<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material pursuant to Rule 14a-11(c) or Rule 14a-12
DATA I/O CORPORATION
- -------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
SAME AS ABOVE
- -------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(j)(2) or
Item 22(a)(2) of Schedule 14A.
[ ] $500 per each party to the controversy pursuant to Exchange Act
Rule 14a-6(i)(3).
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
<PAGE>
DATA I/O CORPORATION
NOTICE OF 1995
ANNUAL MEETING
AND
PROXY STATEMENT
<PAGE>
DATA I/O CORPORATION
March 29, 1995
TO OUR SHAREHOLDERS:
You are cordially invited to attend the 1995 Annual Meeting
of Data I/O Corporation, which will be held at the Company's
headquarters at 10525 Willows Road N.E., Redmond, Washington
98052. The meeting will begin at 2:00 p.m. Seattle time on
Tuesday, May 16, 1995. Following the meeting there will be an
opportunity to see some of our exciting new products and to tour
our factory.
Many of the Directors and Officers of the Company will be
attending and would be pleased to answer any questions you might
have either during or after the meeting. We will review the
business operations of the Company for 1994 and the first quarter
of 1995 and report on our strategic plan for the future. Formal
business will include the election of Directors and consideration
of a proposal to amend the Company's 1986 Stock Option Plan.
Please read the proxy materials carefully. Your vote is
important. The Company appreciates you considering and acting on
the proposals presented.
I am looking forward to seeing you on May 16.
Sincerely,
//S//WILLIAM C. ERXLEBEN
------------------------
William C. Erxleben
President and
Chief Executive Officer
<PAGE>
DATA I/O CORPORATION
- ----------------------------------------------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS - MAY 16, 1995
- ----------------------------------------------------------------
TO THE SHAREHOLDERS OF DATA I/O CORPORATION:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of
Data I/O Corporation (the "Company") will be held at 2:00 p.m.
Pacific Daylight Time, on Tuesday, May 16, 1995, at the Company's
principal offices, 10525 Willows Road N.E., Redmond, Washington
98052, for the following purposes:
(1) ELECTION OF DIRECTORS:
To elect four directors, each to serve until the
next annual meeting of shareholders or until their
successors are elected and qualified.
(2) STOCK OPTION PLAN:
To consider and vote upon a proposal to amend the Data
I/O Corporation 1986 Stock Option Plan to increase the
number of shares reserved for issuance under the Plan
by an additional 500,000 shares, to create a maximum
number of options that may be granted under the Plan to
any one employee in any one fiscal year and to extend
the term of the Plan.
(3) OTHER BUSINESS:
To consider and vote upon such other business as
may properly come before the meeting.
The Board of Directors has fixed the close of business on March
17, 1995, as the Record Date for the determination of
shareholders entitled to notice of, and to vote at, the 1995
Annual Meeting.
By Order of the Board of Directors
//S//STEVEN M. GORDON
---------------------
Steven M. Gordon
Secretary
Redmond, Washington
March 29, 1995
- -----------------------------------------------------------------
YOUR VOTE IS IMPORTANT
Whether or not you expect to attend the meeting in person, we
urge you to sign, date and return the accompanying proxy card at
your earliest convenience. This will ensure the presence of a
quorum at the meeting. PROMPTLY RETURNING A SIGNED AND DATED
PROXY CARD WILL SAVE THE COMPANY THE EXTRA EXPENSE OF ADDITIONAL
SOLICITATION. An addressed, postage paid envelope is provided in
order to make certain that your shares will be represented at the
Annual Meeting.
- -----------------------------------------------------------------
<PAGE>
DATA I/O LOCATION MAP
<PAGE>
DATA I/O CORPORATION
10525 WILLOWS ROAD N.E.
REDMOND, WASHINGTON 98052
____________________
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
MAY 16, 1995
INFORMATION REGARDING PROXY
This Proxy Statement and the accompanying form of proxy are
furnished in connection with the solicitation of proxies by the
Board of Directors of Data I/O Corporation (the "Company") for
use at the Annual Meeting of Shareholders to be held on Tuesday,
May 16, 1995, at 2:00 p.m. Pacific Daylight Time, and at any
adjournment thereof. Shareholders of record at the close of
business on March 17, 1995 (the "Record Date") are entitled to
notice of and to vote at the meeting. The proxy solicitation
materials and a copy of the Company's 1994 Annual Report to
Shareholders will be sent, concurrently with this Proxy
Statement, to shareholders on or about March 29, 1995.
A proxy card is enclosed for your use. YOU ARE REQUESTED ON
BEHALF OF THE BOARD OF DIRECTORS TO SIGN, DATE AND RETURN THE
PROXY CARD IN THE ACCOMPANYING ENVELOPE, which is postage-paid if
mailed in the United States or Canada.
A proxy in the accompanying form which is properly signed, dated
and returned and not revoked will be voted in accordance with the
instructions contained therein. To vote on the election of
directors, check the appropriate box under Item No. 1 on your
proxy card. You may (a) vote for all of the director nominees as
a group, (b) withhold authority to vote for all director nominees
as a group, or (c) vote for all director nominees as a group
except those nominees indicated to the contrary. To vote on the
approval of the amendments to the Data I/O Corporation 1986 Stock
Option Plan check the appropriate box under Item No. 2. You may
(a) vote "FOR" the proposal, (b) vote "AGAINST" the proposal, or
(c) "ABSTAIN" from voting on the proposal. Any shareholder
executing a proxy has the power to revoke it at any time prior to
the voting thereof on any matter (without, however, affecting any
vote taken prior to such revocation) by delivering written notice
of revocation to the Secretary of the Company, by executing and
delivering to the Company another proxy dated as of a later date
or by voting in person at the meeting.
VOTING SECURITIES AND PRINCIPAL HOLDERS
The only outstanding voting securities of the Company are shares
of common stock (the "Common Stock"). As of the Record Date,
there were 7,492,042 shares of Common Stock issued and
outstanding, and each such share is entitled to one vote at the
1995 Annual Meeting. The presence in person or by proxy of
holders of record of a majority of the outstanding shares of
Common Stock is required to constitute a quorum for the
transaction of business at the Annual Meeting. Shares of Common
Stock underlying abstentions and broker non-votes will be
considered present at the Annual Meeting for the purpose of
calculating a quorum. Under Washington law and the Company's
charter documents, if a quorum is present, the four nominees for
election to the Board of Directors who receive the greatest
number of affirmative votes cast at the Annual Meeting shall be
elected Directors. Abstentions and broker non-votes will have no
effect on the election of directors. The proposal to amend the
Data I/O Corporation 1986 Stock Option Plan will be approved if
the proposal receives the affirmative vote of the holders of a
majority of the Common Stock present in person or represented by
proxy at the Annual Meeting and entitled to vote on the proposal.
An abstention from voting on such proposal has the effect of a
vote against the proposal. Broker non-votes on the proposal
will, however, have no effect because such shares are not
considered "shares entitled to vote" on the proposal. Proxies
and ballots will be received and tabulated by the Chemical Trust
Company of California, an independent business entity not
affiliated with the Company.
The Common Stock is traded in the over-the-counter NASDAQ
National Market System. The last sale price for the Common
Stock, as reported by NASDAQ on March 17, 1995, was $4.63 per
share.
1
<PAGE>
The following table sets forth information with respect to all
shareholders as of March 17, 1995, known by the Company to be the
beneficial owners of more than five percent of its outstanding
Common Stock. Except as noted below, each person or entity has
sole voting and investment powers with respect to the shares
shown.
<TABLE>
<CAPTION>
Amount & Nature
of Beneficial Percent of Shares
Name and Address Ownership Outstanding
---------------- --------------- -----------------
<S> <C> <C>
TCW Group, Inc. 577,500(1) 7.8%
(formerly TCW Management Company)
865 South Figueroa Street
Los Angeles, CA 90017
The Killen Group, Inc. 565,200(2) 7.8%
1189 Lancaster Avenue
Berwyn, PA 19312
Dimensional Fund Advisors Inc. 385,200(3) 5.2%
1299 Ocean Avenue - 11th Floor
Santa Monica, CA 90401
<FN>
- --------------------
(1) The holding shown is as of December 31, 1994, as reported by
a Schedule 13G filed by TCW Group, Inc. (formerly TCW
Management Company) pursuant to Rule 13d-1(6)(ii)(g) under
the Securities Exchange Act of 1934. Said Schedule 13G
indicates that TCW holds sole voting and dispositive power
with respect to all such shares.
(2) The holding shown is as of December 31, 1994, as reported by
The Killen Group, Inc. a registered investment advisor, and
by Robert E. Killen, its president and sole shareholder, on
a Schedule 13G filed pursuant to Rule 13d-1 under the
Securities Exchange Act of 1934. Said Schedule 13G
indicates that the Killen Group holds sole voting power with
respect to 197,000 shares and sole dispositive power with
respect to 563,200 shares and that Mr. Killen holds sole
voting and dispositive power with respect to 2,000 shares.
