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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 28, 1995 Commission File No. 0-10394
DATA I/O CORPORATION
(Exact name of registrant as specified in its charter)
Washington 91-0864123
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10525 Willows Road N.E., Redmond, Washington, 98052
(address of principal executive offices, Zip Code)
Registrant's telephone number, including area code (206) 881-6444
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on
which registered
NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock (No Par)
Series A Junior Participating Preferred Stock
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Aggregate market value of voting stock held
by non-affiliates of the registrant as of March 1, 1996
$51,515,716
7,105,616 shares of no par value Common Stock outstanding as of March 1, 1996
DOCUMENTS INCORPORATED BY REFERENCE
(1) Portions of the registrant's Proxy Statement relating to its May 14,
1996, Annual Meeting of Stockholders are incorporated into Part III of
this annual report on Form 10-K.
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Page 1 of 113
Exhibit Index on Page 58
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DATA I/O CORPORATION
FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 28, 1995
INDEX
Part I PAGE
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Item 1. Business 3
Item 2. Properties 20
Item 3. Legal Proceedings 20
Item 4. Submission of Matters to a Vote of Stockholders 20
Part II
Item 5. Market for Registrant's Common Stock and
Related Stockholder Matters 21
Item 6. Selected Five-Year Financial Data 22
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 23
Item 8. Financial Statements and Supplementary Data 31
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosures 47
Part III
Item 10. Directors and Executive Officers of the Registrant 48
Item 11. Executive Compensation 48
Item 12. Security Ownership of Certain Beneficial Owners
and Management 48
Item 13. Certain Relationships and Related Transactions 48
Part IV
Item 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K 49
Signatures 57
Exhibits Index 58
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PART I
ITEM 1. BUSINESS
GENERAL
Data I/O-C- Corporation ("Data I/O" or the "Company") was incorporated in the
State of Washington in 1969. The Company manufactures hardware and software
products for semiconductor manufacturers and users of programmable integrated
circuits ("IC" or "ICs"). Within this one predominant business segment, the
Company offers three major product groups: (1) programming systems used by
customers to handle, program, test and mark programmable ICs; (2) semiconductor
equipment used to handle, transport and mark integrated circuits; and (3)
Electronic Design Automation ("EDA") software used to create designs for
programmable ICs. These three product groups are organized respectively under
the Company's three divisions: (1) Programming Systems, (2) Semiconductor
Equipment, and (3) Synario-Registered Mark- Design Automation-TM-.
The Company is the world's leading provider of programming systems for
programmable ICs. It markets products to more than 15,000 customers worldwide
in a broad range of industries including computers, communications, test and
measurement, medical, consumer electronics, military, transportation, aerospace
and semiconductors. All of these customers either manufacture ICs or design or
manufacture products which incorporate programmable ICs.
FORWARD-LOOKING STATEMENTS
Although most of the information contained in this report is historical, certain
of the statements contain forward-looking information. To the extent these
statements involve, without limitation, product development and introduction
plans, the Company's expectations for growth, estimates of future revenue,
expenses, profit, cash flow, balance sheet items, sell-through or backlog,
forecasts of demand or market trends for the Company's various product
categories and for the industries in which the Company operates or any other
guidance on future periods, these statements are forward-looking and involve
matters which are subject to a number of risks and uncertainties that could
cause actual results to differ materially from those expressed in such forward-
looking statements. Readers of this report should consider, along with other
relevant information, the risk factors identified by the Company under the
caption "Risk Factors" in Item 1 and elsewhere in this report, and other risks
identified from time to time in the Company's filings with the Securities and
Exchange Commission, press releases and other communications.
INDUSTRY OVERVIEW
GLOSSARY OF TERMS
Throughout this document industry-specific terminology and acronyms are used to
facilitate the reader's understanding of the industries in which the Company
operates. Below certain terms and acronyms are defined for the benefit of the
reader.
IC INTEGRATED CIRCUITS produced by semiconductor manufacturers
including those which are programmable and those which are
supplied by the manufacturer with a predetermined fixed
function.
PLD A PROGRAMMABLE LOGIC DEVICE is a programmable logic IC that
can be configured or programmed by a system designer.
CPLD A COMPLEX PROGRAMMABLE LOGIC DEVICE is a programmable logic IC
that contains multiple programmable logic cells and a
programmable interconnect structure between the cells.
FPGA A FIELD PROGRAMMABLE GATE ARRAY is a sophisticated high-
capacity PLD.
PROM A PROGRAMMABLE READ ONLY MEMORY is a programmable memory IC
that is a non-volatile data storage IC meaning it can retain
data when the power is shut off.
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EPROM An ERASABLE PROM is a programmable memory IC, which can be
erased and reused.
EEPROM An ELECTRICALLY ERASABLE PROM is a programmable memory IC that
can be electronically erased and reused.
Micro- A microcontroller is an IC that is a processor containing
controller programmable memory within the IC.
Device Refers to any of the various ICs referred to herein.
Package Package refers to the physical shape, size and number and
arrangement of pins of an IC.
Pins Pins are the leads from the IC that connect the IC to the
circuitry on the printed circuit board.
PCB PRINTED CIRCUIT BOARDS are the boards on which ICs and other
electronic components are mounted in electronic products.
Conventional An IC package where the pins are inserted through holes
Throughhole IC drilled in a PCB. An example is a DIP (dual in line
pin)package.
Surface- An IC package where the pins from the IC connect to
Mount IC (plastic leaded chip carrier), SOIC (small outlines IC) and
TSOP (thin small outline package).
PROGRAMMABLE INTEGRATED CIRCUITS AND PROGRAMMING SYSTEMS
During the last 20 years, the semiconductor industry developed processes which
continually increased the number of functions and memory on a single chip of
silicon. These chips, called integrated circuits, are a tiny complex of
electronic components and connections which come in two types: fixed or
programmable. The fixed type have a specific design incorporated during the
manufacture of the circuit that cannot be changed. This type can only perform
its specific predetermined fixed function.
A programmable IC is manufactured without a specific function incorporated into
it and allows the electronics design engineer to specify how it is to perform.
Programmable ICs are analogous to a blank cassette tape in that the programmable
IC can record and store a set of instructions similar to the way a blank
cassette tape can record and store music. Programmable ICs consist of either
memory or logic circuits. Programmable memory ICs are for non-volatile data
storage, meaning they retain data when the power supply to the circuit is off.
Memory ICs include PROMs, EPROMs and EEPROMs. Programmable logic ICs contain
logic elements by which the entire function of the IC can be changed by
programming changes to these elements. This means a given programmable logic IC
can perform a variety of functions in an electronic design. Types of
programmable logic ICs include PLDs, CPLDs and FPGAs.
Today, some combination of programmable memory and logic ICs are found in
virtually all electronic equipment. Programmable memory ICs are used most
extensively for the permanent storage of software programs in instruments,
control systems, consumer electronic equipment, computers and computer
peripherals. Most microprocessor and microcomputer-based systems use some form
of programmable memory IC. These systems are increasingly using programmable
logic ICs as well. Programmable logic ICs and, specifically FPGAs, are one of
the fastest growing categories of ICs in the semiconductor industry, according
to industry sources.
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.
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,
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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 increased. These programmable ICs are increasingly being used
in high-volume manufacturing situations as the cost of programmable ICs has
declined relative to fixed ICs and the competitive environment has caused the
time-to-market to be increasingly critical. The ability of manufacturers to
shorten their product's time-to-market is improved with programmable ICs, as
once the design for the programmable IC is finished it can be programmed
immediately into the programmable IC and changes can be readily made. This
avoids the expensive and time consuming process of setting up and fabricating
the fixed type of ICs where any changes require that the process be restarted.
Data I/O's automated programming and handling systems allow manufacturers to
program numerous types of programmable ICs in a variety of packages in very high
volumes.
SEMICONDUCTOR EQUIPMENT
IC manufacturers have responded to the market demand for more powerful ICs and
increased miniaturization by producing smaller devices with an increased number
of more delicate pins. This trend has increased the need for automated
equipment used to handle these smaller, more delicate device packages during the
IC manufacturing process as well as after the ICs are completed and sold to
electronic equipment manufacturers. Such automated handling equipment is
critical for minimizing damage of the delicate pins of the ICs and increases the
speed of transferring ICs into and out of the protective media used for
transporting ICs (tubes, trays, and tape and reel).
ELECTRONIC DESIGN AUTOMATION ("EDA") SOFTWARE TOOLS
The evolution of programmable logic IC technology enabled engineers to fit an
increasing number of large, complex functions into a single programmable IC.
This higher level of integration reduced the size and cost, and increased the
quality and reliability, of the electronic systems using these programmable
ICs. With the adoption rate and complexity of programmable logic ICs growing
rapidly, design engineers need software tools to speed up and lower the cost of
the design process. EDA tools span the entire electronic design process from
initial design through final test simulation. Data I/O's EDA software tools
allow the design engineer to describe their design's behavior using concise,
easy-to-understand expressions. The software then "prepares" the design for
implementation in a particular programmable IC and stores the design in a
standard format that can be used by a programmer. The programmer records the
design into the programmable IC, and the programmed IC can then be used in the
particular product or system for which it was designed.
PRODUCTS
The table below details the contribution the Company's three principal divisions
made to total net sales for the last three fiscal years (in thousands of
Dollars):
<TABLE>
<CAPTION>
PROGRAMMING SYSTEMS SEMICONDUCTOR EQUIPMENT SYNARIO DESIGN AUTOMATION
DIVISION (1) DIVISION (2) DIVISION (1) TOTAL SALES
-------------------------- -------------------------- -------------------------- ----------------
PERCENT PERCENT PERCENT PERCENT PERCENT PERCENT PERCENT
YEAR AMOUNT GROWTH OF TOTAL AMOUNT GROWTH OF TOTAL AMOUNT GROWTH OF TOTAL AMOUNT GROWTH
- ---- ------ ------ -------- ------ ------ -------- ------ ------- -------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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%)
1993 62,248 (10.2%) 98.5% N/A N/A N/A 938 N/A 1.5% 63,186 (8.9%)
- ------
</TABLE>
(1) Prior year's figures have been restated 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.
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,
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and automated programming and handling systems. Its non-automated programming
systems are single 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 introductions of the 2900 and 3900 represented the first two steps
of the Company's strategy of broadening its product line to provide engineering
and manufacturing solutions at a variety of price points.
The third step in broadening the product line was the ChipLab-Registered
MarkC- Project Programmer, introduced in August 1993. ChipLab 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.
In 1995 the Company introduced the 2700 Programming System which 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 2700
also features a user-friendly graphical Windows-Registered Trademark--based
interface for fast device selection and programming.
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
for Data I/O programmers, enhancing both the time-to-market of their
programmable ICs, and Data I/O's support and enhancement efforts.
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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.
This product replaced the 288A Multi Programmer. 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 Mark- 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 Mark- line of equipment provides
manufacturers with an automated method for handling, programming, testing and
marking programmable ICs whether the ICs are housed in conventional through
hole 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.
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-TM- programmer. It uses labels to mark the ICs and
is the Company's entry-level priced automated programming and handling system.
The ProMaster 9500, 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 operation.
The AutoSite Production Programmer, based on the Company's latest programming
architecture, was introduced in April 1992. It was the Company's first IC
programmer specifically designed to be connected to and integrated with
automated programming and handling systems. This programmer is connected to the
ProMaster 3000, 7000 and 7500 and performs the programming function within these
automated programming and handling systems.
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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 Mark- (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 Mark- 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 $42,000, while
the ProMaster 7500 with tape and reel option, can sell for as much as $230,000.
The new ProMaster 9500 sells for approximately $500,000. 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 the
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 product components 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.
The LM6000 is a high-volume in-tray laser marking system that marks all types
of surface-mount ICs without removing them from the input tray, providing
maximum utilization of the laser and handling system and eliminating pin damage
caused by handling.
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.
Both the TR3000 and TR3000MT series accommodate virtually all surface-mount ICs
with tape widths of 8 to 56 mm. The TR3000 transfers ICs from tubes to tape and
reel. The TR3000MT transfers fine-pitch ICs from trays to tape and reel.
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 $40,000 for a TR3000 to as much as $250,000 for an LM6000.
SYNARIO DESIGN AUTOMATION
In November 1995 the Company announced the formation of a new autonomous
division, Synario Design Automation, to focus solely on the Windows-based EDA
market. This newly formed 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 programming 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.
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The Synario system is an automated EDA design tool set used by engineers to
customize complex FPGAs and CPLDs, which are becoming increasingly popular. The
driving philosophy behind the Synario design system is to offer 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 or 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-, AMD-Registered
Trademark-, Atmel-Registered Trademark-, Lattice-Registered Trademark-,
Philips-Registered Trademark-, QuickLogic-Registered Trademark- 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.
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 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 1995, 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.
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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 a slow growth in the number of units sold.
Over the last several years, advances in semiconductor processing technology
have 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 have
caused engineering design teams to shift away from hardware tools to software
design tools. Further, within the remaining hardware tools market, economic
pressures are shifting demand away from higher-priced, full-featured universal
programming systems (designed to program the vast majority of programmable ICs
on the market) 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 developed and released low-cost product lines (ChipLab and 2700); added
an entry level non-automated parallel programming system (PSX400); reorganized
the Company's distribution channels; and significantly reduced its overall cost
structure.
The Company believes that the market for automated programming and handling
systems in the manufacturing environment is growing. The Company believes this
growth is due to a trend toward the expanded use of programmable ICs in
high-volume manufacturing situations caused by a reduction in the cost of
programmable ICs compared to fixed ICs, manufacturers' desire to improve the
time-to-market for new and improved products, and increased functionality and
miniaturization of programmable ICs. Because this is a newer market for the
Company, the Company's participation in this growth depends upon the market's
acceptance of its new products, its ability to understand and meet the changing
needs of this market, and its response to and development of changes in
technology. In addition, service, corporate reputation and product reliability
are considered key decision making factors for customers considering automated
systems. Data I/O believes its line of non-automated parallel programming
systems and automated programming and handling systems is well positioned to
capitalize on these trends.
SEMICONDUCTOR EQUIPMENT
According to VLSI Research, from 1991 to 1995 the semiconductor manufacturing
equipment industry grew at an average annual rate of approximately 23% in terms
of sales and will grow at an average annual rate of 25% from 1996 to 2000. The
Company's semiconductor equipment products are used in the latter stage of the
semiconductor manufacturing process, after the IC packages are virtually
complete. The Company does not have independent market data on the specific
industry niche markets in which it operates. However, the broader market for
material handling equipment in the semiconductor industry is projected to grow
at a compounded annual rate of 15% according to VLSI Research.
The Company's laser marking products are used primarily by memory IC
manufacturers to mark ICs after the test stage of the manufacturing process.
The Company's media transfer products are sold primarily to semiconductor
manufacturers and are designed to be utilized in instances where there is a
need to switch between media transport types (e.g., tubes to trays) within the
manufacturing process. The Company's tape and reel products are used by
semiconductor manufacturers for transferring high volumes of ICs from either
tubes or trays to tape and reel. The Company believes that it has positioned
itself well to take advantage of growth in the semiconductor industry by
providing semiconductor manufacturers with high-quality, specialized equipment.
SYNARIO DESIGN AUTOMATION
The EDA industry experienced 17% growth in sales in 1995 and is projected to
grow 20% in 1996, according to DataQuest. DataQuest projects the Windows
NT-based EDA segment of the industry to grow at over 150% compounded annually
over the next five years. A major factor contributing to this growth is the
advent of higher performance microprocessors, such as the Intel-Registered
Trademark-Pentium-Registered Mark- 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. With these advancements in personal computers, Windows-based EDA
tools are attractive, less expensive options for design engineers.
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Another significant factor contributing to the growth of the Windows-based EDA
market is the migration of FPGA and CPLD design engineers to higher levels of
design abstraction. FPGAs and CPLDs are growing more complex, requiring
designers to move away from schematic only based design to speed up the
programmable IC design process. These new demands have created a so-called "new
generation" of designers who require more sophisticated design tools.
The Company believes that the quality and relative ease of use of Synario
position it well in what the Company expects to be a growing market for
Windows-based EDA products. Anticipating growth, the Company has made
significant investments in new product development over the last few years,
and has created the Synario Design Automation Division to better focus its
efforts in this market.
SALES
The Company restructured its sales operations in late 1993 and 1994 to better
align the Company with its evolving markets and customers, and to better
position itself for the future. During 1995 the Company continued this process
by increasing its utilization of lower-cost telesales channels and value-added
resellers ("VARs") while reducing its direct sales force.
A key element of the Company's distribution strategy for Synario is to partner
with semiconductor vendors. The Company has entered into distribution or OEM
agreements with several major semiconductor vendors whereby vendor-specific
Synario products are bundled with the semiconductor vendor's devices for resale
through their sales channels.
U.S. SALES
The Company markets its products throughout the U.S. using a variety of sales
channels including its own direct field sales organization, direct telesales
organization, independent sales representatives, OEMs, distributors 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,
distributors and VARs purchase products directly from the Company for resale to
customers. Sales are recognized by the Company at the time of shipment.
FOREIGN SALES
Foreign sales represented approximately 47% of net sales in 1995, 46% of net
sales in 1994, and 47% of net sales in 1993. Foreign sales are made through the
Company's wholly owned subsidiaries in Japan, Germany, Canada and the United
Kingdom, as well as independent distributors, VARs and sales representatives
located in 32 other countries (see Note 11 of "Notes to Consolidated Financial
Statements"). 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.
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COMPETITION
GENERAL
The programming systems, semiconductor equipment and EDA software markets are
highly competitive. Important competitive factors include product features,
price, quality, reliability, throughput, distribution channels, availability, IC
support, post sales support, service and the timely response to rapid
technological change with new and improved products. The Company believes its
competitiveness depends on offering the most effective combination of these
capabilities.
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. However, the
Company does not expect its share of this market to grow significantly, 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, based on information from studies performed 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, it has approximately 45% of the
worldwide market share of revenue for non-automated programming systems in the
design engineering segment. Based on information gathered internally, the
Company believes approximately 15% 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, 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 believes that its move into the low-
cost portion of the market with ChipLab has increased market share for Data I/O
because this moved the Company into a new market segment in which the Company's
previous product line did not compete well.
The Company does not have independent market information but did commission
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, Bytek, System General,
Needham 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 and Exatron, although a
joint venture between BP Microsystems and Quad Systems Corporation to produce an
automated handler with logic device programming capabilities competes directly
with the Company's high-end ProMaster line. Exatron does not offer complete
programming and handling system solutions, however, its partnerships with other
IC programming system companies enable it to offer systems which can be
configured by the customer. Even Data I/O programming systems can be mated to
Exatron automated handling 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 expanded use of programmable
ICs in high-volume manufacturing situations is fueling growth of this market,
and the Company believes that its share of this market has grown significantly
over the last few years.
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.
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SEMICONDUCTOR EQUIPMENT
In the semiconductor equipment industry market niche there are four primary
competitive factors: throughput, changeover time, availability and size of
footprint. The Company believes that its semiconductor equipment is 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
is not currently aware of any significant competitors for its media transfer
system. 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.
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, 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-. Cadence has
released their PCB layout product, Allegro, on Windows, and Mentor Graphics
announced a new subsidiary, Antares, which will focus on the Windows-based EDA
market. Synario products complement both the Cadence and Antares offerings:
Synario has extended its PCB interface options to include Cadence's Allegro; and
Synario currently resells the Model Technology VHDL simulator which is a product
of Antares. The Company believes neither Cadence nor Antares offer the critical
integration links that create the complete broad-based design environment
offered by Synario.
MANUFACTURING AND BACKLOG
During 1995, Data I/O operated three principal manufacturing operations. Its
principal facility in Redmond, Washington manufactures non-automated programming
systems including component parts assembly, final assembly and testing. The
Company's automated programming and handling systems are produced in Redmond as
well as at the Company's manufacturing facility in Anaheim, California. The
Company was in the process of moving and consolidating its Anaheim facility into
its Redmond facility. This move, which began in 1995, was completed in the
first quarter of 1996. The cost of this move and consolidation was provided for
as part of a restructuring charge recorded by the Company in 1993. The
Company's third manufacturing facility, located in Indianapolis, Indiana,
manufactures semiconductor equipment.
During 1993, the Company decided to consolidate and out-source certain
manufacturing processes. Implementation of these manufacturing process changes
began in 1994 and is expected to be completed in 1997. The cost of these
manufacturing changes was provided for as part of the Company's 1993
restructuring charge.
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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, which
experienced some production delays after its introduction in 1995 due to
production constraints, is generally scheduled for delivery within 90 to 120
days after receipt of order. The transfer of production of this product from
Indianapolis to Redmond during the fourth quarter of 1995 is expected to help
increase capacity. Deliveries of semiconductor equipment are generally
scheduled within 90 to 120 days from date of order.
In accordance with industry practices, generally all orders are subject to
cancellation prior to shipment without penalty except for contracts calling for
custom configuration. To date, such cancellations have not had a material
effect on the Company's sales volume. To meet customers' fast delivery
requirements, Data I/O manufactures certain of its products based upon a
combination of backlog and anticipated orders. The size of backlog at any
particular date is not necessarily a meaningful indicator of the trend of the
Company's business.
RESEARCH AND DEVELOPMENT
Because Data I/O's future growth is, to a large extent, dependent upon the
timely development and introduction of new products and its extensive support of
the latest programmable ICs, the Company is committed to a substantial research
and development program. Research and development activities include applied
research, design of new products and continual enhancement and support of
existing products. Data I/O has focused its efforts on applied rather than
basic research, concentrating on technical innovation for long-term product
requirements. The Company made expenditures for research and development of
$9,069,000, $9,227,000 and $9,700,000 in 1995, 1994 and 1993, respectively,
representing 13.7%, 15.0% and 15.4% of net sales, respectively.
The Company has currently directed its main product development efforts toward
new programming technology for its existing automated programming and handling
system products, enhancements to its semiconductor equipment products, and
enhancements for its new EDA software products. Substantial engineering
resources are also being devoted to developing updates and upgrades for both
programming systems and software products and providing IC support for new
programmable ICs as they are introduced by semiconductor manufacturers.
PATENTS, COPYRIGHTS, TRADEMARKS AND LICENSES
Intellectual property rights applicable to various Data I/O products include
patents, copyrights, trade secrets and trademarks. However, rather than depend
on patents and copyrights, which are frequently outdated by rapid technological
advancements in the electronics industry, Data I/O relies primarily on product
development, engineering, manufacturing and marketing skill to establish and
protect its market position.
The Company attempts to protect its rights in proprietary software products by
retaining the title to and copyright of the software and documentation, by
including appropriate contractual restrictions on use and disclosure in its
licenses and by requiring its employees to execute non-disclosure agreements.
The Company's software products are shipped in sealed packages on which notices
are prominently displayed informing the end-user that, by breaking the seal of
the packaging, the end-user agrees to be bound by the license agreement
contained in the package. The license agreement includes limitations on the
end-user's authorized use of the product, as well as restrictions on disclosure
and transferability. The legal and practical enforceability and extent of
liability for violations of license agreements that purport to become effective
upon opening of a sealed package are unclear. The Company is not aware of any
situation where a license agreement restricting an end-user's authorized use of
a licensed product resulted in enforcement action.
