of the State of
Washington;
(c) the name of the person to whom the certificate is issued;
(d) the number and class of shares and the designation of the series,
if any, the certificate represents; and
(e) if the Corporation is authorized to issue different classes of
shares or different series within a class, the designations, relative
rights, preferences and limitations applicable to each class and the
variations in rights, preferences and limitations determined for each
series, and the authority of the Board of Directors to determine variations
for future series, must be summarized either on the front or back of the
certificate. Alternatively, the certificate may state conspicuously on its
front or back that the Corporation will furnish the shareholder this
information without charge on request in writing.
(3) TRANSFERS:Transfers:
(a) Transfers of stock shall be made only upon the stock transfer
books of the corporation, kept at the registered office of the corporation
or at its principal place of business, or at the office of its transfer
agent or registrar, and before a new certificate is issued the old
certificate shall be surrendered for cancellation. The Board of Directors
may, by resolution, open a share register in any state of the United
States, and may employ an agent or agents to keep such register, and to
record transfers of shares therein.
(b) Shares of certificated stock shall be transferred by delivery of
the certificates therefor, accompanied either by an assignment in writing
on the back of the certificate or an assignment separate from certificate,
or by a written power of attorney to sell, assign and transfer the same,
signed by the holder of said certificate. No shares of certificated stock
shall be transferred on the records of the Corporation until the
outstanding certificates therefor have been surrendered to the Corporation
or to its transfer agent or registrar.
(4) REGISTERED OWNER:Registered Owner: Registered shareholders shall be treated by the
corporation as the holders in fact of the stock standing in their respective
names and the corporation shall not be bound to recognize any equitable or other
claim to or interest in any share on the part of any other person, whether or
not it shall have express or other notice thereof, except as expressly provided
below or by the laws of the State of Washington. The Board of Directors may
adopt by resolution a procedure whereby a shareholder of the corporation may
certify in writing to the corporation that all or a portion of the Page 67
shares
registered in the name of such shareholder are held for the account of a
specified person or persons. The resolution shall set forth:
(a) The classification of shareholder who may certify;
(b) The purpose or purposes for which the certification may be made;
(c) The form of certification and information to be contained therein;
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(d) If the certification is with respect to a record date or closing
of the stock transfer books, the date within which the certification must
be received by the corporation; and
(e) Such other provisions with respect to the procedure as are deemed
necessary or desirable.
Upon receipt by the corporation of a certification complying with the
procedure, the persons specified in the certification shall be deemed, for the
purpose or purposes set forth in the certification, to be the holders of record
of the number of shares specified in place of the shareholder making the
certification.
(5) MUTILATED, LOST OR DESTROYED CERTIFICATES:Mutilated, Lost or Destroyed Certificates: In case of any mutilation,
loss or destruction of any certificate of stock, another may be issued in its
place on proof of such mutilation, loss or destruction. The Board of Directors
may impose conditions on such issuance and may require the giving of a
satisfactory bond or indemnity to the corporation in such sum as they might
determine or establish such other procedures as they deem necessary.
(6) FRACTIONAL SHARES OR SCRIP:Fractional Shares or Scrip: The corporation, by resolution of the Board
of Directors, may either: (a) issue fractions of a share which shall entitle the
holder to exercise voting rights, to receive dividends thereon, and to
participate in any of the assets of the corporation in the event of liquidation;
(b) arrange for the disposition of fractional interests by those entitled
thereto; (c) pay in cash the fair value of fractions of a share as of the time
when those entitled to receive such shares are determined; or (d) issue scrip in
registered or bearer form which shall entitle the holder to receive a
certificate for a full share upon the surrender of such scrip aggregating a full
share.
(7) SHARES OF ANOTHER CORPORATION:Shares of Another Corporation: Shares owned by the corporation in
another corporation, domestic or foreign, may be voted by such officer, agent or
proxy as the Board of Directors may determine or, in the absence of such
determination, by the President of the corporation.
ARTICLE IV
BOARD OF DIRECTORSBoard of Directors
(1) NUMBER AND POWERS:Number and Powers: The management of all the affairs, property and
interest of the corporation shall be vested in a Board of Directors consisting
of seven (7)four (4) persons, who shall be elected for a term of one year, and shall hold
office until their successors are elected and qualified. Directors need not be
shareholders or residents of the State of Washington. In addition to the powers
and authorities by these Bylaws and the Articles of Incorporation expressly
conferred upon it, the Board of Directors may exercise all such powers of the
corporation and do all such lawful acts and things as are not prohibited by
statute or by the Articles of Incorporation or by these Bylaws or as directed or
required to be exercised or done by the shareholders.
(2) CHANGE OF NUMBER:Change of Number: The number of directors may at any time be increased
or decreased by amendment of these Bylaws, but no decrease shall have the effect
of shortening the term of any incumbent directors, except as provided in
Sections 5 and 6 of this Article IV.
(3) VACANCIES:Vacancies: All vacancies in the Board of Directors, whether caused by
resignation, death or otherwise, may be filled by the affirmative vote of a
majority of the remaining directors though less than a quorum of the Board of
Directors. A director elected to fill any vacancy shall hold office for the
unexpired term of his or her predecessor and until his or her successor is
elected and qualified. Any directorship to be filled by reason of an increase in
the number of directors Page 68
may be filled by the Board of Directors for a term of
office continuing only until the next election of directors by the shareholders
and until his or her successor is elected and qualified.
(4) RESIGNATION:Resignation: A director may resign at any time by delivering written
notice to the Board of Directors, the President or the Secretary. A resignation
is effective when the notice is delivered unless the notice specifies a later
effective date.
(5) REMOVAL OF DIRECTORS:Removal of Directors: At a special meeting of shareholders called
expressly for that purpose, the entire Board of Directors, or any member
thereof, may be removed by a vote of the holders of a majority of shares then
entitled to vote at an election of such directors. A director or directors may
be removed only if the number of votes cast to remove the
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director exceeds the number of votes cast not to remove the director. The notice
of such special meeting must state that the purpose, or one of the purposes, of
the meeting is removal of the director or directors, as the case may be.
(6) REGULAR MEETINGS:Regular Meetings: Regular meetings of the Board of Directors or any
committee may be held without notice at the registered office of the corporation
or at such other place or places, either within or without the State of
Washington, as the Board of Directors or such committee, as the case may be, may
from time to time designate. The annual meeting of the Board of Directors shall
be held without notice immediately after the adjournment of the annual meeting
of shareholders.
(7) SPECIAL MEETINGS:Special Meetings:
(a) Special meetings of the Board of Directors may be called at any
time by the President or by any two directors, to be held at the registered
office of the corporation or at such other place or places as the Board of
Directors or the person or persons calling such meeting may from time to
time designate. Notice of all special meetings of the Board of Directors
shall be given to each director by three day's service of the same by
telegram, by letter, or personally. Such notice need not specify the
business to be transacted at, nor the purpose of, the meeting.
(b) Special meetings of any committee may be called at any time by
such person or persons and with such notice as shall be specified for such
committee by the Board of Directors, or in the absence of such
specification, in the manner and with the notice required for special
meetings of the Board of Directors.
(8) QUORUM:Quorum: A majority of the whole Board of Directors shall be necessary
at all meetings to constitute a quorum for the transaction of business. If a
quorum is present when a vote is taken, the affirmative vote of a majority of
directors present is the act of the Board of Directors.
(9) WAIVER OF NOTICE:Waiver of Notice: Attendance of a director at a meeting shall
constitute a waiver of notice of such meeting, except where a director attends
for the express purpose of objecting to the transaction of any business because
the meeting is not lawfully called or convened and does not thereafter vote for
or assent to action taken at the meeting. A waiver of notice signed by the
director or directors and delivered to the Corporation for inclusion in the
minutes or filing with the corporate records, whether before or after the time
stated for the meeting, shall be equivalent to the giving of notice.
(10) REGISTERING DISSENT:Registering Dissent: A director who is present at a meeting of the
Board of Directors at which action on a corporate matter is taken shall be
presumed to have assented to such action unless his dissent shall be entered in
the minutes of the meeting, or unless he shall file his written dissent to such
action with the person acting as the secretary of the meeting, before the
adjournment thereof, or shall forward such dissent by registered mail to the
Secretary of the corporation within a reasonable time after the adjournment of
the meeting. Such right to dissent shall not apply to a director who voted in
favor of such action.
(11) EXECUTIVE AND OTHER COMMITTEES:Executive and Other Committees: The Board of Directors, by resolution
adopted by a majority of the full Board of Directors, may designate from among
its members an Executive Committee and one or more other standing or special
committees. The Executive Committee shall have and may exercise all the
authority of the Board of Directors, and other standing or special committees
may be invested with such powers, subject to such conditions, as the Board of
Directors shall see fit; PROVIDED THAT,provided that, notwithstanding the above, no committee
of the Board of Directors shall have the authority to: (1) Declare dividends or
distributions, except at a rate or in periodic amount determined by the Board of
Directors; (2) approve or recommend to shareholders actions or proposals
required by law to be approved by shareholders; (3) fill
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vacancies on the Board
of Directors or any committee thereof; (4) adopt, amend, or repeal the Bylaws;
(5) authorize or approve the reacquisition of shares unless pursuant to general
formula or method specified by the Board of Directors; (6) fix compensation of
any director for serving on the Board of Directors or on any committee thereof;
(7) approve a plan of merger, consolidation, or exchange of shares not requiring
shareholder approval; (8) reduce earned or capital surplus; or (9) appoint other
committees of the Board of Directors or the members thereof. All committees so
appointed shall keep regular minutes of their meetings and shall cause them to
be recorded in books kept for that purpose in the office of the corporation. The
designation of any such committee and the delegation of authority thereto shall
not relieve the Board of Directors, or any member thereof, of any responsibility
imposed by law.
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(12) REMUNERATION:Remuneration: No stated salary shall be paid directors, as such, for
their service, but by resolution of the Board of Directors, a fixed sum and
expenses of attendance, if any, may be allowed for attendance at each regular or
special meeting of such Board; provided, that nothing herein contained shall be
construed to preclude any director from serving the corporation in any other
capacity and receiving compensation therefor. Members of standing or special
committees may be allowed like compensation for attending committee meetings.
(13) LOANS:Loans: No loans shall be made by the corporation to the directors,
unless first approved by the holders of two-thirds of the voting shares. No
loans shall be made by the corporation secured by its own shares.
(14) ACTION BY DIRECTORS WITHOUT A MEETING:Action by Directors Without a Meeting: Any action required or which
may be taken at a meeting of the directors, or of a committee thereof, may be
taken without a meeting if a consent in writing, setting forth the action so
taken or to be taken, shall be signed by all of the directors, or all of the
members of the committee, as the case may be, either before or after the action
taken, and delivered to the Corporation for inclusion in the minutes or filing
with the Corporation's records. Such consent shall have the same effect as a
unanimous vote.
(15) ACTION OF DIRECTORS BY COMMUNICATIONS EQUIPMENT:Action of Directors by Communications Equipment: Any action required
or which may be taken at a meeting of directors, or of a committee thereof, may
be taken by means of a conference telephone or similar communications equipment
by means of which all persons participating in the meeting can hear each other
at the same time.
ARTICLE V
OFFICERSOfficers
(1) DESIGNATIONS:Designations: The officers of the corporation shall be a Chairman of
the Board of Directors, a President, one or more Vice-Presidents (one or more of
whom may be Executive Vice-Presidents), a Secretary and a Treasurer, and such
Assistant Secretaries and Assistant Treasurers as the Board may designate, who
shall be elected for one year by the directors at their first meeting after the
annual meeting of shareholders, and who shall hold office until their successors
are elected and qualified. Any two or more offices may be held by the same
person, except the offices of President and Secretary.
(2) THE CHAIRMAN OF THE BOARD OF DIRECTORS:The Chairman of the Board of Directors: The Chairman of the Board of
Directors shall preside at all meetings of shareholders and directors, and shall
perform all such other duties as are incident to his office or are properly
required of him by the Board of Directors.
(3) THE PRESIDENT:The President: The President shall have general supervision of the
affairs of the corporation, and shall perform all such other duties as are
incident to his office or are properly required of him by the Board of
Directors.
(4) VICE-PRESIDENTS:Vice-Presidents: During the absence or disability of the President, the
Executive Vice-Presidents, if any, and the Vice-Presidents in the order
designated by the Board of Directors, shall exercise all the functions of the
President. Each Vice-President shall have such powers and discharge such duties
as may be assigned to him from time to time by the Board of Directors.
(5) SECRETARY AND ASSISTANT SECRETARIES:Secretary and Assistant Secretaries: The Secretary shall issue notices
for all meetings, except for notices for special meetings of the shareholders
and special meetings of the directors which are called by the requisite number
of shareholders or directors, shall keep minutes of all meetings, shall have
charge of the seal and the corporate books, and shall make such reports and
perform such other duties as are incident to his office, or are properly
required of him by the Board of Page 70
Directors. The Assistant Secretary, or Assistant
Secretaries in the order designated by the Board of Directors, shall perform all
of the duties of the Secretary during the absence or disability of the
Secretary, and at other times may perform such duties as are directed by the
President or the Board of Directors.
(6) THE TREASURER:The Treasurer: The Treasurer shall have the custody of all moneys and
securities of the corporation and shall keep regular books of account. He shall
disburse the funds of the corporation in payment of the just demands against the
corporation or as may be ordered by the Board of Directors, taking proper
vouchers for such disbursements, and shall render to the Board of Directors from
time to time as may be required of him an account of all his transactions as
Treasurer and of the financial condition of the corporation. He shall perform
such other duties incident to his office or that are properly required of him by
the Board of Directors. The Assistant Treasurer, or Assistant Treasurers in the
order designated by the
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Board of Directors, shall perform all of the duties of the Treasurer in the
absence or disability of the Treasurer, and at other times may perform such
other duties as are directed by the President or the Board of Directors.
(7) DELEGATION:Delegation: In the case of absence or inability to act of any officer
of the corporation and of any person herein authorized to act in his place, the
Board of Directors may from time to time delegate the powers or duties of such
officer to any other officer or any director or other person whom it may in its
sole discretion select.
(8) VACANCIES:Vacancies: Vacancies in any office arising from any cause may be filled
by the Board of Directors at any regular or special meeting of the Board.
(9) OTHER OFFICERS:Other Officers: Directors may appoint such other officers and agents as
it shall deem necessary or expedient, who shall hold their offices for such
terms and shall exercise such powers and perform such duties as shall be
determined from time to time by the Board of Directors.
(10) RESIGNATION:Resignation: An officer may resign at any time by delivering notice to
the Corporation. Such notice shall be effective when delivered unless the notice
specifies a later effective date. Any such resignation shall not affect the
Corporation's contract rights, if any, with the officer.
(11) LOANS:Loans: No loans shall be made by the corporation to any officer,
unless first approved by the holders of two-thirds of the voting shares.
(12) TERMTerm - REMOVAL:Removal: The officers of the corporation shall hold office
until their successors are chosen and qualify. Any officer or agent elected or
appointed by the Board of Directors may be removed at any time, with or without
cause, by the affirmative vote of a majority of the whole Board of Directors,
but such removal shall be without prejudice to the contract rights, if any, of
the person so removed.
(13) SALARIES AND CONTRACT RIGHTS:Salaries and Contract Rights: The salaries, if any, of the officers
shall be fixed from time to time by the Board of Directors. The appointment of
an officer shall not of itself create contract rights.
(14) BONDS:Bonds: The Board of Directors may, by resolution, require any and all
of the officers to give bonds to the corporation, with sufficient surety or
sureties, conditioned for the faithful performance of the duties of their
respective offices, and to comply with such other conditions as may from time to
time be required by the Board of Directors.
ARTICLE VI
(1) DISTRIBUTIONS:Distributions: The Board of Directors may authorize and the corporation
may make distributions to its shareholders; provided that no distribution may be
made if, after giving it effect, either:
(a) The Corporation would not be able to pay its debts as they become
due in the usual course of business; or
(b) The Corporation's total assets would be less than the sum of its
total liabilities plus the amount which would be needed, if the Corporation
were to be dissolved at the time of the distribution, to satisfy the
preferential rights upon dissolution of shareholders whose preferential
rights are superior to those receiving the distribution.
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The Board of Directors may authorize distributions to holders of record at
the close of business on any business day prior to the date on which the
distribution is made. If the Board of Directors does not fix a record date for
determining shareholders entitled to a distribution, the record date shall be
the date on which the Board of Directors authorizes the distribution.
(2) MEASURE OF EFFECT OF A DISTRIBUTION:Measure of Effect of a Distribution: For purposes of determining
whether a distribution may be authorized by the Board of Directors and paid by
the Corporation under Article VI, Section 1 of these Bylaws, the effect of the
distribution is measured:
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(a) In the case of a distribution of indebtedness, the terms of which
provide that payment of principal and interest are made only if and to the
extent that payment of a distribution to shareholders could then be made
under this section, each payment of principal or interest is treated as a
distribution, the effect of which is measured on the date the payment is
actually made; or
(b) In the case of any other distribution:
(i) if the distribution is by purchase, redemption, or other
acquisition of the Corporation's shares, the effect of the
distribution is measured as of the earlier of the date any money or
other property is transferred or debt incurred by the Corporation, or
the date the shareholder ceases to be a shareholder with respect to
the acquired shares;
(ii) if the distribution is of an indebtedness other than
described in subsection 2(a) and (b)(i) of this section, the effect of
the distribution is measured as of the date the indebtedness is
distributed; and
(iii) in all other cases, the effect of the distribution is
measured as of the date the distribution is authorized if payment
occurs within 120 days after the date of authorization, or the date
the payment is made if it occurs more than 120 days after the date of
authorization.
(3) DEPOSITORIES:Depositories: The moneys of the corporation shall be deposited in the
name of the corporation in such bank or banks or trust company or trust
companies as the Board of Directors shall designate, and shall be drawn out only
by check or other order for payment of money signed by such persons and in such
manner as may be determined by resolution of the Board of Directors.
ARTICLE VII
NOTICESNotices
Except as may otherwise be required by law, any notice to any shareholder
or director must be in writing and may be transmitted by: mail, private carrier
or personal delivery; telegraph or teletype; or telephone, wire or wireless
equipment which transmits a facsimile of the notice. Written notice by the
Corporation to its shareholders shall be deemed effective when mailed, if mailed
with first-class postage prepaid and correctly addressed to the shareholder's
address shown in the Corporation's current record of shareholders. Except as set
forth in the previous sentence, written notice shall be deemed effective at the
earliest of the following: (i) when received; (ii) five days after its deposit
in the United States mail, as evidenced by the postmark, if mailed with
first-class postage, prepaid and correctly addressed; or (iii) on the date shown
on the return receipt, if sent by registered or certified mail, return receipt
requested, and receipt is signed by or on behalf of the addressee.
ARTICLE VIII
SEALSeal
The corporate seal of the corporation shall be in such form and bear such
inscription as may be adopted by resolution of the Board of Directors, or by
usage of the officers on behalf of the corporation.
ARTICLE IX
Page 72
INDEMNIFICATIONIndemnification
(1) RIGHT TO INDEMNIFICATION:Right to Indemnification: Each person who was or is made a party or is
threatened to be made a party to or is involved (including, without limitation,
as a witness) in any actual or threatened action, suit or proceeding, whether
civil, criminal, administrative or investigative, by reason of the fact that he
or she is or was a director or officer of the corporation or, being or having
been such a director or officer, he or she is or was serving at the request of
the corporation as a director, officer, employee or agent of another corporation
or of a partnership, joint venture, trust or other enterprise, including service
with respect to employee benefit plans, whether the basis of such proceeding is
alleged action in an official capacity as a director, officer, employee or agent
or in any other capacity while serving as a director, officer, employee or
agent, shall be
Page 68
indemnified and held harmless by the corporation to the full extent permitted by
applicable law as then in effect, against all expense, liability and loss
(including attorneys' fees, judgments, fines, ERISA excise taxes or penalties
and amounts to be paid in settlement) actually and reasonably incurred or
suffered by such person in connection therewith and such indemnification shall
continue as to a person who has ceased to be a director, officer, employee or
agent and shall inure to the benefit of his or her heirs, executors and
administrators; provided, however, that except as provided in Section 2 of this
Article with respect to proceedings seeking to enforce rights to
indemnification, the corporation shall indemnify any such person seeking
indemnification in connection with a proceeding (or part thereof) initiated by
such person only if such proceeding (or part thereof) was authorized by the
Board of Directors of the corporation. The right to indemnification conferred in
this Section shall be a contract right and shall include the right to be paid by
the corporation the expenses incurred in defending any such proceeding in
advance of its final disposition; provided, however, that the payment of such
expenses in advance of the final disposition of a proceeding shall be made only
upon delivery to the corporation of an undertaking, by or on behalf of such
director of officer, to repay all amounts so advanced if it shall ultimately be
determined that such director or officer is not entitled to be indemnified under
this Section or otherwise.
(2) RIGHT OF CLAIMANT TO BRING SUIT:Right of Claimant to Bring Suit: If a claim under Section 1 of this
Article is not paid in full by the corporation within sixty days after a written
claim has been received by the corporation, except in the case of a claim for
expenses incurred in defending a proceeding in advance of its final disposition,
in which case the applicable period shall be twenty days, the claimant may at
any time thereafter bring suit against the corporation to recover the unpaid
amount of the claim and, to the extent successful in whole or in part, the
claimant shall be entitled to be paid also the expense of prosecuting such
claim. The claimant shall be presumed to be entitled to indemnification under
this Article upon submission of a written claim (and, in an action brought to
enforce a claim for expenses incurred in defending any proceeding in advance of
its final disposition, where the required undertaking has been tendered to the
corporation) and thereafter the corporation shall have the burden of proof to
overcome the presumption that the claimant is not so entitled. Neither the
failure of the corporation (including its Board of Directors, independent legal
counsel or its shareholders) to have made a determination prior to the
commencement of such action that indemnification of or reimbursement or
advancement of expenses to the claimant is proper in the circumstances nor an
actual determination by the corporation (including its Board of Directors,
independent legal counsel or its shareholders) that the claimant is not entitled
to indemnification or to the reimbursement or advancement of expenses shall be a
defense to the action or create a presumption that the claimant is not so
entitled.
(3) NONEXCLUSIVITY OF RIGHTS:Nonexclusivity of Rights: The right to indemnification and the payment
of expenses incurred in defending a proceeding in advance of its final
disposition conferred in this Article shall not be exclusive of any other right
which any person may have or hereafter acquire under any statute, provision of
the Articles of Incorporation, Bylaws, agreement, vote of shareholders or
disinterested directors or otherwise.
(4) INSURANCE, CONTRACTS AND FUNDING:Insurance, Contracts and Funding: The corporation may maintain
insurance, at its expense, to protect itself and any director, officer, employee
or agent of the corporation or another corporation, partnership, joint venture,
trust or other enterprise against any expense, liability or loss, whether or not
the corporation would have the power to indemnify such person against such
expense, liability or loss under the Washington Business Corporation Act. The
corporation may, without further shareholder action, enter into contracts with
any director or officer of the corporation in furtherance of the provisions of
this Article and may create a trust fund, grant a security interest or use other
means (including, without limitation, a letter of credit) to ensure the payment
of such amounts as may be necessary to effect indemnification as provided in
this Article.
(5) INDEMNIFICATION OF EMPLOYEES AND AGENTS OF THE CORPORATION:Indemnification of Employees and Agents of the Corporation: The
corporation may, by action of its Board of Directors from time to time, provide
indemnification and pay expenses in advance of the final disposition of a
proceeding to employees and agents of the corporation with the same scope and
effect as the provisions of this Article with respect to the Page 73
indemnification and
advancement of expenses of directors and officers of the corporation or pursuant
to rights granted pursuant to, or provided by, the Washington Business
Corporation Act or otherwise.
ARTICLE X
BOOKS AND RECORDSBooks and Records
The corporation shall keep correct and complete books and records of
account and shall keep minutes of the proceedings of its shareholders and Board
of Directors; and shall keep at its registered office or principal place of
business, or at the office of its transfer agent or registrar, a record of its
shareholders, giving the names and addresses of all shareholders in
Page 69
alphabetical order by class of shares showing the number and class of the shares
held by each. Any books, records, and minutes may be in written form or any
other form capable of being converted into written form within a reasonable
time.
ARTICLE XI
AMENDMENTSAmendments
(1) BY SHAREHOLDERS:By Shareholders: These Bylaws may be altered, amended or repealed by
the affirmative vote of a majority of the voting stock issued and outstanding at
any regular or special meeting of the shareholders.
(2) BY DIRECTORS:By Directors: The Board of Directors shall have power to make, alter,
amend and repeal the Bylaws of this corporation. However any such Bylaws, or any
alteration, amendment or repeal of the Bylaws, may be changed or repealed by the
holders of a majority of the stock entitled to vote at any shareholders'
meeting.
(3) EMERGENCY BYLAWS:Emergency Bylaws: The Board of Directors may adopt emergency Bylaws,
subject to repeal or change by action of the shareholders, which shall be
operative during any emergency in the conduct of the business of the corporation
resulting from an attack on the United States or any nuclear or atomic disaster.
Most recently amended by resolution of the corporation's Board of Directors
on March 12, 1998.
/s/JOEL S. HATLEN
--------------------------
Joel S. Hatlen, Secretary
Page 70
DATA I/O CORPORATION
MANAGEMENT INCENTIVE COMPENSATION PLAN
Amended and Restated January 1, 1997
ARTICLE I
Purpose and Effective Date
This Management Incentive Compensation Plan (the "Plan") is intended to promote
the interests of Data I/O Corporation by stimulating the efforts of key
management staff through the opportunity to share in the success of the Company.
This amended and restated Plan is effective January 1, 1997.
ARTICLE II
Definitions
2.1 "Administrator" shall mean the Compensation Committee of the Board.
2.2 "Annual Base Pay" shall mean with respect to a Participant the
Participant's base pay earnings during the Plan Year including pay for
paid time off (PTO), holidays, and long term sick time off and excluding
pay for overtime, bonuses, relocation, and other similar additional pay.
2.3 "Board" shall mean the Board of Directors of Data I/O Corporation, a
Washington corporation.
2.4 "Company" shall mean Data I/O Corporation and all of its subsidiaries.
2.5 "Compensation Committee" shall mean the Compensation Committee of the
Board.
2.6 "Earnings Per Share" shall mean pre-tax income per the audited year end
financial statements, less any gains and losses on sales or disposals of
assets not occurring in the normal course of business, less any
investment banker fees, less taxes, at a pre-determined rate, divided by
a pre-determined annual weighted average shares outstanding. Due to the
exclusion of gains and losses on the sale or disposal of assets and
income taxes and weighted average shares outstanding being calculated at
a pre-determined rate, the earnings per share for purposes of this plan
may not equal those per the audited financial statements.
2.7 "Team member" shall mean any person employed by the Employer in any
capacity.
2.8 "Employer" shall mean the Company.
2.9 "Guideline" shall mean the percentage of Annual Base Pay which the
Participant can receive in incentive compensation if the Company
achieves its Target. The Guideline shall be approved by the
Administrator based on the following table:
Management level Guideline %
---------------- -----------
Officer 30% - 50%
Director 20% - 25%
Manager 10% - 20%
2.10 "Participant" shall mean any Team member who meets the eligibility
requirements set forth in Article III.
2.11 "Plan" shall mean the Management Incentive Compensation Plan set forth
herein.
2.12 "Plan Year" shall mean the period commencing on January 1 and ending on
the following December 11, 1996.
/S/Steven M. Gordon
-------------------------
Steven M. Gordon, Secretary31.
Page 71
ARTICLE III
Eligibility
An Team member is eligible to participate in the Plan during a Plan Year if:
(a) The Team member is not a participant in any other commission, incentive
or bonus plan for the Plan Year (being a recipient of a spot award or a
service award does not eliminate eligibility); and
(b) As of the end of the Plan Year the Team member is employed on the
payroll of the Company; and
(c) Is employed as a regular full time or part time team member (not
temporary or contract team member); and
(d) The Team member is a direct report to an elected officer of the Company
or a direct report of a direct report of an Officer of the Company; and
(e) The Team member has an annual base salary in excess of $60,000.
ARTICLE IV
Target Payout Calculation
4.1 "Target" is stated in terms of Earnings Per Share and is set annually by
the Administrator at a level which may or may not correspond to the
Company's operating plan for earnings per share for that year.
4.2 Payout at Target is equal to Guideline percent of Annual Base Pay.
Payouts between Threshold and Target and between Target and Maximum are
prorated linearly.
4.3 "Threshold" is the minimum performance level at which a payout under the
Plan will be made. Threshold is set annually by the Administrator and is
represented as a percent of the Earnings Per Share Target. Payout when
Threshold is met is set annually by the Administrator and is represented
as a percent of Guideline.
4.4 "Maximum" is the performance level at which the payout under the Plan
discontinues to increase. Maximum is set annually by the Administrator
and is represented as a percent of the Earnings Per Share Target. Payout
when Maximum is met is set annually by the Administrator and is
represented as a percent of Guideline.
ARTICLE V
Payment
5.1 Payouts shall be paid by the Company as soon as practicable after the
end of the Plan Year. The Company shall use its best efforts to make
such payments by March 15 following the end of the Plan Year.
5.2 Notwithstanding anything in the Plan to the contrary, the Company shall
withhold from all payments made under the Plan any amount which the
Company is required to withhold for any applicable state, federal, or
local taxes.
ARTICLE VI
Administration
Page 72
6.1 The Plan shall be administered by the Administrator. The Administrator
shall interpret the Plan and may from time to time make such decisions
and adopt such rules and regulations for amending or interpreting the
Plan as it deems appropriate.
6.2 The Administrator shall have complete authority to determine, in
accordance with the provisions of the Plan, the existence or
non-existence, nature and amount of the rights and interest of the Team
member and his beneficiaries under the Plan. In any action or proceeding
affecting the Plan, the Administrator shall be the only necessary party,
and no team member or former team member of the Employer or any other
person having or claiming to have an interest under the Plan shall be
entitled to any notice or process. Any judgment which may be entered in
any such action or proceeding shall be binding and conclusive on all
persons having or claiming to have any interest under the Plan.
ARTICLE VII
Indemnification
The Company shall defend, indemnify, and hold all officers and directors of the
Company, the Administrator, and all members of the Compensation Committee
harmless from and against any and all loss, liability, damage and/or deficiency
(including, without limitation, reasonable attorney's fees) arising out of the
establishment or operation of this Plan.
ARTICLE VIII
Amendment and Termination
The Administrator shall have the power, right and authority to amend,
discontinue, or terminate the Plan in its sole discretion; provided no accrued
payouts as of the end of a Plan Year may be reduced on account of any amendment
or action of the Administrator.
ARTICLE IX
Miscellaneous
9.1 Source of Funding. The rights of a Participant to benefits under the
Plan shall be solely those of an unsecured creditor of the Company and
all benefits payable under the Plan shall be paid from the general funds
of the Company.
9.2 This agreement shall not be deemed to constitute a contract of
employment between any team member and the Company nor shall any
provision restrict the right of the Company to discharge any team
member, or restrict the right of any team member to terminate his
employment with the Company.
9.3 A Participant or beneficiary shall have no right to transfer, assign,
encumber, hypothecate, pledge, put up as collateral for a loan, or
otherwise dispose of his right to receive payments under the Plan.
9.4 The provisions of the Plan shall bind and inure to the benefit of the
Company and its successors and assigns.
9.5 All expenses and costs in connection with the adoption and
administration of the Plan shall be borne by the Company.
9.6 The provisions of the Plan shall be governed by and construed in
accordance with the laws of the State of Washington. Invalidation of any
one or the provisions of the Plan for any reason shall in no way affect
the other provisions hereof, and all such other provisions shall remain
in full force and effect.
Page 73
DATA I/O CORPORATION
By /s/Joel S. Hatlen
Its Treasurer
Date: February 20, 1997
Page 74
EXHIBIT 10.30
[LETTERHEAD]DATA I/O CORPORATION
PERFORMANCE BONUS PLAN
Amended & Restated January 1, 1997
ARTICLE I
Purpose and Effective Date
This Performance Bonus Plan (the "Plan") is intended to promote the interests of
Data I/O Corporation by stimulating the efforts of its team members through the
opportunity to share in the success of the Company. This amended and restated
Plan is effective January 1, 1997.
ARTICLE II
Definitions
2.1 "Administrator" shall mean the Compensation Committee of the Board.
2.2 "Annual Base Pay" shall mean with respect to a Participant the
Participant's base pay earnings during the Plan Year including pay for
PTO, holidays, and long term sick and excluding pay for overtime,
bonuses, relocation, and other similar additional pay.
2.3 "Board" shall mean the Board of Directors of Data I/O Corporation, a
Washington corporation.
2.4 "Company" shall mean Data I/O Corporation and all of its subsidiaries.
2.5 "Compensation Committee" shall mean the Compensation Committee of the
Board.
2.6 "Earnings Per Share" shall mean pre-tax income per the audited year end
financial statements, less any gains and losses on sales or disposals of
assets not occurring in the normal course of business, less investment
banker fees, less taxes, at a pre-determined rate, divided by a
pre-determined annual weighted average shares outstanding. Due to the
exclusion of gains and losses on sales of assets and income taxes and
weighted average shares outstanding being calculated at a pre-determined
rate, the earnings per share for purposes of this plan may not equal
those per the audited financial statements.
2.7 "Team member" shall mean any person employed by the Employer in any
capacity.
2.8 "Employer" shall mean the Company.
2.9 "Participant" shall mean any team member who meets the eligibility
requirements set forth in Article III.
2.10 "Plan" shall mean the Performance Bonus Plan set forth herein.
2.11 "Plan Year" shall mean the period commencing on January 1 and ending on
the following December 31.
ARTICLE III
Eligibility
Page 75
A team member is eligible to participate in the Plan during a Plan Year if:
(a) The team member is not a participant in any other commission, incentive
or bonus plan for the Plan Year (being a recipient of a spot award or a
service award does not eliminate eligibility); and
(b) As of the end of the Plan Year the team member is employed on the
payroll of the Company: and
(c) Is employed as a regular full time or part time team member (not
temporary or contract team member).
ARTICLE IV
Target Payout Calculation
4.1 "Target" is stated in terms of Earnings Per Share and is set annually by
the Administrator at a level which may or may not correspond to the
Company's operating plan for earnings per share for that year.
4.2 Payout at Target is equal to two percent of Annual Base Pay. Payouts
between Threshold and Target and between Target and Maximum are prorated
linearly.
4.3 "Threshold" is set at 60% of the Earnings Per Share Target. Payout when
Threshold is met is set at one percent of Annual Base Pay.
4.4 "Maximum" is set at 200% of the Earnings Per Share Target. Payout when
Maximum is reached is set at four percent of Annual Base Pay.
ARTICLE V
Payment
5.1 Payouts shall be paid by the Company as soon as practicable after the
end of the Plan Year. The Company shall use its best efforts to make
such payments by March 15 following the end of the Plan Year.
5.2 Notwithstanding anything in the Plan to the contrary, the Company shall
withhold from all payments made under the Plan any amount which the
Company is required to withhold for any applicable state, federal, or
local taxes.
ARTICLE VI
Administration
6.1 The Plan shall be administered by the Administrator. The Administrator
shall interpret the Plan and may from time to time make such decisions
and adopt such rules and regulations for amending or interpreting the
Plan as it deems appropriate.
6.2 The Administrator shall have complete authority to determine, in
accordance with the provisions of the Plan, the existence or
non-existence, nature and amount of the rights and interest of the team
member and his beneficiaries under the Plan. In any action or proceeding
affecting the Plan, the Administrator shall be the only necessary party,
and no team member or former team member of the Employer or any other
person having or claiming to have an interest under the Plan shall be
entitled to any notice or process. Any judgment which may be entered in
any such action or proceeding shall be binding and conclusive on all
persons having or claiming to have any interest under the Plan.
Page 76
ARTICLE VII
Indemnification
The Company shall defend, indemnify, and hold all officers and directors of the
Company, the Administrator, and all members of the Compensation Committee
harmless from and against any and all loss, liability, damage and/or deficiency
(including, without limitation, reasonable attorney's fees) arising out of the
establishment or operation of this Plan.
ARTICLE VIII
Amendment and Termination
The Administrator shall have the power, right and authority to amend,
discontinue, or terminate the Plan in its sole discretion; provided no accrued
payouts as of the end of a Plan Year may be reduced on account of any amendment
or action of the Administrator.
ARTICLE IX
Miscellaneous
9.1 Source of Funding. The rights of a Participant to benefits under the
Plan shall be solely those of an unsecured creditor of the Company and
all benefits payable under the Plan shall be paid from the general funds
of the Company.
9.2 This agreement shall not be deemed to constitute a contract of
employment between any team member and the Company nor shall any
provision restrict the right of the Company to discharge any team
member, or restrict the right of any team member to terminate his
employment with the Company.
9.3 A Participant or beneficiary shall have no right to transfer, assign,
encumber, hypothecate, pledge, put up as collateral for a loan, or
otherwise dispose of his right to receive payments under the Plan.
9.4 The provisions of the Plan shall bind and inure to the benefit of the
Company and its successors and assigns.
9.5 All expenses and costs in connection with the adoption and
administration of the Plan shall be borne by the Company.
9.6 The provisions of the Plan shall be governed by and construed in
accordance with the laws of the State of Washington. Invalidation of any
one or the provisions of the Plan for any reason shall in no way affect
the other provisions hereof, and all such other provisions shall remain
in full force and effect.
DATA I/O CORPORATION
By:/s/Joel S. Hatlen
Its: Treasurer
Date: February 20, 1997
Page 77
FOURTH AMENDMENT TO THE
DATA I/O
TAX DEFERRAL RETIREMENT PLAN
The DATA I/O Tax Deferral Retirement Plan ("Plan"), as amended and restated
effective January 1, 1993 is amended as follows pursuant to Section 11.1 of the
Plan, effective January 1, 1995.
1. Section 7.1(b) Incentive Account shall be replaced in its entirety by the
following:
b) Incentive Account
Each participant shall earn a vested, nonforfeitable right to his or
her Incentive Account based on his or her years of service in
accordance with the following table:
Years of Service Percent Vested
Less than 3 0%
3 or more 100%
IN WITNESS WHEREOF, DATA I/O has caused this Fifth Amendment to be duly executed
on this 23 day of April, 1997.
FOR DATA I/O CORPORATION
__________________________ By:/s/ Alan J. Beauchamp
Witness
Its: Secretary
Page 78
FIFTH AMENDMENT TO THE
DATA I/O
TAX DEFERRAL RETIREMENT PLAN
The DATA I/O Tax Deferral Retirement Plan ("Plan"), as amended and restated
effective January 1, 1993 is amended as follows pursuant to Section 11.1 of the
Plan, effective January 1, 1995.
1. Section 7.1(b) Incentive Account shall be replaced in its entirety (to
correct an error made in the 3rd amendment) by the following:
b) Incentive Account
Each participant shall earn a vested, nonforfeitable right to his or
her Incentive Account based on his or her years of service in
accordance with the following table:
Years of Service Percent Vested
Less than 3 0%
3 or more 100%
In addition, each Participant shall have a 100% vested, nonforfeitable right to
his or her Incentive Account upon death, becoming Disabled or the attainment of
age 591/2, provided he or she is an Employee on such date.
IN WITNESS WHEREOF, DATA I/O has caused this Fifth Amendment to be duly executed
on this sixth day of November, 1997.
FOR DATA I/O CORPORATION
__________________________ By:/s/Alan J. Beauchamp
Witness
Its: Secretary
Page 79
Sixth Amendment
Data I/O Tax Deferral Retirement Plan
Pursuant to the terms of the Data I/O Tax Deferred Retirement Plan (hereinafter
referred to as "Plan" or "Plan and Trust") in connection with amendments, Data
I/O Corporation (hereinafter referred to as "Employer") does hereby adopt as of
the below described date the following amendment to the Plan.
WITNESSETH
WHEREAS, the Employer heretofore established the Plan and Trust effective
February 1, 1984, and last amended and restated effective January 1, 1993;
WHEREAS, the Employer desires to amend its Plan to provide for clarification of
the operation of certain Plan provisions in connection with the divestiture
transactions of two of the Plan Sponsor's businesses, Reel-Tech, Inc. and
Synario Design Automation Division ("Synario"), as adopted by the Plan Sponsor's
Board of Directors on August 22, 1997;
NOW, THEREFORE, the Employer and the Trustee in accordance with the provisions
of said Plan pertaining to amendments thereof, hereby amend the Plan effective
August 22, 1997 as follows:
Notwithstanding any Plan provision to the contrary and specifically
applicable to Plan Sections 4 (Contributions to the Plan) and 7 (Vesting), the
following shall apply to the Employees of Reel-Tech and Synario who are
otherwise Participants under the Plan as of the effective date of the
divestiture transaction described above and who become employees of the
applicable purchaser:
1. Each such Participant described herein shall be eligible to be credited
with Employer Matching Contributions to the extent of their salary deferral
amounts credited to the Plan and pursuant to Section 4.1(b) as if each such
Participant were employed as of the last of the Plan Year.
Such Employer Matching Contributions shall be made in accordance with the
Plan's matching contribution formula based on salary deferral amounts made to
the Plan and compensation earned from the Plan Sponsor through the day
immediately preceding the effective date of the sale transaction.
2. The Incentive Account of each such Participant described herein shall
become 100% vested.
IN WITNESS WHEREOF, this agreement has been executed this 13th day of February
1998.