(3) The holding shown is as of December 31, 1994, as reported by
Dimensional Fund Advisors Inc., a registered investment
advisor, ("Dimensional"), on a Schedule 13G filed pursuant
to Rule 13d-1 under the Securities Exchange Act of 1934.
Said Schedule 13G indicates that one or more affiliates of
Dimensional holds sole voting power with respect to 312,700
shares, shared voting power with respect to 72,500 shares
and sole dispositive power with respect to 385,200 shares.
Dimensional disclaims beneficial ownership of all these
shares.
</TABLE>
DIRECTORS' AND OFFICERS' SHARE OWNERSHIP
In 1994 the Company's Board of Directors adopted a policy (the
"Ownership Policy") encouraging certain levels of ownership of
the Company's Common Stock by all directors and executive
officers. The Board of Directors believes that a minimum level
of ownership of the Company's Common Stock is necessary to ensure
that each director and executive officer is appropriately
motivated to improve the long term value of the Company for the
shareholders. Compliance with the Ownership Policy will be
reviewed annually and will be considered during the nomination of
directors to stand for the next year and the annual performance
and salary review for each executive officer.
Each director and officer has a period of four years beginning on
the later of January 1, 1994, or the date of election to the
Board of Directors, for directors, or the date of employment, for
executive officers, to achieve the specified levels of ownership.
The levels of ownership specified in the Ownership Policy are the
number of shares necessary to have a value greater than or equal
to: (i) $100,000 for each director; (ii) two times the current
base salary for the President and Chief Executive Officer; and
(iii) one time the current base salary for all other executive
officers.
2
<PAGE>
Each share of stock is valued at the higher of original cost
or market for purposes of compliance with the Ownership Policy.
The value of shares of stock underlying options is not included
in this calculation.
The following chart indicates ownership of the Company's Common
Stock by each director of the Company, each executive officer
named in the compensation tables appearing later in this Proxy
Statement, and by all directors and executive officers as a
group, all as of March 17, 1995. The Company is not aware of any
family relationships between any director nominee or executive
officer of the Company.
<TABLE>
<CAPTION>
Amount & Nature of Percent of Shares
Name Beneficial Ownership Outstanding
---- --------------------- -----------------
<S> <C> <C>
William C. Erxleben 177,870(1) 2.4%
W. Hunter Simpson 30,000 (2)
Donald R. Stenquist 100,000 1.3%
Milton F. Zeutschel 111,274 1.5%
Neil G. Mathison 39,022(3) (2)
William J. Haydamack 33,593(4) (2)
Ronald C. Norris (5) 15,280(6) (2)
Steven M. Gordon 35,120(7) (2)
All directors and
executive officers
as a group (10 persons) 544,474(8) 7.3%
<FN>
- --------------------
(1) Includes options to purchase 90,000 shares exercisable
within 60 days.
(2) Less than one percent.
(3) Includes options to purchase 27,500 shares exercisable
within 60 days.
(4) Includes options to purchase 12,500 shares exercisable
within 60 days.
(5) Mr. Norris resigned from the Company on January 20, 1995.
(6) Includes options to purchase 12,500 shares exercisable
within 60 days, all of which will expire on April 20, 1995.
(7) Includes options to purchase 23,000 shares exercisable
within 60 days, 5,000 of which will expire on May 23, 1995.
(8) Includes options to purchase 166,750 shares exercisable
within 60 days.
</TABLE>
PROPOSAL 1: ELECTION OF DIRECTORS
The Board of Directors currently consists of four directors, one
of whom is a member of management and three of whom are non-
management directors. At the Annual Meeting each will be
nominated for re-election to serve until the next Annual Meeting
of Shareholders or until a successor has been qualified and
elected. The Board of Directors has unanimously approved the
nominees named below, all of whom are currently members of the
Board of Directors. Although the Board of Directors anticipates
that all of the nominees will be available to serve as directors
of the Company, should any one or more of them not accept the
nomination, or otherwise be unwilling or unable to serve, it is
intended that the proxies will be voted for the election of a
substitute nominee or nominees designated by the Board of
Directors.
RECOMMENDATION: THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR
EACH OF THE DIRECTOR NOMINEES.
WILLIAM C. ERXLEBEN, age 52, became President and Chief Executive
Officer of the Company on October 29, 1993. He has been a
Director of the Company since 1979. Mr. Erxleben was a partner
with the Seattle, Washington, law firm of Lane Powell Spears
Lubersky from March 1991 until joining the Company. From March
1985 to March 1991 Mr. Erxleben was a partner with the Seattle
law firm of Foster, Pepper and Shefelman. Prior to 1985
Mr. Erxleben was a member of the Faculty of the University of
Washington Graduate School of Business and a Regional Director of
the Federal Trade Commission.
3
<PAGE>
W. HUNTER SIMPSON, age 68, has been a Director of the Company
since 1979. From 1966 to 1986 he was President and Chief
Executive Officer of Physio Control Corporation, a manufacturer
of medical electronic equipment, which was acquired by Eli Lilly
and Company in 1980. From December 1986 to April 1989
Mr. Simpson was a general partner and since 1989 has been a
special partner of Trinus Partners, a venture capital limited
partnership. Currently, Mr. Simpson serves on the boards of
Edmark Corporation, Itron Corporation, KCTS Public Broadcasting
Corporation, The Institute of Applied Medicine and Physiology and
The Washington Research Foundation.
DONALD R. STENQUIST, age 65, has been a Director of the Company
since 1981. From 1976 until his retirement in 1988, Mr.
Stenquist was President of Criton Technologies, a diversified
manufacturer, having also held the position of President and
Chief Executive Officer since 1986.
MILTON F. ZEUTSCHEL, age 62, was one of the founders of the
Company and was employed by the Company in various management
positions from 1973 to 1981. From June 1990 to April 1991 Mr.
Zeutschel served as President and Chief Executive Officer of the
Company. Mr. Zeutschel became a Director of the Company in 1985,
having previously served as a Director from 1973 to 1979, and
again from May 1980 to March 1981. From 1981 to June 1990 Mr.
Zeutschel was President and since July 1990 has been Chairman of
Zetron, Inc., a manufacturer of radio and telephone
communications control equipment. Mr. Zeutschel is also a
director of Teltone Corporation.
COMMITTEE MEETINGS
The Board of Directors has three standing Committees: the Audit
Committee, the Compensation Committee, and the Nominating
Committee. The Board's three non-management directors, W. Hunter
Simpson, Donald R. Stenquist and Milton F. Zeutschel, are the
only members of each of these Committees. Membership of each
committee is typically determined at the meeting of the Board
which follows the Annual Meeting of Shareholders.
The Audit Committee considers and recommends to the Board of
Directors the engagement of independent certified public
accountants for the ensuing year and the terms of such
engagement; reviews the scope of the audit; periodically reviews
the Company's program of internal control and audit functions;
receives and reviews the reports of the independent accountants;
and reviews the annual financial report to the directors and
shareholders of the Company. The Audit Committee met five times
during fiscal 1994.
The Compensation Committee makes recommendations to the Board of
Directors concerning the compensation of the Company's executive
officers. The committee administers the Company's management
incentive compensation program and its stock option, purchase and
appreciation rights plans. The Compensation Committee reviews
all employee benefit programs and approves significant changes in
major programs and all new programs. The Committee also
recommends the establishment of policies dealing with various
compensation, pension and profit-sharing plans for the Company
and its subsidiaries. The Compensation Committee met ten times
during fiscal 1994.
The Nominating Committee seeks qualified candidates to serve on
the Company's Board of Directors, recommends them for the Board's
consideration for election as directors at the Annual Meeting of
Shareholders and proposes candidates to fill vacancies on the
Board. The Nominating Committee also recommends nominees for the
various committees of the Board of Directors. The Nominating
Committee will consider written proposals from shareholders for
nominees or directors which are submitted to the Secretary of the
Company in accordance with the procedures described below under
the caption, "Shareholder Nominations and Proposals for the 1996
Annual Meeting of Shareholders". The Nominating Committee held
three meetings during fiscal 1994.
During the fiscal year ended December 29, 1994, there were eleven
meetings of the Board of Directors. Each of the incumbent
Directors attended at least 75% of the aggregate of the total
number of meetings of the Board of Directors and the total number
of meetings held by all committees of the Board of Directors on
which they served.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. Zeutschel served as a member of the Compensation Committee
during fiscal year 1994. Mr. Zeutschel was employed by the
Company in various management positions from 1973 to 1981, and
from June 1990 to April 1991 served as President and Chief
Executive Officer of the Company.
4
<PAGE>
Mr. Zeutschel and Mr. Stenquist were engaged by the Company under
Consulting Agreements from November 23, 1993 until January 25,
1994 (see "Board Compensation ").
