UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
( X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended March 31, 2004
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Or the transition period from ___________ to ____________
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, including zip code)
(425) 881-6444
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes No X
8,012,592 shares of no par value of the Registrant's Common Stock were issued
and outstanding as of May 7, 2004.
DATA I/O CORPORATION
FORM 10-Q
For the Quarter Ended March 31, 2004
INDEX
Part I - Financial Information Page
Item 1. Financial Statements (unaudited) 3
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 12
Item 4. Controls and Procedures 13
Part II - Other Information
Item 1. Legal Proceedings 14
Item 2. Changes in Securities and Use of Proceeds 14
Item 3. Defaults Upon Senior Securities 14
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 18
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
DATA I/O CORPORATION
CONSOLIDATED BALANCE SHEETS
- -----------------------------------------------------------------------------------------------------------------------------------
Mar. 31, Dec. 31,
2004 2003
- -----------------------------------------------------------------------------------------------------------------------------------
(in thousands, except share data) (unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $3,706 $4,380
Marketable securities 2,368 2,354
Trade accounts receivable, less allowance for
doubtful accounts of $206 and $202 5,606 5,054
Inventories 4,053 4,607
Other current assets 412 431
--------------------- ----------------
TOTAL CURRENT ASSETS 16,145 16,826
Property and equipment - net 1,465 1,151
Other assets 7 11
--------------------- ----------------
TOTAL ASSETS $17,617 $17,988
===================== ================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $1,213 $1,285
Accrued compensation 896 1,186
Deferred revenue 1,411 1,430
Other accrued liabilities 1,254 1,543
Income taxes payable 403 350
--------------------- ----------------
TOTAL CURRENT LIABILITIES 5,177 5,794
Deferred gain on sale of property 1,023 1,106
--------------------- ----------------
TOTAL LIABILITIES 6,200 6,900
COMMITMENTS - -
STOCKHOLDERS' EQUITY:
Preferred stock -
Authorized, 5,000,000 shares, including
200,000 shares of Series A Junior Participating
Issued and outstanding, none - -
Common stock, at stated value -
Authorized, 30,000,000 shares
Issued and outstanding, 8,010,717
and 7,976,296 shares 18,886 18,797
Accumulated deficit (7,742) (8,038)
Accumulated other comprehensive loss 273 329
--------------------- ----------------
TOTAL STOCKHOLDERS' EQUITY 11,417 11,088
--------------------- ----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $17,617 $17,988
===================== ================
See accompanying notes to consolidated financial statements.
DATA I/O CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Mar. 31, Mar. 31,
For the three months ended 2004 2003
- -------------------------------------------------------------------------------------- ------------------ ---------------------
(in thousands, except per share data)
Net sales $6,834 $6,155
Cost of goods sold 3,121 2,718
------------------ ---------------------
Gross margin 3,713 3,437
Operating expenses:
Research and development 1,204 1,161
Selling, general and administrative 2,172 1,928
Net provision (reversal) for business restructuring - (27)
------------------ ---------------------
Total operating expenses 3,376 3,062
------------------ ---------------------
Operating income 337 375
Non-operating income (expense):
Interest income 35 32
Interest expense (1) (3)
Foreign currency exchange (14) (76)
------------------ ---------------------
Total non-operating income (expense) 20 (47)
------------------ ---------------------
Income before income taxes 357 328
Income tax expense 61 11
------------------ ---------------------
Net income $ 296 $ 317
================== =====================
Basic and diluted earnings per share $0.04 $0.04
================== =====================
Weighted average shares outstanding 7,998 7,845
================== =====================
Weighted average and potential shares outstanding 8,414 7,847
================== =====================
See accompanying notes to consolidated financial statements.
DATA I/O CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
- -----------------------------------------------------------------------------------------------------------------------------------
Mar 31, Mar 31,
For the three months ended 2004 2003
- -----------------------------------------------------------------------------------------------------------------------------------
(in thousands)
OPERATING ACTIVITIES:
Income from operations $ 296 $ 317
Adjustments to reconcile income from operations to net cash provided
by (used in) operating activities:
Depreciation and amortization 192 176
Net loss on dispositions 54 298
Amortization of deferred gain on sale (82) (82)
Net change in:
Deferred revenue (19) (38)
Trade accounts receivable (550) (351)
Inventories 553 94
Other current assets 19 274
Accrued costs of business restructuring - (182)
Accounts payable and accrued liabilities (595) 45
----------- --------------
Net cash provided by (used in) operating activities (132) 551
INVESTING ACTIVITIES:
Purchases of property and equipment (554) (142)
Net from purchase and sale of marketable securities (15) 737
----------- --------------
Net cash provided by (used in) investing activities (569) 595
FINANCING ACTIVITIES:
Sale of common stock 81 58
Proceeds from exercise of stock options 8 -
----------- --------------
Net cash provided by (used in) financing activities 89 58
----------- --------------
Increase/(decrease) in cash and cash equivalents (612) 1,204
Effects of exchange rate changes on cash (62) 58
Cash and cash equivalents at beginning of year 4,380 4,383
----------- --------------
Cash and cash equivalents at end of quarter $3,706 $5,645
=========== ==============
See accompanying notes to consolidated financial statements.
DATA I/O CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - FINANCIAL STATEMENT PREPARATION
Data I/O prepared the financial statements as of March 31, 2004 and March 31,
2003, according to the rules and regulations of the Securities and Exchange
Commission ("SEC"). These statements are unaudited but, in the opinion of
management, include all adjustments (consisting of normal recurring adjustments
and accruals) necessary to present fairly the results for the periods presented.
The balance sheet at December 31, 2003 has been derived from the audited
financial statements at that date. We have condensed or omitted certain
information and footnote disclosures normally included in financial statements
prepared in accordance with accounting principles generally accepted in the
United States of America according to such SEC rules and regulations. Operating
results for the three months ended March 31, 2004 are not necessarily indicative
of the results that may be expected for the year ending December 31, 2004. These
financial statements should be read in conjunction with the annual audited
financial statements and the accompanying notes included in the Company's Form
10-K for the year ended December 31, 2003.
Stock-Based Compensation
Data I/O has stock-based employee compensation plans. We apply APB Opinion 25,
Accounting for Stock Issued to Employees, and related Interpretations in
accounting for our plans. Stock expense for the first quarter of 2004 and 2003
would have been the result of options issued with an exercise price below the
underlying stock's market price. The following table illustrates the effect on
net income and earnings per share if Data I/O had applied the fair value
recognition provisions of FASB Statement 123, Accounting for Stock-Based
Compensation.
Data I/O's pro forma information follows (in thousands, except per share data):
Mar. 31 Mar. 31,
2004 2003
---------------- ----------------
Net income (loss) - as reported $ 296 $317
Deduct: Total stock-based employee compensation expense determined under
fair value based method for awards granted, modified, or settled, net of
related tax effects (68) (80)
---------------- ----------------
Net income (loss) - pro forma $228 $237
================ ================
Basic and diluted income (loss) per share - as reported $0.04 $0.04
Basic and diluted income (loss) per share - pro forma $0.03 $0.03
NOTE 2 - INVENTORIES
Inventories consisted of the following components (in thousands):
Mar. 31, Dec. 31,
2004 2003
---------------- ----------------
Raw material $2,101 $2,100
Work-in-process 1,133 1,411
Finished goods 819 1,096
---------------- ----------------
$4,053 $4,607
================ ================
We continued to reduce the overall level of inventory based upon the level of
sales we have been experiencing and are forecasting. During the quarter we did
not significantly change the net carrying values of our inventory.
NOTE 3 - PROPERTY AND EQUIPMENT
Property and equipment consisted of the following components (in thousands):
Mar. 31, Dec. 31,
2004 2003
---------------- ----------------
Leasehold improvements $ 275 $ 259
Equipment 12,442 12,016
---------------- ----------------
12,717 12,275
Less accumulated depreciation 11,252 11,124
---------------- ----------------
Property and equipment - net $ 1,465 $ 1,151
================ ================
NOTE 4 - BUSINESS RESTRUCTURING PROGRESS
During the first quarter of 2003, we completed most of the remaining 2001 and
2002 previously accrued restructure charges associated with actions taken to
reduce our breakeven point and realign Data I/O with our market opportunities.
These payments were $27,000 less than anticipated from the original
restructuring related charges that totaled $1.8 million during 2001 and 2002.
Accordingly, included in the results for 2003 was a reversal of these previously
over-accrued restructure charges. At December 31, 2003, all restructuring
expenses associated with the activities detailed above had been paid.
NOTE 5 - EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per
share (in thousands except per share data):
For the first quarter
----------------------------
2004 2003
----------- -------------
Numerator for basic and diluted earnings per share:
Net income $ 296 $317
----------- -------------
Denominator:
Denominator for basic earnings per share -
weighted-average shares 7,998 7,845
Employee stock options 416 2
----------- -------------
Denominator for diluted earnings per share -
adjusted weighted-average shares and
assumed conversions of stock options 8,414 7,847
----------- -------------
Basic and diluted earnings per share
Total basic and diluted earnings per share $0.04 $0.04
=========== =============
At March 31, 2004 and 2003 there were 1,325,522 and 1,131,088 shares,
respectively, of outstanding options potentially issueable as common stock.
NOTE 6 - ACCOUNTING FOR INCOME TAXES
The Company's effective tax rate for the first three months of 2004 differed
from the statutory 34% tax rate primarily due to utilization of net operating
loss carryforwards. The tax valuation allowance increased by approximately
$46,000 during the quarter ended March 31, 2004. As of March 31, 2004, the
Company has a valuation allowance of $9,783,000.
NOTE 7 - COMPREHENSIVE INCOME
During the first quarter of 2004 and 2003 total comprehensive income (loss) was
comprised of the following (in thousands):
For the first quarter
------------------------------
2004 2003
------------- -------------
Net income (loss) $296 $317
Foreign currency translation gain (loss) (56) 58
------------- -------------
Total comprehensive income (loss) $240 $375
============= =============
NOTE 8 - FOREIGN CURRENCY TRANSLATION AND DERIVATIVES
Data I/O translates assets and liabilities of foreign subsidiaries at the
exchange rate on the balance sheet date. We translate revenues, costs and
expenses of foreign subsidiaries at average rates of exchange prevailing during
the year. We charge or credit translation adjustments resulting from this
process to stockholders' equity, net of taxes. Realized and unrealized gains and
losses resulting from the effects of changes in exchange rates on assets and
liabilities denominated in foreign currencies are included in non-operating
expense as foreign currency transaction gains and losses.
Data I/O accounts for its hedging activities in accordance with SFAS No. 133,
Accounting for Derivatives and Hedging Activities. This statement establishes
accounting and reporting standards for derivative instruments and requires
recognition of derivatives as assets or liabilities in the statement of
financial position and measurement of those instruments at fair value.
Data I/O utilizes forward foreign exchange contracts to reduce the impact of
foreign currency exchange rate risks where natural hedging strategies cannot be
effectively employed. All hedging instruments held by us are fair value hedges.
Generally, these contracts have maturities less than one year and require us to
exchange foreign currencies for U.S. dollars at maturity. The change in fair
value of the open hedge contracts as of March 31, 2004 is an unrealized loss of
$4,100 and is included in accounts payable on the balance sheet.
Data I/O does not hold or issue derivative financial instruments for trading
purposes. The purpose of our hedging activities is to reduce the risk that the
valuation of the underlying assets, liabilities and firm commitments will be
adversely affected by changes in exchange rates. Our derivative activities do
not create foreign currency exchange rate risk because fluctuations in the value
of the instruments used for hedging purposes are offset by fluctuations in the
value of the underlying exposures being hedged.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
General
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q includes forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995. This Act
provides a "safe harbor" for forward-looking statements to encourage companies
to provide prospective information about themselves as long as they identify
these statements as forward-looking and provide meaningful cautionary statements
identifying important factors that could cause actual results to differ from the
projected results. All statements other than statements of historical fact made
in this Quarterly Report on Form 10-Q are forward-looking. In particular,
statements herein regarding industry prospects or trends; expected level of
expense; future results of operations or financial position; changes in gross
margin; integration of acquired products and operations; market acceptance of
our newly introduced or upgraded products; development, introduction and
shipment of new products; and any other guidance on future periods are
forward-looking statements. Forward-looking statements reflect management's
current expectations and are inherently uncertain. Although Data I/O believes
that the expectations reflected in these forward-looking statements are
reasonable, we cannot guarantee future results, levels of activity, performance,
achievements, or other future events. Moreover, neither Data I/O nor anyone else
assumes responsibility for the accuracy and completeness of these
forward-looking statements. Data I/O is under no duty to update any of these
forward-looking statements after the date of this report. The Reader should not
place undue reliance on these forward-looking statements. The discussions in the
section entitled "Business - Cautionary Factors That May Affect Future Results"
in Item 1 in the Company's Annual report on Form 10-K for the year ended
December 31, 2003, and in Exhibit 99.1 of this report describe some, but not
all, of the factors that could cause these differences.
OVERVIEW
Our goal is to continue to focus on managing the business to achieve profitable
operations, while developing and enhancing products to drive revenue and
earnings growth. Our challenge continues to be operating in the weak and
uncertain economic environment with its limited capacity related demand and weak
capital spending, while positioning Data I/O to take advantage of an anticipated
recovery in capital spending. We expect that demand for capacity should improve,
in part based on forecasted increased 2004 unit sales for the semiconductor
industry, which should provide improved business opportunities for Data I/O.
We are continuing our efforts to balance increasing costs and strategic
investments in our business with the level of demand and mix of business we
expect. We are focusing our research and development efforts in our strategic
growth markets, namely new programming technology and automated programming
systems for the manufacturing environment, particularly extending the
capabilities and support for our FlashCORE architecture and the
ProLINE-RoadRunner and PS families. To better support our customers in their
geographic areas and time zones, we have expanded device support operations in
Germany and India and are in the process of setting up a new device support
center in Shanghai, China.
Our customer focus has been on strategic high volume manufacturers and
programming centers and supporting NAND Flash and microcontrollers on our newer
products to gain new accounts and break into new markets, such as
microcontrollers for the automotive market. We are in the process of setting up
new subsidiaries in China and Brazil. We are expanding our China operations to
take advantage of the growth of manufacturing in China and are establishing a
service operation in Brazil. We continue our efforts to partner with the
semiconductor manufacturers to better serve our mutual customers.
CRITICAL ACCOUNTING POLICY JUDGMENTS AND ESTIMATES
The preparation of financial statements in accordance with accounting principles
generally accepted in the United States requires that we make estimates and
judgments, which affect the reported amounts of assets, liabilities, revenues
and expenses, and related disclosures of contingent assets and liabilities. On
an on-going basis, we evaluate our estimates, including those related to sales
returns, bad debts, inventories, investments, intangible assets, income taxes,
warranty obligations, restructuring charges, contingencies such as litigation,
and contract terms that have multiple elements and other complexities typical in
the telecommunications equipment industry. We base our estimates on historical
experience and other assumptions that we believe are reasonable under the
circumstances. Actual results may differ from these estimates under different
assumptions or conditions.
We believe the following critical accounting policies affect the more
significant judgments and estimates used in the preparation of its financial
statements.
Revenue Recognition: Sales of our semiconductor programming equipment products
requiring installation by us that is other than perfunctory are recorded when
installation is complete, or at the later of customer acceptance or
installation, if an acceptance clause is specified in the sales terms. We
recognize revenue from other product sales at the time of shipment. We record
revenue from the sale of service and update contracts as deferred revenue and we
recognize it on a straight-line basis over the contractual period, which is
typically one year. We establish a reserve for sales returns based on historical
trends in product returns and estimates for new items. If the actual future
returns differ from historical levels, our revenue could be adversely affected.
Allowance for Doubtful Accounts: We base the allowance for doubtful accounts
receivable on our assessment of the collectibility of specific customer accounts
and the aging of accounts receivable. If there is a deterioration of a major
customer's credit worthiness or actual defaults are higher than historical
experience, our estimates of the recoverability of amounts due us could be
adversely affected.
Inventory Provisions: We base inventory purchases and commitments upon future
demand forecasts and historic usage. If there is a significant decrease in
demand for our products or there is a higher risk of inventory obsolescence
because of rapidly changing technology and customer requirements, we may be
required to increase our inventory provision adjustments and our gross margin
could be adversely affected.
Warranty Accruals: We accrue for warranty costs based on the expected material
and labor costs to fulfill our warranty obligations. If we experience an
increase in warranty claims, which are higher than our historical experience,
our gross margin could be adversely affected.
Deferred Taxes: We have incurred tax losses in each of the last four years and
have net operating loss and tax credit carryforwards that begin expiring in
2019. We have provided a full valuation allowance against our tax assets, given
the uncertainty as to their realization. In future years, these benefits are
available to reduce or eliminate taxes on future taxable income.
Results of Operations
NET SALES
- --------------------------------------------------------------------------------------------------------------------
(in thousands)
First Quarter
-------------------------------------------------------
Net sales by product line 2004 % Change 2003
- ---------------------------------------------------------------------------------------------------------------------
Non-automated programming systems $2,582 1.2% $2,552
Automated programming systems 4,252 18.0% 3,603
-------------------------------------------------------
Total programming systems $6,834 11.0% $6,155
=======================================================
First Quarter
-------------------------------------------------------
Net sales by location 2004 % Change 2003
--------------------------------------------------------------------------------------------------------------------
United States $1,390 (23.4%) $1,815
% of total 20.3% 29.5%
International $5,444 25.4% $4,340
% of total 79.7% 70.5%
--------------------------------------------------------------------------------------------------------------------
Revenues for the first quarter of 2004 increased by approximately 11% compared
to the first quarter of 2003. The revenue increase relates to our increased
sales of automated systems, especially aftermarket products. Our revenue growth
is due to the increased sales in Asia. The impact of the weakened U.S. Dollar
continues to favorably impact us both from making products made in the U.S. less
expensive when sold overseas in U.S. Dollars and from Euro-based sales which
translated into higher U.S. Dollar reported sales. During the first quarter of
2004, our backlog of orders was reduced from $1.5 million to $820,000.