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Because of the rapidly changing technology in the semiconductor, electronic
equipment and software industries, there is a possibility that portions of the
Company's products might infringe upon existing patents or copyrights, and the
Company may therefore be required to obtain licenses or discontinue the use of
the infringing technology. The Company believes that any exposure it may have
regarding possible infringement claims is a reasonable business risk similar to
that being assumed by other companies in the electronic equipment and software
industries. However, any claim of infringement, with or without merit, could be
costly and a diversion of management's attention, and an adverse determination
could adversely affect the Company's reputation, preclude it from offering
certain products, and subject it to substantial liability.
EMPLOYEES
As of December 28, 1995, the Company had 401 total employees, of which 43 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 date, the Company believes it has been successful in its efforts
to recruit qualified employees, but there is no assurance that it will continue
to be as successful in the future. None of the Company's employees are
represented by a collective bargaining unit and the Company believes relations
with its employees are favorable.
ENVIRONMENTAL COMPLIANCE
The Company's facilities are subject to numerous laws and regulations concerning
the discharge of materials or otherwise relating to the environment. Compliance
with environmental laws has not had, nor is it expected to have, a material
effect on capital expenditures, the financial position, the results of
operations or the competitive position of the Company.
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EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below is certain information concerning the executive officers of the
Company as of March 1, 1996:
NAME AGE POSITION
---- --- --------
William C. Erxleben 53 President
Chief Executive Officer
Steven M. Gordon 36 Vice President
Finance and Administration
Chief Financial Officer
Chief Accounting Officer
Secretary and Treasurer
William J. Haydamack 53 Senior Vice President
General Manager
Synario Design Automation
Division
Susan S. Webber 41 Vice President
Quality and Human Resources
Larry D. Vandendriessche 38 Vice President
General Manager
Programming Systems Division
William C. Erxleben became President and Chief Executive Officer of the Company
on October 29, 1993. He has been a member of the Board of Directors of Data I/O
since 1979. Mr. Erxleben was a partner with the Seattle-based law firm of Lane
Powell Spears Lubersky from March 1991 until joining the Company. From March
1985 to March 1991 he was a partner with the Seattle law firm of Foster Pepper &
Shefelman. Prior to 1985, he was a member of the faculty of the University of
Washington Graduate School of Business and a Regional Director of the Federal
Trade Commission.
Steven M. Gordon was named Chief Financial Officer, Secretary and Treasurer on
October 29, 1993. Mr. Gordon first joined Data I/O in April 1989 as Corporate
Controller and Chief Accounting Officer. He was promoted to Vice President of
Finance in May 1992. From May 1988 until joining Data I/O, Mr. Gordon served as
Treasurer for Concept Health Group. Prior to that time Mr. Gordon held various
management positions at American Health Group International and Ernst & Young.
William J. Haydamack joined the Company in August 1993 as Vice President and
General Manager of the Design Software Division. In December 1995 he was
promoted to Senior Vice President and General Manager of the Synario Design
Automation Division. From 1986 until joining the Company, Mr. Haydamack served
in various senior management positions with Cadence Design Systems, an EDA
software company. Prior to Cadence Design Systems, Mr. Haydamack served in
management positions with Waferscale Integration, Inc., Hewlett Packard and
General Dynamics.
Susan S. Webber joined the Company in April 1994 as Director of Quality and was
given the responsibility for Human Resources in November of 1994. In December
1995, Ms. Webber was promoted to Vice President of Quality and Human Resources.
From 1985 until joining the Company, Ms. Webber was employed by AG Communication
Systems, a designer and manufacturer of telecommunications systems. Her most
recent position was Quality Director. Prior to AG Communication Systems, Ms.
Webber was with Motorola and was an Assistant Professor with 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 their NCR Microelectronic Products Division.
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RISK FACTORS
Certain risk factors related to the Company's business are described in this
section. (See the sections captioned "Forward-Looking Statements" in Item 1 and
Item 7.)
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 levels could be disproportionately high, and the Company's
operating results for that quarter would be adversely affected. Although the
Company has recently experienced growth in revenue and profitability, there can
be no assurance that the Company will be able to grow in future periods, that it
will be able to sustain its recent or historical rate of revenue growth, or that
its operations will remain profitable. As a result, the Company's results of
operations for any quarter are not necessarily indicative of results for any
future period. Due to all of the foregoing factors, it is possible that in some
future quarter the Company's operating results will be below expectations of
analysts and investors.
TECHNOLOGICAL CHANGE
The markets for the Company's Programming Systems, Semiconductor Equipment and
Synario Design Automation products are characterized by rapid technological
change and evolving industry standards, and are highly competitive with respect
to timely product innovation. The introduction of products embodying new
technology and the emergence of new industry standards can render existing
products obsolete and unmarketable. New and changed technologies may result in
products that contain defects or errors which may give rise to product liability
claims or be detrimental to market acceptance of such products. The Company's
success depends on its ability to anticipate changes in technology, IC package
types and industry standards and to develop and introduce successfully new and
enhanced products on a timely basis. Also, to the extent that more rigid
standards are established in the programmable IC industry, the value-added
element of the Company's products and support services could be decreased. If
such decreases occur, or if the Company is unable, for technological or other
reasons, to develop products in a timely manner in response to changes in the
industry or if products or product enhancements that the Company develops
contain defects or errors or do not achieve market acceptance, the Company's
business, financial condition and results of operations will be materially and
adversely affected.
DEPENDENCE ON BROAD ACCEPTANCE OF MS WINDOWS OPERATING SYSTEM IN THE DESKTOP EDA
MARKET
The Company believes that the desktop EDA market is at the beginning of a trend
toward the use of the Microsoft-Registered Trademark- Windows operating systems,
and anticipates that the use of Windows-based products in the EDA market will
continue to expand. Accordingly, all of the new EDA software products
introduced by the Company during 1995, and all of the EDA software products the
Company is currently developing, are designed for use on Microsoft's Windows 3.1
and 3.11, Windows NT and Windows 95 operating systems. Any factor adversely
affecting the demand for, or use of, the Microsoft Windows operating systems for
EDA applications or in general, could have a material adverse effect on the
Company. Further, any changes to the underlying components of the Microsoft
Windows operating systems that would require changes to the Company's products
would have a material adverse effect on the Company's business if the Company
were unable to successfully develop and implement such changes in a timely
fashion, or if the Company's products, as changed, failed to gain market
acceptance.
ECONOMIC AND MARKET CONDITIONS
The Company's business depends on capital spending and other economic cycles
that affect the users and manufacturers of ICs. This industry is highly
cyclical and characterized by rapid technological change, short product life
cycles, fluctuations in manufacturing capacity and pricing and gross margin
pressures. Segments of this industry, in each of the United States, Europe and
Japan, have from time to time experienced significant economic downturns
characterized by decreased product demand, reductions in capital expenditures,
production over-capacity, price erosion, work slowdowns and layoffs. In
addition, portions of this industry have experienced downturns at different
times. Over the past few years, this industry has
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experienced an extended period of significant growth. There can be
no assurance that such economic growth will continue, and if it does not, any
downturn could be especially severe. The Company believes that capital spending
has been showing signs of slowing in North America during the past few months.
The Company's operations may in the future reflect substantial fluctuations from
period-to-period as a consequence of such industry patterns, general economic
conditions affecting the timing of orders from major customers, and other
factors affecting capital spending. There can be no assurance that such factors
will not have a material adverse effect upon the Company's business, financial
condition and results of operations.
COMPETITION
The markets for the Company's products are highly competitive. Competitors for
the Company's semiconductor equipment and Synario Design Automation products
include a number of established companies that may have significantly greater
financial, technical, manufacturing and marketing resources than the Company.
The Company's competitors may have well established relationships or strategic
affiliations which give them certain competitive advantages. Advances in
technology have reduced the barriers of entry into the programming systems
markets, resulting in new competitors who compete for certain market niches.
The Company expects competition to increase from both established and emerging
companies. There can be no assurance that the Company will be able to compete
successfully against current and future sources of competition or that the
competitive pressures faced by the Company will not adversely affect its
profitability or financial performance.
DEPENDENCE ON IC MANUFACTURERS
The Company maintains close working relationships with semiconductor
manufacturers to ensure that the Company's programming systems use programming
methodology that complies with each semiconductor manufacturer's specifications.
In addition, many semiconductor manufacturers endorse Data I/O programming
systems as equipment that they recommend for end-user applications as well as
for use in their own development and production environments. These
relationships enable Data I/O to keep its Programming Systems product line up
to-date with the latest technology and to provide end-users with broad and
current programmable IC support. Any adverse change in the relationships that
the Company maintains with semiconductor manufacturers could have a material
adverse effect on the Company's business, financial condition and results of
operations.
DEPENDENCE ON SUPPLIERS
Certain components used in the Company's products, including but not limited to
robotics and certain other custom components, are currently available only from
single sources, and other components are available from only a limited number of
sources. To date the Company has been able to obtain adequate supplies of these
components and maintain inventories of its more critical components, in certain
instances through negotiated contractual relationships or parts allocations from
suppliers. However, the Company's inability in the future to develop
alternative sources or to obtain sufficient single- or limited-source components
could result in delays or reductions in product introductions or shipments,
which could have a material adverse effect on the Company's operating results.
The Company has limited ability to avoid or offset future price increases by
suppliers of key components. Accurate production forecasts are required to
ensure that adequate component supplies are available in a timely manner,
particularly in those instances where component suppliers require long lead
times. There can be no assurance that the Company will be able to accurately
forecast its production schedule in the future. If the Company were to
experience significant delays, interruptions or reductions in its supply of key
components, or unfavorable price terms, its business, financial condition and
results of operations could be materially adversely affected.
RELIANCE ON THIRD PARTY DISTRIBUTION CHANNELS
The Company has limited internal sales personnel. The Company is dependent on
third party manufacturers' representatives, OEMs, value-added retailers 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
Page 18
<PAGE>
qualified Third Party Distributors to successfully market the Company's
products, and the failure to do so would have a material adverse effect on the
Company's business, financial condition and results of operations.
INTERNATIONAL OPERATIONS
International sales represented approximately 47% of the Company's total revenue
for the fiscal year ending December 28, 1995, and the Company expects that
international sales will continue to account for a significant portion of its
net revenue in future periods. International sales are subject to inherent
risks, including unexpected changes in regulatory requirements, tariffs and
taxes, difficulties in staffing and managing foreign operations, longer payment
cycles, greater difficulty in accounts receivable collection, compliance with
any applicable export licensing requirements and other trade barriers, as well
as political and economic instability. The European Community and European Free
Trade Association have established certain electronic emission and product
safety requirements ("CE"). Certain of the Company's products have not yet met
these requirements. Failure to obtain either a CE mark or a waiver for any
products may prevent the Company from marketing such products in Europe.
Moreover, gains and losses on the conversion to U.S. Dollars of receivables and
payables arising from international operations may contribute to fluctuations in
the Company's results of operations. For example, the Company estimates that
favorable currency fluctuations affecting sales by the Company accounted for
approximately $1.3 million of the increase in the Company's net sales in 1995.
In addition, if for any reason exchange or price controls or other restrictions
on their currencies were imposed, the Company's business, financial condition
and results of operations could be adversely affected. Moreover, currency
exchange fluctuations in countries in which the Company has wholly owned
subsidiaries may have a material adverse effect on the Company's investment in
those subsidiaries.
PROTECTION OF INTELLECTUAL PROPERTY
Refer to the section captioned "Patents, Copyrights, Trademarks and Licenses"
above.
MANAGEMENT OF GROWTH
The Company plans to continue to expand its product lines, invest in marketing
and distribution and pursue strategic acquisitions and relationships, all of
which could further accelerate the growth that the Company experienced during
1995. 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.
RECENT AND FUTURE ACQUISITIONS
The Company has recently acquired Reel-Tech, Inc. ("Reel-Tech"), formerly the
Company's OEM partner in developing the ProMaster 9500. In connection with this
acquisition, the activities and employees of Reel-Tech must be successfully
integrated into the Company's operations. To date, the Company has made
progress toward integrating the activities and employees of Reel-Tech. However,
there can be no assurance that such integration, and change in status from that
of OEM partner to that of a wholly owned subsidiary, will be smooth or
ultimately successful. In addition, there can be no assurance that such
integration or change in status can be accomplished without incurring
substantial additional costs or diverting management's attention and resources.
If the integration of Reel-Tech into the Company's operations is unsuccessful,
it could have a material adverse effect on the Company's business, financial
condition and results of operations. The Company may in the future pursue
acquisition of complementary technologies, product lines or businesses. Future
acquisitions by the Company may result in potentially dilutive issuances of
equity securities, the incurrence of additional debt and amortization expenses
related to goodwill and intangible assets that could adversely affect the
Company's profitability. In addition, acquisitions involve numerous risks,
including difficulties in the assimilation of the operations and products of the
acquired company, the diversion of management's attention from other business
concerns, risks of entering markets in which the Company has no or limited
direct prior experience, and the potential loss of key employees of the acquired
company. In the event that such an acquisition does occur, there can be no
assurance as to the effect thereof on the Company's business or operating
results.
DEPENDENCE ON KEY PERSONNEL
Refer to the section captioned "Employees" above.
Page 19
<PAGE>
POTENTIAL VOLATILITY OF STOCK PRICE
There has been significant volatility in the market price of securities of
technology companies. The Company believes factors such as announcements of new
products by the Company or its competitors and quarterly variations in financial
results could cause the market price of the Company's Common Stock to fluctuate
substantially. In addition, the stock market has experienced volatility that
has particularly affected the market prices for many technology companies' stock
and that often has been unrelated to the operating performance of such
companies. These market fluctuations may continue in the future and may
adversely affect the price of the Company's Common Stock.
ITEM 2. PROPERTIES
Data I/O's headquarters and principal facility is a 100,000 square foot building
on approximately 79 acres of land, which is owned by the Company and located in
Redmond, Washington. In September 1991, the Company engaged the services of a
real estate broker and began a formal process of negotiating to sell excess land
at its headquarters. This land has been classified as Land Held for Sale in the
Company's financial statements. In June of 1992, as a result of compliance with
a Sensitive Areas Ordinance enacted in July 1992 by the City of Redmond,
Washington, which increased development restrictions relating to land classified
as wetlands, the Company recorded a write-down of $2.6 million ($1.7 million
after taxes) for the value of land effectively condemned by this ordinance. In
addition, in December 1993 the Company recorded an additional $2.0 million
write-down in the value of this land due to changes in valuation for commercial
real estate comparable to the land held by Data I/O. In order to enhance the
land's marketability, the Company currently has listed its entire Redmond
headquarters property, including the building, as available for sale with
long-term lease back provisions on the building. See Note 4 of "Notes to
Consolidated Financial Statements."
The Company currently leases approximately 20,000 square feet of space for its
manufacturing facility in Anaheim, California. This facility will be closed
during the first quarter 1996 as the Company moves and consolidates its
automated programming and handling system manufacturing operations to its
Redmond facility. The Company also leases approximately 5,000 square feet of
space for its semiconductor equipment manufacturing facility in Indianapolis,
Indiana. In April 1996 the Company plans to relocate its semiconductor
equipment manufacturing facility to another site in Indianapolis. This new
leased site will have approximately 12,000 square feet of space.
In addition, approximately 1,000 square feet of space is leased at one U.S.
sales and service location and approximately 20,000 square feet is leased at
four foreign sales and service locations. As part of the restructuring of its
sales and distribution channels, the Company has plans to abandon approximately
4,000 square feet of space in the foreign sales and service locations.
ITEM 3. LEGAL PROCEEDINGS
Nothing to report.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF STOCKHOLDERS
No matters were submitted for a vote of stockholders of the Company during the
fourth quarter of the fiscal year ended December 28, 1995.
Page 20
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
The following table shows the market range for the Company's common stock as
reported by the Nasdaq National Market tier of The Nasdaq Stock Market (Nasdaq
symbol is DAIO).
<TABLE>
<CAPTION>
PERIOD HIGH LOW
------ ----- ---
<S> <C> <C>
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
1994 Fourth Quarter $5.75 $3.00
Third Quarter 3.50 2.63
Second Quarter 3.38 2.50
First Quarter 3.62 2.25
</TABLE>
The approximate number of shareholders of record at March 1, 1996 was 1,148.
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 21
<PAGE>
ITEM 6. SELECTED FIVE-YEAR FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED
- -------------------------------------------------------------------------------------------------------------------------------
DEC. 28, DEC. 29, DEC. 30, DEC. 31, DEC. 26,
(in thousands, except employee and per share data) 1995 1994 1993 1992 (1) 1991
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FOR THE YEAR:
Net sales $66,031 $61,478 $63,186 $69,337 $67,387
Gross margin 35,433 33,094 31,775 39,292 38,824
Research and development 9,069 9,227 9,700 7,797 7,911
Selling, general and administrative 20,411 20,032 26,094 26,872 25,524
Write-off of acquired in-process R&D (2) 825
Provision for business restructuring (3) (400) 6,120
Operating income (loss) 5,528 3,835 (10,139) 4,623 5,389
Non-operating (income) expense (125) 134 2,218 310 463
Income (loss) before taxes, extraordinary item
and cumulative effect of accounting change 5,653 3,701 (12,357) 4,313 4,926
Income tax expense (benefit) 892 975 (700) 1,445 1,897
Income (loss) before extraordinary item and
cumulative effect of accounting change 4,761 2,726 (11,657) 2,868 3,029
Extraordinary item, net of tax (4) (1,675)
Cumulative effect of accounting change (5) 400
Net income (loss) $4,761 $2,726 ($11,257) $1,193 $3,029
- -------------------------------------------------------------------------------------------------------------------------------
AT YEAR-END:
Working capital $12,005 $10,038 $3,582 $9,940 $5,174
Total assets $44,776 $43,487 $43,025 $49,702 $46,730
Long-term debt (6) $1,500 $1,500 $1,500
Total debt $1,617 $1,940 $3,867 $3,422 $3,219
Stockholders' equity $25,929 $24,343 $21,183 $31,343 $29,377
Number of employees 401 379 445 517 487
- -------------------------------------------------------------------------------------------------------------------------------
COMMON STOCK DATA:
Earnings per share:
Income (loss) before extraordinary item and
cumulative effect of accounting change $0.60 $0.37 ($1.63) $0.40 $0.44
Net income (loss) $0.60 $0.37 ($1.57) $0.17 $0.44
Book value per share at year end $3.66 $3.28 $2.92 $4.46 $4.35
Shares outstanding at year end 7,084 7,432 7,250 7,030 6,749
Weighted average shares outstanding 7,879 7,420 7,170 7,117 6,900
- -------------------------------------------------------------------------------------------------------------------------------
KEY RATIOS:
Current ratio 1.7 1.6 1.2 1.6 1.3
Gross margin to sales 53.7% 53.8% 50.3% 56.7% 57.6%
Operating income (loss) to sales 8.4% 6.2% (16.0%) 6.7% 8.0%
Net income (loss) to sales (7) 7.2% 4.4% (18.4%) 4.1% 4.5%
Return on average total assets (7) 10.4% 6.4% (23.7%) 6.1% 6.7%
Return on average stockholders' equity (7) 18.2% 12.3% (39.3%) 9.5% 11.1%
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
FOOTNOTES:
(1) Fiscal 1992 was a 53 week year.
(2) For further discussion, see Note 6 of "Notes to Consolidated Financial
Statements."
(3) For further discussion, see Note 2 of "Notes to Consolidated Financial
Statements."
(4) For further discussion, see Note 4 of "Notes to Consolidated Financial
Statements."
(5) For further discussion, see Note 10 of "Notes to Consolidated Financial
Statements."
(6) For further discussion, see Note 7 of "Notes to Consolidated Financial
Statements."
(7) Computed based on net income (loss) before cumulative effect of accounting
change and extraordinary item.
Page 22
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
BUSINESS ACQUISITION
On August 31, 1995 the Company acquired the assets of Reel-Tech, Inc. and
entered into employment and non-compete agreements with its two founding
technologists. The purchase included an initial cash payment of $2.0 million
and assumption of certain liabilities valued at $1.2 million. The Company has
agreed to make additional payments of up to $2.0 million over the next three
years, with these payments contingent upon the acquired operation achieving
specified performance goals. This acquisition was recorded using the purchase
method of accounting.
As part of the accounting for this acquisition the Company recorded in the third
quarter of 1995 a charge of $825,000 for in-process research and development and
accrued a long-term payable of $666,000. See Note 6 of "Notes to Consolidated
Financial Statements."
SHARE REPURCHASE PROGRAM
The Company announced on October 27, 1995 a share repurchase program which
authorized the Company to repurchase up to 7.5% (approximately 570,000 shares)
of its outstanding shares of common stock. At December 28, 1995 the Company had
repurchased 562,400 shares for approximately $4.1 million.
The Company announced on February 21, 1996 that the Board of Directors had
authorized the extension of the share repurchase program. The extension
authorizes 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.
FORWARD-LOOKING STATEMENTS
Although most of the information contained in this report is historical, certain
of the statements contain forward-looking information. To the extent these
statements involve, without limitation, product development and introduction
plans, the Company's expectations for growth, estimates of future revenue,
expenses, profit, cash flow, balance sheet items, sell-through or backlog,
forecasts of demand or market trends for the Company's various product
categories and for the industries in which the Company operates or any other
guidance on future periods, these statements are forward-looking and involve
matters which are subject to a number of risks and uncertainties that could
cause actual results to differ materially from those expressed in such forward-
looking statements. Readers of this report should consider, along with other
relevant information, the risk factors 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.
RESULTS OF OPERATIONS
In 1995 the Company reorganized its operations into three divisions: Programming
Systems, Semiconductor Equipment and Synario Design Automation. The following
discusses the Company's results of operations by division. For comparability
purposes, the discussions of 1994 compared to 1993 have been revised from that
contained in the Company's Annual Report for fiscal 1994 to follow this new
divisional structure.
Page 23
<PAGE>
NET SALES
<TABLE>
<CAPTION>
(IN THOUSANDS) 1995 CHANGE 1994 CHANGE 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $66,031 7.4% $61,478 (2.7%) $63,186
- --------------------------------------------------------------------------------
</TABLE>
1995 VS. 1994
Sales increased by 7.4% in 1995 compared to 1994, with U.S. sales increasing
7.1% and international sales increasing 7.7%. Sales of the Company's
Programming Systems products increased 4.6% in 1995 compared to 1994.
Programming Systems 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. Sales for
the Synario Design Automation Division increased 40% in 1995 compared to 1994.
The addition of Semiconductor Equipment products, obtained as part of the Reel-
Tech acquisition in August of 1995, also provided incremental sales growth of
approximately $625,000.
Net sales for 1995 of the Company's non-automated programming systems declined
by $1.0 million or 2.5% over 1994. The Company experienced decreased sales for
the 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 toward lower-priced project-specific programmers and
away from higher-priced, full-featured universal programmers. 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 teams away from hardware tools in favor of software design tools.
Finally, the Company believes that advances in semiconductor processing
technology 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.
These industry changes had, and are continuing to have, an adverse effect on the
Company's non-automated programming systems sales and gross margins, especially
because the Company's products historically have been oriented toward hardware
tools and, within hardware tools, toward higher-priced universal programming
systems. However, the Company believes the trends toward low-cost programming
systems, EDA software tools and automated programming and handling systems will
eventually mean increased sales of its newer products ChipLab, 2700, Synario,
ProMaster 9500, ProMaster 7500, ProMaster 2500 and the Tape and Reel.