BOARD COMPENSATION
Employee directors do not receive additional compensation for
serving on the Board of Directors. Non-management directors
received a retainer for fiscal year 1994 of $2,000 in the first
quarter and $5,000 for each quarter thereafter, plus $1,000 for
each Board meeting attended. In addition, during the first
quarter of 1994 such directors were paid $600 for each committee
meeting attended, plus $300 for each committee meeting chaired.
The fees for chairing and attending committee meetings were
eliminated on March 31, 1994. The Company reimburses non-
management directors for actual travel and out-of-pocket expenses
incurred in connection with service to the Company.
The Company entered into Consulting Agreements on November 23,
1993, with Board members Donald R. Stenquist and Milton F.
Zeutschel and terminated these Agreements on January 25, 1994.
These Agreements were for the provision of counsel and services
on such matters and at such times as requested by the Company and
provided for compensation of $150.00 per hour, with a maximum of
$1,000 per day. Total compensation paid to Mr. Stenquist and Mr.
Zeutschel per these Agreements was $6,850 and $0, respectively.
EXECUTIVE COMPENSATION
REPORT OF COMPENSATION COMMITTEE ON ANNUAL COMPENSATION
The Compensation Committee of the Board of Directors ("the
Committee") is composed entirely of independent outside
directors. The Committee is responsible for setting and
administering the policies which govern all of the compensation
programs of the Company.
The Committee has established a compensation plan for executive
officers with three components: annual base salary, annual
management incentive compensation and long-term stock options.
Each of these components is described below. This executive
officer compensation plan is evaluated annually by the Committee
by reviewing Data I/O's overall financial performance, individual
executive officer performance, and executive officer total
compensation compared with other companies within the electronics
industry.
ANNUAL BASE SALARY STRUCTURE. The Committee establishes a base
salary structure for each executive officer position. This
structure defines the minimum, mid-point and maximum salary
levels and the relationship of salary to total cash compensation.
The Committee reviews the salary structure annually based on
surveys of compensation paid to executives performing similar
duties with electronic manufacturing and software companies,
located primarily in the United States, with annual revenues
between $40 and $150 million. This group, although different
from the peer groups used for the Shareholder Return Performance
Graph appearing later in this Proxy Statement, was selected as it
is believed to be representative of the companies with which the
Company competes for key employees.
The Committee's objective is to maintain a salary structure
which, when combined with annual incentive compensation, provides
the Company's executive officers with total cash compensation
which is near the market median for executives with similar
responsibilities, experience and ability. In 1994 the executive
officer group as a whole received cash compensation which,
according to survey data, was approximately 90% of the aggregate
median cash compensation paid to officers in similar positions at
similar-sized electronics companies.
MANAGEMENT INCENTIVE COMPENSATION PLAN ("MICP"). The MICP offers
each executive officer a performance based opportunity to earn
additional annual cash compensation in an amount tied to a
percentage of the executive officer's base salary. The
Committee's objective in setting executive MICP percentages and
the formulas for MICP payout is to pay above industry average
total compensation for better than industry average historical
financial performance and below average compensation for worse
than industry average historical performance. The percentages of
base salary targeted for MICP payout ("the guidelines") for
executives for a given year are established by the Committee no
later than January of each year. The 1994 MICP guidelines for
executive officers other than the President ranged from 25% to
40%, while the guideline for the President was 50%.
5
<PAGE>
The actual MICP payout to an executive officer in relation to his
or her guideline for 1994 was a function of the Company's actual
earnings per share(1) compared to a pre-determined target
earnings per share. The Committee believes that earnings per
share is a key determinant of shareholder value over time. MICP
payout to executive officers for 1994 was based entirely on this
calculation. Guideline MICP is to be paid to executive officers
if the Company achieves its targeted earnings per share.
The MICP for 1994 provided that no officer would receive an MICP
payout if the Company did not achieve a minimum threshold
earnings level. The maximum payout to executive officers under
MICP cannot exceed 150% of guideline at a pre-determined maximum
earnings level. The threshold, target, and maximum earnings
targets are to be adjusted each year by the Committee based on
the Company's potential financial performance. Because of the
severe financial difficulties encountered by the Company in late
1993 and early 1994, the Committee set the 1994 threshold and
target earnings per share at relatively low levels in order to
continue to provide an incentive at reasonably attainable
financial performance. For 1994, the threshold, target and
maximum earning levels for payout under MICP were set at 1 cent,
30 cents and 60 cents per share, respectively.
STOCK OPTION PLAN. The Committee approves grants under Data
I/O's stock option plan. This is the Company's only long-term
incentive plan. The primary purpose of this program is to make a
significant element of executive pay a reward for taking actions
which maximize shareholder value over time. The Committee grants
options based primarily on its perception of the executive's
ability to affect future shareholder value and secondarily on the
competitive conditions in the market for exceptionally talented
executives who typically command compensation packages which
include a significant equity incentive. All options granted to
the President and Chief Executive Officer and any executive
officer in 1994 were based on these criteria.
In the electronics industry, stock options represent the
principal compensation which attracts, retains and motivates
exceptional executives. Accordingly, total outstanding options
as a percentage of outstanding shares tends to be higher in
electronics than in other industries. As of the date of this
Proxy Statement, the Company's outstanding options represented
approximately 10% of outstanding shares, which is typical for
electronics companies.
Historically, all options granted by the Company have been
granted with an exercise price equal to the market price of the
Company's Common Stock on the date of grant and, accordingly,
will only have value if the Company's stock price increases. All
outstanding options become exercisable at a rate of 25% per year,
except for a 1993 grant to the President and Chief Executive
Officer, for which 20% vested on the date of grant, and the
balance vests as follows: (1) 20% six months after grant; (2)
20% twelve months after grant; (3) 20% twenty-four months after
grant; and (4) 20% thirty-six months after grant. All grants
are subject to acceleration of vesting in connection with certain
events leading to a change in control of the Company. All
options granted to executive officers are in tandem with limited
stock appreciation rights ("SARs"), which become exercisable
only in the event of a change in control of the Company (see
"Change in Control Arrangements").
PERFORMANCE EVALUATION. The base salary of each executive
officer is reviewed annually by the President and Chief Executive
Officer. This is done on the basis of a formal review written by
the President, evaluating the executive's prior year performance
against documented job responsibilities and specific
predetermined annual objectives. In developing executive
compensation packages to recommend to the Committee, the
President and Chief Executive Officer considers, in addition to
each executive's prior year performance, the executive's long-
term value to the Company, the executive's pay relative to that
for comparable surveyed jobs, the executive's experience and
ability relative to executives in similar positions, and the
current year increases in executive compensation projected in
industry surveys.
The Committee then reviews the President and Chief Executive
Officer's recommendations for executive officers' total
compensation and makes final decisions on pay for each executive
officer based on the President's summary of the performance
evaluations and on the other criteria and survey data described
above. In this process, the Committee consults extensively with
the Company's President and Chief Executive Officer.
- --------------------
(1) Earnings per share for purposes of MICP is calculated as
audited pre-tax income, excluding any gains or losses on sales or
disposals of assets, less taxes at a fixed, pre-determined tax
rate, divided by annual weighted average shares outstanding. For
1994 the tax rate for MICP purposes was set at 38%.
6
<PAGE>
The Committee meets annually without the President and Chief
Executive Officer to evaluate his performance and to develop a
recommendation for his compensation for the coming year. In
addition to reviewing the Company's financial performance for the
prior year, the Committee reviews compensation surveys for chief
executive officers in similar companies and the President and
Chief Executive Officer's individual performance, including
progress toward long-term strategic objectives, the achievement
of which is expected to increase shareholder value. The
Committee then approves base salary and MICP percentage changes
for all executive officers.
The Compensation Committee determined the compensation package,
including salary, bonus, stock option grants, and other benefits
for William C. Erxleben, President and Chief Executive Officer,
based on the Committee's perception of his qualifications for the
position and his ability to affect future shareholder value,
compensation surveys (as noted above under "Annual Base Salary
Structure"), and the competitive conditions in the market.
The Company has recently offered agreements (the "Severance
Agreements") to its executive officers whereby such individuals
will be entitled to receive payments if they are terminated
without cause or resign with good reason within specified periods
following the occurrence of certain events deemed to involve a
change in control of the Company (see "Change in Control
Arrangements"). Under the Omnibus Budget Reconciliation Act of
1993, beginning in 1994 the federal income tax deduction for
certain types of compensation paid to the chief executive officer
and four other most highly compensated executive officers of
publicly held companies is limited to $1 million per officer per
fiscal year unless such compensation meets certain requirements.
The Committee is aware of this limitation and believes that no
compensation paid by the Company during 1995 will exceed the $1
million limitation, except possibly a portion of the sums payable
pursuant to the Severance Agreements, if paid.