Data I/O continues to experience a trend in its sales mix towards increased
international sales and believes that, with the economic situation in the United
States and with the electronics industry trend toward offshore and outsourced
manufacturing, this trend is likely to continue.
GROSS MARGIN
First Quarter
------------------------------------------
(in thousands) 2004 2003
- ----------------------------------------------------------------------------------------------------------
Gross Margin $3,713 $3,437
Percentage of net sales 54.3% 55.8%
- ----------------------------------------------------------------------------------------------------------
Gross margins increased in dollars but decreased as a percentage of sales for
the first quarter of 2004 compared with the same period of 2003. Overall gross
margins increased primarily due to the increase in sales volume and to an
increase in the aftermarket sales mix. The higher gross margin was offset in
part by unfavorable labor and overhead variances associated with a $555,000
reduction in inventory during the quarter. Gross margins were favorably impacted
by the export and currency translation effects of the weaker U.S. Dollar
compared to the Euro. We continue to forecast margin percentages at
approximately the current quarter's level.
RESEARCH AND DEVELOPMENT
First Quarter
------------------------------------------
(in thousands) 2004 2003
---------------------------------------------------------------------------------------------------------
Research and development $1,204 $1,161
Percentage of net sales 17.6% 18.9%
---------------------------------------------------------------------------------------------------------
Research and development ("R&D") spending for the first quarter 2004 as compared
to the first quarter 2003 was slightly more in dollars but less as a percentage
of sales. This increase in spending was primarily related to our new development
initiative in In-System Programming (ISP). During the quarter, we introduced the
new PS-288FC automated programming system, along with several other products. We
plan to increase our engineering development spending during 2004 with the
hiring of new engineering positions in our new Shanghai based subsidiary in
China formed in April of 2004.
SELLING, GENERAL AND ADMINISTRATIVE
First Quarter
------------------------------------------
(in thousands) 2004 2003
- ----------------------------------------------------------------------------------------------------------
Selling, general & administrative $2,172 $1,928
Percentage of net sales 31.8% 31.3%
---------------------------------------------------------------------------------------------------------
Selling, general and administrative ("SG&A") expenses for the first quarter of
2004 were $244,000 more compared with the same period in 2003, primarily due to
our strategic investments in Asia and the hiring of additional key personnel, as
well as the unfavorable currency translation impact of European based operating
costs. In addition, we incurred higher commission costs based on the higher
sales volume and a higher mix of representative sales vs. distributor sales.
Finally, higher expenses related to Asian sales meetings and travel, which
expenses were significantly less in the first quarter of 2003 due to the
cancellation of Asian sales meetings and travel as a result of SARS.
INTEREST
First Quarter
------------------------------------------
(in thousands) 2004 2003
---------------------------------------------------------------------------------------------------------
Interest income $35 $32
Interest expense ($1) ($3)
---------------------------------------------------------------------------------------------------------
Interest income increased slightly in the first quarter of 2004 compared to the
same period in 2003 due to increased funds invested.
INCOME TAXES
First Quarter
------------------------------------------
(in thousands) 2004 2003
---------------------------------------------------------------------------------------------------------
Income tax expense (benefit) $61 $11
---------------------------------------------------------------------------------------------------------
Tax expense recorded for the first quarter of 2004 was due to foreign taxes. Tax
valuation reserves increased by approximately $46,000 during the quarter. Data
I/O has valuation reserves of $9,783,000 as of March 31, 2004.
Financial Condition
LIQUIDITY AND CAPITAL RESOURCES
Mar. 31, Dec. 31,
(in thousands) 2004 Change 2003
- ------------------------------------------------------------- --------------------- -------------------- -------------------
Working capital $10,968 ($64) $11,032
- ------------------------------------------------------------- --------------------- -------------------- -------------------
Working capital decreased during the first three months of 2004 primarily due to
cash used by operations. Cash, cash equivalents and marketable securities
decreased approximately $0.7 million during this period, primarily due to
payment of accrued liabilities; inventory decreased $0.6 million: and accounts
receivable increased $0.6 million. We continue to focus on reducing the amount
of inventory relative to our business level. Our receivables increase is due in
part to the increased mix of international sales, which typically have longer
sales terms and collection periods. Should our business grow significantly, we
anticipate that we will need to utilize existing liquidity to carry the
increased receivables and inventory expected to be associated with sales growth.
As of March 31, 2004, Data I/O had no debt outstanding.
Data I/O estimates that capital expenditures for property, plant and equipment
during the remainder of 2004 will be approximately $500,000, excluding
expenditures for strategic purposes. Data I/O's future capital requirements will
depend on a number of factors including international operations expansion,
decisions to invest in new systems and technology equipment, costs associated
with R&D, successful launch of new products and the potential use of funds for
strategic purposes. We expect to fund capital expenditures from existing and
internally generated funds or we may lease capital equipment. We believe that we
have sufficient working capital available under our operating plan to fund our
operations and capital requirements for at least 12 months.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to financial market risks, including fluctuations in foreign
exchange rates and interest rates.
INTEREST RATE RISK
We invest our cash in a variety of short-term financial instruments, including
government bonds, commercial paper and money market instruments, which are
classified as available-for-sale. Our investments are made in accordance with an
investment policy approved by our board of directors. Our portfolio is
diversified and consists primarily of investment grade securities to minimize
credit risk. Cash balances in foreign currencies are operating balances and are
invested in demand or short-term deposits of the local operating bank.
Investments in both fixed rate and floating rate interest earning instruments
carry a degree of interest rate risk. Fixed rate securities may have their fair
market value adversely impacted because of a rise in interest rates, while
floating rate securities may produce less income than expected if interest rates
fall. Due in part to these factors, our future investment income may fall short
of expectations because of changes in interest rates or we may suffer losses in
principal if forced to sell securities that have seen a decline in market value
because of changes in interest rates. We do not attempt to reduce or eliminate
our exposure to interest rate risk through the use of derivative financial
instruments due to the short-term nature of the investments.
The table below provides information about our marketable securities, including
principal cash flows and the related weighted average interest rates (in
thousands):
Principal Estimated Fair Principal Estimated Fair
Cash Flows Value at Cash Flows Value at
For 2004 March 31, For Q1 December 31,
2004 2004 2003
---------------- ------------------ -------------- ----------------
Corporate Bonds $1,061 $1,061 $ 754 $ 754
1.503% 1.315%
Euro-dollar bonds 307 307 - -
1.290%
Taxable Auction Securities 500 500 500 500
1.064% 1.136%
Tax Advantaged Auction Securities 500 500 1,100 1,100
1.065% 1.286%
---------------- ------------------ -------------- ----------------
Total portfolio value $2,368 $2,368 $2,354 $2,354
================ ================== ============== ================
FOREIGN CURRENCY RISK
We have operations in Germany, Canada, and China and are setting up operations
in Brazil. Therefore, we are subject to risks typical of an international
business including, but not limited to, differing economic conditions, changes
in political climate, differing tax structures, other regulations and
restrictions and foreign exchange rate volatility. Accordingly, our future
results could be materially adversely affected by changes in these or other
factors.
Our sales and corresponding receivables are substantially in U.S. dollars other
than sales made in our subsidiaries in Germany, Canada, and China. Through our
operations in Germany, Canada, and China and soon in Brazil, we incur certain
product costs; research and development; customer service and support costs;
selling, general and administrative expenses in local currencies. We are
exposed, in the normal course of business, to foreign currency risks on these
expenditures and on related foreign currency denominated monetary assets and
liabilities. We have evaluated our exposure to these risks and believe that our
only significant exposure to foreign currencies at the present time is primarily
related to Euro-based receivables. We use forward contracts to hedge and thereby
minimize the currency risks associated with certain transactions denominated in
Euros.
If our actual currency requirement or timing in the period forecasted differs
materially from the notional amount of our forward contracts and/or the natural
balancing of receivables and payables in foreign currencies during a period of
currency volatility or if we do not continue to manage our exposure to foreign
currency through forward contracts or other means, we could experience
unanticipated foreign currency gains or losses. In addition, our foreign
currency risk management policy subjects us to risks relating to the
creditworthiness of the commercial banks with which we enter into forward
contracts. If one of these banks cannot honor its obligations, we may suffer a
loss. We also invest in our international operations, which will likely result
in increased future operating expenses denominated in those local currencies. In
the future, our exposure to foreign currency risks from these other foreign
currencies may increase and if not managed appropriately, we could experience
unanticipated foreign currency gains and losses.
The purpose of our foreign currency risk management policy is to reduce the
effect of exchange rate fluctuation on our results of operations. Therefore,
while our foreign currency risk management policy may reduce our exposure to
losses resulting from unfavorable changes in currency exchange rates, it also
reduces or eliminates our ability to profit from favorable changes in currency
exchange rates.
At March 31, 2004, we had two forward contracts to sell Euros in exchange for
$341,960 with rates ranging from 1.1996 to 1.2145 all scheduled to be due within
the next quarter and the value at that date of $333,727.
Item 4. Controls and Procedures
(a) Evaluation of disclosure controls and procedures.
Under the supervision and with the participation of our management, including
our Chief Executive Officer and Chief Financial Officer, Data I/O evaluated the
effectiveness of the design and operation of our disclosure controls and
procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Exchange
Act) as of the end of the period covered by this report (the "Evaluation Date").
Based upon that evaluation, the Chief Executive Officer and Chief Financial
Officer concluded that, as of the Evaluation Date, our disclosure controls and
procedures were effective in timely alerting them to the material information
relating to Data I/O (or its consolidated subsidiaries) required to be included
in our periodic SEC filings and Form 8-K reports.
(b) Changes in internal controls.
There were no significant changes made in our internal controls or, to our
knowledge, in other factors that could significantly affect these controls
subsequent to the date of their evaluation.
Our management, including the Chief Executive Officer and Chief Financial
Officer, does not expect that its disclosure controls and procedures or internal
control over financial reporting will prevent all error and all fraud. A control
system, no matter how well conceived and operated, can provide only reasonable,
not absolute, assurance that the objectives of the control system are met.
Further, the design of a control system must reflect the fact that there are
resource constraints, and the benefits of controls must be considered relative
to their costs. Because of the inherent limitations in all control systems, no
evaluation of controls can provide absolute assurance that all control issues
and instances of fraud, if any, within Data I/O have been detected. These
inherent limitations include the realities that judgments in decision-making can
be faulty, and that breakdowns can occur because of simple error or mistake.
Additionally, controls can be circumvented by the individual acts of some
persons, by collusion of two or more people, or by management override of the
control. The design of any system of controls also is based in part upon certain
assumptions about the likelihood of future events, and there can be no assurance
that any design will succeed in achieving its stated goals under all potential
future conditions; over time, control may become inadequate because of changes
in conditions, or the degree of compliance with the policies or procedures may
deteriorate. Because of the inherent limitations in a cost-effective control
system, misstatements due to error or fraud may occur and not be detected.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of
Equity Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
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 Data I/O 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 10.7,
10.22, and 10.24.
(2) Amended and Restated Retirement Plan and Trust Agreement. See Exhibit 10.2,
10.3, 10.4, 10.11, 10.14, 10.15, 10.16 and 10.25.
(3) Summary of Amended and Restated Management Incentive Compensation Plan.
See Exhibit 10.12.
(4) Amended and Restated 1983 Stock Appreciation Rights Plan. See Exhibit 10.1.
(5) Amended and Restated 1986 Stock Option Plan. See Exhibit 10.19.
(6) Form of Change in Control Agreements. See Exhibit 10.5.
(7) 1996 Director Fee Plan. See Exhibit 10.6 and 10.17.
(8) Letter Agreement with Frederick R. Hume. See Exhibit 10.20.
(9) Amended and Restated 2000 Stock Compensation Incentive Plan.
See Exhibit 10.21 and 10.23.
3 Articles of Incorporation:
3.1 Data I/O's restated Articles of Incorporation filed November
2, 1987 (Incorporated by reference to Exhibit 3.1 of Data
I/O's 1987 Annual Report on Form 10-K (File No. 0-10394)).
3.2 Data I/O's Bylaws as amended and restated as of October 2003.
3.3 Certificate of Designation, Preferences and Rights of Series
A Junior Participating Preferred Stock (Incorporated by
reference to Exhibit 1 of Data I/O's Registration Statement
on Form 8-A filed March 13, 1998 (File No. 0-10394)).
4 Instruments Defining the Rights of Security Holders, Including
Indentures:
4.1 Rights Agreement, dated as of April 4, 1998, between Data
I/O Corporation and ChaseMellon Shareholder Services, L.L.C.
as Rights Agent, which includes: as Exhibit A thereto, the
Form of Right Certificate; and, as Exhibit B thereto, the
Summary of Rights to Purchase Series A Junior Participating
Preferred Stock (Incorporated by reference to Data I/O's
Current Report on Form 8-K filed on March 13, 1998).
4.2 Rights Agreement, dated as of March 31, 1988, between Data
I/O Corporation and First Jersey National Bank, as Rights
Agent, as amended by Amendment No. 1 thereto, dated as of
May 28, 1992 and Amendment No. 2 thereto, dated as of July
16, 1997 (Incorporated by reference to Data I/O's Report on
Form 8-K filed on March 13, 1998).
4.3 Amendment No. 1, dated as of February 10, 1999, to Rights
Agreement, dated as of April 4, 1998, between Data I/O
Corporation and ChaseMellon Shareholder Services, L.L.C. as
Rights Agent (Incorporated by reference to Exhibit 4.1 of
Data I/O's Form 8-A/A dated February 10, 1999).
10 Material Contracts:
10.1 Amended and Restated 1983 Stock Appreciation Rights Plan
dated February 3, 1993 (Incorporated by reference to Exhibit
10.23 of Data I/O's 1992 Annual Report on Form 10-K (File
No. 0-10394)).
10.2 Amended and Restated Retirement Plan and Trust Agreement.
(Incorporated by reference to Exhibit 10.26 of Data I/O's
1993 Annual Report on Form 10-K (File No. 0-10394)).
10.3 First Amendment to the Data I/O Tax Deferred Retirement Plan
(Incorporated by reference to Exhibit 10.21 of Data I/O's
1994 Annual Report on Form 10-K (File No. 0-10394)).
10.4 Second Amendment to the Data I/O Tax Deferred Retirement
Plan (Incorporated by reference to Exhibit 10.26 of Data
I/O's 1995 Annual Report on Form 10-K (File No. 0-10394)).
10.5 Form of Change in Control Agreements (Incorporated by
reference to Exhibit 10.20 of Data I/O's 1994 Annual Report
on Form 10-K (File No. 0-10394)).
10.6 Data I/O Corporation 1996 Director Fee Plan (Incorporated by
reference to Exhibit 10.27 of Data I/O's 1995 Annual Report
on Form 10K (File No. 0-10394)).
10.7 Data I/O Corporation 1982 Employee Stock Purchase Plan
Amended and Restated December 11, 1996 (Incorporated by
reference to Exhibit 10.1 to Data I/O's Registration
Statement of Form S-8 (File No. 333-20657, filed January 29,
1997)).
10.8 Purchase and Sale Agreement dated as of July 9, 1996
(Relating to the sale of Data I/O Corporation's headquarters
property in Redmond, Washington consisting of approximately
79 acres of land and an approximately 96,000 square foot
building. (Portions of this exhibit have been omitted
pursuant to an application for an order granting
confidential treatment. The omitted portions have been
separately filed with the Commission) (Incorporated by
reference to Exhibit 10.32 of Data I/O's 1996 Annual Report
on Form 10-K (File No. 0-10394)).
10.9 Letter dated as of December 20, 1996, First Amendment and
extension of the Closing Date under that certain Purchase
and Sale Agreement dated as of July 9, 1996. (Portions of
this exhibit have been omitted pursuant to an application
for an order granting confidential treatment. The omitted
portions have been separately filed with the Commission)
(Incorporated by reference to Exhibit 10.33 of Data I/O's
1996 Annual Report on Form 10-K (File No. 0-10394)).
10.10 Letter dated as of February 17, 1997, Second Amendment and
extension of the Closing Date under that certain Purchase
and Sale Agreement dated as of July 9, 1996. (Portions of
this exhibit have been omitted pursuant to an application
for an order granting confidential treatment. The omitted
portions have been separately filed with the Commission)
(Incorporated by reference to Exhibit 10.34 of Data I/O's
1996 Annual Report on Form 10-K (File No. 0-10394)).
10.11 Third Amendment to the Data I/O Tax Deferred Retirement
Plan (Incorporated by reference to Exhibit 10.35 of Data
I/O's 1996 Annual Report on Form 10-K (File No. 0-10394)).
10.12 Amended and Restated Management Incentive Compensation Plan
dated January 1, 1997 (Incorporated by reference to Exhibit
10.25 of Data I/O's 1997 Annual Report on Form 10-K (File
No. 0-10394)).
10.13 Amended and Restated Performance Bonus Plan dated January
1, 1997 (Incorporated by reference to Exhibit 10.26 of Data
I/O's 1997 Annual Report on Form 10-K (File No. 0-10394)).
10.14 Fourth Amendment to the Data I/O Tax Deferred Retirement
Plan (Incorporated by reference to Exhibit 10.27 of Data
I/O's 1997 Annual Report on Form 10-K (File No. 0-10394)).