Sales of the Company's automated programming and handling systems for the
manufacturing environment increased by approximately 35% in 1995 compared to
1994. The Company believes this growth is 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 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. The Company believes this trend will
continue contributing to further growth and expansion of this market. The
Company's participation in this growth depends upon the market's acceptance of
its new products, its ability to understand and meet the changing needs of this
market, and its response to and development of changes in technology. The
automated programming and handling systems product line accounted for
approximately 30% of revenues in 1995 compared to 24% in 1994. 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.
Sales of the Company's Programming Systems software products decreased by 28% in
1995 compared to 1994. 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.
Sales of the Company's Semiconductor Equipment products, acquired as part of the
Reel-Tech acquisition, were approximately $625,000. The market for
semiconductor equipment has experienced strong growth as semiconductor
manufacturers have expanded capacity in response to demand for ICs. The Company
is in the process of expanding its personnel, space and systems to meet expected
demand for its semiconductor equipment. The Company believes that if this
strong demand continues and the Company executes well in integrating the Reel-
Tech acquisition, the Company's Semiconductor Equipment products may provide a
significant revenue growth opportunity. Due to the cyclical nature of
Page 24
<PAGE>
demand for ICs, the activities of competitors and other factors, there can be no
assurance that strong demand for this equipment will continue.
International sales were favorably impacted by foreign currency translation
gains which were approximately $1.3 million higher 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. When the U.S. Dollar is
weaker, sales of the Company's products in local currency translate into more
U.S. Dollars. However, offsetting the revenue translation impact is the
translation of local currency costs and expenses. A strengthening of the U.S.
Dollar would in general have the opposite economic effect on the Company.
Currency markets fluctuate and there can be no assurance of continued benefit
from currency changes. Sales in the U.S. accounted for approximately 53% of the
Company's sales in 1995 compared to 54% in 1994.
1994 VS. 1993
Sales of the Company's Programming Systems products declined 6.3% while sales of
Synario Design Automation Division software products increased by 235% in 1994
compared to 1993. Sales in the U.S. decreased 2.4% while international sales
decreased 3.1%. Sales in the U.S. accounted for approximately 54% of the
Company's sales in 1994 compared to 53% in 1993. The increase as a percentage
of total sales in the Company's sales to U.S. customers resulted primarily from
the continued economic weakness in the Japanese and German markets during 1994.
The Company experienced quarterly year-over-year revenue growth of 4.5% and 3.3%
for the third and fourth quarters of 1994 compared to 1993 due primarily to
increased sales of automated programming and handling systems. For the year,
decreased sales in the first half of 1994 compared to 1993 offset the second
half sales growth for an overall decline in sales of 2.7%. The 1994 sales
decline was due primarily to a decline in sales of the Company's non-automated
programming systems and older software design tools offset by increased sales of
the Company's automated programming and handling systems for the manufacturing
environment.
Net sales for 1994 in the Company's traditional line of non-automated
programming systems declined by $5.9 million or 13.1% over 1993. The Company
experienced decreased sales for nearly all of the products in this product line,
except for the low-priced ChipLab. This reflects the continuing market shift
toward lower-priced, project-specific, non-automated programming systems, the
shift in demand toward software design tools by engineering design teams and the
technological advances creating increased competition discussed above.
Sales of the Company's automated programming and handling systems for the
manufacturing environment increased by approximately 40.3% in 1994 compared to
1993. The Company believes this growth is due to a trend toward the expanded
use of programmable ICs in high-volume manufacturing situations as discussed
above. The automated programming and handling systems product line accounted
for approximately 24% of revenues in 1994 compared to 16% in 1993. A market
shift in the ProMaster product mix toward higher-priced models also contributed
to the sales increase. The Company's new products, ProMaster 7500, ProMaster
2500 and Tape and Reel, provided approximately 70% of this growth during 1994.
Sales of the Company's Programming Systems software products decreased by 31% in
1994 compared to 1993. The Company's ABEL and FutureNet products declined
primarily due to competitive pricing pressures, product aging and lower unit
sales. The Company believes that the strategic decision in 1993 to change its
software sales channel to value-added resellers, which it believes are more
appropriate for Windows-based software, continued to have a negative
transitional impact during early 1994. In addition, this change resulted in
lower net sales by the Company as it received lower wholesaler/distributor
pricing instead of direct/retail sales pricing.
Sales growth in the Company's Synario Design Automation software products,
including Synario and ECS, was due to having a full year of sales of the
Company's Synario product line after its introduction in October 1993. 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.
Page 25
<PAGE>
GROSS MARGIN
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
(IN THOUSANDS) 1995 CHANGE 1994 CHANGE 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Gross margin $35,433 7.1% $33,094 4.2% $31,775
Percentage of net sales 53.7% 53.8% 50.3%
- --------------------------------------------------------------------------------
</TABLE>
1995 VS. 1994
The gross margin increased in Dollars during 1995 compared to 1994 while staying
approximately the same as a percentage of sales. The increase in gross margin
Dollars is due primarily to the increase in sales volume. The Company
experienced improved gross margins on automated programming and handling system
products in 1995 due to increased volume and a shift toward higher-priced
models. Offsetting this improvement is a shift in the mix of sales of the
Company's non-automated programming systems products from higher-priced, higher-
margined products toward lower-priced alternatives which has lowered the overall
margins for this product line. The shift in the product mix to a lower overall
percentage of software sales, which have higher gross margins, has had an
additional offsetting impact. In addition, the gross margin on the ProMaster
9500 was below that of the Company's traditional automated programming and
handling systems due to higher material and labor costs. The Company expects
the ProMaster 9500 costs to decline in future periods due to the acquisition of
Reel-Tech and anticipated improvements in the proficiency of manufacturing and
service personnel in building and servicing this system. Finally, gross margin
was favorably affected by improvements due to the positive currency effects of a
weaker Dollar. As stated above, there is no assurance of continued benefit from
currency rate changes.
1994 VS. 1993
The gross margin increased in both Dollars and as a percentage of sales during
1994 compared to 1993 despite the decline in sales. The Company's gross margin
in 1993 was depressed due to increased reserves for excess and obsolete
inventories. The Company's restructuring reduced costs in its manufacturing,
service and distribution operations, improving margins in 1994. In addition,
the Company experienced improved gross margins on its automated programming and
handling system products in 1994 due to increased volume and a shift toward
higher-priced models.
Offsetting a portion of these gross margin improvements are the lower sales
volume and a shift from higher-priced to lower-priced products in the Company's
non-automated programming systems line. Lower sales in Japan and Germany also
unfavorably impacted gross margins as the Company generally receives higher
gross margins on sales to those countries.
RESEARCH AND DEVELOPMENT
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
(IN THOUSANDS) 1995 CHANGE 1994 CHANGE 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Research and development $9,069 (1.7%) $9,227 (4.9%) $9,700
Percentage of net sales 13.7% 15.0% 15.4%
- --------------------------------------------------------------------------------
</TABLE>
1995 VS. 1994
Research spending declined slightly both in Dollars and as a percentage of
sales. The decline is primarily due to lower personnel costs which relate
primarily to open job positions during the year. The Company focused its
research and development efforts in 1995 on its strategic growth markets, namely
automated programming and handling systems, Windows-based EDA software design
tools, low-priced project specific IC programmers and semiconductor equipment.
The 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.
The charge for in-process research and development acquired as part of the Reel-
Tech acquisition is discussed above under the caption "Business Acquisition" and
is not included in research and development expense.
Page 26
<PAGE>
1994 VS. 1993
Research spending declined slightly both in Dollars and as a percentage of
sales. The decline was primarily due to personnel reductions made as a part of
the Company's restructuring. The Company focused its research and development
efforts in 1994 on its strategic growth markets, namely automated programming
and handling systems, Windows-based EDA software design tools and low-priced
project specific non-automated IC programmers.
SELLING, GENERAL AND ADMINISTRATIVE
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
(IN THOUSANDS) 1995 CHANGE 1994 CHANGE 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Selling, general and
administrative $20,411 1.9% $20,032 (23.2%) $26,094
Percentage of net sales 30.9% 32.6% 41.3%
- --------------------------------------------------------------------------------
</TABLE>
1995 VS. 1994
The actual Dollar increase in selling, general and administrative expenditures
in 1995 was due to increased marketing and promotion expenditures, increased
commissions resulting from the sales volume increase and increased expenses in
the Company's foreign offices due to currency rate changes. Partially offsetting
this increase were reductions in spending due to the restructuring efforts.
1994 VS. 1993
The decrease in selling, general and administrative expenditures in 1994 was due
primarily to the restructure efforts which reduced the number of personnel
worldwide and focused on matching cost effective sales channels to our products
and markets. These reductions were partially offset by performance bonuses and
incentive compensation which were not incurred in 1993.
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 to consolidate and outsource certain manufacturing
processes. The purpose of the restructure was primarily to reduce expenses and
significantly lower the Company's break-even point in reaction to reduced sales
and gross margins in 1993. Additionally, the Company made several strategic
changes to its sales and distribution channels to better align distribution of
the Company's current and anticipated future products to their markets and
customers. The general downsizing of operations and restructuring of the sales
and distribution system were substantially completed in 1994. The Company began
implementation of the planned changes to its manufacturing processes in 1994 for
completion in 1997. The manufacturing consolidation and relocation project was
completed in the first quarter of 1996, and the outsourcing of certain
manufacturing processes is scheduled to be completed in 1997.
Of the total 1993 restructure charge of $6.1 million, $2.1 million related to
restructuring the sales and distribution system, including severance for
terminated employees, facilities and equipment lease abandonment, facilities
relocation costs, the write-off of intangible assets associated with the
acquisition and setup of direct sales operations in Germany and the United
Kingdom, and costs associated with implementing new accounting and distribution
systems and processes; $2.0 million related to the consolidation and outsourcing
of certain portions of the Company's manufacturing operations, including the
write-down of production equipment to net realizable value, severance for
terminated employees, facility relocation costs, and costs associated with
outsourcing certain manufacturing processes; and the remaining $2.0 million
related to general organizational downsizing, including severance for terminated
employees, asset write-downs and costs associated with rearrangement of
facilities.
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 and expects to pay approximately $965,000 in future periods.
The Company expects to fund these cash payments from internally generated
Page 27
<PAGE>
funds and, if necessary, borrowings on its lines of credit. In addition, the
Company recorded approximately $800,000 in asset write-downs related to its
restructuring.
The Company has continuously reviewed its restructure actions and compared them
to its original plan. Accordingly, 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.
This credit lowered the expected cost of the restructure of the Company's
manufacturing operations by approximately $200,000 and the Company's sales and
distribution systems by approximately $200,000. No other amounts related to the
restructuring plan were charged or credited to earnings since inception of the
plan. The restructuring plan changed primarily as the Company experienced
difficulties in proceeding as planned on outsourcing certain manufacturing
processes. The effect of this has been 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.
In the aggregate, the restructuring of the Company's operations reduced total
costs and expenses by a net of $7 million in 1994, with approximately $6.6
million of the savings attributable to reduced employee costs, approximately
$200,000 due to reduced facility and equipment lease expense, and approximately
$200,000 due to reduced depreciation and amortization. The 1993 restructure
resulted in an additional $1.6 million reduction in costs and expenses in 1995
compared to 1994, which was attributable primarily to reduced employee costs.
In addition to the actions described above, the Company implemented a temporary
pay and work week reduction of 10% for all U.S. employees for the period
January 1, 1994 through February 28, 1994. The Company realized savings of
approximately $250,000 in salary costs related to this reduction.
INTEREST
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
(IN THOUSANDS) 1995 CHANGE 1994 CHANGE 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest income $398 176.4% $144 433.3% $27
Interest expense $273 0.0% $273 (14.2%) $318
- --------------------------------------------------------------------------------
</TABLE>
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.
1994 VS. 1993
Net interest expense decreased in 1994 to $129,000. This decline relates to
increased interest income from investment of higher cash balances and to
decreased average borrowings on the Company's lines of credit.
ADJUSTMENT OF CARRYING VALUE OF LAND HELD FOR SALE
Due to the changes in valuation for commercial real estate comparable to the
land held by Data I/O, the Company recorded a $2.0 million valuation reserve
against the land held for sale at December 30, 1993. The Company has and
intends to continue to market this excess land. See Note 4 of "Notes to
Consolidated Financial Statements."
Page 28
<PAGE>
INCOME TAXES
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
(IN THOUSANDS) 1995 CHANGE 1994 CHANGE 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Income tax expense (benefit) $892 (8.5%) $975 N/A ($700)
Effective tax (benefit) rate 15.8% 26.3% (5.7%)
- --------------------------------------------------------------------------------
</TABLE>
1995 VS. 1994
The effective income tax rate for 1995 differed from the statutory 34% tax rate
primarily due to reversal of tax valuation reserves established in 1993. The
reversal of valuation reserves was due to the utilization of foreign subsidiary
loss carryforwards and alternative minimum tax credit carryforwards as well as
the offset of reversing temporary differences against 1995 taxable income. See
Note 10 of "Notes to Consolidated Financial Statements."
The Company had valuation allowances of $2,571,000 at December 28, 1995 compared
to $3,358,000 at December 29, 1994. The valuation reserves will continue to
reverse in 1996 if the Company's profitability continues. In 1996, the criteria
that requires the Company to maintain its valuation allowance will be less
restrictive if the Company is profitable. The Company believes this may allow
further reductions in the valuation allowance for deferred tax assets. The
potential reversal of these valuation allowances may significantly reduce the
Company's effective tax rate in 1996.
1994 VS. 1993
The effective income tax rate for 1994 differed from the statutory 34% tax rate
primarily due to reversal of tax valuation reserves established in 1993. The
valuation reserves reversed due to the Company utilizing foreign subsidiary loss
carryforwards and the ability to offset reversing temporary differences against
1994 taxable income. See Note 10 of "Notes to Consolidated Financial
Statements."
The effective income tax rate for the 1993 loss benefit was reduced primarily
due to valuation reserves established for deferred tax assets. The valuation
reserves were increased during 1993 due to the loss generated during the year
and the increased uncertainty of the Company's ability to utilize the benefits
from its deferred tax assets, particularly net operating loss carryforwards. The
valuation reserves were set up for net operating loss carryforwards of foreign
subsidiaries and as a result of an evaluation of the benefit obtainable for
deferred tax assets.
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes," was adopted during 1993 and the cumulative benefit of $400,000 was
included in net income as the cumulative effect of accounting change (see Note
10 of "Notes to Consolidated Financial Statements").
NET INCOME AND EARNINGS PER SHARE
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
(IN THOUSANDS) 1995 CHANGE 1994 CHANGE 1993
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Before cumulative effect of accounting
change:
Income (loss) $4,761 74.7% $2,726 N/A ($11,657)
Percentage of net sales 7.2% 4.4% (18.4%)
Earnings (loss) per share $0.60 62.2% $0.37 N/A ($1.63)
Net income (loss) $4,761 74.7% $2,726 N/A ($11,257)
Earnings (loss) per share $0.60 62.2% $0.37 N/A ($1.57)
- -------------------------------------------------------------------------------------------------------------
</TABLE>
1995 VS. 1994
The change in the Company's profitability was due primarily to the increased
sales volume, the reversal of a portion of the restructure accrual, reduced
costs and operating expenses resulting from the Company's 1993 restructure and
the reversal of deferred tax valuation reserves. Offsetting a portion of this
was the charge of $660,000 net of tax for in-process research and development
related to the Reel-Tech acquisition.
Page 29
<PAGE>
1994 VS. 1993
The change in the Company's profitability before cumulative effect of accounting
change was due primarily to the reduced operating expenses and costs of goods
sold resulting from the restructure of the Company's operations.
INFLATION AND CHANGES IN FOREIGN CURRENCY EXCHANGE RATES
In the past, the Company has been able to offset the impact of inflation with
efficiency increases and price adjustments. Heightened competition has made the
Company's products subject to more price competition and has diminished its
ability to offset the impacts of inflation.
Sales and expenses incurred by foreign subsidiaries are 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-third of the Company's sales are made by foreign
subsidiaries, independent currency fluctuations tend to minimize the effect of
any individual currency exchange fluctuations and the effect of individual rate
changes on sales and expenses tend to offset each other. Additionally, the
Company hedges its foreign currency exposure on the sales of inventory and
certain loans to its foreign subsidiaries through the use of foreign exchange
contracts. See Note 1 of "Notes to Consolidated Financial Statements."
FINANCIAL CONDITION
LIQUIDITY AND CAPITAL RESOURCES
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
(IN THOUSANDS) 1995 CHANGE 1994 CHANGE 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Working capital $12,005 $1,967 $10,038 $6,456 $3,582
Total debt $1,617 ($323) $1,940 ($1,927) $3,867
- --------------------------------------------------------------------------------
</TABLE>
Working capital increased during 1995 primarily due to funds provided by
operations, which is net of $855,000 of restructure related expenditures.
The Company's trade accounts receivable at the end of 1995 increased by
approximately $3.0 million as compared to the end of 1994 due to increased sales
volume in the fourth quarter, Reel-Tech receivables, and a general increase in
the collection period related to sales of automated programming and handling
products. The Company increased inventory levels by approximately $1.6 million
or 23% during 1995. Inventory levels were increased primarily to support the
growth in automated programming and handling systems as well as provide a level
of safety stock during the Anaheim factory relocation. Additionally, inventory
increased due to the acquisition and expansion of Reel-Tech inventories. The
Company reduced its other current assets by approximately $500,000 primarily due
to collection of former lease deposits. Other long-term assets increased by
approximately $500,000 related to the capitalization of intangible assets
purchased from Reel-Tech which are offset by amortization. The Company also
reduced its accrued expenses primarily due to payments of approximately $855,000
of restructure related accruals. Borrowings on the foreign line of credit were
paid down by approximately $300,000. The use of $4.1 million of cash to
repurchase 562,400 shares of Common Stock during the fourth quarter was
partially offset by stock sale proceeds of $900,000 under the Company's employee
stock benefit plans. The funding for these changes in 1995 was provided
primarily by operations and by reducing the Company's level of cash by
approximately $2.8 million.
As of December 28, 1995, the Company had total debt of $1.6 million, or
approximately 6% of its $25.9 million in equity. Of this total, approximately
$117,000 is current debt, consisting entirely of borrowings on its foreign line
of credit. The $1.5 million of long-term debt consists of a note due in 1998
for the balance of the purchase price for CAD/CAM (see Note 6 of "Notes to
Consolidated Financial Statements"). At December 28, 1995, the Company also had
an unused $8.0 million U.S. line of credit maturing in May 1996 under which
borrowings would incur interest at the bank's published Prime rate or the LIBOR
rate plus 110 basis points.
Page 30
<PAGE>
The foreign line of credit of $1.6 million matures in August 1996.
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 estimates that capital expenditures for property, plant and
equipment during 1996 will be approximately $2.0 million. Such expenditures are
currently expected to be funded from internally generated funds and, if
necessary, borrowings from the Company's existing credit lines. Although the
Company fully expects that such expenditures will be made, it has commitments
for only a small portion of these amounts.
At December 28, 1995, the Company's material short-term unused sources of
liquidity consisted of approximately $4.5 million in cash and cash equivalents
and available borrowings of $8.0 million under its U.S. line of credit and
approximately $1.5 million under its foreign line of credit. The Company
believes these sources will be sufficient during 1996 to fund working capital
needs, service existing debt, finance planned capital acquisitions, fund the
Company's planned repurchase of up to 570,000 shares of its Common Stock, fund
the Reel-Tech contingent payment obligations and fund its remaining restructure
accrued liabilities. Additional capital will also be provided if the Company
successfully disposes of its Redmond headquarters property (see Note 4 of "Notes
to Consolidated Financial Statements").
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See pages 32 through 47.
Page 31
<PAGE>
- --------------------------------------------------------------------------------
REPORT OF ERNST & YOUNG LLP , INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------
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 28, 1995, and December 29, 1994, and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the three years in the period ended December 28, 1995. Our audits also
included the financial statement schedule listed in the Index at Item 14(A).
These financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Data I/O Corporation at December 28, 1995, and December 29, 1994, and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended December 28, 1995, 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.
As discussed in Note 10 of "Notes to Consolidated Financial Statements," in 1993
the Company changed its method of accounting for income taxes.
Seattle, Washington //S// ERNST & YOUNG LLP
February 7, 1996 ERNST & YOUNG LLP
- --------------------------------------------------------------------------------
REPORT OF MANAGEMENT
- --------------------------------------------------------------------------------
Management is responsible for preparing the Company's financial statements and
related information that appears in this annual report on Form 10-K. Management
believes that the financial statements fairly reflect the form and substance of
transactions and reasonably present the Company's financial condition and
results of its operations in conformity with generally accepted accounting
principles. Management has included in the Company's financial statements
amounts that are based on estimates and judgments, which it believes are
reasonable under the circumstances.
The Company maintains a system of internal accounting policies, procedures and
controls intended to provide reasonable assurance, at appropriate cost, that
transactions are executed in accordance with Company authorization and are
properly recorded and reported in the financial statements, and that assets are
adequately safeguarded.
Independent audits of the Company's financial statements are performed in
accordance with generally accepted auditing standards and provide an objective,
independent review of the fairness of reported financial condition and results
of operations.
The Board of Directors of the Company has an Audit Committee composed of non-
management Directors. The Committee meets with financial management and the
independent auditors to review internal accounting controls and accounting,
auditing and financial reporting matters.
//S//WILLIAM C. ERXLEBEN //S//STEVEN M. GORDON
WILLIAM C. ERXLEBEN STEVEN M. GORDON
President Vice President
Chief Executive Officer Finance and Administration
Chief Financial Officer
Chief Accounting Officer
Secretary and Treasurer
Page 32
<PAGE>
DATA I/O CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
DEC. 28, DEC. 29, DEC. 30,
FOR THE YEARS ENDED 1995 1994 1993
- ----------------------------------------------------------------------------------------------------
(in thousands, except per share data)
<S> <C> <C> <C>
Net sales $66,031 $61,478 $63,186
Cost of goods sold 30,598 28,384 31,411
--------- --------- ---------
Gross margin 35,433 33,094 31,775
Operating expenses:
Research and development 9,069 9,227 9,700
Selling, general and administrative 20,411 20,032 26,094
Write-off of acquired in-process R&D 825
Provision for business restructuring (400) 6,120
--------- --------- ---------
Total operating expenses 29,905 29,259 41,914
--------- --------- ---------
Operating income (loss) 5,528 3,835 (10,139)
Non-operating (income) expense:
Interest income (398) (144) (27)
Interest expense 273 273 318
Foreign currency exchange 5 (73)
Adjustment of carrying value of land held for sale 2,000
--------- --------- ---------
Total non-operating (income) expense (125) 134 2,218
--------- --------- ---------
Income (loss) before income taxes and
cumulative effect of accounting change 5,653 3,701 (12,357)
Income tax expense (benefit) 892 975 (700)
--------- --------- ---------
Income (loss) before cumulative effect of
accounting change 4,761 2,726 (11,657)
Cumulative effect of accounting change 400
--------- --------- ---------
Net income (loss) $4,761 $2,726 ($11,257)
--------- --------- ---------
--------- --------- ---------
Earnings per share:
Income (loss) before cumulative effect of
accounting change $0.60 $0.37 ($1.63)
Cumulative effect of accounting change 0.06
--------- --------- ---------
Net income (loss) $0.60 $0.37 ($1.57)
--------- --------- ---------
--------- --------- ---------
Weighted average common and equivalent
shares outstanding 7,879 7,420 7,170
--------- --------- ---------
--------- --------- ---------
See notes to consolidated financial statements.