Respectfully submitted,
COMPENSATION COMMITTEE
W. Hunter Simpson, Chairman
Donald R. Stenquist
Milton F. Zeutschel
March 29, 1995
7
<PAGE>
SUMMARY ANNUAL COMPENSATION TABLE
The following table shows compensation paid by the Company for
services rendered during fiscal years 1994, 1993 and 1992 to the
Chief Executive Officer during fiscal year 1994 and the four most
highly compensated executive officers of the Company at December
29, 1994, whose salary and bonus exceeded $100,000 in 1994.
<TABLE>
<CAPTION>
Long-Term
Compensation
Awards
------------
Annual Compensation Number of
-------------------------------- Securities
Name Other Underlying All
and Annual Options/ Other
Principal Salary Bonus Compensation SARs Compensation
Position Year ($) ($)(1) ($)(2) (#)(3) ($)(4)
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
William C. Erxleben 1994 181,917 92,474 0 50,000 78,969(7)
President / 1993 31,545 7,708(6) 0 150,000 5,245(7)
Chief Executive Officer (5) 1992 0 0 0 0 0
Neil G. Mathison 1994 139,142 56,584 0 15,000 5,634
Vice President 1993 132,250 0 8,500 0 67,262(9)
Worldwide Sales 1992 62,762 27,175 5,118 55,000 41,551(9)
& Service (8)
William J. Haydamack 1994 136,192 48,462 0 40,000 8,380
Vice President/ 1993 51,250 22,750(6) 3,359 30,000 39,863(11)
General Manager, 1992 0 0 0 0 0
Design Software (10)
Ronald C. Norris 1994 136,192 48,462 0 40,000 0
Vice President/ 1993 54,667 22,750(6) 3,587 30,000 0
General Manager, 1992 0 0 0 0 0
Programming Systems (12)
Steven M. Gordon 1994 127,833 38,989 0 41,000 5,648
Vice President 1993 113,750 0 8,500 0 4,736
Finance & Administration/ 1992 110,000 25,311 5,233 0 4,222
Chief Financial Officer/
Secretary/Treasurer (13)
<FN>
- -------------------
(1) For 1994 these represent amounts earned under the MICP. For
1993 and 1992 these represent amounts earned under the MICP
and the Profit Sharing Plan.
(2) This column represents automobile expense allowances paid to
the listed executive officers.
(3) All options are granted in tandem with an equal number of
SARs. SARs are only exercisable upon the occurrence of
certain events leading to a change in the control of the
Company (see "Change in Control Arrangements").
(4) These amounts represent the Company's contributions to the
Company's 401k Plan and its payment of term life insurance
premiums on behalf of the executive (see also Footnotes 7,
9, and 11 below).
(5) Mr. Erxleben became President and Chief Executive Officer of
the Company in October 1993.
(6) These amounts represent guaranteed bonus payments in lieu of
participation in the 1993 MICP.
(7) Includes relocation payments of $67,713 and $5,000 in 1994
and 1993, respectively.
</TABLE>
8
<PAGE>
<TABLE>
<S> <C>
(8) Mr. Mathison joined the Company in May 1992 as Vice
President of Worldwide Sales and Service.
(9) Includes relocation payments of $60,516 and $ 40,529 in 1993
and 1992, respectively.
(10) Mr. Haydamack joined the Company in August 1993 as Vice
President and General Manager, Design Software Business
Unit.
(11) Includes relocation payments of $36,183 in 1993.
(12) Mr. Norris joined the Company in July 1993 as Vice President
and General Manager, Programming Systems Business Unit. Mr.
Norris resigned from the Company on January 20, 1995.
(13) Mr. Gordon joined the Company as Corporate Controller in
April 1989 and became Vice President of Finance in May 1992.
He was promoted to Chief Financial Officer, Secretary and
Treasurer in October 1993.
</TABLE>
OPTION/SAR GRANTS TABLE
OPTION/SAR GRANTS IN THE LAST FISCAL YEAR
<TABLE>
<CAPTION>
Number of Potential Realizable
Securities Percent Value at Assumed Annual
Underlying of Total Rates of Stock Price
Options/ Options/SARs Exercise Appreciation for Option Term(5)
SARs Granted to or -------------------------------
Granted Employees Base Price Expiration 0% 5% 10%
Name (#)(1) in Fiscal Year ($/Sh)(2)(3) Date(4) ($) ($) ($)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
William C. Erxleben 50,000 12.1% 3.59 10/26/00 0 61,111 138,640
Neil G. Mathison 15,000 3.6% 3.59 10/26/00 0 18,333 41,592
William J. Haydamack 20,000 4.8% 2.44 01/05/00 0 16,580 37,614
20,000 4.8% 3.59 10/26/00 0 24,444 55,456
Ronald C. Norris (6) 20,000 4.8% 2.44 01/05/00 0 16,580 37,614
20,000 4.8% 3.59 10/26/00 0 24,444 55,456
Steven M. Gordon 15,000 3.6% 2.75 07/26/00 0 14,029 31,827
26,000 6.3% 3.59 10/26/00 0 31,778 72,093
<FN>
- --------------------
(1) An equal number of SARs are granted in tandem with options
granted to executive officers. SARs are exercisable only
upon the occurrence of certain events leading to a change in
the control of the Company (see "Change in Control
Arrangements").
(2) Under the terms of the Data I/O Corporation 1986 Stock
Option Plan, the Compensation Committee retains discretion,
subject to plan limits, to modify the terms of and reprice
outstanding options.
(3) The exercise price may be paid by delivery of already owned
shares, subject to certain conditions.
(4) All options granted in 1994 are exercisable commencing
twelve months after grant date, with 25% of the shares
exercisable at that time and an additional 25% of the shares
exercisable on each successive anniversary of the grant
date, with full vesting occurring on the fourth anniversary
of such date. Expiration is six years from the date of
grant, subject to earlier termination if the optionee's
employment is terminated.
(5) Potential realizable value is based on an assumption that
the stock price of the Common Stock appreciates at the
annual rate shown (compounded annually) from the date of
grant until the end of the option term. These numbers are
calculated based on SEC requirements and do not reflect the
Company's estimate of future stock price growth.
(6) Mr. Norris resigned from the Company on January 20, 1995.
All of his options/SARs expire on April 20, 1995.
</TABLE>
9
<PAGE>
OPTION/SAR EXERCISES AND YEAR-END VALUE TABLE
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
# of Securities Underlying Value of Unexercised
Options/SARs at In-the-Money Options/SARs
Shares December 29, 1994 at December 29, 1994
Acquired on Value (#)(2) ($)(3)
Exercise Realized -------------------------------------------------------
Name (#) ($)(1) Exercisable/Unexercisable Exercisable/Unexercisable
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
William C. Erxleben 0 0 90,000/110,000 258,750/267,813
Neil G. Mathison 0 0 27,500/42,500 24,063/52,656
William J. Haydamack 0 0 7,500/62,500 17,813/152,813
Ronald C. Norris (4) 0 0 7,500/62,500 18,750/155,625
Steven M. Gordon 0 0 23,000/47,000 42,750/101,313
<FN>
- --------------------
(1) Market value of underlying securities at exercise date,
minus the exercise or base price of in-the-money
options/SARs.
(2) Future exercisability is subject to vesting and the optionee
remaining employed by the Company. In addition, all options
are granted in tandem with an equal number of SARs. SARs
are only exercisable upon the occurrence of certain events
leading to a change in the control of the Company (see
"Change in Control Arrangements").
(3) This value is calculated assuming the fair market value of
the securities underlying the option/SAR at fiscal year end
less the exercise or base price multiplied by the number of
in-the-money options/SARs held. There is no guarantee that
if and when these options are exercised they will have this
value.
(4) Mr. Norris resigned from the Company on January 20, 1995.
All of his options/SARs expire on April 20, 1995.
</TABLE>
SHAREHOLDER RETURN PERFORMANCE GRAPH
Shown below is a line-graph comparing cumulative total
shareholder return on Data I/O Common Stock for each of the last
five years against the cumulative total return for the Russell
2000 Index, the S & P High Tech Composite (the "New Index") and
against a peer group of selected companies (the "Old Peer Group
Index"). This cumulative return includes the reinvestment of
cash dividends. Although the Company's Proxy Statement for its
1994 Annual Meeting of Shareholders included a comparison
substantially based on the companies listed in the Old Peer Group
Index (see footnote 2 below), the Company has decided to
discontinue using the Old Peer Group Index in future Proxy
Statements because of the administrative burden and expense in
maintaining this index.