10.15 Fifth Amendment to the Data I/O Tax Deferred Retirement
Plan (Incorporated by reference to Exhibit 10.28 of Data
I/O's 1997 Annual Report on Form 10-K (File No. 0-10394)).
10.16 Sixth Amendment to the Data I/O Tax Deferred Retirement
Plan (Incorporated by reference to Exhibit 10.29 of Data
I/O's 1997 Annual Report on Form 10-K (File No. 0-10394)).
10.17 Amended and Restated Data I/O Corporation 1996 Director Fee
Plan (Incorporated by reference to Exhibit 10.32 of Data
I/O's 1997 Annual Report on Form 10-K (File No. 0-10394)).
10.18 Amended and Restated 1986 Stock Option Plan dated May 12,
1998 (Incorporated by reference to Exhibit 10.37 of Data
I/O's 1998 Annual Report on Form 10-K (File No. 0-10394)).
10.19 Sublease dated December 22, 1999 between Data I/O
Corporation and Imandi.com, Inc.
10.20 Letter Agreement with Fred R. Hume dated January 29, 1999.
10.21 Amended and Restated 2000 Stock Compensation Incentive Plan
dated May 19, 2000. (Incorporated by reference to Data I/O's
2000 Proxy Statement dated March 27, 2000.)
10.22 Amended and Restated 1982 Employee Stock Purchase Plan dated
May 16, 2001 (Incorporated by reference to Data I/O's 2001
Proxy Statement dated March 28, 2001.)
10.23 Amended and Restated 2000 Stock Compensation Incentive Plan
dated May 19, 2000. (Incorporated by reference to Data I/O's
2002 Proxy Statement dated April 19, 2002.)
10.24 Amended and Restated 1982 Employee Stock Purchase Plan
dated May 16, 2001. (Incorporated by reference to Data I/O's
2003 Proxy Statement dated March 31, 2003.)
10.25 Amended and Restated Data I/O Tax Deferred Retirement
Plan 19
31 Certification - Section 302:
31.1 Chief Executive Officer Certification 45
31.2 Chief Financial Officer Certification 46
32 Certification - Section 906:
32.1 Chief Executive Officer Certification 47
32.2 Chief Financial Officer Certification 48
99 Other Exhibits
99.1 Risk Factors 49
(b) Reports on Form 8-K
Data I/O furnished a copy of a press release made on February 18, 2004 entitled
"Data I/O reports 4th quarter and 2003 profitability" on a Form 8-K under Item
12. The information furnished in the Form 8-K pursuant to Item 12 shall not be
deemed filed under the Securities Exchange Act of 1934, as amended.
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: May 14, 2004
By://S//Joel S. Hatlen
Joel S. Hatlen
Vice President - Finance
Chief Financial Officer
Secretary and Treasurer
(Principal Financial Officer and Duly Authorized Officer)
By://S//Frederick R. Hume
Frederick R. Hume
President
Chief Executive Officer
(Principal Executive Officer and Duly Authorized Officer)
Exhibit 10.25 Data I/O Corporation Tax Deferred Retirement Plan
ADOPTION AGREEMENT FOR
MetLife Defined Contribution
NON-STANDARDIZED 401(K) PROFIT SHARING
PLAN AND TRUST
The undersigned Employer adopts MetLife Defined Contribution Prototype
Non-Standardized 401(k) Profit Sharing Plan and Trust and elects the following
provisions:
CAUTION: Failure to properly fill out this Adoption Agreement may result in
disqualification of the Plan.
EMPLOYER INFORMATION
(An amendment to the Adoption Agreement is not needed solely to reflect a change
in the information in this Employer Information Section.)
1. EMPLOYER'S NAME, ADDRESS AND TELEPHONE NUMBER
Name: Data I/O Corporation
Address: 10525 Willows Road, N.E., PO Box 97046
Street
Redmond Washington 98073-9746
City State Zip
Telephone: 425-881-6444
2. EMPLOYER'S TAXPAYER IDENTIFICATION NUMBER 91-0864123
3. TYPE OF ENTITY
a. [X] Corporation (including Tax-exempt or Non-profit Corporation)
b. [ ] Professional Service Corporation
c. [ ] S Corporation
d. [ ] Limited Liability Company that is taxed as:
1. [ ] a partnership or sole proprietorship
2. [ ] a Corporation
3. [ ] an S Corporation
e. [ ] Sole Proprietorship
f. [ ] Partnership (including Limited Liability)
g. [ ] Other:
AND, the Employer is a member of (select all that apply):
h. [ ] a controlled group
i. [ ] an affiliated service group
4. EMPLOYER FISCAL YEAR means the 12 consecutive month period:
Beginning on January 1st (e.g., January 1st)
month day
and ending on December 31st
month day
PLAN INFORMATION (An amendment to the Adoption Agreement is not needed solely to
reflect a change in the information in Questions 9 through 11.)
5. PLAN NAME:
Data I/O Corporation Tax Deferral Retirement Plan
6. EFFECTIVE DATE
a. [ ] This is a new Plan effective as of ______(hereinafter called the
"Effective Date").
b. [X] This is an amendment and restatement of a previously
established qualified plan of the Employer which was
originally effective February 1, 1984 (hereinafter called the
"Effective Date"). The effective date of this amendment and
restatement is March 1, 2004 .
c. [ ] FOR GUST RESTATEMENTS: This is an amendment and restatement
of a previously established qualified plan of the Employer to
bring the Plan into compliance with GUST (GATT, USERRA, SBJPA and
TRA '97). The original Plan effective date was ___________
(hereinafter called the "Effective Date"). Except as specifically
provided in the Plan, the effective date of this amendment and
restatement is _________. (May enter a restatement date that
is the first day of the current Plan Year. The Plan contains
appropriate retroactive effective dates with respect to
provisions for the appropriate laws.)
7. PLAN YEAR means the 12 consecutive month period:
Beginning on January 1st (e.g., January 1st)
month day
and ending on December 31st
month day
EXCEPT that there will be a Short Plan Year:
a. [X] N/A
b. [ ] beginning on ____________________________ (e.g., July 1, 2000)
month day, year
and ending on ___________________________
month day, year
8. VALUATION DATE means:
a. [X] Every day that the Trustee, any transfer agent appointed
by the Trustee or the Employer, and any stock exchange used by
such agent are open for business (daily valuation).
b. [ ] The last day of each Plan Year.
c. [ ] The last day of each Plan Year half (semi-annual).
d. [ ] The last day of each Plan Year quarter.
e. [ ] Other (specify day or dates):__________________ (must be at
least once each Plan Year).
9. PLAN NUMBER assigned by the Employer
a. [ ] 001
b. [X] 002
c. [ ] 003
d. [ ] Other:____________
10. TRUSTEE:
a. [ ]Individual Trustee(s) who serve as discretionary Trustee(s)
over assets not subject to control by a corporate Trustee.
Name(s) Title(s)
__________________________ _________________________
__________________________ _________________________
__________________________ _________________________
Address and Telephone number
1. [ ] Use Employer address and telephone number.
2. [ ] Use address and telephone number below:
Address:_______________________________________________
Street
_______________ ______________ ______________
City State Zip
Telephone: ____________________________________________
b. [X] Corporate Trustee
Name: Reliance Trust Company
Address: 3384 Peachtree Road, N.E., Suite 900
Street
Atlanta Georgia 30326
City State Zip
Telephone: 404-266-0663
AND, the corporate Trustee shall serve as:
1. [X] a directed (nondiscretionary) Trustee over all
Plan assets except for the following: n/a
2. [ ] a discretionary Trustee over all Plan assets
except for the following:
AND, shall a separate trust agreement be used with this Plan?
c. [ ] Yes
d. [X] No
NOTE: If Yes is selected, an executed copy of the trust agreement
between the Trustee and the Employer must be attached to this
Plan. The Plan and trust agreement will be read and construed
together. The responsibilities, rights and powers of the
Trustee shall be those specified in the trust agreement.
11. PLAN ADMINISTRATOR'S NAME, ADDRESS AND TELEPHONE NUMBER:
(If none is named, the Employer will become the Administrator.)
a. [X] Employer (Use Employer address and telephone number).
b. [ ] Use name, address and telephone number below:
Name: ___________________________________________________
Address: ___________________________________________________
Street
__________________ _______________ __________
City State Zip
Telephone:
12. CONSTRUCTION OF PLAN This Plan shall be governed by the laws of the
state or commonwealth where the Employer's (or, in the case of a
corporate Trustee, such Trustee's) principal place of business is
located unless another state or commonwealth is specified:
Georgia
ELIGIBILITY REQUIREMENTS
13. ELIGIBLE EMPLOYEES (Plan Section 1.18)
FOR ALL PURPOSES OF THE PLAN (EXCEPT AS ELECTED IN d. or e. BELOW FOR
EMPLOYER CONTRIBUTIONS) means all Employees (including Leased
Employees) EXCEPT: 13 p.2222 NOTE: If different exclusions apply to
Elective Deferrals than to other Employer contributions, complete this
part a.-b. for the Elective Deferral component of the Plan.
a. [ ] N/A. No exclusions.
b. [X] The following are excluded, except that if b.3. is
selected, such Employees will be included (select all that
apply): 1. [X] Union Employees (as defined in Plan Section
1.18).
2. [X] Non-resident aliens (as defined in Plan Section 1.18).
3. [X] Employees who became Employees as the result of a "Code
Section 410(b)(6)(C) transaction" (as defined in
Plan Section 1.18).
4. [ ] Salaried Employees
5. [ ] Highly Compensated Employees
6. [X] Leased Employees
7. [ ] Other: _________
HOWEVER, different exclusions will apply (select c. OR d. and/or e.):
c. [X] N/A. The options elected in a.-b. above apply for all purposes
of the Plan.
d. [ ] For purposes of all Employer contributions (other than
Elective Deferrals and matching contributions)...
e. [ ] For purposes of Employer matching contributions...
IF d. OR e. IS SELECTED, the following exclusions apply for such
purposes (select f. or g.):
f. [ ] N/A. No exclusions.
g. [ ] The following are excluded, except that if g.3. is selected,
such Employees will be included (select all that apply):
1. [ ] Union Employees (as defined in Plan Section 1.18).
2. [ ] Non-resident aliens (as defined in Plan Section 1.18).
3. [ ] Employees who became Employees as the result of a
"Code Section 410(b)(6)(C) transaction" (as defined in
Plan Section 1.18).
4. [ ] Salaried Employees
5. [ ] Highly Compensated Employees
6. [ ] Leased Employees
7. [ ] Other: _________
14. THE FOLLOWING AFFILIATED EMPLOYER (Plan Section 1.6) will adopt this
Plan as a Participating Employer (if there is more than one, or if
Affiliated Employers adopt this Plan after the date the Adoption
Agreement is executed, attach a list to this Adoption Agreement of such
Affiliated Employers including their names, addresses, taxpayer
identification numbers and types of entities):
NOTE: Employees of an Affiliated Employer that does not adopt this
Adoption Agreement as a Participating Employer shall not be
Eligible Employees. This Plan could violate the Code Section
410(b) coverage rules if all Affiliated Employers do not adopt
the Plan.
a. [X] N/A
b. [ ] Name of First Affiliated Employer:
Address:_____________________________________________________
Street
________________ ________________ _________________
City State Zip
Telephone: __________________________________________________
Taxpayer Identification Number: _____________________________
AND, the Affiliated Employer is:
c. [ ]Corporation (including Tax-exempt, Non-profit or Professional
Service Corporation)
d. [ ]S Corporation
e. [ ]Limited Liability Company that is taxed as:
1. [ ] a partnership or sole proprietorship
2. [ ] a Corporation
3. [ ] an S Corporation
f. [ ] Sole Proprietorship
g. [ ] Partnership (including Limited Liability
h. [ ] Other:
15. CONDITIONS OF ELIGIBILITY (Plan Section 3.1)
Any Eligible Employee will be eligible to participate in the Plan upon
satisfaction of the following:
NOTE: If the Year(s) of Service selected is or includes a fractional year,
an Employee will not be required to complete any specified number of
Hours of Service to receive credit for such fractional year. If
expressed in months of service, an Employee will not be required to
complete any specified number of Hours of Service in a particular
month, unless elected in b.4. or i.4. below.
ELIGIBILITY FOR ALL PURPOSES OF THE PLAN (EXCEPT AS ELECTED IN e.-k. BELOW
FOR EMPLOYER CONTRIBUTIONS)(select a. or all that apply of b., c., and d.):
15 p.2323
NOTE: If different conditions apply to Elective Deferrals than to other
Employer contributions, complete this part a.-d. for the Elective
Deferral component of the Plan.
a. [ ] No age or service required. (Go to e.-g. below)
b. [X] Completion of the following service requirement which is based
on Years of Service (or Periods of Service if the Elapsed Time
Method is elected):
1. [ ] No service requirement
2. [ ] 1/2 Year of Service or Period of Service
3. [ ] 1 Year of Service or Period of Service
4. [ ] (not to exceed 1,000) Hours of Service within ______ (not
to exceed 12) months from the Eligible Employee's
employment commencement date. If an Employee does not
complete the stated Hours of Service during the specified
time period, the Employee is subject to the Year of
Service requirement in b.3. above.
5. [X] Other: upon the earlier occurrence of the completion of
1 Year of Service or 1/4 Year of Service (may not exceed
one (1) Year of Service or Period of Service)
c. [X] Attainment of age:
1. [ ] No age requirement
2. [ ] 20 1/2
3. [ ] 21
4. [X] Other: 18 (may not exceed 21)
d. [ ] The service and/or age requirements specified above shall be
waived with respect to any Eligible Employee who was employed
on __________ and such Eligible Employee shall enter the Plan as
of such date. The requirements to be waived are (select one or
both)
1. [ ] service requirement (will let part-time Eligible
Employees in Plan)
2. [ ] age requirement
HOWEVER, DIFFERENT ELIGIBILITY CONDITIONS WILL APPLY (select e. OR f.
and/or g.):
e. [X] N/A. The options elected in a.-d. above apply for all purposes
of the Plan.
f. [ ] For purposes of all Employer contributions (other than Elective
Deferrals and matching contributions)...
g. [ ] For purposes of Employer matching contributions...
If f. OR g. IS SELECTED, the following eligibility conditions apply for
such purposes:
h. [ ] No age or service requirements
i. [ ] Completion of the following service requirement which is based
on Years of Service (or Periods of Service if the Elapsed Time
Method is elected):
1. [ ] No service requirement
2. [ ] 1/2 Year of Service or Period of Service
3. [ ] 1 Year of Service or Period of Service
4. [ ] ____ (not to exceed 1,000) Hours of Service within (not
to exceed 12) months from the Eligible Employee's
employment commencement date. If an Employee does not
complete the stated Hours of Service during the specified
time period, the Employee is subject to the Year of
Service requirement in i.3. above.
5. [ ] 1 1/2 Years of Service or Periods of Service
6. [ ] 2 Years of Service or Periods of Service
7. [ ] Other:___________________________________________________
(may not exceed two (2) Years of Service or Periods of
Service)
NOTE: If more than one (1) Year of Service is elected 100%
immediate vesting is required.
j. [ ] Attainment of age:
1. [ ] No age requirement
2. [ ] 20 1/2
3. [ ] 21
4. [ ] Other:________ (may not exceed 21)
k. [ ] The service and/or age requirements specified above shall be
waived with respect to any Eligible Employee who was employed
on and such Eligible Employee shall enter the Plan as of such
date.
The requirements to be waived are (select one or both):
1. [ ] service requirement (will let part-time Eligible
Employees in Plan)
2. [ ] age requirement
16. EFFECTIVE DATE OF PARTICIPATION (Plan Section 3.2)
An Eligible Employee who has satisfied the eligibility requirements will
become a Participant for all purposes of the Plan (except as elected in
g.-p. below for Employer contributions):
NOTE: If different entry dates apply to Elective Deferrals than to other
Employer contributions, complete this part a.-f. for the Elective
Deferral component of the Plan.
a. [ ] the day on which such requirements are satisfied.
b. [X] the first day of the month coinciding with or next following the
date on which such requirements are satisfied.
c. [ ] the first day of the Plan Year quarter coinciding with or next
following the date on which such requirements are satisfied.
d. [ ] the earlier of the first day of the seventh month or the first day of
the Plan Year coinciding with or next following the date on which
such requirements are satisfied.
e. [ ] the first day of the Plan Year next following the date on which
such requirements are satisfied. (Eligibility must be 1/2 Year of
Service (or Period of Service) or less and age must be 20 1/2 or
less.)
f. [ ] other: ____________________________________________________, provided
that an Eligible Employee who has satisfied the maximum age (21) and
service requirements (one (1) Year or Period of Service) and who is
otherwise entitled to participate, shall commence participation no
later than the earlier of (a) 6 months after such requirements are
satisfied, or (b) the first day of the first Plan Year after such
requirements are satisfied, unless the Employee separates from
service before such participation date.
HOWEVER, different entry dates will apply (select g. OR h. and/or i.):
g. [X] N/A. The options elected in a.-f. above apply for all purposes
of the Plan.
h. [ ] For purposes of all Employer contributions (other than Elective
Deferrals and matching contributions)...
i. [ ] For purposes of Employer matching contributions...