EMPLOYER:
Data I/O
By: Joel S. Hatlen
Title: Secretary
Page 80
DATA I/O CORPORATION
1986 STOCK OPTION PLAN
AMENDED AND RESTATED
AS OF MAY 13, 1997
This Stock Option Plan (the "Plan") provides for the grant of options (the
"Options") to acquire shares of common stock (the "Common Stock") of Data I/O
Corporation (the "Corporation"). Stock options granted under this plan that
qualify under Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code") are referred to in this Plan as "Incentive Stock Options." Incentive
Stock Options and stock options that do not qualify under Section 422 of the
Code ("Non-Qualified Options") granted under this Plan are referred to as
"Options."
1. PURPOSES.
The purposes of this Plan are to retain the services of valued key
employees of the Corporation, to encourage such employees to acquire a greater
proprietary interest in the Corporation, thereby strengthening their incentive
to achieve the objectives of the shareholders and to serve as an aid and
inducement in the hiring of new key employees.
2. ADMINISTRATION.
The Plan shall be administered by the Board of Directors of the Corporation
(the "Board") or by a committee designated by the Board composed of two or more
members of the Board, each of whom is a "Non-Employee Director" (as defined
below), which committee (the "Committee") may be an executive, compensation or
other committee, including a separate committee especially created for this
purpose. The term "Non-Employee Director" shall be defined by reference to the
rules and regulations promulgated under Section 16(b) of the Securities Exchange
Act of 1934, as amended (the "Act"). The Board shall consider whether a director
is an "outside director" as defined in the regulations promulgated under Section
162(m) of the Code when appointing any such Committee and shall appoint solely
two or more "outside directors" if the Board intends for compensation
attributable to Options to be "qualified performance-based compensation" as
defined in the regulations promulgated under Section 162(m) of the Code. Any
such Committee shall have the powers and authority vested in the Board hereunder
(including the power and authority to interpret any provision of the Plan or of
any Option). The members of any such Committee shall serve at the pleasure of
the Board. A majority of the members of the Committee shall constitute a quorum,
and all actions of the Committee shall be taken by a majority of the members
present. Any action may be taken by a written instrument signed by all of the
members of the Committee and any action so taken shall be fully as effective as
if it had been taken at a meeting. The Board, or any committee thereof appointed
to administer the Plan, is referred to herein as the "Plan Administrator."
Subject to the provisions of the Plan, and with a view to effecting its
purpose, the Plan Administrator shall have sole authority, in its absolute
discretion, to (a) construe and interpret the Plan; (b) define the terms used
herein; (c) prescribe, amend, and rescind rules and regulations relating to the
Plan; (d) determine the individuals to whom Options to purchase shares of Common
Stock shall be granted under the Plan and whether the Options are Incentive
Stock Options or Non-Qualified Options; (e) determine the time or times at which
Options shall be granted under the Plan; (f) determine the number of shares of
Common Stock subject to each Option, the Option price, the duration of each
Option granted under the Plan and the times at which each Option shall become
exercisable; (g) determine all of the other terms and conditions of Options
granted under the Plan; and (h) make all other determinations necessary or
advisable for the administration of the Plan and do everything necessary or
appropriate to administer the Plan. All decisions, determinations, and
interpretations made by the Committee shall be binding and conclusive on all
participants in the Plan and on their legal representatives, heirs, and
beneficiaries.
The Board or the Committee may delegate to one or more executive officers
of the Corporation the authority to grant Options under this Plan to employees
of the Corporation who, at the time of grant, are neither subject to Section
16(b) of the Exchange Act with respect to the Common Stock nor a " covered
employee" within the meaning of Section 162(m)(3) of the Code ("Non-Insiders"),
and in connection therewith the authority to determine: (a) whether the Option
in an Incentive Stock Option or a Non-Qualified Stock Option; (b) the number of
shares of Common Stock subject to such Option; (c) the duration of the Option;
(d) the vesting schedule for determining the times at which such Option shall
become exercisable; and (e) all other terms and conditions of such Options. The
exercise price for any Option granted by action of an executive officer
Page 81
pursuant to such delegation of authority shall not be less than the fair market
value per share of the Common Stock on the Date of Grant as determined in
accordance with procedures established by the Plan Administrator. Unless
expressly approved in advance by the Board or the Committee, such delegation of
authority shall not include the authority to accelerate the vesting, extend the
period for exercise or otherwise alter the terms of outstanding Options. The
term "Plan Administrator" when used in any provision of this Plan other than
Sections 2, 5(f), 5(m), 5(n) and 11 shall be deemed to refer to the Board or the
Committee, as the case may be, and such senior executive officer, insofar as
such provision may be applied to Non-Insiders and Options granted to
Non-Insiders.
3. ELIGIBILITY.
Options may be granted to any individual who, at the time the Option is
granted, is an employee of the Corporation or any "related corporation" (as
defined below) and may be granted in substitution for outstanding options of
another corporation in connection with the merger, consolidation, acquisition of
property or stock, or other reorganization between such other corporation and
the Corporation or any subsidiary thereof. Options may also be granted in
exchange for outstanding Options. No person shall be granted Options to purchase
more than 250,000 shares of Common Stock (subject to adjustment as set forth in
Section 5(m) hereof) in any calendar year. Any person to whom an Option is
granted under this Plan is referred to herein as an "Optionee."
As used in this Plan, the term "related corporation," when referring to a
subsidiary corporation, shall mean any corporation (other than the Corporation)
in an unbroken chain of corporations beginning with the Corporation if, at the
time of the granting of the Option, each of the corporations other than the last
corporation in the unbroken chain owns stock possessing fifty percent (50%) or
more of the total combined voting power of all classes of stock of one of the
other corporations in such chain. When referring to a parent corporation, the
term "related corporation" shall mean any corporation (other than the
Corporation) in an unbroken chain of corporations ending with the Corporation
if, at the time of granting of the Option, each of the corporations other than
the Corporation owns stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock of one of the other corporations
in such chain.
4. STOCK.
The Plan Administrator is authorized to grant Options to acquire one
million one hundred thirty thousand (1,130,000) shares of the authorized but
unissued, or reacquired, Common Stock. The number of shares with respect to
which Options may be granted hereunder is subject to adjustment as set forth in
Section 5(m) hereof. In the event that any Option granted pursuant to this Plan
expires or is terminated for any reason, those shares of Common Stock allocable
to the unexercised portion of such terminated Option may again be subject to an
Option granted to the same or to a different Optionee under this Plan.
5. TERMS AND CONDITIONS OF OPTIONS.
Each Option granted pursuant to this Plan shall be evidenced by a written
agreement approved by the Plan Administrator (the "Agreement"). Agreements may
contain such additional provisions, not inconsistent herewith, as the Plan
Administrator in its discretion, may deem advisable. All Options shall also
comply with the following requirements:
(a) Number of Shares.
Each Agreement shall state the number of shares of Common Stock to which it
pertains and whether the Option is intended to be an Incentive Stock Option or a
Non-Qualified Stock Option. In the absence of action to the contrary by the Plan
Administrator in connection with the grant of an Option, all Options shall be
Non-Qualified Options. The aggregate fair market value (determined at the Date
of Grant, as defined below) of the stock with respect to which Incentive Stock
Options are exercisable for the first time by the Optionee during any calendar
year (granted under this Plan and all other incentive stock option plans of the
Corporation, a related corporation or a predecessor corporation) shall not
exceed $100,000, or such other limit as may be prescribed by the Code as it may
be amended from time to time. Any Option which exceeds the annual limit shall
not be void, but rather shall be a Non-Qualified Option.
Page 82
(b) Date of Grant.
Each Agreement shall state the date which the Plan Administrator has deemed
to be the effective date of the Option for purposes of this Plan (the "Date of
Grant").
(c) Option Price.
Each Agreement shall state the price per share of Common Stock at which it
is exercisable. Common Stock issued under this Plan may be issued for any lawful
consideration as determined by the Plan Administrator; provided, that the per
share exercise price for any Incentive Stock Option shall not be less than the
fair market value per share of the Common Stock on the Date of Grant as
determined by the Plan Administrator in good faith and provided, further, that
with respect to Incentive Stock Options granted to greater-than-10% shareholders
of the Corporation (as determined with reference to Section 424(d) of the Code),
the exercise price per share shall not be less than 110% of the fair market
value per share of the Common Stock at the Date of Grant.
(d) Duration of Options.
At the time of the grant of the Option, the Plan Administrator shall
designate, subject to paragraph 5(g) below, the expiration date of the Option,
which shall not be later than ten years from the Date of Grant in the case of
Incentive Stock Options; provided, that the expiration date of any Incentive
Stock Option granted to a greater-than-10% shareholder of the Corporation (as
determined with reference to Section 424(d) of the Code) shall not be later than
five years from the Date of Grant. In the absence of action to the contrary by
the Plan Administrator in connection with the grant of a particular Option, and
except as otherwise required by the preceding sentence, all Options granted
hereunder shall expire six years from the Date of Grant.
(e) Vesting Schedule.
In order to ensure that the Corporation will receive the benefits
contemplated in exchange for the Options granted pursuant hereto, no Option
shall be exercisable until it has vested. Subject to paragraph 5(f) below, the
vesting schedule or other events for vesting for each Option, such as
performance goals, shall be specified by the Plan Administrator at the time of
the grant of the Option and shall be set forth or referenced in the Agreement.
If no vesting schedule is specified by the Plan Administrator at the time of the
grant of an Option hereunder, the following schedule shall apply:
Years of Service
Following Date of Percent
Grant Vested
----------------- ------
1 25
2 50
3 75
4 100
(f) Acceleration of Vesting.
The vesting of one or more outstanding Options may be accelerated by the
Plan Administrator at such times and in such amounts as it shall determine in
its sole discretion. The vesting of Options shall also be accelerated under the
circumstances described in Section 5(n) below.
(g) Term of Option.
Each Option shall terminate, to the extent not previously exercised, upon
the occurrence of the first of the following events: (i) the expiration of the
duration of the Option, as designated by the Plan Administrator in accordance
with Section 5(d) above; (ii) the expiration of 90 days from the date of the
Optionee's termination of employment with the Corporation for any reason
whatsoever other than death or disability unless, in the case of a Non-Qualified
Option, the
Page 83
exercise period is extended by the Plan Administrator until a date not later
than the expiration date of the Option; or (iii) the expiration of one year from
(A) the date of death of the Optionee or (B) cessation of employment by reason
of "disability" unless, in the case of a Non-Qualified Option, the exercise
period is extended by the Plan Administrator until a date not later than the
expiration date of the Option. For purposes of the Plan, "disability" shall mean
any physical, mental or other health condition which substantially impairs the
employee's ability to perform her or his assigned duties for 60 days or more in
any 120 day period or that can be expected to result in death. The Plan
Administrator shall determine whether an Optionee has incurred a disability on
the basis of medical evidence acceptable to the Plan Administrator. Upon making
a determination of disability, the Plan Administrator shall, for purposes of the
Plan, determine the date of an Optionee's termination of employment. Unvested
Options shall terminate immediately upon the termination of employment of the
Optionee by the Corporation for any reason whatsoever, including death or
disability.
(h) Exercise of Options.
Options shall be exercisable, either all or in part, at any time after
vesting. If less than all of the shares included in the vested portion of any
Option are purchased, the remainder may be purchased at any subsequent time
prior to the expiration of the Option term. No portion of any Option of less
than one hundred (100) shares (as adjusted pursuant to Section 5(m) hereof) may
be exercised, provided that if the vested portion of any Option is less than one
hundred (100) shares, it may be exercised with respect to all Shares for which
it is vested. Only whole shares may be issued pursuant to an Option, and to the
extent that an Option covers a fraction of a share, it is unexercisable. Options
or portions thereof may be exercised by giving written notice to the
Corporation, which notice shall specify the number of shares to be purchased,
and be accompanied by payment in the amount of the aggregate Option exercise
price for the Common Stock so purchased, which payment shall be in the form
specified in Section 5(i) hereof. The Corporation shall not be obligated to
issue, transfer, or deliver a certificate of Common Stock to any Optionee, or to
his personal representative, until the aggregate Option price has been paid for
all shares for which the Option shall have been exercised and adequate provision
has been made by the Optionee for satisfaction of any tax withholding
obligations associated with such exercise. During the lifetime of an Optionee,
Options are exercisable only by the Optionee.
(i) Payment upon Exercise of Option.
Upon exercise of any Option the aggregate Option exercise price shall be
paid to the Corporation in cash or by certified or cashier's check. In addition,
an Optionee may pay for all or any portion of the aggregate Option exercise
price for any shares of Common Stock purchased upon the exercise of any Option
by delivering to the Corporation shares of Common Stock previously held by such
Optionee or by complying with any other payment mechanism which the Plan
Administrator may approve from time to time. The shares of Common Stock received
or withheld by the Corporation as payment for shares of Common Stock purchased
upon the exercise of Options shall have a fair market value at the date of
exercise (as determined by the Plan Administrator) equal to the aggregate Option
exercise price (or portion thereof) to be paid by exchange or withholding of
shares of Common Stock.
(j) Rights as a Shareholder.
An Optionee shall have no rights as a shareholder with respect to any
shares covered by the Option until the Optionee becomes a record holder of such
shares, irrespective of whether he has given notice of exercise. Subject to the
provisions of Section 5(m) hereof, no rights shall accrue to an Optionee and no
adjustments shall be made on account of dividends (ordinary or extraordinary,
whether in cash, securities or other property) or distributions or other rights
declared on, or created in, the Common Stock for which the record date is prior
to the date the Optionee becomes a record holder of the shares of Common Stock
covered by the Option, irrespective of whether the Optionee has given notice of
exercise.
Page 84
(k) Transfer of Option.
Options granted under this Plan and the rights and privileges conferred
hereby may not be transferred, assigned, pledged, or hypothecated in any manner
(whether by operation of law or otherwise) other than by will or by the
applicable laws of descent and distribution or, in the case of Non-Qualified
Options (but not Incentive Stock Options), pursuant to a qualified domestic
relations order, and shall not be subject to execution, attachment or similar
process. Upon any attempt to transfer, assign, pledge, hypothecate or otherwise
dispose of any Option under this Plan or of any right or privilege conferred
hereby, contrary to the provisions hereof, or upon the sale, levy or any
attachment or similar process upon the rights and privileges conferred hereby,
such Option shall thereupon terminate and become null and void.
(1) Securities Regulation and Tax Withholding.
(1) Shares shall not be issued with respect to an Option unless
the exercise of such Option and the issuance and delivery of such
shares pursuant thereto shall comply with all relevant provisions of
law, including, without limitation, any applicable state securities
laws, the Securities Act of 1933, as amended, the Securities Exchange
Act of 1934, as amended, the rules and regulations promulgated
thereunder and the requirements of any stock exchange upon which such
shares may then be listed and shall be further subject to the approval
of counsel for the Corporation with respect to such compliance,
including the availability of an exemption from registration for the
issuance and sale of any shares upon exercise of any Option. Inability
of the Corporation to obtain from any regulatory body having
jurisdiction the authority deemed by the Corporation to be necessary
for the lawful issuance and sale of any shares hereunder, or the
unavailability of an exemption from registration for the issuance and
sale of any shares hereunder, shall relieve the Corporation of any
liability in respect of the non-issuance or sale of such shares as to
which such requisite authority shall not have been obtained.
As a condition to the exercise of an Option, the Corporation may
require the Optionee to represent and warrant in writing at the time
of such exercise that the shares are being purchased only for
investment and without any present intention to sell or distribute
such shares. At the Option of the Corporation, a stop-transfer order
against any shares of stock may be placed on the official stock books
and records of the Corporation, and a legend indicating that the stock
may not be pledged, sold or otherwise transferred unless an opinion of
counsel is provided stating that such transfer is not in violation of
any applicable law or regulation, may be stamped on stock certificates
in order to assure exemption from registration. The Plan Administrator
may also require such other actions or agreements by the Optionees as
may from time-to-time be necessary to comply with federal and state
securities laws. THE CORPORATION SHALL BE UNDER NO OBLIGATION TO
UNDERTAKE REGISTRATION OF THE OPTIONS OR SHARES OF STOCK ISSUABLE UPON
EXERCISE THEREOF.
(2) As a condition to the exercise of any Option granted
hereunder, the Optionee shall make such arrangements as the Plan
Administrator may require for the satisfaction of any federal, state
or local withholding tax obligations that may arise in connection with
such exercise.
(3) Issue, transfer or delivery of certificates of Common Stock
pursuant to the exercise of Options may be delayed, at the discretion
of the Plan Administrator until the Plan Administrator is satisfied
that the applicable requirements of the federal and state securities
laws and the withholding provisions of the Code have been met.
(m) Stock Dividend, Reorganization or Liquidation.
The aggregate number and class of shares for which Options may be granted
under this Plan, the number and class of shares covered by each outstanding
Option and the exercise price per share thereof (but not the total price) shall
all be proportionately adjusted for any increase or decrease in the number of
issued shares of Common Stock of the Corporation resulting from a split-up or
consolidation of shares or any like capital adjustment, or the payment of any
stock dividend, and to the extent that such actions shall include an increase or
decrease in the number of shares of Common Stock subject to outstanding Options,
the number of shares available under Section 4 of this Plan shall automatically
be increased or decreased, as the case may be, proportionately, without further
action on the part of the Plan Administrator, the Corporation or the
Corporation's shareholders.
Page 85
In the event of any adjustment in the number of shares covered by any
Option, any fractional shares resulting from such adjustment shall be
disregarded and each such Option shall cover only the number of full shares
resulting from such adjustment.
The foregoing adjustments in the shares subject to Options shall be made by
the Plan Administrator or by any successor administrator of the Plan, or by the
applicable terms of any assumption or substitution document, and any adjustments
so made shall be final, binding and conclusive.
Except as provided in this Section 5(m) or Section 5(n) below, no Optionee
shall have rights by reason of any subdivision or consolidation of shares of any
class including shares of Common Stock, or the payment of any Common Stock
dividend on shares of Common Stock or any other increase or decrease in the
number of shares of Common Stock, or by reason of any liquidation, dissolution,
corporate combination or division; and any issuance by the Corporation of shares
of any class including shares of Common Stock, or securities convertible into
shares of any class including shares of Common Stock, shall not affect, and no
adjustment by reason thereof shall be made with respect to, the number or price
of shares of Common Stock subject to any Option.
The grant of an Option shall not affect in any way the right or power of
the Corporation to make adjustments, reclassifications, reorganizations or
changes in its capital or business structure, or to merge, consolidate, dissolve
or liquidate, or to sell or transfer all or any part of its business or assets.
(n) Change in Control.
(1) For the purpose of this Section 5(n): (i) "Person" shall include
any individual, firm, corporation, partnership or other entity; (ii)
"Affiliate" and "Associate" shall have the meanings assigned to them in
Rule 12b-2 under the Exchange Act of 1934 as amended (the "Exchange Act");
and (iii) "Beneficial Owner" shall have the meaning assigned to it in Rule
16a-1 under the Exchange Act.
(2) Any and all Options that have been outstanding under the Plan for
at least six (6) months at the time of occurrence of any of the events
described in Paragraphs (A), (B) and (C) below (an "Eligible Option") shall
become exercisable in full for the periods indicated (each such exercise
period referred to as an "Acceleration Window") in connection with the
following events:
(A) For a period of 45 days beginning on the day on which any
Person, together with all Affiliates and Associates of such Person
shall become the Beneficial Owner, directly or indirectly, of 25% or
more of the combined voting power of the then outstanding securities
of the Company ordinarily (and apart from rights accruing under
special circumstances) having the right to vote in the election of
directors (calculated as provided in Rule 13d-3(d) under the Exchange
Act in the case of rights to acquire the Company's securities), but
shall not include the Corporation, any subsidiary of the Corporation,
any employee benefit plan of the Corporation or of any subsidiary of
the Corporation, or any Person or entity organized, appointed or
established by the Corporation for or pursuant to the terms of any
such employee benefit plan;
(B) Beginning on the date that a tender or exchange offer for
Common Stock by any Person (other than the Corporation, any subsidiary
of the Corporation, any employee benefit plan of the Corporation or of
any subsidiary of the Corporation, or any Person or entity organized,
appointed or established by the Corporation for or pursuant to the
terms of any such employee benefit plan) is first published or sent or
given within the meaning of Rule 14d-2 under the Exchange Act and
continuing so long as such offer remains open (including any
extensions or renewals of such offer), unless by the terms of such
offer the offeror, upon consummation thereof, would be the Beneficial
Owner of less than 30% of the shares of Common Stock then outstanding;
or
(C) Immediately prior to consummation of (i) any merger,
consolidation, reorganization or other transaction pursuant to which
the persons who hold the outstanding shares of Common Stock
immediately prior to the transaction have immediately following the
transaction less than forty percent (40%) of the combined voting power
of the outstanding securities of the surviving entity ordinarily (and
apart from rights accruing under special circumstances) having the
right to vote in the election of directors; or (ii) any sale, lease,
exchange or other transfer not in the ordinary course of business (in
one transaction or a series of related transactions) of all, or
substantially all, of the assets of the Company (the
Page 86
foregoing transactions being referred to as "Approved Transactions").
The Company shall provide to each Optionee notice of the pendency of
any Approved Transaction at least twenty (20) days prior to the
expected date of consummation thereof. Each Optionee shall thereupon
be entitled to exercise his or her Options in full or in part at any
time prior to consummation of the Approved Transaction. Any such
exercise as to any portion of his or her Options that will only become
vested immediately prior to the consummation of the Approved
Transaction in accordance with this acceleration provision shall be
contingent on such consummation. Any such exercise as to any other
portion of the Option will not be contingent on such consummation
unless so elected by the Optionee in a notice delivered to the Company
simultaneously with the exercise.
PROVIDED, HOWEVER, that the Plan Administrator may determine (by the
affirmative vote of a majority of all of the members thereof, excluding for
such purposes the votes of directors who are directors, officers,
Affiliates or Associates of, or have a material financial interest in, any
Person (other than the Corporation) who is a party to the event specified
in Paragraphs (A), (B) or (C) above which otherwise would trigger
acceleration of vesting) that acceleration shall not occur in connection
with any one or any combination of the foregoing events.
(3) The exercisability of any Eligible Option which remains
outstanding following expiration of an Acceleration Window shall be
governed by the vesting schedule and other terms of the Agreement
representing such Option.
(4) If the shareholders of the Corporation receive shares of capital
stock of another Person ("Exchange Stock") in exchange for or in place of
shares of Common Stock in any transaction involving any merger,
consolidation, reorganization or other transaction providing for the
conversion or exchange of all or substantially all outstanding shares of
Common Stock into Exchange Stock, then at the closing of such transaction
all Options granted hereunder which have not been exercised as of the
effective date of such exchange transaction shall be converted into options
to purchase shares of Exchange Stock ("Exchange Stock Options") whereupon
all rights to acquire shares of Common Stock pursuant to Options shall end.
The number of shares of Exchange Stock issuable upon exercise of an
Exchange Stock Option and the exercise price therefor shall be determined
by the Plan Administrator by adjusting the number of shares of Common stock
issuable upon exercise of the Option converted into such Exchange Stock
Option, and the exercise price therefor, in the same proportion as used for
determining the shares of Exchange Stock received by holders of Common
Stock in connection with a transaction described in this Section 5(n)(3).
Unless altered by the Plan Administrator or otherwise provided above, the
vesting schedule set forth in the Option Agreement shall continue to apply
to the Exchange Stock Options.
6. EFFECTIVE DATE; TERM.
This Plan shall be effective as of December 16, 1986 and Incentive Stock
Options may be granted by the Plan Administrator from time to time thereafter
until December 14, 2006; provided, however, that termination of the Plan shall
not terminate any Option granted prior thereto. Non-Qualified Stock Options may
be granted hereunder until this Plan is terminated by the Board in its sole
discretion.
7. NO OBLIGATIONS TO EXERCISE OPTION.
The granting of an Option shall impose no obligation upon the Optionees to
exercise such Option.
8. NO RIGHT TO OPTIONS OR EMPLOYMENT.
Whether or not any Options are to be granted hereunder shall be exclusively
within the discretion of the Committee, and nothing contained herein shall be
construed as giving any Optionee any right to participate hereunder. Granting of
an Option hereunder shall in no way constitute any form of agreement or
understanding binding on the Corporation, express or implied, that the
Corporation will employ or contract with an Optionee for any length of time.
9. APPLICATION OF FUNDS.
The proceeds received by the Corporation from the sale of Common Stock,
pursuant to Options granted hereunder, will be used for general corporate
purposes, unless otherwise directed by the Board.
Page 87
10. INDEMNIFICATION OF PLAN ADMINISTRATOR.
In addition to all other rights of indemnification they may have as members
of the Board or of any Committee, the Plan Administrators shall be indemnified
by the Corporation for all reasonable expenses and liabilities of any type or
nature, including attorneys' fees, incurred in connection with any action, suit
or proceeding to which they or any of them are a party by reason of, or in
connection with, the Plan or any Option granted hereunder, and against all
amounts paid by them in settlement thereof (provided such settlement is approved
by independent legal counsel selected by the Corporation), except to the extent
that such expenses relate to matters for which it is adjudged that such Plan
Administrator member is liable for willful misconduct; provided that within
fifteen (15) days after the institution of any such action, suit or proceeding,
the Plan Administrator involved therein shall, in writing, notify the
Corporation of such action, suit or proceeding, so that the Corporation may have
the opportunity to make appropriate arrangements to prosecute or defend the
same.
11. AMENDMENT OF THE PLAN.
The Plan Administrator may, at any time, modify or amend this Plan and
Options granted hereunder, except that no amendment with respect to an
outstanding Option shall be made over the objection of the Optionee thereof; and
provided, further, that any amendment for which shareholder approval is required
by Securities and Exchange Commission Rule 16b-3, as amended from time to time,
or any successor rule or regulatory requirements (the "Rule"), in order for the
Plan to be eligible or continue to qualify for the benefits of the Rule, shall
be subject to approval of the shareholders of the Corporation in accordance with
the Rule.
Effective as of December 16, 1986.
Amended and restated as of May 13, 1997.
DATA I/O CORPORATION
By: /s/ Alan J. Beauchamp
----------------------------------
Alan J. Beauchamp, Vice President -
Finance
Page 88
AMENDMENT TO BUSINESS LOAN AGREEMENT
PART A
This Business Loan Agreement ("Agreement") is made between Bank of America NW, N.A.,National Trust and Savings
Association, doing business as Seafirst Bank, successor by merger to Bank of
America NW, N.A. ("Bank"), and DATAData I/O CORPORATIONCorporation, a Washington Corporation
("Borrower") with respect to the following:
LINE OF CREDIT Subject to the terms of this Agreement, Bank will make loans
to Borrower under a revolving line of credit as follows:
TOTAL AMOUNT
AVAILABLE: Borrower may borrow, repay and reborrow up to a maximum of
Eight Million Dollars ($8,000,000.00).
AVAILABILITY
PERIOD: Date of Note through May 31, 1997. However, if loans are made
and/or new promissory notes executed after the last date, such
advances will be subject to the terms of this Agreement until
repaid in full unless a written statement signed by the Bank and Borrower provides otherwise, orare parties to a replacement loan
agreement is executed. The making of such additional advances
alone, however, does not constitute a commitment by the BankBusiness Loan Agreement dated
May 14, 1996 and wish to make any further advances or extend the availability period.
INTEREST RATE: At Borrower's option:
1. Bank's publicly announced prime rate, plus 0 %
adjusted on the date of any Bank prime rate change
or
2. A rate of interestcertain revisions to be fixed at Borrower's
election equal to the London Interbank Offered
Rate ("LIBOR") plus 1.10 percent for periods
ranging from one, two, three or six month periods,
but not extending beyond the maturity date of the
note. The rate shall be adjusted for any
statutory reserves, FDIC or other assessments.
Rate will be set two business days prior to the
first day of the interest period selected. A
prepayment fee may apply if principal reductions
are made during a fixed rate period. The minimum
amount of a LIBORtheir loan for interest periods of
one, two, three or six months is $250,000.
At maturity of a fixed rate period, the interest
rate will revert to Prime as described in section
1 above unless otherwise elected by Borrower.
INTEREST
RATE BASIS: All interest will be calculated at the per annum interest rate
based on a 360-day year and applied to the actual number of
days elapsed.
Page 75
FEE ON UNUTILIZED
PORTION OF LINE: On each quarter, and every quarter thereafter, Borrower shall
pay a fee based upon the average daily unused portion of the
line of credit. This fee will be calculated as 1/4 of 1.00%
per annum, payable quarterly in arrears.
OTHER FEES: None.
REPAYMENT: At the times and in amountsarrangements as
set forth in note(s) requiredthat Agreement. Upon execution hereof, that Agreement shall be
amended as follows effective immediately:
Part A:
Availability Period:
Availability period is hereby extended to May 31, 1998.
Interest Rate:
The prime rate referred to under option #1 shall now be referred to as the
reference rate.
The applicable margin for the interest rate under option #2 shall be
amended as follows:
Tangible Net Worth Debt/Worth Ratio Spread Over LIBOR
------------------ ---------------- -----------------
Greater than or equal to Less than or equal to 1.20:1 1.10%
$19,000,000
Less than $19,000,000 but Greater than 1.20:1 but less 1.55%
greater than the amount than the ratio required in Part
required in Part B, Section B, Section 4.3 of this
4.3 of this Agreement. Agreement.
Part B, Article 1 of this Agreement.
COLLATERAL: This revolving line of credit shall be unsecured.
Page 76
[LETTERHEAD]
BUSINESS LOAN AGREEMENT
PART B
1. PROMISSORY NOTE(S). All loans shall be evidenced by promissory notes in a
form and substance satisfactory to Bank.
2. CONDITIONS TO AVAILABILITY OF LOAN/LINE OF CREDIT. Before BankSection 4.3 is obligated to disburse/make any advance, or at any time thereafter which Bank
deems necessary and appropriate, Bank must receive all of the following, each of
which must be in form and substance satisfactory to Bank ("loan documents"):
2.1 Original, executed promissory note(s);
2.2 Original executed security agreement(s) and/or deed(s) of trust
covering the collateral described in Part A;
2.3 All collateral described in Part A in which Bank wishes to have a
possessory security interest;
2.4 Financing statement(s) executed by Borrower;
2.5 Such evidence that Bank may deem appropriate that the security
interests and liens in favor of Bank are valid, enforceable, and
prior to the rights and interests of others except those consented
to in writing by Bank;
+2.6 The following guaranty(ies) in favor of the Bank: N/A
+2.7 Subordination agreement(s) in favor of Bank executed by: N/A
2.8 Evidence that the execution, delivery, and performance by Borrower
of this Agreement and the execution, delivery, and performance by
Borrower and any corporate guarantor or corporate subordinating
creditor of any instrument or agreement required under this
Agreement, as appropriate, have been duly authorized;
2.9 Any other document which is deemed by the Bank to be required from
time to time to evidence loans or to effect the provisions of this
Agreement;
2.10 N/A
2.11 Pay or reimburse Bank for any out-of-pocket expenses expended in
making or administering the loans made hereunder including without
limitation attorney's fees (including allocated costs of in-house
counsel);
+2.12 Other (describe): N/A
3. REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants to Bank,
except as Borrower has disclosed to Bank in writing, as of the date of
this Agreement and hereafter so long as credit granted under this
Agreement is available and until full and final payment of all sums
outstanding under this Agreement and promissory notes that:
+3.1 Borrower is duly organized and existing under the laws of the state
of its organization as a:
General Limited Sole
_X_ Corporation __ Partnership __ Partnership __ Proprietorship dba__________
Borrower is properly licensed and in good standing in each
state in which Borrower is doing business and Borrower has
qualified under, and complied with, where required, the
fictitious or trade name statutes of each state in which
Borrower is doing business, and Borrower has obtained all
necessary government approvals for its business activities;
the execution, delivery, and performance of this Agreement and
such notes and other instruments required herein are within
Borrower's powers, have been duly authorized, and, as to
Borrower and any guarantor, are not in
Page 77
conflict with the terms of any charter, bylaw, or other organization
papers of Borrower, and this Agreement, such notes and the loan
documents are valid and enforceable according to their terms;
3.2 The execution, delivery, and performance of this Agreement, the loan
documents and any other instruments are not in conflict with any law
or any indenture, agreement or undertaking to which Borrower is a
party or by which Borrower is bound or affected;
3.3 Borrower has title to each of the properties and assets as reflectedhereby amended in its financial statements (except such assets which have been sold
or otherwise disposed of in the ordinary course of business), and no
assets or revenues of the Borrower are subject to any lien exceptentirety as required or permitted by this Agreement, disclosed in its financial
statements or otherwise previously disclosed to Bank in writing;
3.4 All financial information, statements as to ownership of Borrower
and all other statements submitted by Borrower to Bank, whether
previously or in the future, are and will be true and correct in all
material respects upon submission and are and will be complete upon
submission insofar as may be necessary to give Bank a true and
accurate knowledge of the subject matter thereof;
3.5 Borrower has filed all tax returns and reports as required by law to
be filed and has paid all taxes and assessments applicable to
Borrower or to its properties which are presently due and payable,
except those being contested in good faith;
3.6 There are no proceedings, litigation or claims (including unpaid
taxes) against Borrower pending or, to the knowledge of the
Borrower, threatened, before any court or government agency, and no
other event has occurred which may have a material adverse effect on
Borrower's financial condition;
3.7 There is no event which is, or with notice or lapse of time, or
both, would be, an Event of Default (as defined in Section 7) under
this Agreement;
3.8 Borrower has exercised due diligence in inspecting Borrower's
properties for hazardous wastes and hazardous substances. Except as
otherwise previously disclosed and acknowledged to Bank in writing:
Borrower has no actual or constructive notice of any actual or
threatened litigation or claims of any kind by any person relating
to such matters. The terms "hazardous waste(s)," hazardous
substance(s)," "disposal," "release," and "threatened release" as
used in this Agreement shall have the same meanings as set forth in
the Comprehensive Environmental Response, Compensation, and
Liability Act of 1980, as amended, 42 U.S.C. Section 9601, et seq.,
the Superfund Amendments and Reauthorization Act of 1986, as
amended, Pub. L. No. 99-499, the Hazardous Materials Transportation
Act, as amended, 49 U.S.C. Section 1801, et seq., the Resource
Conservation and Recovery Act, as amended, 49 U.S.C. Section 6901,
et seq., or other applicable state or federal laws, rules or
regulations adopted pursuant to any of the foregoing.
+3.9 Each chief place of business of Borrower, and the office or offices
where Borrower keeps its records concerning any of the collateral,
is located at: N/A
4. AFFIRMATIVE COVENANTS. So long as credit granted under this Agreement is
available and until full and final payment of all sums outstanding under
this Agreement and promissory note(s) Borrower will:
+4.1 Use the proceeds of the loans covered by this Agreement only in
connection with Borrower's business activities and exclusively for
the following purposes: WORKING CAPITAL AND GENERAL CORPORATE
PURPOSES.
+4.2 Maintain current assets in an amount at least equal to 1.20 times
current liabilities, and not less than $N/A. Current assets and
current liabilities shall be determined in accordance with generally
accepted accounting principles and practices, consistently applied;
+4.3follows:
Maintain a tangible net worth of at least $19,000,000$12,000,000 and not permit
Borrower's total indebtedness which is not subordinated in a manner
satisfactory to Bank to exceed 1.301.80 times Borrower's tangible net worth. By
the end of Borrower's fiscal year ending December 31, 1997, Borrower shall
not permit total indebtedness which is not subordinated in a manner
satisfactory to Bank to exceed 1.60 times Borrower's tangible net worth.
"Tangible net worth" means the excess of total assets over total
liabilities, excluding, however, from the determination of total assets (a)
all assets which should be classified as intangible assets such as
goodwill, patents, trademarks, copyrights, franchises, and deferred charges
(including unamortized debt discount and research and development costs)
but including as tangible assets all of Borrower's existing and future
"investment in product line assets", (b) treasury stock, (c) cash held in a
sinking or other similar fund established for the purpose of redemption or other
retirement of capital stock, (d) to the extent not already deducted from
total
Page 78
assets, reserves for depreciation, depletion, obsolescence or
amortization of properties and other reserves or appropriations of retained
earnings which have been or should be established in connection with the
business conducted by the relevant corporation, and (e) any revaluation or
other write-up in book value of assets subsequent to the fiscal year of
such corporation last ended at the date of this Agreement;
+4.4 Upon request Borrower agreesPart B, Section 4.15 is hereby added:
Page 89
Maintain liquidity, defined as the sum of cash plus investments in
marketable securities, in an amount at least equal to insure and to furnish Bank with
evidence of insurance covering the life of Borrower (if an
individual) or the lives of designated partners or officers of
Borrower (if a partnership or corporation) in the amounts stated
below. Borrower shall take such actions$3,000,000.
Except as are reasonably requested
by Bank, such as assigning the insurance policies to Bank or naming
Bank as beneficiary and obtaining the insurer's acknowledgment
thereof, to provide that in the eventspecifically set forth herein, all provisions of the deathAgreement remain
in full force and effect.
This Amendment to Business Loan Agreement is executed by the parties on this
13th day of anyMay, 1997.
SEAFIRST BANK
Western Wholesale Banking Division
By : /s/ Steven E. Melby
Steven E. Melby
Vice President
DATA I/O CORPORATION
By: /s/ Willian C. Erxleben
William C. Erxleben
President & Chief Executive Officer
By: /s/ Alan J. Beauchamp
Alan J. Beauchamp
Vice President & Chief Financial Officer
Page 90
DATA I/O CORPORATION
1996 DIRECTOR FEE PLAN
This 1996 Director Fee Plan (the "Plan") provides for the payment of
certain fees to directors of Data I/O Corporation, a Washington corporation (the
"Company") who are not employees of the named insuredsCompany by delivery of shares of the
policy proceeds will be appliedCompany's common stock (the "Common Stock").
ELIGIBILITY.
Persons eligible to payment of
Borrower's obligations owing to Bank;
Name:__N/A__________________Amount: $_______________________
Name:_______________________Amount: $_______________________
+4.5 Promptly give written notice to Bank of: (a) all litigation and
claims made or threatened affecting Borrower where the amount is
$500,000 or more; (b) any substantial dispute which may exist
between Borrower and any governmental regulatory body or law
enforcement authority; (c) any Event of Defaultreceive Common Stock under this AgreementPlan shall be all
directors of the Company who are not otherwise employed by the Company or any
other agreement with Bank orRelated Corporation, as defined below (each, a "Director", collectively, the
"Directors").
As used in this Plan, the term "Related Corporation," when referring to a
subsidiary corporation, shall mean any other creditor or any event
which become an Event of Default; and (d) any other matter which has
resulted or might result in a material adverse change in Borrower's
financial condition or operations;
+4.6 Borrower shall as soon as available, but in any event within 90 days
followingcorporation (other than the end of each Borrower's fiscal years and within 60 days
following the end of each quarter provide to Bank, in a form
satisfactory to Bank, such financial statements, Form 10-K Reports,
Form 10-Q Reports and other information respecting the financial
condition and operations of Borrower as Bank may reasonably request.
The fiscal year financial statements shall be audited by an
independent certified public accounting firm;
4.7 Borrower will maintain in effect insurance with responsible
insurance companies in such amounts and against such risks as is
customarily maintained by persons engaged in businesses similar to
that of Borrower and all policies covering property given as
security for the loans shall have loss payable clauses in favor of
Bank. Borrower agrees to deliver to Bank such evidence of insurance
as Bank may reasonably require and, within thirty (30) days after
notice from Bank, to obtain such additional insurance with an
insurer satisfactory to the Bank;
4.8 Borrower will pay all indebtedness taxes and other obligations for
which the Borrower is liable or to which its income or property is
subject before they shall become delinquent, except any which is
being contested by the Borrower in good faith;
4.9 Borrower will continue to conduct its business as presently
constituted, and will maintain and preserve all rights, privileges
and franchises now enjoyed, conduct Borrower's businessCompany) in
an orderly, efficient and customary manner, keep all Borrowers
properties in good working order and condition, and from time to
time make all needed repairs, renewals or replacements so that the
efficiencyunbroken chain of Borrower's properties shall be fully maintained and
preserved;
4.10 Borrower will maintain adequate books, accounts and records and
prepare all financial statements required hereunder in accordance
with generally accepted accounting principles and practices
consistently applied, and in compliancecorporations beginning with the regulations of any
governmental regulatory body having jurisdiction over Borrower or
Borrower's business;
4.11 Borrower will permit representatives of Bank to examine and make
copies of the books and records of Borrower and to examine the
collateral of the Borrower at reasonable times;
4.12 Borrower will perform, on request of Bank, such acts as may be
necessary or advisable to perfect any lien or security interest
provided for herein or otherwise carry out the intent of this
Agreement;
4.13 Borrower will comply with all applicable federal, state and
municipal laws, ordinances, rules and regulations relating to its
properties, charters, businesses and operations, including
compliance with all minimum funding and other requirements related
to any of Borrower's employee benefit plans;
Page 79
4.14 Borrower will permit representatives of Bank to enter onto
Borrower's properties to inspect and test Borrower's properties as
Bank, in its sole discretion, may deem appropriate to determine
Borrower's compliance with section 5.8 of this Agreement; provided
however, that any such inspections and tests shall be for Bank's
sole benefit and shall not be construed to create any responsibility
or liability on the part of Bank to Borrower or to any third party.