The Old Peer Group Index includes 26 companies in the precision
instruments industry and 4 companies in the computer automated
engineering (CAE) software industry. In 1994 approximately 87%
of Data I/O's sales were of instruments and 13% were of CAE
software. A list of the peer companies is shown in the footnote
below the chart. The peer group and Russell 2000 Index data was
provided by Value Line Institutional Services which holds a
license to use the Russell 2000 Index. The data for the S & P
High Tech Composite was provided by Star Services, Inc. which
holds a license to use the S & P High Tech Composite
10
<PAGE>
COMPARATIVE FIVE-YEAR TOTAL RETURNS (1)
Data I/O Corporation, Russell 2000, S & P High Tech Composite and
Old Peer Group Index (2)
(Performance results as of year end through 12/31/94)
[GRAPH]
<TABLE>
<CAPTION>
1989 1990 1991 1992 1993 1994
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
DAIO $100 $64 $150 $136 $70 $157
Russell 2000 $100 $80 $118 $139 $166 $162
S & P High Tech Composite $100 $102 $116 $121 $149 $174
Old Peer Group Index $100 $94 $117 $111 $145 $155
<FN>
(1) Assumes $100 invested at the close of trading on December
31, 1989 in Data I/O stock, in the Russell 2000 Index, the S
& P High Tech Index and in the Old Peer Group Index.
Cumulative total return assumes reinvestment of dividend.
(2) Old Peer Group Index: Cadence Design Systems, Coherent,
Inc., Dionex Corporation, Eastman Kodak, EG & G, Inc.,
Esterline Technologies, John Fluke Manufacturing, Helmerich
& Payne, Inc., Instron Corporation, Intergraph Corporation,
Keithley Instruments, KLA Instruments, Kollmorgen
Corporation, Mentor Graphics, MTS Systems, Newport
Corporation, Pacific Scientific, Perkin-Elmer, Polaroid
Corporation, Recognition International, Inc., Scan Optics,
Synopsys, Inc., Talley Industries., Tektronix Inc.,
Teleflex, Inc., Teradyne, Inc., Thermo Instrument, Tokheim
Corporation, Viewlogic, VWR Corporation. The peer group
index used in the Company's Proxy Statement for its 1994
Annual Meeting of Shareholders included CAE Industries and
Fischer & Porter, both of which are no longer publicly
traded.
</TABLE>
CHANGE IN CONTROL ARRANGEMENTS
Options reported in the Option/SAR compensatory tables listed
above have been granted pursuant to the Data I/O Corporation 1986
Stock Option Plan, as amended (the "1986 Plan"). Historically
most options granted under the 1986 Plan have been granted
subject to a vesting schedule of 25% per year. However, the 1986
Plan provides that options which have been outstanding for at
least six months will become immediately vested and fully
exercisable for the periods indicated: (i) for a period of 45
days beginning on the day on which any person or group (with
certain exceptions) becomes the beneficial owner of 25% or more
of the Company's Common Stock, unless such accumulation is
previously approved by a disinterested majority of the Board;
(ii) beginning on the date that a tender or exchange offer by any
person (with certain exceptions) is first published or sent or
given, and continuing for so
11
<PAGE>
long as such offer remains open, unless, upon consummation
thereof, such person would be the beneficial owner of less
than 30% of the shares of Common Stock then outstanding, unless
such tender offer is approved by a disinterested majority of the
Board; or (iii) for a period of 20 days beginning on the day
on which the shareholders of the Company (or, if later, approval
by the shareholders of a third party) duly approve any merger,
consolidation, reorganization or other transaction providing for
the conversion or exchange of more than 50% of the outstanding
shares of Common Stock into securities of a third party, or cash,
or property, or a combination of any of the foregoing.
The Company's Board of Directors and shareholders also adopted a
Stock Appreciation Rights ("SARs") Plan in 1983 which allows the
Board to grant to each director, executive officer or holder of
10% or more of the Stock of the Company a SAR with respect to
certain options granted to these parties. A SAR has been granted
in tandem with each option granted to an officer of the Company.
SARs granted prior to February 3, 1993 and which have been held
for at least six months are exercisable for a period of 20 days
following the occurrence of either of the following events: (i)
the first purchase of shares of the Company's Common Stock
pursuant to any tender offer or exchange for such shares (other
than an offer by the Company); or (ii) approval by the
shareholders of the Company of any merger, consolidation,
reorganization or other transaction providing for the conversion
or exchange of more than 50% of the outstanding shares of the
Company's Common Stock into securities of a third party, or cash,
or property, or a combination of any of the foregoing. SARs
granted on or after February 3, 1993 and which have been held for
at least six months are exercisable for a period of 20 days
following the occurrence of either of the following events: (i)
the close of business on the day that a tender or exchange offer
by any person (with certain exceptions) is first published or
sent or given if, upon consummation thereof, such person would be
the beneficial owner of 30% or more of the shares of Common Stock
then outstanding; or (ii) approval by the shareholders of the
Company (or, if later, approval by the shareholders of a third
party) of any merger, consolidation, reorganization or other
transaction providing for the conversion or exchange of more than
50% of the outstanding shares of the Company's Common Stock into
securities of a third party, or cash, or property, or a
combination of any of the foregoing.
In March 1995, the Company offered Severance Agreements to each
of the following executive officers: William C. Erxleben, Neil
G. Mathison, William J. Haydamack, and Steven M. Gordon (the
"Officers") which generally provide for a lump sum payment to the
Officer upon termination of the Officer's employment by the
Company without cause or by the Officer for "good reason" (as
defined in the Severance Agreements) within two years for Vice
Presidents and three years for the CEO, following a change of
control of the Company. The amount of the lump sum payment
depends on position and is equal to a multiple of the Officer's
base salary at the time of termination, plus the average bonus
received during the last three full fiscal years the Officer
served in his or her present position. The multiple for each of
the Officers is 3 times for the President and 2 times for Vice
Presidents. The size of the multiple declines on a straight line
basis throughout the specified period for each position,
following a change in control, except that the multiple is never
less than 0.5. The amount payable under the Severance Agreements
is subject to reduction if the aggregate present value of all
payments would exceed three times the Officer's "annualized
includible compensation," as defined in Section 280G of the
Internal Revenue Code, for the Officer's most recent five taxable
years.
In connection with execution of the Severance Agreements, the
Company will require each Officer to sign a confidentiality and
non-competition agreement, which includes, among other things, a
restriction against competing with the Company or soliciting
employees from the Company for a one year period following
termination if the Officer receives a payment under a Severance
Agreement. The Severance Agreements have a term of three years
unless extended by the Board of Directors. The Board of
Directors believes that the terms and conditions of the
Agreements are in the best interest of the Company because the
Severance Agreements will enable the Officers to continue to
focus on activities providing for the maximum long-term value to
the Company's shareholders, even when faced with the possible
change of control of the Company.
PROPOSAL 2: AMENDMENT TO 1986 STOCK OPTION PLAN
At the Annual Meeting, the shareholders of the Company will be
asked to approve three amendments to the Data I/O Corporation
1986 Stock Option Plan, as amended, (the "1986 Plan") as
described below. As originally adopted, the number of shares
available for purchase pursuant to options granted under the 1986
plan was equal to the number of shares available from time to
time for purchase under the Company's various other option plans
in effect at that time. The 1986 Plan was adopted to give the
Company greater flexibility in structuring the terms of options
granted to
12
<PAGE>
employees, and since its adoption all options granted by the
Company have been granted under the 1986 Plan. The 1986 Plan was
amended with the approval of shareholders in 1992 to authorize
the grant of options to purchase an additional 330,000 shares of
Common Stock.
PROPOSED AMENDMENTS
On March 1, 1995 there were 5,888 shares of Common Stock
available for future grants under the 1986 Plan. The Board of
Directors believes that additional shares must be reserved for
use under the 1986 Plan to enable the Company to attract and
retain key employees through the granting of options under the
1986 Plan. Accordingly, on December 14, 1994, the Board of
Directors approved an amendment to the 1986 Plan, subject to
shareholder approval, to reserve an additional 500,000 shares for
issuance under the 1986 Plan. The Board of Directors believes
that the Company's stock option plans have contributed to
strengthening the incentive of participating employees to achieve
the objectives of the Company and its shareholders by encouraging
employees to acquire a greater proprietary interest in the
Company.
The second amendment to the 1986 Plan provides that no
participant will be granted options to acquire more than 250,000
shares of Common Stock in any fiscal year. This limitation
adjusts proportionately in connection with any change in the
Company's capitalization. The Board of Directors believes that
this amendment is necessary for the 1986 Plan to comply with the
recently enacted Omnibus Budget Reconciliation Act of 1993
("OBRA"), which imposes a cap on the deductibility, for federal
income tax purposes, of certain compensation payments in excess
of $1,000,000. The limitation on deductibility applies to that
portion of a compensation payment (including compensation
resulting from the exercise of stock options) for a taxable year
in excess of $1,000,000 to any one of the Chief Executive Officer
or the four other most highly compensated executive officers.