IF h. OR i. IS SELECTED, the following entry dates apply for such purposes
(select one):
j. [ ] the first day of the month coinciding with or next following the
date on which such requirements are satisfied. k. [ ]the first day of
the Plan Year quarter coinciding with or next following the date on
which such requirements are satisfied.
l. [ ] the first day of the Plan Year in which such requirements are
satisfied.
m. [ ] the first day of the Plan Year in which such requirements are
satisfied, if such requirements are satisfied in the first 6 months
of the Plan Year, or as of the first day of the next succeeding Plan
Year if such requirements are satisfied in the last 6 months of the
Plan Year.
n. [ ] the earlier of the first day of the seventh month or the first day of
the Plan Year coinciding with or next following the date on which
such requirements are satisfied.
o. [ ] the first day of the Plan Year next following the date on which such
requirements are satisfied. (Eligibility must be 1/2 (or 1 1/2 if
100% immediate Vesting is selected) Year of Service (or Period of
Service) or less and age must be 20 1/2 or less.)
p. [ ] other: _____________________________________________________________,
provided that an Eligible Employee who has satisfied the maximum age
(21) and service requirements (one (1) Year or Period of Service (or
more than one (1) year if full and immediate vesting)) and who is
otherwise entitled to participate, shall commence participation no
later than the earlier of (a) 6 months after such requirements are
satisfied, or (b) the first day of the first Plan Year after such
requirements are satisfied, unless the Employee separates from
service before such participation date.
SERVICE
17. RECOGNITION OF SERVICE WITH PREDECESSOR EMPLOYER (Plan Sections 1.57 and
1.85)
a. [X] No service with a predecessor Employer shall be recognized.
b. [ ] Service with ______ will be recognized except as follows (select 1.
or all that apply of 2. through 4.):
1. [ ] N/A, no limitations.
2. [ ] service will only be recognized for vesting purposes.
3. [ ] service will only be recognized for eligibility purposes
4. [ ] service prior to _____ will not be recognized.
NOTE: If the predecessor Employer maintained this qualified Plan,
then Years of Service (and/or Periods of Service) with such
predecessor Employer shall be recognized pursuant to Plan
Sections 1.57 and 1.85 and b.1. will apply.
18. SERVICE CREDITING METHOD (Plan Sections 1.57 and 1.85)
NOTE: If no elections are made in this Section, then the Hours of Service
Method will be used and the provisions set forth in the definition of
Year of Service in Plan Section 1.85 will apply.
ELAPSED TIME METHOD shall be used for the following purposes (select all
that apply):
a. [ ] N/A. Plan only uses the Hours of Service Method.
b. [ ] all purposes. (If selected, skip to Question 19.)
c. [ ] eligibility to participate.
d. [ ] vesting.
e. [X] sharing in allocations or contributions.
HOURS OF SERVICE METHOD shall be used for the following purposes (select all
that apply):
f. [ ] N/A. Plan only uses the Elapsed Time Method.
g. [X] eligibility to participate in the Plan. The eligibility computation
period after the initial eligibility computation period shall...
1. [X] shift to the Plan Year after the initial computation period.
2. [ ] be based on the date an Employee first performs an Hour of
Service (initial computation period) and subsequent
computation periods shall be based on each anniversary date
thereof.
h. [X] vesting. The vesting computation period shall be...
1. [X] the Plan Year.
2. [ ] the date an Employee first performs an Hour of Service and
each anniversary thereof.
i. [ ] sharing in allocations or contributions (the computation period shall
be the Plan Year).
AND, IF THE HOURS OF SERVICE METHOD IS BEING USED, the Hours of Service
will be determined on the basis of the method selected below. Only one
method may be selected. The method selected below will be applied to
(select j. or k.):
j. [ ] all Employees.
k. [X] salaried Employees only (for hourly Employees, actual Hours of
Service will be used).
ON THE BASIS OF:
l. [ ] actual hours for which an Employee is paid or entitled to payment.
m. [ ] days worked. An Employee will be credited with ten (10) Hours of
of Service if under the Plan such Employee would be credited with at
least one (1) Hour of Service during the day.
n. [X] weeks worked. An Employee will be credited with forty-five (45) Hours
of Service if under the Plan such Employee would be credited with at
least one (1) Hour of Service during the week.
o. [ ] semi-monthly payroll periods worked. An Employee will be credited with
ninety-five (95) Hours of Service if under the Plan such Employee
would be credited with at least one (1) Hour of Service during the
semi-monthly payroll period.
p. [ ] months worked. An Employee will be credited with one hundred ninety
(190) Hours of Service if under the Plan such Employee would be
credited with at least one (1) Hour of Service during the month.
AND, a Year of Service means the applicable computation period during which an
Employee has completed at least:
q. [X] 1,000 (may not be more than 1,000) Hours of Service (if left blank, the
Plan will use 1,000 Hours of Service).
VESTING
19. VESTING OF PARTICIPANT'S INTEREST (Plan Section 6.4(b))
Vesting for Employer Contributions (except as otherwise elected in j. - q.
below for matching contributions). The vesting schedule, based on a
Participant's Years of Service (or Periods of Service if the Elapsed Time
Method is elected), shall be as follows:
a. [ ] 100% upon entering Plan. (Required if eligibility requirement is
greater than one (1) Year of Service or Period of Service.)
b. [X] 3 Year Cliff: c. [ ] 5 Year Cliff:
0-2 years 0 % 0-4 years 0 %
3 years 100 % 5 years 100 %
d. [ ] 6 Year Graded: e. [ ] 4 Year Graded:
0-1 year 0 % 1 year 25 %
2 years 20 % 2 years 50 %
3 years 40 % 3 years 75 %
4 years 60 % 4 years 100 %
5 years 80 %
6 years 100 %
f. [ ] 5 Year Graded: g. [ ] 7 Year Graded:
1 year 20 % 0-2 years 0 %
2 years 40 % 3 years 20 %
3 years 60 % 4 years 40 %
4 years 80 % 5 years 60 %
5 years 100 % 6 years 80 %
7 years 100 %
h. [ ] Other - Must be at least as liberal as either c. or g. above.
Service Percentage
_______ __________
_______ __________
_______ __________
_______ __________
_______ __________
_______ __________
_______ __________
VESTING FOR EMPLOYER MATCHING CONTRIBUTIONS
The vesting schedule for Employer matching contributions, based on a
Participant's Years of Service (or Periods of Service if the Elapsed Time
Method is elected) shall be as follows:
i. [X] N/A. There are no matching contributions subject to a vesting
schedule OR the schedule in a.-h. above shall also apply to matching
contributions.
j. [ ] 100% upon entering Plan. (Required if eligibility requirement is
greater than one (1) Year of Service or Period of Service.)
k. [ ] 3 Year Cliff
l. [ ] 5 Year Cliff
m. [ ] 6 Year Graded
n. [ ] 4 Year Graded
o. [ ] 5 Year Graded
p. [ ] 7 Year Graded
q. [ ] Other - Must be at least as liberal as either l. or p. above.
Service Percentage
_______ __________
_______ __________
_______ __________
_______ __________
_______ __________
_______ __________
_______ __________
20. FOR AMENDED PLANS (Plan Section 6.4(f))
If the vesting schedule has been amended to a less favorable schedule,
enter the pre-amended schedule below:
a. [X] Vesting schedule has not been amended, amended schedule is more
favorable in all years or prior schedule was immediate 100% vesting.
b. [ ] Pre-amended schedule:
Service Percentage
_______ __________
_______ __________
_______ __________
_______ __________
_______ __________
_______ __________
_______ __________
21. TOP HEAVY VESTING (Plan Section 6.4(c))
If this Plan becomes a Top Heavy Plan, the following vesting schedule, based
on number of Years of Service (or Periods of Service if the Elapsed Time
Method is elected), shall apply and shall be treated as a Plan amendment
pursuant to this Plan. Once effective, this schedule shall also apply to any
contributions made before the Plan became a Top Heavy Plan and shall
continue to apply if the Plan ceases to be a Top Heavy Plan unless an
amendment is made to change the vesting schedule.
a. [X] N/A (the regular vesting schedule already satisfies one of the
minimum top heavy schedules).
b. [ ] 6 Year Graded:
0-1 year 0 %
2 years 20 %
3 years 40 %
4 years 60 %
5 years 80 %
6 years 100 %
c. [ ] 3 Year Cliff:
0-2 years 0 %
3 years 100 %
d. [ ] Other - Must be at least as liberal as either b. or c. above.
Service Percentage
_______ __________
_______ __________
_______ __________
_______ __________
_______ __________
_______ __________
_______ __________
NOTE: This Section does not apply to the account balances of any Participant
who does not have an Hour of Service after the Plan has initially
become top heavy. Such Participant's Account balance attributable to
Employer contributions and Forfeitures will be determined without
regard to this Section.
22. EXCLUDED VESTING SERVICE
a. [X] No exclusions.
b. [ ] Service prior to the Effective Date of the Plan or a predecessor
plan.
c. [ ] Service prior to the time an Employee has attained age 18.
23. VESTING FOR DEATH AND TOTAL AND PERMANENT DISABILITY
Regardless of the vesting schedule, Participants shall become fully Vested
upon (select a. or all that apply of b. and c.)
a. [ ] N/A. Apply vesting schedule, or all contributions to the Plan are
fully Vested.
b. [X] Death.
c. [X] Total and Permanent Disability.
24. NORMAL RETIREMENT AGE ("NRA") (Plan Section 1.45) means the:
a. [X] date of a Participant's 65th birthday (not to exceed 65th).
b. [ ] later of a Participant's ____ birthday (not to exceed 65th) or the
____ (not to exceed 5th) anniversary of the first day of the Plan
Year in which participation in the Plan commenced.
25. NORMAL RETIREMENT DATE (Plan Section 1.46) means the:
a. [X] Participant's "NRA".
OR (select one)
b. [ ] first day of the month coinciding with or next following the
Participant's "NRA".
c. [ ] first day of the month nearest the Participant's "NRA".
d. [ ] Anniversary Date coinciding with or next following the Participant's
"NRA".
e. [ ] Anniversary Date nearest the Participant's "NRA".
26. EARLY RETIREMENT DATE (Plan Section 1.15) means the:
a. [X] No Early Retirement provision provided.
b. [ ] date on which a Participant...
c. [ ] first day of the month coinciding with or next following the date
on which a Participant...
d. [ ] Anniversary Date coinciding with or next following the date on which
a Participant...
AND, if b., c., or d. is selected...
e. [ ] attains age ________.
f. [ ] attains age ________ and completes at least Years of Service (or
Periods of Service) for vesting purposes.
AND, if b., c. or d. is selected, shall a Participant become fully Vested
upon attainment of the Early Retirement Date?
g. [ ] Yes
h. [ ] No
COMPENSATION
27. COMPENSATION (Plan Section 1.11) with respect to any Participant means:
a. [ ] Wages, tips and other compensation on Form W-2.
b. [ ] Section 3401(a) wages (wages for withholding purposes).
c. [X] 415 safe-harbor compensation.
COMPENSATION shall be based on the following determination period:
d. [X] the Plan Year.
e. [ ] the Fiscal Year coinciding with or ending within the Plan Year.
f. [ ] the calendar year coinciding with or ending within the Plan Year.
NOTE: The Limitation Year for Code Section 415 purposes shall be the same
as the determination period for Compensation unless an alternative
period is specified: ________ (must be a consecutive twelve month
period).
ADJUSTMENTS TO COMPENSATION
g. [ ] N/A. No adjustments.
h. [X] Compensation shall be adjusted by: (select all that apply)
1. [X] including compensation which is not currently includible in
the Participant's gross income by reason of the application of
Code Sections 125 (cafeteria plan), 132(f)(4) (qualified
transportation fringe), 402(e)(3) (401(k) plan), 402(h)(1)(B)
(simplified employee pension plan), 414(h) (employer pickup
contributions under a governmental plan), 403(b) (tax
sheltered annuity) or 457(b)(eligible deferred compensation
plan).
2. [ ] excluding reimbursements or other expense allowances, fringe
benefits (cash or non-cash), moving expenses, deferred
compensation (other than deferrals specified in 1. above) and
welfare benefits.
3. [ ] excluding Compensation paid during the determination
period while not a Participant in the component of the Plan
for which the definition is being used.
4. [ ] excluding overtime.
5. [ ] excluding bonuses.
6. [ ] excluding commissions.
7. [X] other: excluding relocation costs, group term life,
flexible benefits.
NOTE: Options 4., 5., 6. or 7. may not be selected if an integrated
allocation formula is selected (i.e., if 33.f. is selected).
In addition, if 4., 5., 6., or 7. is selected, the definition
of Compensation could violate the nondiscrimination rules.
HOWEVER, FOR SALARY DEFERRAL AND MATCHING PURPOSES Compensation shall
be adjusted by (for such purposes, the Plan automatically includes
Elective Deferrals and other amounts in h.1. above):
i. [X] N/A. No adjustments or same adjustments as in above.
j. [ ] Compensation shall be adjusted by: (select all that apply)
1. [ ] excluding reimbursements or other expense allowances, fringe
benefits (cash or non-cash), moving expenses, deferred
compensation (other than deferrals specified in h.1. above)
and welfare benefits.
2. [ ] excluding Compensation paid during the determination period
while not a Participant in the component of the Plan for which
the definition is being used.
3. [ ] excluding overtime
4. [ ] excluding bonuses
5. [ ] excluding commissions
6. [ ] other:________________________________________________________
CONTRIBUTIONS AND ALLOCATIONS
28. SALARY REDUCTION ARRANGEMENT - ELECTIVE DEFERRALS (Plan Section 12.2)
Each Participant may elect to have Compensation deferred by:
a. [ ] _____%.
b. [ ] up to ____%.
c. [ ] from ____% to ____%.
d. [X] up to the maximum percentage allowable not to exceed the limits of
Code Sections 401(k), 402(g), 404 and 415.
AND, Participants who are Highly Compensated Employees determined as of
the beginning of a Plan Year may only elect to defer Compensation by:
e. [X] Same limits as specified above.
f. [ ] The percentage equal to the deferral limit in effect under Code
Section 402(g)(3) for the calendar year that begins with or within
the Plan Year divided by the annual compensation limit in effect for
the Plan Year under Code Section 401(a)(17).
MAY PARTICIPANTS make a special salary deferral election with respect to
bonuses?
g. [X] No.
h. [ ] Yes, a Participant may elect to defer up to _____% of any bonus.
PARTICIPANTS MAY commence salary deferrals on the effective date of
participation and on the first day of each month (must be at least once
each calendar year).
Participants may modify salary deferral elections:
1. [ ] As of each payroll period
2. [X] On the first day of the month
3. [ ] On the first day of each Plan Year quarter
4. [ ] On the first day of the Plan Year or the first day of the 7th
month of the Plan Year
5. [ ] Other: _______ (must be at least once each calendar year)
AUTOMATIC ELECTION: Shall Participants who do not affirmatively elect to
receive cash or have a specified amount contributed to the Plan
automatically have Compensation deferred?
i. [X] No.
j. [ ] Yes, by ____% of Compensation.
SHALL THERE BE a special effective date for the salary deferral component of
the Plan?
k. [X] No.
l. [ ] Yes, the effective date of the salary deferral component of the
Plan is (enter month day, year).
29. SIMPLE 401(k) PLAN ELECTION (Plan Section 13.1)
Shall the simple 401(k) provisions of Article XIII apply?
a. [X] No. The simple 401(k) provisions will not apply.
b. [ ] Yes. The simple 401(k) provisions will apply.
30. 401(k) SAFE HARBOR PROVISIONS (Plan Section 12.8)
Will the ADP and/or ACP test safe harbor provisions be used? (select a., b.
or c.)
a. [X] No. (If selected, skip to Question 31.)
b. [ ] Yes, but only the ADP (and NOT the ACP) Test Safe Harbor provisions
will be used.
c. [ ] Yes, both the ADP and ACP Test Safe Harbor provisions will be used.
IF c. is selected, does the Plan permit matching contributions in
addition to any safe harbor contributions elected in d. or e. below?
1. [ ] No or N/A. Any matching contributions, other than any Safe
Harbor Matching Contributions elected in d. below, will be
suspended in any Plan Year in which the safe harbor provisions
are used.
2. [ ] Yes, the Employer may make matching contributions in addition
to any Safe Harbor Matching contributions elected in d. below.
(If elected, complete the provisions of the Adoption Agreement
relating to matching contributions (i.e., Questions 31. and
32.) that will apply in addition to any elections made in d.
below. NOTE: Regardless of any election made in Question 31.,
the Plan automatically provides that only Elective Deferrals
up to 6% of Compensation are taken into account in applying
the match set forth in that Question and that the maximum
discretionary matching contribution that may be made on behalf
of any Participant is 4% of Compensation.)
THE EMPLOYER WILL MAKE THE FOLLOWING ADP TEST SAFE HARBOR CONTRIBUTION FOR
THE PLAN YEAR:
NOTE: The ACP Test Safe Harbor is automatically satisfied if the only
matching contribution made to the Plan is either (1) a Basic Matching
Contribution or (2) an Enhanced Matching Contribution that does not
provide a match on Elective Deferrals in excess of 6% of
Compensation.
d. [ ] Safe Harbor Matching Contribution (select 1. or 2. AND 3.)
1. [ ] Basic Matching Contribution. The Employer will make Matching
Contributions to the account of each "Eligible Participant" in
an amount equal to the sum of 100% of the amount of the
Participant's Elective Deferrals that do not exceed 3% of the
Participant's Compensation, plus 50% of the amount of the
Participant's Elective Deferrals that exceed 3% of the
Participant's Compensation but do not exceed 5% of the
Participant's Compensation.
2. [ ] Enhanced Matching Contribution. The Employer will make
Matching Contributions to the account of each "Eligible
Participant" in an amount equal to the sum of:
a. [ ] ____% (may not be less than 100%) of the Participant's
Elective Deferrals that do not exceed ____% (if over 6%
or if left blank, the ACP test will still apply) of the
Participant's Compensation, plus
b. [ ] ____% of the Participant's Elective Deferrals that
exceed ____ % of the Participant's Compensation but do
not exceed ____% (if over 6% or if left blank, the ACP
test will still apply) of the Participant's
Compensation.