5. NEGATIVE COVENANTS. So long as credit granted under this Agreement is
available and until full and final payment of all sums outstanding under
this Agreement and promissory note(s):
+5.1 Borrower will not, during any fiscal year, expend or incur in the
aggregate more than $_______N/A______ for fixed assets, nor more
than $_______N/A_______ for any single fixed asset whether or not
payable that fiscal year or later under any purchase agreement or
lease;
5.2 N/A;
+5.3 The total of salaries, withdrawals, or other forms of compensation,
whether paid in cash or otherwise, by Borrower shall not exceed the
following amounts for the persons indicated, nor will amounts in
excess of such limits be paid to any other person:
Name: __N/A_____________ Monthly/Yearly Amount:$ _
Name: __________________ Monthly/Yearly Amount:$ _
5.4 N/A;
+5.5 N/A;
5.6 Borrower will not liquidate or dissolve or enter into any
consolidation, merger, pool, joint venture, syndicate or other
combination, or sell, lease, or dispose of Borrower's business
assets as a whole or such as in the opinion of Bank constitute a
substantial portion of Borrower's business or assets;
5.7 Borrower will not engage in any business activities or operations
substantially different from or unrelated to present business
activities or operations; and
5.8 Borrower's activity shall be conducted in compliance with all
applicable federal, state and local laws, regulations and
ordinances, including without limitation those described in section
3.8.
6. WAIVER, RELEASE AND INDEMNIFICATION. Borrower hereby:
(a) releases and waives any claims against Bank for indemnity or
contribution in the event Borrower becomes liable for cleanup or other
costs under any of the applicable federal, state or local laws,
regulations or ordinances, including without limitation those described in
section 3.8, and (b) agrees to indemnify and hold Bank harmless from and
against any and all claims, losses, liabilities, damages, penalties and
expenses which Bank may directly or indirectly sustain or suffer resulting
from a breach of (i) any of Borrower's representations and warranties with
respect to hazardous wastes and hazardous substances contained in section
3.8, or (ii) section 5.8. The provisions of this section 6 shall survive
the full and final payment of all sums outstanding under this Agreement
and promissory notes and shall not be affected by Bank's acquisition of
any interest in any of the Borrower's properties, whether by foreclosure
or otherwise.
7. EVENTS OF DEFAULT. The occurrence of any of the following events ("Events
of Default") shall terminate any and all obligations on the part of Bank
to make or continue the loan and/or line of credit and, at the option of
Bank, shall make all sums of interest and principal outstanding under the
loan and/or line of credit immediately due and payable, without notice of
default, presentment or demand for payment, protest or notice of non
payment or dishonor, or other notices or demands of any kind or character,
all of which are waived by Borrower, and Bank may proceed with collection
of such obligations and enforcement and realization upon all security
which it may hold and to the enforcement of all rights hereunder or at
law:
7.1 The Borrower shall fail to pay when due any amount payable by it
hereunder on any loans or notes executed in connection herewith;
7.2 Borrower shall fail to comply with the provisions of any other
covenant, obligation or term of this Agreement for a period of
thirty (30) days after the earlier of written notice thereof shall
have been
Page 80
given to the Borrower by Bank or Borrower or any Guarantor has
knowledge of an Event of Default or an event that can become an
Event of Default;
7.3 Borrower shall fail to pay when due any other obligation for
borrowed money, or to perform any term or covenant on its part to be
performed under any agreement relating to such obligation or any
such other debt shall be declared to be due and payable and such
failure shall continue after the applicable grace period;
7.4 Any representation or warranty made by Borrower in this Agreement or
in any other statement to Bank shall prove to have been false or
misleading in any material respect when made;
7.5 Borrower makes an assignment for the benefit of creditors, files a
petition in bankruptcy, is adjudicated insolvent or bankrupt,
petitions to any court for a receiver or trustee for Borrower or any
substantial part of its property, commences any proceeding relating
to the arrangement, readjustment, reorganization or liquidation
under any bankruptcy or similar laws, or if there is commenced
against Borrower any such proceedings which remain undismissed for a
period of thirty (30) days or, if Borrower by any act indicates its
consent or acquiescence in any such proceeding or the appointment of
any such trustee or receiver;
+7.6 Any judgment attaches against Borrower or any of its properties for
an amount in excess of $500,000 which remains unpaid, unstayed on
appeal, unbonded, or undismissed for a period of thirty (30) days;
7.7 Loss of any required government approvals, and/or any governmental
regulatory authority takes or institutes action which, in the
opinion of Bank, will adversely affect Borrower's condition,
operations or ability to repay the loan and/or line of credit;
7.8 Failure of Bank to have a legal, valid and binding first lien on, or
a valid and enforceable prior perfected security interest in, any
property covered by any deed of trust or security agreement required
under this Agreement;
7.9 Borrower dies, becomes incompetent, or ceases to exist as a going
concern;
7.10 Occurrence of an extraordinary situation which gives Bank reasonable
grounds to believe that Borrower may not, or will be unable to,
perform its obligations under this or any other agreement between
Bank and Borrower; or
7.11 Any of the preceding events occur with respect to any guarantor of
credit under this Agreement, or such guarantor dies or becomes
incompetent, unless the obligations arising under the guaranty and
related agreements have been unconditionally assumed by the
guarantor's estate in a manner satisfactory to Bank.
8. SUCCESSORS; WAIVERS. Notwithstanding the Events of Default above, this
Agreement shall be binding upon and inure to the benefit of Borrower and
Bank, their respective successors and assigns, except that Borrower may
not assign its rights hereunder. No consent or waiver under this Agreement
shall be effective unless in writing and signed by the Bank and shall not
waive or affect any other default, whether prior or subsequent thereto,
and whether of the same or different type. No delay or omission on the
part of the Bank in exercising any right shall operate as a waiver of such
right or any other right.
9. ARBITRATION.
9.1 At the request of either Bank or Borrower any controversy or
claim between the Bank and Borrower, arising from or relating
to this Agreement or any Loan Document executed in connection
with this Agreement or arising from any alleged tort shall be
settled by arbitration in King County Washington. The United
States Arbitration Act will apply to the arbitration
proceedings which will be administered by the American
Arbitration Association under its commercial rules of
arbitration except that unless the amount of the claim(s)
being arbitrated exceeds $5,000,000 there shall be only one
arbitrator. Any controversy over whether an issue is
arbitrable shall be determined by the arbitrator(s).
Judgement upon the arbitration award may be entered in any
court having jurisdiction. The institution and maintenance of
any action for judicial relief or pursuit of a provisional or
ancillary remedy shall not constitute a waiver of the right of
either party, including plaintiff, to submit the controversy
or claim to arbitration if such action for judicial relief is
contested.
For purposes of the application of the statute of limitations
the filing of an arbitration as provided herein is the
equivalent of filing a lawsuit and the arbitrator(s) will have
the authority to decide whether any claim or controversy is
barred by the statute of limitations, and if so, to dismiss
the
Page 81
arbitration on that basis. The parties consent to the joinder in
the arbitration proceedings of any guarantor, hypothecator or other
party having an interest related to the claim or controversy being
arbitrated.
9.2 Notwithstanding the provisions of Section 9.1, no controversy or
claim shall be submitted to arbitration without the consent of all
partiesCompany if, at the time of
the proposed submission,granting of the Common Stock, each of the corporations other than the last
corporation in the unbroken chain owns stock possessing fifty percent (50%) or
more of the total combined voting power of all classes of stock of one of the
other corporations in such controversychain. When referring to a parent corporation, the
term "Related Corporation" shall mean any corporation (other than the Company)
in an unbroken chain of corporations ending with the Company if, at the time of
granting of the Common Stock, each of the corporations other than the Company
owns stock possessing fifty percent (50%) or claim arises from or relatesmore of the total combined voting
power of all classes of stock of one of the other corporations in such chain.
STOCK.
Subject to an obligation secured by real
property;
9.3 No provisionapproval of this Section 9 shall limitPlan by the rightshareholders of the BorrowerCompany as
described in Section 7 hereof, so long as this Plan is in effect, each person
serving as a member of the Board of Directors of the Company shall be entitled
to receive shares of Common Stock in consideration of his or her service on the
Board, payable annually in arrears. The number of shares of Common Stock payable
hereunder each calendar year shall be determined pursuant to the following
formula, rounded down to the nearest whole number:
(A/365) x ($20,000/Share Price)
A = the number of days of service as a director during the calendar year
The Share Price shall mean the price per share of Common Stock determined
as provided in this paragraph. If the Common Stock of the Company is publicly
traded on the first trading day of the calendar year, the Share Price shall be
the average of the high and low sale prices per share of Common Stock on such
date or, in case no reported sales take place on such date, the average of the
last reported bid and asked prices, in either case on the principal national
securities exchange on which the Common Stock is listed or admitted to trading,
or if not listed or admitted to trading on any national securities exchange, on
the National Association of Securities Dealers Automated Quotation System. If
the Common Stock is not traded in such manner that the quotations referred to
above are available as of such date, the Share Price shall be deemed to be the
greater of (i) the book value per share as set forth on the most recent
quarterly financial statement of the Company available on such date, or (ii) the
fair market value per share at such date as determined in good faith by the
Board of Directors. Notwithstanding the foregoing, with respect to shares of
Common Stock payable to a Director for service as a Director during the calendar
year in which such person was first elected to the Board of Directors, the Share
Price shall be determined in the manner described above as of the day on which
such Director is elected to the Board of Directors, or if the Common Stock is
publicly traded and such day is not a trading day, the first trading day
thereafter.
Certificates for shares deliverable under this Plan shall be earned as of
January 1 of the year following the year of service regardless of whether the
Director remains a Director on such date and shall be delivered to each Director
by not later than February 15 of such following year.
In the event a Director resigns or is no longer able to serve as a Director
due to death or permanent disability, then such Director shall be paid the
amount of shares due to him or her under this Section 2 by a date not later than
forty-five
Page 91
(45) days from the earlier of the date their notice of resignation is received
by the Board or the Bankdate the Board is made aware of the Director's death or
permanent disability.
Reservation of Common Stock
Subject to exercise self-help remediesadjustment as set forth in Section 6 hereof, a total of 200,000
shares of authorized but unissued or reacquired Common Stock are hereby reserved
for grant under this Plan.
Rights as a Shareholder.
A Director shall have no rights as a shareholder with respect to any shares
to be delivered under this plan until such Director becomes a record holder of
such shares. Subject to the provisions of Sections 6 below, no rights shall
accrue to a Director and no adjustments shall be made on account of dividends
(ordinary or extraordinary, whether in cash, securities or other property) or
distributions or other rights declared on, or created in, the Common Stock for
which the record date is prior to the date the Director becomes a record holder
of the shares of Common Stock.
Securities Regulation and Tax Withholding.
No shares of Common Stock shall be delivered hereunder unless the issuance
and delivery of such shares shall comply with all relevant provisions of law,
including, without limitation, any applicable state securities laws, the
Securities Act of 1933, as setoff,
foreclosureamended, the Securities Exchange Act of 1934, as
amended, the rules and regulations thereunder and the requirements of any stock
exchange or consolidated reporting system upon which such shares may then be
listed or quoted. The inability of the Company to obtain from any regulatory
body the authority deemed by the Company to be necessary for the lawful issuance
of any shares under this Plan, or the unavailability of an exemption from
registration for the issuance of any shares under this Plan shall relieve the
Company of any liability with respect to the non-issuance of such shares;
provided, however, if the Company refrains from issuing shares hereunder, the
Director shall receive cash in lieu of shares at a rate of $20,000 per year, pro
rated for actual days of service during the year.
As a condition to participation in this Plan, each Director shall make such
arrangements as the Company may require for the satisfaction of any federal,
state, local or foreign withholding tax obligations that may arise in connection
with delivery of shares under this Plan.
The issuance, transfer or delivery of certificates of Common Stock granted
under this Plan may be delayed, at the option of the Company, until the Company
is satisfied that the applicable requirements of the federal and state
securities laws and the withholding provisions of the Internal Revenue Code have
been met.
Stock Dividend, Reorganization of Liquidation.
If the Company should declare with respect to the Common Stock a
stock-split or a dividend payable in shares of Common Stock, or a reverse-stock
split or other combination of the Common Stock, or a reclassification of the
Common Stock (each, an "Event"), then (1) the class and number of shares yet to
be delivered to any Director subsequent to the record date for the Event, and
(2) the class and number of shares reserved for grant under Section 3 of this
Plan, shall be appropriately adjusted to account for the change in the number
and class of capital stock of the Company outstanding as a result of the Event,
without further action on the part of the Company, its Board of Directors or its
shareholders.
If the shareholders of the Company receive debt or equity securities of
another Person ("Exchange Securities") or cash in exchange for or in place of
shares of Common Stock in any transaction involving any merger, consolidation,
reorganization or other transaction providing for the conversion or exchange of
all or substantially all outstanding shares of Common Stock into Exchange
Securities or cash, then payment to Directors of the retainer fee provided for
by this Plan, pro rated through the date of closing of such transaction, shall
be accelerated to such closing date and shall be paid in the form of Exchange
Securities or cash, as the case may be. In such case, the amount of Exchange
Securities or cash to be delivered in lieu of Common Stock shall be determined
by adjusting the number of shares of Common Stock otherwise deliverable
hereunder in the same proportion as used for determining the shares of
Page 92
Exchange Securities or cash the holders of the Common Stock received in such
merger, consolidation, reorganization or other transaction. Notwithstanding the
foregoing, if payment in the form of Exchange Securities would cause a Director
to have engaged in a violation of Section 16 of the Securities Exchange Act of
1934 (taking into consideration any other transactions in the securities of the
Company or Exchange Securities by the Director), then each such Director shall
receive cash in lieu of Common Stock or Exchange Securities at a rate of $20,000
per year, pro rated for actual days of service during the year prior to the
closing of such transaction.
Except as provided in this Section 6, no Director shall have any rights by
reason of any subdivision, combination or reclassification of shares of any
class of the Company's capital stock, including shares of Common Stock, or the
payment of any dividend payable on shares of Common Stock or any other change in
the number or class of shares of the Company's outstanding capital stock, or by
reason of any merger, consolidation, dissolution or liquidation of the Company,
or by reason of any sale of any collateral,all or obtaining any ancillary
provisionalsubstantially all of the assets of the
Company other than in the usual and regular course of business, or interim remedies from a court of competent
jurisdiction before, after or during the pendencyby reason of
any arbitration
proceeding.issuance of any shares of capital stock of the Company, including shares of
Common Stock or securities convertible into or exchangeable or exercisable for
shares of Common Stock, and no adjustment by reason thereof shall be made with
respect to the number of shares to be granted to Directors as described in
Section 2 hereof.
EFFECTIVE DATE; TERM.
The exerciseeffective date of this Plan shall be January 1, 1996; provided that no
shares of Common Stock shall be issued hereunder until the Company's
shareholders have approved this Plan by the affirmative vote of a majority of
the voting securities shares represented in person or by proxy at a duly
convened meeting of the shareholders of the Company at which a quorum is
present. If shareholder approval is not obtained by June 30, 1996, then this
Plan shall be deemed abandoned. Otherwise, this Plan shall continue until
terminated by action of the Board of Directors.
INDEMNIFICATION OF BOARD.
In addition to all other rights or indemnification they may have as
directors of the Company or as members of the Board, members of the Board shall
be indemnified by the Company for all reasonable expenses and liabilities of any
type and nature, including reasonable attorneys' fees, incurred in connection
with any action, suit or proceeding to which they or any of them are a party by
reason of, or in connection with, the Plan or any grant of Common Stock
hereunder, and against all amounts paid by them in settlement thereof (provided
such settlement is approved by independent legal counsel selected by the
Company), except to the extent that such expenses relate to matters for which it
is adjudged that such Board members are liable for willful misconduct; provided,
that within fifteen (15) days after the institution of any such remedy does not waive the
right of either party to request arbitration. At Bank's option
foreclosure under any deed of trust may be accomplished by exerciseaction, suit or
proceeding, member(s) of the powerBoard shall, in writing, notify the Company of sale undersuch
action, suit or proceeding, so that the deedCompany may have the opportunity to make
appropriate arrangements to prosecute or defend the same.
AMENDMENT OF PLAN.
The Board of trustDirectors may, at any time, modify, amend or judicial foreclosureterminate this
Plan, including, without limitation, such modifications or amendments as a mortgage.
10. COLLECTION ACTIVITIES, LAWSUITS AND GOVERNING LAW. Borrower agreesare
necessary to pay
Bank all costsmaintain compliance with applicable statutes, rules or regulations;
provided, that (i) any amendment for which shareholder approval is required by
Securities and expenses (including reasonable attorney's fees and the
allocated cost for in-house legal services incurred by Bank),Exchange Commission Rule 16b-3, as amended from time to enforce
this Agreement, any notestime, or
any Loan Documents pursuantsuccessor rule or regulatory requirements (the "Rule"), in order for the
Plan to this
Agreement, whetherbe eligible or not suit is instituted. If suit is instituted by
Bankcontinue to enforce this Agreement or any of these documents, Borrower
consents toqualify for the personal jurisdictionbenefits of the CourtsRule, shall
be subject to approval of the Stateshareholders of Washington and Federal Courts located in the State of Washington.
Borrower further consents to the venue of this suit, being laid in King
County, Washington. This Agreement and any notes and security agreements
entered into pursuant to this Agreement shall be construedCompany in accordance with the
lawsRule; and (ii) this Plan shall not be amended in any material respect more than
once every six (6) months, other than to comport with changes in the Rule, the
Internal Revenue Code of 1986, as amended, the Employee Retirement Security Act
of 1974, as amended, or the rules thereunder.
Approved by the Board of Directors of the StateCompany.
Page 93
AGREEMENT AND GENERAL RELEASE
This Agreement and General Release ("Agreement") is made between Data I/O
Corporation ("Data I/O") and Bill Haydamack and is presented to Mr. Haydamack on
November 10, 1997.
Data I/O and Mr. Haydamack agree as follows:
1. Termination of Washington.
+11. ADDITIONAL PROVISIONS. BorrowerEmployment. Mr. Haydamack's regular, full-time employment
with Data I/O will terminate on November 14, 1997.
2. Payments. In consideration of signing this Agreement, Mr. Haydamack will
receive the severance and other payments as described in this Agreement. Data
I/O shall pay Mr. Haydamack his current salary according to the normal payroll
process through the date of termination, less any lawful withholding. Mr.
Haydamack will also receive severance in the amount of $143,000.00, less any
lawful withholding, to be paid in a lump sum not later than December 1, 1997.
3. Confidentiality and Return of Data I/O Property. Mr. Haydamack agrees to
keep the additionalexistence and terms of this Agreement confidential; provided Mr.
Haydamack may share its provisions set
forth immediately following this Section 11with his or her spouse, attorney, and tax
advisor. Mr. Haydamack agrees not to use or disclose any non-public financial,
technical, marketing, operating, or other proprietary information of Data I/O or
its affiliates (collectively the "Company"), and agrees to return all tangible
items and copies containing such information to Data I/O on any Exhibit attached to
and hereby incorporated into Agreement.or before December
31, 1998.
4. Entire Agreement; Severability. This Agreement supersedes all
oral negotiations or agreementsand the letter attachment
(Exhibit A) hereto dated November 10, 1997, contains the entire understanding
between BankData I/O and Borrower with respect toMr. Haydamack regarding the subject matter hereofof this
Agreement, and constitutes the entire understandingit supersedes all prior negotiations and agreements, whether oral
or written. The provisions of this Agreement of the matters set forth in this Agreement.
11.1are severable. If any provision of this Agreement is
heldfound to be invalid or unenforceable, then (a) such provision shall be deemed modified if
possible, or if not possible, such provision shall be deemed
stricken, and (b) all other provisionsthe balance of this Agreement shall remain
in full force and effect.
11.2 If5. Non-Admission of Liability. This Agreement shall not be construed in any
way as an admission by either party of any wrongdoing or liability.
Page 94
GENERAL RELEASE
Mr. Haydamack hereby releases and forever discharges Data I/O, its present
and former officers, directors, agents, attorneys, parents, subsidiaries,
divisions and affiliates, from any and all claims, demands, actions, suits,
causes of action, debts, accounts or controversies of any nature whatsoever,
known or unknown, which Mr. Haydamack has, or may have, against Data I/O or its
present or former officers, directors, agents, attorneys, parents, subsidiaries,
divisions and affiliates, up to the impositiondate of execution of this Agreement.
This Agreement specifically includes any and all claims arising out of, or
any change in any law, rule, or regulation
guidelineway related to, Mr. Haydamack's employment with Data I/O, or the
interpretationtermination of Mr. Haydamack's employment with Data I/O, or applicationany employment
actions taken by Data I/O during the course of Mr. Haydamack's employment.
Further, this Agreement specifically includes any and all claims based on, or
related to, Title VII of the Civil Rights Act of 1964, the Age Discrimination in
Employment Act, any local, state or federal equal employment opportunity laws,
wrongful discharge claims, defamation claims, breach of contract claims, and
negligence and/or tort claims.
WAIVER AND RELEASE OF AGE DISCRIMINATION CLAIMS
This Agreement provides for a waiver and release of any thereof by any
court of administrativerights or governmental authority (including any
requestclaims
that Mr. Haydamack may have against Data I/O or policy whetherits agents, prior to the date it
is signed, under the Age Discrimination in Employment Act.
Mr. Haydamack understands that he or not having the force of law) shall
impose or modify any taxes (except U.S. federal, state or local
income or franchise taxes imposed on Bank), reserve requirements,
capital adequacy requirements or other obligations which would: (a)
increase the cost to Bank for extending or maintaining any loans
and/or line of credit to which this Agreement relates, (b) reduce
the amounts payable to Bankshe is receiving benefits under this
Agreement in addition to anything he or she is already entitled.
Mr. Haydamack is advised to consult with an attorney prior to signing this
Agreement.
Mr. Haydamack understands that he or she has a period of 21 days within
which to consider signing this Agreement.
Mr. Haydamack understands that he or she has a period of 7 days after
signing this Agreement within which to revoke it, and that it shall not become
effective or enforceable until that revocation period has expired.
Dated: November 11, 1997 /s/ William J. Haydamack
Bill Haydamack
Dated: November 11, 1997 Data I/O Corporation
By William C. Erxleben
Title President and Chief
Executive Officer
ATTACHMENT A
TO: Bill Haydamack
FROM: Bill Erxleben
DATE: November 10, 1997
Dear Bill:
This letter details our agreement regarding severance upon your voluntary
termination of employment at Data I/O.
Page 95
1. Your last day of employment is November 14, 1997.
2. You will receive one year's base pay of $135,000, or as pro-rated pursuant
to the attached schedule. (Schedule 1)
3. Data I/O will transfer to you your laptop computer in exchange for up to 20
hours of consulting beginning November 14, but ending not later than
December 31, 1998.
4. In exchange for being available to Data I/O as a consultant for up to an
additional 40 hours through December 31, 1998, Data I/O will vest all
10,000 of your remaining unvested options. You may exercise these options
anytime after November 14 until you are notified in writing that your
consultancy has ended whereupon you will have ninety days to exercise or
December 31, 1998, whichever first occurs.
5. You will receive a 401(k) match for 1997 prorated to November 14.
6. If consulting services are required from you beyond 60 hours between
November 14, 1997 and December 31, 1998 you will be paid $150.00 per hour.
Any separate consultancy to MINC shall not be charged to Data I/O.
7. You may keep your office files for the period of the consultancy but
thereafter you must destroy these files or return them to Data I/O.
It's been a pleasure to work with you. I wish you great success.
Page 96
Separation Agreement
This Separation Agreement ("Agreement") is entered into by William C.
Erxleben ("Employee") and Data I/O Corporation, a Washington corporation
("Employer"). Employee and Employer wish to enter into an agreement pertaining
to the termination of Employee's employment in order to effect an orderly
transition. Nothing in this Agreement is intended or should be construed as an
admission of wrongdoing or liability by any party.
AGREEMENTS
NOW, THEREFORE, in consideration of the foregoing recitals and the mutual
promises contained below, it is agreed as follows:
1. TERMINATION DATE. The last day of Employee's employment with Employer will be
January 31, 1998 ("Termination Date"), provided that Employer may sooner
terminate the employment relationship if Employee fails to comply with any of
Employee's obligations hereunder, and further provided that Employee is hereby
relieved of his obligations to perform services as an employee or officer of
Employer and, effective immediately, shall not: perform services on behalf of
Employer, except as specifically requested by the President or CEO; make
representations on behalf of Employer; or bind Employer to any obligations.
Employee shall execute and submit to Employer as a condition precedent to this
Agreement a written resignation in substantially the form of Exhibit A ("Written
Resignation"). Employee claims and shall claim no further right to employment by
Employer beyond the Termination Date.
2. USUAL PAYMENTS AND BENEFITS. Employee shall be paid his usual and customary
benefits and compensation due him until January 6, 1998, plus unused accrued
vacation as of the Termination Date. Employer shall provide Employee with the
following compensation and benefits following termination:
(A) Employee may exercise whatever rights Employee may have to
continuation of medical benefits under the Company's medical plan
under COBRA;
(B) Employee's account under Employer's 401(k) plan upon termination shall
be handled in accordance with the terms and conditions of that plan,
and the Employer match for Employee will be provided for 1997 in
accordance with existing policies of Employer;
(C) Out of pocket expenses previously incurred by Employee on Employer
business shall be reimbursed in accordance with Employer policies
regarding the reimbursement of business expenses, provided that
Employee provides a request for such notesexpenses together with related
receipts or other suitable documentation on or before January 31,
1998; and
(D) Management Incentive Compensation for 1997 shall be paid in accordance
with the MICP Plan of Employer, with the amount of payout to be
determined by the Board of Directors in its discretion after
completion of the 1997 audit on the same basis as the payout to all
other participants. Employee shall be permitted to review and
challenge the calculation of such payout, subject to the understanding
that such material is provided to Employee subject to the
confidentiality provisions of this Agreement.
(E.) Employee's contributions to Employer's Stock Purchase Plan shall be
applied to the purchase of shares of Employer's Common Stock at
January 31, 1998, the end of the current plan period, in accordance
with Employer's Employee Stock Purchase Plan.
Except as stated herein, any and all other payments and benefits offered by
Employer to Employee cease on the Termination Date.
3. ADDITIONAL CONSIDERATION. In addition to the compensation identified in
Paragraph 2 herein, and in consideration for Employee's covenants and release
herein, Employer will provide Employee with the following payments, benefits,
and other instruments, or (c) reduceconsideration:
Page 97
A. Employer shall enter into a consulting agreement with Employee in the
rateform of return on Bank's
capital as a consequence of Bank's obligations with respectExhibit B to any
loan and/or line of credit to which this Agreement relates, then
Borrower agrees("the Consulting Agreement").
Employer shall execute and deliver to pay Bank such additional amounts as will
compensate Bank therefor,Employee the fully executed
Consulting Agreement within five (5)three days after Bank's written
demand for such payment, which demandthe expiration of the
revocation period in Paragraph 8, provided that Employee has executed
and delivered this Agreement and the Consulting Agreement to Employer
in accordance with the terms and conditions herein and has not revoked
or rescinded this Agreement. The effective date of the Consulting
Agreement shall be accompanied by an
explanationthe later of: 1) the eighth day after Employee has
delivered to Employer this fully executed Agreement and other
documents referenced herein as conditions to this Agreement, provided
that this Agreement has not been revoked or rescinded; or 2) February
1, 1998.
B. At the date hereof Employee holds options to purchase shares of
such imposition or chargeEmployer's Common Stock granted pursuant to Employer's 1986 Stock
Option Plan, as amended (the "86 Plan") in the amounts and a calculationwith the
other essential terms set forth on Exhibit C hereto and in reasonable detail of the additional amounts payable by Borrower,
which explanation and calculations shall be conclusive, absent
manifest error.
11.3 N/A
11.4 This Business Loan Agreement also covers all future standby letters
of credit and foreign exchange facilities as may be requested by
Borrower and made by Bank.
12. NOTICES. Any notices shall be given in writing toPlan
(the "Options"). Conditioned on Employee's continued compliance with
the opposite party's
signature below or as that party may otherwise specify in writing.
Page 82
13. ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN MONEY, EXTEND CREDIT, OR TO
FORBEAR FROM ENFORCING REPAYMENT OF A DEBT ARE NOT ENFORCEABLE UNDER
WASHINGTON LAW.
This Business Loan Agreement (Parts A and B) executed by the parties on May 14,
1996. Borrower acknowledges having read all of the provisionsterms of this Agreement and Borrower agreesthe Consulting Agreement, the Options
shall remain exercisable and shall continue to its terms.
SEAFIRST BANK
Western Commercial Banking Division
By: /S/ STEVEN E. MELBY
-------------------
Steven E. Melby, Vice President
Address: Seafirst Bank
Western Commercial Banking Division, Team 2
10500 N. E. Eighth Street, Suite 500
Bellevue, WA 98004
Phone: (206) 585-6390
Fax: (206) 585-6393
DATA I/O CORPORATION
By: /S/ Steven M. Gordon
--------------------
Steven M. Gordon, Vice President/Chief Financial Officer
Address: Data I/O Corporation
10525 Willows Road N.E.
P. O. Box 97046
Redmond, WA 98073-9746
Phone: (206) 881-6444
Fax: (206) 861-6924
Page 83
LOAN MODIFICATION
[LETTERHEAD] AGREEMENT
- --------------------------------------------------------------------------------
Thisvest throughout the
term of Employee's service as a consultant to Employer pursuant to the
Consulting Agreement amends(the "Term of the Master Note For Multiple Advances-Business
Purpose dated February 28, 1994 ("Note") executed by DATA I/O CORPORATION
(together if more than one "Borrower") in favor of Bank of America NW, N.A.,
doing business as SEAFIRST BANK ("Bank"), regarding a loan in the maximum
principal amount of $8,000,000 (the "Loan"Consulting Agreement"). For mutual consideration,
Borrower and Bank agree to amendAny
Options which were granted as Incentive Stock Options for purposes of
Section 422 of the NoteInternal Revenue Code of 1986, as follows:
1. MATURITY DATE. The maturityamended, shall
become non-qualified options as of the 91st day after the date on
which Employee is no longer an employee of Employer. Each of the
Options shall terminate on the earlier of (i) its original expiration
date, (ii) the effective date of termination of the Note is changedConsulting
Agreement for cause, or (iii) 90 days after termination of the
Consulting Agreement for any other reason. Vesting of the Options
shall in any event cease on the last day of the Term of the Consulting
Agreement. In the event of a change of control of Employer as
described in Section 5 (n) of the 86 Plan during the term of the
Consulting Agreement, the vesting of outstanding stock Options shall
be accelerated in accordance with Section 5(n) of the 86 Plan, but
only to May 31,
1997. Bank's commitment to make advances to Borrower under its linethe extent that such options would be vested as of credit is also extended to May 31, 1997.
3. OTHER TERMS.June 30,
1999 had the term of the Consulting Agreement continued through June
30, 1999. Any stock appreciation rights granted in tandem with the
Options are hereby terminated. Except as specifically amended by this agreement or any
prior amendment,otherwise expressly stated
herein, all other terms conditions, and definitionsconditions of the Note
and all other security agreements, guaranties, deeds of trust, mortgages,
and other instruments or agreements entered into with regard to the LoanOptions shall remain in
full force and effect.
This agreement is dated April 15, 1996.
Bank: SEATTLE-FIRST NATIONAL BANK
By //S//Steven E. Melby
----------------------------
Title Vice President
---------------------------
Borrower: DATA I/O CORPORATION
By: //S//Steven M. Gordon
------------------------------
Title: Vice President/C. F. O.
----------------------------
Page 84
Exhibit A -- PREPAYMENT FEES
IfEmployer shall pay the principal balance owingdues for continuing Harbor Club (Bellevue)
membership for the months of January, February, and March of 1998.
D. Should Employee elect to Bank is prepaid in whole or in part, whether
by voluntary prepayment, operation of law, acceleration or otherwise, a
prepayment fee, in addition to any interest earned, will be immediately payableexercise Employee's rights under COBRA, to
the holderextent that such rights exist, Employer shall pay the premiums for
COBRA coverage for Employee and dependents through December 31, 1998,
unless Employee is entitled to medical benefits under another
employer's plan.
E. Employer shall make a payment to Employee in the amount of $ 19,333.34
("Initial Payment") on the eighth day after Employee executes and
delivers to Employer this Agreement, provided this Agreement is not
rescinded or revoked. The Initial Payment shall be Payment 1 payable
under and as described in the Consulting Agreement.
It is agreed and acknowledged that Employer is not obligated to make the
payments and provide the benefits and other consideration described in this
Paragraph 3, that Employer does so only as consideration for the covenants and
release herein and that such payments and consideration constitute adequate
consideration for the covenants and release set forth in this Agreement.
Employer's obligation to provide the consideration set forth in this Paragraph
3, including execution and delivery to Employee of the Consulting Agreement and
performance of the Consulting Agreement, are conditioned upon all of the
following: 1) Employee's execution of this note.
The amountAgreement and delivery of this
Agreement to Employer in accordance with the terms and conditions herein; 2)
Employee not revoking or rescinding this Agreement; 3) Employee complying with
his obligations under this Agreement and the Consulting Agreement; 4) Employee's
execution of the prepayment fee depends onConsulting Agreement and Written Resignation and delivery to
Employer of the following:
(1) The amount by which interest reference rates as defined below have changed
betweenConsulting Agreement and Written Resignation prior to the
timeexpiration of this offer; and 5) Employee executing and delivering a waiver and
release in substantially the loan is prepaidform of Exhibit D ("Second Release") within five
(5) days after the Termination Date but no earlier than the
Page 98
Termination Date, and either a)not rescinding or revoking the timeSecond Release. If Employer
has provided to Employee any of the loan was
made for fixed rate loans,consideration set forth in this Paragraph 3,
and Employee subsequently rescinds or b) the time the interest rate last changed
(repriced) for variable rate loans.
(2) A prepayment fee factor (see "Prepayment Fee Factor Schedule" on Page 2).
(3) The amount of principal prepaid.
If the proceeds from a CDrevokes this Agreement or time deposit pledgedfails to secure the loan are usedmeet
other conditions precedent to prepay the loan resulting in payment of an early withdrawal penalty for the CD,
a prepayment fee will not also be charged under the loan.
DEFINITION OF REFERENCE RATE FOR VARIABLE RATE LOANS
The Reference Rate used to represent interest rate levels for variable rate
loansthis Agreement, Employer shall be the index rate used to determine the rate on this loan having
maturities equivalententitled to the
remaining periodrepayment of all such consideration. Other than those benefits and payments
specified in this Agreement, Employer shall have no obligation to interest rate change date
(repricing)provide and
shall provide no further payments or benefits of this loan rounded upwardany kind to nearest month. The "Initial
Reference Rate" shall be the Reference Rate at the time of last repricingEmployee.
4. COMPANY PROPERTY. Employee represents and a
new Initial Reference Rate shall be assigned at each subsequent repricing. The
"Final Reference Rate" shall be the Reference Rate at the time of prepayment.
DEFINITION OF REFERENCE RATE FOR FIXED RATE LOANS
The "Reference Rate" usedwarrants that Employee has turned
over to represent interest rate levels on fixed rate loans
shall be the bond equivalent yield of the average U.S. Treasury rate having
maturities equivalent to the remaining period to maturity of this loan rounded
upward to the nearest month. The "Initial Reference Rate" shall be the
Reference Rate at the time the loan was made. The "Final Reference Rate" shall
be the Reference Rate at time of prepayment.
The Reference Rate shall be interpolatedEmployer all files, memoranda, records, keys, credit cards, manuals, and
other documents, including electronically recorded documents and data, and
physical property which Employee received from the Federal Reserve Statistical
Release (Publication H.15) as displayed on Page 119 of the Dow Jones Telerate
Service (or such other pageEmployer or service as may replace that pageits employees or
service for
the purpose of displaying rates comparable to said U.S. Treasure rates) on the
day the loan was made (Initial Reference Rate) or the day of prepayment (Final
Reference Rate).
An Initial Reference Rate of _____% has been assigned to this loan to represent
interest rate levels at origination.
CALCULATION OF PREPAYMENT FEE
If the Initial Reference Rate is less than or equal to the Final Reference Rate,
there is no prepayment fee.
If the Initial Reference Rate is greater than the Final Reference Rate, the
prepayment fee shall be equal to the difference between the Initial and Final
Reference Rates (expressed as a decimal), multiplied by the appropriate factor
from the Prepayment Fee Factor Schedule, multiplied by the principal amount of
the loan being prepaid.
Page 85
EXAMPLE OF PREPAYMENT FEE CALCULATION
VARIABLE RATE LOAN: A non-amortizing 6-month LIBOR based loan with principal of
$250,000 is fully prepaid with 3 months remaining until next interest rate
change date (repricing). An Initial Reference Rate of 7.0% was assigned to the
loan at last repricing. The Final Reference Rate (as determined by the 3-month
LIBOR index) is 6.5%. Rates therefore have dropped 0.5% since last repricing
and a prepayment fee applies. A prepayment fee factor of 0.31 is determined
from Table 3 below and the prepayment fee is computed as follows:
Prepayment Fee = (0.07 - 0.065) x (0.31) x ($250,000) = $387.50
FIXED RATE LOAN: An amortizing loan with remaining principal of $250,000 is
fully prepaid with 24 months remaining until maturity. An Initial Reference
Rate of 9.0% was assigned to the loan when the loan was made. The Final
Reference Rate (as determined by the current 24-month U.S. Treasure rate on
Page 119 of Telerate) is 7.5%. Rates therefore have dropped 1.5% since the loan
was made and a prepayment fee applies. A prepayment fee factor of 1.3 is
determined from Table 1 below and the prepayment fee is computed as follows:
Prepayment Fee = (0.09 - 0.075) x (1.3) x (250,000) = $4,875
PREPAYMENT FEE FACTOR SCHEDULE
TABLE I: FULLY AMORTIZING LOANS
Proportion or Remaining Principal
Amount Being Prepaid Months Remaining To Maturity/Repricing(1)
- --------------------------------------------------------------------------------
0 3 6 9 12 24 36 48 60 84 120 240 360
- --------------------------------------------------------------------------------
90-100% 0 .21 .36 .52 .67 1.3 1.9 2.5 3.1 4.3 5.9 10.3 13.1
60-89% 0 .24 .44 .63 .83 1.6 2.4 3.1 3.9 5.4 7.5 13.2 17.0
30-59% 0 .28 .53 .78 1.02 2.0 3.0 4.0 5.0 7.0 9.9 18.5 24.4
0-29% 0 .31 .63 .92 1.22 2.4 3.7 5.0 6.3 9.0 13.4 28.3 41.8
TABLE II: PARTIALLY AMORTIZING (BALLOON) LOANS
Proportion or Remaining Principal
Amount Being Prepaid Months Remaining To Maturity/Repricing(1)
- --------------------------------------------------------------------------------
0 3 6 9 12 24 36 48 60 84 120 240 360
- --------------------------------------------------------------------------------
90-100% 0 .26 .49 .71 .94 1.8 2.7 3.4 4.2 5.6 7.4 11.6 14.0
60-89% 0 .30 .59 .86 1.15 2.2 3.3 4.3 5.3 7.1 9.4 15.0 18.1
30-59% 0 .31 .63 .95 1.27 2.6 3.9 5.3 6.6 9.1 12.6 21.2 26.2
0-29% 0 .31 .63 .95 1.27 2.6 4.0 5.4 7.0 10.2 15.7 33.4 46.0
TABLE III: NON-AMORTIZING (INTEREST ONLY) LOANS
Proportion or Remaining Principal
Amount Being Prepaid Months Remaining To Maturity/Repricing(1)
- --------------------------------------------------------------------------------
0 3 6 9 12 24 36 48 60 84 120 240 360
- --------------------------------------------------------------------------------
0-100% 0 .31 .61 .91 1.21 2.3 3.4 4.4 5.3 6.9 8.9 13.0 14.8
(1) For the remaining period to maturity/repricing between any two
maturities/repricings shownwhich Employee generated in the above schedules, interpolate between the
corresponding factorscourse of Employee's employment with Employer.
If Employee still has any such property or materials, Employee shall turn all
such property and materials, including copies thereof, over to the closest month.
The Bank is not required to actually reinvest the prepaid principal in any U.S.
Government Treasury Obligations, or otherwise prove its actual loss, as a
condition to receiving a prepayment fee as calculated above.
Page 86
EXHIBIT B
PROMISSORY NOTE
INTEREST RATE. The "Borrower" agrees to pay interest monthly on the unpaid
principal amount of the Master Note (Line of Credit) from the date thereof until
fully paid at a rate equivalent to one or a combination of the two options
listed below:
(1) BANK'S PRIME RATE: Bank's publicly announced prime rate plus the sum of
0.00% (the "Margin") of the principal per annum, adjusted onEmployer within
three days after the effective date of any prime rate change.
(2) ADJUSTED LIBOR: "Adjusted LIBOR Rate" means for any day that per annum
rate equalthis Agreement.
5. RELEASE OF CLAIMS. On behalf of himself, his marital community, and his
heirs, executors, administrators and assigns, Employee expressly waives against
Employer and its present and former affiliates, successors, subsidiaries,
related entities and their present and former officers, directors, stockholders,
managers, employees, agents, representatives, and attorneys (all of which are
collectively referred to the sum of 1.10% (the "Margin"as "Released Parties"), (b) the Assessment rate, if any and (c) the LIBOR rate for the Interest Period inall claims which
said day
occurs divided by the Reserve Adjustment. The Adjusted LIBOR Rate shall
change with any change in the LIBOR Rateoccurred or which could be alleged to have occurred on the first day of each Interest
Period and on the effective date of any change in the Assessment Rate or
Reserve Adjustment.
Adjusted LIBOR Rate is available for increments of borrowing in excess of
$250,000.00 for specific periods of time (30, 60, 90, 180 days).