</TABLE>
Page 33
<PAGE>
DATA I/O CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
DEC. 28, DEC. 29,
1995 1994
- ----------------------------------------------------------------------------------------------------
(in thousands, except share data)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $4,496 $7,279
Trade accounts receivable,
less allowance for doubtful
accounts of $311 and $277, respectively 13,115 10,145
Inventories 8,539 6,937
Recoverable income taxes 453
Deferred income taxes 976 675
Other current assets 893 1,361
--------- ---------
TOTAL CURRENT ASSETS 28,019 26,850
Land held for sale 2,095 2,006
Property, plant and equipment - net 10,240 10,737
Other assets 4,422 3,894
--------- ---------
TOTAL ASSETS $44,776 $43,487
--------- ---------
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $2,071 $1,908
Accrued compensation 3,612 3,460
Deferred revenue 5,436 5,271
Other accrued liabilities 2,672 2,846
Accrued costs of business restructuring 965 1,890
Income taxes payable 1,141 997
Notes payable 117 440
--------- ---------
TOTAL CURRENT LIABILITIES 16,014 16,812
LONG-TERM DEBT 1,500 1,500
LONG-TERM OTHER PAYABLES 1,117 361
DEFERRED INCOME TAXES 216 471
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, 7,083,825
and 7,431,901 shares, respectively 17,528 20,729
Retained earnings 7,946 3,185
Currency translation adjustments 455 429
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 25,929 24,343
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $44,776 $43,487
--------- ---------
--------- ---------
</TABLE>
See notes to consolidated financial statements.
Page 34
<PAGE>
DATA I/O CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
DEC. 28, DEC. 29, DEC. 30,
FOR THE YEARS ENDED 1995 1994 1993
- ----------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $4,761 $2,726 ($11,257)
Adjustments to reconcile income (loss)
to net cash provided by operating activities:
Depreciation and amortization 4,285 4,671 4,860
Adjustment of carrying value of land held for sale 2,000
Write-off of acquired in-process R&D 825
Income and deferred income taxes and refunds 39 2,133 (533)
Cumulative effect of accounting change (400)
Business restructure (925) (1,936) 4,955
Deferred revenue 184 937 458
Changes in current items other
than cash and cash equivalents:
Trade accounts receivable (1,712) (741) 3,518
Inventories (1,469) 1,345 2,393
Other current assets 474 (218) 48
Accounts payable and accrued liabilities (354) 38 (1,441)
--------- --------- ---------
Cash provided by operating activities 6,108 8,955 4,601
INVESTING ACTIVITIES:
Additions to property, plant and equipment (2,654) (1,876) (2,820)
Investment in assets of acquired business (2,055)
Additions to other assets (104) (53) (1,405)
Cash used for investing activities (4,813) (1,929) (4,225)
FINANCING ACTIVITIES:
Repayment of notes payable (921) (1,931) (1,060)
Sale of common stock 333 327 410
Proceeds from exercise of stock options 585 160 275
Repurchase of common stock (4,119) (65)
--------- --------- ---------
Cash used for financing activities (4,122) (1,444) (440)
Increase (decrease) in cash and cash equivalents (2,827) 5,582 (64)
--------- --------- ---------
Effects of exchange rate changes on cash 44 (7) (6)
Cash and cash equivalents - Beginning of year 7,279 1,704 1,774
--------- --------- ---------
Cash and cash equivalents - End of year $4,496 $7,279 $1,704
--------- --------- ---------
--------- --------- ---------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $121 $255 $343
Income taxes $923 $405 $573
</TABLE>
See notes to consolidated financial statements.
Page 35
<PAGE>
DATA I/O CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
COMMON STOCK CURRENCY
------------------------- RETAINED TRANSLATION
SHARES AMOUNT EARNINGS ADJUSTMENT
- ----------------------------------------------------------------------------------------------------
(in thousands except share data)
<S> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1992 7,029,931 $19,190 $11,716 $437
Net loss (11,257)
Stock options exercised 88,450 275
Issuance of stock through
Employee Stock Purchase Plan 149,259 410
Repurchase of common stock (17,604) (65)
Compensation on exercised or expired
stock options 432
Currency translation adjustment, net of
tax of $23 45
---------- ---------- ---------- ----------
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 benefit of $27 (53)
---------- ---------- ---------- ----------
BALANCE AT DECEMBER 29, 1994 7,431,901 20,729 3,185 429
Net Income 4,761
Stock options exercised 118,125 585
Issuance of stock through
Employee Stock Purchase Plan 96,199 333
Repurchase of Common Stock (562,400) (4,119)
Currency translation adjustment, net of
tax of $2 26
---------- ---------- ---------- ----------
BALANCE AT DECEMBER 28, 1995 7,083,825 $17,528 $7,946 $455
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
See notes to consolidated financial statements.
Page 36
<PAGE>
DATA I/O CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NATURE OF OPERATIONS
Data I/O Corporation (the "Company") manufactures hardware and software products
for users of programmable integrated circuits, and manufactures equipment used
by integrated circuit manufacturers. The Company's principal customers use the
Company's programming systems and software programs to design and manufacture
electronic equipment for industrial, commercial and military applications. The
Company also sells its semiconductor equipment products to semiconductor
manufacturers. Customers for the Company's programming systems, software and
semiconductor equipment products are located around the world, primarily in the
United States, Europe and the Far East. All of the Company's manufacturing
operations are located in the United States.
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Data I/O
Corporation and its wholly owned subsidiaries. The consolidated financial
statements include the results of operations of Reel-Tech, Inc. since the
acquisition of this business on August 31, 1995. All significant intercompany
accounts and transactions have been eliminated in consolidation.
REPORTING PERIOD
The Company reports on a fifty-two, fifty-three week basis. Results of
operations for 1995, 1994 and 1993 are for fifty-two week periods.
USE OF ESTIMATES
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
STOCK-BASED COMPENSATION
The Company grants stock options for a fixed number of shares to employees with
an exercise price equal to the fair value of the shares at the date of grant.
The Company accounts for stock option grants in accordance with APB Opinion No.
25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, and intends to continue to do so.
Accordingly, the Company recognizes no compensation expense for its stock option
grants.
FOREIGN CURRENCY TRANSLATION
Assets and liabilities denominated in foreign currencies are translated at the
exchange rate on the balance sheet date. Revenues, costs and expenses are
translated at average rates of exchange prevailing during the year. Translation
adjustments resulting from this process are charged or credited to stockholders'
equity, net of taxes. Realized and unrealized gains and losses on foreign
currency transactions are included in non-operating expense as Foreign Currency
Exchange.
In an effort to minimize the effect of exchange rate fluctuations on the results
of its operations, the Company hedges certain portions of its foreign currency
exposure through the use of forward exchange contracts. At December 28, 1995,
the Company had approximately $800,000 in foreign exchange contracts
outstanding, with the contract exchange rates being approximately equal to the
market exchange rates. These contract terms range from 30 to 120 days.
Page 37
<PAGE>
CASH AND CASH EQUIVALENTS
Cash and cash equivalents are highly liquid investments with insignificant
interest rate risk. The Company invests in the highest grade commercial paper
with original maturities of three months or less and conservative money market
funds. Interest earned is reported in non-operating (income) expense as
Interest Income.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is computed on a
currently adjusted standard basis, which approximates actual cost on an average
or first-in/first-out basis.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at cost and depreciated using the
straight-line method over estimated useful lives as follows:
Building 40 years
Equipment 3 to 7 years
Leasehold improvements Lesser of lease term or estimated useful life
REVENUE RECOGNITION
Revenue from product sales is recognized at the time of shipment or customer
acceptance, if an acceptance clause is specified in the sales terms. Revenue
from software products licensed to original equipment manufacturers is
recognized when earned per the terms of the contracts. Revenue from the sale of
service and update contracts is recorded as deferred revenue and recognized as
earned revenue on a straight-line basis over the contractual period.
RESEARCH AND DEVELOPMENT
Research and development costs are expensed as incurred. No software
development costs have been capitalized due to immateriality.
ADVERTISING EXPENSE
The Company expenses advertising costs as incurred. Total expenses were
$2,261,000, $1,771,000 and $2,123,000 in 1995, 1994 and 1993, respectively.
WARRANTY EXPENSE
The Company warrants its products against defects for periods ranging from
ninety days to one year. The Company provides currently for the estimated cost
which may be incurred under its product warranties.
INCOME TAXES
Income tax expense includes U.S., state and foreign income taxes. Certain items
of income and expense are not reported in both the tax returns and financial
statements in the same year. The resulting difference is reported as deferred
income taxes.
In 1993, the Company adopted Statement of Financial Accounting Standards No. 109
("SFAS 109"), "Accounting for Income Taxes," which requires the use of the
liability method in computing income taxes. Under the liability method,
deferred taxes are provided for the temporary differences between the financial
reporting basis and the tax basis of the Company's assets and liabilities.
These deferred tax assets and liabilities are measured by the provisions of
currently enacted tax laws. The adoption of SFAS 109 during the first quarter
of 1993 resulted in an increase in the net deferred tax asset by approximately
Page 38
<PAGE>
$400,000, which was reported separately as the cumulative effect of a change in
the method of accounting for income taxes in the consolidated statement of
operations for the year ended December 30, 1993.
EARNINGS PER SHARE
The Company calculates and reports earnings per share based on the weighted
average common and common stock equivalent shares outstanding during the period
(using the treasury stock method). Common stock equivalents which are
antidilutive are not considered. Stock options are common stock equivalents.
Fully diluted earnings per share approximates primary earnings per share.
During 1995, the Company repurchased 562,400 shares of its common stock under a
Share Repurchase Program. The effect of this repurchase on earnings per share
for the year ended December 28, 1995 would have been an increase of
approximately $.02 if the shares had been repurchased as of the beginning of the
year. On February 21, 1996, the Company's Board of Directors extended the Share
Repurchase Program. This extension authorizes the repurchase of up to an
additional 8% (approximately 570,000 shares) of the Company's outstanding common
stock through open market purchases at prevailing market prices or through block
purchases or through privately negotiated transactions. Purchases may commence
or be discontinued at any time.
DIVERSIFICATION OF CREDIT RISK
Financial instruments which potentially subject the Company to concentrations of
credit risk consist primarily of trade receivables. The Company's trade
receivables are geographically dispersed and include customers in many different
industries. Management believes that any risk of loss is significantly reduced
due to the diversity of its end-customers and geographic sales areas. The
Company performs on-going credit evaluations of its customers' financial
condition and requires collateral, such as letters of credit and bank
guarantees, whenever deemed necessary.
RECLASSIFICATIONS
Certain prior years' balances have been reclassified to conform to current year
presentation.
NOTE 2 - PROVISION FOR BUSINESS RESTRUCTURING
During the fourth quarter of 1993, the Company recorded a pretax charge of $6.1
million related to the restructure of its sales and distribution channels,
downsizing its operations to a level consistent with anticipated lower sales and
product margins, and consolidating and outsourcing of certain manufacturing
processes. The purpose of the restructure was primarily to reduce expenses and
significantly lower the Company's break-even point in reaction to the reduced
sales and gross margins realized in 1993. Additionally, the Company made
several strategic changes to its sales and distribution channels to better align
the Company's current and anticipated future products to their markets and
customers. The general downsizing of operations and restructuring of the sales
and distribution system were substantially completed in 1994. The Company began
implementation of planned changes to its manufacturing processes in 1994 for
completion in 1997. The manufacturing consolidation and relocation project was
completed in the first quarter of 1996, and the outsourcing of certain
manufacturing processes is scheduled to be completed in 1997.
Of the total original restructure charge of $6.1 million, $2.1 million related
to restructuring the sales and distribution system, including severance for
terminated employees, facilities and equipment lease abandonment, facilities
relocation costs, the write-off of intangible assets associated with the
acquisition and set-up of direct sales operations in Germany and the United
Kingdom, and costs associated with implementation of new accounting and
distribution systems and processes; $2.0 million related to the consolidation
and outsourcing of certain portions of the Company's manufacturing operations,
including the write-down of production equipment to net realizable value,
severance for terminated employees, facility relocation costs, and costs
associated with outsourcing certain manufacturing processes; and the remaining
$2.0 million related to general organizational downsizing, including severance
for terminated employees, asset write-downs and costs associated with
rearrangement of facilities.
Page 39
<PAGE>
The Company has continuously reviewed its restructure actions and compares them
to its original plan. Accordingly, 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.
This credit lowered the expected cost of the restructure of the Company's
manufacturing operations by approximately $200,000 and the Company's sales and
distribution systems by approximately $200,000. No other amounts related to the
restructuring plan were charged or credited to earnings since inception of the
plan. The restructuring plan changed primarily as the Company experienced
difficulties in proceeding as planned on outsourcing certain manufacturing
processes. The effect of this has been 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.
At December 28, 1995, approximately $965,000 of the total restructure charge
remained in accrued liabilities to be paid out. Approximately $855,000, $1.9
million and $1.2 million had been spent during 1995, 1994 and 1993,
respectively, and $800,000 had been taken against related assets.
NOTE 3 - INVENTORIES
Inventories consisted of the following components (in thousands):
<TABLE>
<CAPTION>
DEC. 28, DEC. 29,
1995 1994
---------- ----------
<S> <C> <C>
Raw material $4,839 $3,327
Work-in-process 2,125 1,955
Finished goods 1,575 1,655
------ ------
$8,539 $6,937
------ ------
------ ------
</TABLE>
NOTE 4 - LAND HELD FOR SALE
The Company owns 79.4 acres of land at its headquarters site in Redmond,
Washington, which it purchased in various parcels between 1979 and 1986. The
land was intended as a campus on which to consolidate the operations of the
Company as it expanded internally and through acquisitions. The Company has
since abandoned its aggressive acquisition and consolidation strategy. In 1990,
the Company decided to market and sell the approximately 40 acres of land in
excess of that required for its current 100,000 square-foot building and another
50,000 square-foot expansion facility. At that time, the land was reclassified
at cost plus estimated disposition expenses, to Land Held for Sale in the
Company's financial statements. Based on information available at that time,
the cost approximated market value.
In June 1992, the Company recorded an extraordinary $2.6 million ($1.7 million
after-tax) write-down to reflect a decrease in the market value of its land.
This decrease in value was caused primarily by the enactment, in July 1992, of a
Sensitive Areas Ordinance ("SAO") by the City of Redmond. The SAO prohibits
building not only on land classified as wetlands, but on steep slopes and on
buffers around the wetlands which are wider than those required by most
jurisdictions. In addition, due to the changes in valuation for commercial real
estate comparable to the land held by Data I/O, the Company recorded a
$2.0 million valuation provision for the land held for resale at December 30,
1993.
Since placing the land on the market in 1990, the Company has entered into two
separate option agreements to sell the property. Both of these agreements were
allowed to expire due to the changes in regulatory requirements and valuations
of commercial real estate comparable to the land held by the Company, discussed
above. The Company intends to continue to market this excess land. In order to
enhance the property's marketability, the Company currently has listed its
entire Redmond headquarters property as available for sale with long-term lease
back provisions on the building.
Page 40
<PAGE>
NOTE 5 - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following components (in
thousands):
<TABLE>
<CAPTION>
DEC. 28, DEC. 29,
1995 1994
------------ ------------
<S> <C> <C>
Land $ 910 $ 910
Building and improvements 7,539 7,334
Equipment 22,329 21,507
------- -------
30,778 29,751
Less accumulated depreciation 20,538 19,014
------- -------
Property, plant and equipment - net $10,240 $10,737
------- -------
------- -------
</TABLE>
NOTE 6 - OTHER ASSETS
Other assets consisted of the following components (in thousands):
<TABLE>
<CAPTION>
DEC. 28, DEC. 29,
1995 1994
------------ ------------
<S> <C> <C>
Long-term lease deposits $ 262 $ 156
Investment in product lines 8,629 6,883
------ ------
8,891 7,039
Less accumulated amortization 4,469 3,145
------ ------
Other assets - net $4,422 $3,894
------ ------
------ ------
</TABLE>
Total amortization recorded for 1995, 1994 and 1993 was $1,324,000, $1,399,000
and $1,338,000, respectively.
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.
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, $500,000
of which remains in escrow at December 28, 1995, 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 in long-term payables a $666,000 contingent payment obligation.
The remaining contingent payments of $1,334,000 are expected to 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 $825,000
relating to that portion of the purchase price allocated to in-process research
and development. At December 28, 1995, the net book value of the assets
capitalized in Other Assets related to this acquisition was approximately $1.7
million.
Page 41
<PAGE>
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 $1.2
million and $1.8 million at December 28, 1995 and December 29, 1994,
respectively.
QUALITY AUTOMATION, INC.
On September 25, 1990, the Company acquired exclusive rights to distribute
automated handling and labeling equipment manufactured by Quality Automation,
Inc. The Company also obtained options to acquire Quality Automation's existing
and future products as well as certain other assets. On September 25, 1992, the
Company exercised its options and purchased 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"). The acquisition was
accounted for as a purchase, with the aggregate purchase price totaling $4.8
million. The aggregate purchase price, along with the associated transaction
fees, was allocated to the assets acquired, based on estimated fair market
value. 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 $1.3 million
and $1.9 million at December 28, 1995, and December 29, 1994, respectively.
NOTE 7 - NOTES PAYABLE AND LONG-TERM DEBT
Notes payable and long-term debt consisted of the following components:
<TABLE>
<CAPTION>
DEC. 28, DEC. 29,
(IN THOUSANDS) 1995 1994
------------ ------------
<S> <C> <C>
Borrowings under a $1.6 million
unsecured foreign revolving line
of credit maturing August 9, 1996,
with variable interest rates of 2.1%
to 4.0% and a weighted average rate
of 3.1% at December 28, 1995 and a
weighted average interest rate of
3.2% at December 29, 1994. $ 117 $ 440
Unsecured note payable to the
CAD/CAM Group, Inc., maturing in full
on January 19, 1998, with variable
interest rates based on one-year U.S.
Treasury Bills (5.15% at December 28,
1995). 1,500 1,500
------ ------
Total debt 1,617 1,940
Less current maturities 117 440
------ ------
Total long-term debt $1,500 $1,500
------ ------
------ ------
</TABLE>
The Company also has a U.S. unsecured revolving line of credit of $8 million
maturing May 31, 1996, 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 1996 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.
Page 42
<PAGE>
NOTE 8 - COMMITMENTS
The Company has commitments under non-cancelable operating leases and other
agreements, primarily for office space, with initial or remaining terms of one
year or more as follows (in thousands):
1996 $670
1997 270
1998 148
1999 114
2000 93
Thereafter 23
Lease and rental expense was $977,000, $1,169,000 and $1,432,000 in 1995, 1994
and 1993, respectively. The Company has renewal options on substantially all of
its major leases.
NOTE 9 - EMPLOYEE STOCK AND RETIREMENT PLANS
STOCK OPTION PLANS
At December 28, 1995, there were 1,105,097 shares of common stock reserved for
issuance under the Company's employee stock option plans. Pursuant to these
plans, options are granted to officers and key employees of the Company with
exercise prices equal to the fair market value of the common stock at the date
of grant and generally vest over four years. Options granted under the plans
have termination dates ranging from five to six years from the date of grant.
At December 28, 1995, options to purchase 267,250 shares were exercisable at
prices ranging from $2.44 to $6.38. The following table summarizes activity
under the plans for each of the three years ended December 28, 1995:
<TABLE>
<CAPTION>
SHARES OPTION PRICE
------------- -----------------------
<C> <C>
Outstanding December 31, 1992 782,575 $1.60 - $6.38
Granted 266,000 2.59 - 4.50
Exercised (88,450) 1.60 - 3.73
Expired and terminated (213,375) 1.98 - 5.88
--------
Outstanding December 30, 1993 746,750 2.06 - 6.38
Granted 413,000 2.44 - 3.59
Exercised (44,875) 2.06 - 3.75
Expired and terminated (298,875) 2.06 - 5.88
--------
Outstanding December 29, 1994 816,000 2.06 - 6.38
Granted 280,750 5.56 - 8.63
Exercised (118,125) 2.06 - 4.25
Expired and terminated (119,500) 2.44 - 4.25
--------
Outstanding December 28, 1995 859,125 2.44 - 8.63
--------
--------
</TABLE>
There were 245,972 and 55,720 shares available for grant under the plans at
fiscal year end 1995 and 1993, respectively. At December 29, 1994, the Company
had granted 55,862 more options than it had available for grant under its plans.
At the Company's 1995 annual meeting, the shareholders authorized a 500,000
share increase in the number of shares available for grant.
EMPLOYEE STOCK PURCHASE PLAN
Under the Employee Stock Purchase Plan, eligible employees may purchase shares
of the Company's common stock at six-month intervals at 85% of the lower of the
fair market value on the first or the last day of each six-month period.
Employees may purchase shares having a value not exceeding 10% of their gross
compensation during an offering period. During 1995,
Page 43
<PAGE>
1994 and 1993, a total of 96,199, 136,990 and 149,259 shares were purchased
under the plan at average prices of $3.46, $2.39 and $2.74 per share,
respectively. At December 28, 1995, a total of 150,440 shares were reserved for
future issuance.
STOCK APPRECIATION RIGHTS PLAN
The Company has a Stock Appreciation Rights Plan ("SAR") under which each
director, executive officer or holder of 10% or more of the Company's common
stock has a SAR with respect to each exercisable stock option. The SAR entitles
the SAR holder to receive cash from the Company for the difference between the
market value of the stock and the exercise price of the option in lieu of
exercising the related option. SARs are only exercisable following a tender
offer or exchange offer for the Company's stock, or following approval by
stockholders of the Company of any merger, consolidation, reorganization or
other transaction providing for the conversion or exchange of more than 50% of
the common shares outstanding. As no event has occurred which would make the
SARs exercisable, no compensation expense has been recorded under this plan.
RETIREMENT SAVINGS PLAN
The Company has a savings plan that qualifies as a cash or deferred salary
arrangement under Section 401(k) of the Internal Revenue Code. Under the plan,
participating U.S. employees may defer up to 17% of their pre-tax salary, but no
more than approximately $9,000 per plan year. In fiscal years 1995 and 1994,
the Company contributed one Dollar for each Dollar contributed by a participant,
with a maximum contribution of 4% of a participant's earnings. In fiscal year
1993, the Company contributed 75 cents for each Dollar contributed by a
participant, with a maximum contribution of 3% of a participant's earnings. The
Company's matching contribution expense for the savings plan was approximately
$455,000, $384,000 and $400,000 in 1995, 1994 and 1993, respectively.
NOTE 10 - ACCOUNTING FOR INCOME TAXES
Effective January 1, 1993, the Company adopted Statement of Financial Accounting
Standards ("SFAS") 109. This requires the establishment of deferred tax assets
and liabilities for expected future tax consequences of events that have been
recognized in the financial statements or tax returns. Under this method,
deferred tax assets and liabilities are determined based on the difference
between the financial statement carrying amounts and the tax basis of assets and
liabilities using currently enacted tax rates which are expected to be in effect
during the years in which the differences are anticipated to reverse. The
cumulative effect of this change in accounting for income taxes of $400,000 was
determined as of January 1, 1993, and is reported separately in the consolidated
statement of operations for the year ended December 30, 1993. Prior years'
financial statements were not restated to apply the provisions of SFAS 109.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
-----------------------------------
(IN THOUSANDS) 1995 1994 1993
-------- --------- ----------
<S> <C> <C> <C>
Components of income (loss) before taxes:
U.S. operations $4,703 $2,615 ($10,736)
Foreign operations 950 1,086 (1,621)
------ ------ --------
$5,653 $3,701 ($12,357)
------ ------ --------
------ ------ --------
Income tax expense (benefit) consists of:
Current tax expense (benefit)
U.S. federal $1,284 ($103) ($1,665)
State 77 127 (46)
Foreign 89 78 117
------ ------ --------
1,450 102 (1,594)
Deferred tax expense (benefit)
U.S. federal (573) 859 538
Foreign 15 14 356
------ ------ --------
(558) 873 894
------ ------ --------
Total income tax expense (benefit) $ 892 $975 ($700)
------ ------ --------
------ ------ --------
</TABLE>
Page 44
<PAGE>
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 $222,000, $15,000 and $49,000 in 1995, 1994 and 1993, respectively.