NOTE: a. and b. must be completed so that, at any rate
of Elective Deferrals, the matching contribution is at
least equal to the matching contribution receivable if
the Employer were making Basic Matching Contributions,
but the rate of match cannot increase as deferrals
increase. For example, if a. is completed to provide a
match equal to 100% of deferrals up to 4% of
Compensation, then b. need not be completed.
3. [ ] The safe harbor matching contribution will be determined on
the following basis (and Compensation for such purpose will be
based on the applicable period):
a. [ ] the entire Plan Year.
b. [ ] each payroll period.
c. [ ] all payroll periods ending with or within each month.
d. [ ] all payroll periods ending with or within the Plan Year
quarter.
e. [ ] Nonelective Safe Harbor Contributions (select one)
1. [ ] The Employer will make a Safe Harbor Nonelective Contribution
to the account of each "Eligible Participant" in an amount
equal to ____% (may not be less than 3%) of the Employee's
Compensation for the Plan Year.
2. [ ] The Employer will make a Safe Harbor Nonelective Contribution
to another defined contribution plan maintained by the
Employer (specify the name of the other plan): ____.
FOR PURPOSES OF THE ADP Test Safe Harbor contribution, the term "Eligible
Participant" means any Participant who is eligible to make Elective
Deferrals with the following exclusions:
f. [ ] Highly Compensated Employees.
g. [ ] Employees who have not satisfied the greatest minimum age and
service conditions permitted under Code Section 410(a).
h. [ ] Other:______________________________________________________________
(must be a category that could be excluded under the permissive or
mandatory disaggregation rules of Regulations 1.401(k)-1(b)(3) and
1.401(m)-1(b)(3)).
SPECIAL EFFECTIVE DATE OF ADP AND ACP TEST SAFE HARBOR PROVISIONS
i. [ ] N/A. The safe harbor provisions are effective as of the later of the
Effective Date of this Plan or, if this is an amendment or
restatement, the effective date of the amendment or restatement.
j. [ ] The ADP and ACP Test Safe Harbor provisions are effective for the
Plan Year beginning:
_____________ (enter the first day of the Plan Year for which the
provisions are (or, for GUST updates, were) effective and, if
necessary, enter any other special effective dates that apply with
respect to the provisions).
31. FORMULA FOR DETERMINING EMPLOYER MATCHING CONTRIBUTIONS (Plan Section
12.1(a)(2))
NOTE: Regardless of any election below, if the ACP test safe harbor is
being used (i.e., Question 30.c. is selected), then the Plan
automatically provides that only Elective Deferrals up to 6% of
Compensation are taken into account in applying the match set forth
below and that the maximum discretionary matching contribution that
may be made on behalf of any Participant is 4% of Compensation.
a. [ ] N/A. There will not be any matching contributions (Skip to
Question 33).
b. [X] The Employer ... (select 1. or 2.)
1. [ ] may make matching contributions equal to a discretionary
percentage, to be determined by the Employer, of the
Participant's Elective Deferrals.
2. [X] will make matching contributions equal to 100% (e.g., 50) of
the Participant's Elective Deferrals, plus:
a. [ ] N/A.
b. [X] an additional discretionary percentage, to be
determined by the Employer.
AND, in determining the matching contribution above, only
Elective Deferrals up to the percentage or dollar amount
specified below will be matched:(select 3. and/or 4. OR 5.)
3. [X] 4 % of a Participant's Compensation.
4. [ ] $______.
5. [ ] a discretionary percentage of a Participant's
Compensation or a discretionary dollar amount, the
percentage or dollar amount to be determined by the
Employer on a uniform basis to all Participants.
c. [ ] The Employer may make matching contributions equal to a discretionary
percentage, to be determined by the Employer, of each tier, to be
determined by the Employer, of the Participant's Elective Deferrals.
d. [ ] The Employer will make matching contributions equal to the sum of
_____% of the portion of the Participant's Elective Deferrals which
do not exceed ____% of the Participant's Compensation or $____ plus
____% of the portion of the Participant's Elective Deferrals which
exceed ____% of the Participant's Compensation or $______, but does
not exceed ____% of the Participant's Compensation or $____.
NOTE: If c. or d. above is elected, the Plan may violate the Code Section
401(a)(4) nondiscrimination requirements if the rate of matching
contributions increases as a Participant's Elective Deferrals or
Years of Service (or Periods of Service) increase.
PERIOD OF DETERMINING MATCHING CONTRIBUTIONS
Matching contributions will be determined on the following basis (and any
Compensation or dollar limitation used in determining the match will be
based on the applicable period):
e. [X] the entire Plan Year.
f. [ ] each payroll period.
g. [ ] all payroll periods ending within each month.
h. [ ] all payroll periods ending with or within the Plan Year quarter.
THE MATCHING CONTRIBUTION MADE ON BEHALF OF ANY PARTICIPANT for any Plan
Year will not exceed:
i. [X] N/A.
j. [ ] $_______.
MATCHING CONTRIBUTIONS WILL BE MADE ON BEHALF OF:
k. [X] all Participants.
l. [ ] only Non-Highly Compensated Employees.
SHALL THE MATCHING CONTRIBUTIONS BE QUALIFIED MATCHING CONTRIBUTIONS?
m. [ ] Yes. If elected, ALL matching contributions will be fully Vested and
will be subject to restrictions on withdrawals. In addition,
Qualified Matching Contributions may be used in either the ADP or ACP
test.
n. [X] No.
32. ONLY PARTICIPANTS WHO SATISFY THE FOLLOWING CONDITIONS WILL BE ELIGIBLE TO
SHARE IN THE ALLOCATION OF MATCHING CONTRIBUTIONS:
REQUIREMENTS FOR PARTICIPANTS WHO ARE ACTIVELY EMPLOYED AT THE END OF THE
PLAN YEAR.
a. [ ] N/A.
b. [X] No service requirement.
c. [ ] A Participant must complete a Year of Service (or Period of
Service if the Elapsed Time Method is elected). (Could cause Plan to
violate coverage requirements under Code Section 410(b).)
d. [ ] A Participant must complete at least _____ (may not be more than
1,000) Hours of Service during the Plan Year.(Could cause the Plan
to violate coverage requirements under Code Section 410(b).)
REQUIREMENTS FOR PARTICIPANTS WHO ARE NOT ACTIVELY EMPLOYED AT THE END OF
THE PLAN YEAR
(except as otherwise provided in i. through k. below).
e. [ ] A Participant must complete more than ____ Hours of Service (not
more than 500)(or ____ months of service (not more than three (3))
if the Elapsed Time Method is elected).
f. [ ] A Participant must complete a Year of Service (or Period of
Service if the Elapsed Time Method is elected). (Could cause the
Plan to violate coverage requirements under Code Section 410(b).)
g. [X] Participants will NOT share in such allocations, regardless of
service. (Could cause the Plan to violate coverage requirements
under Code Section 410(b).)
h. [ ] Participants will share in such allocations, regardless of
service.
PARTICIPANTS WHO ARE NOT ACTIVELY EMPLOYED AT THE END OF THE PLAN YEAR due
to the following shall be eligible to share in the allocation of matching
contributions regardless of the above conditions (select all that apply):
i. [X] Death.
j. [X] Total and Permanent Disability.
k. [X] Early or Normal Retirement.
AND, if 32.c., d., f., or g. is selected, shall the 410(b) ratio percentage
fail safe provisions apply (Plan Section 12.3(f))?
l. [ ] No or N/A.
m. [X] Yes (If selected, the Plan must satisfy the ratio percentage test of
Code Section 410(b).)
33. FORMULA FOR DETERMINING EMPLOYER'S PROFIT SHARING CONTRIBUTION (Plan
Section 12.1(a)(3)) (d. may be selected in addition to b. or c.)
a. [ ] N/A. No Employer Profit Sharing Contributions may be made (other
than top heavy minimum contributions) (Skip to Question 34.)
b. [X] Discretionary, to be determined by the Employer, not limited to
current or accumulated Net Profits.
c. [ ] Discretionary, to be determined by the Employer, out of current or
accumulated Net Profits.
d. [ ] Prevailing Wage Contribution. The Employer will make a Prevailing
Wage Contribution on behalf of each Participant who performs
services subject to the Service Contract Act, Davis-Bacon Act or
similar Federal, State, or Municipal Prevailing Wage statutes. The
Prevailing Wage Contribution shall be an amount equal to the balance
of the fringe benefit payment for health and welfare for each
Participant (after deducting the cost of cash differential payments
for the Participant) based on the hourly contribution rate for the
Participant's employment classification, as designated on Schedule A
as attached to this Adoption Agreement. Notwithstanding anything in
the Plan to the contrary, the Prevailing Wage Contribution shall be
fully Vested. Furthermore, the Prevailing Wage Contribution shall
not be subject to any age or service requirements set forth in
Question 15. nor to any service or employment conditions set forth
in Question 35.
AND, if d. is selected, is the Prevailing Wage Contribution
considered a Qualified Non-Elective Contribution?
1. [ ] Yes.
2. [ ] No.
AND, if d. is selected, shall the amounts allocated on behalf of a
Participant for a Plan Year pursuant to e. or f. below be reduced
(offset) by the Prevailing Wage Contribution made on behalf of such
Participant for the Plan Year under this Plan?
3. [ ] No (If selected, then the Prevailing Wage Contribution will
be added to amounts allocated pursuant to e. or f. below.)
4. [ ] Yes.
CONTRIBUTION ALLOCATIONS
If b. or c. above is selected, the Employer's discretionary profit sharing
contribution for a Plan Year will be allocated as follows:
e. [X] NON-INTEGRATED ALLOCATION
1. [X] In the same ratio as each Participant's Compensation bears to
the total of such Compensation of all Participants.
2. [ ] In the same dollar amount to all Participants (per capita).
3. [ ] In the same dollar amount per Hour of Service completed by
each Participant.
4. [ ] In the same proportion that each Participant's points bears to
the total of such points of all Participants. A Participant's
points with respect to any Plan Year shall be computed as
follows (select all that apply):
a. [ ] ____ point(s) shall be allocated for each Year of
Service (or Period of Service if the Elapsed Time
Method is elected). However, the maximum Years of
Service (or Periods of Service) taken into account
shall not exceed ____ (leave blank if no limit on
service applies).
b. [ ] ____ point(s) shall be allocated for each full $____
(may not exceed $200) of Compensation.
c. [ ] ____ point(s) shall be allocated for each year of age
as of the end of the Plan Year.
f. [ ] INTEGRATED ALLOCATION
In accordance with Plan Section 4.3(b)(2) based on a Participant's
Compensation in excess of:
1. [ ] The Taxable Wage Base.
2. [ ] ____% (not to exceed 100%) of the Taxable Wage Base. (See Note
below)
3. [ ] 80% of the Taxable Wage Base plus $1.00.
4. [ ] $____ (not greater than the Taxable Wage Base). (See Note
below)
NOTE: The integration percentage of 5.7% shall be reduced to:
1. 4.3% if 2. or 4. above is more than 20% and less than or
equal to 80% of the Taxable Wage Base.
2. 5.4% if 3. is elected or if 2. or 4. above is more than 80%
of the Taxable Wage Base.
34. QUALIFIED NON-ELECTIVE CONTRIBUTIONS (Plan Section 12.1(a)(4))
NOTE: Regardless of any election made in this Question, the Plan
automatically permits Qualified Non-Elective Contributions to correct a
failed ADP or ACP test.
a. [X] N/A. There will be no additional Qualified Non-Elective Contributions
except as otherwise provided in the Plan.
b. [ ] The Employer will make a Qualified Non-Elective Contribution equal to
____% of the total Compensation of those Participants eligible to
share in the allocations.
c. [ ] The Employer may make a Qualified Non-Elective Contribution in an
amount to be determined by the Employer, to be allocated in
proportion to the Compensation of those Participants eligible to
share in the allocations.
d. [ ] The Employer may make a Qualified Non-Elective Contribution in an
amount to be determined by the Employer, to be allocated equally to
all Participants eligible to share in the allocations (per capita).
AND, if b., c., or d. is selected, the Qualified Non-Elective Contributions
above will be made on behalf of:
e. [ ] all Participants.
f. [ ] only Non-Highly Compensated Employees.
35. REQUIREMENTS TO SHARE IN ALLOCATIONS OF EMPLOYER DISCRETIONARY PROFIT
SHARING CONTRIBUTION, QUALIFIED NON-ELECTIVE CONTRIBUTIONS (other than
Qualified Non-Elective Contributions under Plan Sections 12.5(c) and
12.7(g)) AND FORFEITURES
a. [ ] N/A. Plan does not permit such contributions.
b. [X] Requirements for Participants who are actively employed at the end of
the Plan Year.
1. [X] No service requirement.
2. [ ] A Participant must complete a Year of Service (or Period of
Service if the Elapsed Time Method is elected).
(Could cause Plan to violate coverage requirements under Code
Section 410(b).)
3. [ ] A Participant must complete at least ___ (may not be more than
1,000) Hours of Service during the Plan Year. (Could cause the
Plan to violate coverage requirements under Code Section
410(b).)
REQUIREMENTS FOR PARTICIPANTS WHO ARE NOT ACTIVELY EMPLOYED AT THE END OF
THE PLAN YEAR (except as otherwise provided in g. through i. below).
c. [ ] A Participant must complete more than _____ Hours of Service (not
more than 500)(or ____ months of service (not more than three (3)) if
the Elapsed Time Method is elected).
d. [ ] A Participant must complete a Year of Service (or Period of Service
if the Elapsed Time Method is elected). (Could cause Plan to violate
coverage requirements under Code Section 410(b).)
e. [X] Participants will NOT share in such allocations, regardless of
service. (Could cause Plan to violate coverage requirements under
Code Section 410(b).)
f. [ ] Participants will share in such allocations, regardless of service.
PARTICIPANTS WHO ARE NOT ACTIVELY EMPLOYED AT THE END OF THE PLAN YEAR due
to the following will be eligible to share in the allocations regardless of
the above conditions (select all that apply):
g. [X] Death.
h. [X] Total and Permanent Disability.
i. [X] Early or Normal Retirement.
AND, if 35.b.2, b.3, d. or e. is selected, shall the 410(b) ratio percentage
fail safe provisions apply (Plan Section 12.3(f))?
j. [ ] No or N/A.
k. [X] Yes (If selected, the Plan must satisfy the ratio percentage test of
Code Section 410(b)).
36. FORFEITURES (Plan Sections 1.27 and 4.3(e))
Except as provided in Plan Section 1.27, a Forfeiture will occur (if no
election is made, a. will apply):
a. [X] as of the earlier of (1) the last day of the Plan Year in which the
Former Participant incurs five (5) consecutive 1-Year Breaks in
Service, or (2) the distribution of the entire Vested portion of the
Participant's Account.
b. [ ] as of the last day of the Plan Year in which the Former Participant
incurs five (5) consecutive 1-Year Breaks in Service.
Will Forfeitures first be used to pay any administrative expenses?
c. [X] Yes.
d. [ ] No.
AND, EXCEPT as otherwise provided below with respect to Forfeitures
attributable to matching contributions, any remaining Forfeitures will be...
e. [ ] added to any Employer discretionary contribution.
f. [X] used to reduce any Employer contribution.
g. [ ] added to any Employer matching contribution and allocated as an
additional matching contribution.
h. [ ] allocated to all Participants eligible to share in the allocations in
the same proportion that each Participant's Compensation for the Plan
Year bears to the Compensation of all Participants for such year.
FORFEITURES OF MATCHING CONTRIBUTIONS WILL BE...
i. [X] N/A. Same as above or no matching contributions.
j. [ ] used to reduce the Employer's matching contribution.
k. [ ] added to any Employer matching contribution and allocated as an
additional matching contribution.
l. [ ] added to any Employer discretionary profit sharing contribution.
m. [ ] allocated to all Participants eligible to share in the matching
allocations (regardless of whether a Participant elected any salary
reductions) in proportion to each such Participant's Compensation for
the year.
n. [ ] allocated to all Non-Highly Compensated Employees eligible to share
in the matching allocations (regardless of whether a Participant
elected any salary reductions) in proportion to each such
Participant's Compensation for the year.
37. ALLOCATIONS OF EARNINGS (Plan Section 4.3(c))
Allocations of earnings with respect to amounts which are not subject to
Participant directed investments and which are contributed to the Plan after
the previous Valuation Date will be determined...
a. [X] N/A. All assets in the Plan are subject to Participant investment
direction.
b. [ ] by using a weighted average based on the amount of time that has
passed between the date a contribution or distribution was made and
the date of the prior Valuation Date.
c. [ ] by treating one-half of all such contributions as being a part of
the Participant's nonsegregated account balance as of the previous
Valuation Date.
d. [ ] by using the method specified in Plan Section 4.3(c) (balance
forward method).
e. [ ] other: _____________________________________________________________
(must be a definite predetermined formula that is not based on
Compensation and that satisfies the nondiscrimination requirements of
Regulation 1.401(a)(4)-4 and is applied uniformly to all
Participants).
38. LIMITATIONS ON ALLOCATIONS (Plan Section 4.4)
If any Participant is covered under another qualified defined contribution
plan maintained by the Employer, other than a Master or Prototype Plan, or
if the Employer maintains a welfare benefit fund, as defined in Code Section
419(e), or an individual medical account, as defined in Code Section 415(l)
(2), under which amounts are treated as Annual Additions with respect to any
Participant in this Plan:
a. [X] N/A. The Employer does not maintain another qualified defined
contribution plan.
b. [ ] The provisions of Plan Section 4.4(b) will apply as if the other
plan were a Master or Prototype Plan.
c. [ ] Specify the method under which the plans will limit total Annual
Additions to the Maximum Permissible Amount, and will properly reduce
any Excess Amounts, in a manner that precludes Employer discretion:
___________________________________________________________________
DISTRIBUTIONS
39. FORM OF DISTRIBUTIONS (Plan Sections 6.5 and 6.6)
Distributions under the Plan may be made in (select all that apply)...
a. [X] lump-sums.
b. [ ] substantially equal installments.
c. [X] partial withdrawals provided the minimum withdrawal is $1,000.