LIBOR (REUTERS) - "LIBOR Rate" means for any Interest Period that per annum
rate equal to the arithmetic mean (rounded to the nearest hundred-
thousandth of a percentage point) of the offered rates for U.S. Dollar
deposits for a period equal to the Interest Period appearing on the display
designated as page "LIBO" on the Reuters Monitor Money Rates Service (or
such other page on such service as may replace said page or, if none, on
such other available service which displays two or more London interbank
offered rates of major banks for U.S. Dollar deposits as of 11:00 a.m.,
London time, on the day which is two London banking days prior to
the first
dayexecution of this Release. Employee releases Released Parties, individually
and in their representative capacities, from any claims or disputes, whether
presently known or unknown, that occurred or could be alleged to have occurred
on the Interest Period. If there is no period equaldate of or prior to the Interest
Period on the display, the LIBOR Rate shall be determined by straight-line
interpolation to the nearest month (or week or day if expressed in weeks or
days) corresponding to the Interest Period between the two nearest
neighboring periods on the display.
ASSESSMENT RATE - "Assessment Rate" means asexecution of any day the annual
percentum rate established by the Federal Deposit Insurance Corporation (or
any successor) for the assessment due from members of the Bank Insurance
Fund (or any successor) in effect for the assessment period during which
said day occurs based on (a) deposits maintained at said members' offices
in the United States, in determination of an Adjusted CD Rate, or (b)
deposits maintained at such members' offices located outside of the United
States, in determination of an Adjusted LIBOR Rate.
RESERVE ADJUSTMENT - "Reserve Adjustment" means as of any day the remainder
of one minus that percentage (expressed as a decimal) which is the highest
of any such percentages established by the Board of Governors of the
Federal Reserve System (or any successor) for required reserves (including
any emergency, marginal or supplemental reserve requirement) regardless of
the aggregate amount of deposits with said member bank and without benefit
of any possible credit, proration, exemptions or offsets for (a) (in
determination of an Adjusted CD Rate) any type, duration or amount of new
time deposit established that day at offices of member banks located in the
United States, or (b) (in determination of an Adjusted LIBOR Rate) for time
deposits established at offices of member banks located outside of the
United States or for eurocurrency liabilities, if any.this Release. It is understood that
eitherthis waiver and release includes, but is not limited to, any and all claims for
wages, employment benefits, and damages of any kind whatsoever arising out of
any: contracts, express or both options may be used during a monthly
billing period and thatimplied including the billing by Bank will reflect the total of both
options.
If borrowings under Option 2 are prepaid, such prepayment shall be subject to a
prepayment penalty consisting of the differential, if any, by which the then
current rate is less than such rate at the borrowing date, applied to the amount
of the borrowingExecutive Agreement for the period from the prepayment date through the date of
maturity of such borrowings.
Page 87
ADDITIONAL PROVISION. Notwithstanding any other provision in this Note, Lender
will have no obligation to make any additional loans or to advance funds under
this Note if Lender makes demand under that certain Note Purchase Agreement
between Lender and Data
I/O Corporation between Employer and Employee dated March 20, 1995 ("Change of
even date herewithControl Agreement"); any covenant of good faith and pursuantfair dealing; estoppel or
misrepresentation; discrimination, including age, sex or disability
discrimination; harassment; unjust enrichment; wrongful termination or any legal
restriction on Employer's right to which Lender may make such demand at Lender's sole discretion atterminate the employment of Employee; any
time and
without notice to Borrower.
DATA I/O CORPORATION
By: /s/Steven M. Gordon
-------------------------------------
Title: Vice President / CFO
----------------------------------
Page 88
CONFIDENTIAL PORTIONS OF THIS DOCUMENT HAVE BEEN
OMITTED AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION.
v01/24/97
EXHIBIT 10.31
OEM AGREEMENT
BETWEEN
SYNOPSYS, INC.
AND
SYNARIO DESIGN AUTOMATION
A DIVISION OF DATA I/O CORPORATION
This OEM Agreement ("Agreement") is entered into and effective as of
January 24, 1997 ("Effective Date"), by and between Synopsys, Inc., a Delaware
corporation with principal offices at 700 E. Middlefield Road, Mountain View,
California 94043-4033 ("Synopsys"), and Synario Design Automation, a division of
Data I/O Corporation , a Washington corporation with principal offices at 10525
Willows Road, N.E., Redmond, Washington 98073-9746 ("Synario").
RECITALS
Synopsys is a leader in the design, development and marketing of electronic
design automation software. Synopsys desires to enter into an OEM relationship
with Synario whereby Synario shall be authorized to sell an OEM version of
Synopsys' FPGA Express product. Synario wishes to enter into such a
relationship.
In consideration of the mutual promises contained herein, the parties agree as
follows:
AGREEMENT
1. DEFINITIONS
1.1 "BUG FIX" means an embodiment of the Licensed Software that corrects
Errors.
1.2 "CONFIDENTIAL INFORMATION" means any information disclosed by one party to
the other pursuant to this Agreement, which is in written, graphic,
machine-readable or other tangible form and is marked "Confidential,"
"Proprietary" or in some other manner to indicate its confidential nature.
Confidential Information may also include oral information disclosed by one
party to the other pursuant to this Agreement, provided that such
information is designated as "Confidential" at the time of disclosure and
reduced to a written summary by the disclosing party within thirty (30)
days after its oral disclosure, which is marked in a manner to indicate its
confidential nature and delivered to the receiving party. Notwithstanding
any failure to so identify it, however, all source code will be deemed
"Confidential Information" hereunder. Notwithstanding the above,
Confidential Information shall not include information which: (i) was
generally known and available at the time it was disclosed or becomes
generally known and available
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through no fault of the receiver; (ii) was known to the receiver, without
restriction, at the time of disclosure as shown by the files of the
receiver in existence at the time of disclosure; (iii) is disclosed with
the prior written approval of the discloser; (iv) was independently
developed by the receiver without any use of the Confidential Information
and by employees or other agents of the receiver who have not been exposed
to the Confidential Information, provided that the receiver can demonstrate
such independent development by documented evidence prepared
contemporaneously with such independent development; (v) becomes known to
the receiver, without restriction, from a source other than the discloser
without breach of this Agreement by the receiver and otherwise not in
violation of the discloser's rights; or (vi) is disclosed pursuant to the
order or requirement of a court, administrative agency,federal, state, local or other governmental body, provided,statute or ordinance, including,
without limitation, Title VII of the Civil Rights Act of 1964 and the Age
Discrimination in Employment Act; or any other legal limitation on the
employment relationship. Employee acknowledges that the receiver shall provide prompt,
advance notice thereof to enable the discloser to seek a protective order
or otherwise prevent such disclosure.
1.3 "DOCUMENTATION" meansReleased Parties are in no
way liable for any user manuals, reference manuals, release,
applicationclaims described in this paragraph and methodology notes, written utility programs and other
materials in any form provided for use with the Licensed Software.
1.4 "END USER" means a direct or indirect customer of Synario authorized to use
the Licensed Software.
1.5 "ERROR" means a defect which causes the Licensed SoftwareEmployee agrees not to
perform
substantiallytake any position inconsistent with this acknowledgment. Excluded from this
release are claims Employee may have with regard to vested benefits under ERISA,
workers' compensation claims, claims arising under this Agreement or the
Consulting Agreement, claims for indemnification in accordance with the specifications set forth in Synopsys'
Documentation.
1.6 "INTELLECTUAL PROPERTY RIGHTS" means all patents, patent rights,
copyrights, trade secrets, service marks, maskworksEmployer's
Articles of Incorporation and trademarks,By-Laws, and any applications forother claim which may not be
released in accordance with law. Employee represents that Employee has not filed
any complaints, charges or lawsuits against any of the foregoing, in all countries in the world.
1.7 "LICENSED SOFTWARE" means a special OEM version of Synopsys' PC-based FPGA
synthesis product that is for integratedReleased Parties with any
governmental agency or court.
6. RESTRICTIVE COVENANTS.
A. Employee shall not use with the Synario design system
as more fully described in Exhibit A attached hereto (as may be amended
from time to time). It shall contain all the capabilities and device
support of Synopsys' standard FPGA Express product.
1.8 "UPDATES" means an embodiment of the Licensed Software that delivers minor
improvements, incremental features or enhancements of existing features,
and/disclose, either directly or functionality to the Licensed Software.
2. MINIMUM PURCHASE COMMITMENT AND TARGET PURCHASES
2.1 MINIMUM PURCHASE COMMITMENT. Synario shall make the minimum license
revenue and maintenance revenue commitments for Licensed Software (the
"Minimum Purchase Commitment") in the period commencing on the first day of
the month following Synopsys' delivery and Synario's acceptance of the
Licensed Software and CONFIDENTIAL and CONFIDENTIAL Optimizers, as
described in Exhibits A and C, and ending CONFIDENTIAL ( ) months
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thereafter ("Period 1"). Subject to the terms of this Agreement, the
Minimum Purchase Commitment is guaranteed to Synopsys and is nonrefundable
and independent ofindirectly, any
changes to Synopsys' North America price listnon-public strategic, financial, technical, marketing, sales, operating, or
other Licensed Software configurations not described in this Agreement.
Upon executionproprietary information of and subject to Section 4.4(e) and the other terms of this
Agreement, Synario shall make a non-refundable CONFIDENTIAL dollar (U.S.$)
pre-payment (the "Pre-Payment") which shall be applied as a credit toward
the first quarterly dollar commitment set forth in Section 1 of Exhibit B.
2.2 TARGET PURCHASES. Synopsys and Synario have established the targets for
purchases of the Licensed Software by Synario (the "Target Purchases")
during the period beginning at the end of Period 1 and ending CONFIDENTIAL
( ) months thereafter ("Period 2"); and an optional period beginning at
the end of Period 2 and ending CONFIDENTIAL ( ) months thereafter ("Period
3") set forth in Section 2 of Exhibit B and will work together to achieve
such Target Purchases; provided, however, the Target Purchases are
estimates and not binding commitments of Synario, subject to Section 9.2.
(Each of Period 1, Period 2 and Period 3 are referred to as "Periods".)
3. SYNARIO'S RIGHTS TO THE LICENSED SOFTWARE
3.1 APPOINTMENT. Subject to the terms and conditions set forth in this
Agreement, Synopsys grants Synario the nonexclusive, nontransferable,
worldwide (with the exception of mainland China, Cuba, Libya, North Korea,
Iran, IraqEmployer or Syria, unless Synopsys grants such right to any original
equipment manufacturer ("OEM"), value added reseller ("VAR") or
distributor) right to manufacture and distribute the Licensed Software in
object code form in accordance with the restrictions set forth herein,
through any and all Synario distribution channels. However, Synario and
its agents shall be the exclusive sellers of a version of FPGA Express for
integrated use with the Synario design system. Synario may begin selling
the Licensed Software no sooner than CONFIDENTIAL. Synario may distribute
the Licensed Software only bundled with or as an add-on or synthesis
upgrade to a Synario license. The Licensed Software may not be distributed
by Synario to other electronic design automation software manufacturers.
Synario may not distribute any Products to any of its VARs or distributors
unless they have executed a written agreement with Synario that provides
that the Licensed Software shall be distributed subject to the terms of the
End User License Agreement, as defined below.
3.2 SOFTWARE LICENSE AND OTHER RESTRICTIONS. The Licensed Software is subject
to license and not sale. Each reference in this Agreement to a "purchase"
or "sale" of the Licensed Software, or like terms, shall mean a "license"
of the Licensed Software. Synopsys shall retain full title to the Licensed
Software (including all Intellectual Property Rights embodied therein) and
all copies thereof, and Synario and its customers may use the Licensed
Software only in accordance with the provisions of an End User License
Agreement that is provided with each copy of the Licensed Software. The
current Synario End User License Agreement entitled Data I/O-Registered
Trademark- Corporation Software License Agreement (the "End User License
Agreement") is attached hereto as Exhibit D. Synario
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v01/24/97affiliates. Employee agrees to
distribute the Licensed Software with and in accordance with the
End User License Agreement or substantially similar form. Synopsys agrees
the End User License Agreement is in a form acceptable to Synopsys. Synario
agrees to abide bykeep the terms of this Agreement and the Consulting Agreement (including but not
limited to the fact and amount of the End User License
Agreement distributed with the Licensed Software. Synario agrees that the
Licensed Software purchasedconsideration under this Agreement and the
Consulting Agreement) completely confidential, and will not disclose any
information concerning this Agreement or its terms to anyone other than
Employee's spouse, legal counsel and/or financial advisors, who will be sold into a
software tool environmentinformed
of and bound by this confidentiality clause. Employee's obligations under this
Paragraph 6 (A) are unlimited in time and geographical scope. This provision is
not intended to restrict Employee from making disclosures as may be required by
law or legal process.
B. Employee agrees that does not include Synario's products that
support design entry or verification for FPGA designs. Synario may sell
the Licensed Software as an add-on or synthesis upgrade to an existing
installed Synario license. The license fee for such an upgrade is
specified in Exhibit B.
3.3 PROPRIETARY NOTICES. Synariohe will not, removeduring the period from the effective
date of this Agreement until June 30, 1999 ("the Restricted Period"), directly
or alterindirectly be employed by, own, manage, operate, join, control or participate
in the ownership, management, operation or control of or be connected with, in
any proprietary
noticesmanner, any person or entity engaged in any business or activities that are,
or are preparing to be, in competition with Employer with respect to any product
or service sold or actively engaged in by Employer in the IC Programmer Products
Market, as defined below, in any geographical area where Employer, during the
Restricted Period, is engaged in activities, including sales, pertaining to the
IC Programmer Products Market or is preparing to engage in such activities. "IC
Programmer Products Market" means the design, development, manufacture, sale or
distribution of any device or system used to program or handle programmable
integrated circuits. Employee shall be deemed to be connected with such business
if such business is carried on by a partnership, corporation or association of
which he or she is an employee, officer, director, shareholder, partner, member,
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consultant or agent; provided, however, that nothing herein shall prevent the
purchase or ownership by Employee of shares which constitute less than five
percent (5%) of the outstanding equity securities of a publicly-held
corporation.
C. During the Restricted Period, Employee shall not, in addition, directly
or indirectly, solicit, influence, or entice any employee or consultant of
Employer to cease his or her relationship with Employer or solicit, entice or in
any way divert any customer or supplier of Employer to do business with Employee
or any entity described herein.
D. Employee acknowledges that the Licensed Software. Additionally, Synariocovenants in this Paragraph 6 are
reasonable and that compliance with such covenants will not prevent Employee
from pursuing his livelihood. Employee agrees that when the Licensed Software is invokedEmployer would be irreparably
harmed by an End User from within the
Synario design tool environment, Synopsys' copyright notice and FPGA
Express logo must be appropriately displayed to the End User before or
while the Licensed Software is processing a design to the extent such
display functions in the Licensed Software when the software is processing
a design.
3.4 MANUFACTURING AND DISTRIBUTION. Manufacturing and distributionbreach of the
Licensed Software and Documentation shall be the responsibility of Synario.
Synopsys shall provide master copies of the Licensed Software and
Documentation including available design examples and application notes
published for End Users. Documentation will be provided in machine-
readable form for adaptation by Synario. Final Synario documentation
adapted from Synopsys Documentation will acknowledge Synopsys as the
source. Synario agrees to manufacture the Licensed Software and/or
Documentation in the U.S.this Paragraph 6. In the event Synarioof breach of this
provision, Employer shall be entitled to any and all remedies permitted by law
and equity, including, without limitation, injunctive relief, disgorgement of
funds obtained as a result of the breach of this provision and reasonable
attorneys' fees.
7. COMMUNICATIONS. Employee shall not make any statements or take any actions to
disparage or undermine the reputation of any Released Party. Employee shall
refer all persons requesting references to the President of Employer, who shall
provide information consistent with the content of the press release dated
January 6, 1997 regarding Employee's termination.
8. REVIEW AND REVOCATION PERIOD. Employer hereby advises Employee to obtain
counsel to assist in assessing this offer. This offer shall remain open for
twenty-one (21) days from the date upon which it is presented to Employee, after
which it shall expire. Further, Employee affirms Employee's understanding that
Employee has a period of seven (7) days from the date upon which Employee
executes and delivers this Agreement to Employer to revoke Employee's acceptance
of this Agreement. If Employee decides to manufacturerescind this Agreement, Employee is
required to deliver to the Licensed Software and/undersigned representative of Employer within seven
(7) days from execution and delivery of this Agreement a notice revoking
Employee's acceptance of this Agreement.
9. SEVERABILITY. The provisions of this Agreement are severable, and if any part
of it is found to be unlawful or Documentation outside ofunenforceable, the U.S., Synario will
report such manufacturing location(s) to Synopsys in its quarterly reports
to Synopsys.
3.5 DEMONSTRATION AND EVALUATION. A restricted version of the Licensed
Software that contains all the features of FPGA Express but is limited to
simple designs (presently under CONFIDENTIAL bytes of source code,
CONFIDENTIAL I/O pins, or CONFIDENTIAL registers) shall be provided to
Synario for demonstration and evaluation purposes at no charge.
3.6 PROMOTIONAL COPIES. Promotional copies with a one (1) year license
expiration may be provided by Synario to industry analysts, editors, etc.,
provided Synario has obtained the prior written approval from Synopsys on a
case-by-case basis.
3.7 PRELIMINARY COPIES. Preliminary copies of Licensed Software releases will
be promptly provided to Synario for internal evaluation and, by mutual
agreement, distribution to a limited number of End Users for beta testing.
3.8 NO IMPLIED LICENSES. No rights or licenses are granted to Synario by
implication, estoppel, or otherwise, other than the rights and licenses
expressly granted herein.
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4. TERMS OF PURCHASE OF LICENSED SOFTWARE
4.1 TERMS AND CONDITIONS. All purchases of Licensed Software by Synario from
Synopsys during the termprovisions of this
Agreement shall be subjectremain fully valid and enforceable to the termsmaximum extent
consistent with applicable law.
10. KNOWING AND VOLUNTARY AGREEMENT. Employee is hereby advised to consult an
attorney of Employee's choice and conditions of this Agreement.
4.2 FEES. The per unit license and maintenance fees for the Licensed Software
shall be as provided in Exhibit B hereto. Synopsys has either done so or has knowingly waived the
right at any
time to revisedo so. Employee has carefully read this agreement; knows the North America list price for FPGA Expresscontents
thereof; has had an opportunity to discuss it and shall
provide Synario CONFIDENTIAL ( ) days' advance written notice for price
increases and CONFIDENTIAL ( ) days' advance written notice for price
decreases. Should Synopsys change its North America list price for FPGA
Express, the per unit license and maintenance fees for the Licensed
Software will be proportionately adjusted, excepteffects with Employee's
attorney; understands that during Period 1
Synario's price for such items shall not be increased. Pricing revisions
shall apply tohe is giving up all orders received by Synario from End Users after the
effective date of revision. Pricing increases shall not affect any quotes
submitted by Synarioclaims, damages or its VARs or distributors to End Users within the
preceding CONFIDENTIAL ( ) days or any unfulfilled orders accepted by
Synario from End Users prior to the effective date of any price increase.
Pricing decreases shall apply to pending orders accepted by Synario prior
to the effective date of any decrease but not yet shipped.
4.3 REPORTING REQUIREMENTS. Synario shall deliver quarterly reports to
Synopsys within thirty (30) days after the end of each quarter. These
reports shall include the number and configuration of the Licensed Software
(base system and optimizer), second language options, additional
optimizers, and maintenance or maintenance renewals sold during the period,
and End User information (customer name, company address, and phone
number).
4.4 PAYMENT. In consideration of the rights granted to Synario herein, Synario
agrees to pay Synopsys as follows:
(a) GUARANTEED DOLLAR COMMITMENT. On a quarterly basis during Period 1,
Synario shall pay Synopsys twenty-five percent (25%) of the guaranteed
annual Minimum Purchase Commitment set forth in Section 1 of Exhibit
B. This payment shall be due and payable at the end of the second
month of each quarter during Period 1 and shall be paid within
CONFIDENTIAL ( ) days of receipt of Synopsys' invoice as provided in
Section 4.4(e) hereof. The $CONFIDENTIAL Pre-Payment will be applied
as a credit toward the first quarterly payment.
(b) ADDITIONAL OPTIMIZERS, LANGUAGES AND MAINTENANCE. Within CONFIDENTIAL
( ) days after the end of each quarter during Period 1, Synario shall
pay Synopsys the license and maintenance fees for the number of
additional optimizers and second language options, and fees for
maintenance renewalsdisputes as
set forth in Section 1Paragraph 5 of Exhibit B.
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(c) ADDITIONAL BASE UNITS FEES AND MAINTENANCE FEES. Within CONFIDENTIAL
( ) days afterthis Agreement, including claims, damages and
disputes under the endAge Discrimination in Employment Act; has been afforded ample
and adequate opportunity to review and analyze this entire Agreement;
understands its contents and its final and binding effect; and has signed it as
Employee's free and voluntary act. Employee represents and warrants that
Employee is the sole and exclusive owner of Period 1, Synario shall pay to Synopsys the
license feesall respective claims, demands and
maintenance fees for the numbercauses of Base Units
licensed above the annual base unit commitment set forthaction, and that no other party has any right, title or interest
whatsoever in Section 1
of Exhibit B. Such amounts shall be paid within CONFIDENTIAL ( )
days of receipt of Synopsys' invoice as provided in Section 4.4(e)
hereof.
(d) LICENSE AND MAINTENANCE FEES DURING PERIODS 2 AND 3. Within
CONFIDENTIAL ( ) daysany of the end of each quarter of Periods 2matters referred to herein, and 3,
Synario shall pay to Synopsys the license fees and maintenance fees
for the number of Base Units, additional optimizers and second
language options, and maintenance renewals licensed during such
quarter. Such amounts shall be paid within ( ) days of receipt of
Synopsys' invoice as provided in Section 4.4(e) hereof.
(e) INVOICING. Except as otherwise stated, Synopsys shall invoice Synario
for amounts due and payable to Synopsys hereunder. Except as
otherwise stated, full payment (including any taxesthere has been no
assignment, transfer, conveyance or other applicable costs initially paiddisposition by Synopsys but to be borne by
Synario) shall be made by Synario to Synopsys in U.S. dollars within
CONFIDENTIAL ( ) days after the date of Synopsys' invoice therefor.
Any amount not paid when due shall be subject to a service charge
equal to the lesser of one and one-half percent (1.5%) per month or
the maximum amount permitted by law.
4.5 TAXES. Synario shall bear all sales, use, VAT or other taxes resulting
from the license or use of such Licensed Software, if any, other than
Synopsys' net income or privilege taxes.
4.6 AUDIT. Synario agrees to maintain records of all information necessary to
determine the accuracy of the calculation of the license and maintenance
fees payable to Synopsys under this Agreement for at least three (3) years
after termination of this Agreement. Upon at least thirty (30) days prior
written notice and not more than once annually, Synopsys' independent
auditors who are reasonably acceptable to Synario and who have entered into
appropriate nondisclosure agreements may inspect and audit such records
during Synario's normal business hours. Synopsys shall bear the cost and
expense of the audit; provided, however, in the event of an underpayment to
Synopsys of CONFIDENTIAL percent (%) or more, Synario shall reimburse
Synopsys the reasonable costs and expensesEmployee of any such audit as well asmatters
referred to herein.
11. ENTIRE AGREEMENT. This Agreement sets forth the unpaid licenseentire understanding between
Employee and maintenance fee amounts. If the audit reveals an
underpayment of fees by Synario, then Synopsys reserves the right
subsequently to audit more frequently than once per year upon at least
thirty (30) days'Employer and supersedes any prior written notice.
5. LIMITED WARRANTY
5.1 LIMITED WARRANTY. Synopsys warrants for a period of ninety (90) days from
delivery of the Licensed Software to Synario and acceptance by Synario that
such Licensed Software, as delivered, will be free from defects in the
media and will substantially conform to the
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specifications in the Licensed Software Documentation. In the event of
nonconformance of the Licensed Software, Synario shall promptly notify
Synopsys and provide Synopsys with all available information in writtenAgreements or electronic form so that Synopsys can reproduce the Error. Synopsys' sole
obligation is to undertake reasonable commercial efforts to correct the
Errors reported to Synopsys in writingunderstandings,
express or in electronic form during the
warranty period. SYNOPSYS' SOLE LIABILITY AND SYNARIO'S EXCLUSIVE REMEDY
WITH RESPECT TO BREACH OF THE FOREGOING LIMITED WARRANTY WILL BE LIMITED TO
ERROR CORRECTION OR PRODUCT REPLACEMENT, OR IF NEITHER IS IN SYNOPSYS'
OPINION COMMERCIALLY FEASIBLE, REFUND OF THE LICENSE FEE RECEIVED BY
SYNOPSYS FROM SYNARIO, AND TERMINATION OF THE AGREEMENT.
5.2 DISCLAIMER. EXCEPT FOR THE ABOVE EXPRESS LIMITED WARRANTY, THE LICENSED
SOFTWARE AND DOCUMENTATION ARE LICENSED "AS IS," AND SYNOPSYS AND ITS
LICENSORS MAKE NO OTHER WARRANTIES EXPRESS, IMPLIED, STATUTORY OR OTHERWISE
REGARDING THE LICENSED SOFTWARE OR DOCUMENTATION. SYNOPSYS AND ITS
LICENSORS SPECIFICALLY DISCLAIM ANY IMPLIED WARRANTIES OF MERCHANTABILITY,
FITNESS FOR A PARTICULAR PURPOSE, OR ARISING FROM A COURSE OF DEALING OR
USAGE OF TRADE.
6. SYNOPSYS MAINTENANCE AND SUPPORT
6.1 ENGINEERING AND SUPPORT COPIES. Synario may manufacture and distribute a
limited number of copies (to be mutually agreed and to be restricted to one
(1) year license periods) of the Licensed Software, including applicable
software support, pursuantimplied, pertaining to the terms of Employee's employment with
Employer and conditions of Synario's End
User License Agreement for engineering and End User support purposes. At
Synopsys' request, Synario shall provide a list of locations where
engineering and support copiesthe termination of the Licensed Software are installedemployment relationship except for the
Consulting Agreement which is incorporated herein by reference and the
numberagreements representing the Options except as expressly modified herein. This
Agreement expressly supersedes and terminates the Change of copies at each location. These copiesControl Agreement.
Employee acknowledges that in executing this Agreement, Employee does not rely
upon any representation or statement by any representative of Employer or any of
the Licensed
Software may only be used for demonstration or for a thirty (30) day period
for End User evaluation purposes.
6.2 TRAINING. At its expense (excluding Synario's customary expenses,
including without limitation, travel, accommodations and per diem),
Synopsys shall provide necessary training up to CONFIDENTIAL ( ) times a
year at a centralized location to Synario engineering and customer support
personnel as reasonably required to engineer, market, and supportReleased Parties concerning the Licensed Software for initial product introduction and for each product
Update.
6.3 UPDATES AND BUG FIXES. Maintenance Agreements are required for the first
year on all new Licensed Software sold. Subsequent maintenance renewal is
optional. Synario shall pay Synopsys the maintenance fees set forth in
Exhibit B. Updates and Bug Fixes shall be provided to Synario in regular
maintenance releases to the extent Synopsys provides such releases to their
FPGA Express customers under Synopsys maintenance contracts.
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Maintenance releases will be provided every CONFIDENTIAL ( ) months or
whenever Synopsys, using its best efforts, issues them. Only End Users who
have entered into maintenance agreements may receive maintenance releases.
Critical bugs (to be defined by the parties) reported by Synario will be
urgently addressed by Synopsys' engineering support team. Bug Fixes will
be delivered to Synario at the earliest possible date for Synario to
provide to End Users. Upon receipt of an error report and design files
which can reproduce such an error, Synopsys shall take prompt corrective
action so as to remedy the reported problem, if the problem is classified
as critical showstopper, customer unable to proceed, no acceptable work
around, or error preventing useful work from being done. Any or all other
errors will be classified, prioritized, and corrected in future software
updates.
6.4 EARLY NOTICE. Synopsys shall provide at least CONFIDENTIAL ( ) days'
prior written notice of FPGA Express product plans and release schedules.
Synopsys shall ensure that Synario is included in all formal beta site
programs for FPGA Express. Synopsys and Synario agree to meet biannually
to discuss future product plans and release schedules.
7. SYNARIO SUPPORT RESPONSIBILITIES
7.1 SYNARIO SOFTWARE. Synopsys shall receive a limited number of copies (to be
mutually agreed to be licensed for a maximum of one (1) year of Synario
software, including applicable software support, for engineering purposes
and general technical support only. At Synario's request, Synopsys shall
provide a list of locations where such Synario software is installed and
the number of copies at each location.
7.2 END USER SUPPORT. End User support, and training and technical support to
channel FAEs, shall be provided by Synario. At no time shall Synario
direct its End Users or channel FAEs to Synopsys' support organization.
Synopsys shall designate a corporate applications engineer as a Synario
point of contact for backup technical support.
7.3 COPY PROTECTION. Synario shall use its best efforts consistent with
general industry standards to ensure that its copy protection software
adequately protects Synopsys' Intellectual Property Rights in the Licensed
Software and prevents unauthorized copying of the Licensed Software.
Synario shall provide information as reasonably requested by Synopsys to
ensure compliance by Synario with the requirementssubject matter of this Section 7.3.
8. ENGINEERING
In order for Synario to act as an OEM of the Licensed Software, certain
engineering tasks (set forth in Exhibit C, as may be amended from time to
time as mutually agreed) must first be performed by both parties. The
parties agree to act diligently in completing their respective projects and
providing written acceptance criteria and test cases in accordance with the
schedule set forth in Exhibit C hereto. If Synario has not provided a
written acceptance or non-acceptance notice within CONFIDENTIAL ( ) days
of receipt of the pre-production technically effective, release quality
("Pre-Production") Licensed Software
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and CONFIDENTIAL and CONFIDENTIAL Optimizers, as described in Exhibits A
and C, and within two (2) days of receipt of the production, technically
effective, release quality ("Production") Licensed Software and
CONFIDENTIAL and CONFIDENTIAL Optimizers, as described in Exhibits A and C,
the Licensed Software shall be deemed accepted by Synario. If Synopsys
fails to deliver Production Licensed Software to Synario by CONFIDENTIAL,
Synario shall have the right to immediately terminate this Agreement, upon
written notice to Synopsys and Synopsys shall refund the Pre-Payment to
Synario within CONFIDENTIAL ( ) days of such notice.
9. TERM AND TERMINATION
9.1 TERM. This Agreement shall commence as of the Effective Date and shall
expire on the later of the end of Period 2 or March 31, 1999, unless
terminated earlier as provided herein. Notwithstanding the foregoing,
provided the Agreement is still in effect, Synario has the option, on the
same terms as specified in this Agreement, to extend the initial term of
the Agreement for one (1) year, and an option, on mutually agreeable terms,
to extend the Agreement for an additional two (2) years. If Synario
decides to extend the term of this Agreement beyond the initial term,
Synario shall provide Synopsys CONFIDENTIAL ( ) days' written notice. The
parties shall each execute and deliver to the other an amendment to this
Agreement in which the parties agree on the period of extension and such
other changes in the terms of this Agreement as may be mutually agreeable.
9.2 EARLY TERMINATION. Should CONFIDENTIAL, then either Synopsys or Synario
may elect early termination of this Agreement. The notice of termination
will be effective at the end of the quarter in which written notice is
given. The phase-out period, as described in Section 9.4, would begin as
of the effective date of the notice of termination.
9.3 TERMINATION FOR CAUSE. Either party has the right to terminate this
Agreement immediately upon written notice at any time if
(a) the other party breaches or is in default of any obligation hereunder,
which default is incapable of cure or which, being capable of cure, has not
been cured within thirty (30) days after receipt of written notice from the
nondefaulting party or within such additional cure period as the
nondefaulting party may authorize; or
(b) the other party: (i) becomes insolvent; (ii) fails to pay its debts
or perform its obligations in the ordinary course of business as they
mature; (iii) admits in writing its insolvency or inability to pay its
debts or perform its obligations as they mature; or (iv) makes an
assignment for the benefit of creditors.
9.4 EFFECT OF TERMINATION. Upon the effective date of any notice of
termination of this Agreement for material breach by Synario under Section
9.3, Synario shall immediately cease all manufacturing and distribution of
the Licensed Software and all then-current monies due to Synopsys for
Licensed Software automatically will be accelerated so they
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become due and payable on the effective date of termination. If expiration
or termination occurs for any reasons other than breach by Synario under
Section 9.3, there shall be a phase-out period of CONFIDENTIAL ( ) months,
after expiration or termination to allow for reasonable transition. During
the phase-out period Synario will receive Updates and Bug Fixes as
described in Section 6.3. Synario may continue to sell the Licensed
Software pursuant to the terms and conditions of the End User License
Agreement during the phase-out period and until it no longer has any
Licensed Software in its inventory. Termination will not relieve either
party from any liability arising from any breach of this Agreement. At the
end of the phase-out period, all existing Synario maintenance agreements
for the Licensed Software shall be transferred to Synopsys. At the end of
such phase out period, Synario shall destroy or render ineffective any
authorization codes for the Licensed Software. Neither party will be
liable to the other for damages of any sort solely as a result of
terminating this Agreement in accordance with its terms. Termination of
this Agreement will be without prejudice to any other right or remedy of
either party. The provisions of Sections 4, 5, 9, 10, 11, 13 and 14 shall
survive the expiration or termination of this Agreement for any reason. All
End User sublicenses in effect prior to the date of expiration or
termination of this Agreement shall survive. All other rights and
obligations of the parties shall cease upon expiration or termination of
this Agreement.
10. LIMITATION OF LIABILITY
10.1 DIRECT DAMAGES. EACH PARTY'S LIABILITY ARISING OUT OF THIS AGREEMENT
AND/OR SALE OF THE LICENSED SOFTWARE SHALL BE LIMITED TO THE AMOUNTS PAID
BY SYNARIO FOR THE LICENSED SOFTWARE.
10.2 CONSEQUENTIAL DAMAGES. NEITHER PARTY SHALL BE LIABLE TO THE OTHER PARTY OR
ANY THIRD PARTIES FOR ANY SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES
ARISING IN ANY WAY OUT OF THIS AGREEMENT OR THE USE OF THE LICENSED
SOFTWARE AND DOCUMENTATION, HOWEVER CAUSED, (WHETHER ARISING UNDER A THEORY
OF CONTRACT, TORT (INCLUDING NEGLIGENCE); OR OTHERWISE), INCLUDING, WITHOUT
LIMITATION, DAMAGES FOR LOST PROFITS, LOSS OF DATA, OR COSTS OF PROCUREMENT
OF SUBSTITUTE GOODS OR SERVICES. THE LIMITATIONS ON EITHER PARTY AND ANY
THIRD PARTY LIABILITY SET FORTH IN THIS SECTION 10 SHALL APPLY
NOTWITHSTANDING THE FAILURE OF ESSENTIAL PURPOSE OF ANY OF THE LIMITED
REMEDIES SET FORTH IN SECTION 5.1 ABOVE.
11. CONFIDENTIALITY
11.1 CONFIDENTIALITY. Each party shall treat as confidential all Confidential
Information of the other party, shall not use such Confidential Information except as
expressly set forth herein or otherwise authorized in writing,
shall implement reasonable procedures to
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prohibit the disclosure, unauthorized duplication, misuse or removal of the
other party's Confidential Information and shall not disclose such
Confidential Information to any third party without the prior written
consent of the disclosing party. Without limiting the foregoing, each
party shall use at least the same procedures and degree of care that it
uses to prevent the disclosure of its own Confidential Information of like
importance to prevent the disclosure of Confidential Information disclosed
to it by the other party under this Agreement, but in no event less than
reasonable care.
11.2 NO BENCHMARKS DISCLOSURE. Synario agrees not to disclose, except subject
to a non-disclosure agreement signed by its customer, or publish
performance benchmarking results involving FPGA Express.
12. MARKETING
12.1 TRADEMARK USE. During the term of this Agreement, Synario is authorized by
Synopsys to use on a non-exclusive basis the trademarks Synopsys uses for
its standard FPGA Express product only in connection with Synario's
advertisement, promotion and distribution of the Licensed Software.
Synario's use of such trademarks shall be in accordance with generally
accepted trademark usage guidelines and shall reference the trademarks as
being owned by Synopsys. Synopsys shall immediately notify Synario if
Synopsys determines that Synario's use of the such trademarks conflicts
with generally accepted trademark usage guidelines and will allow Synario
thirty (30) days to correct such conflict.
12.2 PROMOTION. Synario shall prominently display and promote the Licensed
Software. Synario and Synopsys will cooperate in product promotions, press
releases, trade shows and the like. The parties agree to jointly
coordinate all press releases issued under this Agreement. Each party must
review and agree to the text of any public announcement related to thisthe Agreement. This Agreement prior to its release, which agreement will notmay be unreasonably
withheld.
13. INFRINGEMENT INDEMNITY
13.1 INDEMNITY. Synopsys agrees, at its own expense, to defendamended
only by a writing signed by Employee and the President or at its
option, to settle, any claim or action brought against Synario to the
extent it is based on a claim that the Licensed Software as delivered to
Synario infringes or violates any United States or Canadian patent,
copyright, trademark, trade secret or other proprietary rightCEO of a third
party, and Synopsys will indemnify and hold Synario harmless from and
against any damages, costs and fees reasonably incurred (including
reasonable attorneys' fees) that are attributable to such claim or action
and which are assessed against Licensee in a final judgment or settlement.
Synario agrees that Synopsys shall be released from the foregoing
obligation unless Synario provides Synopsys with: (i) prompt written
notification of the claim or action; (ii) sole control and authority over
the defense or settlement thereof; and (iii) all reasonably available
information, assistance and authority to settle and/or defend any such
claim or action.
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13.2 LIMITED REMEDIES. If the Licensed Software becomes, or in the opinion of
Synopsys is likely to become, the subject of an infringement claim or
action, Synopsys may at its sole option: (i) procure, at no cost to
Synario, the right to continue using the Licensed Software; (ii) replace or
modify the Licensed Software to render it noninfringing, provided there is
no material loss of functionality; or (iii) if, in Synopsys' reasonable
opinion, neither (i) nor (ii) above are commercially feasible, terminate
the license and refund the amounts Synario paid for such Licensed Software
as depreciated on a straight-line sixty (60) month basis.
13.3 EXCEPTIONS. Synopsys will have no liability under this Section 13 for any
claim or action where: (i) such claim or action would have been avoided but
for modifications of the Licensed Software, or portions thereof, made after
delivery to Synario; (ii) such claim or action would have been avoided but
for the combination or use of the Licensed Software, or portions thereof,
with other products, processes or materials; (iii) Synario continues
allegedly infringing activity after being notified thereof or after being
informed of modifications that would have avoided the alleged infringement;
or (iv) Synario's use of the Licensed Software is not strictly in
accordance with the terms of this Agreement.
13.4 DISCLAIMER. THE FOREGOING PROVISIONS OF THIS SECTION 13 STATE THE ENTIRE
LIABILITY AND OBLIGATIONS OF SYNOPSYS AND ITS LICENSORS, AND THE EXCLUSIVE
REMEDY OF SYNARIO, WITH RESPECT TO ANY ACTUAL OR ALLEGED INFRINGEMENT OF
ANY INTELLECTUAL PROPERTY RIGHTS BY THE LICENSED SOFTWARE AND
DOCUMENTATION.
14. GENERAL PROVISIONS
14.1 CHOICE OF LAW. The rights and obligations of the parties under this
Agreement shall not be governed by the 1980 U.N. Convention on Contracts
for the International Sale of Goods.Employer.
12. OTHER. This Agreement will in all respects
be interpreted and construed in accordance with, and governed by the laws of the State of
California excepting that body of California law concerning
conflictsWashington, excluding its choice of law provisions, regardlessprovisions. The parties hereby consent
to the exclusive jurisdiction and venue of the place of executionstate or performance of this Agreement.
14.2 JURISDICTION. The federal and state courts within Santa Clara County,
California shall have exclusive jurisdiction to adjudicate any dispute
arising out of this Agreement and brought by Synario, and the federal and
state courts withinin King
County, Washington for all matters and actions arising under this Agreement. The
prevailing party shall be entitled to reasonable costs and attorney's fees
incurred in connection with such litigation.
Page 100
IN WITNESS WHEREOF, the parties have exclusive
jurisdiction to adjudicate any dispute arising out ofexecuted this Agreement as of the
dates below written.
Employer Employee
DATA I/O CORPORATION
By //S//Milton F. Zeutschel /s/William C. Erxleben
Its President and broughtCEO William C. Erxleben
Date January 14, 1998 Date January 14, 1998
Page 101
Consulting Agreement
This Consulting Agreement is between William C. Erxleben ("Consultant") and
Data I/O Corporation, a Washington corporation ("the Company") in accordance
with a Separation Agreement between Consultant and the Company ("the Separation
Agreement.")
Consultant and the Company hereby agree as follows:
1. Services. Consultant shall perform consulting services for the Company to
assist the Company with regard to areas of Consultant's expertise as reasonably
requested from time to time by Synopsys. Each party hereto expressly consents to the personal
jurisdictionPresident or CEO of and venue in, such courts and service of process being
effected upon it by registered mail and sent to the address set forth at
the beginning of this Agreement.
14.3 ASSIGNMENT. This AgreementCompany. Consultant
shall not be assigned, transferredrequired to provide more than 20 hours of assistance per month and
the Company shall not require Consultant to perform services during times which
would restrict Consultant from pursuing other employment or subcontractedconsulting positions
which are not inconsistent with the Restrictive Covenants herein. Consultant
shall provide his own office facilities and equipment.