Foreign currency translation adjustments, which were recorded directly in
equity, were recorded net of the related deferred tax liabilities of $2,000 in
1995 and $23,000 in 1993 and a deferred tax asset of $27,000 in 1994.
The tax effects of temporary differences that gave rise to significant portions
of the deferred tax assets and deferred tax liabilities are presented below in
accordance with SFAS 109 (in thousands):
<TABLE>
<CAPTION>
DEC. 28, DEC. 29, DEC. 30,
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Deferred income tax assets:
Receivables allowance for doubtful accounts $ 89 $ 79 $ 84
Inventory, product return reserves and basis differences 1,077 1,079 1,088
Land basis 1,522 966 980
Compensation accruals 283 253 271
Intercompany profit 163 308 578
Pension and retirement accruals 239 127 390
Restructure asset and liability reserves 275 606 1,424
Accrued liability reserves 253 270 252
Reel-Tech amortization 279
Foreign net operating loss carryforwards 350 720 1,127
Alternative minimum tax credit carryforwards 275
Other, net 61 93 119
------ ------- -------
4,591 4,776 6,313
Valuation allowance (2,571) (3,358) (3,751)
------ ------- -------
$2,020 $ 1,418 $ 2,562
------ ------- -------
------ ------- -------
Deferred income tax liabilities:
Tax accelerated depreciation and amortization $ 949 $ 798 $ 1,017
Foreign currency translation 310 279 307
Other 138 163
------ ------- -------
$1,259 $ 1,215 $ 1,487
------ ------- -------
------ ------- -------
</TABLE>
The valuation allowance for deferred tax assets decreased $787,000 during the
year ended December 28, 1995 due primarily to the partial utilization of the net
operating loss carryforwards of foreign subsidiaries and the total utilization
of the alternative minimum tax credit carryforwards. The $393,000 decrease in
valuation allowance during the year ended December 29, 1994 were mainly related
to reversals of temporary differences offset partially by an alternative minimum
tax credit carryforward. The net deferred tax assets recorded were limited to
temporary differences of $2.2 million at December 28, 1995 and $1.5 million at
December 29, 1994, which was determined by the carryback benefit available at
the time of their expected reversal. These temporary differences were related
primarily to restructure charges becoming tax deductions when paid.
A reconciliation of the Company's effective income tax rate and the U.S. federal
tax rate is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
---------------------------------------
1995 1994 1993
---------- ---------- ---------
<S> <C> <C> <C>
Statutory rate 34.0% 34.0% (34.0%)
Foreign Sales Corporation tax benefit (4.5%) (2.7%) (0.3%)
State and foreign income tax, net of
federal income tax benefit 1.2% 5.1% 0.4%
Valuation allowance for deferred assets (12.9%) (10.7%) 28.1%
Other (2.0%) 0.6% 0.1%
------ ------- ------
15.8% 26.3% (5.7%)
------ ------- ------
------ ------- ------
</TABLE>
Page 45
<PAGE>
The Company has foreign net operating loss ("NOLs") carryforwards of
approximately $1,030,000, with the following expirations: $440,000 in 1998 and
$590,000 available indefinitely. Deferred tax assets arising from these foreign
NOLs are fully provided for in the valuation allowance.
NOTE 11 - GEOGRAPHIC SEGMENT INFORMATION
Data I/O Corporation and its subsidiaries operate predominantly within a single
industry segment and offer three major product groups: (1) electronic
programming systems used by customers to handle, program, test and mark
programmable ICs; (2) semiconductor equipment used to handle, transport and mark
integrated circuits; and (3) Electronic Design Automation software used to
create designs for programmable ICs. No one customer accounted for more than
10% of the Company's revenues in the years ended December 28, 1995, December 29,
1994 and December 30, 1993. Major operations outside the U.S. include sales
subsidiaries in Japan, Germany, Canada and the United Kingdom.
Geographic information for the three years ended December 28, 1995 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 $22,160,000, $18,522,000 and $22,626,000 in 1995,
1994 and 1993, respectively, have been excluded from U.S. reported net sales.
Transfers between geographic areas are made at prices consistent with rules and
regulations of governing tax authorities. The profit on transfers between
geographic areas is not recognized until sales are made to non-affiliated
customers. For purposes of the table below, the profit on the transfers between
geographic areas has been shown in operating income in the geographic area where
the final sale to non-affiliated customers took place. Certain general
corporate expenses are charged to the U.S. segment. Identifiable assets are
those assets that can be directly associated with a particular geographic area.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
----------------------------------------
(IN THOUSANDS) 1995 1994 1993
---------- ---------- ---------
<S> <C> <C> <C>
Net sales:
U.S. $35,280 $32,930 $33,738
Europe 16,555 16,221 15,910
Other 14,196 12,327 13,538
------- ------- --------
$66,031 $61,478 $63,186
------- ------- --------
------- ------- --------
Operating income (loss):
U.S. $1,245 $1,235 ($6,847)
Europe 2,202 2,012 (2,306)
Other 2,081 588 (986)
------- ------- --------
$5,528 $3,835 ($10,139)
------- ------- --------
------- ------- --------
Identifiable assets:
U.S. $35,604 $35,790 $34,638
Europe 5,280 4,284 4,626
Other 3,892 3,413 3,761
------- ------- --------
$44,776 $43,487 $43,025
------- ------- --------
------- ------- --------
</TABLE>
Page 46
<PAGE>
NOTE 12 - QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following table sets forth unaudited selected quarterly financial data for
the Company for 1995 and 1994. Although the Company's business is not seasonal,
growth rates of sales and earnings have varied from quarter to quarter as a
result of factors such as stocking orders from international distributors, the
timing of new product introductions, business acquisitions, and short-term
industry and general U.S. and international economic conditions. Information as
to any one or more quarters is therefore not necessarily indicative of trends in
the Company's business or profitability.
<TABLE>
<CAPTION>
(IN THOUSANDS EXCEPT PER SHARE DATA) 1995
-----------------------------------------------------------
FOR THE QUARTERS ENDED: MAR. 30 JUNE 29 SEPT. 28 DEC. 28
----------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
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
<CAPTION>
(IN THOUSANDS EXCEPT PER SHARE DATA) 1994
-----------------------------------------------------------
FOR THE QUARTERS ENDED: MAR. 31 JUNE 30 SEPT. 29 DEC. 29
----------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
Net sales $14,404 $16,131 $15,620 $15,324
Gross margin 7,016 8,772 8,381 8,925
Net income (loss) (399) 788 797 1,541
Earnings per share:
Net income (loss) ($0.05) $0.11 $0.11 $0.20
Market price per share:
High $3.62 $3.38 $3.50 $5.75
Low $2.25 $2.50 $2.63 $3.00
</TABLE>
The third quarter of 1995 reflects the charge of $660,000 net of tax for the
acquisition of in-process research and development. The fourth quarter of 1995
reflects the $350,000 net of tax reversal of a portion of the restructure
accrual. For the first three quarters of 1995, the Company recorded taxes at an
effective tax rate of 20%. The effective tax rate in the fourth quarter was 10%
due to the reversal of additional valuation allowances.
For the first three quarters of 1994, the Company's effective tax rate reflected
building additional valuation allowances for foreign subsidiary losses and tax
credits. The effective tax rate in the fourth quarter of 1994 was zero due to
the reversal of valuation allowances. The valuation allowances that reversed
related primarily to reversals of temporary differences and utilization of
foreign loss carryforwards.
Data I/O Corporation's common stock trades on the Nasdaq National Market tier of
The Nasdaq Stock Market under the symbol DAIO and is quoted in many financial
publications, including the WALL STREET JOURNAL. The per share prices reported
in the table above are those reported by NASDAQ. The approximate number of
stockholders of record at March 1, 1996, was 1,148.
Except for a special cash dividend of $4.15 per share paid on March 8, 1989, the
Company has not paid cash dividends on its common stock and does not anticipate
paying regular cash dividends in the foreseeable future. The Company's U.S.
line of credit agreement restricts the payment of cash dividends through a
requirement for minimum levels of tangible net worth.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
None.
Page 47
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding the Registrant's directors is set forth under "Election of
Directors" in the Company's Proxy Statement relating to the Company's annual
meeting of shareholders to be held on May 14, 1996, and is incorporated herein
by reference. Such Proxy Statement will be filed within 120 days of the
Company's year end. Information regarding the Registrant's executive officers
is set forth in Item 1 of Part I herein under the caption "Executive Officers of
the Registrant".
ITEM 11. EXECUTIVE COMPENSATION
Information called for by Part III, Item 11, is included in the Company's Proxy
Statement relating to the Company's annual meeting of shareholders to be held on
May 14, 1996, and is incorporated herein by reference. The information appears
in the Proxy Statement under the caption "Executive Compensation." Such Proxy
Statement will be filed within 120 days of the Company's year end.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information called for by Part III, Item 12, is included in the Company's Proxy
Statement relating to the Company's annual meeting of shareholders to be held on
May 14, 1996, and is incorporated herein by reference. The information appears
in the Proxy Statement under the caption "Voting Securities and Principal
Holders." Such Proxy Statement will be filed within 120 days of the Company's
year end.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
Page 48
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
EXECUTIVE COMPENSATION PLANS AND ARRANGEMENTS
The following list is a subset of the list of exhibits described below and
contains all compensatory plans, contracts or arrangements in which any
director or executive officer of the Company is a participant, unless the
method of allocation of benefits thereunder is the same for management and
non-management participants:
(1) Amended and Restated 1982 Employee Stock Purchase Plan. See Exhibit
10.1.
(2) 1984 Deferred Compensation Plan. See Exhibit 10.2.
(3) Retirement Plan and Trust Agreement. See Exhibit 10.13, 10.19, and
10.26.
(4) 1985 Stock Option Plan. See Exhibit 10.3.
(5) 1984 Future Net Employee Stock Option Plan. See Exhibit 10.4.
(6) Summary of Management Incentive Compensation Plan. See Exhibit 10.12,
10.14 and 10.20.
(7) Amended and Restated 1983 Stock Appreciation Rights Plan. See Exhibit
10.8.
(8) Amended and Restated 1986 Stock Option Plan. See Exhibit 10.9 and
10.22.
(9) Form of Change in Control Agreements. See Exhibit 10.18.
(10) 1996 Director Fee Plan. See Exhibit 10.27.
(11) Synario Division Proceeds Sharing Plan. See Exhibit 10.28.
(12) Letter Agreement with William J. Haydamack. See Exhibit 10.29
(A)LIST OF DOCUMENTS FILED AS A PART OF THIS REPORT: PAGE
----
(1) INDEX TO FINANCIAL STATEMENTS:
Report of Independent Auditors 32
Report of Management 32
Consolidated Statements of Operations for each of the three
years ended December 28, 1995 33
Consolidated Balance Sheets as of December 28, 1995 and
December 29, 1994 34
Consolidated Statements of Cash Flows for each of the three
years ended December 28, 1995 35
Consolidated Statements of Stockholders' Equity for each of
the three years ended December 28, 1995 36
Notes to Consolidated Financial Statements 37
Page 49
<PAGE>
(2) INDEX TO FINANCIAL STATEMENT SCHEDULES:
II Consolidated Valuation and Qualifying Accounts 53
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 to the Company's 1987 Annual Report on Form 10-K
(File No. 0-10394)). N/A
3.2 The Company's Bylaws as amended and restated as of
February 21, 1996. 61
3.3 Certificate of Designation, Preferences and Rights of
Series A Junior Participating Preferred Stock
(Incorporated by reference to Exhibit 1 to 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 Chemical Mellon Shareholder
Services (formerly 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 Business Loan Agreement dated November 25, 1992, with
Seattle First National Bank for $8.0 million
(Incorporated by reference to Exhibit 10.20 of the
Company's 1992 Annual Report on Form 10-K
(File No. 0-10394)). N/A
Page 50
<PAGE>
10.6 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
10.7 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
10.8 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
10.9 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
10.10 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
10.11 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
10.12 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
10.13 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
10.14 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
10.15 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
10.16 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
10.17 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
Page 51
<PAGE>
10.18 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
10.19 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
10.20 Amended and Restated Management Incentive Compensation
Plan dated January 1, 1996 72
10.21 Amended and Restated Performance Bonus Plan dated
January 1, 1996 78
10.22 Amended and Restated 1986 Stock Option Plan dated
February 22, 1995 84
10.23 Business Loan Agreement dated May 12, 1995, with
Seattle First National Bank for $8.0 million 92
10.24 Asset Purchase Agreement dated as of August 31, 1995
among Reel-Tech, Inc., an Indiana corporation, Norris R.
Hall, Douglas R. Hall, and Reel-Tech, Inc., a Washington
corporation, a wholly owned subsidiary of Data I/O
Corporation (Incorporated by reference to Exhibit 2.1 of
to the Company's Form 8-K Report dated November 6, 1995 N/A
10.25 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
10.26 Second Amendment to the Data I/O Tax Deferred Retirement
Plan 104
10.27 Data I/O Corporation 1996 Director Fee Plan 105
10.28 Synario Division Proceeds Sharing Plan (Confidential
treatment has been requested for certain portions of
this exhibit) 108
10.29 Letter Agreement with William J. Haydamack
(Confidential treatment has been requested for certain
portions of this exhibit) 112
11 STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE 54
22 SUBSIDIARIES OF THE REGISTRANT 55
24 INDEPENDENT AUDITORS' CONSENT 56
(B) FORM 8-K:
A report on Form 8-K dated November 6, 1995, was filed relating to the
acquisition of the assets of Reel-Tech, Inc.
Page 52
<PAGE>
DATA I/O CORPORATION
CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS
ALLOWANCE FOR DOUBTFUL ACCOUNTS
<TABLE>
<CAPTION>
COLLECTION
CHARGED/ OF
(CREDITED) ACCOUNTS
BALANCE AT TO COSTS PREVIOUSLY ACCOUNTS BALANCE AT
BEGINNING AND WRITTEN WRITTEN END OF
YEAR ENDED OF PERIOD EXPENSES OFF OFF PERIOD
- ------------------------------ -------------- -------------- -------------- ------------ --------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
December 30, 1993: $366 $32 $14 ($80) $332
-------------- -------------- -------------- ------------ --------------
-------------- -------------- -------------- ------------ --------------
December 29, 1994: $332 $ 4 $12 ($71) $277
-------------- -------------- -------------- ------------ --------------
-------------- -------------- -------------- ------------ --------------
December 28, 1995: $277 $55 $12 ($33) $311
-------------- -------------- -------------- ------------ --------------
-------------- -------------- -------------- ------------ --------------
</TABLE>
Page 53
<PAGE>
EXHIBIT 11
DATA I/O CORPORATION
COMPUTATION OF EARNINGS PER SHARE
Earnings per share reported in Form 10-K for the three years ended December 28,
1995 are based on the following (in thousands):
<TABLE>
<CAPTION>
PRIMARY AND FULLY DILUTED: 1995 1994 1993
- ------------------------------------------------- ------------ ------------ ------------
<S> <C> <C> <C>
Weighted Average Shares Outstanding 7,514 7,354 7,170
Dilutive Effect of Stock Options 365 66
------------ ------------ ------------
Weighted Average Common and Equivalent
Shares Outstanding 7,879 7,420 7,170
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
Page 54
<PAGE>
EXHIBIT 22
DATA I/O CORPORATION
SUBSIDIARIES OF THE REGISTRANT
The following table indicates the name, jurisdiction of incorporation and basis
of ownership of each of the Company's subsidiaries:
<TABLE>
<CAPTION>
STATE OR PERCENTAGE
JURISDICTION OF VOTING
OF SECURITIES
NAME OF SUBSIDIARY ORGANIZATION OWNED
- ------------------ ------------ ----------
<S> <C> <C>
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%
</TABLE>
Page 55
<PAGE>
EXHIBIT 24
- -------------------------------------------------------------------------------
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
- -------------------------------------------------------------------------------
Board of Directors and Stockholders
Data I/O Corporation
We consent to the incorporation by reference in the Registration Statements
(Forms S-8 No. 33-2254, 33-3958, 33-26472, 33-42010, 33-54422, 33-66824 and
33-95608) of our report dated February 7, 1996, with respect to the
consolidated financial statements and schedule of Data I/O Corporation
included in the Annual Report (Form 10-K) for the year ended December 28,
1995.
//S// ERNST & YOUNG LLP
------------------------
ERNST & YOUNG LLP
Seattle, Washington
March 19, 1996
Page 56
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
DATA I/O CORPORATION
(REGISTRANT)
DATED: March 7, 1996 By: //S//STEVEN M. GORDON
----------------------
Steven M. Gordon
Vice President
Finance and Administration
Chief Financial Officer
Chief Accounting Officer
Secretary and Treasurer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below on March 7, 1996, by the following persons on behalf of
the Registrant and in the capacities indicated.
NAME TITLE
By: //S//WILLIAM C. ERXLEBEN
------------------------ President
William C. Erxleben Chief Executive Officer
Director
By: //S//W. HUNTER SIMPSON
------------------------ Director
W. Hunter Simpson
By: //S//DONALD R. STENQUIST
------------------------ Director
Donald R. Stenquist
By: //S//MILTON F. ZEUTSCHEL
------------------------ Director
Milton F. Zeutschel
By: //S//FRANCES M. CONLEY
------------------------ Director
Frances M. Conley
Page 57
<PAGE>
<TABLE>
<CAPTION>
EXHIBITS INDEX
EXHIBIT NUMBER TITLE PAGE NUMBER
- ---------------- ----------------------------------------------------------------------- ---------------
<S> <C> <C>
3 ARTICLES OF INCORPORATION:
3.1 The Company's restated Articles of Incorporation filed November 2, 1987
(Incorporated by reference to Exhibit 3.1 to the Company's 1987 Annual
Report on Form 10-K (File No. 0-10394)). N/A
3.2 The Company's Bylaws as amended and restated as of February 21, 1996. 61
3.3 Certificate of Designation, Preferences and Rights of Series A Junior
Participating Preferred Stock (Incorporated by reference to Exhibit 1
to 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 Chemical Mellon Shareholder Services (formerly
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 Business Loan Agreement dated November 25, 1992, with Seattle First
National Bank for $8.0 million (Incorporated by reference to Exhibit
10.20 of the Company's 1992 Annual Report on Form 10-K
(File No. 0-10394)). N/A
10.6 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
10.7 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
Page 58
<PAGE>
10.8 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
10.9 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
10.10 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
10.11 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
10.12 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
10.13 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
10.14 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
10.15 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
10.16 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
10.17 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
10.18 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
10.19 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
10.20 Amended and Restated Management Incentive Compensation Plan dated
January 1, 1996 72
10.21 Amended and Restated Performance Bonus Plan dated January 1, 1996 78
Page 59
<PAGE>
10.22 Amended and Restated 1986 Stock Option Plan dated February 22, 1995 84
10.23 Business Loan Agreement dated May 12, 1995, with Seattle First National
Bank for $8.0 million 92
10.24 Asset Purchase Agreement dated as of August 31, 1995 among Reel-Tech,
Inc., an Indiana corporation, Norris R. Hall, Douglas R. Hall, and
Reel-Tech, Inc., a Washington corporation, a wholly owned subsidiary of
Data I/O Corporation (Incorporated by reference to Exhibit 2.1 of to the
Company's Form 8-K Report dated November 6, 1995 N/A
10.25 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
10.26 Second Amendment to the Data I/O Tax Deferred Retirement Plan 104
10.27 Data I/O Corporation 1996 Director Fee Plan 105
10.28 Synario Division Proceeds Sharing Plan (Confidential treatment has been
requested for certain portions of this exhibit) 108
10.29 Letter Agreement with William J. Haydamack (Confidential treatment has
been requested for certain portions of this exhibit) 112
</TABLE>
Page 60
<PAGE>
EXHIBIT 3.2
AMENDED AND RESTATED
BYLAWS
OF
DATA I/O CORPORATION
As of February 21, 1996
ARTICLE I
OFFICES
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.
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.
SHAREHOLDERS' MEETINGS
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.
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.
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.
NOTICE:
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.
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.
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.
Page 61
<PAGE>
VOTING RECORD: At least ten days and not more than seventy days
before each meeting of shareholders, a complete record of the shareholders
entitled to vote at such meeting, or any adjournment thereof, shall be made,
arranged in alphabetical order by voting group, and within each voting group by
class or series of shares, 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 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.
QUORUM: Except as otherwise required by law:
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.
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.
VOTING OF SHARES:
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.
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.
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.
CLOSING OF TRANSFER BOOKS AND FIXING RECORD DATE: For the purpose of
determining shareholders entitled to 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 fix in advance a record date for any such
determination of shareholders, such date to be not more than seventy (70) days
prior to the day on which the particular action requiring such determination of
shareholders is to be taken. If no record date is fixed for the determination
of shareholders entitled to notice of or to vote at a meeting of shareholders,
or shareholders entitled to receive payment of a dividend, the day before the
date on which notice of the meeting is mailed or the date on which the
resolution of the Board of Directors declaring such dividend is adopted, as the
case may be, shall be the record date for such determination of shareholders.
When a determination of shareholders entitled to vote at any meeting of
shareholders has been made as provided in this section, such determination shall
apply to any adjournment thereof, unless the Board of Directors fixes a new
record date, which it must do if the meeting is adjourned more than one hundred
twenty (120) days after the date is fixed for the original meeting.
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.
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
Page 62
<PAGE>
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.
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.
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.
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.
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
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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.
STOCK
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.
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:
the name of the Corporation;
that the Corporation is organized under the laws of the
State of Washington;
the name of the person to whom the certificate is issued;
the number and class of shares and the designation of the
series, if any, the certificate represents;
and
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.
TRANSFERS:
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.
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
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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.
REGISTERED OWNER: Registered shareholders shall be treated by the
corporation as the holders in fact of the stock standing in their respective
names and the corporation shall not be bound to recognize any equitable or other
claim to or interest in any share on the part of any other person, whether or
not it shall have express or other notice thereof, except as expressly provided
below or by the laws of the State of Washington. The Board of Directors may
adopt by resolution a procedure whereby a shareholder of the corporation may
certify in writing to the corporation that all or a portion of the shares
registered in the name of such shareholder are held for the account of a
specified person or persons. The resolution shall set forth:
The classification of shareholder who may certify;
The purpose or purposes for which the certification may be
made;
The form of certification and information to be contained
therein;
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
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.
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.
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.
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.
BOARD OF DIRECTORS
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 five (5) 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.
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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.
VACANCIES: All vacancies in the Board of Directors, whether caused by
resignation, death or otherwise, may be filled by the affirmative vote of a
majority of the remaining directors though less than a quorum of the Board of
Directors. A director elected to fill any vacancy shall hold office for the
unexpired term of his or her predecessor and until his or her successor is
elected and qualified. Any directorship to be filled by reason of an increase
in the number of directors may be filled by the Board of Directors for a term of
office continuing only until the next election of directors by the shareholders
and until his or her successor is elected and qualified.