AND, pursuant to Plan Section 6.12,
d. [X] no annuities are allowed (Plan Section 6.12(b) will apply and the
joint and survivor rules of Code Sections 401(a)(11) and 417 will not
apply to the Plan).
AND, if this is an amendment that is eliminating annuities, then an
annuity form of payment is not available with respect to
distributions that have an Annuity Starting Date beginning on or
after:
1. [X] N/A
2. [ ] ____ (may not be a retroactive date), except that regardless
of the date entered, the amendment will not be effective prior
to the time set forth in Plan Section 8.1(e).
e. [ ] annuities are allowed as the normal form of distribution (Plan
Section 6.12 will not apply and the joint and survivor rules of Code
Sections 401(a)(11) and 417 will automatically apply). If elected,
the Pre-Retirement Survivor Annuity (minimum spouse's death benefit)
will be equal to:
1. [ ] 100% of Participant's interest in the Plan.
2. [ ] 50% of Participant's interest in the Plan.
3. [ ] ____% (may not be less than 50%) of a Participant's interest
in the Plan.
AND, the normal form of the Qualified Joint and Survivor Annuity will
be a joint and 50% survivor annuity unless otherwise elected below:
4. [ ] N/A.
5. [ ] Joint and 100% survivor annuity.
6. [ ] Joint and 75% survivor annuity.
7. [ ] Joint and 66 2/3% survivor annuity.
NOTE: If only a portion of the Plan assets may be distributed in an annuity
form of payment, then select d. AND e. and the assets subject to the
joint and survivor annuity provisions will be those assets
attributable to (specify):(e.g., the money purchase pension plan that
was merged into this Plan).
AND, distributions may be made in...
f. [X] cash only (except for insurance or annuity contracts).
g. [ ] cash or property.
40. CONDITIONS FOR DISTRIBUTIONS UPON TERMINATION OF EMPLOYMENT
Distributions upon termination of employment pursuant to Plan Section 6.4(a)
of the Plan will not be made unless the following conditions have been
satisfied:
a. [ ] No distributions may be made until a Participant has reached Early or
Normal Retirement Date.
b. [X] Distributions may be made as soon as administratively feasible at the
Participant's election.
c. [ ] The Participant has incurred ________ 1-Year Break(s) in Service (or
Period(s) of Severance if the Elapsed Time Method is elected).
d. [ ] Distributions may be made at the Participant's election as soon as
administratively feasible after the Plan Year coincident with or next
following termination of employment.
e. [ ] Distributions may be made at the Participant's election as soon as
administratively feasible after the Plan Year quarter coincident with
or next following termination of employment.
f. [ ] Distributions may be made at the Participant's election as soon as
administratively feasible after the Valuation Date coincident with or
next following termination of employment.
g. [ ] Distributions may be made at the Participant's election as soon as
administratively feasible _______ months following termination of
employment.
h. [ ] Other:______________________________________________________________
(must be objective conditions which are ascertainable and are not
subject to Employer discretion except as otherwise permitted in
Regulation 1.411(d)-4 and may not exceed the limits of Code Section
401(a)(14) as set forth in Plan Section 6.7).
41. INVOLUNTARY DISTRIBUTIONS
Will involuntary distributions of amounts less than $5,000 be made in
accordance with the provisions of Sections 6.4, 6.5 and 6.6?
a. [X] Yes
b. [ ] No
42. MINIMUM DISTRIBUTION TRANSITIONAL RULES (Plan Section 6.5(e))
NOTE: This Section does not apply to (1) a new Plan or (2) an amendment or
restatement of an existing Plan that never contained the provisions of
Code Section 401(a)(9) as in effect prior to the amendments made by
the Small Business Job Protection Act of 1996 (SBJPA).
The "required beginning date" for a Participant who is not a "five percent
(5%) owner" is:
a. [ ] N/A. (This is a new Plan or this Plan has never included the
pre-SBJPA provisions.)
b. [ ] April 1st of the calendar year following the year in which the
Participant attains age 70 1/2. (The pre-SBJPA rules will continue
to apply.)
c. [X] April 1st of the calendar year following the later of the year in
which the Participant attains age 70 1/2 or retires (the
post-SBJPA rules), with the following exceptions (select one or both
and if no election is made, both will apply effective as of
January 1, 1996):
1. [X] A Participant who was already receiving required minimum
distributions under the pre-SBJPA rules as of January 1, 1997
(not earlier than January 1, 1996) may elect to stop receiving
distributions and have them recommence in accordance with the
post-SBJPA rules. Upon the recommencement of distributions, if
the Plan permits annuities as a form of distribution then the
following will apply:
a. [X] N/A. Annuity distributions are not permitted.
b. [ ] Upon the recommencement of distributions, the original
Annuity Starting Date will be retained.
c. [ ] Upon the recommencement of distributions, a new
Annuity Starting Date is created.
2. [X] A Participant who had not begun receiving required minimum
distributions as of January 1, 1997 (not earlier than
January 1, 1996) may elect to defer commencement of
distributions until retirement. The option to defer the
commencement of distributions (i.e., to elect to receive
in-service distributions upon attainment of age 70 1/2) will
apply to all such Participants unless the option below is
elected:
a. [X] N/A.
b. [ ] The in-service distribution option is eliminated with
respect to Participants who attain age 70 1/2 in or
after the calendar year that begins after the later of
(1) December 31, 1998, or (2) the adoption date of the
amendment and restatement to bring the Plan into
compliance with SBJPA. (This option may only be elected
if the amendment to eliminate the in-service
distribution is adopted no later than the last day of
the remedial amendment period that applies to the Plan
for changes under SBJPA.)
43. DISTRIBUTIONS UPON DEATH (Plan Section 6.6(h))
Distributions upon the death of a Participant prior to receiving any
benefits shall...
a. [X] be made pursuant to the election of the Participant or beneficiary.
b. [ ] begin within 1 year of death for a designated beneficiary and be
payable over the life (or over a period not exceeding the life
expectancy) of such beneficiary, except that if the beneficiary is
the Participant's spouse, begin prior to December 31st of the year in
which the Participant would have attained age 70 1/2.
c. [ ] be made within 5 (or if lesser _____) years of death for all
beneficiaries.
d. [ ] be made within 5 (or if lesser _____) years of death for all
beneficiaries, except that if the beneficiary is the Participant's
spouse, begin prior to December 31st of the year in which the
Participant would have attained age 70 1/2 and be payable over the
life (or over a period not exceeding the life expectancy) of such
surviving spouse.
44. HARDSHIP DISTRIBUTIONS (Plan Sections 6.11 and/or 12.9)
a. [ ] No hardship distributions are permitted.
b. [X] Hardship distributions are permitted from the following accounts
(select all that apply):
1. [X] All accounts.
2. [ ] Participant's Elective Deferral Account.
3. [ ] Participant's Account attributable to Employer matching
contributions.
4. [ ] Participant's Account attributable to Employer profit sharing
contributions.
5. [ ] Participant's Rollover Account.
6. [ ] Participant's Transfer Account.
7. [ ] Participant's Voluntary Contribution Account.
NOTE: Distributions from a Participant's Elective Deferral Account are
limited to the portion of such account attributable to such
Participant's Elective Deferrals (and earnings attributable thereto
up to December 31, 1988). Hardship distributions are not permitted
from a Participant's Qualified Non-Elective Account (including any
401(k) Safe Harbor Contributions) or Qualified Matching Contribution
Account.
AND, shall the safe harbor hardship rules of Plan Section 12.9 apply to
distributions made from all accounts? (Note: The safe harbor hardship rules
automatically apply to hardship distributions of Elective Deferrals.)
c. [ ] No or N/A. The provisions of Plan Section 6.11 apply to hardship
distributions from all accounts other than a Participant's Elective
Deferral Account.
d. [X] Yes. The provisions of Plan Section 12.9 apply to all hardship
distributions.
AND, are distributions restricted to those accounts in which a Participant
is fully Vested?
e. [X] Yes, distributions may only be made from accounts which are fully
Vested.
f. [ ] No. (If elected, the fraction at Plan Section 6.5(h) shall apply in
determining vesting of the portion of the account balance not
withdrawn).
AND, the minimum hardship distribution shall be...
g. [X] N/A. There is no minimum.
h. [ ] $_____ (may not exceed $1,000).
45. IN-SERVICE DISTRIBUTIONS (Plan Section 6.10)
a. [ ] In-service distributions may not be made (except as otherwise
elected for Hardship Distributions).
b. [X] In-service distributions may be made to a Participant who has not
separated from service provided any of the following conditions have
been satisfied (select all that apply):
1. [X] the Participant has attained age 59-1/2.
2. [ ] the Participant has reached Normal Retirement Age.
3. [ ] the Participant has been a Participant in the Plan for at
least ____ years (may not be less than five (5)).
4. [ ] the amounts being distributed have accumulated in the Plan for
at least two (2) years.
AND, in-service distributions are permitted from the following accounts
(select all that apply):
c. [X] All accounts.
d. [ ] Participant's Elective Deferral Account.
e. [ ] Qualified Matching Contribution Account and portion of Participant's
Account attributable to Employer matching contributions.
f. [ ] Participant's Account attributable to Employer profit sharing
contributions.
g. [ ] Qualified Non-Elective Contribution Account.
h. [ ] Participant's Rollover Account.
i. [ ] Participant's Transfer Account.
j. [ ] Participant's Voluntary Contribution Account.
NOTE: Distributions from a Participant's Elective Deferral Account,
Qualified Matching Contribution Account and Qualified Non-Elective
Account (including 401(k) Safe Harbor Contributions) are subject to
restrictions and generally may not be distributed prior to age
59 1/2.
AND, are distributions restricted to those accounts in which a Participant
is fully Vested? k. [X] Yes, distributions may only be made from accounts
which are fully Vested.
l. [ ] No. (If elected, the fraction at Plan Section 6.5(h) will apply in
determining vesting of the portion of the account balance not
withdrawn.)
AND, the minimum distribution shall be...
m. [X] N/A. There is no minimum.
n. [ ] $_____ (may not exceed $1,000).
NONDISCRIMINATION TESTING
46. HIGHLY COMPENSATED EMPLOYEE (Plan Section 1.31)
NOTE: If this is a GUST restatement, complete the questions in this
Section retroactively to the first Plan Year beginning after 1996.
Top-Paid Group Election. Will the top-paid group election be made? (The
election made below for the latest year will continue to apply to subsequent
Plan Years unless a different election is made.)
a. [ ] Yes, for the Plan Year beginning in: _____.
b. [X] No, for the Plan Year beginning in: 2004.
Calendar Year Data Election. Will the calendar year data election be used?
(The election made below for the latest year will continue to apply to
subsequent Plan Years unless a different election is made.)
c. [ ] Yes, for the Plan Year beginning in: _____.
d. [X] No, for the Plan Year beginning in: 2004.
47. ADP AND ACP TESTS (Plan Sections 12.4 and 12.6). The ADP ratio and ACP
ratio for Non-Highly Compensated Employees will be based on the following.
The election made below for the latest year will continue to apply to
subsequent Plan Years unless the Plan is amended to a different election.
a. [ ] N/A. This Plan satisfies the ADP Test Safe Harbor rules and there are
no contributions subject to an ACP test or for all Plan Years
beginning in or after the Effective Date of the Plan or, in the case
of an amendment and restatement, for all Plan Years to which the
amendment and restatement relates.
b. [X] PRIOR YEAR TESTING: The prior year ratio will be used for the
Plan Year beginning in 2004 . (Note: If this election is made for the
first year the Code Section 401(k) or 401(m) feature is added to this
Plan (unless this Plan is a successor plan), the amount taken into
account as the ADP and ACP of Non-Highly Compensated Employees for
the preceding Plan Year will be 3%.)
c. [ ] CURRENT YEAR TESTING: The current year ratio will be used for the
Plan Year beginning in _____.
NOTE: In any Plan Year where the ADP Test Safe Harbor is being used but not
the ACP Test Safe Harbor, then c. above must be used if an ACP test
applies for such Plan Year.
TOP HEAVY REQUIREMENTS
48. TOP HEAVY DUPLICATIONS (Plan Section 4.3(i)): When a Non-Key Employee is a
Participant in this Plan and a Defined Benefit Plan maintained by the
Employer, indicate which method shall be utilized to avoid duplication of
top heavy minimum benefits: (If b., c., d. or e. is elected, f. must be
completed.)
a. [X] N/A. The Employer does not maintain a Defined Benefit Plan. (Go to
next Question)
b. [ ] The full top heavy minimum will be provided in each plan (if
selected, Plan Section 4.3(i) shall not apply).
c. [ ] 5% defined contribution minimum.
d. [ ] 2% defined benefit minimum.
e. [ ] Specify the method under which the Plans will provide top heavy
minimum benefits for Non-Key Employees that will preclude Employer
discretion and avoid inadvertent omissions:
NOTE: If c., d., or e. is selected and the Defined Benefit Plan and this
Plan do not benefit the same Participants, the uniformity requirement
of the Section 401(a)(4) Regulations may be violated.
AND, the "Present Value of Accrued Benefit" (Plan Section 9.2) for Top Heavy
purposes shall be based on...
f. [ ] Interest Rate:______________________________________________________
Mortality Table:____________________________________________________
49. TOP HEAVY DUPLICATIONS (Plan Section 4.3(f)): When a Non-Key Employee is a
Participant in this Plan and another defined contribution plan maintained by
the Employer, indicate which method shall be utilized to avoid duplication
of top heavy minimum benefits:
a. [X] N/A. The Employer does not maintain another qualified defined
contribution plan.
b. [ ] The full top heavy minimum will be provided in each plan.
c. [ ] A minimum, non-integrated contribution of 3% of each Non-Key
Employee's 415 Compensation shall be provided in the Money Purchase
Plan (or other plan subject to Code Section 412).
d. [ ] Specify the method under which the Plans will provide top heavy
minimum benefits for Non-Key Employees that will preclude Employer
discretion and avoid inadvertent omissions, including any adjustments
required under Code Section 415:
NOTE: If c. or d. is selected and both plans do not benefit the same
Participants, the uniformity requirement of the Section 401(a)(4)
Regulations may be violated.
MISCELLANEOUS
50. LOANS TO PARTICIPANTS (Plan Section 7.6)
a. [ ] Loans are not permitted.
b. [X] Loans are permitted.
IF loans are permitted (select all that apply)...
c. [X] loans will be treated as a Participant directed investment.
d. [ ] loans will only be made for hardship or financial necessity.
e. [X] the minimum loan will be $ 1,000 (may not exceed $1,000).
f. [X] a Participant may only have 1 (e.g., one (1)) loan(s) outstanding at
any time.
g. [X] all outstanding loan balances will become due and payable in their
entirety upon the occurrence of a distributable event (other than
satisfaction of the conditions for an in-service distribution).
h. [X] loans will only be permitted from the following accounts (select all
that apply):
1. [X] All accounts.
2. [ ] Participant's Elective Deferral Account.
3. [ ] Qualified Matching Contribution Account and/or portion of
Participant's Account attributable to Employer matching
contributions.
4. [ ] Participant's Account attributable to Employer profit
sharing contributions.
5. [ ] Qualified Non-Elective Contribution Account.
6. [ ] Participant's Rollover Account.
7. [ ] Participant's Transfer Account.
8. [ ] Participant's Voluntary Contribution Account.
NOTE: Department of Labor Regulations require the adoption of a separate
written loan program setting forth the requirements outlined in
Plan Section 7.6.
51. DIRECTED INVESTMENT ACCOUNTS (Plan Section 4.10)
a. [ ] Participant directed investments are not permitted.
b. [X] Participant directed investments are permitted for the following
accounts (select all that apply):
1. [X] All accounts.
2. [ ] Participant's Elective Deferral Account.
3. [ ] Qualified Matching Contribution Account and/or portion of
Participant's Account attributable to Employer matching
contributions.
4. [ ] Participant's Profit Sharing Account.
5. [ ] Qualified Non-Elective Contribution Account.
6. [ ] Participant's Rollover Account.
7. [ ] Participant's Transfer Account.
8. [ ] Participant's Voluntary Contribution Account.
9. [ ] Other:_______________________________________________________
AND, is it intended that the Plan comply with Act Section 404(c) with
respect to the accounts subject to Participant investment direction?
c. [ ] No.
d. [X] Yes.
AND, will voting rights on directed investments be passed through to
Participants?
e. [X] No. Employer stock is not an alternative OR Plan is not intended to
comply with Act Section 404(c).
f. [ ] Yes, for Employer stock only.
g. [ ] Yes, for all investments.
52. ROLLOVERS (Plan Section 4.6)
a. [ ] Rollovers will not be accepted by this Plan.
b. [X] Rollovers will be accepted by this Plan.
AND, if b. is elected, rollovers may be accepted...
c. [X] from any Eligible Employee, even if not a Participant.
d. [ ] from Participants only.
AND, distributions from a Participant's Rollover Account may be made...
e. [X] at any time.
f. [ ] only when the Participant is otherwise entitled to a distribution
under the Plan.
53. AFTER-TAX VOLUNTARY EMPLOYEE CONTRIBUTIONS (Plan Section 4.8)
a. [X] After-tax voluntary Employee contributions will not be allowed.
b. [ ] After-tax voluntary Employee contributions will be allowed.