Certain performance-based compensation, including certain stock
options, is not subject to the cap on deductibility. Among the
requirements necessary for a stock option plan to qualify as
performance-based compensation, the plan must state the maximum
number of shares with respect to which options may be granted to
any employee during a specified period.
The third amendment extends the term of the 1986 Plan
indefinitely for the grant of non-qualified stock options and
until December 15, 2006 for the grant of incentive stock options.
The affirmative vote of at least a majority of the shares of
Common Stock present in person or represented by proxy at the
1995 Annual Meeting and entitled to vote on the proposal is
required for approval of the amendments to the 1986 Plan. THE
BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE FOR APPROVAL
OF THE PROPOSED AMENDMENTS TO THE 1986 PLAN. Unless instructed
otherwise, it is the intention of the persons named in the
accompanying form of proxy to vote shares represented by properly
executed proxies in favor of the proposed amendments to the 1986
Plan.
DESCRIPTION OF THE 1986 STOCK OPTION PLAN
The following description of the 1986 Plan is qualified in its
entirety by reference to the full text of such plan, a copy of
which may be obtained by shareholders of the Company upon written
request directed to the Company's Secretary at the address listed
on the first page of this Proxy Statement.
GENERAL. The 1986 Plan provides for the grant of incentive stock
options ("ISOs") within the meaning of section 422 of the
Internal Revenue Code, and nonqualified stock options ("NQSOs")
(see "Federal Income Tax Consequences" below for information
concerning the tax treatment of ISOs and NQSOs). The 1986 Plan
was effective as of December 16, 1986. Grants under the 1986
Plan may be made from time to time until December 31, 1996
(December 15, 1996 in the case of ISOs). Options granted under
the 1986 Plan may extend beyond that date and the terms and
conditions of the 1986 Plan will continue to apply to such
options. As amended, the 1986 Plan would permit the grant of
incentive stock options until December 15, 2006 and the grant of
nonqualified stock options until such time as the Plan is
terminated by the Company's Board of Directors in its discretion.
As of March 1, 1995, options to purchase an aggregate of 749,000
shares of Common stock were outstanding under the 1986 Plan (net
of forfeitures by such employees who subsequently terminated
their employment with the Company) at exercise prices ranging
from $2.06 to $6.38 per share, with a weighted average exercise
price of $3.41 per share. At that date 5,888 shares of Common
Stock were available for grant. Options for 44,875 shares were
exercised during 1994 for a net realizable value by optionees of
$36,590.
13
<PAGE>
ADMINISTRATION. The 1986 Plan is administered by the
Compensation Committee. The Compensation Committee determines
the executive officers and key employees to whom options will be
granted, the exercise prices, the number of shares covered by
each grant and all other terms and conditions of the grants.
Under the terms of the 1986 Plan, the Compensation Committee may
delegate to the Chief Executive Officer the authority to grant
options to employees who are not subject to Section 16 of the
Securities Exchange Act of 1934 (the "Exchange Act") with respect
to the Common Stock. The exercise price of such options may not
be less than the fair market value of the Common Stock on the
date of grant. The 1986 Plan is not subject to any of the
provisions of the Employee Retirement Income Security Act of
1974, as amended, and is not qualified under section 401(a) of
the Internal Revenue Code.
GRANT OF OPTIONS. The option price of ISOs must be equal to or
greater than the fair market value of the Common Stock on the
date of grant (110% of the fair market value in the case of
employees who hold 10% or more of the voting power of the Common
Stock). The option price of NQSOs may be less than the fair
market value of the Common Stock on the date of grant.
DURATION. Options may be granted for varying periods not to
exceed ten years from the date of grant (five years in the case
of ISOs granted to employees who hold more than 10% of the voting
power of the Common Stock). Typically, options granted under the
1986 Plan expire six years from the date of grant.
EXERCISE OF OPTIONS. Options may be exercised only while the
holder is in the employ of the Company or a subsidiary, within 90
days after the date of termination of employment, or within one
year after the death or disability of the holder. During the
optionee's lifetime, an option is exercisable only by the
optionee. Options are not transferable except upon the death of
the optionee or pursuant to a qualified domestic relations order
as defined under the Internal Revenue Code or Title I of the
Employee Retirement Income Security Act. Terminated or expired
options become available for future grants.
Unless otherwise specified at the time of grant, options granted
under the 1986 Plan become exercisable with respect to 25%, 50%,
75% and 100% of the shares covered by the option on the first,
second, third and fourth anniversaries of the date of grant,
respectively. The 1986 Plan authorizes the administrator thereof
to accelerate the vesting of any option at any time.
At the date of exercise, the optionee may pay the full option
price in cash or in shares of Company stock previously acquired
by the optionee valued at fair market value, or by complying with
any other payment mechanism approved by the plan administrator.
The use of previously acquired shares to pay the option price
enables the optionee to avoid the need to fund the entire
purchase with cash.
CHANGE IN CONTROL PROVISION. The 1986 Plan provides that options
which have been outstanding for at least six months will become
immediately vested and fully exercisable for the periods
indicated under the caption "Change in Control Arrangements"
above.
FEDERAL INCOME TAX CONSEQUENCES. ISOs granted under the 1986
Plan are intended to qualify as "incentive stock options" for
federal income tax purposes. Under federal income tax law
currently in effect, the optionee will recognize no income upon
grant or exercise of the ISO. Federal income tax upon any gain
resulting from exercise of an ISO is deferred until the optioned
shares are sold by the optionee. The gain resulting from the
exercise of an ISO is included in the alternative minimum taxable
income of the optionee and may, under certain conditions, be
taxed under the alternative minimum tax.
If an employee exercises an ISO and does not dispose of any of
the optioned shares within two years following the date of grant
and within one year following the date of exercise, then any gain
upon subsequent disposition will be treated as long-term capital
gain for federal income tax purposes. If an employee disposes of
shares acquired upon exercise of an ISO before the expiration of
either the one-year or the two-year holding period, any amount
realized will be taxable for federal income tax purposes as
ordinary income in the year of such disqualifying disposition to
the extent that the lesser of the fair market value of the shares
on the exercise date or the fair market value of the shares on
the date of disposition exceeds the exercise price.
14
<PAGE>
The Company will not be allowed any deduction for federal income
tax purposes either at the time of the grant or exercise of an
ISO. Upon any disqualifying disposition by an employee, the
Company will generally be entitled to a deduction to the extent
the employee realizes ordinary income.
NQSOs granted under the 1986 Plan are intended to be
"nonqualified stock options" for federal income tax purposes.
Under federal income tax law presently in effect, no income is
realized by the grantee of an NQSO until the option is exercised.
At the time of exercise of an NQSO, the optionee will realize
ordinary income, and the Company will generally be entitled to a
deduction, in the amount by which the market value of the shares
subject to the option at the time of exercise exceeds the
exercise price (the "Option Spread Amount"). The Company's
deduction is conditioned upon withholding the appropriate portion
of the Option Spread Amount. Upon sale of shares acquired upon
exercise of an NQSO, the excess of the amount realized from the
sale over the market value of the shares on the date of exercise
will constitute long-term capital gain if the shares have been
held for the required holding period.
Section 162(m) of the Internal Revenue Code, as adopted in 1993,
limits to $1,000,000 per person the amount that the Company may
deduct for compensation paid to any of its most highly
compensated executive officers in any year after 1993. Under
proposed regulations, compensation received through the exercise
of an option will not be subject to the $1,000,000 limit if the
option and the plan meet certain requirements. One such
requirement is that shareholders approve a per-employee limit on
the number of shares as to which options may be granted during
any specific period. Other requirements are that the option be
granted by a committee of at least two outside directors and that
the exercise price of the option be not less than fair market
value of the Common Stock on the date of grant. Accordingly, the
Company believes that if the proposed amendments are approved by
shareholders, compensation received on exercise of options
granted under the 1986 Plan in compliance with all of the above
requirements will not be subject to the $1,000,000 deduction
limit.
INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors, upon recommendation of the Company's
Audit Committee, engaged Ernst & Young as the Company's principal
accounting firm for the audit of the Company's 1994 consolidated
financial statements. A representative of Ernst & Young, is
expected to be in attendance at the Annual Meeting and will be
afforded the opportunity to make a statement and respond to
appropriate questions.
OTHER BUSINESS
As of the date of this Proxy Statement, the Company is not aware
of any other business to be acted upon at the Annual Meeting. If
any other business calling for a vote of the stockholders is
properly presented at the meeting, the holders of the proxies
will vote or refrain from voting in accordance with their best
judgment.
SHAREHOLDER NOMINATIONS AND PROPOSALS FOR THE
1996 ANNUAL MEETING OF SHAREHOLDERS
The Company's bylaws provide that advance notice of nominations
for the election of directors at a meeting of shareholders must
be delivered to or mailed and received by the Company 90 days
prior to the date one year from the date of the immediately
preceding Annual Meeting of Shareholders or, in the case of a
special meeting of shareholders to elect directors, the close of
business on the 10th day following the date on which notice of
such meeting is first given to shareholders. The Bylaws also
provide that advance notice of proposals to be brought before an
Annual Meeting by a shareholder must be submitted in writing and
delivered to or mailed and received by the Company not later than
90 days prior to the date one year from the date of the
immediately preceding Annual Meeting of Shareholders.