2. Term of Agreement. This Consulting Agreement shall become effective upon the
later of 1) the eighth day after Employee has delivered to the Company the fully
executed Separation Agreement in accordance with the terms and conditions
therein, provided that the Separation Agreement has not been rescinded or
revoked and further provided that by such date Consultant has executed and
delivered and all other documents referenced in the Separation Agreement as
conditions precedent to the Separation Agreement; or 2) February 1, 1998. This
Consulting Agreement shall terminate on June 30, 1999, unless terminated sooner
in accordance with the terms and conditions herein.
3. Compensation. The Company shall pay Consultant consulting fees as described
in Schedule 1 to this Consulting Agreement until the expiration or termination
of this Consulting Agreement. Consultant shall pay all taxes required in
connection with this Consulting Agreement and shall indemnify the Company and
hold the Company harmless against any and all costs, including taxes, penalties
and attorneys' fees, arising from the non-payment of taxes under this Consulting
Agreement. Consultant shall pay all expenses related to this agreement unless
otherwise authorized in writing in advance by the President or CEO of the
Company. Nothing in this Consulting Agreement or the relationship created
hereunder entitles Consultant to any fringe benefits.
4. No Agency. The relationship hereunder is one of independent contractor, and
neither the Company nor Consultant intends to create any partnership, joint
venture, employment or agency. Consultant shall not hold himself out as an agent
of the Company and shall not make any representations on behalf of the Company
or enter into any obligations on behalf of the Company.
5. Termination. The Company may terminate this Consulting Agreement and cease
making payments hereunder upon the occurrence of any of the following:
(A) Consultant breaches his obligations under Sections 6 or 7 of the
Consulting Agreement or Sections 4 or 6 of the Separation Agreement between
the Company and Consultant, in which case this Consulting Agreement shall
automatically terminate without notice; or
(B) Consultant fails to comply with provisions of the Consulting
Agreement or the Separation Agreement other than those identified in
Paragraph 5 (A), provided that Consultant is given a thirty-day period to
cure the non-performance upon written notice and fails to satisfactorily
cure such non-compliance within the thirty-day cure period.
Nothing in this Paragraph 5 limits in any way any other rights or remedies
the Company may have in the event of the breach by Consultant of any obligation
he may have to the Company.
6. Restrictive Covenants.
A. Consultant shall not use or disclose, either directly or indirectly, any
non-public strategic, financial, technical, marketing, sales, operating, or
other proprietary information of the Company or its affiliates. Consultant
agrees to keep the terms of the Consulting Agreement (including but not limited
to the fact and amount of consideration under this Agreement
Page 102
and the Consulting Agreement) completely confidential, and will not disclose any
information concerning this Consulting Agreement or its terms to anyone other
than Consultant's spouse, legal counsel and/or financial advisors, who will be
informed of and bound by this confidentiality clause. Consultant's obligations
under this Paragraph 6 (A) are unlimited in time and scope and shall survive the
termination or expiration of this Consulting Agreement. This provision is not
intended to restrict Consultant from making disclosures as may be required by
law or legal process.
B. Consultant agrees that he will not, directly or indirectly, during the
period from the effective date of this Consulting Agreement until June 30, 1999
("the Restricted Period"), directly or indirectly be employed by, own, manage,
operate, join, control or participate in the ownership, management, operation or
control of or be connected with, in any manner, any person or entity engaged in
any business or activities that are, or are preparing to be, in competition with
the Company with respect to any product or service sold or actively engaged in
by the Company in the IC Programmer Products Market, as defined below, in any
geographical area where the Company, during the Restricted Period, is engaged in
activities, including sales, pertaining to the IC Programmer Products Market or
is preparing to engage in such activities. "IC Programmer Products Market" means
the design, development, manufacture, sale or distribution of any device or
system used to program or handle programmable integrated circuits. Consultant
shall be deemed to be connected with such business if such business is carried
on by a partnership, corporation or association of which he is an employee,
officer, director, shareholder, partner, member, consultant or agent; provided,
however, that nothing herein shall prevent the purchase or ownership by
Consultant of shares which constitute less than five percent (5%) of the
outstanding equity securities of a publicly-held corporation.
C. During the Restricted Period, Consultant shall not, in addition,
directly or indirectly, solicit, influence, or entice any employee or consultant
of the Company to cease his or her relationship with the Company or solicit,
entice or in any way divert any customer or supplier of the Company to do
business with the Company or any entity described herein.
D. Consultant acknowledges that the covenants in this Paragraph 6 are
reasonable and that compliance with such covenants will not prevent Consultant
from pursuing his livelihood. Consultant agrees that the Company would be
irreparably harmed by a breach of this Paragraph 6. In the event of breach of
this provision, the Company shall be entitled to any and all remedies permitted
by law and equity, including, without limitation, injunctive relief,
disgorgement of funds obtained as a result of the breach of this provision and
reasonable attorneys' fees.
7. Intellectual Property. All rights in all intellectual properties, including
without limitation works, programs, ideas, manuals reports or inventions which
Consultant develops in whole or in part, by either party withoutalone or jointly with others
("Inventions") in connection with this Consulting Agreement shall be the prior written
consentsole
property of the other party;Company and its assigns, and the Company and its assigns shall,
in any such written consent shall notcase, be unreasonably
withheld. However, either party may assign all or a
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portion of its rights and duties hereunder to companies wholly owned or in
common ownership with such party, or to a buyerthe sole owner of all or substantially
all of such party's assets relevant to such party's performance under this
Agreement. Subjectpatents, copyrights and other rights
in connection therewith. Consultant hereby assigns to the foregoing restrictions,Company any rights
Consultant may have or acquire in such Inventions. Consultant further agrees as
to all such Inventions to assist the Company in every proper way to obtain and
from time to time to enforce patents, copyrights or other rights on said
Inventions and improvements in any and all countries and to that end Consultant
will execute all documents for use in applying for and obtaining such patents
and copyrights thereon and enforcing the same, as the Company may desire,
together with any assignments thereof to the Company or persons designated by
it. Consultant's obligation to assist the Company in obtaining and enforcing
patents, copyrights or other rights for such Inventions and improvements in any
and all countries shall continue beyond the termination of this Agreement will
bindConsulting
Agreement.
8. Notices. Notices and benefit the parties and their successors and assigns.
14.4 NOTICES. Any notice, report, approvalother communications called for or consent required or permitted
hereunderby this
Consulting Agreement shall be in writing and willshall be addressed to the parties
at their respective addresses stated below or to such other address as party may
subsequently specify by written notice and shall be deemed to have been duly given
if delivered personally,received
(i) upon delivery in person, (ii) five days after mailing it by facsimile,U.S. certified
or mailed by first-class,
registered or certified mail, return receipt requested and postage prepaid, toor (iii) two
days after depositing it with a commercial overnight carrier which provides
written verification of delivery:
To the respective addresses
of the parties as set forth in this Agreement. If to Synopsys,Company: Data I/O Corporation
10525 Willows Road, N.E.
Redmond, Washington 98052
Attention: General Counsel. If to Synario, Attention: Senior Vice President
CC:
Contracts Administrator.
14.5 NO WAIVER. Failure by either party to enforce any provision of this
Agreement will not be deemed a waiver of future enforcement of that or any
other provision.
14.6 INDEPENDENT CONTRACTORS. The relationship of Synopsys and Synario
established by this Agreement is that of independent contractors, and
nothing contained in thisTo Consultant: William C. Erxleben
Page 103
9. Governing Law. This Consulting Agreement shall be construed (i) to give either
partygoverned by the power to direct or control the day-to-day activitieslaw of the
other or (ii) to constitute the parties as partners, joint venturers, co-
owners or otherwise as participants in a joint or common undertaking.
14.7 SEVERABILITY. If for any reason a courtState of competent jurisdiction finds
any provisionWashington, excluding its choice of this Agreement, or portion thereof, to be unenforceable,
that provision of the Agreement will be enforced to the maximum extent
permissible so as to effect the intent of the parties, and the remainder
of this Agreement will continue in full force and effect.
14.8 ATTORNEYS' FEES. The prevailing party in any action to enforce the
Agreement shall be entitled to recover costs and expenses including,
without limitation, reasonable attorneys' fees.
14.9 INJUNCTIVE RELIEF.law provisions. The parties agree
that a material breachthe exclusive jurisdiction and venue of this
Agreement adversely affecting either party's Intellectual Property Rights
would cause irreparable injury for which monetary damages would notany lawsuit between them shall be
an
adequate remedy andin the non-breachingstate or federal courts sitting in King County, Washington. The
prevailing party shall be entitled to equitable
reliefreasonable attorneys' fees and costs
incurred in addition to any remedies it may have hereunder or at law.
14.10 FORCE MAJEURE.connection with such litigation.
10. Other. Except for the obligation to make payments hereunder,
nonperformance of either party shall be excused toSeparation Agreement between Consultant and the
extent that
performance is rendered impossibleCompany and other agreements incorporated by strike, fire, flood, governmental
action, failure of suppliers, earthquake, or any other reason where
failure to perform is beyond the reasonable control of the nonperforming
party.
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14.11 EXPORT CONTROLS. Synario agrees and certifies that neither the Licensed
Software, nor any other technical data received from Synopsys will be
exported or re-exported outside the United States except as authorized and
as permitted by the laws and regulations of the United States and that the
country of origin wherein Synario manufactures the Licensed Software and
Documentation is stated in Section 3.4.
14.12 ENTIRE AGREEMENT. Thisreference therein, this Consulting
Agreement including all Exhibits, constitutes the entireexclusive agreement betweenof the parties with respect to the
subject matter hereof and supersedes all prior agreements or representations, oral or
written, regarding such subject matter.understandings of
the parties. This Consulting Agreement may not be modified or amended except inonly by a writing signed
by a duly authorized
representativeConsultant and the President or CEO of both parties.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by
their duly authorized representatives:
SYNARIO DESIGN AUTOMATION, SYNOPSYS, INC.
A DIVISION OFCompany.
The Company Consultant
DATA I/O CORPORATION
By: //S// By /s/Milton F. Zeutschel /s/William C. Erxleben
By: //S// Sanjiv Kaul
------------------------------ ------------------------------
Name:Its President and CEO William C. Erxleben
Name: Sanjiv Kaul
------------------------------- ----------------------------
(Print) (Print)
Title: Pres/CEO Title: VP of Marketing
------------------------------ -----------------------
Page 102
CONFIDENTIAL
EXHIBIT A
LICENSED SOFTWARE DESCRIPTION AND SPECIFICATIONS
CONFIDENTIAL
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EXHIBIT B
MINIMUM PURCHASE COMMITMENT, TARGET PURCHASES
AND
LICENSED SOFTWARE LICENSE AND MAINTENANCE FEES
1. MINIMUM PURCHASE COMMITMENT
Subject to Section 8 and the other terms of the Agreement, Synario agrees
to the following CONFIDENTIAL commitments for Licensed Software sales
during Period 1:
PERIOD 1
CONFIDENTIAL
CONFIDENTIAL
CONFIDENTIAL
Dollar Commitment $1,380,000
2. TARGET PURCHASES
Target Purchase shall be as follows during Periods 2 and 3:
PERIOD 2 PERIOD 3
CONFIDENTIAL
CONFIDENTIAL
CONFIDENTIAL
Dollar Targets $CONFIDENTIAL $CONFIDENTIAL
3. PER UNIT LICENSE AND MAINTENANCE FEES
The per unit license and maintenance fees for the Base Unit and for
options (other than first language and one (1) optimizer) shall be as
follows:
License Fee Maintenance
----------- -----------
(a) Base Unit of OEM FPGA Express $CONFIDENTIAL $CONFIDENTIAL
(b) Second Language Option $CONFIDENTIAL $CONFIDENTIAL
(c) Each Additional Optimizer $CONFIDENTIAL $CONFIDENTIAL-------------------
Social Security Number
Date January 14, 1998 Date January 14, 1998
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(d) License fees paid to Synopsys for Base Units (first language and one
(1) optimizer) sold above the annual Minimum Purchase Commitment and
the Target Purchases and for upgrade units, as described below, shall
be:
License Fee Maintenance
----------- -----------
Base Unit of OEM FPGA Express $CONFIDENTIAL $CONFIDENTIAL
The license and maintenance fees set forth above are based on Synopsys'
North America list prices of $for FPGA Express Base System and one (1)
Optimizer, and $CONFIDENTIAL for second language and each additional
Optimizer and shall be proportionately adjusted as described in
Section 4.2.
License fees specified are for node-locked versions of Licensed Software
only. License fees for floating network versions of Licensed Software
shall be increased at the same percentage as the difference on the
then-current Synario price list between node-locked and network versions of
its PC products. Synario's current price list is set forth in Exhibit F
hereto.
Synario may offer its existing customer base an option to replace installed
design synthesis software with the Licensed Software. Synopsys will not
accept returns of the synthesis software being replaced. The license fee
for this upgrade shall be as specified in 3(d) above. All units sold in
accordance with this upgrade program shall be listed separately in the
regular monthly sales reports to Synopsys and shall count toward the annual
Unit forecast.
Synario shall not receive any additional discounts on sales of Licensed
Software to universities or educational institutions.
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OMITTED AND HAVE BEEN FILED SEPARATELY WITH THE
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EXHIBIT C
ENGINEERING SCHEDULE
CONFIDENTIAL
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OMITTED AND HAVE BEEN FILED SEPARATELY WITH THE
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EXHIBIT D
DATA I/O-Registered Trademark- CORPORATION SOFTWARE LICENSE AGREEMENT
This is a legal agreement ("Agreement") between you (either an individual or an
entity) and Data I/O Corporation. By opening the sealed software package(s)
and/or documentation or by using any or all of the software and/or
documentation, you agree to be bound by the terms of this Agreement. If you do
not agree to the terms of this Agreement, promptly return the unopened software
package(s) and documentation to the place of purchase and you will receive a
refund.
1. LICENSE GRANT.
Data I/O Corporation
("Data I/O"Bill Erxleben Consulting Payment Structure
1/13/1998
Total Payments under Consulting Proposal $250,000.00
Amount scheduled for 1999 (before tax related adjustment) 18,000.00
Amount scheduled for 1998 232,000.00
Payment 1 8th day after execution of Sep.Agmt 19,333.34
Payment 2 15-Feb 9,666.67
Payment 3 28-Feb 9,666.67
Payment 4 15-Mar 9,666.67
Payment 5 31-Mar 9,666.67
Payment 6 15-Apr 9,666.67
Payment 7 30-Apr 9,666.67
Payment 8 15-May 9,666.67
Payment 9 31-May 9,666.67
Payment 10 15-Jun 9,666.67
Payment 11 30-Jun 9,666.67
Payment 12 15-Jul 9,666.67
Payment 13 31-Jul 9,666.67
Payment 14 15-Aug 9,666.67
Payment 15 31-Aug 9,666.67
Payment 16 15-Sep 9,666.67
Payment 17 30-Sep 9,666.67
Payment 18 15-Oct 9,666.67
Payment 19 31-Oct 9,666.67
Payment 20 15-Nov 9,666.67
Payment 21 30-Nov 9,666.67
Payment 22 15-Dec 9,666.67
Payment 23 31-Dec 9,666.67
-----------
Total for 1998 232,000.08
Payment 1 15-Jan 1624.26
Payment 2 31-Jan 1624.26
Payment 3 15-Feb 1624.26
Payment 4 28-Feb 1624.26
Payment 5 15-Mar 1624.26
Payment 6 31-Mar 1624.26
Payment 7 15-Apr 1624.26
Payment 8 30-Apr 1624.26
Payment 9 15-May 1624.26
Payment 10 31-May 1624.26
Payment 11 15-Jun 1624.26
Payment 12 30-Jun 1624.26
-----------
Total for 1999 19,491.12
Page 105
FIRST AMENDMENT TO ASSET PURCHASE AGREEMENT BETWEEN
REEL-TECH, INC., A WASHINGTON CORPORATION, AND
REEL TECH, INC., AN INDIANA CORPORATION
Effective May 6, 1997, the following is an amendment (the "First Amendment") and/or its suppliers grant
youto
the Asset Purchase Agreement by and among Reel-Tech, Inc., a non-exclusive license to use the program diskettes, magnetic tape, compact
disk or other mediumWashington
corporation ("Purchaser"), Reel Tech, Inc., an Indiana corporation ("Seller"),
and the computer software contained therein in object code
form (collectively, the "Software"Norris R. Hall and Douglas R. Hall ("Shareholders") and the accompanying user documentation,
only as authorizeddated August 31, 1995.
All terms used in this First Amendment shall have the same meaning as those in
the Agreement. ThisThe Agreement is your proofshall be amended as follows:
1. The parties acknowledge Reel Tech, Inc., an Indiana corporation, has
changed its name to Hall, Inc.
2. Section 2 of licenseExhibit 3.6A, Employment Agreement between Reel-Tech, Inc. and
Douglas R. Hall, and Section 2 of Exhibit 3.6B, Employment Agreement
between Reel-Tech, Inc. and Norris R. Hall, shall be amended as follows:
"August 31, 1998" in the fourth line shall be changed to exercise"December 31,
1998".
3. Section 3.2 of Exhibit 3.6A, Employment Agreement between Reel-Tech, Inc.
and Douglas R. Hall, and Section 3.2 of Exhibit 3.6B, Employment Agreement
between Reel-Tech, Inc. and Norris R. Hall, shall be amended as follows:
After the rights grantedend of the third sentence, the remainder of Section 3.2 shall be
deleted and superseded by the following:
In addition, subject to the conditions set forth herein, and must be retained by you. In the event
you are licensed to use restricted version(s) of Data I/O's and/or its
supplier's Software, you are only authorized to use such restricted version(s).
2. RESTRICTIONS ON USE AND TRANSFER. You may use the Software on only one (1)
computer at a time; provided, however, if Data I/O provides you withshall
grant to Employee additional activation codes and/or written authorizationnonqualified stock options to permit usepurchase up to
3,750 shares of the Software on
more than one (1) computer, on a single server or in a local area network such
use shall be restricted to the number of computers for which activation codes
and/or written authorization are provided. You may not transfer, lease, rent,
or share your rights under this Agreement, except you may permanently transfer
all your rights to use the Software and documentation, provided you transfer
this Agreement and all copies of the Software and documentation to an end user
who agrees to be bound by the terms of this Agreement and you notify Data I/O of
any such transfer. The Software and documentation are confidential and
proprietary to Data I/O and/or its suppliers. You agree not to disclose or
provide the Software, documentation, or any other non-public information
relating to the Software to any other party without Data I/O's and/or its
suppliers' written permission. You may not copy, modify, reverse engineer,
decompile or disassemble the Software, except you may make one backup or
archival copy of the Software. You may not copy the documentation or publish
benchmark data regarding the Software without the prior written consent of
Data I/O. You may not alter or obscure any copyright, trademark or proprietary
rights notices on the Software or documentation. You must comply with all
applicable laws and regulations regarding the use and/or export of the Software
and documentation.
3. DATA I/O'S RIGHTS. You acknowledge and agree that the Software and
documentation consist of proprietary productsCommon Stock of Data I/O and/or its suppliers,
protected under U.S. copyright law(the "TR4000 Options")
pursuant to and other intellectual property laws and
international treaty provisions. You further acknowledge and agree that all
right, title and interest in and to the Software and documentation are and shall
remain with Data I/O and/or its suppliers.
4. TERM. This Agreement is effective upon your opening the sealed Software
package(s) and/or documentation, or by your use of the Software and/or
documentation and shall continue until terminated. You may terminate this
Agreement at any time by returning all copies of the Software and documentation
to the place of purchase. Data I/O may terminate this Agreement if you breach
this Agreement, and you agree to then return all copies of the Software and
documentation.
5. LIMITED WARRANTY. Data I/O warrants that the Software will perform
substantially in accordance with the accompanying documentation for a period of
ninety (90) days fromPlan, to be granted on the date
development of receipt. Any implied warrantiesthe TR4000 tape and reel system (the"TR4000") is
successfully completed (the "TR4000 Date"). The criteria for determining
the TR4000 Date are: (a) The TR4000 must meet the specifications detailed
in the Customer Requirements Document ("CRD") for the TR4000 (b) The TR4000
must be a fully documented product (including all drawings and
manufacturing assembly instructions) for manufacturing to be able to
reproduce on a volume basis and (c) Reel-Tech, Inc. must manufacture a
reproducible product as evidenced by the shipment, installation and written
acceptance of the beta unit and/or first production unit by October 15,
1997. Such grant shall be in the form of Stock Option Agreement attached
hereto as Exhibit B-1. The exercise price for the TR4000 Options shall be
the fair market value of the Common Stock on the Software are limitedTR4000 Date as determined
by the Plan administrator. Notwithstanding the foregoing, Data I/O shall
have no obligation to ninety (90) days. SOME STATES/JURISDICTIONS DO NOT
ALLOW
Page 107
CONFIDENTIAL
CONFIDENTIAL PORTIONS OF THIS DOCUMENT HAVE BEEN
OMITTED AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION.
v01/24/97
LIMITATIONS ON DURATION OF AN IMPLIED WARRANTY, SO THE ABOVE LIMITATION MAY NOT
APPLY TO YOU.
6. REMEDIES. The entire liabilitygrant, and Employee shall have no right to be
granted, the TR4000 Options if the TR4000 Date occurs after October 15,
1997.
In addition, subject to the conditions set forth herein, Data I/O shall
grant to Employee additional nonqualified stock options to purchase up to
11,250 shares of the Common Stock of Data I/O and/or its suppliers(the "Coyote Options")
pursuant to and your
exclusive remedy shall be, at Data I/O's option, either (a) return of the
license fee you paid or (b) repair or replacement of the Software that does not
meet Data I/O's Limited Warranty and that is returned to the place of purchase
with a copy of your receipt. This Limited Warranty is void if failure of the
Software has resulted from accident, abuse, or misapplication. Any replacement
Software will be warranted for the remainder of the original warranty period or
thirty (30) days, whichever is longer. YOU AGREE THAT THE FOREGOING
CONSTITUTES YOUR SOLE AND EXCLUSIVE REMEDY FOR BREACH BY DATA I/O AND/OR ITS
SUPPLIERS OF ANY WARRANTIES MADE UNDER THIS AGREEMENT. EXCEPT FOR THE
WARRANTIES SET FORTH ABOVE, THE SOFTWARE AND DOCUMENTATION ARE LICENSED "AS IS,"
AND DATA I/O AND/OR ITS SUPPLIERS DISCLAIM ANY AND ALL OTHER WARRANTIES, WHETHER
EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION, ANY IMPLIED WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
7. LIMITATION OF LIABILITY. The cumulative liability of Data I/O and/or its
suppliers to you or any other party for any loss or damages resulting from any
claims, demands, or actions arising out of or relating to this Agreement shall
not exceed the license fee you paid for the use of the Software and
documentation. In no event shall Data I/O and/or its suppliers be liable for
any indirect, incidental, consequential, special, or exemplary damages, loss of
business profits, business interruption, or loss of business information, even
if advised of the possibility of such damages. SOME STATES/JURISDICTIONS DO NOT
ALLOW THE LIMITATION OR EXCLUSION OF LIABILITY FOR INCIDENTAL OR CONSEQUENTIAL
DAMAGES, SO THE ABOVE LIMITATION OR EXCLUSION MAY NOT APPLY TO YOU.
8. GOVERNING LAW. This Agreement shall be construed and governed in accordance with the lawsPlan, to be granted on the date
development of the StateCoyote programming system is successfully completed (the
"Coyote Date"). The criteria for determining the Coyote Date shall be
mutually agreed on by the parties by May 9, 1997. Such grant shall be in
the form of Washington, U.S.A, andStock Option Agreement to be
Page 106
attached hereto as Exhibit B-2. The exercise price for the exclusive jurisdiction
and venue of any lawsuit pertaining to this AgreementCoyote Options
shall be the state or
federal courts in King County, Washington U.S.A.
9. U.S. GOVERNMENT RESTRICTED RIGHTS. The Software and documentation are
provided with Restricted Rights. Use, duplication, or disclosurefair market value of the Common Stock on the Coyote Date as
determined by the GovernmentPlan administrator.
3. Exhibit B, Stock Option Agreement, of Exhibit 3.6A, Employment Agreement
between Reel-Tech, Inc. and Douglas R. Hall, shall be deleted in its
entirety and superseded by the attached Exhibit B-1, and Exhibit B-2 to be
attached by May 9, 1997:
Page 107
EXHIBIT B-1
DATA I/O CORPORATION
1986 STOCK OPTION PLAN
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT is subject to restrictionsentered into as set forth in subparagraph (c)(1)(ii) of the Rights in Technical Data__ day of ______,
199__ ("Date of Grant"), by and Computer Software clause at DFARS 252.227-7013
or subparagraphs (c)(1) and (2) of the Commercial Computer Software - Restricted
Rights at 48 CFR 52.227-19, as applicable. Contractor/manufacturer isbetween Data I/O Corporation, 10525 Willows Road, N.E., Redmond, WA 98073-9746.
If you have any questions about this Agreement, please write Data I/O
Corporation, P.O. Box 97046, Redmond, Washington 98073-9746.
EUA0896
Page 108
CONFIDENTIAL
CONFIDENTIAL PORTIONS OF THIS DOCUMENT HAVE BEEN
OMITTED AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION.
v01/24/97
EXHIBIT E
API CONTENT SPECIFICATION
CONFIDENTIAL
Page 109
CONFIDENTIAL
CONFIDENTIAL PORTIONS OF THIS DOCUMENT HAVE BEEN
OMITTED AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION.
v01/24/97
EXHIBIT F
SYNARIO PRICE LIST
(As of September 1, 1996)
CONFIDENTIAL
Page 110
CONFIDENTIAL
CONFIDENTIAL PORTIONS OF THIS DOCUMENT HAVE BEEN
OMITTED AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION.
EXHIBIT 10.32
PURCHASE AND SALE AGREEMENT
THIS PURCHASE AND SALE AGREEMENT (the "Agreement") is by and between DATA
I/O CORPORATION, a Washington
corporation ("Seller"(the "Company"), and CONFIDENTIAL, a
CONFIDENTIAL corporation,("Purchaser"Douglas R. Hall (the "Optionee").
RECITALS
A. Seller is the owner1. Grant of that certain real property situated in the City
of Redmond, County of King, State of Washington located at 10525 Willows Road
N.E.
B. Seller desires to sell and Purchaser desires to purchase the property,
together with all improvements thereon, on the following terms and conditions.
AGREEMENTS
Therefore, in consideration of the mutual promises and covenants contained in
this Agreement and other good and valuable consideration, the receipt and
sufficiency of which are acknowledged, Seller and Purchaser agree:
1. THE PROPERTY.Option. Subject to the terms and conditions in this Agreement,
Seller shall sellhereof and convey to Purchaser, and Purchaser shall purchase from
Seller the
following:
(a)Company's 1986 Stock Option Plan (the "Plan"), the approximately seventy-nine (79) acres of real property
legally described in EXHIBIT 1(A) attached hereto and incorporated herein by
this reference located in King County, Washington, together with all of Seller's
right, title, and interest in and to any rights, licenses, privileges,
reversions, and easements appurtenantCompany hereby grants to the
real property including, without
limitation, all mineral, oil, gas,Optionee the right and other hydrocarbon substances on and under
the real property, all development rights, air rights, water, water rights and
water stock relatingoption (the "Option") to the real property, and any easements, rights-of-way, or
appurtenances used in connection with the beneficial use and enjoymentpurchase up to three thousand
seven hundred fifty (3,750) shares (the "Shares") of the real property (collectively the "Real Property");
(b) the 3-story office building located on the Real Property
(hereinafter referred to as the "Building") consisting of approximately ninety-
six thousand (96,000) gross square feet; all structures and parking facilities
located on the Real Property; all systems, equipment, and fixtures in the
Building or structures; all improvements and fixtures owned by Seller located in
the Building or structures including, without limitation, all apparatus,
equipment, and appliances used in connection with the operation or occupancycommon stock, $.01 par
value, of the Building or structures, the plumbing, heating, air-conditioning, and
electrical equipment facilities used to provide any utility services or other
services to the Building or structures, and elevators (hereinafter referred to
collectively as the "Improvements"); excluding all engineering, manufacturing,
and business process systems, equipment, gear, and materials and excluding but
not limited to the systems, equipment, and fixtures listed in EXHIBIT 1(b)
attached hereto and incorporated herein by this reference (collectively the
"Retained Equipment") allCompany, at a price per share of which shall be retained by Seller and/or its
suppliers and removed by Seller when it vacates the Building; and
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CONFIDENTIAL PORTIONS OF THIS DOCUMENT HAVE BEEN
OMITTED AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION.
(c) all transferable applications, licenses, permits, certificates,
and franchises issued by any federal, state, or local authorities relating to
the use, maintenance, occupancy or operation of the Real Property, the Building,
and the Improvements; all reports and studies, including physical and
engineering inspections, soil studies, utility and zoning studies, traffic
studies, and wetland studies; all books and records relating to the Real
Property and Improvements (excluding any materials related to any offers to
purchase, sell or lease the Real Property or Improvements and any materials
produced by or for Seller related to its analysis of the Real Property or
Improvements) and all plans and specifications, warranties and indemnities
relating to the Improvements; and all surveys relating to the Real Property
(hereinafter referred to collectively as the "Documents".)
The Real Property, Improvements, and Documents shall be referred to collectively
as the "Property".
2. PURCHASE AND SALE.
2.1 PURCHASE PRICE. Seller shall sell and Purchaser shall purchase
the Property for a purchase price of Fourteen Million and No/100 United States
Dollars (U.S. $14,000,000.00)$________ (the "Purchase"Exercise Price").
2.2 ALLOCATION OF PURCHASE PRICE. The Purchase Price shall be
allocatedThis Option is intended not to qualify as follows:
Improvements and Real Property
related to the Building: $CONFIDENTIAL
Other Real Property: $CONFIDENTIAL
--------------
Total Purchase Price: $14,000,000.00
--------------
--------------
2.3 PAYMENT OF PURCHASE PRICE. The Purchase Price shall be payable
as follows:
2.3.1 EARNEST MONEY. Within one (1) business day after the full
execution of this Agreement, Purchaser shall deposit in cash with CONFIDENTIAL
("Escrow Agent") Purchaser's earnest money deposit in the amount of CONFIDENTIAL
Dollars (U.S. $ ) (the "Earnest Money"). For thean Incentive Stock Option for purposes
of this Agreement,
the term "Retention Amount" shall mean $ CONFIDENTIAL as of the sixty-first day
after the date of this Agreement, $ CONFIDENTIAL as of the ninety-first day
after the date of this Agreement, $ CONFIDENTIAL as of the one hundred twenty-
first day after the date of this Agreement, and $ CONFIDENTIAL as of the one
hundred fifty-first day after the date of this Agreement. If the Purchaser
terminates this Agreement for any reason other than Seller's breach or pursuant
to Sections 3.3, 8.2(e), 8.2(g), 8.2(h) or 9, the Earnest Money, less the
Retention Amount, shall be paid to the Purchaser and the Retention Amount shall
be paid to the Seller. If Purchaser terminates this Agreement during the Phase
I Contingency Period (defined below) or by reason of Seller's
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CONFIDENTIAL PORTIONS OF THIS DOCUMENT HAVE BEEN
OMITTED AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION.
breach or pursuant to Sections 3.3, 8.2(e), 8.2(g), 8.2(h) or 9, the Earnest
Money, including any portion deemed to be the Retention Amount, shall be paid to
Purchaser. The Escrow Agent shall immediately pay to Seller the Earnest Money
if Purchaser breaches any of the terms of this Agreement through no fault of
Seller.
2.3.2 BALANCE OF PURCHASE PRICE. The Purchase Price, less the
Earnest Money paid by Purchaser, shall be payable on the Closing Date (defined
below) by wire transfer to an account to be specified by Seller on the Closing
Date.
3. TITLE.
3.1 SELLER'S TITLE. At the Closing Date, Seller shall convey to
Purchaser fee simple title to the Property by duly executed and acknowledged
statutory warranty deed, free and clear of all defects and encumbrances and
subject only to those exceptions that Purchaser shall approve pursuant to this
Agreement (the "Deed").
3.2 TITLE REPORT. Within ten (10) business days after the date of
this Agreement, Seller shall deliver to Purchaser a preliminary commitment for
an ALTA owner's extended coverage title insurance policy, issued by CONFIDENTIAL
(the "Title Company"), describing the state of title of the Real Property (the
"Title Report") together with copies of all exceptions and encumbrances referred
to in the Title Report relating to the Real Property, and the Survey (defined
below). Seller shall assume any cancellation fee for such Title Report.
3.3 APPROVAL OF TITLE REPORT. During the first fifteen (15) days of
the Phase I Contingency Period, Purchaser shall review title to the Property as
disclosed by the Title Report, the Survey and the UCC searches (the UCC searches
shall be conducted by Purchaser) and shall provide Seller with written notice of
its approval or disapproval of the Title Report, the Survey and the UCC
searches. Failure to provide such notice shall be deemed an approval of such
Title Report, Survey and UCC searches. Seller will cooperate with Purchaser in
curing any objections Purchaser may have to title to the Property. Seller shall
have no obligation to cure title objections except liens of an ascertainable
amount created by, under or through Seller, which liens Seller shall cause to be
released at the Closing. Seller agrees to remove any exceptions or encumbrances
to title which are created by, under or through Seller after the date of this
Agreement. Purchaser may terminate this Agreement and receive a full refund of
the Earnest Money if the Title Company revises the Title Report after the
expiration of the first fifteen (15) days of the Phase I Contingency Period to
materially add or modify exceptions or to materially modify the conditions to
obtaining any of Purchaser's Endorsements (defined below) and if Seller is
unable to cure any objections that Purchaser has to any such additions or
modifications within thirty (30) days after written notice from Purchaser. The
term "Permitted Exceptions" shall mean the specific exceptions (exceptions that
are not part of the promulgated title insurance form) in the title commitment
that the Title Company has not agreed to insure over or remove from the title
commitment and that Seller is not required to remove as provided above; real
estate taxes not yet due and payable; and Data I/O Corporation as a tenant in
possession under the Lease (defined below) without any option to purchase or
acquire an interest in the Property.
CONFIDENTIAL Pur&Sale (7/9/96)
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CONFIDENTIAL PORTIONS OF THIS DOCUMENT HAVE BEEN
OMITTED AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION.
3.4 TITLE POLICY. Seller shall cause Title Company to issue to
Purchaser at the Closing Date an ALTA extended coverage policy of title
insurance insuring Purchaser's title to the Real Property in the full amount of
the Purchase Price, containing Purchaser's Endorsements, and subject only to the
Permitted Exceptions (hereinafter referred to as the "Title Policy").
"Purchaser's Endorsements" shall mean, to the extent such endorsements are
available under the laws of the state in which the Property is located and which
the Title Company has committed to insure as of the end of the first fifteen
(15) days of the Phase I Contingency Period: (1) owner's comprehensive; (2)
access; (3) survey (accuracy of survey); (4) location (survey legal matches
title legal); (5) separate tax lot; (6) legal lot; (7) zoning 3.1, with parking
and loading docks; and (8) such other endorsements as the Purchaser shall
reasonably require. Seller shall pay the cost of the premiums attributable to
the standard coverage title policy and Purchaser shall pay the cost of the
premiums attributable to the extended coverage title policy and any Purchaser's
Endorsements. The Title Policy shall be dated as of the Closing Date and shall
contain the Purchaser's Endorsements. If the Title Company informs Seller and
Purchaser during the first fifteen (15) days of the Phase I Contingency Period,
in writing, that the Title Company is unwilling or unable to issue any of the
Purchaser's Endorsements or additional coverages, Purchaser shall have the right
to terminate this Agreement in which event the Earnest Money shall be delivered
to Purchaser, all documents deposited with the Escrow Agent shall be returned to
the depositing party, and the parties shall have no further obligations or
liabilities to each other except as otherwise provided in this Agreement.
4. REPRESENTATIONS, WARRANTIES, AND COVENANTS.
4.1 REPRESENTATIONS OF SELLER. Seller hereby represents and warrants
to Purchaser as follows:
(a) Seller is a corporation duly organized and validly existing
under the laws of Washington State; this Agreement and all documents executed by
Seller that are to be delivered to Purchaser at the Closing Date are or at the
time of the Closing Date will be (i) duly authorized, executed and delivered by
Seller, (ii) legal, valid and binding obligations of Seller, (iii) sufficient to
convey title (if they purport to do so) and in compliance with all provisions of
all agreements and judicial orders to which Seller is a party or to which Seller
or all or any portion of the Property is subject.
(b) There is not now pending or, to the best of Seller's
knowledge, threatened, any action, suit or proceeding before any court or
governmental agency or body against the Seller that would prevent Seller from
performing its obligations hereunder or against or with respect to the Property.
To Seller's knowledge, no condemnation, eminent domain or similar proceedings
are pending or threatened with regard to the Property. Seller has not received
any formal notice of any pending or threatened liens, special assessments,
impositions or increases in assessed valuations to be made against the Property,
except as described in EXHIBIT 4.1(b) attached hereto and incorporated herein by
this reference.
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CONFIDENTIAL PORTIONS OF THIS DOCUMENT HAVE BEEN
OMITTED AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION.
(c) Seller has all licenses, permits and certificates necessary
for the use and operation of the Building, including without limitation, all
certificates of occupancy necessary for the occupancy of the Building. To
Seller's knowledge, neither the Building nor the use thereof violates any
governmental law or regulation or any covenants or restrictions encumbering the
Building; and, to Seller's knowledge, there are no material physical defects in
the Improvements. Seller has not received any written notice from any insurance
company or underwriter of any defects that would materially adversely affect the
insurability of the Building or cause an increase in insurance premiums. Seller
has not received, nor is aware of, any notices of violations or alleged
violations of any laws, rules, regulations or codes, including building codes,
with respect to the Building which have not been corrected to the satisfaction
of the issuer of the notice.
(d) Seller has no knowledge of any violation of Environmental
Laws related to the Property or the presence or release of Hazardous Materials
on or from the Property except in conformance with Environmental Laws or as may
be disclosed in EXHIBIT 4.1(d) attached hereto and incorporated herein by this
reference. Seller, to Seller's knowledge, has not manufactured, introduced,
released, discharged, generated, treated, stored, handled or disposed of any
Hazardous Materials from or onto the Property, in violation of any Environmental
Laws, except as may be disclosed in EXHIBIT 4.1(d). The term "Environmental
Laws", includes, without limitation, the Resource Conservation and Recovery Act
and the Comprehensive Environmental Response Compensation and Liability Act and
other federal laws regulating Hazardous Materials as in effect on the date of
this Agreement, together with their implementing regulations, guidelines, rules
or orders as of the date of this Agreement, and all state, regional, county,
municipal and other local laws, regulations, ordinances, rules or orders that
are equivalent or similar to the federal laws recited above or that purport to
regulate Hazardous Materials. The term "Hazardous Materials" includes
petroleum, including crude oil or any fraction thereof, natural gas, natural gas
liquids, liquefied natural gas, or synthetic gas usable for fuel (or mixtures of
natural gas or such synthetic gas), and any substance, material, waste,
pollutant or contaminant listed or defined as hazardous or toxic under any
Environmental Law.
(e) All water, sewer, gas, electric, telephone, and drainage
facilities, and other utilities required for the normal and proper operation of
the Building are installed and connected to the Building with valid permits, and
are adequate to serve the Building for its current use and to permit full
compliance with all requirements of law. All permits and connection fees are
fully paid and no action is necessary on the part of the Purchaser to transfer
such permits to it. To Seller's knowledge, all utilities serving the Building
enter it through publicly-dedicated roads or through currently effective public
or private easements. To Seller's knowledge, no fact or condition exists which
would result in the termination of such utilities services to the Building.
(f) The Real Property is a separately taxed, duly subdivided,
independent unit.
(g) Seller's sale of the Property is not subject to any federal,
state or local withholding obligation of Purchaser under the tax laws applicable
to Seller or the Property.
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CONFIDENTIAL PORTIONS OF THIS DOCUMENT HAVE BEEN
OMITTED AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION.
(h) Seller is not and is not acting on behalf of an "employee
benefit plan" within the meaning of Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended, a "plan" within the meaning of Section
4975422 of the Internal Revenue Code of 1986, as amended, or any entity deemed to
hold "plan assets" withinamended. In the meaning of 29 C.F.R. Section 2510.3-101case of
any such employee benefit planstock split, stock dividend or plans.
(i) To Seller's actual knowledge,like change in the reports, plans,nature of shares granted
by this Agreement, the number of shares and other
documents prepared by or on behalf of Seller and delivered by Seller to
Purchaser for review pursuant to Section 8.4 are materially true and correct.
All other reports, plans and other documentsoption price shall be
provided to Purchaser
without representation or warranty from Seller, and Purchaser shall not be
entitled to rely on such reports, plans and other documents without the prior
written consent of the party which prepared such materials.
(j) Seller shall use its reasonable best efforts to obtain prior
to the Closing Date all necessary approvals from the U.S. Army Corps of
Engineers ("COE") for a wetland mitigation plan in order to fill the wetland
areas designated on EXHIBIT 4.1(j) attached hereto and incorporated herein by
this reference (the "Fill Area") in accordance with the letters issued by the
Seattle District of the COE on September 8, 1993 and August 3, 1995. Seller
shall also use its best efforts to obtain from the Washington State Department
of Ecology ("WSDOE") and the City of Redmond a Section 401 water quality
certification and wetland mitigation plan approval, respectively, in order to
perform the fill activity approved by the COE pursuant to the letters dated
September 8, 1993 and August 3, 1995 and any subsequent authorizations.