54. LIFE INSURANCE (Plan Section 7.5)
a. [X] Life insurance may not be purchased.
b. [ ] Life insurance may be purchased at the option of the Administrator.
c. [ ] Life insurance may be purchased at the option of the Participant.
AND, if b. or c. is elected, the purchase of initial or additional life
insurance will be subject to the following limitations (select all that
apply):
d. [ ] N/A, no limitations.
e. [ ] each initial Contract will have a minimum face amount of $_______.
f. [ ] each additional Contract will have a minimum face amount of $_______.
g. [ ] the Participant has completed ____ Years of Service (or Periods of
Service).
h. [ ] the Participant has completed ____ Years of Service (or Periods of
Service) while a Participant in the Plan.
i. [ ] the Participant is under age on the Contract issue date.
j. [ ] the maximum amount of all Contracts on behalf of a Participant may
not exceed $_____.
k. [ ] the maximum face amount of any life insurance Contract will be $___ .
The adopting Employer may rely on an opinion letter issued by the Internal
Revenue Service as evidence that the plan is qualified under Code Section 401
only to the extent provided in Announcement 2001-77, 2001-30 I.R.B.
The Employer may not rely on the opinion letter in certain other circumstances
or with respect to certain qualification requirements, which are specified in
the opinion letter issued with respect to the plan and in Announcement 2001-77.
In order to have reliance in such circumstances or with respect to such
qualification requirements, application for a determination letter must be made
to Employee Plans Determinations of the Internal Revenue Service.
This Adoption Agreement may be used only in conjunction with basic Plan document
#03. This Adoption Agreement and the basic Plan document shall together be known
as MetLife Defined Contribution Prototype Non-Standardized 401(k) Profit Sharing
Plan and Trust #03-005.
The adoption of this Plan, its qualification by the IRS, and the related tax
consequences are the responsibility of the Employer and its independent tax and
legal advisors.
Metropolitan Life Insurance Company will notify the Employer of any amendments
made to the Plan or of the discontinuance or abandonment of the Plan.
Furthermore, in order to be eligible to receive such notification, we agree to
notify Metropolitan Life Insurance Company of any change in address.
This Plan may not be used, and shall not be deemed to be a Prototype Plan,
unless an authorized representative of Metropolitan Life Insurance Company has
acknowledged the use of the Plan. Such acknowledgment is for administerial
purposes only. It acknowledges that the Employer is using the Plan but does not
represent that this Plan, including the choices selected on the Adoption
Agreement, has been reviewed by a representative of the sponsor or constitutes a
qualified retirement plan.
Metropolitan Life Insurance Company
By: /s/ R Lopez
With regard to any questions regarding the provisions of the Plan, adoption of
the Plan, or the effect of an opinion letter from the IRS, call or write (this
information must be completed by the sponsor of this Plan or its designated
representative):
Name: MetLife - Plan Design & Consulting, G1-09
Address: 13045 Tesson Ferry Road
St. Louis Missouri 63128
Telephone: (314) 525-8801
The Employer and Trustee hereby cause this Plan to be executed on ____________.
Furthermore, this Plan may not be used unless acknowledged by Metropolitan Life
Insurance Company or its authorized representative.
EMPLOYER:
By: /s/Joel S. Hatlen
Data I/O Corporation
[ ] The signature of the Trustee appears on a separate trust agreement
attached to the Plan,
OR
/s/ Wm. Kelly, VP, MetLife as Agent for the Trustee
TRUSTEE
EGTRRA
AMENDMENT TO THE
Data I/O Corporation Tax Deferral Retirement Plan
ARTICLE I
PREAMBLE
1.1 Adoption and effective date of amendment. This amendment of the plan is
adopted to reflect certain provisions of the Economic Growth and Tax Relief
Reconciliation Act of 2001 ("EGTRRA"). This amendment is intended as good
faith compliance with the requirements of EGTRRA and is to be construed in
accordance with EGTRRA and guidance issued thereunder. Except as otherwise
provided, this amendment shall be effective as of the first day of the
first plan year beginning after December 31, 2001.
1.2 Supersession of inconsistent provisions. This amendment shall supersede the
provisions of the plan to the extent those provisions are inconsistent with
the provisions of this amendment.
ARTICLE II
ADOPTION AGREEMENT ELECTIONS
- --------------------------------------------------------------------------------
The questions in this Article II only need to be completed in order to
override the default provisions set forth below. If all of the default
provisions will apply, then these questions should be skipped.
Unless the employer elects otherwise in this Article II, the following
defaults apply:
1) The vesting schedule for matching contributions will be a 6 year
graded schedule (if the plan currently has a graded schedule that does
not satisfy EGTRRA) or a 3 year cliff schedule (if the plan currently
has a cliff schedule that does not satisfy EGTRRA), and such schedule
will apply to all matching contributions (even those made prior to
2002).
2) Rollovers are automatically excluded in determining whether the $5,000
threshold has been exceeded for automatic cash-outs (if the plan is
not subject to the qualified joint and survivor annuity rules and
provides for automatic cash-outs). This is applied to all participants
regardless of when the distributable event occurred.
3) The suspension period after a hardship distribution is made will be 6
months and this will only apply to hardship distributions made after
2001.
4) Catch-up contributions will be allowed.
5) For target benefit plans, the increased compensation limit of $200,000
will be applied retroactively (i.e., to years prior to 2002).
- --------------------------------------------------------------------------------
2.1 Vesting Schedule for Matching Contributions
If there are matching contributions subject to a vesting schedule that
does not satisfy EGTRRA, then unless otherwise elected below, for
participants who complete an hour of service in a plan year beginning
after December 31, 2001, the following vesting schedule will apply to
all matching contributions subject to a vesting schedule:
If the plan has a graded vesting schedule (i.e., the vesting schedule
includes a vested percentage that is more than 0% and less than 100%)
the following will apply:
Years of vesting service Nonforfeitable percentage
2 20%
3 40%
4 60%
5 80%
6 100%
If the plan does not have a graded vesting schedule, then matching
contributions will be nonforfeitable upon the completion of 3 years of
vesting service.
In lieu of the above vesting schedule, the employer elects the
following schedule:
a. [ ] 3 year cliff (a participant's accrued benefit derived from
employer matching contributions shall be nonforfeitable upon
the participant's completion of three years of vesting
service).
b. [ ] 6 year graded schedule (20% after 2 years of vesting service
and an additional 20% for each year thereafter).
c. [ ] Other (must be at least as liberal as a. or the b. above):
Years of vesting service Nonforfeitable percentage
-------- ---------%
-------- ---------%
-------- ---------%
-------- ---------%
-------- ---------%
The vesting schedule set forth herein shall only apply to participants
who complete an hour of service in a plan year beginning after December
31, 2001, and, unless the option below is elected, shall apply to all
matching contributions subject to a vesting schedule.
d. [ ] The vesting schedule will only apply to matching contributions
made in plan years beginning after December 31, 2001
(the prior schedule will apply to matching contributions made
in prior plan years).
2.2 Exclusion of Rollovers in Application of Involuntary Cash-out
Provisions (for profit sharing and 401(k) plans only). If the plan is
not subject to the qualified joint and survivor annuity rules and
includes involuntary cash-out provisions, then unless one of the
options below is elected, effective for distributions made after
December 31, 2001, rollover contributions will be excluded in
determining the value of the participant's nonforfeitable account
balance for purposes of the plan's involuntary cash-out rules.
a. [ ] Rollover contributions will not be excluded.
b. [ ] Rollover contributions will be excluded only with respect to
distributions made after ________________________.
(Enter a date no earlier than December 31, 2001.)
c. [ ] Rollover contributions will only be excluded with respect to
participants who separated from service after ______________.
(Enter a date. The date may be earlier than December 31, 2001.)
2.3 Suspension period of hardship distributions. If the plan provides for
hardship distributions upon satisfaction of the safe harbor (deemed)
standards as set forth in Treas. Reg. Section 1.401(k)-1(d)(2)(iv),
then, unless the option below is elected, the suspension period
following a hardship distribution shall only apply to hardship
distributions made after December 31, 2001.
[X] With regard to hardship distributions made during 2001, a
participant shall be prohibited from making elective deferrals
and employee contributions under this and all other plans until
the later of January 1, 2002, or 6 months after receipt of the
distribution.
2.4 Catch-up contributions (for 401(k) profit sharing plans only): The plan
permits catch-up contributions (Article VI) unless the option below is
elected.
[ ] The plan does not permit catch-up contributions to be made.
ARTICLE III
VESTING OF MATCHING CONTRIBUTIONS
3.1 Applicability. This Article shall apply to participants who complete an
Hour of Service after December 31, 2001, with respect to accrued
benefits derived from employer matching contributions made in plan
years beginning after December 31, 2001. Unless otherwise elected by
the employer in Section 2.1 above, this Article shall also apply to all
such participants with respect to accrued benefits derived from
employer matching contributions made in plan years beginning prior to
January 1, 2002.
3.2 Vesting schedule. A participant's accrued benefit derived from
employer matching contributions shall vest as provided in Section 2.1
of this amendment.
ARTICLE IV
INVOLUNTARY CASH-OUTS
4.1 Applicability and effective date. If the plan provides for involuntary
cash-outs of amounts less than $5,000, then unless otherwise elected in
Section 2.2 of this amendment, this Article shall apply for
distributions made after December 31, 2001, and shall apply to all
participants. However, regardless of the preceding, this Article shall
not apply if the plan is subject to the qualified joint and survivor
annuity requirements of Sections 401(a)(11) and 417 of the Code.
4.2 Rollovers disregarded in determining value of account balance for
involuntary distributions. For purposes of the Sections of the plan
that provide for the involuntary distribution of vested accrued
benefits of $5,000 or less, the value of a participant's nonforfeitable
account balance shall be determined without regard to that portion of
the account balance that is attributable to rollover contributions (and
earnings allocable thereto) within the meaning of Sections 402(c),
403(a)(4), 403(b)(8), 408(d)(3)(A)(ii), and 457(e)(16) of the Code. If
the value of the participant's nonforfeitable account balance as so
determined is $5,000 or less, then the plan shall immediately
distribute the participant's entire nonforfeitable account balance.
ARTICLE V
HARDSHIP DISTRIBUTIONS
5.1 Applicability and effective date. If the plan provides for hardship
distributions upon satisfaction of the safe harbor (deemed) standards
as set forth in Treas. Reg. Section 1.401(k)-1(d)(2)(iv), then this
Article shall apply for calendar years beginning after 2001.
5.2 Suspension period following hardship distribution. A participant who
receives a distribution of elective deferrals after December 31, 2001,
on account of hardship shall be prohibited from making elective
deferrals and employee contributions under this and all other plans of
the employer for 6 months after receipt of the distribution.
Furthermore, if elected by the employer in Section 2.3 of this
amendment, a participant who receives a distribution of elective
deferrals in calendar year 2001 on account of hardship shall be
prohibited from making elective deferrals and employee contributions
under this and all other plans until the later of January 1, 2002, or 6
months after receipt of the distribution.
ARTICLE VI
CATCH-UP CONTRIBUTIONS
Catch-up Contributions. Unless otherwise elected in Section 2.4 of this
amendment, all employees who are eligible to make elective deferrals under this
plan and who have attained age 50 before the close of the plan year shall be
eligible to make catch-up contributions in accordance with, and subject to the
limitations of, Section 414(v) of the Code. Such catch-up contributions shall
not be taken into account for purposes of the provisions of the plan
implementing the required limitations of Sections 402(g) and 415 of the Code.
The plan shall not be treated as failing to satisfy the provisions of the plan
implementing the requirements of Section 401(k)(3), 401(k)(11), 401(k)(12),
410(b), or 416 of the Code, as applicable, by reason of the making of such
catch-up contributions.
ARTICLE VII
INCREASE IN COMPENSATION LIMIT
Increase in Compensation Limit. The annual compensation of each participant
taken into account in determining allocations for any plan year beginning after
December 31, 2001, shall not exceed $200,000, as adjusted for cost-of-living
increases in accordance with Section 401(a)(17)(B) of the Code. Annual
compensation means compensation during the plan year or such other consecutive
12-month period over which compensation is otherwise determined under the plan
(the determination period). If this is a target benefit plan, then except as
otherwise elected in Section 2.5 of this amendment, for purposes of determining
benefit accruals in a plan year beginning after December 31, 2001, compensation
for any prior determination period shall be limited to $200,000. The
cost-of-living adjustment in effect for a calendar year applies to annual
compensation for the determination period that begins with or within such
calendar year.
ARTICLE VIII
PLAN LOANS
Plan loans for owner-employees or shareholder-employees. If the plan permits
loans to be made to participants, then effective for plan loans made after
December 31, 2001, plan provisions prohibiting loans to any owner-employee or
shareholder-employee shall cease to apply.
ARTICLE IX
LIMITATIONS ON CONTRIBUTIONS (IRC SECTION 415 LIMITS)
9.1 Effective date. This Section shall be effective for limitation years
beginning after December 31, 2001.
9.2 Maximum annual addition. Except to the extent permitted under Article
VI of this amendment and Section 414(v) of the Code, if applicable, the
annual addition that may be contributed or allocated to a participant's
account under the plan for any limitation year shall not exceed the
lesser of:
a. $40,000, as adjusted for increases in the cost-of-living under
Section 415(d) of the Code, or
b. 100 percent of the participant's compensation, within the meaning
of Section 415(c)(3) of the Code, for the limitation year.
The compensation limit referred to in b. shall not apply to any
contribution for medical benefits after separation from service
(within the meaning of Section 401(h) or Section 419A(f)(2) of the
Code) which is otherwise treated as an annual addition.
ARTICLE X
MODIFICATION OF TOP-HEAVY RULES
10.1 Effective date. This Article shall apply for purposes of determining
whether the plan is a top-heavy plan under Section 416(g) of the Code
for plan years beginning after December 31, 2001, and whether the plan
satisfies the minimum benefits requirements of Section 416(c) of the
Code for such years. This Article amends the top-heavy provisions of
the plan.
10.2 Determination of top-heavy status.
10.2.1 Key employee. Key employee means any employee or former employee
(including any deceased employee) who at any time during the plan year
that includes the determination date was an officer of the employer
having annual compensation greater than $130,000 (as adjusted under
Section 416(i)(1) of the Code for plan years beginning after December
31, 2002), a 5-percent owner of the employer, or a 1-percent owner of
the employer having annual compensation of more than $150,000. For this
purpose, annual compensation means compensation within the meaning of
Section 415(c)(3) of the Code. The determination of who is a key
employee will be made in accordance with Section 416(i)(1) of the Code
and the applicable regulations and other guidance of general
applicability issued thereunder.
10.2.2 Determination of present values and amounts. This Section 10.2.2 shall
apply for purposes of determining the present values of accrued
benefits and the amounts of account balances of employees as of the
determination date.
a. Distributions during year ending on the determination date.
The present values of accrued benefits and the amounts of
account balances of an employee as of the determination date
shall be increased by the distributions made with respect to
the employee under the plan and any plan aggregated with the
plan under Section 416(g)(2) of the Code during the 1-year
period ending on the determination date. The preceding
sentence shall also apply to distributions under a terminated
plan which, had it not been terminated, would have been
aggregated with the plan under Section 416(g)(2)(A)(i) of the
Code. In the case of a distribution made for a reason other
than separation from service, death, or disability, this
provision shall be applied by substituting "5-year period" for
"1-year period."
b. Employees not performing services during year ending on the
determination date. The accrued benefits and accounts of any
individual who has not performed services for the employer
during the 1-year period ending on the determination date
shall not be taken into account.
10.3 Minimum benefits.
10.3.1 Matching contributions. Employer matching contributions shall be taken
into account for purposes of satisfying the minimum contribution
requirements of Section 416(c)(2) of the Code and the plan. The
preceding sentence shall apply with respect to matching contributions
under the plan or, if the plan provides that the minimum contribution
requirement shall be met in another plan, such other plan. Employer
matching contributions that are used to satisfy the minimum
contribution requirements shall be treated as matching contributions
for purposes of the actual contribution percentage test and other
requirements of Section 401(m) of the Code.
10.3.2 Contributions under other plans. The employer may provide, in an
addendum to this amendment, that the minimum benefit requirement shall
be met in another plan (including another plan that consists solely of
a cash or deferred arrangement which meets the requirements of Section
401(k)(12) of the Code and matching contributions with respect to which
the requirements of Section 401(m)(11) of the Code are met). The
addendum should include the name of the other plan, the minimum benefit
that will be provided under such other plan, and the employees who will
receive the minimum benefit under such other plan.
ARTICLE XI
DIRECT ROLLOVERS
11.1 Effective date. This Article shall apply to distributions made after
December 31, 2001.
11.2 Modification of definition of eligible retirement plan. For purposes of
the direct rollover provisions of the plan, an eligible retirement plan
shall also mean an annuity contract described in Section 403(b) of the
Code and an eligible plan under Section 457(b) of the Code which is
maintained by a state, political subdivision of a state, or any agency
or instrumentality of a state or political subdivision of a state and
which agrees to separately account for amounts transferred into such
plan from this plan. The definition of eligible retirement plan shall
also apply in the case of a distribution to a surviving spouse, or to a
spouse or former spouse who is the alternate payee under a qualified
domestic relation order, as defined in Section 414(p) of the Code.
11.3 Modification of definition of eligible rollover distribution to exclude
hardship distributions. For purposes of the direct rollover provisions
of the plan, any amount that is distributed on account of hardship
shall not be an eligible rollover distribution and the distributee may
not elect to have any portion of such a distribution paid directly to
an eligible retirement plan.