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.
REMOVAL OF DIRECTORS: At a special meeting of shareholders called
expressly for that purpose, the entire Board of Directors, or any member
thereof, may be removed by a vote of the holders of a majority of shares then
entitled to vote at an election of such directors. A director or directors may
be removed only if the number of votes cast to remove the director exceeds the
number of votes cast not to remove the director. The notice of such special
meeting must state that the purpose, or one of the purposes, of the meeting is
removal of the director or directors, as the case may be.
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.
SPECIAL MEETINGS:
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.
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.
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.
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.
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
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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.
EXECUTIVE AND OTHER COMMITTEES: The Board of Directors, by resolution
adopted by a majority of the full Board of Directors, may designate from among
its members an Executive Committee and one or more other standing or special
committees. The Executive Committee shall have and may exercise all the
authority of the Board of Directors, and other standing or special committees
may be invested with such powers, subject to such conditions, as the Board of
Directors shall see fit; PROVIDED THAT, notwithstanding the above, no committee
of the Board of Directors shall have the authority to: (1) authorize or approve
a distribution except according to a general formula or method prescribed by the
Board of Directors; (2) approve or propose to shareholders action that by law
requires approval by shareholders; (3) fill vacancies on the Board of Directors
or on any of its committees; (4) amend articles of incorporation; (5) adopt,
amend or repeal bylaws; (6) approve a plan of merger not requiring shareholder
approval; or (7) authorize or approve the issuance or sale or contract for sale
of shares, or determine the designation and relative rights, preferences, and
limitation of a class or series of shares, except that the Board of Directors
may authorize a committee, or a senior executive officer of the corporation to
do so within limits specifically prescribed by the Board of Directors.
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.
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.
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.
OFFICERS
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.
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.
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.
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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.
SECRETARY AND ASSISTANT SECRETARIES: The Secretary shall issue
notices for all meetings, except for notices for special meetings of the
shareholders and special meetings of the directors which are called by the
requisite number of shareholders or directors, shall keep minutes of all
meetings, shall have charge of the seal and the corporate books, and shall make
such reports and perform such other duties as are incident to his office, or are
properly required of him by the Board of Directors. The Assistant Secretary, or
Assistant Secretaries in the order designated by the Board of Directors, shall
perform all of the duties of the Secretary during the absence or disability of
the Secretary, and at other times may perform such duties as are directed by the
President or the Board of Directors.
THE TREASURER: The Treasurer shall have the custody of all moneys and
securities of the corporation and shall keep regular books of account. He shall
disburse the funds of the corporation in payment of the just demands against the
corporation or as may be ordered by the Board of Directors, taking proper
vouchers for such disbursements, and shall render to the Board of Directors from
time to time as may be required of him an account of all his transactions as
Treasurer and of the financial condition of the corporation. He shall perform
such other duties incident to his office or that are properly required of him by
the Board of Directors. The Assistant Treasurer, or Assistant Treasurers in the
order designated by the Board of Directors, shall perform all of the duties of
the Treasurer in the absence or disability of the Treasurer, and at other times
may perform such other duties as are directed by the President or the Board of
Directors.
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.
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.
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.
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.
TERM -REMOVAL: The officers of the corporation shall hold office
until their successors are chosen and qualify. Any officer or agent elected or
appointed by the Board of Directors may be removed at any time, with or without
cause, by the affirmative vote of a majority of the whole Board of Directors,
but such removal shall be without prejudice to the contract rights, if any, of
the person so removed.
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.
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.
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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:
The Corporation would not be able to pay its debts as they
become due in the usual course of business; or
The Corporation's total assets would be less than the sum of
its total liabilities plus the amount which would be needed, if the
Corporation were to be dissolved at the time of the distribution, to
satisfy the preferential rights upon dissolution of shareholders whose
preferential rights are superior to those receiving the distribution.
The Board of Directors may authorize distributions to holders of
record at the close of business on any business day prior to the date on
which the distribution is made. If the Board of Directors does not fix a
record date for determining shareholders entitled to a distribution, the
record date shall be the date on which the Board of Directors authorizes
the distribution.
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:
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
In the case of any other distribution:
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;
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
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.
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.
NOTICES
Except as may otherwise be required by law, any notice to any
shareholder or director must be in writing and may be transmitted by: mail,
private carrier or personal delivery; telegraph or teletype; or telephone, wire
or wireless equipment which transmits a facsimile of the notice. Written notice
by the Corporation to its shareholders shall be deemed effective when mailed, if
mailed with first-class postage prepaid and correctly addressed to the
shareholder's address shown in the Corporation's current record of shareholders.
Except as set forth in the previous sentence, written notice shall be deemed
effective at the earliest of the following: (i) when received; (ii) five days
after its deposit in the United States mail, as evidenced by the postmark, if
mailed with first-class postage, prepaid and correctly addressed; or (iii) on
the date shown on
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the return receipt, if sent by registered or certified mail, return receipt
requested, and receipt is signed by or on behalf of the addressee.
SEAL
The corporate seal of the corporation shall be in such form and bear such
inscription as may be adopted by resolution of the Board of Directors, or by
usage of the officers on behalf of the corporation.
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 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.
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.
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.
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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.
INDEMNIFICATION OF EMPLOYEES AND AGENTS OF THE CORPORATION: The
corporation may, by action of its Board of Directors from time to time, provide
indemnification and pay expenses in advance of the final disposition of a
proceeding to employees and agents of the corporation with the same scope and
effect as the provisions of this Article with respect to the indemnification and
advancement of expenses of directors and officers of the corporation or pursuant
to rights granted pursuant to, or provided by, the Washington Business
Corporation Act or otherwise.
BOOKS AND RECORDS
The corporation shall keep correct and complete books and records of
account and shall keep minutes of the proceedings of its shareholders and Board
of Directors; and shall keep at its registered office or principal place of
business, or at the office of its transfer agent or registrar, a record of its
shareholders, giving the names and addresses of all shareholders in alphabetical
order by class of shares showing the number and class of the shares held by
each. Any books, records, and minutes may be in written form or any other form
capable of being converted into written form within a reasonable time.
AMENDMENTS
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.
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.
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.
Amended by resolution of the corporation's Board of Directors on February
21, 1996.
//S//STEVEN M. GORDON
---------------------------
Steven M. Gordon, Secretary
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EXHIBIT 10.20
DATA I/O CORPORATION
MANAGEMENT INCENTIVE COMPENSATION PLAN
AMENDED & RESTATED JANUARY 1, 1996
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 Plan is effective January 1, 1994.
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
vacation, holidays, and sick leave 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.
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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 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 "Employee" 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 Employee 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 31.
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ARTICLE III
ELIGIBILITY
An Employee is eligible to participate in the Plan during a Plan Year if:
(a) The Employee 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 Employee is employed on the payroll
of the Company; and
(c) Is employed as a REGULAR full time or part time employee (not temporary
or contract employee); and
(d) The Employee 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 Employee 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.
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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
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.
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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
Employee and his beneficiaries under the Plan. In any action or
proceeding affecting the Plan, the Administrator shall be the only
necessary party, and no employee or former employee 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.
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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 employee and the Company nor shall any provision
restrict the right of the Company to discharge any employee, or restrict
the right of any employee 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 //SS//STEVEN M. GORDON
----------------------
Its Vice President/Chief Financial Officer
--------------------------------------
Date: December 22, 1995
-----------------
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EXHIBIT 10.21
DATA I/O CORPORATION
PERFORMANCE BONUS PLAN
AMENDED & RESTATED JANUARY 1, 1996
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 employees through the
opportunity to share in the success of the Company. This Plan is effective
January 1, 1994.
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
vacation, holidays, and sick leave 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.
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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 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 "Employee" shall mean any person employed by the Employer in any capacity.
2.8 "Employer" shall mean the Company.
2.9 "Participant" shall mean any Employee 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
An Employee is eligible to participate in the Plan during a Plan Year if:
(a) The Employee 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 Employee is employed on the payroll of
the Company: and
(c) Is employed as a REGULAR full time or part time employee (not temporary or
contract employee).
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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 50% 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.
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<PAGE>
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 Employee and his beneficiaries
under the Plan. In any action or proceeding affecting the Plan, the
Administrator shall be the only necessary party, and no employee or former
employee 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.
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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 employee and the Company nor shall any provision restrict the
right of the Company to discharge any employee, or restrict the right of
any employee 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.
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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//STEVEN M. GORDON
---------------------
Its: Vice President/Chief Financial Officer
--------------------------------------
Date: December 27, 1995
-----------------
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EXHIBIT 10.22
DATA I/O CORPORATION
1986 STOCK OPTION PLAN
AMENDED AND RESTATED
AS OF FEBRUARY 22, 1995
This Stock Option Plan (the "Plan") provides for the grant of options
(the "Options") to acquire shares of common stock (the "Common Stock") of
Data I/O Corporation (the "Corporation"). Stock options granted under this plan
that qualify under Section 422 of the Internal Revenue Code of 1986, as amended
(the "Code") are referred to in this Plan as "Incentive Stock Options."
Incentive Stock Options and stock options that do not qualify under Section 422
of the Code ("Non-Qualified Options") granted under this Plan are referred to as
"Options."
1. PURPOSES.
The purposes of this Plan are to retain the services of valued key
employees of the Corporation, to encourage such employees to acquire a greater
proprietary interest in the Corporation, thereby strengthening their incentive
to achieve the objectives of the shareholders and to serve as an aid and
inducement in the hiring of new key employees.
2. ADMINISTRATION.
The Plan shall be administered by the Board of Directors of the
Corporation (the "Board"), if each director is a "disinterested person" (as
defined below). If all directors are not "disinterested persons," the Plan
shall be administered by a committee designated by the Board composed of two or
more members of the Board, each of whom is a "disinterested person", which
committee (the "Committee") may be an executive, compensation or some other
committee, including a separate committee especially created for this purpose.
Any such Committee shall have the powers and authority vested in the Board
hereunder (including the power and authority to interpret any provision of the
Plan or of any Option). The members of any such Committee shall serve at the
pleasure of the Board. A majority of the members of the Committee shall
constitute a quorum, and all actions of the Committee shall be taken by a
majority of the members present. Any action may be taken by a written
instrument signed by all of the members of the Committee and any action so taken
shall be fully as effective as if it had been taken at a meeting. The Board, or
any committee thereof appointed to administer the Plan, is referred to herein as
the "Plan Administrator." "Disinterested person" shall be defined by reference
to in the rules and regulations promulgated under Section 16(b) of the
Securities Exchange Act of 1934, as amended (the "Act").
Subject to the provisions of the Plan, and with a view to effecting
its purpose, the Plan Administrator shall have sole authority, in its absolute
discretion, (a) to construe and interpret the Plan; (b) to define the terms used
herein; (c) to prescribe, amend, and rescind rules and regulations relating to
the Plan; (d) to determine the individuals to whom Options to purchase shares of
Common Stock shall be granted under the Plan and whether the Options are
Incentive Stock Options or Non-Qualified Options; (e) to determine the time or
times at which Options shall be granted under the Plan; (f) to determine the
number of shares of Common Stock subject to each Option, the Option price, the
duration of each Option granted under the Plan and the times at which each
Option shall become exercisable; (g) to determine all of the other terms and
conditions of Options granted under the Plan; and (h) to make all other
determinations necessary or advisable for the administration of the Plan and do
everything necessary or appropriate to administer the Plan. All decisions,
determinations, and interpretations made by the Committee shall be binding and
conclusive on all participants in the Plan and on their legal representatives,
heirs, and beneficiaries.
The Board or the Committee may delegate to one or more executive
officers of the Corporation the authority to grant Options under this Plan to
employees of the Corporation who, at the time of grant, are not subject to
Section 16(b) of the Exchange Act with respect to the Common Stock ("Non-
Insiders"), and in connection therewith the authority to determine: (a) whether
the Option is an Incentive Stock Option or a Non-Qualified Stock Option; (b) the
number of shares of Common Stock subject to such Option; (c) the duration of the
Option; (d) the vesting schedule for determining the times at which such Option
shall become exercisable; and (e) all other terms and conditions of such
Options. The exercise price for any Option granted by action of an executive
officer pursuant to such delegation of authority shall not be less than the fair
market value per share of the Common Stock on the Date of Grant as determined in
accordance with procedures established by the Plan Administrator. Unless
expressly approved in advance by the Board or the Committee, such delegation of
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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 eight
hundred thirty thousand (830,000) shares of the authorized but unissued, or
reacquired, Common Stock PLUS the number of Options which remain available for
grant from time-to-time pursuant to the Corporation's FutureNet Employee Stock
Option Plan or the Corporation's 1985 Stock Option Plan (the "Existing Plans"),
both of which have already been approved by the Corporation's shareholders. The
number of shares with respect to which Options may be granted hereunder is
subject to adjustment as set forth in Section 5(m) hereof. In the event that
any Option granted pursuant to this Plan or the Existing Plans expires or is
terminated for any reason, those shares of Common Stock allocable to the
unexercised portion of such terminated Option may again be subject to an Option
granted to the same or to a different Optionee under either this Plan or the
Existing Plans.
5. TERMS AND CONDITIONS OF OPTIONS.
Each Option granted pursuant to this Plan shall be evidenced by a
written agreement approved by the Plan Administrator (the "Agreement").
Agreements may contain such additional provisions, not inconsistent herewith, as
the Plan Administrator in its discretion, may deem advisable. All Options shall
also comply with the following requirements:
(a) NUMBER OF SHARES.
Each Agreement shall state the number of shares of Common Stock
to which it pertains and whether the Option is intended to be an Incentive Stock
Option or a Non-Qualified Stock Option. In the absence of action to the
contrary by the Plan Administrator in connection with the grant of an Option,
all Options shall be Non-Qualified Options. The aggregate fair market value
(determined at the Date of Grant, as defined below) of the stock with respect to
which Incentive Stock Options are exercisable for the first time by the Optionee
during any calendar year (granted under this Plan and all other incentive stock
option plans of the Corporation, a related corporation or a predecessor
corporation) shall not exceed $100,000, or such other limit as may be prescribed
by the Code as it may be amended from time to time. Any Option which exceeds
the annual limit shall not be void, but rather shall be a Non-Qualified Option.
(b) DATE OF GRANT.
Each Agreement shall state the date which the Plan Administrator
has deemed to be the effective date of the Option for purposes of this Plan (the
"Date of Grant").
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(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:
<TABLE>
<CAPTION>
YEARS OF SERVICE
FOLLOWING DATE OF PERCENT
GRANT VESTED
----------------- --------
<S> <C>
1 25
2 50
3 75
4 100
</TABLE>
(f) ACCELERATION OF VESTING.
The vesting of one or more outstanding Options may be accelerated
by the Plan Administrator at such times and in such amounts as it shall
determine in its sole discretion. The vesting of Options shall also be
accelerated under the circumstances described in Section 5(n) below.
(g) TERM OF OPTION.
Each Option shall terminate, to the extent not previously
exercised, upon the occurrence of the first of the following events: (i) the
expiration of the duration of the Option, as designated by the Plan
Administrator in accordance with Section 5(d) above; (ii) the expiration of 90
days from the date of the Optionee's termination of employment with the
Corporation for any reason whatsoever other than death or disability unless, in
the case of a Non-Qualified Option, the exercise period is extended by the Plan
Administrator until a date not later than the expiration date of the Option; or
(iii) the expiration of one year from (A) the date of death of the Optionee or
(B) cessation of employment by reason of "disability" unless, in the case of a
Non-Qualified Option, the exercise period is extended by the Plan Administrator
until a date not later than the expiration date of the Option. For purposes of
the Plan, "disability" shall mean any physical, mental or other health condition
which substantially impairs the employee's ability to perform her or his
assigned duties for 60 days or more in any
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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.
(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
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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.
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.
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The grant of an Option shall not affect in any way the right or
power of the Corporation to make adjustments, reclassifications, reorganizations
or changes in its capital or business structure, or to merge, consolidate,
dissolve or liquidate, or to sell or transfer all or any part of its business or
assets.
(n) CHANGE IN CONTROL.
(1) Any and all Options that have been
outstanding under the Plan for at least six (6) months at the time of occurrence
of any of the events described in Paragraphs (1), (2) and (3) below (an
"Eligible Option") shall become immediately vested and fully exercisable for the
periods indicated (each such exercise period referred to as an "Acceleration
Window"):
(A) For a period of 45 days beginning on the day on which
any Person (as such term is defined in Paragraph (r) of
Section 1 of the Rights Agreement dated as of November
31, 1988 between the Corporation and Chemical Bank (the
"Rights Plan")) together with all Affiliates and
Associates (as such terms are defined in Paragraph (e)
of Section 1 of the Rights Plan) of such Person shall
become the Beneficial Owner (as defined in the Rights
Plan) of 25% or more of the shares of Common Stock then
outstanding, 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 Securities
Exchange Act of 1934, as amended, and continuing so
long as such offer remains open (including any
extensions or renewals of such offer), unless by the
terms of such offer the offeror, upon consummation
thereof, would be the Beneficial Owner of less than 30%
of the shares of Common Stock then outstanding; or
(C) For a period of 20 days beginning on the day on which
the shareholders of the Corporation (or, if later,
approval by the shareholders of any Person) duly
approve any merger, consolidation, reorganization or
other transaction providing for the conversion or
exchange of more than fifty percent (50%) of the
outstanding shares of Common Stock into securities of
any Person, or cash, or property, or a combination of
any of the foregoing;
PROVIDED, HOWEVER, that with respect to the events specified in
Paragraphs (A) and (B) above, such accelerated vesting shall not
occur if the event that would otherwise trigger the accelerated
vesting of Eligible Options has received the prior approval of a
majority of all of the directors of the Corporation, excluding
for such purposes the votes of directors who are directors or
officers of, or have a material financial interest in any Person
(other than the Corporation) who is a party to the event
specified in either Paragraph (A) or (B) above which otherwise
would trigger acceleration of vesting and provided, further, that
no Option which is to be converted into an option to purchase
shares of Exchange Stock as stated at item (3) below shall be
accelerated pursuant to this Section 5(n).
(2) The exercisability of any Eligible Option which
remains unexercised following expiration of an Acceleration Window shall be
governed by the vesting schedule and other terms of the Agreement representing
such Option.
(3) If the shareholders of the Corporation receive
shares of capital stock of another Person ("Exchange Stock") in exchange for or
in place of shares of Common Stock in any transaction involving any merger,
consolidation, reorganization or other transaction providing for the conversion
or exchange of all or substantially all
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outstanding shares of Common Stock into Exchange Stock, then at the closing of
such transaction all Options granted hereunder shall be converted into options
to purchase shares of Exchange Stock unless the Corporation (by the affirmative
vote of a majority of all of the directors of the Corporation, excluding for
such purposes the votes of directors who are directors or officers of, or have a
material financial interest in the Person issuing the Exchange Stock and any
affiliate of such Person) and the Person issuing the Exchange Stock, in their
sole discretion, determines that any or all such Options granted hereunder shall
not be so converted but instead shall terminate. The amount and price of
converted Options shall be determined by adjusting the amount and price of the
Options granted hereunder in the same proportion as used for determining the
shares of Exchange Stock the holders of the Common Stock received in such
merger, consolidation, reorganization or other transaction. Unless altered by
the Plan Administrator, the vesting schedule set forth in the Option Agreement
shall continue to apply to the Options granted for Exchange Stock.
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.
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.
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Amended and restated as of February 22, 1995.
DATA I/O CORPORATION
By: //S//STEVEN M. GORDON
---------------------------------
Steve Gordon, Corporate Secretary
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EXHIBIT 10.23
[LOGO]
BUSINESS LOAN AGREEMENT
THIS SEAFIRST BUSINESS LOAN AGREEMENT ("AGREEMENT") IS MADE BETWEEN SEATTLE-
FIRST NATIONAL BANK ("BANK") AND Data I/O Corporation ("BORROWER")
WITH RESPECT TO THE FOLLOWING:
PART A
I. LINE OF CREDIT # 1 . Subject to the terms of this Agreement, Bank will
make loans to Borrower under a revolving line of credit as follows:
(A) TOTAL AMOUNT AVAILABLE: $8,000,000.00
[ ] Subject to (describe):
N/A__________________________________________________________________
(B) AVAILABILITY PERIOD: Date of Note through
May 31, 1996 . However, if loans are made and/or new
promissory notes executed after the last date, such advances will be
subject to the terms of this Agreement until repaid in full unless a
written statement signed by the Bank and Borrower provides otherwise,
or a replacement loan agreement is executed. The making of such
additional advances alone, however, does not constitute a commitment
by the Bank to make any further advances or extend the availability
period.
(C) INTEREST RATE:
At Borrower's option:
1. Banks publicly announced prime rate plus_-0-_ percent of the principal
per annum, adjusted on the date of any Bank prime rate change.
or
2. A rate of interest to be fixed at Borrower's election equal to the London
Interbank Offered Rate ("LIBOR") plus 1.10 percent for periods ranging from
one, two, three or six month periods, but not extending beyond the maturity
date of the note. The rate shall be adjusted for any statutory reserves,
FDIC or other assessments. Rate will be set two business days prior to the
first day of the interest period selected. A prepayment fee may apply if
principal reductions are made during a fixed rate period. The minimum
amount of a LIBOR loan for interest periods of one, two, three or six
months is $250,000.
At maturity of a fixed rate period, the interest rate will revert to Prime
as described in section 1 above unless otherwise elected by the Borrower.
(D) INTEREST RATE BASIS. All interest will be calculated at the per annum
interest rate based on 360-day year and applied to the actual number
of days elapsed.
(E) REPAYMENT: At the times and in amounts as set forth in note(s)
required under Part B Article 1 of this Agreement.
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(F) LOAN FEE: None
(G) 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 follows: 1/4 of 1.00% per annum, payable quarterly in
arrears.
(H) OTHER FEE(S) (IDENTIFY): N/A.
(I) COLLATERAL. This revolving line of credit shall be unsecured.
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1. PROMISSORY NOTE(S). All loans shall be evidenced by promissory notes
in a form and substance satisfactory to Bank.