Each notice of a nomination or proposal of business must contain,
among other things: (i) the name and address of the shareholder
who intends to make the nomination or proposal; (ii) a
representation that the shareholder is a holder of record of
stock of the Company entitled to vote at such meeting and intends
to appear in person or by proxy at the meeting to nominate the
person or persons specified in the notice or to vote at the
meeting for the proposal; (iii) a description of all
arrangements or understandings between the shareholder and each
nominee and any other person or
15
<PAGE>
persons (naming such person or persons) pursuant to which the
nomination or nominations are to be made by the shareholder and
any material interest of such shareholder in any proposal to be
submitted to the meeting; and (iv) such other information
regarding each nominee or proposal as would be required to be
included in a proxy statement filed pursuant to the proxy rules
of the Securities and Exchange Commission.
A copy of the full text of the provisions of the Company's Bylaws
dealing with shareholder nominations and proposals is available
to shareholders from the Secretary of the Company upon written
request.
In order to be included in the Company's proxy statement and form
of proxy relating to its 1996 Annual Meeting of Shareholders,
shareholder proposals or nominations to be presented at the 1996
Annual Meeting of Shareholders must be received by the Company at
its executive offices by November 26, 1995.
SOLICITATION OF PROXIES
The proxy accompanying this Proxy Statement is solicited by the
Board of Directors of the Company. Proxies may be solicited by
officers, directors and regular supervisory and executive
employees of the Company, none of whom will receive any
additional compensation for their services. In addition, the
Company may engage an outside proxy solicitation firm to render
proxy solicitation services and, if so, will pay a fee for such
services. Solicitations of proxies may be made personally, or by
mail, telephone, telegraph or messenger. The Company will pay
persons holding shares of Common Stock in their names or in the
names of nominees, but not owning such shares beneficially, such
as brokerage houses, banks and other fiduciaries, for the expense
of forwarding soliciting materials to their principals. All of
the costs of solicitation of proxies will be paid by the Company.
By order of the Board of Directors
//S//STEVEN M. GORDON
---------------------
Steven M. Gordon
Secretary
Redmond, Washington
March 29, 1995
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DATA I/O CORPORATION
1986 STOCK OPTION PLAN
AMENDED AND RESTATED
AS OF FEBRUARY 22, 1995
This Stock Option Plan (the "Plan") provides for the grant of options
(the "Options") to acquire shares of common stock (the "Common Stock") of
Data I/O Corporation (the "Corporation"). Stock options granted under this
plan that qualify under Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code") are referred to in this Plan as "Incentive Stock
Options." Incentive Stock Options and stock options that do not qualify
under Section 422 of the Code ("Non-Qualified Options") granted under this
Plan are referred to as "Options."
1. PURPOSES.
The purposes of this Plan are to retain the services of valued key
employees of the Corporation, to encourage such employees to acquire a
greater proprietary interest in the Corporation, thereby strengthening their
incentive to achieve the objectives of the shareholders and to serve as an
aid and inducement in the hiring of new key employees.
2. ADMINISTRATION.
The Plan shall be administered by the Board of Directors of the
Corporation (the "Board"), if each director is a "disinterested person" (as
defined below). If all directors are not "disinterested persons," the Plan
shall be administered by a committee designated by the Board composed of two
or more members of the Board, each of whom is a "disinterested person", which
committee (the "Committee") may be an executive, compensation or some other
committee, including a separate committee especially created for this
purpose. Any such Committee shall have the powers and authority vested in
the Board hereunder (including the power and authority to interpret any
provision of the Plan or of any Option). The members of any such Committee
shall serve at the pleasure of the Board. A majority of the members of the
Committee shall constitute a quorum, and all actions of the Committee shall
be taken by a majority of the members present. Any action may be taken by a
written instrument signed by all of
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<PAGE>
the members of the Committee and any action so taken shall be fully as
effective as if it had been taken at a meeting. The Board, or any committee
thereof appointed to administer the Plan, is referred to herein as the "Plan
Administrator." "Dis- interested person" shall be defined by reference to in
the rules and regulations promulgated under Section 16(b) of the Securities
Exchange Act of 1934, as amended (the "Act").
Subject to the provisions of the Plan, and with a view to effecting its
purpose, the Plan Administrator shall have sole authority, in its absolute
discretion, (a) to construe and interpret the Plan; (b) to define the terms
used herein; (c) to prescribe, amend, and rescind rules and regulations
relating to the Plan; (d) to determine the individuals to whom Options to
purchase shares of Common Stock shall be granted under the Plan and whether
the Options are Incentive Stock Options or Non- Qualified Options; (e) to
determine the time or times at which Options shall be granted under the Plan;
(f) to determine the number of shares of Common Stock subject to each Option,
the Option price, the duration of each Option granted under the Plan and the
times at which each Option shall become exercisable; (g) to determine all of
the other terms and conditions of Options granted under the Plan; and (h) to
make all other determinations necessary or advisable for the administration
of the Plan and do everything necessary or appropriate to administer the
Plan. All decisions, determinations, and interpretations made by the
Committee shall be binding and conclusive on all participants in the Plan and
on their legal representatives, heirs, and beneficiaries.
The Board or the Committee may delegate to one or more executive
officers of the Corporation the authority to grant Options under this Plan to
employees of the Corporation who, at the time of grant, are not subject to
Section 16(b) of the Exchange Act with respect to the Common Stock
("Non-Insiders"), and in connection therewith the authority to determine: (a)
whether the Option in an Incentive Stock Option or a Non- Qualified Stock
Option; (b) the number of shares of Common Stock subject to such Option; (c)
the duration of the Option; (d) the vesting schedule for determining the
times at which such Option shall become exercisable; and (e) all other terms
and conditions of such Options. The exercise price for any Option granted by
action of an executive officer pursuant to such delegation of
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<PAGE>
authority shall not be less than the fair market value per share of the Common
Stock on the Date of Grant as determined in accordance with procedures
established by the Plan Administrator. Unless expressly approved in advance by
the Board or the Committee, such delegation of authority shall not include the
authority to accelerate the vesting, extend the period for exercise or otherwise
alter the terms of outstanding Options. The term "Plan Administrator" when used
in any provision of this Plan other than Sections 2, 5(f), 5(m), 5(n) and 11
shall be deemed to refer to the Board or the Committee, as the case may be, and
such senior executive officer, insofar as such provision may be applied to
Non-Insiders and Options granted to Non- Insiders.
3. ELIGIBILITY.
Options may be granted to any individual who, at the time the Option is
granted, is an employee of the Corporation or any "related corporation" (as
defined below) and may be granted in substitution for outstanding options of
another corporation in connection with the merger, consolidation, acquisition
of property or stock, or other reorganization between such other corporation
and the Corporation or any subsidiary thereof. Options may also be granted in
exchange for outstanding Options. No person shall be granted Options to
purchase more than 250,000 shares of Common Stock (subject to adjustment as
set forth in Section 5(m) hereof) in any calendar year. Any person to whom
an Option is granted under this Plan is referred to herein as an "Optionee."
3
<PAGE>
As used in this Plan, the term "related corporation," when referring to
a subsidiary corporation, shall mean any corporation (other than the
Corporation) in an unbroken chain of corporations beginning with the
Corporation if, at the time of the granting of the Option, each of the
corporations other than the last corporation in the unbroken chain owns stock
possessing fifty percent (50%) or more of the total combined voting power of
all classes of stock of one of the other corporations in such chain. When
referring to a parent corporation, the term "related corporation" shall mean
any corporation (other than the Corporation) in an unbroken chain of
corporations ending with the Corporation if, at the time of granting of the
Option, each of the corporations other than the Corporation owns stock
possessing fifty percent (50%) or more of the total combined voting power of
all classes of stock of one of the other corporations in such chain.
4. STOCK.
The Plan Administrator is authorized to grant Options to acquire eight
hundred thirty thousand (830,000) shares of the authorized but unissued, or
reacquired, Common Stock plus the number of Options which remain available
for grant from time-to-time pursuant to the Corporation's FutureNet Employee
Stock Option Plan or the Corporation's 1985 Stock Option Plan (the "Existing
Plans"), both of which have already been approved by the Corporation's
shareholders. The number of shares with respect to which Options may be
granted hereunder is subject to adjustment as set forth in Section 5(m)
hereof. In the event that any Option granted pursuant to this Plan or the
Existing Plans expires or is terminated for any reason, those shares of
Common Stock allocable to the unexercised portion of such terminated Option
may again be subject to an Option granted to the same or to a different
Optionee under either this Plan or the Existing Plans.