Purchaser recognizes, however, that the City of Redmond may not issue approvals
for filling the Fill Area even though the COE and WSDOE have granted approvals
for such filling until a complete site plan review application for development
of the Property is approved by the City of Redmond. If the necessary approvals
and permits are obtained and the weather and the time of year do not present
problems for construction of the wetland mitigation, Seller shall commence, as
soon as feasible, and thereafter diligently pursue to completion, but in no
event beyond the Closing Date, the wetland mitigation approved by COE, WSDOE,
and the City of Redmond and will provide Purchaser with status reports on the
wetland mitigation on a regular basis or as is appropriate. Seller shall have
no obligation to fill the Fill Area pursuant to the approved plans. At Closing,
Purchaser shall reimburse Seller for actual costs incurred in obtaining
approvals and implementing the approved wetland mitigation plan up to a maximum
of CONFIDENTIAL Dollars ($ ) The mitigation costs do not include the cost of
filling the Fill Area.
(k) To Seller's actual knowledge, the Real Property consists of
approximately seventy-nine (79) acres and the Building consists of approximately
96,000 gross square feet.
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CONFIDENTIAL PORTIONS OF THIS DOCUMENT HAVE BEEN
OMITTED AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION.
4.2 REPRESENTATIONS OF PURCHASER. Purchaser hereby represents and
warrants to Seller as follows:
(a) Purchaser is a corporation duly organized and validly
existing under the laws of CONFIDENTIAL and is in good standing under the laws
of CONFIDENTIAL.
(b) This Agreement and all documents executed by Purchaser that
are to be delivered to Seller at the Closing Date are or at the time of the
Closing Date will be (i) duly authorized, executed, and delivered by Purchaser
(ii) legal, valid, and binding obligations of Purchaser and (iii) in compliance
with all provisions of all agreements and judicial orders to which Purchaser is
a party or to which it is subject.
(c) Purchaser shall use its reasonable best efforts to undertake
all studies and actions in order to complete the transaction contemplated by
this Agreement.
5. LIMITATION OF WARRANTIES. Except as otherwise expressly set forth in
Section 4.1, neither Seller nor any agent, representative, or employee of Seller
has made or is now making any other representations or warranties of any kind
whatsoever related to the physical condition of the Property, and if there are
any problems with the Property that are discovered subsequent to the Closing
Date, Seller shall have no responsibility and shall not be liable in any way for
such defects under this Agreement unless such defects constitute a breach of a
representation contained in Section 4.1, in which case Seller's obligation to
indemnify Purchaser shall beproportionately adjusted as set forth in Section 15. Purchaser is
conducting its own inspections and "due diligence" with respect to all physical
and other aspects5(m) of the Property.Plan. The Option
shall vest and become exercisable according to the following schedule provided
that the Optionee is continuously employed by the Company through the dates set
forth therein:
Portion of Total
Option Which Will Become
Date Exercisable
---- -----------
October 15, 1997 33.33%
October 15, 1998 66.66%
October 15, 1999 100%
The vesting of the Option is subject to acceleration in accordance with the
provisions of Section 5(f) of the Plan.
2. Termination of Option. The Option shall terminate, to the extent not
previously exercised, six (6) years from the Date of Grant or earlier in
accordance with Section 5 of the Plan. The unvested portion of the Option shall
terminate immediately upon the Optionee's termination of employment for any
reason whatsoever.
3. Non-transferable. This Option may not be transferred, assigned, pledged
or hypothecated in any manner (whether by operation of law or otherwise) other
than by will or by the applicable laws of descent and distribution, and shall
not be subject to execution, attachment or similar process. Upon reasonable noticeany attempt to
transfer, assign, pledge, hypothecate or otherwise dispose of this Option or of
any right or privilege conferred hereby, contrary to the provisions hereof, or
upon the sale or levy
Page 108
or any attachment or similar process upon the rights and at mutually
agreeable times, Sellerprivileges conferred
hereby, this Option shall allow Purchaser reasonable accessthereupon terminate and become null and void.
4. Exercise. Subject to Seller's
books, records,Sections 1 and 2 hereof and the Property (subjectPlan, this Option
may be exercised in whole or in part by means of a written notice of exercise
signed and delivered by the Optionee (or, in the case of exercise after death of
the Optionee by the executor, administrator, heir or legatee of the Optionee, as
the case may be) to Section 8.2)the Company at the address set forth herein for notices to
enable Purchaserthe Company. Such notice (a) shall state the number of Shares to complete such inspections. Purchaserbe purchased
and the date of exercise, and (b) shall be responsible for all costsaccompanied by payment of the full
exercise price in cash, by certified or cashier's check or by delivery of such
inspections and due diligence.
6. CLOSING.
6.1 CLOSING DATE AND LOCATION. This sale shall be closed inother consideration as the officesadministrator of the Escrow Agent in Seattle, Washington on a datePlan may approve.
5. Withholding. Prior to delivery of any Shares purchased upon exercise of
this Option, the Company shall determine the amount of any United States federal
and state income tax, if any, which is the
earlierrequired to be withheld under applicable
law and shall, as a condition of (i) December 20, 1996, or (ii) ten (10) days following the date
Purchaser provides notice that the conditions described in Section 8.2 have been
waived or satisfied and all applicable appeal periods relating to the
Development Approvals (defined below) shall have passed (the "Closing Date").
Closing shall mean the consummationexercise of this Agreement by the recording of all
instruments requiring recording, the rendering of all performances necessary to
the consummation of the purchase and sale,Option and delivery of
other documents and
proceedscertificates representing the Shares purchased upon exercise of the Option,
collect from Optionee the amount of any such tax to the parties entitled thereto.
6.2 CLOSING INSTRUMENTS. Seller shall convey title to the Property
in the condition described in Section 3.1 by statutory warranty deed, duly
delivered, ready for recording and bill of sale. Seller shall further deliver:
evidence of authority satisfactory to the Title Company and Purchaser; such
affidavit as the Title Company may reasonably require to issue an extended
coverage policy; a certificate updating its representations and warranties to
the Closing Date; a Certificate of Non-Foreign Status in form and substance
reasonably acceptable to
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Purchaser; and the lease (the "Lease") (in the form attached hereto as EXHIBIT
6.2 and incorporated herein by this reference) and any deliveries required under
the Lease. Purchaser shall deliver a certificate updating its representations
and warranties to the Closing Date. Seller and Purchaser each shall deposit any
other instruments and documents that are reasonably required by the Escrow Agent
or otherwise required to close the escrow and consummate the purchase and saleextent not previously
withheld.
6. Rights of the Property in accordance withOptionee. Neither this Agreement.
6.3 CLOSING COSTS AND EXPENSES.
6.3.1 SELLER'S CLOSING COSTS. At Closing, Seller shall pay
(a) one-half (1/2) of the escrow fee (b) any real estate excise or transfer
taxes (c) the premium for the policy of title insurance described in Section 3.2
attributable to standard coverage (d) recording and miscellaneous charges
customarily attributable to sellers in similar transactions (e) all attorneys'
and other fees incurred by Seller with respect to negotiating this Agreement and
in consummating the transaction contemplated herein and (f) the brokerage
commission of Cushman & Wakefield. One-half (1/2) of the costs of an ALTA
survey shall be paid by Seller prior to the end of the Phase I Contingency
Period.
6.3.2 PURCHASER'S CLOSING COSTS. Purchaser shall pay
(a) one-half (1/2) of the escrow fee (b) all necessary recording and
miscellaneous charges customarily attributable to purchasers in similar
transactions (c) the premium for the policy of title insurance described in
Section 3.2 attributable to extended coverage and the premium, fee, or charge
attributable to Purchaser's Endorsements and Seller's costs related to any
affidavit Seller may be required to sign pursuant to Section 6.2 and (d) all
attorneys' and other fees incurred by Purchaser with respect to negotiating this
Agreement and in consummating the transactions contemplated herein. One-half
(1/2) of the costs of an ALTA survey and the costs of the UCC searches shall be
paid by Purchaser prior to the end of the Phase I Contingency Period out of the
Phase I Funds (defined below).
Any other costs of Closing not specifically covered hereby shall be shared
equally by the parties.
6.4 PRORATIONS. Income, expenses, taxes for the current year, any
utilities constituting liens, local improvement district assessments, and all
similar assessments shall be prorated between Purchaser and Seller as of the
Closing Date, the Closing Date being a day of income and expense to Purchaser.
7. POSSESSION. On the Closing Date, Seller shall deliver possession of
the Property to Purchaser.
8. CONDITIONS PRECEDENT.
8.1 CONDITIONS PRECEDENT TO SELLER'S OBLIGATIONS. The obligations of
the Seller hereunder to sell the Property shall be subject to the fulfillment
and satisfaction of the following conditions, which conditions are for the
benefit of the Seller and may be waived only by a writing executed by Seller.
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(a) The approval of the transaction contemplated by this
Agreement by the Board of Directors of Seller by no later than the execution of
this Agreement.
(b) The representations of Purchaser set forth in Section 4.2
shall be true and correct, as of the Closing Date, with the same force and
effect as if made on the Closing Date.
(c) As of the Closing Date, Seller and Purchaser shall have
executed the Lease (in the form attached hereto as EXHIBIT 6.2).
8.2 CONDITION PRECEDENT TO THE PURCHASER'S OBLIGATIONS. The
obligations of the Purchaser hereunder shall be subject to the fulfillment and
satisfaction of the following conditions at the Purchaser's expense, which
conditions are for the benefit of the Purchaser and may be waived only by a
writing executed by the Purchaser.
(a) Purchaser shall have sixty (60) days after the execution of
the Purchase Agreement ("Phase I Contingency Period") to be satisfied in all
respects with its review of the items provided pursuant to Section 8.4, the
physical condition of the Property and the Property's suitability for
Purchaser's intended investment therein. If Purchaser is not satisfied in its
sole discretion with respect to any one or more of those matters, it may elect,
on or prior to the expiration of the Phase I Contingency Period, to terminate
the Agreement and recover its Earnest Money deposit, and any earnings thereon.
At the expiration of the Phase I Contingency Period, Purchaser shall remove all
contingencies with the exception of the Development Approvals which are to be
obtained during the Phase II Contingency Period (defined below).
(b) Purchaser shall have a period of approximately four (4)
months immediately following the expiration of the Phase I Contingency Period
("Phase II Contingency Period"), but in any event not extending beyond December
20, 1996, in order to consummate the transaction prior to the end of the
Seller's current fiscal year ending December 26, 1996, to prepare the necessary
plans and applications and to obtain site plan approval inclusive of a
concurrency certificate, SEPA Mitigated Determination of Non-Significance, and
design review board approval from the City of Redmond (collectively, the
"Development Approvals"). Seller shall reasonably cooperate with and assist
Purchaser in the approval process with the City of Redmond and any other
applicable entities and shall have the right to review and approve all
submittals and applications to the City of Redmond and other government
authorities regarding the Property, which approval shall not be unreasonably
denied or delayed. Such submittals and applications shall be deemed approved if
Seller has not approved or rejected the same within five (5) business days. In
the event Seller rejects such submittals and applications and the parties are
unable to agree on acceptable revisions, Purchaser shall be entitled to
terminate this Agreement and receive a full refund of the Earnest Money,
including any portion of the Earnest Money deemed to be the Retention Amount.
Within thirty (30) days after the expiration of the Phase I Contingency Period,
Purchaser shall use its best efforts to obtain a traffic study, prepare all of
the necessary plans and applications required for the submittals, and hold pre-
application meetings with the Technical Committee and the Design Review Board.
Immediately following this initial thirty (30) day period, Purchaser shall
commence its submittal of applications. If Purchaser gives
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Seller notice that it has been unable to obtain all Development Approvals by the
end of the Phase II Contingency Period or the Development Approvals are subject
to conditions which Purchaser has reasonably determined are unacceptable to it,
the Agreement will terminate and be of no further force or effect, and the
Earnest Money will promptly be returned to Purchaser, less the Retention Amount.
The government approvals will be deemed to be reasonably acceptable to Purchaser
if:
(1) the total cost of satisfying the conditions of all
approvals (including, but not limited to, wetlands mitigation, design and
construction of off-site road improvements, frontage improvements to Willows
Road, utility extensions, and storm water treatment and detention facilities;
payment of impact, traffic mitigation, and permit fees; and other similar
requirements and conditions) does not exceed $ CONFIDENTIAL per gross square
foot of building area contained in the approved site plan.
(2) any other conditions of approval relating to the size,
placement, phasing, parking or other material aspects of the buildings are
acceptable to Purchaser in the reasonable exercise of Purchaser's commercial
judgment.
(c) Seller shall provide to Purchaser within ten (10) days ofOption, the execution of this
Agreement an ALTA Surveynor the exercise of any portion of this Option shall confer upon
Optionee any right to, or guarantee of, continued employment by the Company, or
in any way limit the right of the Property,Company to terminate employment of Optionee at
any time, subject to the costterms of which shall be shared equally byany employment agreements between the parties.
(d) Purchaser shall provide to Seller evidence showing that the
person signing this Agreement on behalfCompany
and Optionee.
7. Professional Advice. The acceptance and exercise of the Purchaser is authorized to do so.
(e) AsOption and the
sale of Option Stock may have consequences under federal and state tax and
securities laws which may vary depending upon the individual circumstances of
the Closing Date, no action or proceeding by or before
any governmental authority shall haveOptionee. Accordingly, the Optionee acknowledges that he has been instituted or threatened (and not
subsequently dismissed, settled or otherwise terminated) which is reasonably
expectedadvised to
restrain, prohibit or invalidate the purchase of the Real Propertyconsult his personal legal and Improvements or the lease of the Building as described in EXHIBIT 6.2.
(f) As of the Closing Date, there shall be no pending or
threatened challenge to the Development Approvals obtained by Purchaser.
(g) The representations of Seller set forth in Section 4.1 are
true and correct as of the Closing Date, with the same force and effect as if
made on the Closing Date.
(h) As of the Closing Date, there shall have been no Material
Adverse Change in the financial condition of the Seller since the date of this
Agreement. For purposes of this Agreement, "Material Adverse Change" shall mean
Seller has, as of the Closing Date, less than $ CONFIDENTIAL of stockholder
equity as reflected in Seller's financial statements.
8.3 COSTS; DUE DILIGENCE ESCROW. Purchaser shall pay all costs
incurred in securing any studies undertaken pursuant to Section 8.2. Purchaser
shall deposit in cash CONFIDENTIAL United States Dollars (U.S. $ ) with the
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Escrow Agent ("Phase I Funds"), within one (1) business day after the full
execution of the Agreement, to fund its Phase I Contingency Period due diligence
review. Purchaser shall be entitled to withdraw from the Phase I Funds as
actual expenses are incurred (as evidenced by actual invoices) on a monthly
basis. At the commencement of the Phase II Contingency Period, Purchaser shall
deposit with the Escrow Agent CONFIDENTIAL Dollars($ ) ("Phase II Funds"), or
one-half of the $ CONFIDENTIAL which is budgeted for Phase II Contingency Period
due diligence review. Purchaser shall draw upon this balance as actual expenses
are incurred on a monthly basis (as evidenced by actual invoices). To the
extent that Purchaser's actual Phase I Contingency Period costs are less than $
CONFIDENTIAL (the budgeted amount), the balance of the Phase I Funds shall be
credited against the Phase II Funds required deposit amount. Purchaser shall
indemnify, defend and hold Seller harmless from and against any and all costs,
damages, loss, injury, or other expenses that may be incurredtax advisor in connection with Purchaser's undertaking of such studies. From and after the date of execution
of the Agreement, Purchaser or its agents or representatives shall, at their own
risk and from time to time, have reasonable access to the Property and the right
to conduct geotechnical, environmental, and other reasonably necessary
inspections to assure Purchaser of the physical condition of the Property and
its suitability for Purchaser's intended use thereof. Seller shall grant
reasonable access provided that Data I/O's business activities will not be
unreasonably disrupted and that Purchaser seeks approval for access to the
Property in advance. Reasonable alteration to the Property consistent with the
undertaking of such studies shall be permitted by Seller with Seller's consent
and provided that the Property is returned to its original state as much as
possible after Purchaser completes the studies. Purchaser shall further
indemnify, defend and hold Seller harmless from and against any and all liens,
attorneys' fees, damages and costs in clearing any such liens which may be filed
against the Property as a result of or in connection with Purchaser's
undertaking of such studies. In the course of its investigations, Purchaser may
make inquiries to third parties, including, without limitation, lenders,
contractors, and municipal, local and other government officials and
representatives, and Seller consents to such inquiries. Upon the Closing Date
or the earlier termination of this Agreement, any unexpended Phase I Funds and
Phase II Funds shall be refunded to Purchaser.
8.4 DELIVERY OF INFORMATION. To the extent available, Seller will
make available or deliver to Purchaser within five (5) days of the execution of
this Agreement, at Purchaser's discretion, (i) true, correct and complete copies
of all leases or license agreements encumbering any part of the Property, (ii)
any studies or reports in the possession of Seller relating to the presence (or
absence) of hazardous materials (including asbestos) at the Property, or the
condition of the soil underlying the Property, (iii) any reports or studies on
the Property in Seller's possession related to access, traffic, or
transportation, (iv) any documents in Seller's possession relating to
governmental restrictions affecting the site or the status of public approvals,
(v) a copy of the most recent tax bill and assessment for the property, (vi)
surveys and site plans, and (vii) final construction documents, building
specifications, as-built drawings and any engineering reports for the Building.
Upon termination of this Agreement, Purchaser shall return to Seller the copies
of documents delivered by Seller to Purchaser or Purchaser's agents,
consultants, accountants, or attorneys. If Purchaser elects to terminate this
Agreement (except for termination due to a default by Seller) or the Seller
terminates this Agreement following a default by Purchaser, then Purchaser shall
deliver to Seller, immediately after such termination,
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copies of all plans, correspondence, tests, reports and studies concerning the
Property (the "Study(ies)") prepared for Purchaser by independent third parties.
The Studies shall be provided to Seller without representation or warranty from
Purchaser, and Seller shall not be entitled to rely on any Study without the
prior written consent of the party which prepared such Study.
8.5 EXPIRATION OF CONTINGENCY PERIOD. Subject to Section 2.3.1, if
Purchaser terminates this Agreement because the conditions precedent described
in Section 8.2 are not waived or satisfied within the time periods specified,
all Earnest Money, less the Retention Amount, shall be returned to Purchaser,
all documents deposited with the Escrow Agent shall be returned to the
depositing party, and the parties shall have no further obligations or
liabilities to each other except as otherwise provided in this Agreement.
9. RISK OF LOSS. If prior to the Closing Date the Property is materially
damaged as the result of fire or other casualty or all or a portion of the
Property is condemned, Purchaser shall have the option, such election to be made
within fourteen (14) days after Purchaser's receipt of written notice from
Seller of such material damage (and the Closing Date shall be extended if
necessary to provide Purchaser with a full fourteen (14) day period to make such
election), to (a) accept title to the Property without any abatement of the
Purchase Price, in which event at the Closing all of the insurance proceeds and
condemnation proceeds shall be assigned by Seller to Purchaser and any moneys
theretofore received by Seller in connection with such fire or other casualty or
condemnation shall be paid over to Purchaser and Purchaser shall receive a
credit for all deductibles, or (b) terminate this Agreement, in which event the
Earnest Money shall be returned to Purchaser and thereupon neither party shall
have any further liability to the other. For purposes of this paragraph, the
term "material damage" shall mean damage which Purchaser reasonably determines
to cost in excess of $500,000. From the date this Agreement is signed by the
parties, Seller shall maintain property damage insurance in the amounts and with
substantially equivalent carriers as are currently in effect.
During the term of this Agreement, Seller shall not settle any fire or
casualty loss claims or agree to any award or payment in condemnation or eminent
domain or any award or payment in connection with the change in grade or any
street, road, highway or avenue in respect of or in connection with the Property
without obtaining Purchaser's prior consent in each case, which consent shall
not be unreasonably withheld or delayed.
10. REMEDIES.
10.1 SELLER'S DEFAULT. If there is an event of default under this
Agreement by Seller (including a breach of any representation, warranty, or
covenant), Purchaser shall be entitled as the sole and exclusive remedy
available to Purchaser, subject to Section 15, for such default (a) to seek
specific performance of Seller's obligations under this Agreement, (b) to seek
damages excluding any consequential damages or lost profits, or (c) to terminate
this Agreement by written notice to Seller and Escrow Agent. If Purchaser
terminates this Agreement, the escrow shall be terminated, the Earnest Money
immediately shall be returned to Purchaser, all documents shall immediately be
returned to the party who deposited them, and neither party shall have any
further rights or obligations under this Agreement, except as otherwise provided
in this
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Agreement, and except that Seller shall pay any costs of terminating the escrow.
Seller shall have ten (10) days from receipt of written notice from Purchaser to
cure any default under this Agreement.
10.2 PURCHASER'S DEFAULT. In the event Purchaser fails without legal
excuse to complete the purchase of the Property, the Earnest Money deposit made
by Purchaser shall be forfeited to Seller as the sole and exclusive remedy
available to Seller, subject to Section 15, for such failure. It being agreed
that such Earnest Money shall be liquidated damages for a default of Purchaser
hereunder and earned by the Seller for agreeing to sell the Property to the
Purchaser and for agreeing to hold the Property off the market. Purchaser shall
have ten (10) days from receipt of written notice from Seller to cure any
default under this Agreement.
11. ATTORNEYS' FEES. In any proceeding brought to enforce this Agreement
or to determine the rights of the parties under this Agreement, the most
prevailing party shall be entitled to collect, in addition to any judgment
awarded by a court, a reasonable sum as attorneys' fees, and all costs and
expenses incurred in connection with such a lawsuit, including attorneys' fees,
expenses of litigation, and costs of appeal. The term "proceeding" shall mean
and include arbitration, administrative, bankruptcy, and judicial proceedings
including appeals.
12. ASSIGNABILITY. Purchaser shall not have the right to convey,
transfer, or assign all or any part of its interest and its rights and
privileges under the terms of this Agreement except to an Affiliate. "Affiliate"
means (a) any entity that directly or indirectly controls, is controlled by or
is under common control with the Purchaser or (b) an entity at least a majority
of whose economic interest is owned by Purchaser; and the term "control" means
the power to direct the management of such entity through voting rights,
ownership or contractual obligations.
13. CONCURRENT DISCLOSURE; CONFIDENTIALITY. Seller shall make no public
announcement or disclosure of any information related to this Agreement to
outside brokers or third parties before the Closing without the consent of
Purchaser, except for such disclosures to Seller's financing sources, lenders,
creditors, officers, employees, attorneys, consultants and agents as may be
necessary to permit Seller to perform its obligations hereunder or as required
by law or otherwise by governmental authorities and except for public
announcement of the transaction contemplated hereby after execution of this Agreement and
upon reviewhis dealings with respect to the Option or the Option Stock.
8. Agreement Subject to Plan. This Option and approval of Purchaser which shall not be
unreasonably denied or withheld; provided, however, unless reviewed and approved
by Purchaser or required by law or otherwise by governmental authorities, Seller
shall not disclose in any public announcement or public statement the identity
of Purchaser prior to Closing. Purchaser will treat as confidential any
information received pursuant to this Agreement evidencing and
will not disclose any such
information to brokers or third parties withoutconfirming the consent of Seller, provided
that, without the consent of Seller, Purchaser may (i) disclose such information
to its financing sources, lenders, creditors, officers, employees, attorneys,
consultants and agents as may be necessary to exercise its rights or perform its
obligations hereunder and (ii) disclose such information as required by law or
otherwise by governmental authorities. Purchaser may make public announcement
of the transaction contemplated hereby after execution of this Agreement and
upon the prior review and approval of Seller which shall not be unreasonably
denied or withheld.
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14. NOTICES. Any notice, demand, request or consent that the parties
hereto desire or is required to be given by this Agreement shall be deemed
sufficient if sent by United States first class mail, facsimile, or delivered
via messenger or overnight delivery service to the following:
Purchaser: CONFIDENTIAL
CONFIDENTIAL
CONFIDENTIAL
Attention: CONFIDENTIAL
Telephone: CONFIDENTIAL
Facsimile: CONFIDENTIAL
with copy to: CONFIDENTIAL
CONFIDENTIAL
CONFIDENTIAL
Attention: CONFIDENTIAL
Telephone: CONFIDENTIAL
Facsimile: CONFIDENTIAL
Seller: DATA I/O CORPORATION
10525 Willows Road N.E.
P.O. Box 97046
Redmond, WA 98073-9746
Attention: Chief Financial Officer
CC: General Counsel
Telephone: (206) 881-6444
Facsimile: (206) 881-2917
Notices shall be effective upon receipt if delivered by facsimile,
messenger service or overnight delivery and upon the third day following deposit
if by United States first class mail.
15. INDEMNIFICATION. Subjectsame are subject to the terms and conditions set forth in this
Agreement, the
indemnification obligations of SellerPlan and Purchaser shall be as
follows:
(a) Each party shall indemnify, defend and hold harmless the other
party from and againstin any and all claims, demands, liabilities, costs,
expenses, penalties, damages and losses (including, without limitation,
reasonable attorneys' fees but excluding consequential damages and lost profits)
resulting from (i) any misrepresentation, breach of warranty or breach of
covenant made by such party under this Agreement or (ii) any negligence or
intentional misconduct of such party, its agents, employees or contractors.
(b) If either party receives notice of a claim or demand against
which it is entitled to indemnification pursuant to this Section, that party
shall give within ten (10) days' notice thereofamendments to the other party. The party
obligated to indemnify immediately shall take such measures as may be reasonably
required to properly and effectively defend such claim, and may
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defend the same with counsel of its own choosing. If the party obligated to
indemnify fails to defend such claim, then the party entitled to indemnification
may defend such claim with counsel of its own choosing at the expense of the
party obligated to indemnify.
(c) In the event of a claim or demand based upon a breach of a
representation made by Seller in Section 4.1, in addition to the foregoing, the
Purchaser shall provide written notice to Seller within ten (10) days after
discovery of the problem which may lead to a potential claim or demand by
Purchaser.
(d) Except for indemnification related to the statutory warranties
associated with the Deed, the indemnification provisions of this Section shall
survive for a period of twelve (12) months beyond the delivery of the Deed and
transfer of title. Neither Seller nor Purchaser shall be required to pay, in
the aggregate, more than CONFIDENTIAL Dollars ($ ) to fulfill their obligations
pursuant to this Section 15 except pursuant to Section 15(a)(ii) and then only
to the extent covered by insurance. In addition, until a party's losses,
liabilities, damages, and/or expenses exceed CONFIDENTIAL Dollars ($ ),
individuallyPlan existing now or in the aggregate, that party shall have no right to invokefuture, which
terms and conditions are incorporated herein by reference. A copy will be made
available upon request. Should any conflict exist between the provisions of the
Plan and those of this Section 15Agreement, those of this Agreement shall govern and
only tocontrol. This Agreement and the extent of such excess.
16. GENERAL.
16.1 COOPERATION. SellerPlan set forth the entire and Purchaser shall cooperate at all times
fromexclusive
understanding between the Company and after the date hereofOptionee with respect to the supplying of any information
requested by the other regarding any of the matters set forth in this Agreement.
SellerOption and Purchaser agree to execute any and all other instruments and
documents as may be reasonably required in order to consummate the purchase and
sale contemplated herein.
16.2 BROKERAGE COMMISSIONS. Seller and Purchaser each represent to
the other that there are no individuals or entities entitled to brokerage
commissions or other fees in connection with the transaction other than Cushman
& Wakefield, whose commission
shall be paid by Seller. Purchaserdeemed to integrate, replace and Seller
each represent and warrant to the other that no other broker, agent or finder,
licensed or otherwise has been engaged by it, respectively, in connection with
the transaction contemplated by this Agreement. In the event of any such claim
for broker's, agent's or finder's fee or commission in connection with the
negotiation, execution or consummation of this transaction, the party upon whose
alleged statement, representation or agreement such claim or liability arises
shall indemnify, defend and hold harmless the other party from and against such
claim and liability, including without limitation, reasonable attorneys' fees
and court costs. Buyer and Seller hereby agree that the representations and
warranties contained in this Section shall survive the Closing.
16.3 MAINTENANCE OF PROPERTY. From the date this Agreement is signed
by the parties until the Closing Date, Seller shall maintain the Property in its
current operating condition and repair (reasonable wear and tear excluded) and
otherwise operate the Property in the same
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manner as before the making of this Agreement. Seller shall not take any action
or omission which would cause any of thesupersede all previous communications,
representations or warranties of Seller
contained herein to become inaccurate or any ofagreements between the covenants of Seller to be
breached.
16.4 NEW CONTRACTS. From the date this Agreement is signed by the
parties until the Closing Date, Seller or any agent for Seller shall not (a)
enter into any lease, lease amendment, contract, contract amendment, agreement
or agreement amendment relating to the Property (except for contracts,
agreements, or amendments in the normal course of business) that requires
performance, other than the payment of money, beyond the Closing Date or waive
any right of Seller under any of the foregoing (b) take any action or inaction
to cause a defect, lien, encumbrance, or adverse claim on the Property which is
not shown on the preliminary commitment for an ALTA owner's extended title
insurance policy furnished to Purchaser by Title Company under this Agreement
without Purchaser's prior written consent.
16.5 LISTINGS AND OTHER OFFERS. Seller will not list the Property
with any broker or otherwise solicit or make or accept any offers to sell the
Property, engage in any discussions or negotiations with any third party with respect to the salesubject
matter hereof, whether written or other disposition of any of the Property, or enter into
any contracts or agreements (whether binding or not and except in the normal
course of business) regarding any disposition of any of the Property.
16.6 MAINTENANCE OF PERMITS. Seller shall maintain in existence all
licenses, permits and approvals necessary or reasonably appropriate to the
ownership, operation or improvement of the Building.
16.8 BINDING EFFECT. The covenants, agreements, representations, and
warranties contained herein shall extend to and be obligatory upon the
successors and assigns of the respective parties hereto.
16.9 AMENDMENT. This Agreement may be amended only by written
instrument executed by Seller and Purchaser.
16.10 ENTIRE UNDERSTANDING. This Agreement, and the documents
incorporated herein, embody the entire agreement between the parties with
relation to the transactions contemplated hereby. There have been and are no
covenants, agreements, representations, warranties, or restrictions between the
parties with regard thereto other than those set forth herein or for which there
has been provision made herein. The provisions of this Agreement cannot be
waived except by the written agreement of the party against whom a waiver shall
be asserted.
16.11 COUNTERPARTS. This Agreement may be executed simultaneously in
counterparts, each of which shall be an original, but all of which together
shall constitute one and the same instrument.
16.12 TIME OF ESSENCE. Time is of the essence of this Agreement.
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CONFIDENTIAL PORTIONS OF THIS DOCUMENT HAVE BEEN
OMITTED AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION.
16.13 SEVERABILITY. The unenforceability, invalidity, illegality, or
termination of any provision of this Agreement shall not render any other
provision of this Agreement unenforceable, invalid, or illegal and shall not
terminate this Agreement or impair the rights or obligations of the parties
hereto.
16.14 CAPTIONS. Section or paragraph titles or other headings
contained in this Agreement are for convenience only and shall not be a part of
this Agreement, or considered in its interpretation.
16.15 GOVERNING LAW.oral.
9. Governing Law. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Washington without regard to its
conflicts of law rules. The venue for any causelaws principles to the contrary, and shall bind and inure to the
benefit of action related tothe heirs, executors, personal representatives, successors and
assigns of the parties hereto.
IN WITNESS WHEREOF, the undersigned have executed this Agreement shall be the state and federal courts sitting in King County,
Washington.
16.16 CALCULATION OF TIME PERIODS. Unless otherwise specified, in
computing any period of time described herein, the dayas of the
act or event after
which the designated period of time begins to run is not to be included and the
last day of the period so computed is to be included at, unless such last day is
a Saturday, Sunday or legal holiday for national banks in the location where the
Property is located, in which event the period shall run until the end of the
next day which is neither a Saturday, Sunday, or legal holiday. The last day of
any period of time described herein shall be deemed to end at 11 p.m.
Washington, D.C. time.
16.17 INFORMATION AND AUDIT COOPERATION. At Purchaser's request, at
any time before the Closing, Seller shall provide to Purchaser's designated
independent auditor access to the books and records of the Property, as
described in Section 1(c), regarding the period for which Purchaser is required
to have the Property audited under the regulations of the Securities and
Exchange Commission.
DATED July 9, 1996.
SELLER:date first above written.
Page 109
DATA I/O CORPORATION By: //S// STEVE M. GORDON
-----------------------------------------
Steven M. Gordon, Chief Financial Officer
PURCHASER: CONFIDENTIAL
By: //S// Purchaser
-----------------------------------------
CONFIDENTIAL
CONFIDENTIAL Pur&Sale (7/9/96)OPTIONEE: Douglas R. Hall
By _______________________ ________________________
Printed Name ____________________ Printed Name _____________________
Title _________________
4. Exhibit B, Stock Option Agreement, of Exhibit 3.6B, Employment Agreement
between Reel-Tech, Inc. and Norris R. Hall, shall be deleted in its
entirety and superseded by the attached Exhibit B-1, and Exhibit B-2 to be
attached by May 9, 1997:
Page 127110
CONFIDENTIAL PORTIONS OFEXHIBIT B-1
DATA I/O CORPORATION
1986 STOCK OPTION PLAN
STOCK OPTION AGREEMENT
THIS DOCUMENT HAVE BEEN
OMITTED AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION.
Escrow Agent,STOCK OPTION AGREEMENT is entered into as of the __ day of _______,
199__ ("Date of Grant"), by its duly authorized agent, agreesand between Data I/O Corporation, a Washington
corporation (the "Company"), and Norris R. Hall (the "Optionee").
1. Grant of Option. Subject to accept this escrow on the terms and conditions hereof and the
Company's 1986 Stock Option Plan (the "Plan"), the Company hereby grants to the
Optionee the right and option (the "Option") to purchase up to three thousand
seven hundred fifty (3,750) shares (the "Shares") of the common stock, $.01 par
value, of the Company, at a price per share of $________ (the "Exercise Price").
This Option is intended not to qualify as an Incentive Stock Option for purposes
of Section 422 of the Internal Revenue Code of 1986, as amended. In the case of
any stock split, stock dividend or like change in the nature of shares granted
by this Agreement, the number of shares and option price shall be
proportionately adjusted as set forth in Section 5(m) of the Plan. The Option
shall vest and become exercisable according to complythe following schedule provided
that the Optionee is continuously employed by the Company through the dates set
forth therein:
Portion of Total
Option Which Will Become
Date Exercisable
---- -----------
October 15, 1997 33.33%
October 15, 1998 66.66%
October 15, 1999 100%
The vesting of the Option is subject to acceleration in accordance with the
instructions containedprovisions of Section 5(f) of the Plan.
2. Termination of Option. The Option shall terminate, to the extent not
previously exercised, six (6) years from the Date of Grant or earlier in
accordance with Section 5 of the Plan. The unvested portion of the Option shall
terminate immediately upon the Optionee's termination of employment for any
reason whatsoever.
3. Non-transferable. This Option may not be transferred, assigned, pledged
or hypothecated in any manner (whether by operation of law or otherwise) other
than by will or by the applicable laws of descent and distribution, and shall
not be subject to execution, attachment or similar process. Upon any attempt to
transfer, assign, pledge, hypothecate or otherwise dispose of this Option or of
any right or privilege conferred hereby, contrary to the provisions hereof, or
upon the sale or levy or any attachment or similar process upon the rights and
privileges conferred hereby, this Option shall thereupon terminate and become
null and void.
Page 111
4. Exercise. Subject to Sections 1 and 2 hereof and the Plan, this Option
may be exercised in whole or in part by means of a written notice of exercise
signed and delivered by the Optionee (or, in the foregoing Agreement and such supplemental instructionscase of exercise after death of
the Optionee by the executor, administrator, heir or legatee of the Optionee, as
the Escrow Agent
reasonably requires.
DATED July __, 1996.
CONFIDENTIAL
By: //S// Escrow Agent
----------------------------------
Name: Escrow Agent Name
--------------------------------
Title: Escrow Agent Title
-------------------------------
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CONFIDENTIAL PORTIONS OF THIS DOCUMENT HAVE BEEN
OMITTED AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION.
EXHIBIT 1(a)
LEGAL DESCRIPTION
Legal Descriptioncase may be) to the Company at the address set forth herein for notices to
the Company. Such notice (a) shall state the number of Property
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CONFIDENTIAL PORTIONS OF THIS DOCUMENT HAVE BEEN
OMITTED AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION.
EXHIBIT 1(b)
RETAINED EQUIPMENT LIST
Cafeteria Equipment
3 RefrigeratorsShares to be purchased
and the date of exercise, and (b) shall be accompanied by payment of the full
exercise price in food preparation area
Salad bar
Serving bar
2 Ovens
Hotplate
Ice machine
Meat slicer
Microwave ovencash, by certified or cashier's check or by delivery of such
other consideration as the administrator of the Plan may approve.
5. Withholding. Prior to delivery of any Shares purchased upon exercise of
this Option, the Company shall determine the amount of any United States federal
and state income tax, if any, which is required to be withheld under applicable
law and shall, as a condition of exercise of this Option and delivery of
certificates representing the Shares purchased upon exercise of the Option,
collect from Optionee the amount of any such tax to the extent not previously
withheld.
6. Rights of the Optionee. Neither this Option, the execution of this
Agreement nor the exercise of any portion of this Option shall confer upon
Optionee any right to, or guarantee of, continued employment by the Company, or
in food preparation area
Miscellaneous counter equipment
2 Refrigerators in lunch room/meeting area
Espresso machine
Cash register
Manufacturing Air Compressor
Vacuum Pump
50Hz Generator
2 Thermatrons
Telephone System (excluding interior wiring)
Dytel Automated Answering System
Security System (excluding interior wiring and permanently installed card
readers and door strikes)
Synchronized Clock System
Trash Compactor
Supplier owned Equipment, including but not limitedany way limit the right of the Company to Vending machines
3 microwave ovens
Ice cream freezer
Soft drink dispenser
Drink refrigeration cases
CONFIDENTIAL Lease (07/12/96)
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CONFIDENTIAL PORTIONS OF THIS DOCUMENT HAVE BEEN
OMITTED AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION.
Computer Network Hubs/Routers (excluding interior wiring)
Computer Room Equipment and Halon System
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CONFIDENTIAL PORTIONS OF THIS DOCUMENT HAVE BEEN
OMITTED AND HAVE BEEN FILED SEPARATELY WITH THE
EXHIBIT 4.1(b)
PENDING LIENS AND ASSESSMENTS
None
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CONFIDENTIAL PORTIONS OF THIS DOCUMENT HAVE BEEN
OMITTED AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION.
EXHIBIT 4.1(d)
HAZARDOUS MATERIAL DISCLOSURE
Invoices, Maps and Pre- And Post-Removal Reports Regarding Removal Of Asbestos
From Outbuilding And Heating Oil and Oil Storage Tank From Property
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CONFIDENTIAL PORTIONS OF THIS DOCUMENT HAVE BEEN
OMITTED AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION.
EXHIBIT 4.1(j)
WETLAND AREA TO BE FILLED
Mapterminate employment of Wetland Area To Be Filled
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CONFIDENTIAL PORTIONS OF THIS DOCUMENT HAVE BEEN
OMITTED AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION.
EXHIBIT 6.2
LEASE
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CONFIDENTIAL PORTIONS OF THIS DOCUMENT HAVE BEEN
OMITTED AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION.
LEASE
THIS LEASE AGREEMENT (hereinafter, the "Lease") is made this ____ day of
___________, 1996, by and between CONFIDENTIAL, a CONFIDENTIAL corporation
("Landlord"), and DATA I/O CORPORATION, a Washington corporation ("Tenant").
WHEREAS, Landlord and Tenant entered into a Purchase and Sale Agreement
dated July 9, 1996 (the "Purchase and Sale Agreement") under which Tenant agreedOptionee at
any time, subject to sell and convey to Landlord, and Landlord agreed to purchase from Tenant the
real property legally described in EXHIBIT A attached hereto and incorporated
herein by this reference (the "Property").
WHEREAS, under the terms of any employment agreements between the PurchaseCompany
and Sale Agreement, Landlord
agreed to lease to Tenant the Building situated on the Property subject to
mutually acceptable termsOptionee.
7. Professional Advice. The acceptance and conditions of a lease agreement.
NOW, THEREFORE, in considerationexercise of the mutual termsOption and conditionsthe
sale of Option Stock may have consequences under federal and state tax and
securities laws which may vary depending upon the individual circumstances of
the Optionee. Accordingly, the Optionee acknowledges that he has been advised to
consult his personal legal and tax advisor in connection with this Lease,Agreement and
his dealings with respect to the parties agree:
1. LEASE. Landlord hereby leasesOption or the Option Stock.
8. Agreement Subject to Tenant,Plan. This Option and Tenant hereby leases
from Landlord,this Agreement evidencing and
confirming the same are subject to the terms and conditions of this Lease,set forth in the
Building
located onPlan and in any amendments to the real property located at 10525 Willows Road N.E., Redmond,
Washington containing approximately Ninety-Six Thousand One Hundred Seventy-Nine
square feet (hereinafter,Plan existing now or in the "Leased Premises"). The lease of the Leased
Premises shall include, during the term of the Lease, the exclusive use of
CONFIDENTIAL parking spaces located on the Property as follows: such spaces
will be located first on the portion of the Property depicted as the exclusive
parking area on EXHIBIT B attached heretofuture, which
terms and conditions are incorporated herein by reference. A copy will be made
available upon request. Should any conflict exist between the provisions of the
Plan and those of this reference (the "Exclusive Parking Area")Agreement, those of this Agreement shall govern and
control. This Agreement and the remainder of such spaces will
be located on another portion ofPlan set forth the Property adjacententire and reasonably convenient
toexclusive
understanding between the Leased Premises (collectively, as the same may be relocated, the "Parking
Area"). The number of parking spaces located on the Exclusive Parking Area
shall not be subject to reduction but may be increased. The current location of
the balance of the CONFIDENTIAL exclusive spaces, which are not located in the
Exclusive Parking Area is depicted on EXHIBIT B as the "Remaining Parking Area."