11.4 Modification of definition of eligible rollover distribution to include
after-tax employee contributions. For purposes of the direct rollover
provisions in the plan, a portion of a distribution shall not fail to
be an eligible rollover distribution merely because the portion
consists of after-tax employee contributions which are not includible
in gross income. However, such portion may be transferred only to an
individual retirement account or annuity described in Section 408(a) or
(b) of the Code, or to a qualified defined contribution plan described
in Section 401(a) or 403(a) of the Code that agrees to separately
account for amounts so transferred, including separately accounting for
the portion of such distribution which is includible in gross income
and the portion of such distribution which is not so includible.
ARTICLE XII
ROLLOVERS FROM OTHER PLANS
Rollovers from other plans. The employer, operationally and on a
nondiscriminatory basis, may limit the source of rollover contributions that may
be accepted by this plan.
ARTICLE XIII
REPEAL OF MULTIPLE USE TEST
Repeal of Multiple Use Test. The multiple use test described in Treasury
Regulation Section 1.401(m)-2 and the plan shall not apply for plan years
beginning after December 31, 2001.
ARTICLE XIV
ELECTIVE DEFERRALS
14.1 Elective Deferrals - Contribution Limitation. No participant shall be
permitted to have elective deferrals made under this plan, or any other
qualified plan maintained by the employer during any taxable year, in
excess of the dollar limitation contained in Section 402(g) of the Code
in effect for such taxable year, except to the extent permitted under
Article VI of this amendment and Section 414(v) of the Code, if
applicable.
14.2 Maximum Salary Reduction Contributions for SIMPLE plans. If this is a
SIMPLE 401(k) plan, then except to the extent permitted under Article
VI of this amendment and Section 414(v) of the Code, if applicable, the
maximum salary reduction contribution that can be made to this plan is
the amount determined under Section 408(p)(2)(A)(ii) of the Code for
the calendar year.
ARTICLE XV
SAFE HARBOR PLAN PROVISIONS
Modification of Top-Heavy Rules. The top-heavy requirements of Section 416 of
the Code and the plan shall not apply in any year beginning after December 31,
2001, in which the plan consists solely of a cash or deferred arrangement which
meets the requirements of Section 401(k)(12) of the Code and matching
contributions with respect to which the requirements of Section 401(m)(11) of
the Code are met.
ARTICLE XVI
DISTRIBUTION UPON SEVERANCE OF EMPLOYMENT
16.1 Effective date. This Article shall apply for distributions and
transactions made after December 31, 2001, regardless of when the
severance of employment occurred.
16.2 New distributable event. A participant's elective deferrals, qualified
nonelective contributions, qualified matching contributions, and
earnings attributable to these contributions shall be distributed on
account of the participant's severance from employment. However, such a
distribution shall be subject to the other provisions of the plan
regarding distributions, other than provisions that require a
separation from service before such amounts may be distributed.
This amendment has been executed this 6th day of March, 2004.
Name of Employer: Data I/O Corporation
By: /s/Joel S. Hatlen
EMPLOYER
Name of Plan: Data I/O Corporation Tax Deferral Retirement Plan
Exhibit 31.1
Section 302 Certification
I, Frederick R. Hume, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Data I/O Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of
a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
c) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's
most recent fiscal quarter (the registrant's fourth fiscal quarter in
the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of the registrant's board
of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or
operation of internal control over a financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
control over financial reporting.
Date May 14, 2004 /s/ FREDERICK R. HUME
Frederick R. Hume
President and Chief Executive Officer
(Principal Executive Officer)
Exhibit 31.2
Section 302 Certification
I, Joel S. Hatlen, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Data I/O Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of
a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about
the effectiveness of the disclosure controls and procedures, as of the
end of the period covered by this report based on such evaluation; and
c) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's
most recent fiscal quarter (the registrant's fourth fiscal quarter in
the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of the registrant's board
of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or
operation of internal control over a financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
control over financial reporting.
Date May 14, 2004 /s/ JOEL S. HATLEN
Joel S. Hatlen
Vice President and Chief Financial Officer
(Principal Financial Officer)
Exhibit 32.1
Certification by Chief Executive Officer
Pursuant to 18 U.S.C. Section 1350
As Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the quarterly Report of Data I/O Corporation (the "Company")
on Form 10-Q for the period ended March 31, 2004 as filed with the Securities
and Exchange Commission on the date hereof (the "Report"), I, Frederick R. Hume,
Chief Executive Officer of the Company, certify, that pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d)
of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company.
/s/ Frederick R. Hume
Frederick R. Hume
Chief Executive Officer
(Principal Executive Officer)
May 14, 2004
Exhibit 32.2
Certification by Chief Financial Officer
Pursuant to 18 U.S.C. Section 1350
As Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the quarterly Report of Data I/O Corporation (the "Company")
on Form 10-Q for the period ended March 31, 2004 as filed with the Securities
and Exchange Commission on the date hereof (the "Report"), I, Joel S. Hatlen,
Chief Financial Officer of the Company, certify, that pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, that:
(1) Report fully complies with the requirements of Section 13(a) or 15(d) of
the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company.
/s/ Joel S. Hatlen
Joel S. Hatlen
Chief Financial Officer
(Principal Financial Officer)
May 14, 2004
Exhibit 99.1
CAUTIONARY FACTORS THAT MAY AFFECT FUTURE RESULTS
- --------------------------------------------------------------------------------
Data I/O's disclosure and analysis in this Quarterly Report contains some
forward-looking statements. Forward-looking statements include our current
expectations or forecasts of future events. The reader can identify these
statements by the fact that they do not relate strictly to historical or current
facts. In particular, these include statements relating to future action,
prospective products, new technologies, future performance or results of current
and anticipated products, sales efforts, expenses, outsourcing of functions,
outcome of contingencies, and financial results.
Any or all of the forward-looking statements in this Quarterly Report or in any
other public statement made may turn out to be wrong. They can be affected by
inaccurate assumptions we might make, or known or unknown risks and
uncertainties can affect these forward-looking statements. Many factors -- for
example, product competition and product development -- will be important in
determining future results. Moreover, neither Data I/O nor anyone else assumes
responsibility for the accuracy and completeness of these forward-looking
statements. Actual future results may materially vary.
We undertake no obligation to publicly update any forward-looking statements
after the date of this Quarterly Report, whether as a result of new information,
future events or otherwise. The reader should not place undue reliance on such
forward-looking statements. The reader is advised, however, to consult any
future disclosures Data I/O makes on related subjects in our 10-Q, 8-K and 10-K
reports to the SEC and press releases. Also, note that Data I/O provides the
following cautionary discussion of risks, uncertainties and possible inaccurate
assumptions relevant to our business. These are factors that we think could
cause Data I/O's actual results to differ materially from expected and
historical results. Other factors besides those listed here could also adversely
affect Data I/O. This discussion is permitted by the Private Securities
Litigation Reform Act of 1995.
RISK FACTORS
Development, Introduction and Shipment of New Products
Data I/O currently is developing new engineering and automated programming
systems. Significant technological, supplier, manufacturing or other problems
may delay the development, introduction or production of these products.
For example, we may encounter these problems:
o technical problems in the development of a new programming system platform or
the robotics for new automated handing systems
o inability to hire qualified personnel
o delays or failures to perform by third parties involved in our development
projects
Delays in the development, completion and shipment of new products, or failure
of customers to accept new products, may result in a decline in sales in 2004.
Variability in Quarterly Operating Results
Data I/O's operating results tend to vary from quarter to quarter. Our revenue
in each quarter substantially depends upon orders received within that quarter.
Conversely, our expenditures are based on investment plans and estimates of
future revenues. We may, therefore, be unable to quickly reduce our spending if
our revenues decline in a given quarter. As a result, operating results for that
quarter will suffer. Our results of operations for any one quarter are not
necessarily indicative of results for any future periods.
Other factors, which may cause our quarterly operating results to fluctuate,
include:
o increased competition
o timing of new product announcements
o product releases and pricing changes by us or our competitors
o market acceptance or delays in the introduction of new products
o production constraints
o labor or material shortages
o the timing of significant orders
o war or terrorism
o health issues (such as SARS)
o customers' budgets
o adverse movements in exchange rates, interest rates or tax rates
o cyclical nature of demand for our customers' products
o general economic conditions in the countries where we sell products
Due to all of the foregoing factors, it is possible that in some future
quarters, our operating results will be below expectations of analysts and
investors.
Rapid Technological Change
Product technology in Data I/O's industry evolves rapidly, making timely product
innovation essential to success in the marketplace. Introducing products with
improved technologies or features may render our existing products obsolete and
unmarketable. Technological advances that may negatively impact our business
include:
o new device package types, densities, and technologies requiring hardware and
software changes in order to be programmed by our products
o electronics equipment manufacturing practices, such as widespread use of
in-circuit programming
o customer software platform preferences different from those on which our
products operate
o more rigid industry standards, which would decrease the value-added element
of our products and support services
If we cannot develop products in a timely manner in response to industry
changes, or if our products do not perform well, our business and financial
condition will be adversely affected. Also, our new products may contain defects
or errors that give rise to product liability claims against us or cause our
products to fail to gain market acceptance. Our future success depends on our
ability to successfully compete with other technology firms in attracting and
retaining key technical personnel.
Economic and Market Conditions
Our business is highly impacted by capital spending plans and other economic
cycles that affect the users and manufacturers of ICs. These industries are
highly cyclical and are characterized by rapid technological change, short
product life cycles, fluctuations in manufacturing capacity and pricing and
gross margin pressures. As we experienced in recent years, our operations may in
the future reflect substantial fluctuations from period-to-period as a
consequence of these industry patterns, general economic conditions affecting
the timing of orders from major customers, and other factors affecting capital
spending. These factors could have a material adverse effect on our business and
financial condition.
History of Losses
We have incurred net losses in two of our last three fiscal years. We will
continue to examine our level of operating expense based upon our projected
revenues. Any planned increases in operating expenses may result in larger
losses in future periods if projected revenues are not achieved. As a result, we
may need to generate greater revenues than we have recently to achieve and
maintain profitability. However, we cannot provide assurance that our revenues
will increase and our strategy may not be successful, resulting in future
losses.
Affects of Restructuring Activities
Our previously implemented restructuring plans may yield unanticipated
consequences, such as increased burden on our administrative, operational, and
financial resources and increased responsibilities for our management personnel.
As a result, our ability to respond to unexpected challenges may be impaired and
we may be unable to take advantage of new opportunities.
In addition, many of the employees that were terminated as a part of our
restructuring possessed specific knowledge or expertise, and that knowledge or
expertise may prove to have been important to our operations. In that case,
their absence may create significant difficulties, particularly if our business
experiences significant growth Also, the reduction in workforce related to our
restructuring may subject us to the risk of litigation, which could result in
substantial cost. Any failure by us to properly manage this rapid change in
workforce could impair our ability to efficiently manage our business, to
maintain and develop important relationships with third-parties, and to attract
and retain customers. It could also cause us to incur higher operating cost and
delays in the execution of our business plan or in the reporting or tracking of
our financial results.
Need for Additional Funding
Our past revenues have been and our future revenues may continue to be
insufficient to support the expense of our operations and any expansion of our
business. We may therefore need additional equity or debt capital to finance our
operations. If we are unable to generate sufficient cash flows from operations
or to obtain funds through additional debt or equity financing, we may have to
reduce some or all of our development and sales and marketing efforts and limit
the expansion of our business.
We believe our existing cash and cash equivalents will be sufficient to meet our
working capital requirements for at least the next twelve months. Thereafter,
depending on the development of our business, we may need to raise additional
cash for working capital or other expenses. We may also encounter opportunities
for acquisitions or other business initiatives that require significant cash
commitments, or unanticipated problems or expenses that could result in a
requirement for additional cash before that time.
Therefore, we may seek additional funding through public or private debt or
equity financing or from other sources. We have no commitments for additional
financing, and we may experience difficulty in obtaining funding on favorable
terms, if at all. Any financing we obtain may contain covenants that restrict
our freedom to operate our business or may require us to issue securities that
have rights, preferences or privileges senior to our Common Stock and may dilute
your ownership interest.
Competition
Technological advances have reduced the barriers of entry into the programming
systems markets. We expect competition to increase from both established and
emerging companies. If we fail to compete successfully against current and
future sources of competition, our profitability and financial performance will
be adversely impacted.
Dependence on IC Manufacturers
We work closely with most semiconductor manufacturers to ensure that our
programming systems comply with their requirements. In addition, many
semiconductor manufacturers recommend our programming systems for use by users
of their programmable devices. These working relationships enable us to keep our
programming systems product line up to date and provide end-users with broad and
current programmable device support. Our business may be adversely affected if
our relationships with semiconductor manufactures deteriorate.
Dependence on Suppliers
Certain parts used in our products are currently available from either a single
supplier or from a limited number of suppliers. If we cannot develop alternative
sources of these components, if sales of parts are discontinued by the supplier
or we experience deterioration in our relationship with these suppliers, there
may be delays or reductions in product introductions or shipments, which may
materially adversely affect our operating results.
Because we rely on a small number of suppliers for certain parts, we are subject
to possible price increases by these suppliers. Also, we may be unable to
accurately forecast our production schedule. If we under estimate our production
schedule, suppliers may be unable to meet our demand for components. This delay
in the supply of key components may materially adversely affect our business.
Over estimation of demand will lead to excess inventories that may become
obsolete.
The non-automated programming system products we acquired when we acquired SMS
in November 1998 are currently manufactured to our specifications by a
third-party foreign contract manufacturer. We may not be able to obtain a
sufficient quantity of these products if and when needed, which may result in
lost sales.
Reliance on Third-Party Distribution Channels
Data I/O has an internal sales force and also utilizes third-party
representatives, and distributors. Therefore, the financial stability of these
distributors is important. Highly skilled professional engineers use most of our
products. To be effective, third-party distributors must possess significant
technical, marketing and sales resources and must devote their resources to
sales efforts, customer education, training and support. These required
qualities limit the number of potential third-party distributors. Our business
will suffer if we cannot attract and retain a sufficient number of qualified
third-party distributors to market our products.
International Operations
International sales represented 70% of our net revenue for the fiscal year ended
December 31, 2003 and 79% for the first quarter of 2004. We expect that
international sales will continue to be a significant portion of our net
revenue. International sales may fluctuate due to various factors, including:
o migration of manufacturing to low cost geographies
o unexpected changes in regulatory requirements
o tariffs and taxes
o difficulties in staffing and managing foreign operations
o longer average payment cycles and difficulty in collecting accounts receivable
o fluctuations in foreign currency exchange rates
o impact of the Euro
o compliance with applicable export licensing requirements
o product safety and other certification requirements
o difficulties in integrating foreign and outsourced operations
o political and economic instability
The European Community and European Free Trade Association have established
certain electronic emission and product safety requirements ("CE"). Although our
products currently meet these requirements, failure to obtain either a CE
certification or a waiver for any product may prevent us from marketing that
product in Europe.
We operate subsidiaries in Germany, China and Canada and soon in Brazil. Our
business and financial condition is sensitive to currency exchange rates or any
other restrictions imposed on their currencies. Currency exchange fluctuations
in Canada, China, Brazil and Germany may adversely affect our investment in our
subsidiaries.
Protection of Intellectual Property
Data I/O relies on patents, copyrights, trade secrets and trademarks to protect
our intellectual property, as well as product development and marketing skill to
establish and protect our market position. We attempt to protect our rights in
proprietary software products, including TaskLink and other software products,
by retaining the title to and copyright of the software and documentation, by
including appropriate contractual restrictions on use and disclosure in our
licenses, and by requiring our employees to execute non-disclosure agreements.
Because of the rapidly changing technology in the semiconductor, electronic
equipment and software industries, portions of our products might possibly
infringe upon existing patents or copyrights, and we may, therefore, be required
to obtain licenses or discontinue the use of the infringing technology. We
believe that any exposure we may have regarding possible infringement claims is
a reasonable business risk similar to that 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 our
reputation, preclude us from offering certain products, and subject us to
substantial liability.
Acquisitions
We may pursue acquisitions of complementary technologies, product lines or
businesses. Future acquisitions may include risks, such as:
o burdening management and our operating teams during the integration of the
acquired entity
o diverting management's attention from other business concerns
o failing to successfully integrate the acquired products
o lack of acceptance of the acquired products by our sales channels or customers
o entering markets where we have no or limited prior experience
o potential loss of key employees of the acquired company
o additional burden of support for an acquired programmer architecture
Future acquisitions may also impact Data I/O's financial position. For example,
we may use significant cash or incur additional debt, which would weaken our
balance sheet. We may also capitalize goodwill and intangible assets acquired,
the impairment of which would reduce our profitability. We cannot guarantee that
future acquisitions will improve our business or operating results.
Dependence on Key Personnel
We have employees located in the U.S., Germany, Canada and China. We also
utilize independent contractors for specialty work, primarily in research and
development, and utilize temporary workers to adjust capacity to fluctuating
demand. Many of our employees are highly skilled and our continued success will
depend in part upon our ability to attract and retain employees who can be in
great demand within the industry. None of our employees are represented by a
collective bargaining unit and we believe relations with our employees are
favorable though no assurance can be made that this will be the case in the
future. Refer to the section captioned "Affects of Restructuring Activities"
above.
Potential Volatility of Stock Price
The stock prices of technology companies tend to fluctuate significantly. We
believe factors such as announcements of new products by us or our competitors
and quarterly variations in financial results may cause the market price of Data
I/O's Common Stock to fluctuate substantially. In addition, overall volatility
in the stock market, particularly in the technology company sector, is often
unrelated to the operating performance of companies. If these market
fluctuations continue in the future, they may adversely affect the price of Data
I/O's Common Stock.