2. CONDITIONS TO AVAILABILITY OF LOAN/LINE OF CREDIT. Before Bank is
obligated to disburse/make any advance, or at any time thereafter
which Bank deems necessary and appropriate, Bank must receive all of
the following, each of which must be in form and substance
satisfactory to Bank ("loan documents"):
2.1 Original, executed promissory note(s);
2.2 Original executed security agreement(s) and/or deed(s) of trust
covering the collateral described in Part A;
2.3 All collateral described in Part A in which Bank wishes to have a
possessory security interest;
2.4 Financing statement(s) executed by Borrower;
2.5 Such evidence that Bank may deem appropriate that the security
interests and liens in favor of Bank are valid, enforceable, and prior
to the rights and interests of others except those consented to in
writing by Bank;
+2.6 The following guaranty(ies) in favor of the Bank: N/A
+2.7 Subordination agreement(s) in favor of Bank executed by: N/A
2.8 Evidence that the execution, delivery, and performance by Borrower of
this Agreement and the execution, delivery, and performance by
Borrower and any corporate guarantor or corporate subordinating
creditor of any instrument or agreement required under this Agreement,
as appropriate, have been duly authorized;
2.9 Any other document which is deemed by the Bank to be required from
time to time to evidence loans or to effect the provisions of this
Agreement;
2.10 N/A;
2.11 Pay or reimburse Bank for any out-of-pocket expenses expended in
making or administering the loans made hereunder including without
limitation attorney's fees (including allocated costs of in-house
counsel);
+2.12 Other (describe): N/A
3. REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants to
Bank, except as Borrower has disclosed to Bank in writing, as of the
date of this Agreement and hereafter so long as credit granted under
this Agreement is available and until full and final payment of all
sums outstanding under this Agreement and promissory notes that:
+3.1 Borrower is duly organized and existing under the laws of the state of
its organization as a:
General
Limited
_X_Corporation ___ Partnership ___ Partnership ____
Sole
____ 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 conflict with the terms of any charter,
bylaw, or other organization papers of Borrower, and this Agreement,
such notes and the loan documents are valid and enforceable according
to their terms;
3.2 The execution, delivery, and performance of this Agreement, the loan
documents and any other instruments are not in conflict with any law
or any indenture, agreement or undertaking to which Borrower is a
party or by which Borrower is bound or affected;
3.3 Borrower has title to each of the properties and assets as reflected
in its financial statements (except such assets which have been sold
or otherwise disposed of in the ordinary course of business), and no
assets or revenues of the Borrower are subject to any lien except as
required or permitted by this Agreement, disclosed in its financial
statements or otherwise previously disclosed to Bank in writing;
3.4 All financial information, statements as to ownership of Borrower and
all other statements submitted by Borrower to Bank, whether previously
or in the future, are and will be true and correct in all material
respects upon submission and are and will be complete upon submission
insofar as may be necessary to give Bank a true and accurate knowledge
of the subject matter thereof;
3.5 Borrower has filed all tax returns and reports as required by law to
be filed and has paid all taxes and assessments applicable to Borrower
or to its properties which are presently due and payable, except those
being contested in good faith;
3.6 There are no proceedings, litigation or claims (including unpaid
taxes) against Borrower pending or, to the knowledge of the Borrower,
threatened, before any court or government agency, and no other event
has occurred which may have a material adverse effect on Borrower's
financial condition;
3.7 There is no event which is, or with notice or lapse of time, or both,
would be, an Event of Default (as defined in Section 7) under this
Agreement;
3.8 Borrower has exercised due diligence in inspecting Borrower's
properties for hazardous wastes and hazardous substances. Except as
otherwise previously disclosed and acknowledged to Bank in writing:
Borrower has no actual or constructive notice of any actual or
threatened litigation or claims of any kind
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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 Re authorization 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 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: Line of credit - working capital and general
corporate purposes.
+4.2 Maintain current assets in an amount at least equal to 1.20 times
current liabilities, and not less than $ N/A. Current assets and
current liabilities shall be determined in accordance with generally
accepted accounting principles and practices, consistently applied;
+4.3 Maintain a tangible net worth of at least $19,000,000 and not permit
Borrower's total indebtedness which is not subordinated in a manner
satisfactory to Bank to exceed 1.30 times Borrower's tangible net
worth. "Tangible net worth" means the excess of total assets over
total liabilities, excluding, however, from the determination of total
assets (a) all assets which should be classified as intangible assets
such as goodwill, patents, trademarks, copyrights, franchises, and
deferred charges (including unamortized debt discount and research and
development costs), (b) treasury stock, (c) cash held in a sinking or
other similar fund established for the purpose of redemption or other
retirement of capital stock, (d) to the extent not already deducted
from total assets, reserves for depreciation, depletion, obsolescence
or amortization of properties and other reserves or appropriations of
retained earnings which have been or should be established in
connection with the business conducted by the relevant corporation,
and (e) any revaluation or other write-up in book value of assets
subsequent to the fiscal year of such corporation last ended at the
date of this Agreement;
+4.4 Upon request Borrower agrees to insure and to furnish Bank with
evidence of insurance covering the life of Borrower (if an individual)
or the lives of designated partners or officers of Borrower (if a
partnership or corporation) in the amounts stated below. Borrower
shall take such actions as are reasonably requested by Bank, such as
assigning the insurance policies to Bank or naming Bank as beneficiary
and obtaining the insurer's acknowledgment thereof, to provide that in
the event of the death of any of the named insureds the policy
proceeds will be applied to payment of Borrower's obligations owing to
Bank;
Name:______N/A________Amount:$____________
Name:_________________Amount:$ ___________
+4.5 Promptly give written notice to Bank of: (a) all litigation and claims
made or threatened affecting Borrower where the amount is $500,000 or
more; (b) any substantial dispute which may exist between Borrower and
any governmental regulatory body or law enforcement authority; (c) any
Event of Default under this Agreement or any other agreement with Bank
or any other creditor or any event which become an Event of Default;
and (d) any other matter which has resulted or might result in a
material adverse change in Borrower's financial condition or
operations;
+4.6 Borrower shall as soon as available, but in any event within 90 days
following the end of each Borrower's fiscal years and within 60 days
following the end of each QUARTER provide to Bank, in a form
satisfactory to Bank, such financial statements, Form 10-K Reports,
Form 10-Q Reports and other information respecting the financial
condition and operations of Borrower as Bank may reasonably request.
The fiscal year financial statement shall be audited by an independent
certified public accounting firm.;
4.7 Borrower will maintain in effect insurance with responsible insurance
companies in such amounts and against such risks as is customarily
maintained by persons engaged in businesses similar to that of
Borrower and all policies covering property given as security for the
loans shall have loss payable clauses in favor of Bank. Borrower
agrees to deliver to Bank such evidence of insurance as Bank may
reasonably require and, within thirty (30) days after notice from
Bank, to obtain such additional insurance with an insurer satisfactory
to the Bank;
4.8 Borrower will pay all indebtedness taxes and other obligations for
which the Borrower is liable or to which its income or property is
subject before they shall become delinquent, except any which is being
contested by the Borrower in good faith;
4.9 Borrower will continue to conduct its business as presently
constituted, and will maintain and preserve all rights, privileges and
franchises now enjoyed, conduct Borrower's business in an orderly,
efficient
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and customary manner, keep all Borrowers properties in good working
order and condition, and from time to time make all needed repairs,
renewals or replacements so that the efficiency of Borrower's
properties shall be fully maintained and preserved;
4.10 Borrower will maintain adequate books, accounts and records and
prepare all financial statements required hereunder in accordance with
generally accepted accounting principles and practices consistently
applied, and in compliance with the regulations of any governmental
regulatory body having jurisdiction over Borrower or Borrower's
business;
4.11 Borrower will permit representatives of Bank to examine and make
copies of the books and records of Borrower and to examine the
collateral of the Borrower at reasonable times;
4.12 Borrower will perform, on request of Bank, such acts as may be
necessary or advisable to perfect any lien or security interest
provided for herein or otherwise carry out the intent of this
Agreement;
4.13 Borrower will comply with all applicable federal, state and municipal
laws, ordinances, rules and regulations relating to its properties,
charters, businesses and operations, including compliance with all
minimum funding and other requirements related to any of Borrower's
employee benefit plans;
4.14 Borrower will permit representatives of Bank to enter onto Borrower's
properties to inspect and test Borrower's properties as Bank, in its
sole discretion, may deem appropriate to determine Borrower's
compliance with section 5.8 of this Agreement; provided however, that
any such inspections and tests shall be for Bank's sole benefit and
shall not be construed to create any responsibility or liability on
the part of Bank to Borrower or to any third party.
5. NEGATIVE COVENANTS. So long as credit granted under this Agreement is
available and until full and final payment of all sums outstanding
under this Agreement and promissory note(s):
+5.1 Borrower will not, during any fiscal year, expend or incur in the
aggregate more than $ N/A for fixed assets, nor more than $ N/A
for any single fixed asset whether or not payable that fiscal year or
later under any purchase agreement or lease;
5.2 N/A
+5.3 The total of salaries, withdrawals, or other forms of compensation,
whether paid in cash or otherwise, by Borrower shall not exceed the
following amounts for the persons indicated, nor will amounts in
excess of such limits be paid to any other person:
Name: ____________N/A_____________________
Monthly/Yearly Amount:$_____________________
Name: ____________________________________
Monthly/Yearly Amount:$ _____________________
5.4 N/A
+5.5 N/A
5.6 Borrower will not liquidate or dissolve or enter into any
consolidation, merger, pool, joint venture, syndicate or other
combination, or sell, lease, or dispose of Borrower's business assets
as a whole or such as in the opinion of Bank constitute a substantial
portion of Borrower's business or assets;
5.7 Borrower will not engage in any business activities or operations
substantially different from or unrelated to present business
activities or operations; and
5.8 Borrower's activity shall be conducted in compliance with all
applicable federal, state and local laws, regulations and ordinances,
including without limitation those described in section 3.8.
6. WAIVER, RELEASE AND INDEMNIFICATION. Borrower hereby:
(a) releases and waives any claims against Bank for indemnity or
contribution in the event Borrower becomes liable for cleanup or other
costs under any of the applicable federal, state or local laws,
regulations or ordinances, including without limitation those
described in section 3.8, and (b) agrees to indemnify and hold Bank
harmless from and against any and all claims, losses, liabilities,
damages, penalties and expenses which Bank may directly or indirectly
sustain or suffer resulting from a breach of (i) any of Borrower's
representations and warranties with respect to hazardous wastes and
hazardous substances contained in section 3.8, or (ii) section 5.8.
The provisions of this section 6 shall survive the full and final
payment of all sums outstanding under this Agreement and promissory
notes and shall not be affected by Bank's acquisition of any interest
in any of the Borrower's properties, whether by foreclosure or
otherwise.
7. EVENTS OF DEFAULT. The occurrence of any of the following events
("Events of Default") shall terminate any and all obligations on the
part of Bank to make or continue the loan and/or line of credit and,
at the option of Bank, shall make all sums of interest and principal
outstanding under the loan and/or line of credit immediately due and
payable, without notice of default, presentment or demand for payment,
protest or notice of non payment or dishonor, or other notices or
demands of any kind or character, all of which are waived by Borrower,
and Bank may proceed with collection of such obligations and
enforcement and realization upon all security which it may hold and to
the enforcement of all rights hereunder or at law:
7.1 The Borrower shall fail to pay when due any amount payable by it
hereunder on any loans or notes executed in connection herewith;
7.2 Borrower shall fail to comply with the provisions of any other
covenant, obligation or term of this Agreement for a period of thirty
(30) days after the earlier of written notice thereof shall have been
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given to the Borrower by Bank or Borrower or any Guarantor has
knowledge of an Event of Default or an event that can become an Event
of Default;
7.3 Borrower shall fail to pay when due any other obligation for borrowed
money, or to perform any term or covenant on its part to be performed
under any agreement relating to such obligation or any such other debt
shall be declared to be due and payable and such failure shall
continue after the applicable grace period;
7.4 Any representation or warranty made by Borrower in this Agreement or
in any other statement to Bank shall prove to have been false or
misleading in any material respect when made;
7.5 Borrower makes an assignment for the benefit of creditors, files a
petition in bankruptcy, is adjudicated insolvent or bankrupt,
petitions to any court for a receiver or trustee for Borrower or any
substantial part of its property, commences any proceeding relating to
the arrangement, readjustment, reorganization or liquidation under any
bankruptcy or similar laws, or if there is commenced against Borrower
any such proceedings which remain undismissed for a period of thirty
(30) days or, if Borrower by any act indicates its consent or
acquiescence in any such proceeding or the appointment of any such
trustee or receiver;
+7.6 Any judgment attaches against Borrower or any of its properties for an
amount in excess of $500,000 which remains unpaid, unstayed on appeal,
unbonded, or undismissed for a period of thirty (30) days;
7.7 Loss of any required government approvals, and/or any governmental
regulatory authority takes or institutes action which, in the opinion
of Bank, will adversely affect Borrower's condition, operations or
ability to repay the loan and/or line of credit;
7.8 Failure of Bank to have a legal, valid and binding first lien on, or a
valid and enforceable prior perfected security interest in, any
property covered by any deed of trust or security agreement required
under this Agreement;
7.9 Borrower dies, becomes incompetent, or ceases to exist as a going
concern;
7.10 Occurrence of an extraordinary situation which gives Bank reasonable
grounds to believe that Borrower may not, or will be unable to,
perform its obligations under this or any other agreement between Bank
and Borrower; or
7.11 Any of the preceding events occur with respect to any guarantor of
credit under this Agreement, or such guarantor dies or becomes
incompetent, unless the obligations arising under the guaranty and
related agreements have been unconditionally assumed by the
guarantor's estate in a manner satisfactory to Bank.
8. SUCCESSORS; WAIVERS. Notwithstanding the Events of Default above, this
Agreement shall be binding upon and inure to the benefit of Borrower
and Bank, their respective successors and assigns, except that
Borrower may not assign its rights hereunder. No consent or waiver
under this Agreement shall be effective unless in writing and signed
by the Bank and shall not waive or affect any other default, whether
prior or subsequent thereto, and whether of the same or different
type. No delay or omission on the part of the Bank in exercising any
right shall operate as a waiver of such right or any other right.
9. ARBITRATION.
9.1 At the request of either Bank or Borrower any controversy or claim
between the Bank and Borrower, arising from or relating to this
Agreement or any Loan Document executed in connection with this
Agreement or arising from any alleged tort shall be settled by
arbitration in King County Washington. The United States Arbitration
Act will apply to the arbitration proceedings which will be
administered by the American Arbitration Association under its
commercial rules of arbitration except that unless the amount of the
claim(s) being arbitrated exceeds $5,000,000 there shall be only one
arbitrator. Any controversy over whether an issue is arbitrable shall
be determined by the arbitrator(s). Judgment 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 arbitration on that basis. The
parties consent to the joinder in the arbitration proceedings of any
guarantor, hypothecator or other party having an interest related to
the claim or controversy being arbitrated.
9.2 Notwithstanding the provisions of Section 9.1, no controversy or claim
shall be submitted to arbitration without the consent of all parties
if at the time of the proposed submission, such controversy or claim
arises from or relates to an obligation secured by real property;
9.3 No provision of this Section 9 shall limit the right of the Borrower
or the Bank to exercise self-help remedies such as setoff, foreclosure
or sale of any collateral, or obtaining any ancillary provisional or
interim remedies from a court of competent jurisdiction before, after
or during the pendency of any arbitration proceeding. The exercise of
any such remedy does not waive the right of either party to request
arbitration. At Bank's option foreclosure under any deed of trust may
be accomplished by exercise of the power of sale under the deed of
trust or judicial foreclosure as a mortgage.
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<PAGE>
10. COLLECTION ACTIVITIES, LAWSUITS AND GOVERNING LAW. Borrower agrees to
pay Bank all costs and expenses (including reasonable attorney's fees
and the allocated cost for in-house legal services incurred by Bank),
to enforce this Agreement, any notes or any Loan Documents pursuant to
this Agreement, whether or not suit is instituted. If suit is
instituted by Bank to enforce this Agreement or any of these
documents, Borrower consents to the personal jurisdiction of the
Courts of the State of Washington and Federal Courts located in the
State of Washington. Borrower further consents to the venue of this
suit, being laid in King County, Washington. This Agreement and any
notes and security agreements entered into pursuant to this Agreement
shall be construed in accordance with the laws of the State of
Washington.
+11. ADDITIONAL PROVISIONS. Borrower agrees to the additional provisions
set forth immediately following this Section 11 or on any Exhibit
attached to and incorporated into this Agreement. This Agreement
supersedes all oral negotiations or agreements between Bank and
Borrower with respect to the subject matter hereof and constitutes the
entire understanding and Agreement of the matters set forth in this
Agreement.
11.1 If any provision of this Agreement is held to be invalid or
unenforceable, then (a) such provision shall be deemed modified if
possible, or if not possible, such provision shall be deemed stricken,
and (b) all other provisions shall remain in full force and effect.
11.2 If the imposition of or any change in any law, rule, or regulation
guideline or the interpretation or application of any thereof by any
court of administrative or governmental authority (including any
request or policy whether or not having the force of law) shall impose
or modify any taxes (except U.S. federal, state or local income or
franchise taxes imposed on Bank), reserve requirements, capital
adequacy requirements or other obligations which would: (a) increase
the cost to Bank for extending or maintaining any loans and/or line of
credit to which this Agreement relates, (b) reduce the amounts payable
to Bank under this Agreement, such notes and other instruments, or
(c) reduce the rate of return on Bank's capital as a consequence of
Bank's obligations with respect to any loan and/or line of credit to
which this Agreement relates, then Borrower agrees to pay Bank such
additional amounts as will compensate Bank therefor, within five (5)
days after Bank's written demand for such payment, which demand shall
be accompanied by an explanation of such imposition or charge and a
calculation in reasonable detail of the additional amounts payable by
Borrower, which explanation and calculations shall be conclusive,
absent manifest error.
11.3 N/A
11.4 This Business Loan Agreement also covers all future standby letters of
credit and foreign exchange facilities as may be requested by Borrower
and made by Bank.
12. NOTICES. Any notices shall be given in writing to the opposite
party's signature below or as that party may otherwise specify in
writing.
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.
Page 98
<PAGE>
This Business Loan Agreement (Parts A and B) executed by the parties on May
______, 1995 Borrower acknowledges having read all of the provisions of this
Agreement and Borrower agrees to its terms.
SEATTLE-FIRST NATIONAL BANK
Western Commercial Banking Division, Team #2
By: //S//STEVEN E. MELBY
-----------------------------------------
Steven E. Melby, Vice President
DATA I/O CORPORATION
By: //S//STEVEN M. GORDON
-----------------------------------------
Title: Vice President/Chief Financial Officer
--------------------------------------
Page 99
<PAGE>
LOAN MODIFICATION
AGREEMENT
[LOGO]
This Agreement amends the MASTER NOTE FOR MULTIPLE ADVANCES-BUSINESS
PURPOSE dated FEBRUARY 28, 1994 ("Note") executed by DATA I/O CORPORATION
("Borrower") in favor of SEATTLE-FIRST NATIONAL BANK ("Bank"), regarding a
loan in the maximum principal amount of $8,000,000 (the "Loan"). For mutual
consideration, Borrower and Bank agree to amend the above loan documents as
follows:
1. INTEREST RATE. The interest rate under the Note shall
hereafter be either LIBOR rate plus 1.10% (see attached Exhibit B) per annum
or at a floating rate of the Prime Rate plus 0% per annum, with Prime Rate
defined as the floating commercial loan reference rate publicly announced by
Bank from time to time as its "prim rate." If Borrower prepays all or any
portion of principal of the Loan, there shall be due at the time of any
prepayment a prepayment fee, determined in accordance with Exhibit A
attached. Any prepayments of principal shall be applied to the final
scheduled installments of principal, and shall not relieve Borrower of the
obligation to make each monthly installment.
2. MATURITY DATE. The maturity date of the Note is changed to MAY
31, 1996. Bank's commitment to make advances to Borrower under its line of
credit is also extended to MAY 31, 1996.
3. OTHER TERMS. Except as specifically amended by this agreement
or any prior amendment, all other terms, conditions, and definitions of the
Note and all other security agreements, guaranties, deeds of trust,
mortgages, and other instruments or agreements entered into with regard to
the Loan shall remain in full force and effect.
DATED May 12, 1995
Bank: Borrower:
SEATTLE-FIRST NATIONAL BANK DATA I/O CORPORATION
By //S//STEVEN E. MELBY BY: //S//STEVEN M. GORDON
--------------------------- ----------------------------------
Title Vice President Title: Vice President/Chief Financial Officer
------------------------- ---------------------------------------
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<PAGE>
EXHIBIT A
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 .00% (the "Margin") of the principal per annum, adjusted on the
effective date of any prime rate change.
(2) ADJUSTED LIBOR: "Adjusted LIBOR Rate" means for any day that per
annum rate equal to the sum of 1.10% (the "Margin"), (b) the
Assessment rate, if any, and (c) the LIBOR rate for the Interest
Period in which said day occurs divided by the Reserve Adjustment.
The Adjusted LIBOR Rate shall change with any change in the LIBOR Rate
on the first day of each Interest Period and on the effective date of
any change in the Assessment Rate or Reserve Adjustment.
Adjusted LIBOR Rate is available for increments of borrowing in excess
of $250,000.00 for specific periods of time (30, 60, 90, 180 days).
LIBOR (REUTERS) - "LIBOR Rate" means for any Interest Period that per
annum rate equal to the arithmetic mean (rounded to the nearest
hundred-thousandth of a percentage point) of the offered rates for
U.S. Dollar deposits for a period equal to the Interest Period
appearing on the display designated as page "LIBO" on the Reuters
Monitor Money Rates Service (or such other page on such service as may
replace said page or, if none, on such other available service which
displays two or more London interbank offered rates of major banks for
U.S. Dollar deposits as of 11:00 a.m., London time, on the day which
is two London banking days prior to the first day of the Interest
Period. If there is no period equal to the Interest Period on the
display, the LIBOR Rate shall be determined by straight-line
interpolation to the nearest month (or week or day if expressed in
weeks or days) corresponding to the Interest Period between the two
nearest neighboring periods on the display.
ASSESSMENT RATE - "Assessment Rate" means as of any day the annual
percentum rate established by the Federal Deposit Insurance
Corporation (or any successor) for the assessment due from members of
the Bank Insurance Fund (or any successor) in effect for the
assessment period during which said day occurs based on (a) deposits
maintained at said members' offices in the United States, in
determination of an Adjusted CD Rate, or (b) deposits maintained at
such members' offices located outside of the United States, in
determination of an Adjusted LIBOR Rate.
RESERVE ADJUSTMENT - "Reserve Adjustment" means as of any day the
remainder of one minus that percentage (expressed as a decimal) which
is the highest of any such percentages established by the Board of
Governors of the Federal Reserve System (or any successor) for
required reserves (including any emergency, marginal or supplemental
reserve requirement) regardless of the aggregate amount of deposits
with said member bank and without benefit of any possible credit,
proration, exemptions or offsets for (a) (in determination of an
Adjusted CD Rate) any type, duration or amount of new time deposit
established that day at offices of member banks located in the United
States, or (b) (in determination of an Adjusted LIBOR Rate) for time
deposits established at offices of member banks located outside of the
United States or for eurocurrency liabilities, if any.
It is understood that either or both options may be used during a monthly
billing period and that the billing by Bank will reflect the total of both
options.
If borrowings under Option 2 are prepaid, such prepayment shall be subject to a
prepayment penalty consisting of the differential, if any, by which the then
current rate is less than such rate at the borrowing date, applied to the amount
of the borrowing for the period from the prepayment date through the date of
maturity of such borrowings.
ADDITIONAL PROVISION. Notwithstanding any other provision in this Note, Lender
will have no obligation to make any additional loans or to advance funds under
this Note if Lender makes demand under that certain Note Purchase Agreement
between Lender and Data I/O Corporation of even date herewith and pursuant to
which Lender may make such demand at Lender's sole discretion at any time and
without notice to Borrower.
DATA I/O CORPORATION
By: //S//STEVEN M. GORDON
-----------------------------------------
Title: Vice President/Chief Financial Officer
--------------------------------------
Page 101
<PAGE>
EXHIBIT B -- PREPAYMENT FEES
If the principal balance owing to Bank is prepaid in whole or in part, whether
by voluntary prepayment, operation of law, acceleration or otherwise, a
prepayment fee, in addition to any interest earned, will be immediately payable
to Bank.
The amount of the prepayment fee depends on the following:
(1) The amount by which interest reference rates as defined below have changed
between the time the loan is prepaid and either a) the time the loan was
made for fixed rate loans, or b) the time the interest rate last changed
(repriced) for variable rate loans.