Landlord may, as one option, relocate all or a portion of the parking spaces
currently located in the Remaining Parking Area to the area depicted on
EXHIBIT B as the proposed parking area. The configuration, locationCompany and size of
the CONFIDENTIAL parking spaces allocated to Tenant shall be subject to Tenant's
reasonable approval. Upon any relocation, reconfiguration or resizing of such
parking spaces, the parties shall execute an amendment to EXHIBIT B reflecting
the new location of the Parking Area. Any relocation, reconfiguration or
resizing of such parking spaces shall be at Landlord's cost and expense.
Further, such spaces may be temporarily relocated, subject to Tenant's
reasonable approval and at Landlord's cost and expense, during Landlord's
construction on the Property so long as such relocation does not unreasonably
disrupt Tenant's business and access to the Leased Premises. Except for any
failure of Tenant to approve which would result in Tenant having less than
CONFIDENTIAL
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CONFIDENTIAL PORTIONS OF THIS DOCUMENT HAVE BEEN
OMITTED AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION.
exclusive parking spaces, any approval by Tenant under this Section 1 will be
deemed unreasonably withheld if Tenant's failure to approve such matter would
result in a permitted density approved by the City of Redmond, Washington of
less than CONFIDENTIAL square feet for the Property.
In addition to the foregoing, Landlord shall use commercially reasonable
efforts to make an additional CONFIDENTIAL nonexclusive parking spaces available
to Tenant in an area on the Property designated by Landlord, which area may be
relocated by Landlord from time to time; provided that Landlord shall not be
required to provide such additional spaces if the allocation of such spaces to
Tenant would result in a permitted density approved by the City of Redmond,
Washington of less than CONFIDENTIAL square feet for the Property. Tenant shall
have no right to approve the location of such additional parking spaces;
provided that Landlord will make reasonable efforts to make such spaces
reasonably convenient to the Leased Premises.
Tenant shall have no right to use parking spaces on the Property except as
expressly provided in this Section 1.
The lease of the Leased Premises shall also include use of all outbuildings
located on the Property, including but not limited to, the house/conference
facility and the barn, until Landlord elects to demolish the same in order to
construct buildings or other infrastructure improvements, fill in any wetlands
or, if Tenant fails to maintain the outbuildings and the access road leading to
them, to remedy any nuisance or hazardous condition. Rent under this Lease
shall not be affected by the demolition of the outbuildings. Landlord shall
have no repair, maintenance or other obligations or liabilityOptionee with respect to the outbuildings or the access road leading to them. The Building, the existing
Parking AreaOption and the outbuildings, are shown on EXHIBIT C attached hereto and
incorporated herein by this reference.
The right to the exclusive use of the parking spaces pursuant to this
Section 1 shall inure to the benefit of Tenant and Tenant's affiliates and
sublessees in accordance with this Lease, but shall terminate in the event of an
assignment of the entire Lease or subletting of an aggregate of CONFIDENTIAL
percent ( %) or more of the Leased Premises by Tenant (excluding assignments or
subletting to its affiliates).
2. TERM. The term of this Lease shall commence on the date first written
above and expire on December 31, 2006. So long as Tenant is not in material
default of the terms of this Lease, Tenant may terminate this Lease at the end
of the fifth year of the Lease term by giving Landlord written notice of such
termination six (6) months prior to the end of the fifth year of the Lease term
and by paying Landlord U.S. $ CONFIDENTIAL on or before the last day of the
fifth year of the Lease term. The right to terminate the Lease pursuant to this
Section 2 shall inure to the benefit of Tenant and Tenant's affiliates but shall
terminate in the event of an assignment of the entire Lease. All defaults by
Tenant under this Lease shall be cured on or before the termination of the Lease
as provided herein.
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CONFIDENTIAL PORTIONS OF THIS DOCUMENT HAVE BEEN
OMITTED AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION.
3. OPTIONS TO EXTEND TERM. So long as Tenant is not in material default
of the terms of the Lease, and there has not been at the end of the initial term
a material adverse change in the financial condition of Tenant as reflected in
Tenant's financial statements which at that time materially limits its ability
to perform under this Lease, Tenant shall have the option to extend the Lease
term for an additional five (5) year term by giving Landlord written notice of
Tenant's intent to extend at least six (6) months prior to the end of the Lease
term. So long as Tenant is not in material default of the terms of the Lease,
and there has not been at the end of the first extended term a material adverse
change in the financial condition of Tenant as reflected in Tenant's financial
statements which at that time materially limits its ability to perform under
this Lease, Tenant shall also have the option to extend the Lease term for a
second five (5) year term by giving Landlord written notice of Tenant's intent
to extend at least six (6) months prior to the end of the first extension of the
Lease term. Any extensions of the term of this Lease shall be on the same terms
contained in this Lease, except for rent which shall be at the then prevailing
fair market rental rate for rental space of comparable size, age, location and
quality in Redmond, Washington for each extension period. In the event Landlord
and Tenant are unable to agree upon the fair market rent within thirty (30) days
after Landlord has notified Tenant of the proposed rate for the applicable
extension period, the fair market rental rate shall be determined by appraisal
by a panel of two appraisers, each with a minimum of five years' prior
experience in the office leasing market in King County. Within ten (10) days of
written rejection by Tenant of Landlord's proposed rate, Landlord and Tenant
shall each appoint an appraiser at their own expense, and the two appraisers
shall, within thirty (30) days determine the fair market rental rate for the
extension period. If the two appraisers cannot agree on the fair market rental
rate for the extension period during the thirty (30) days, the two appraisers
shall, within five (5) days, jointly select a third, the cost of which shall be
shared by Landlord and Tenant. The appraisers shall submit their decisions
within fifteen (15) days of selection of the third appraiser. The average of
the two closest fair market rental rates submitted by each appraiser shall
determine the fair market rental rate for the extension period.
The right to extend the Lease pursuant to this Section 3 shall inure to the
benefit of Tenant and Tenant's affiliates but, shall terminate in the event of
an assignment of the entire Lease or subletting of an aggregate of CONFIDENTIAL
percent ( %) or more of the Building by Tenant (excluding assignments or
subletting to its affiliates).
4. RENT. As rent for the Leased Premises, and on the first day of each
month during the term of this Lease, Tenant shall pay to Landlord the sum of
U.S. $ CONFIDENTIAL (triple net) per month in advance. Commencing with the
sixth year of the Lease term, the rent for the Leased Premises shall be U.S. $
CONFIDENTIAL (triple net) per month. If the term of this Lease begins on a date
other than the first day of a month, the rent for that month will be prorated
based on a 365 day year. Except as expressly provided in this Lease, and except
for Landlord's privilege and income taxes and any franchise fees, all rent,
additional rent and other amounts shall be paid to Landlord net of all
impositions, fees and other charges and without offset, deduction or abatement.
CONFIDENTIAL Lease (07/12/96)
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CONFIDENTIAL PORTIONS OF THIS DOCUMENT HAVE BEEN
OMITTED AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION.
5. ADDITIONAL RENT. This Lease is a triple net lease. In addition to the
rent to be paid by Tenant as set forth in Section 4 of this Lease, Tenant shall
pay to Landlord as additional rent, Tenant's share of all expenses, except as
expressly provided herein, incurred by Landlord in the operation, maintenance
and ownership of the Leased Premises, the Tenant landscaping area as described
in EXHIBIT D attached hereto and incorporated herein by this reference, the
Parking Area, and the access road leading to the Leased Premises (the "Operating
Expenses"), including, without limitation, costs of any commercially reasonable
insurance maintained by Landlord from time to time (including, without
limitation, insurance required by this Lease, rent loss, earthquake and such
other insurance as may be elected by Landlord consistent with comparable
properties in the area), maintenance and repair costs for the Parking Area and
access roads to the Leased Premises, market property management fees payable to
any manager (including an affiliate of Landlord), labor, salaries and applicable
benefits attributable to the management of the Leased Premises, Parking Area and
the access road leading to the Leased Premises, security services if any,
utility costs if any, snow removal costs and work performed by Landlord under
Section 9. Operating Expenses shall not include depreciation of the Building,
the costs of tenant improvements, the costs of relocating, reconfiguring or
resizing any parking spaces, real estate brokers' commissions, marketing costs,
interest, the costs of repairing, maintaining or replacing the roof and
structural components of the Building that Landlord is required to maintain
under Section 14.2, the costs of any replacement capital improvements required
to be paid by Landlord under Section 14.1, and any costs incurred by Landlord
triggered by Landlord's development of the remainder of the Property. Tenant's
share of any Operating Expenses attributable only to the Leased Premises,
Parking Area and the Tenant landscape area described in EXHIBIT D shall be 100%
and Tenant's share of any Operating Expenses attributable to the access road
leading to the Leased Premises shall be the percentage from time to time of the
floor area of the Leased Premises to the total floor area of the Leased Premises
and any other buildings on the Property (excluding the outbuildings).
Landlord shall provide, at least thirty (30) days prior to the beginning of
each Lease year, a monthly estimate of amounts payable under this Section 5,
using the cash basis of accounting, for each Lease year based on an estimate
agreed upon by the parties. Tenant shall pay the monthly estimated amount as
additional rent on the first day of each month during the Lease term. Within
fifteen (15) days after the end of each quarter, Landlord shall provide a
statement of the actual Operating Expenses payable by Tenant under this Lease
and a reconciliation based on the monthly estimates paid by Tenant under this
Section 5. Tenant shall pay any difference (underpayment) in a lump sum within
thirty (30) days after receipt of such statement from Landlord. Any overpayment
by Tenant shall be credited toward the monthly rent next coming due. Payments
of Operating Expenses for any partial month shall be prorated based on a 365 day
year.
6. LATE FEE. Any rent or additional rent due under this Lease not paid
after ten (10) days when due shall accrue interest until paid at the rate of
CONFIDENTIAL percent ( %) per annum. In addition to the foregoing, if any
payment of rent or additional rent is not received by Landlord within ten (10)
days after its due date, then Tenant shall pay to Landlord a late charge equal
to CONFIDENTIAL % of such overdue amount. The parties hereby agree that such
late charge represents a fair and reasonable estimate of the costs Landlord will
incur as a result of late payment by Tenant.
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CONFIDENTIAL PORTIONS OF THIS DOCUMENT HAVE BEEN
OMITTED AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION.
7. USE. The Leased Premises shall be used by Tenant for general office
and software, electronic component and/or electronic equipment manufacturing,
fabrication, assembly, engineering, warehousing, storage and related purposes,
and for no other purposes without the prior written consent of Landlord. Tenant
shall comply with all laws relating to the Leased Premises, Parking Area and
landscaping area described in EXHIBIT D or Tenant's use thereof, matters of
record and reasonable rules for the business park, each as may be in effect from
time-to-time. Tenant shall not commit waste or misuse, overload or stress the
Building.
8. LANDLORD'S ACCESS TO LEASED PREMISES. Landlord shall have the right
to enter any part of the Leased Premises at reasonable times and upon reasonable
advance notice, except in the event of an emergency, in which event Landlord
shall provide Tenant with notice as soon as possible thereafter, to Tenant for
the purpose of examining, inspecting or showing the Leased Premises. Landlord
may post on the Leased Premises, the Tenant landscaping area as described in
EXHIBIT D, the Parking Area, and the access road leading to the Leased Premises,
"for lease" and "for sale" signs related to the Building.
9. ALTERATIONS AND IMPROVEMENTS. Tenant may alter, improve, or
reconfigure the space in the Leased Premises with the prior written consent of
Landlord which consent shall not be unreasonably withheld except that the
Landlord's consent shall not be required for non-structural alterations which do
not exceed $ CONFIDENTIAL per item, including without limitation, recarpeting,
interior painting, and office reconfiguration. Landlord may elect to make any
repair, restoration, alteration, improvement or reconfiguration of the Leased
Premises, at Tenant's reasonable cost, that Tenant is authorized or obligated to
make under this Lease if such work involves piercing or compromising the roof
membrane or roof system or cutting or drilling the floor or would affect the
structural components of the Building or the integrity or operation of the
Building or mechanical systems in the Building. Except with respect to
recarpeting, interior painting and office reconfiguration, Tenant shall provide
Landlord with prior written notice of any alteration, improvement,
reconfiguration or repair of the Leased Premises and with as-built plans and
specifications for such work on the completion thereof, if applicable,
including, without limitation, with respect to the applicable improvements
listed on EXHIBIT E. The alterations and improvements listed on EXHIBIT E
attached hereto and incorporated herein by this reference, all of which shall be
performed at Tenant's sole cost, are hereby approved by Landlord. All
contractors shall be subject to Landlord's reasonable approval and will deliver
certificates of insurance evidencing insurance coverage reasonably satisfactory
to Landlord prior to commencing such work. All work will be done in a good and
workmanlike manner in compliance with all laws applicable thereto. The
provisions of this Section 9 shall also apply to significant repairs to be made
by Tenant.
10. LIENS. Tenant shall not cause or permit the creation of any lien or
other encumbrance on the Leased Premises. Tenant shall give Landlord prompt
written notice of any lien or encumbrance against the Leased Premises caused by
Tenant and cause such lien or encumbrance to be discharged within thirty (30)
days after the filing or recording thereof; provided that Tenant may contest
such liens or encumbrances in accordance with applicable law
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CONFIDENTIAL PORTIONS OF THIS DOCUMENT HAVE BEEN
OMITTED AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION.
as long as such contest prevents foreclosure thereof and Tenant causes such lien
or encumbrance to be bonded or insured over as reasonably acceptable to Landlord
within such thirty (30) day period.
11. SIGNS. Tenant shall have the right, at Tenant's cost, to place
identification signs on the Building and at the location where the access road
to the Building intersects Willows Road, N.E. subject to the Landlord's
reasonable approval, which approval shall not be unreasonably withheld. Any
signs placed on the Leased Premises or at Willows Road, N.E. shall be placed
with the understanding and agreement that Tenant will remove same at the
termination of this Lease and repair any damage or injury to the Leased Premises
caused thereby, and if not so removed by Tenant then Landlord may have same so
removed at Tenant's expense. The existing signs on the Building and at the
intersection of Willows Road, N.E. with the Building access road may remain so
long as Tenant desires. Tenant shall obtain, at its expense, all permits and
approvals necessary for any signage erected by Tenant. Landlord, at Landlord's
cost, may replace existing signs, with standard signage for the business park,
with the consent of the Tenant, which consent shall not be unreasonably
withheld.
12. ACCEPTANCE OF LEASED PREMISES. Tenant accepts the Leased Premises in
their present condition. Except as expressly provided in this Lease, Landlord
will not be obligated to make any alterations or improvements to the Leased
Premises, outbuildings or Property based upon this Lease or arising out of this
Lease. Landlord shall not be obligated to provide any services to Tenant except
as provided in this Lease; however, Landlord shall not disrupt, disconnect or
disturb any of the utility or other services provided to the Leased Premises at
the start of the term of this Lease. Landlord disclaims all express or implied
warranties regarding the Building, the Leased Premises or the Property.
13. SURRENDER OF LEASED PREMISES. Furnishings, trade fixtures and
equipment installed by Tenant shall be the property of Tenant. Upon the
expiration or termination of this Lease, Tenant shall surrender possession of
the Leased Premises to Landlord in a broom clean condition, normal wear and tear
excepted. Upon the expiration or termination of the Lease term Tenant shall
remove its trade fixtures and the Retained Equipment described in EXHIBIT F
attached hereto and incorporated herein by this reference from the Leased
Premises and, unless otherwise directed by Landlord, Tenant shall remove all
alterations and improvements made by Tenant to the Leased Premises which have
not been previously approved by Landlord and which are incompatible with general
office use of the Leased Premises. Tenant shall promptly and at its cost repair
or reimburse Landlord for any damage to the Leased Premises caused by Tenant
during the removal of any equipment, materials, systems and fixtures required or
permitted to be removed from the Leased Premises at the end of the Lease term.
In any event, Tenant shall remove, at the Tenant's expense, all manufacturing
equipment upon expiration or termination of the Lease.
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14. MAINTENANCE AND REPAIR.
14.1 TENANT'S OBLIGATIONS. Subject to Sections 20 and 21, excluding
the items which Landlord is required to repair and maintain under Section 14.2,
Tenant shall be responsible for keeping the Leased Premises and the real
property immediately adjacent to the Leased Premises as described in EXHIBIT D
in good condition and repair, including, without limitation, the repair of the
roof membrane and roof leaks subject to Section 14.3, and the painting of the
exterior of the Leased Premises. If Tenant's parking area is changed and the
parties amend EXHIBIT B, the parties shall execute an amendment to EXHIBIT D
reflecting the new landscape maintenance area. At Tenant's option and expense,
Tenant may maintain in their current state all existing landscaped areas on the
Property not required to be maintained by Tenant under the Lease until Landlord
commences development on the Property.
Without limiting the foregoing, if Tenant is required to replace any
Standard Capital Improvement (as hereinafter defined) under this Lease as a
result of the failure or impending failure of, or if it is not reasonably
economically feasible to repair, such Standard Capital Improvement, the costs of
replacement shall be paid by Tenant. However, in the event the term of this
Lease, whether initial or extended, expires (other than as a result of a default
by Tenant or the exercise of Tenant's early termination right under Section 2)
and the useful life of such replacement extends beyond such expiration date,
Landlord shall, upon such expiration, reimburse Tenant for a portion of the cost
of such replacement calculated by allocating the original cost of such
replacement equally over a useful life of ten (10) years. Landlord shall pay
Tenant an amount equal to the portion of such cost allocated to the period
beyond the expiration of the Lease term, with such amount prorated for any
partial Lease year. Tenant shall not be entitled to any such reimbursement upon
the termination of this Lease as a result of Tenant's default or the exercise of
Tenant's early termination option under Section 2. Notwithstanding anything to
the contrary in this Lease, all Standard Capital Improvements for which Landlord
reimburses Tenant shall remain in the Leased Premises at the expiration of the
Lease term. Notwithstanding the foregoing, in no event shall Landlord be
required to reimburse Tenant for the costs of (a) replacing any Standard Capital
Improvements which Tenant failed to maintain or repair in accordance with the
terms of this Lease, (b) any Standard Capital Improvement to be replaced if such
replacement is a result of a material increase after July 12, 1996, of either
the stress on such Standard Capital Improvement or the required capacity of such
Standard Capital Improvement as a result of the use of the Leased Premises for
manufacturing, assembly, fabrication, warehousing or storage purposes, (c)
without limiting Landlord's obligations under Section 14.2, the replacement or
addition of capital improvements other than Standard Capital Improvements, or
(d) the replacement, change or addition of any Standard Capital Improvement for
any reason other than the failure or impending failure thereof or if it is not
reasonably economically feasible to repair such Standard Capital Improvement.
By way of example only, if at the beginning of the third year of the Lease
term Tenant is required to replace the HVAC which has failed with a new HVAC
costing $200,000, and Tenant elects not to exercise its extension option, then
at the end of the initial term of this Lease Landlord would pay Tenant $40,000
of the costs of such HVAC ($20,000 per year multiplied by
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two (2) years of useful life after the expiration of the initial term) and such
payment by Landlord shall not be included as an Operating Expense of the Leased
Premises.
As used herein, "Standard Capital Improvement" shall mean HVAC, mechanical
and electrical systems, plumbing and lighting capital improvements, roof
membrane, elevator, fire and life-safety systems, all at the capacity existing
as of July 12, 1996, or at the capacity necessary for the use of the Leased
Premises for general office use purposes, whichever is greater, and other
capital improvements that would be used by Landlord for another tenant using the
Leased Premises for general office uses after the expiration of this Lease.
14.2 LANDLORD'S OBLIGATIONS. Subject to Sections 20 and 21, Landlord
shall be responsible for keeping in good condition and repair the roof
(excluding roof membrane and roof leaks), the foundation, the structural
condition of any exterior or load-bearing walls, the access road to the Leased
Premises and, only during any construction on any of Tenant's parking area (as
the same may be relocated, resized or reconfigured as provided herein), such
parking area. Notwithstanding the foregoing, Landlord shall not be responsible
for any repairs, replacements, additions or changes to any of the foregoing
which (a) are a result of a material increase after July 12, 1996, of either the
stress thereon or the required capacity thereof as a result of the use of the
Leased Premises for manufacturing, assembly, fabrication, warehousing or storage
purposes, or (b) are required in connection with any laws or insurance
requirements effective after July 12, 1996, which would not be applicable to the
use of the Leased Premises for general office use or for Tenant's use of the
Leased Premises as of July 12, 1996. As of July 12, 1996, Tenant's use of the
Leased Premises consists of the design, light manufacturing, light fabrication,
light assembly, service, repair, inventory and product storage of software,
programming systems and electronic equipment, materials handling and marking
equipment, and accessories; general office; and engineering. Landlord shall pay
its portion of the Standard Capital Improvements as described in Section 14.1.
14.3 PERFORMANCE. Except as expressly provided in Sections 14.1 and
14.2, each party's maintenance and repair obligations are at its own cost except
as provided with respect to Operating Expenses, and except as otherwise
provided, include necessary replacements and additions, and apply whether the
repair, replacement or addition is large or small, foreseen or unforeseen, and
include any modifications or additions to the applicable items or areas that
each party is required to maintain necessary to comply with any laws or
insurance requirements now or hereafter enacted or to correct defects. Tenant
has the exclusive right to perform its maintenance and repair obligations and to
make alterations and improvements under Section 9, except that Landlord can
elect to perform, at Tenant's expense, any maintenance, repair, alteration or
improvement which affects the roof membrane or roof system, any structural
components, any mechanical systems or involves the cutting or drilling of any
floor. Unless the Landlord is contesting any of its repair or maintenance
obligations in good faith, Tenant shall have the right to make any repairs or
perform Landlord's other obligations under Section 14.2 if Landlord does not
commence any repair or maintenance within thirty (30) days after Tenant delivers
to Landlord written notice of the need for such repair or maintenance and Tenant
may deduct the reasonable cost of such repair or maintenance so performed by
Tenant from the next rent payment(s) due pursuant to this Lease.
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15. TAXES. Tenant shall, within ten (10) days after demand by Landlord
but in no event prior to fifteen (15) days before the date when due (and not as
Operating Expenses), reimburse Landlord for all taxes and governmental fees and
charges of any nature, assessments, special assessments and local improvement
district charges incurred by Landlord in the operation or ownership of the
Leased Premises, the Tenant landscaping area as described in EXHIBIT D, the
Parking Area and the access road leading to the Leased Premises and attributable
to the Lease term. If any such amounts are assessed against the Leased
Premises, the Parking Area, the Tenant landscaping area as described in EXHIBIT
D and the Property, they will be equitably apportioned by Landlord as described
in Section 5. Notwithstanding the foregoing, Tenant shall not be required to
pay Landlord's privilege and income taxes or any franchise fees or any
assessments, special assessments or local improvement district charges imposed
against the Leased Premises, the Parking Area or the Tenant landscaping area as
described in EXHIBIT D triggered by Landlord's development of the remainder of
the Property. Tenant shall pay all taxes and other governmental charges
relating to Tenant's use of the Property including all personal property taxes.
16. DEFAULT/REMEDIES.
16.1 TENANT DEFAULT. Tenant shall be in default, if Tenant (i) fails
to pay any installment of rent, additional rent or other amounts when due under
this Lease, except that Tenant shall be allowed a ten (10) day opportunity to
cure a default for nonpayment of rent, (ii) fails to perform any other material
term or covenant in this Lease, (iii) abandons the Property (but Tenant shall
not be deemed to abandon the Property and shall not be in breach of this Lease
if it continues to pay all rent when due and is not in breach of any of its
obligations under this Lease), (iv) makes an assignment for the benefit of
creditors, commences or is the subject of any bankruptcy, reorganization or
insolvency proceeding which is not dismissed within sixty (60) days, has a
receiver appointed for substantially all of Tenant's property, (v) breaches any
of the assignment, subletting or transfer provisions of this Lease, or (vi)
fails to maintain any insurance required by the terms of this Lease; provided,
however, that the defaults specified in subsections (ii) and (v) above shall not
constitute defaults if Tenant cures the default within thirty (30) days (or
longer if the default cannot reasonably be cured in such thirty (30) day period
and Tenant commences such cure within such applicable period and thereafter
diligently pursues such cure) and the default specified in subsection (vi) shall
not constitute a default if Tenant cures such default within ten (10) days of
written notice from Landlord.
In the event of any default under this Lease by Tenant, Landlord may at any
time thereafter after all cure periods expressly set forth herein have passed,
with or without notice or demand and without limiting Landlord in the exercise
of any right or remedy which Landlord may have by reason of such default:
a. Terminate Tenant's right to possession of the Leased Premises by any
lawful means, in which case this Lease shall terminate and Tenant shall
immediately surrender possession of the Leased Premises to Landlord. In
such event Landlord shall be entitled to recover from Tenant all damages
incurred by Landlord by reason of Tenant's default including, but not
limited to, the reasonable cost of recovering possession of the Premises;
reasonable expenses of reletting
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(except for any tenant improvement costs ("Tenant Improvement Costs") which
are not commercially reasonable to relet the Leased Premises and any Tenant
Improvement Costs in excess of the TI Cap Amount (as hereinafter defined)),
reasonable attorneys' fees, and any real estate commission actually paid;
and the difference at the time of award by the court having jurisdiction
thereof (discounted using the 90-day U.S. Treasury bill rate at the time of
the award) of the amount by which the unpaid rent, additional rent and
other charges for the balance of the term after the time of such award
exceeds the amount of such rental loss for the same period that Tenant has
proven could be reasonably avoided.
b. Maintain Tenant's right to possession in which case this Lease shall
continue in effect. In such event Landlord shall be entitled to enforce
all of Landlord's rights and remedies under this Lease, including the right
to recover the rent, additional rent and other amounts as they become due
hereunder, and Landlord shall use commercially reasonable efforts to relet
the Leased Premises; provided that any proposed tenant shall meet
Landlord's reasonable leasing criteria. Landlord shall be entitled to
recover from Tenant all damages incurred by Landlord by reason of Tenant's
default including the reasonable cost of recovering possession of the
Leased Premises; reasonable expenses of reletting (except for any Tenant
Improvement Costs which are not commercially reasonable to relet the Leased
Premises and any Tenant Improvement Costs in excess of the TI Cap Amount),
reasonable attorneys' fees, and any real estate commission actually paid.
If Landlord relets the Leased Premises as provided herein and the net rent
received by Landlord in connection therewith is less than the rent and
additional rent required to be paid under this Lease, Tenant shall pay
Landlord the amount of any deficiency upon demand from Landlord from
time-to-time.
c. Pursue any other remedy now or hereafter available to Landlord at law or in
equity. No remedy hereunder
shall be deemed to be exclusive but shall, tointegrate, replace and supersede all previous communications,
representations or agreements between the extent possible, be cumulative with all other remedies at law or in equity.
d. The Consumer Price Index referenced herein shall mean the Consumer Price
Index for All Urban Consumers (Revised Series) (CPI-U) All Items, U.S. City
Average (1982-1984 = 100), or if the same is unavailable, a comparable
substitute therefor acceptable to Landlord and Tenant.
e. As used herein, "TI Cap Amount" shall mean the product of the Base Amount
(as hereinafter defined) and the following percentages: (a) if eight (8) or more
years remain in the term of the Lease as of Tenant's default, CONFIDENTIAL %,
(b) if more than six (6) but less than eight (8) years remain in the term of the
Lease as of Tenant's default, CONFIDENTIAL percent ( %), (c) if more than four
(4) but less than six (6) years remain in the term of the Lease as of Tenant's
default, CONFIDENTIAL percent ( %), (d) if more than two (2) but less than four
(4) years remain in the term of the Lease as of Tenant's default, CONFIDENTIAL
percent ( %), and (e) if less than two (2) years remain in the term of the
Lease as of Tenant's default, CONFIDENTIAL percent ( %). For the purposes of
the foregoing, the term of the Lease shall include the term of any extension
period for which Tenant has exercised its extension option under this Lease. As
used herein, "Base Amount" shall mean $ CONFIDENTIAL per square foot, with such
amount increased through the date of such reletting by increases in the Consumer
Price Index from the commencement date of this Lease.
16.2 LANDLORD DEFAULT. Landlord shall be in default under this Lease
if within thirty (30) days (or such longer period as may be reasonably necessary
to cure the default so long as Landlord diligently is pursuing a cure) following
written notice to Landlord by Tenant specifying any material breach of
Landlord's obligations under this Lease such breach remains uncured. If the
Landlord's default is not cured within the applicable cure period, then Tenant
shall have the option to cure the Landlord's default without further notice to
Landlord. If Tenant elects to cure, then all actual, reasonable sums paid, and
reasonable costs and expenses incurred
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by Tenant (including reasonable Tenant relocation costs) in curing Landlord's
default, including without limitation, reasonable attorneys' fees, shall be paid
by Landlord to Tenant on demand, and if not paid Tenant may deduct the same from
the next sums due Landlord from Tenant under this Lease, until all such costs
and expenses are repaid by Landlord in full. Tenant's remedies under this
Section 16.2 are in addition to any other legal and equitable remedies to which
Tenant may be entitled under applicable law other than the termination of this
Lease.
17. INDEMNITY. Except for the indemnified party's negligence, Tenant
agrees to indemnify, defend and hold harmless Landlord and its agents, employees
and contractors, from and against any and all losses, liabilities, damages,
costs and expenses (including attorneys' fees) resulting from claims by third
parties for injuries to any person and property damage arising from the
negligence or willful misconduct of Tenant or its agents, employees, contractors
and subtenants occurring in or about the Leased Premises, the access road
leading to the Leased Premises, the Parking Area or the landscaping area
described in EXHIBIT D or the use of any of the outbuildings. Except for the
indemnified party's negligence, Landlord agrees to indemnify, defend and hold
harmless Tenant and its agents, employees and contractors, from and against any
and all losses, liabilities, damages, costs and expenses (including attorneys'
fees) resulting from claims by third parties for injuries to any person and
property damage arising from the negligence or willful misconduct of Landlord or
its agents, employees or contractors occurring in or about the Leased Premises,
the access road leading to the Leased Premises, the Parking Area or the
landscaping area described in EXHIBIT D. This Section 17 shall survive the
termination of this Lease.
18. INSURANCE.
18.1 TENANT'S INSURANCE. During the term of this Lease, Tenant shall
be responsible for insuring its property on the Leased Premises with insurance
for the full replacement cost of Tenant's property. During the term of this
Lease, Tenant shall maintain commercial general liability insurance covering
Tenant's occupancy of the Leased Premises in the amount of $ CONFIDENTIAL per
occurrence and $ CONFIDENTIAL in the aggregate with an additional umbrella
amount of not less than $ CONFIDENTIAL in the aggregate with no per occurrence
limit. All such insurance shall provide primary coverage to Landlord and shall
be issued by an insurance company reasonably acceptable to Landlord. Landlord
may from time-to-time require commercially reasonable increases in any such
insurance limits consistent with comparable properties in the area. The
insurance carried by Tenant under this Section 18.1 may not be canceled without
thirty (30) days' prior written notice to Landlord. Landlord and Landlord's
property manager shall be named as additional insureds. Upon request, Tenant
shall furnish Landlord a certificate of insurance evidencing compliance with the
terms of this Section 18.
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18.2 LANDLORD'S INSURANCE. Landlord shall maintain all risk property
insurance insuring the full replacement cost of the Leased Premises, with no co-
insurance penalty, and rent loss insurance in an amount reasonably determined by
Landlord to cover the loss of rents under this Lease, general liability
insurance, boiler and machinery insurance and such other insurance as Landlord
may elect acting in a commercially reasonable manner, the costs of which shall
be Operating Expenses. The Leased Premises may be included in a blanket policy
(in which case the cost of such insurance allocable to the Leased Premises will
be reasonably determined by Landlord based upon the insurer's cost
calculations).
19. WAIVER OF SUBROGATION. To the extent permitted by law, neither party
nor its officers, directors, employees, managers, agents, invitees or
contractors shall be liable to the other for loss or damage to property or
business interests from any risk reasonably coverable by insurance (including,
without limitation, business interruption or loss of rents), including loss or
damage arising from such party's negligence, and each party waives any claims
against the other party, and its officers, directors, employees, managers,
agents, invitees and contractors for such loss or damage. The failure of a
party to insure its property shall not void the foregoing waiver. The insurance
obtained by Landlord and Tenant shall include waivers of subrogation by the
insurers and all rights based upon an assignment from its insured, against
Landlord or Tenant, their officers, directors, employees, managers, agents,
invitees and contractors, in connection with any loss or damage thereby insured
against.
20. DAMAGE OR DESTRUCTION. In the event the Leased Premises are damaged
to such an extent as to render them untenantable in whole or in substantial
part, or are destroyed, Landlord shall restore the Leased Premises as nearly as
practicable to the condition immediately prior to such damage or destruction,
unless the Landlord deems that it is not economically feasible to restore the
Leased Premises. If the damage is covered by insurance the restoration of the
Leased Premises shall be deemed economically feasible. After the happening of
any such event of damage or destruction, Tenant shall give Landlord immediate
written notice thereof. Landlord shall have twenty (20) days after the date of
such notification to notify the Tenant in writing of Landlord's intentions to
repair or rebuild the Leased Premises, or the part so damaged. If Landlord
elects to repair or rebuild the Leased Premises, Landlord shall commence and
complete promptly the work of repairing or rebuilding without unnecessary delay,
and during such period the rent of the Leased Premises shall be abated in the
same ratio that the portion of the Leased Premises rendered for the time being
unfit for occupancy shall bear to the whole of the Leased Premises. If Landlord
shall fail to give notice of its decision to rebuild, Tenant shall have the
right to declare this Lease terminated by written notice served upon the
Landlord. In the event of damage or destruction of CONFIDENTIAL percent ( %)
or more of the replacement cost of the Leased Premises during the last year of
the then-current Lease term, either party may terminate the Lease upon thirty
(30) days written notice to the other party.
21. CONDEMNATION. If any part of the Leased Premises or Parking Area
should be taken for any public or quasi-public use under governmental law,
ordinance, or regulation, or by right of eminent domain, or by private purchase
in lieu thereof (a "Taking" or "Taken"), and the Taking would prevent or
substantially interfere with Tenant's use of the Leased Premises, either
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party may terminate this Lease upon thirty (30) days' written notice and rent
shall be apportioned as of the date of title vesting in such proceeding or
purchase. If part of the Leased Premises shall be Taken, and this Lease is not
terminated as provided above, the rent payable hereunder during the unexpired
lease term shall be reduced to such extent as may be fair and reasonable under
the circumstances. In the event of any such Taking, Landlord shall be entitled
to receive the entire price or award from any such Taking without any payment to
Tenant. Nothing contained herein shall be deemed to give Landlord any interest
in or to require Tenant to assign to Landlord any separate award made to Tenant
for the taking of personal property or fixtures belonging to Tenant or for the
interruption of or damage to Tenant's business or for Tenant's moving expenses.
22. QUIET ENJOYMENT. If Tenant shall perform all of the covenants and
agreements herein, Tenant shall, subject to the terms of this Lease, at all
times during the Lease term, have peaceful and quiet enjoyment of the Leased
Premises against any person claiming by, through or under Landlord. Any
development or construction activity undertaken by Landlord on the Property
shall be conducted in a manner that does not unreasonably interfere with
Tenant's business. Landlord shall undertake all reasonable efforts to minimize
the amount of dust and noise created by any development or construction activity
on the Property, and Landlord shall pay for cleaning and removing construction
dust from the Leased Premises and the landscaping maintained by Tenant. Landlord
shall not construct any building or other structure east of the Building in the
area designated on EXHIBIT G attached hereto and incorporated herein by this
reference although parking may be located in that area.
The restriction on construction within the area designated on EXHIBIT G
shall inure to the benefit of Tenant and Tenant's affiliates, but shall
terminate in the event of an assignment of the entire Lease or subletting of the
entire Leased Premises.
23. HAZARDOUS SUBSTANCES. Except for Hazardous Substances used for
ordinary cleaning and office purposes and for the uses permitted under Section 7
of this Lease, in each case used in compliance with all applicable laws and
regulations, Tenant shall not transport, store, use, generate, manufacture or
release any Hazardous Substances on any part of the Property or permit the
foregoing to occur. Tenant, at its sole cost and expense, shall operate its
business in the Leased Premises, Parking Area and landscaping area in EXHIBIT D
in compliance with all Environmental Laws and shall promptly remediate any
Hazardous Substances released on or from the Property by Tenant, its agents,
employees, contractors, subtenants or invitees. If the release of any Hazardous
Substance on the Property caused or permitted by Tenant, its agents, employees,
contractors, subtenants or invitees, whether or not permitted by this Section
23, results in any contamination, damage or injury to the Property, the
environment or human health, Tenant shall promptly take all actions at its sole
expense as are necessary to return the Property to the condition existing prior
to the release of any such Hazardous Substance and as may be required by
Environmental Laws.
Tenant shall indemnify, defend, and hold Landlord harmless from and against
any and all losses (including, without limitation, diminution in value of the
Property and loss of rental income from the Leased Premises), claims, demands,
actions, suits, damages, expenses (including, without limitation, remediation,
corrective action, or cleanup expenses), and costs
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(including, without limitation, actual attorneys' fees, consultant fees or
expert fees) which are brought or recoverable against, or suffered or incurred
by Landlord as a result of release of Hazardous Substances that Tenant is
required to remediate as provided above or any breach of the obligations under
this Section 23 by Tenant, its agents, employees, contractors, subtenants or
invitees, regardless of whether Tenant had knowledge of such noncompliance. This
Section 23 shall survive any termination of this Lease.
For purposes of this Section, the term "Hazardous Substances" shall include
substances now or hereafter designated as hazardous or toxic under any
applicable Federal, State or local law, regulation, ordinance or other
enactments of any governmental agency ("Environmental Laws"), including, without
limitation, petroleum, asbestos and PCB's.
24. RIGHT OF FIRST REFUSAL. So long as Tenant is not in material default
of the terms of this Lease and there has not been at that time a material
adverse change in the financial condition of Tenant as reflected in Tenant's
financial statements, Landlord shall deliver to Tenant written notice of the
speculative space to be constructed for lease in any building containing any
speculative space (as opposed to build to suit) to be constructed on the
Property no later than before Landlord first offers such space to any other
third party (the "Notice of Availability") and Tenant shall have an exclusive
right, for a period of sixty (60) days from the receipt of the Notice of
Availability, to negotiate a lease of space in such building which shall be
negotiated in good faith by Landlord and Tenant. Any such lease shall be at
market rent and on market terms and conditions and shall be for no less than the
greater of CONFIDENTIAL percent ( %) of the speculative space in such building
or CONFIDENTIAL square feet.
This benefit shall inure to the benefit of Tenant and Tenant's affiliates,
but shall terminate in the event of an assignment or subletting of an aggregate
of CONFIDENTIAL percent ( %) or more of the Building by Tenant (excluding
assignments or subletting to its affiliates).
25. ESTOPPEL CERTIFICATES. Each party hereto shall, within ten (10) days
of request from the other party or its lender, at any time and from time to time
execute, acknowledge and deliver to such party a written statement, in the form
generally acceptable to institutional purchasers or lenders certifying as
follows: that this Lease is unmodified and in full force and effect (or if
there has been modification thereof, that the same is in full force and effect
as modified and stating the nature thereof); that to the best of its knowledge
there are no uncured defaults on the part of the other party hereto (or if any
such default exists, the specific nature and extent thereof); the date to which
any rents and other charges have been paid in advance, if any; and such other
matters as are typically contained in such certificates. If a party does not
deliver the written statement within the ten (10) day period, the statements
contained in the requested statement shall be deemed to be correct and
conclusive upon the party who is to respond.
26. HOLDOVER BY TENANT. If Tenant remains in possession of the Leased
Premises after the expiration of this Lease, without the consent of the
Landlord, Tenant shall be deemed to be occupying the Leased Premises as a month-
to-month Tenant, subject to the terms of this Lease. During such tenancy,
Tenant shall pay to Landlord each month one hundred twenty percent (120%) of the
rent due during the last month of the expired Lease term.
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27. SUBORDINATION/LENDER PROTECTION. Tenant hereby agrees to subordinate
this Lease to any mortgage, deed of trust or other security instrument in favor
of an institutional mortgagee, beneficiary or other secured party ("Lender")
covering the Leased Premises, provided that, simultaneously with the execution
thereof, the Lender executes in favor of Tenant Lender's current standard non-
disturbance, attornment and subordination agreement, which agreement shall
provide that the tenancy and other rights of Tenant hereunder shall not be
disturbed so long as Tenant is not in default under this Lease and which
agreement shall not materially and adversely affect Tenant's rights under this
Lease. For the purposes of the foregoing, such an agreement shall not be deemed
to materially or adversely affect Tenant's rights under this Lease if it
provides that (a) insurance or condemnation proceeds will be applied as provided
in such mortgage, deed of trust or security instrument, (b) without affecting
Tenant's rights against Landlord under this Lease, Lender is not liable for any
defaults or offsets under this Lease occurring prior to the date that Lender
takes title to the Leased Premises and/or (c) without affecting Tenant's rights
against Landlord under this Lease, Lender's liability under the Lease shall be
limited to its interest in the Property.
28. BROKERAGE FEES/COMMISSIONS. Each party represents and warrants that
it has dealt with no broker, agent or other person in connection with this Lease
and that no broker, agent or other person brought about this transaction, and
each party shall defend, indemnify and hold the other harmless from and against
any claims by any other broker, agent or other person claiming a commission or
other form of compensation by virtue of having dealt with the indemnitor with
regard to this Lease.
29. TRANSFERS OF LANDLORD'S INTEREST. Upon the transfer of the Leased
Premises by Landlord, Landlord shall have no liability for obligations
thereafter accruing under the Lease provided that its obligations are assigned
and assumed by Landlord's successor; Landlord's liability for obligations prior
to the transfer will not be affected.
30. NOTICE. Any notice, demand, request or consent that the parties
hereto desire or is required to be given by this Lease shall be deemed
sufficient if sent by United States first class mail, facsimile, or delivered
via messenger or overnight delivery service to the following:
LANDLORD: CONFIDENTIAL
CONFIDENTIAL
CONFIDENTIAL
Attention: CONFIDENTIAL
TENANT: Data I/O Corporation
10525 Willows Road N.E.
P.O. Box 97046
Redmond, WA 98073-9746
Attention: Chief Financial Officer
cc: General Counsel
CONFIDENTIAL Lease (07/12/96)
Page 150
CONFIDENTIAL PORTIONS OF THIS DOCUMENT HAVE BEEN
OMITTED AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION.
Notices shall be effective upon receipt if delivered by facsimile,
messenger service or overnight delivery and upon the third day following deposit
if by United States first class mail.
31. SEVERABILITY. If any term, covenant, or provision of this Lease is
held by a court of competent jurisdiction to be void, invalid, or unenforceable,
the remainder of the provisions shall continue in full force and effect and
shall in no way be affected, impaired or invalidated.
32. CAPTIONS. The captions used in this Lease shall have no effect on its
interpretation.
33. ASSIGNMENTS AND SUBLEASES. Without Landlord's prior written consent,
Tenant shall not voluntarily or involuntarily assign this Lease or sublease the
Leased Premises or any part thereof or mortgage, pledge, or hypothecate its
leasehold interest. Landlord retains the absolute right to withhold its consent
to any assignment of this Lease other than to Tenant's affiliates. With respect
to subletting, Landlord's consent shall not be unreasonably withheld. It shall
be reasonable for Landlord to withhold its consent if the transferee's financial
condition is not acceptable to Landlord. For purposes of this Section 33, a
transfer of the ownership interests of Tenant shall be deemed an assignment of
this Lease unless Tenant's ownership interests are publicly traded.
Notwithstanding the above, Tenant may assign or sublet the Leased Premises, or
any part thereof, to any entity controlling Tenant, controlled by Tenant or
under common control with Tenant, without the prior consent of Landlord. No
subletting shall release Tenant from any liability under this Lease. Tenant
shall be entitled to any excess income from any subletting. Each sublease shall
be for not less than CONFIDENTIAL square feet of space. If Tenant defaults
under this Lease, Landlord can accept rent directly from any sublessee. Tenant
shall be relieved from all further liability under this Lease after the date of
an assignment of the Lease made by Tenant in accordance with the terms of this
Section 33, other than an assignment to an affiliate of Tenant (in which event
Tenant shall not be released from liability under this Lease). If at any time
Tenant desires to assign or sublet (other than to an affiliate of Tenant) space
in the Leased Premises, whether in one or more transactions, which would cause
the total space subleased or assigned by Tenant to exceed CONFIDENTIAL percent
( %) of the Leased Premises, then Landlord may, by written notice to Tenant
within thirty (30) days after receipt of Tenant's notice requesting Landlord's
consent to such assignment or sublease, terminate this Lease with respect to the
space described in Tenant's notice (and no other space) and may, if it so
elects, directly lease such space to the proposed transferee.
34. ENTIRE AGREEMENT. This Lease together with the Exhibits attached
hereto comprise the entire agreement and understanding of the parties hereto with respect to the subject
matter hereof, and replace and supersede all prior
or contemporaneouswhether written or oral agreements and understandings.
35. AMENDMENTS OR MODIFICATIONS.oral.
9. Governing Law. This Lease may not be varied or modified
except by written instrument signed by all parties.
CONFIDENTIAL Lease (07/12/96)
Page 151
CONFIDENTIAL PORTIONS OF THIS DOCUMENT HAVE BEEN
OMITTED AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION.
36. BINDING ON SUCCESSORS. Subject to the provisions of Section 33, this
Lease shall inure to the benefit of and be binding upon the heirs,
administrators, executors, successors and assigns of the parties.
37. ATTORNEYS' FEES. In any proceeding brought to enforce this Lease or
to determine the rights of the parties under this Lease, the most prevailing
party shall be entitled to collect, in addition to any judgment awarded by a
court, a reasonable sum as attorneys' fees, and all costs and expenses incurred
in connection with such a lawsuit, including attorneys' fees, expenses of
litigation, and costs of appeal. For purposes of this Lease, the most
prevailing party shall be that party in whose favor final judgment is rendered.
The term "proceeding" shall mean and include arbitration, administrative,
bankruptcy, and judicial proceedings including appeals.
38. COUNTERPARTS. This Lease may be executed simultaneously in
counterparts, each of which shall be an original, but all of which together
shall constitute one and the same instrument.
39. NO MERGER. The voluntary or other surrender of this Lease by Tenant,
or a mutual cancellation thereof, or a termination by Landlord, shall not be a
merger of the sublease, Lease or title to the Leased Premises, and shall, at the
option of Landlord, terminate all or any existing subtenancies or may, at the
option of Landlord, operate as an assignment to Landlord of any or all of such
subtenancies.
40. GOVERNING LAW. This LeaseAgreement shall be governed by, and construed in
accordance with, the laws of the State of Washington without regard to its
conflicts of law rules. The venue for any cause of action related to this Lease shall be
the state and federal courts sitting in King County, Washington.
41. NO WAIVER. No waiver by either party of any provision hereof shall be
deemed a waiver of any other provision hereof or of any subsequent breach by the
other party of the same or any other provision. Any waiver by either party
shall be in writing.
42. EASEMENTS. Landlord reserves to itself the right, from time to time,
to grant such easements, rights and dedications that Landlord deems necessary or
desirable, and to cause the recordation of Parcel Maps and restrictions, so long
as such easements, rights, dedications, Parcel Maps and restrictions do not
unreasonably interfere with the use of the Leased Premises by Tenant. Tenant
shall sign any of the aforementioned documents upon request of Landlord.
43. TIME OF ESSENCE. Time is of the essence with respect to the
obligations to be performed under this Lease.
44. NO OTHER TERMINATION. Except as expressly provided in this Lease,
this Lease shall not be terminable by Tenant for any reason, nor shall Tenant be
entitled to any abatement or reduction in the rent payable under this Lease. The
provisions of Sections 9, 14, 20 and 21 supersede any lawlaws principles to the contrary, regarding the matters set forth therein.
CONFIDENTIAL Lease (07/12/96)
Page 152
CONFIDENTIAL PORTIONS OF THIS DOCUMENT HAVE BEEN
OMITTED AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION.
45. LIMITATION ON LANDLORD'S LIABILITY. Tenant agrees that its recourse
against Landlord for a default or breach by Landlord of any of its obligations
under this Leaseand shall be limited to Landlord's interest in the Property or if
Landlord has sold or transferred the Property,bind and inure to the
amountbenefit of the net proceeds
of such sale or transfer received by Landlord; provided that if Landlord's
interest in the Property or the amountheirs, executors, personal representatives, successors and
assigns of the net proceeds is less than
$ CONFIDENTIAL, Tenant shallparties hereto.
IN WITNESS WHEREOF, the undersigned have recourse against Landlord's assets for such
default or breach up to a maximum amount equal to the $ CONFIDENTIAL less
Landlord's interest in the Property or the amountexecuted this Agreement as of the
net proceeds. Except
as expressly provided herein, no recourse may be had against Landlord's assets
or other property for any default or breach by Landlord under this Lease.
LANDLORD: CONFIDENTIAL
By _________________________
Its ___________________
TENANT:date first above written.
DATA I/O CORPORATION OPTIONEE: Norris R. Hall
Page 112
By _________________________
Its ___________________
CONFIDENTIAL Lease (07/12/96)
Page 153
CONFIDENTIAL PORTIONS OF THIS DOCUMENT HAVE BEEN
OMITTED AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION.
STATE OF WASHINGTON )
) ss.
COUNTY OF KING )
On this _____ day_______________________ ________________________
Printed Name ____________________ Printed Name _____________________
Title _________________
In the event of __________________, 1996, before me, a Notary Public
in and forconflict between the State of Washington, duly commissioned and sworn, personally
appeared ________________________________________________________, to me known
to be the ___________________________terms of the corporation named inFirst Amendment and which
executed the
foregoing instrument, and she/he acknowledged to me that she/he
signed the same as the free and voluntary act and deed of said corporation for
the uses and purposes therein mentioned, being authorized so to do.
WITNESS my hand and official seal the date and year in this certificate
above written.
---------------------------------------------
Notary Public in and for the State of
Washington, residing at
---------------------------------------------
STATE OF _______________ )
) ss.
COUNTY OF _______________ )
On this _____ day of __________________, 1996, before me, a Notary Public
in and for the State of _______________, duly commissioned and sworn, personally
appeared ________________________________________________________, to me known
to be the ___________________________ of the corporation named in and which
executed the foregoing instrument, and she/he acknowledged to me that she/he
signed the same as the free and voluntary act and deed of said corporation for
the uses and purposes therein mentioned, being authorized so to do.
WITNESS my hand and official seal the date and year in this certificate
above written.
---------------------------------------------
Notary Public in and for the State of
_______________, residing at
---------------------------------------------
CONFIDENTIAL Lease (07/12/96)
Page 154
CONFIDENTIAL PORTIONS OF THIS DOCUMENT HAVE BEEN
OMITTED AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION.
EXHIBIT A
REAL PROPERTY
Legal Description of Property
CONFIDENTIAL Lease (07/12/96)
Page 155
CONFIDENTIAL PORTIONS OF THIS DOCUMENT HAVE BEEN
OMITTED AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION.
EXHIBIT B
PARKING AREA
Map of Parking Area
CONFIDENTIAL Lease (07/12/96)
Page 156
CONFIDENTIAL PORTIONS OF THIS DOCUMENT HAVE BEEN
OMITTED AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION.
EXHIBIT C
BUILDING SITE PLAN
Map of Building Site Plan
CONFIDENTIAL Lease (07/12/96)
Page 157
CONFIDENTIAL PORTIONS OF THIS DOCUMENT HAVE BEEN
OMITTED AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION.
EXHIBIT D
LEASED PREMISES AND TENANT LANDSCAPE MAINTENANCE AREA
Map of Leased Premises and Tenant Landscape Maintenance Area
CONFIDENTIAL Lease (07/12/96)
Page 158
CONFIDENTIAL PORTIONS OF THIS DOCUMENT HAVE BEEN
OMITTED AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION.
EXHIBIT E
ALTERATIONS AND IMPROVEMENTS
Recarpet first and second floor
Remove and relocate internal offices and workstations on first, second and third
floors
Refurbish remaining restrooms (second and third floors)
Refurbish food prep area (flooring and cabinets)
or remove from Building if food services facilities developed on the
Property, and reconfigure area for open work station environment
Replace phone switch
Replace and upgrade security system
Replace ceiling tiles
Interior painting various locations
CONFIDENTIAL Lease (07/12/96)
Page 159
CONFIDENTIAL PORTIONS OF THIS DOCUMENT HAVE BEEN
OMITTED AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION.
EXHIBIT F
RETAINED EQUIPMENT
Cafeteria Equipment
3 Refrigerators in food preparation area
Salad bar
Serving bar
2 Ovens
Hotplate
Ice machine
Meat slicer
Microwave oven in food preparation area
Miscellaneous counter equipment
2 Refrigerators in lunch room/meeting area
Espresso machine
Cash register
Manufacturing Air Compressor
Vacuum Pump
50Hz Generator
2 Thermatrons
Telephone System (excluding interior wiring)
Dytel Automated Answering System
Security System (excluding interior wiring and permanently installed card
readers and door strikes)
Synchronized Clock System
Trash Compactor
Supplier owned Equipment, including but not limited to,
Vending machines
3 microwave ovens
Ice cream freezer
Soft drink dispenser
Drink refrigeration cases
CONFIDENTIAL Lease (07/12/96)
Page 160
CONFIDENTIAL PORTIONS OF THIS DOCUMENT HAVE BEEN
OMITTED AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION.
Computer Network Hubs/Routers (excluding interior wiring)
Computer Room Equipment and Halon System
CONFIDENTIAL Lease (07/12/96)
Page 161
CONFIDENTIAL PORTIONS OF THIS DOCUMENT HAVE BEEN
OMITTED AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION.
EXHIBIT G
RESTRICTED BUILDING AREA
Map of Restricted Building Area
CONFIDENTIAL Lease (07/12/96)
Page 162
CONFIDENTIAL PORTIONS OF THIS DOCUMENT HAVE BEEN
OMITTED AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION.
EXHIBIT 10.33
December 20, 1996
CONFIDENTIAL
CONFIDENTIAL
CONFIDENTIAL
CONFIDENTIAL
CONFIDENTIAL
VIA Facsimile ( ) CONFIDENTIAL and U.S. Mail
RE: Fin/Admin/Real Estate; Headquarters
Dear CONFIDENTIAL:
This letter confirms the following terms of an amendment (the "First
Amendment") and extension of the Closing Date under that certain Purchase and
Sale Agreement, (the "Agreement") dated July 9, 1996, by and between CONFIDENTIAL
("Purchaser") and Data I/O Corporation ("Seller") :
1. All capitalized terms used in the First Amendment shall have the same
meaning as in the Agreement;
2. Purchaser shall have the option to extend the Closing Date for the
following periods: to a date no later than January 9, 1997 ("Extension
Period 1"); January 19, 1997 ("Extension Period 2"); February 18, 1997
("Extension Period 3"); and March 20, 1997 ("Extension Period 4")
(each an "Extension Period"); provided, however, the Closing Date
shall in no event be later than CONFIDENTIAL( ) days from the date
Purchaser obtains SEPA, Concurrency and Design Review Board Approval,
unless otherwise agreed in writing;
3. Purchaser shall notify Seller in writing prior to any Extension Period
of its intention to extend the Closing Date for such Extension Period.
Extension Period 1 shall not require any payments by Purchaser.
Extension Periods 2 and 3 require the payment to Seller directly of $
CONFIDENTIAL and $ CONFIDENTIAL to the Escrow Agent concurrently with
Purchaser's notice of its intention to extend the Agreement. Extension
Period 4 requires the payment to Seller directly of $ CONFIDENTIAL,
with no additional amounts payable to the Escrow Agent. Each such
payment is referred to herein as an "Extension Payment". Extension
Payments paid to Seller will only be refundable to Purchaser in the
event of a termination of the Agreement by Purchaser pursuant to
Section 8.2(g) of the Agreement or material breach of the Agreement by
Seller after notice thereof from Purchaser and with reasonable
opportunity to cure, but will be creditable to the Purchase Price if
the transaction closes by the Closing Date. Extension Payments paid
to the Escrow Agent will be creditable to the Purchase Price
Page 163
CONFIDENTIAL PORTIONS OF THIS DOCUMENT HAVE BEEN
OMITTED AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION.
if the transaction closes by the Closing Date, but will be refundable
to Purchaser only if the transaction fails to close by the Closing
Date because Purchaser is unable to obtain SEPA, Concurrency or Design
Review Board Approval or in the event of a termination of the
Agreement by Purchaser pursuant to Section 8.2(g) of the Agreement or
material breach of the Agreement by Seller after notice thereof from
Purchaser and with reasonable opportunity to cure; otherwise, such
amounts shall be payable to Seller;
4. The Phase II Contingency Period is hereby extended to the Closing
Date, as the same may be extended pursuant to the terms of this First
Amendment;
5. The First Amendment shall be effective as of December 20, 1996; and
6. By returning a copy of this letter as described below, Purchaser
hereby exercises its option to extend the Closing Date to a date no
later than January 9, 1997.
7.control. All other terms and conditions of
the Agreement shall remain in full force and effect.
IfExecuted by authorized representatives of the terms described in this letter are acceptable to CONFIDENTIAL,
please have an authorized representativeparties as of CONFIDENTIAL retain one original for
CONFIDENTIAL's records and return two signed originalsthe date first
listed above.
PURCHASER: SELLER:
REEL-TECH, INC., A WASHINGTON HALL, INC. (FORMERLY REEL TECH,
CORPORATION INC., AN INDIANA CORPORATION)
/s/William C. Erxleben /s/Douglas R. Hall
Signature Signature
William C. Erxleben Douglas R. Hall
Chairperson of this letter to my
attention. We will then forward an original to the Escrow Agent. If we have
not received a signed facsimile copy of this letter today 2:00PM, Pacific
Standard Time, our offer as contained in this letter shall expire.
Sincerely,
//S// Steve M. Gordon
Steve M. Gordon
ViceBoard President
Chief Financial Officer
SMG/TMH/mk
Acknowledged and agreed:
CONFIDENTIAL
By //S// Purchaser
----------------
Printed Name CONFIDENTIAL
------------
Title CONFIDENTIAL
------------
cc: CONFIDENTIAL
CONFIDENTIAL
CONFIDENTIAL
CONFIDENTIAL
CONFIDENTIAL
CONFIDENTIAL
CONFIDENTIALMay 6, 1997 May 6, 1997
Date Date
SHAREHOLDERS:
/s/Douglas R. Hall
Douglas R. Hall
May 6, 1997
Date
/s/Norris R. Hall
Norris R. Hall
May 6, 1997
Date
Page 164113
CONFIDENTIAL PORTIONS OF THIS DOCUMENT HAVE BEEN
OMITTEDSECOND AMENDMENT TO ASSET PURCHASE AGREEMENT BETWEEN
REEL-TECH, INC., A WASHINGTON CORPORATION, AND
HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION.
EXHIBIT 10.34
February 17,REEL TECH, INC., AN INDIANA CORPORATION
Effective May 6, 1997, Mr. Bill Erxleben
Data I/O Corporation
10525 Willows Road, N.E.
Redmond, Washington 98073
RE: DATA I/O HEADQUARTERS
Dear Bill:
This letter confirms1997, the following terms of anis the second amendment (the "Second
Amendment") to the Asset Purchase Agreement by and extension of the Closing Date under that certain Purchaseamong Reel-Tech, Inc., a
Washington corporation ("Purchaser"), Reel Tech, Inc., an Indiana corporation
("Seller"), and Sale Agreement (the "Agreement"Norris R. Hall and Douglas R. Hall ("Shareholders") dated July 9, 1996, as amended by First
Amendment dated December 20, 1996 (the "First Amendment"), by and between
CONFIDENTIAL ("Purchaser") and Data I/O Corporation ("Seller") :
1.August
31, 1995. All capitalized terms used in thethis Second Amendment shall have the same meaning as
those in the Agreement;
2.Agreement. The Purchase Price for the Property is herebyAgreement shall be amended toas follows:
1. Section 2.4 Calculation and Payment of Earn-Out shall be $
CONFIDENTIAL.
3. Paragraph 2 of the First Amendment is hereby amended to readdeleted in its
entirety and superseded by the following:
2.4 Calculation and Payment of Earn-Out.
2.4.1 Subject to the requirements of Section 2.4 hereof, Purchaser
shall make additional cash payments of an aggregate amount not to exceed
$2,000,000 should the continuing operations of the SCE Business acquired
hereby attain the revenue and pre-tax income as a percentage of revenue or
pre-tax income targets, as applicable, set forth below. The period for
attainment of these targets (the "Earn-Out Period") will be the period
beginning with the first day following the Effective Date and ending on
December 31, 1998, but excluding the period between August 23, 1996, and
December 26, 1996. No earn-out will accrue after the end of the Earn-Out
Period. The revenue and pre-tax income targets and related Earn-Out
Payments are as follows:
PurchaserEarn-Out Payments(1)(2)
Earn-Out Earn-Out Earn-Out
Payment 1 Payment 2 Payment 3
Earn-Out Payment amounts:
Achievement of minimum targets(1) $666,000 $667,000 $667,000
Achievement of bonus targets(1) $832,750 $833,750 $333,500
Minimum Targets(1):
Revenues(2) $4,500,000 $5,500,000 $6,500,000
and
Pre-tax income as a % of revenues or pre-tax income,(3) 10% $550,000 $650,000
as applicable
Bonus Targets(1):
Revenues(2) $4,500,000 $5,500,000 $6,500,000
and
Pre-tax income as a % of revenues(3) 17% 17% 17%
Requirements:
(1) For any Earn-Out Payments, both the revenue target and pre-tax income as a
% of revenue or pre-tax income target, as applicable, must be met in an
Annual Earn-Out Period, as defined below. Any Earn-Out Payment may be
earned during any of the three Annual Earn-Out Periods during the Earn-Out
Period and more than one Earn-Out Payment may be earned in any Annual
Earn-Out Period, provided that Earn-Out Payment 3 may only be earned in the
Annual Earn-Out Period beginning on December 26, 1997 and ending on
December 31, 1998, each Earn-Out Payment may be earned only once and under
no circumstances will the aggregate amount of Earn-Out Payments exceed
$2,000,000.
Page 114
(2) For purposes of calculating Earn-Out Payments, revenue shall havemean revenues
generated by the optionSCE Business from the sale of semi-conductor equipment or
the provision of related services plus the transfer price of the
ProMaster(R) 9500 at the price therefor under the OEM/Purchase Agreement
dated October 7, 1994, between Data I/O and Seller (the "9500 Transfer
Price") and the transfer price of Data I/O's Coyote product, plus actual
revenues from the sale of any other products as mutually agreed in writing,
in each case net of discounts, returns, credits and allowances. Revenues
shall not include sales to extendthird party customers of any of Data I/O's
ProMaster(R) line of products, including without limitation, Data I/O's
Coyote product, or of similar products which include programming
capabilities. Acceptance of orders will be governed by Purchaser-approved
operating plans and profit criteria. All exceptions will require approval
by the Closing DateChief Executive Officer, Treasurer or Chief Financial Officer of
Purchaser.
(3) Pre-tax income shall mean the aggregate net income (including losses which
shall be taken into account negatively) for the following period:Annual Earn-Out Period in
question before any deductions for federal, state or local taxes measured
by income. The costs to be used in calculating pre-tax income will be
determined substantially as follows:
(a) All direct costs, except for costs associated with producing Data
I/O's ProMaster(R) 9500 or Coyote product, associated with the
Indianapolis operations or otherwise associated with the SCE Business
or any product for which revenue is included in this earn-out
calculation, per note 2 above, will be charged against earnings.
Amortization of the purchase price of this transaction shall be
excluded.
(b) Interest expense will be charged against earnings at a date no later than Januaryrate equal to
the prevailing prime rate as published by the Wall Street Journal in
effect on the first day of each Purchaser fiscal quarter to the extent
that the operations of the SCE Business consume cash beyond the amount
of cash included in the Purchased Assets or generated by the SCE
Business after the Effective Date. For purposes of this calculation
all sums paid as Purchase Price will be excluded. Such use of cash
will be calculated on a daily basis. A "line of credit" shall be
established by Purchaser for the SCE Business. Such "line of credit"
will provide the SCE Business with working capital as approved by
Purchaser and may be paid down to reduce the balance based on cash
generated by the SCE Business.
(c) The costs of producing Data I/O's ProMaster(R) 9500 will be included
in the calculation of the Earn-Out Payment at sixty-five percent (65%)
of the 9500 Transfer Price and the costs of developing and/or
manufacturing Data I/O's Coyote product will be included in the
calculation of the Earn-Out Payment at a formula to be mutually agreed
upon by May 9, 1997 ("Extension
Period 1"); January 19, 1997 ("Extension Period 2"); February 18, 1997
("Extension Period 3"); March 20, 1997 ("Extension Period 4");1997.
(d) New product development will be funded at 8% of revenues of the SCE
Business unless otherwise mutually agreed by Purchaser and April 20, 1997 ("Extension Period 5") (each an "Extension Period");the
Shareholders. The actual direct costs to the SCE Business of any NRE
funded by customers of the SCE Business for development of new
products will be considered product development expenditures for
purposes of calculating such 8%.
(e) Data I/O corporate senior staff time and costs will not be charged to
the Indianapolis operation; provided, however, other corporate
personnel time and costs will be charged to the Closing DateSCE Business on a
pro-rata basis at Direct, Unburdened Cost, plus a 5% administrative
fee, if such personnel devote more than one-half of their time in any
Fiscal Month to direct support of the SCE Business. "Direct,
Unburdened Cost" shall in no eventinclude all salaries, benefits and taxes for
personnel and other direct costs associated with the support of the
SCE Business.
(f) The following also shall be later than
CONFIDENTIAL ( ) daysexcluded from the calculation of pre-tax
income:
(i) Revenue derived from non-operating sources, such as interest
income and income or loss from non-business related investments;
(ii) Gain from the sale of capital assets or other non-recurring
events; and
(iii) The results of any operations acquired by the SCE Business or
Purchaser after the Effective Date.
Page 115
2.4.2 All Earn-Out Payments are contingent on or subject to the
following:
(a) The parties agree that the target date Purchaserfor ISO 9001 certification of
the Indianapolis, Indiana facility is January 31, 1997. No Earn-Out
Payment shall be made unless and until the SCE Business obtains SEPA, unless
otherwiseISO
9001 certification. If ISO 9001 certification is not obtained by the
end of the Earn-Out Period, no Earn-Out Payments shall accrue or be
made.
(b) Earn-Out Payments 2 and 3 are contingent on completion by the SCE
Business of engineering and manufacturing documentation for all
products being sold by the SCE business and for Data I/O's Coyote
product which satisfys the standards set forth in Schedule 2.4.2. The
parties agree that the target date for completion of such
documentation is January 31, 1997 for all products except Coyote
products and that the target date for Coyote products shall be agreed
in writing.
4. Purchaser acknowledgesupon by May 9, 1997; provided, however, that SEPA approvalif such documentation has
not been completed by the end of the Earn-Out Period, Earn-Out
Payments 2 and 3 shall not accrue or be paid.
(c) Payment of Earn-Out Payments is also contingent on both of the
only Developmental
Approval remainingShareholders continued employment (unless such employment is
terminated as a contingency under the Agreement.result of death or disability) by Purchaser further agreespursuant
to waive sections 8 (2) (b) (1) and 8 (2) (b) (2)their Employment Agreements with Purchaser.
2.4.3 The measurement of the Agreement and all objections contained in CONFIDENTIAL's letter of
CONFIDENTIAL, regarding Section CONFIDENTIALachievement of the Agreement.
5. Paragraph 3revenue and pre-tax
income as a percentage of revenue or pre-tax income targets, as applicable,
will be done based on three twelve (12) Fiscal Month periods, the first of
which will begin on September 1, 1995, and end on August 22, 1996; the
second of which will begin on December 27, 1996 and end on December 25,
1997; and the third of which will begin on December 26, 1997, and end on
December 31, 1998. Each such period is referred to as an "Annual Earn-Out
Period". The period between August 23, 1996, and December 26, 1996, shall
be excluded from the Earn-Out Period. The calculation of the Firstactual results
will be completed by Purchaser within sixty (60) days following the last
day of each Annual Earn-Out Period. All calculations of performance of the
SCE Business against the foregoing targets shall be determined by Purchaser
in good faith based on the foregoing and in accordance with generally
accepted accounting principles applied in a manner consistent with the
accounting policies, practices and assumptions employed by Purchaser in
preparing its own financial statements.
2.4.4 Earn-Out Payments shall be made to the Seller within thirty (30)
days of completion of the measurement of actual results as noted in Section
2.4.3 or within thirty (30) days of the completion of the requirements as
specified in Section 2.4.2, whichever is later.
In the event of a conflict between the terms of the Second Amendment is hereby amended to addand the
following sentence asAgreement, the third sentence thereof:
Extension Period 5Second Amendment shall not require any payment by Purchaser.
6.control. All other terms and conditions of
the Agreement shall remain in full force and effect.
Executed by authorized representatives of the parties as of the date first
listed above.
Page 165116
CONFIDENTIAL PORTIONS OF THIS DOCUMENT HAVE BEEN
OMITTEDPURCHASER: SELLER:
REEL-TECH, INC., A WASHINGTON HALL, INC. (FORMERLY REEL TECH,
CORPORATION INC., AN INDIANA CORPORATION)
/s/William C. Erxleben /s/Douglas R. Hall
Signature Signature
William C. Erxleben Douglas R. Hall
Chairperson of the Board President
May 6, 1997 May 6, 1997
Date Date
SHAREHOLDERS:
/s/Douglas R. Hall
Douglas R. Hall
May 6, 1997
Date
/s/Norris R. Hall
Norris R. Hall
May 6, 1997
Date
Page 117
THIRD AMENDMENT TO ASSET PURCHASE AGREEMENT BETWEEN
REEL-TECH, INC., A WASHINGTON CORPORATION, AND
HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION.REEL TECH, INC., AN INDIANA CORPORATION
Effective July 2, 1997, the following is an amendment (the "Third Amendment") to
the Asset Purchase Agreement by and among Reel-Tech, Inc., a Washington
corporation ("Purchaser"), Reel Tech, Inc., an Indiana corporation ("Seller"),
and Norris R. Hall and Douglas R. Hall ("Shareholders") dated August 31, 1995.
All terms used in this Third Amendment shall have the same meaning as those in
the Agreement. The Agreement shall be amended as follows:
1. Footnote 2 of Section 2.4.1 shall be deleted in its entirety and superseded
by the following:
(2) For purposes of calculating Earn-Out Payments, revenue shall mean
revenues generated by the SCE Business from the sale of semi-conductor
equipment or the provision of related services plus the transfer price
of the ProMaster(R) 9500 at the price therefor under the OEM/Purchase
Agreement dated October 7, 1994, between Data I/O and Seller (the
"9500 Transfer Price") and the transfer price of Data I/O's Coyote
Product, if the SCE Business is producing the Coyote product, plus
actual revenues from the sale of any other products as mutually agreed
in writing, in each case net of discounts, returns, credits and
allowances. If the terms described in this letter are acceptableCoyote product is not being produced by the SCE
Business on December 31, 1998, but is being produced at such time by
Data I/O, Seller will receive a revenue credit for the Annual Earnout
Period beginning on December 26, 1997, and ending on December 31,
1998, equal to $415,000. Such credit shall be reduced by seventy-five
percent (75%) of the gross margin of thirty percent (30%) previously
paid to Seller please have
an authorized representativeas part of Seller retain one originalthe Coyote transfer price for Seller's recordsprior units
produced by the SCE Business and return two signed originalssold to Data I/O. Revenues shall not
include sales to third party customers of this letter to my attention. Weany of Data I/O's
ProMaster(R) line of products or of similar products which include
programming capabilities. Acceptance of orders will then
forward an originalbe governed by
Purchaser-approved operating plans and profit criteria. All exceptions
will require approval by the Chief Executive Officer, Treasurer or
Chief Financial Officer of Purchaser.
2. Footnote 3 (c) of Section 2.4.1 shall be deleted in its entirety and
superseded by the following:
(c) The costs of producing Data I/O's ProMaster(R)9500 will be included in
the calculation of the Earn-Out Payment at sixty-five percent (65%) of
the 9500 Transfer Price. The costs of producing Data I/O's Coyote
product, if Data I/O's Coyote product is produced by the SCE Business,
will be included in the calculation of the Earn-Out Payment at seventy
percent (70%) of the Coyote product transfer price.
3. Section 3.2 of Exhibit 3.6A, Employment Agreement between Reel-Tech, Inc.
and Douglas R. Hall, and Section 3.2 of Exhibit 3.6B, Employment Agreement
between Reel-Tech, Inc. and Norris R. Hall, shall be amended as follows:
The following language in the last paragraph of Section 3.2 regarding the
Coyote Options, shall be deleted in its entirety:
"In addition, subject to the Escrow Agent.
Sincerely,
CONFIDENTIAL
//S// Purchaser
CONFIDENTIAL
Acknowledgedconditions set forth herein, Data I/O shall
grant to Employee additional nonqualified stock options to purchase up to
11,250 shares of the Common Stock of Data I/O (the "Coyote Options")
pursuant to and agreed:in accordance with the Plan, to be granted on the date
development of the Coyote programming system is successfully completed (the
"Coyote Date"). The criteria for determining the Coyote Date shall be
mutually agreed on by the parties by May 9, 1997. Such grant shall be in
the form of Stock Option Agreement to be attached
Page 118
hereto as Exhibit B-2. The exercise price for the Coyote Options shall be
the fair market value of the Common Stock on the Coyote Date as determined
by the Plan administrator";
and replaced with the following language:
"In addition, subject to the conditions set forth herein, Data I/O shall
grant to Employee additional nonqualified stock options to purchase up to
11,250 shares of the Common Stock of Data I/O (the "Coyote Options")
pursuant to and in accordance with the Plan, to be granted on the date
development of the Coyote programming system (the "Coyote") is successfully
completed (the "Coyote Date"). The criteria for determining the Coyote Date
are: (a) The Coyote must meet the specifications detailed in the Customer
Requirements Document ("CRD") for the Coyote as of March 26, 1997, Rev. 0.4
(b) The Coyote must be a fully documented product (including all drawings
and manufacturing assembly instructions) for manufacturing to be able to
reproduce on a volume basis and (c) Reel-Tech, Inc. must manufacture a
reproducible product as evidenced by the shipment, installation and written
acceptance of the beta unit and/or first production unit and the completion
of Quality Gate 6, Product Launch, as listed in the ProMaster Coyote
Schedule dated May 2, 1997, ("Product Launch") by December 5, 1997;
provided, however, all design modifications necessary for full production
and Product Launch of the Coyote must be completed by December 5, 1997.
Such grant shall be in the form of Stock Option Agreement attached hereto
as Exhibit B-2. The exercise price for the Coyote Options shall be the fair
market value of the Common Stock on the Coyote Date as determined by the
Plan administrator. Notwithstanding the foregoing, Data I/O shall have no
obligation to grant, and Employee shall have no right to be granted, the
Coyote Options if the Coyote Date occurs after December 5, 1997; provided,
however, if Data I/O has not delivered to Reel-Tech, Inc. the DataSite
product for integration with the Coyote by July 18, 1997, the laser and
shuttle for the Coyote by August 1, 1997, the Tasklink Handler interface
for the Coyote by August 8, 1997, and the beta Tasklink Windows(R)
interface for the Coyote by September 17, 1997, , and the Coyote Date shall
be extended one (1) day for each day of delay in delivery of such items."
4. The attached Exhibit B-2, Stock Option Agreement, shall be attached after
Exhibit B-1 to Exhibit 3.6A, Employment Agreement between Reel-Tech, Inc.
and Douglas R. Hall:
Page 119
EXHIBIT B-2
DATA I/O CORPORATION
1986 STOCK OPTION PLAN
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT is entered into as of the __ day of __________,
199__ ("Date of Grant"), by and between Data I/O Corporation, By //S// William C. Erxleben
-------------------------
Printed Name William C. Erxleben
-------------------
Title Pres/CEO
--------
Date February 17, 1997
-----------------
cc: CONFIDENTIAL
CONFIDENTIAL
CONFIDENTIAL
CONFIDENTIAL
Page 166
EXHIBIT 10.35
THIRD AMENDMENT TO THE
DATA I/O
TAX DEFERRAL RETIREMENT PLAN
The DATA I/O Tax Deferral Retirementa Washington
corporation (the "Company"), and Douglas R. Hall (the "Optionee").
1. Grant of Option. Subject to the terms and conditions hereof and the
Company's 1986 Stock Option Plan ("Plan"(the "Plan"), as amendedthe Company hereby grants to the
Optionee the right and restated
effective January 1, 1993 is amended as follows pursuantoption (the "Option") to Section 11.1purchase up to eleven thousand
two hundred fifty (11,250) shares (the "Shares") of the Plan, effective
January 1, 1995:
1. Effectivecommon stock, $.01 par
value, of the Company, at a price per share of $________ (the "Exercise Price").
This Option is intended not to qualify as an Incentive Stock Option for Employees hired onpurposes
of Section 422 of the Internal Revenue Code of 1986, as amended. In the case of
any stock split, stock dividend or after January 1, 1995, Section 1.14(a)
ELIGIBLE EMPLOYEElike change in the nature of shares granted
by this Agreement, the number of shares and option price shall be
replacedproportionately adjusted as set forth in its entiretySection 5(m) of the Plan. The Option
shall vest and become exercisable according to the following schedule provided
that the Optionee is continuously employed by the following:
(a) U.S. EMPLOYEES
For United States-based employees, "Eligible Employee" means any
regular Employee who is enrolled onCompany through the active, regular payrolldates set
forth therein:
Portion of Total
Option Which Will Become
Date Exercisable
---- -----------
December 5, 1997 33.33%
December 5, 1998 66.66%
December 5, 1999 100%
The vesting of the Employer, whoOption is not a non-resident alien, who is not a leased
employee and who is not covered under a collective bargaining
agreement where retirement benefits were the subject of good faith
bargaining, which does not provide for retirement benefits under this
Plan
2. Effective for Employees hired on or after January 1, 1995, Section 7.1
VESTING shall be replaced in its entirety by the following:
VESTING
a) Tax-Deferred Account and Rollover Account
Each Participant shall have a 100% vested, nonforfeitable right to his
or her Tax-deferred Account and Rollover Account
b) Incentive Account
Each Participant shall earn a vested, nonforfeitable right to his or
her Incentive Account based on his or her service during which salary
deferral contributions were made to the Plan on behalf of the
Participant multiplied by the appropriate vesting percentageacceleration in accordance with the
following table:
Yearsprovisions of Service Percent Vested
---------------- --------------
LessSection 5(f) of the Plan.
2. Termination of Option. The Option shall terminate, to the extent not
previously exercised, six (6) years from the Date of Grant or earlier in
accordance with Section 5 of the Plan. The unvested portion of the Option shall
terminate immediately upon the Optionee's termination of employment for any
reason whatsoever.
3. Non-transferable. This Option may not be transferred, assigned, pledged
or hypothecated in any manner (whether by operation of law or otherwise) other
than 3 0%
3by will or more 100%by the applicable laws of descent and distribution, and shall
not be subject to execution, attachment or similar process. Upon any attempt to
transfer, assign, pledge, hypothecate or otherwise dispose of this Option or of
any right or privilege conferred hereby, contrary to the provisions hereof, or
upon the sale or levy
Page 167120
In addition, each Participantor any attachment or similar process upon the rights and privileges conferred
hereby, this Option shall havethereupon terminate and become null and void.
4. Exercise. Subject to Sections 1 and 2 hereof and the Plan, this Option
may be exercised in whole or in part by means of a 100% vested, nonforfeitablewritten notice of exercise
signed and delivered by the Optionee (or, in the case of exercise after death of
the Optionee by the executor, administrator, heir or legatee of the Optionee, as
the case may be) to the Company at the address set forth herein for notices to
the Company. Such notice (a) shall state the number of Shares to be purchased
and the date of exercise, and (b) shall be accompanied by payment of the full
exercise price in cash, by certified or cashier's check or by delivery of such
other consideration as the administrator of the Plan may approve.
5. Withholding. Prior to delivery of any Shares purchased upon exercise of
this Option, the Company shall determine the amount of any United States federal
and state income tax, if any, which is required to be withheld under applicable
law and shall, as a condition of exercise of this Option and delivery of
certificates representing the Shares purchased upon exercise of the Option,
collect from Optionee the amount of any such tax to the extent not previously
withheld.
6. Rights of the Optionee. Neither this Option, the execution of this
Agreement nor the exercise of any portion of this Option shall confer upon
Optionee any right to, or guarantee of, continued employment by the Company, or
in any way limit the right of the Company to terminate employment of Optionee at
any time, subject to the terms of any employment agreements between the Company
and Optionee.
7. Professional Advice. The acceptance and exercise of the Option and the
sale of Option Stock may have consequences under federal and state tax and
securities laws which may vary depending upon the individual circumstances of
the Optionee. Accordingly, the Optionee acknowledges that he has been advised to
consult his or her Incentive Account upon death, becoming Disabledpersonal legal and tax advisor in connection with this Agreement and
his dealings with respect to the Option or the attainment of age 591/2, provided he or she is an Employee on such
date.
c) Discretionary Contribution Account
Each timeOption Stock.
8. Agreement Subject to Plan. This Option and this Agreement evidencing and
confirming the Employer makes a discretionary contributionsame are subject to the terms and conditions set forth in the
Plan and in any amendments to the Plan the Employer shall designateexisting now or in the Appendixfuture, which
describesterms and conditions are incorporated herein by reference. A copy will be made
available upon request. Should any conflict exist between the discretionary contribution that itprovisions of the
Plan and those of this Agreement, those of this Agreement shall govern and
control. This Agreement and the Plan set forth the entire and exclusive
understanding between the Company and Optionee with respect to the Option and
shall be immediately 100% vesteddeemed to integrate, replace and supersede all previous communications,
representations or bestedagreements between the parties with respect to the subject
matter hereof, whether written or oral.
9. Governing Law. This Agreement shall be governed by, and construed in
accordance with, the same mannerlaws of the State of Washington without regard to its
conflicts of laws principles to the contrary, and shall bind and inure to the
benefit of the heirs, executors, personal representatives, successors and
assigns of the parties hereto.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
Incentive Account pursuant to
subparagraph (b).
FORdate first above written.
Page 121
DATA I/O CORPORATION