(2) A prepayment fee factor (see "Prepayment Fee Factor Schedule" on reverse).
(3) The amount of principal prepaid.
If the proceeds from a CD or time deposit pledged to secure the loan are used to
prepay the loan resulting in payment of an early withdrawal penalty for the CD,
a prepayment fee will not also be charged under the loan.
DEFINITION OF REFERENCE RATE FOR VARIABLE RATE LOANS
The Reference Rate used to represent interest rate levels for variable rate
loans shall be the index rate used to determine the rate on this loan having
maturities equivalent to the remaining period to interest rate change date
(repricing) of this loan rounded upward to nearest month. The "Initial
Reference Rate" shall be the Reference Rate at the time of last repricing and a
new Initial Reference Rate shall be assigned at each subsequent repricing. The
"Final Reference Rate" shall be the Reference Rate at the time of prepayment.
DEFINITION OF REFERENCE RATE FOR FIXED RATE LOANS
The "Reference Rate" used to represent interest rate levels on fixed rate loans
shall be the bond equivalent yield of the average U.S. Treasury rate having
maturities equivalent to the remaining period to maturity of this loan rounded
upward to the nearest month. The "Initial Reference Rate" shall be the
Reference Rate at the time the loan was made. The "Final Reference Rate" shall
be the Reference Rate at time of prepayment.
The Reference Rate shall be interpolated from the Federal Reserve Statistical
Release (Publication H.15) as displayed on Page 119 of the Dow Jones Telerate
Service (or such other page or service as may replace that page or service for
the purpose of displaying rates comparable to said U.S. Treasure rates) on the
day the loan was made (Initial Reference Rate) or the day of prepayment (Final
Reference Rate).
COMPLETE FOR FIXED RATE LOANS ONLY: 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.
Data I/ Corporation
By: //S//STEVEN M. GORDON
-------------------------
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<PAGE>
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
<TABLE>
<CAPTION>
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
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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>
TABLE II: PARTIALLY AMORTIZING (BALLOON) LOANS
<TABLE>
<CAPTION>
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
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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>
TABLE III: NON-AMORTIZING (INTEREST ONLY) LOANS
<TABLE>
<CAPTION>
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
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
0-100% 0 .31 .61 .91 1.21 2.3 3.4 4.4 5.3 6.9 8.9 13.0 14.8
</TABLE>
(1) For the remaining period to maturity/repricing between any two
maturities/repricings shown in the above schedules, interpolate between the
corresponding factors to the closest month.
The Bank is not required to actually reinvest the prepaid principal in any U.S.
Government Treasury Obligations, or otherwise prove its actual loss, as a
condition to receiving a prepayment fee as calculated above.
Data I/O Corporation
By: //S//STEVEN M. GORDON
------------------------------------
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<PAGE>
EXHIBIT 10.26
SECOND AMENDMENT TO THE DATA I/O TAX DEFERRED RETIREMENT PLAN
The Data I/O Tax Deferred Retirement Plan ("Plan"), as amended and restated
effective January 1, 1993, is amended as follow pursuant to Section 11.1 of the
Plan, effective November 1, 1995:
1. Effective for Employees hired on or after November 1, 1995, Section
1.34 YEAR OF SERVICE shall be replaced in its entirety by the
following:
"Year of Service" means a Plan Year in which an Employee has 1,000 or
more Hours of Service. Where the Employer maintains the plan of a
predecessor employer, service for such predecessor employer will be
treated as service for the Employer as required by the Code.
IN WITNESS WHEREOF, DATA I/O CORPORATION has caused this second
amendment to be duly executed on the 26th day of October, 1995.
FOR DATA I/O CORPORATION FOR THE TRUSTEES
//S//WILLIAM C. ERXLEBEN //S//DONALD R. STENQUIST
- -------------------------- --------------------------
President
//S//MILTON F. ZEUTSCHEL
--------------------------
//S//JOEL S. HATLEN //S//FRANCES M. CONLEY
- -------------------------- --------------------------
Witness
//S//STEVEN M. GORDON
--------------------------
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<PAGE>
EXHIBIT 10.27
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 Company by delivery of shares of the
Company's common stock (the "Common Stock").
ELIGIBILITY
Persons eligible to receive Common Stock under this Plan shall be all directors
of the Company who are not otherwise employed by the Company or any Related
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 corporation (other than the Company) in
an unbroken chain of corporations beginning with the Company if, at the time of
the 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 chain. 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 more of the total combined voting
power of all classes of stock of one of the other corporations in such chain.
STOCK
Subject to approval of this Plan by the shareholders of the Company 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. Shares of Common Stock
issued pursuant to this Plan may not be sold, assigned or otherwise transferred
or hypothecated until the expiration of six months after the conclusion of the
calendar year to which the
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<PAGE>
grant of shares relates. At the option of the Company, a stop-transfer order
may be placed upon the stock books and records of the Company to enforce this
limitation. Furthermore, certificates representing ownership of shares of
Common Stock issued pursuant to this Plan shall bear the following legend:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD,
ASSIGNED OR OTHERWISE HYPOTHECATED FOR VALUE PRIOR TO JULY 1, 199__.
RESERVATION OF COMMON STOCK.
Subject to adjustment 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 amended, 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
Page 106
<PAGE>
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 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 all or substantially all of the assets of the
Company other than in the usual and regular course of business, or by reason of
any 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 effective 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 action, suit or
proceeding, member(s) of the Board shall, in writing, notify the Company of such
action, suit or proceeding, so that the Company may have the opportunity to make
appropriate arrangements to prosecute or defend the same.
AMENDMENT OF PLAN
The Board of Directors may, at any time, modify, amend or terminate this Plan,
including, without limitation, such modifications or amendments as are necessary
to maintain compliance with applicable statutes, rules or regulations; PROVIDED,
that (i) 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 Company in accordance with the
Rule; 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.
Page 107
<PAGE>
EXHIBIT 10.28 Confidential portions of this
document have been omitted and
have been filed separately
with the Securities and
Exchange Commission.
DATA I/O CORPORATION
SYNARIO DIVISION PROCEEDS SHARING PLAN
1. PURPOSE
Data I/O Corporation (the "Company") has adopted this Plan to increase the
incentive of the employees of the Company's Synario division or any subsidiary
formed to continue the operations of that division (the "Division") to maximize
the value of the Division. The Division currently supports three software
products: Synario, ABEL and ECS.
2. DEFINITIONS
"Aggregate Minimum Price" means the sum of the Minimum Prices for each
Software Line included in the Qualifying Sale.
"Allocated Amount" means, with respect to each Participant, the amount
equal to the product of the Total Pool multiplied by the Allocation Percentage
for such Participant.
"Allocation Percentage" means the percentage of the Total Pool awarded by
the Plan Administrator to Participants; each Participant shall be advised of his
or her Allocation Percentage in a letter from the Company.
"Closing Date" means the final closing of the Qualified Sale.
"Employee" means an employee of the Company working in the Division;
PROVIDED, HOWEVER, that an individual working in the Division solely on a
temporary or contract basis shall not be deemed an Employee eligible to
participate in this Plan.
"Letter of Intent" means a letter of intent or other similar written
agreement in principle between the Company and the prospective buyer of any or
all of the Software Lines, which sets forth the essential terms of a Qualifying
Sale.
"Minimum Price" means the following minimum sale prices for each Software
Line, as adjusted to reflect any additional investment made by the Company in
connection with any acquisition of a product, technology or business which
becomes part of the Division:
Software Line Minimum Price
------------- -------------
Synario CONFIDENTIAL
ABEL CONFIDENTIAL
ECS CONFIDENTIAL
"Net Proceeds" means the amount equal to the Purchase Price net of all
costs of the Qualifying Sale, including, without limitation, any sales taxes,
commissions and accountants', attorneys' and other fees which the Company is
obligated to pay. Net Proceeds shall be determined by the Plan Administrator in
its sole discretion, which determination shall be final and binding on all
Participants.
"New Eligible Employee" means an Employee hired after January 31, 1996
meeting the requirements in Section 5(a) and designated by the Plan
Administrator to be a Participant.
"Participant" means any Employee selected from time to time by the Plan
Administrator to be a participant in this Plan; PROVIDED, HOWEVER, that an
Employee shall cease to be a Participant if he or she (i) is not employed full-
time or part-time in the Division on the Closing Date or (ii) refuses to assist
the Company or the Buyer for a minimum of ninety (90) days after the Closing
Date (the "Transition Period") if asked by the Company or the Buyer to do so.
If an Employee does not agree to assist the Company or the Buyer during the
Transition Period, such Employee ceases to be a Participant and his or her right
to
Page 108
<PAGE>
Confidential portions of this
document have been omitted and
have been filed separately
with the Securities and
Exchange Commission.
participate in this Plan shall immediately terminate. Notwithstanding the
foregoing, (a) a full-time Employee shall not cease to be a Participant if such
Employee is asked to assist the Company or the Buyer during the Transition
Period on less than a full-time basis and such Employee refuses such request and
(b) a part-time Employee shall not cease to be a Participant if such Employee is
asked to assist the Company or the Buyer during the Transition Period on more
than a part-time basis and such Employee refuses such request.
"Purchase Price" means the total consideration received or to be received
by the Company from a Qualifying Sale, whether paid in cash, promissory notes,
securities or other property. With respect to noncash consideration, the fair
market value of such consideration for the purpose of calculating the Purchase
Price shall be determined by the Plan Administrator in its sole discretion,
which determination shall be final and binding on all Participants.
"Qualifying Sale" means a sale by the Company of assets or of all
outstanding securities, if any, of the Division which (i) includes the sale of
all or substantially all of the assets associated with the design, support,
manufacture and sale of both the Synario and ECS Software Lines, (ii) has Net
Proceeds greater than the Aggregate Minimum Price and (iii) has a Closing Date
occurring (x) on or after January 31, 1996 and (y) on or prior to the expiration
of the Term or, if subsequent to such expiration, pursuant to a Letter of Intent
executed and delivered on or prior to such expiration; PROVIDED, HOWEVER, that a
sale shall not be deemed a Qualifying Sale if the closing of such sale occurs
pursuant to a Letter of Intent executed and delivered on or prior to January 31,
1996.
"Software Lines" means the Division's Synario, ECS and ABEL software
product lines.
"Term" means the period beginning on January 31, 1996 and ending on the
later of (i) December 31, 1997 and (ii) the expiration or termination of any
Letter of Intent executed and delivered on or prior to December 31, 1997.
"Total Pool" means the amount equal to the product of (i) 0.25 and (ii) the
Net Proceeds minus the Aggregate Minimum Price.
3. ELIGIBILITY
All Employees are eligible for selection by the Plan Administrator to
participate in the Plan. The right to participate in this Plan of any
Participant shall terminate immediately upon termination of employment of the
Participant by the Division before the Closing Date for any reason whatsoever,
including death or disability.
4. TERMS AND CONDITIONS OF DISTRIBUTIONS
(a) ALLOCATION OF TOTAL POOL. Prior to the Closing Date, once per year
the Plan Administrator may review the Allocation Percentage of each Participant
and make such adjustments as the Plan Administrator may deem appropriate based
upon such Participant's performance.
(b) FORM AND TIME OF DISTRIBUTION. Distribution of Allocated Amounts
shall be as follows:
(i) To the extent that cash constitutes any or all of the Total Pool,
the same percentage of the Allocated Amount shall be distributed in cash,
subject to subsections (iii) or (iv) below, as applicable.
(ii) To the extent that noncash consideration constitutes any or all
of the Total Pool, the form, amount and time of distribution of such noncash
consideration shall be determined by the Plan Administrator, which determination
shall be final and binding on all Participants. The Plan Administrator shall
have the sole discretion to determine what portion, if any, of the noncash
consideration of the Total Pool shall be distributed to the Participants;
PROVIDED, HOWEVER, that if the Plan Administrator determines that any portion of
such noncash consideration shall not be distributed to the Participants,
Page 109
<PAGE>
Confidential portions of this
document have been omitted and
have been filed separately
with the Securities and
Exchange Commission.
the Plan Administrator shall (1) determine the fair market value of such noncash
consideration, which determination shall be final and binding on Participants,
and (2) distribute to each Participant the corresponding portion of his or her
Allocated Amount in cash or cash equivalents based upon such fair market value,
subject to subsections (iii) or (iv) below, as applicable.
(iii) Subject to subsection (ii) of this Section 4(b), if the
Purchase Price shall be paid in full to the Company on or prior to the Closing
Date, the Company shall, within sixty (60) days after the Closing Date,
distribute to each Participant his or her Allocated Amount in full.
(iv) To the extent that payment of all or part of the Purchase Price
shall be deferred and subject to subsection (ii) of this Section 4(b), the
Company shall distribute to each Participant the corresponding portion of his or
her Allocated Amount within sixty (60) days after the Company's receipt of each
such deferred payment. For example, if one half of the Purchase Price is to be
paid on the Closing Date and the remaining half is to be paid six months
thereafter, the Company would distribute to each Participant one half of such
Participant's Allocated Amount within sixty (60) days of the Closing Date and
the remaining half of such Allocated Amount within sixty (60) days after the
Company receives the second payment six months later.
(v) Notwithstanding anything to the contrary in this Plan, (1) the
distribution of any sums under this Plan may be delayed until the Plan
Administrator 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 and (2) the Company shall withhold all applicable federal,
state, local and foreign withholding taxes that the Plan Administrator, in its
sole discretion, determines to result from any payment made under this Plan;
PROVIDED, HOWEVER, that any noncash distribution to be made under this Plan
shall be contingent upon the Participant's payment to the Company in cash of all
applicable federal, state, local and foreign withholding taxes that the Plan
Administrator, in its sole discretion, determines to result from any such
distribution.
5. NEW EMPLOYEES AND ADDITIONAL DISTRIBUTIONS
(a) NEW EMPLOYEES. The Plan Administrator shall have the right to
designate a New Eligible Employee to participate in this Plan and shall
determine the Allocation Percentage for any such New Eligible Employee. A New
Eligible Employee shall have the right to participate in the Plan as a
"Participant" with all the rights and obligations of a Participant hereunder.
(b) ADDITIONAL DISTRIBUTIONS. If the sum of the Allocation Percentages of
all Participants shall be less than one hundred percent (100%), such shortfall
shall be allocated among Participants on a pro rata basis based on the
Allocation Percentage of each Participant.
6. EFFECTIVE DATE; TERM
This Plan shall be effective as of January 31, 1996. After the expiration
of the initial Term, the Plan Administrator shall have the option to renew this
Plan for successive one year Terms. Termination of this Plan shall not
terminate the right to any distribution due pursuant to a Qualifying Sale which
closes (x) prior to the expiration of the Term or (y) pursuant to a Letter of
Intent executed and delivered on or prior to the expiration of the Term.
Page 110
<PAGE>
Confidential portions of this
document have been omitted and
have been filed separately
with the Securities and
Exchange Commission.
7. NO RIGHT TO BE A PARTICIPANT OR TO EMPLOYMENT
Whether or not any Employee is to be a Participant shall be exclusively
within the discretion of the Plan Administrator, and nothing contained in this
Plan shall be construed as giving any person any right to participate in this
Plan. Neither this Plan nor the designation or distribution of an Allocated
Amount shall in any way constitute any form of agreement or understanding
binding on the Company, express or implied, that the Company will employ or
contract with a Participant for any length of time, nor shall it interfere in
any way with the Company's right to terminate a Participant's employment at any
time, which right is hereby reserved.
8. INDEMNIFICATION OF PLAN ADMINISTRATOR
Members of the Plan Administrator and all persons authorized to administer
any aspect of this Plan by delegation by the Plan Administrator shall be
indemnified by the Company for all reasonable expenses and liabilities of any
type or nature, including attorneys' fees, incurred in connection with any
action, suit, investigation or proceeding to which they or any of them are a
party by reason of, or in connection with, this Plan or any distribution made
under this Plan, and against all amounts paid by them in settlement thereof,
except to the extent that such expenses relate to matters for which it is
adjudged that such person is liable for willful misconduct.
9. ADMINISTRATION AND AMENDMENT OF PLAN
This Plan shall be administered by the Board of Directors of the Company or
any committee thereof appointed to administer this Plan, which is referred to
herein as the "Plan Administrator." Subject to the provisions of this 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 this Plan;
(b) define the terms used in this Plan; (c) prescribe, amend and rescind rules
and regulations relating to this Plan; (d) correct any defect, supply any
omission or reconcile any inconsistency in this Plan; (e) determine the form and
timing of payments under this Plan; (f) determine which Employees will be
Participants in this Plan; (g) determine all other terms and conditions of this
Plan; and (h) make all other determinations necessary or advisable for the
administration of this Plan. All decisions, determinations and interpretations
made by the Plan Administrator shall be binding and conclusive on all
Participants in this Plan and on their legal representatives, heirs and
beneficiaries. The Plan Administrator may, at any time, modify, amend or
terminate this Plan, including, without limitation, such modifications or
amendments as are necessary to maintain compliance with applicable statutes,
rules or regulations; PROVIDED, HOWEVER, that after the Closing Date, no
amendment shall be made which has the effect of reducing the benefits afforded
to Participants as of the Closing Date.
Date Approved by Board of Directors of Company: December 12, 1995
Page 111
<PAGE>
EXHIBIT 10.29 Confidential portions of
this document have been
omitted and have been filed
separately with the
Securities and Exchange
Commission.
February 1, 1996
Mr. William H. Haydamack
17407 155th Pl. N.E.
Woodinville, WA 98072
Dear Bill:
This is to confirm our understanding about certain benefits that Data
I/O Corporation (the "Company") has agreed to provide you in the event of a sale
of all or substantially all of the assets employed by the Company in the design,
support, marketing and sales of both the Company's Synario and ECS software
products (the "Products"), or the sale of all of the stock of a subsidiary
formed by the Company to conduct such operations (any such transaction referred
to as a "Sale"). For the purpose of this agreement, "Minimum Sale Proceeds"
shall mean consideration received by the Company from a Sale of at least
CONFIDENTIAL after deducting all costs of such Sale (including, without
limitation, any sales taxes, commissions and accountants, attorneys' and other
fees).
On or prior to the 60th day following the date of receipt by the Company
of the Minimum Sale Proceeds, the Company shall pay you a cash bonus in an
amount equal to $100,000 less all amounts paid or payable (if any) to you under
the Company's Synario Division Proceeds Sharing Plan (the "Plan"); provided,
however, that if the amounts paid to you under the Plan exceed $100,000, then
the Company shall not be obligated to pay you, and you shall not have any right
to, any such bonus amount. In addition, effective on the date of closing of a
Sale (the "Closing Date"), whether or not such Sale generates Minimum Sale
Proceeds, all options to acquire shares of the Company's common stock granted to
you by the Company prior to the Closing Date shall immediately vest and be fully
exercisable in accordance with their terms.
If, after a Sale generating Minimum Sale Proceeds, within the period
commencing on the Closing Date and ending on the first anniversary of the
Closing Date, your employment by the Company or the buyer in such Sale (the
"Buyer") is terminated by the Company or the buyer other than for Cause, the
Company shall pay you a lump sum in an amount equal to your annual base salary
as of the date of such termination, less any other severance or change in
control payments made.
"Cause" shall mean: (1) any act or failure to act which causes the
Company or Buyer, as the case may be, to incur significant monetary damages; (2)
conviction for commitment of a felony; (3) any violation of law which has a
material, adverse effect on the Company or Buyer; (4) habitual abuse of alcohol
or a controlled substance; (5) theft or embezzlement from the Company or Buyer;
(6) repeated unexcused absence from work for reasons unrelated to short-term
illnesses; (7) any physical, mental or other health condition which
substantially impairs your ability to perform your assigned duties for 90 days
or more in any 180 day period or that can be expected to result in death; (8)
repeated failure or refusal to carry out the reasonable directives, orders or
resolutions of your supervisor or any officer to whom you report and (9) any
other action or failure to act which constitutes cause under applicable law.
Page 112
<PAGE>
Confidential portions of
this document have been
omitted and have been filed
separately with the
Securities and Exchange
Commission.
You will not be entitled to receive the foregoing benefits (i) unless
you continue to be employed as the General Manager of the Company's Synario
division or subsidiary at the Closing Date or (ii) if you refuse to assist the
Company or the buyer in the Sale for a minimum of ninety (90) days after the
Closing Date (the "Transition Period") if asked by the Company or the Buyer to
do so.
The Company will withhold all applicable federal, state, local and
foreign withholding taxes from all payments and benefits to be provided to you
hereunder.
Notwithstanding any provision of this letter agreement or the Plan to
the contrary, if, in the good faith judgment of the Company, any payment,
benefit or right payable or accruing to you under this letter agreement, the
Plan, the Company's option plans or any other benefit plan of the Company
(collectively, the "Severance Payments") would constitute a "parachute payment"
as defined in Section 280G(b)(2) of the Internal Revenue Code of 1986, as
amended (the "Code"), then the total amount of payments under this letter
agreement and, if necessary, under the Plan shall be reduced so that the total
of all Severance Payments is not greater than 2.99 times your "base amount" as
defined in Code Section 280G(b)(3).
The Company's obligations hereunder shall expire with respect to any
Sale which closes after the later of (i) December 31, 1997 and (ii) the
termination or expiration of any letter of intent or other similar written
agreement in principle between the Company and the prospective buyer of the
Products which has been executed and delivered on or prior to December 31, 1997,
unless extended by the Company in its sole discretion.
Nothing contained herein shall be construed as giving you the right to
employment by the Company or any Buyer. No term of any employment agreement
between you and the Company shall be construed to conflict with, lessen or
expand the obligations of the parties hereunder.
Your rights hereunder are personal to you and are not assignable. The
Company may assign its rights hereunder in connection with any merger or
consolidation of the Company or any sale of all or any portion of the Company's
assets (including, without limitation, any division or product line), provided
that any such successor or assignee expressly assumes in writing the Company's
obligations hereunder.
This letter agreement shall be governed by the local laws of the State
of Washington without regard to its conflicts of laws rules.
DATA I/O CORPORATION
By: //S// WILLIAM C. ERXLEBEN
----------------------------
Its: President and CEO
----------------------------
Accepted and agreed:
//S// WILLIAM J. HAYDAMACK
- ---------------------------------
William J. Haydamack
- ---------------------------------
Page 113
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-28-1995
<PERIOD-START> DEC-30-1994
<PERIOD-END> DEC-28-1995
<CASH> 4,496
<SECURITIES> 0
<RECEIVABLES> 13,426
<ALLOWANCES> 311
<INVENTORY> 8,539
<CURRENT-ASSETS> 28,019
<PP&E> 30,778
<DEPRECIATION> 20,538
<TOTAL-ASSETS> 44,776
<CURRENT-LIABILITIES> 16,014
<BONDS> 0
17,528
0
<COMMON> 0
<OTHER-SE> 8,401
<TOTAL-LIABILITY-AND-EQUITY> 44,776
<SALES> 66,031
<TOTAL-REVENUES> 66,031
<CGS> 30,598
<TOTAL-COSTS> 29,857
<OTHER-EXPENSES> (398)
<LOSS-PROVISION> 48
<INTEREST-EXPENSE> 273
<INCOME-PRETAX> 5,653
<INCOME-TAX> 892
<INCOME-CONTINUING> 4,761
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,761
<EPS-PRIMARY> .60
<EPS-DILUTED> .60
</TABLE>