5. TERMS AND CONDITIONS OF OPTIONS.
Each Option granted pursuant to this Plan shall be evidenced by a
written agreement approved by the Plan Administrator (the "Agreement").
Agreements may contain such additional provisions, not inconsistent herewith,
as the Plan Administrator in its
4
<PAGE>
discretion, may deem advisable. All Options shall also comply with the
following requirements:
(a) NUMBER OF SHARES.
Each Agreement shall state the number of shares of Common Stock to
which it pertains and whether the Option is intended to be an Incentive Stock
Option or a Non-Qualified Stock Option. In the absence of action to the
contrary by the Plan Administrator in connection with the grant of an Option,
all Options shall be Non-Qualified Options. The aggregate fair market value
(determined at the Date of Grant, as defined below) of the stock with respect
to which Incentive Stock Options are exercisable for the first time by the
Optionee during any calendar year (granted under this Plan and all other
incentive stock option plans of the Corporation, a related corporation or a
predecessor corporation) shall not exceed $100,000, or such other limit as
may be prescribed by the Code as it may be amended from time to time. Any
Option which exceeds the annual limit shall not be void, but rather shall be
a Non-Qualified Option.
(b) DATE OF GRANT.
Each Agreement shall state the date which the Plan Administrator
has deemed to be the effective date of the Option for purposes of this Plan
(the "Date of Grant").
(c) OPTION PRICE.
Each Agreement shall state the price per share of Common Stock at
which it is exercisable. Common Stock issued under this Plan may be issued
for any lawful consideration as determined by the Plan Administrator;
provided, that the per share exercise price for any Incentive Stock Option
shall not be less than the fair market value per share of the Common Stock on
the Date of Grant as determined by the Plan Administrator in good faith and
provided, further, that with respect to Incentive Stock Options granted to
greater-than-10% shareholders of the Corporation (as determined with
reference to Section 424(d) of the Code), the exercise price per share shall
not be less than 110% of the fair market value per share of the Common Stock
at the Date of Grant.
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<PAGE>
(d) DURATION OF OPTIONS.
At the time of the grant of the Option, the Plan Administrator
shall designate, subject to paragraph 5(g) below, the expiration date of the
Option, which shall not be later than ten years from the Date of Grant in the
case of Incentive Stock Options; provided, that the expiration date of any
Incentive Stock Option granted to a greater-than-10% shareholder of the
Corporation (as determined with reference to Section 424(d) of the Code)
shall not be later than five years from the Date of Grant. In the absence of
action to the contrary by the Plan Administrator in connection with the grant
of a particular Option, and except as otherwise required by the preceding
sentence, all Options granted hereunder shall expire six years from the Date
of Grant.
(e) VESTING SCHEDULE.
In order to ensure that the Corporation will receive the benefits
contemplated in exchange for the Options granted pursuant hereto, no Option
shall be exercisable until it has vested. Subject to paragraph 5(f) below,
the vesting schedule or other events for vesting for each Option, such as
performance goals, shall be specified by the Plan Administrator at the time
of the grant of the Option and shall be set forth or referenced in the
Agreement. If no vesting schedule is specified by the Plan Administrator at
the time of the grant of an Option hereunder, the following schedule shall
apply:
<TABLE>
<CAPTION>
Years of Service
Following Date of Percent
Grant Vested
----------------- -------
<S> <C>
1 25
2 50
3 75
4 100
</TABLE>
(f) ACCELERATION OF VESTING.
The vesting of one or more outstanding Options may be accelerated
by the Plan Administrator at such times and in such
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<PAGE>
amounts as it shall determine in its sole discretion. The vesting of Options
shall also be accelerated under the circumstances described in Section 5(n)
below.
(g) TERM OF OPTION.
Each Option shall terminate, to the extent not previously
exercised, upon the occurrence of the first of the following events: (i) the
expiration of the duration of the Option, as designated by the Plan
Administrator in accordance with Section 5(d) above; (ii) the expiration of
90 days from the date of the Optionee's termination of employment with the
Corporation for any reason whatsoever other than death or disability unless,
in the case of a Non-Qualified Option, the exercise period is extended by the
Plan Administrator until a date not later than the expiration date of the
Option; or (iii) the expiration of one year from (A) the date of death of the
Optionee or (B) cessation of employment by reason of "disability" unless, in
the case of a Non-Qualified Option, the exercise period is extended by the
Plan Administrator until a date not later than the expiration date of the
Option. For purposes of the Plan, "disability" shall mean any physical,
mental or other health condition which substantially impairs the employee's
ability to perform her or his assigned duties for 60 days or more in any 120
day period or that can be expected to result in death. The Plan Administrator
shall determine whether an Optionee has incurred a disability on the basis of
medical evidence acceptable to the Plan Administrator. Upon making a
determination of disability, the Plan Administrator shall, for purposes of
the Plan, determine the date of an Optionee's termination of employment.
Unvested Options shall terminate immediately upon the termination of
employment of the Optionee by the Corporation for any reason whatsoever,
including death or disability.
7
<PAGE>
(h) EXERCISE OF OPTIONS.
Options shall be exercisable, either all or in part, at any time
after vesting. If less than all of the shares included in the vested portion
of any Option are purchased, the remainder may be purchased at any subsequent
time prior to the expiration of the Option term. No portion of any Option of
less than one hundred (100) shares (as adjusted pursuant to Section 5(m)
hereof) may be exercised, provided that if the vested portion of any Option
is less than one hundred (100) shares, it may be exercised with respect to
all Shares for which it is vested. Only whole shares may be issued pursuant
to an Option, and to the extent that an Option covers a fraction of a share,
it is unexercisable. Options or portions thereof may be exercised by giving
written notice to the Corporation, which notice shall specify the number of
shares to be purchased, and be accompanied by payment in the amount of the
aggregate Option exercise price for the Common Stock so purchased, which
payment shall be in the form specified in Section 5(i) hereof. The
Corporation shall not be obligated to issue, transfer, or deliver a
certificate of Common Stock to any Optionee, or to his personal
representative, until the aggregate Option price has been paid for all shares
for which the Option shall have been exercised and adequate provision has
been made by the Optionee for satisfaction of any tax with holding
obligations associated with such exercise. During the lifetime of an
Optionee, Options are exercisable only by the Optionee.
(i) PAYMENT UPON EXERCISE OF OPTION.
Upon exercise of any Option the aggregate Option exercise price
shall be paid to the Corporation in cash or by certified or cashier's check.
In addition, an Optionee may pay for all or any portion of the aggregate
Option exercise price for any shares of Common Stock purchased upon the
exercise of any Option by delivering to the Corporation shares of Common
Stock previously held by such Optionee or by complying with any other payment
mechanism which the Plan Administrator may approve from time to time. The
shares of Common Stock received or withheld by the Corporation as payment for
shares of Common Stock purchased upon the exercise of Options shall have a
fair market value at the date of exercise (as determined by the Plan
Administrator)
8
<PAGE>
equal to the aggregate Option exercise price (or portion thereof) to be paid
by exchange or withholding of shares of Common Stock.
(j) RIGHTS AS A SHAREHOLDER.
An Optionee shall have no rights as a shareholder with respect to
any shares covered by the Option until the Optionee becomes a record holder
of such shares, irrespective of whether he has given notice of exercise.
Subject to the provisions of Section 5(m) hereof, no rights shall accrue to
an Optionee and no adjustments shall be made on account of dividends
(ordinary or extraordinary, whether in cash, securities or other property) or
distributions or other rights declared on, or created in, the Common Stock
for which the record date is prior to the date the Optionee becomes a record
holder of the shares of Common Stock covered by the Option, irrespective of
whether the Optionee has given notice of exercise.
(k) TRANSFER OF OPTION.
Options granted under this Plan and the rights and privileges
conferred hereby may not be transferred, assigned, pledged, or hypothecated
in any manner (whether by operation of law or otherwise) other than by will
or by the applicable laws of descent and distribution or, in the case of
Non-Qualified Options (but not Incentive Stock Options), pursuant to a
qualified domestic relations order, and shall not be subject to execution,
attachment or similar process. Upon any attempt to transfer, assign, pledge,
hypothecate or otherwise dispose of any Option under this Plan or of any
right or privilege conferred hereby, contrary to the provisions hereof, or
upon the sale, levy or any attachment or similar process upon the rights and
privileges conferred hereby, such Option shall thereupon terminate and become
null and void.
(1) SECURITIES REGULATION AND TAX WITHHOLDING.
(1) Shares shall not be issued with respect to an Option
unless the exercise of such Option and the issuance and delivery of such
shares pursuant thereto shall comply with all relevant provisions of law,
including, without limitation, any applicable state securities laws, the
Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as
amended, the
9
<PAGE>
rules and regulations promulgated thereunder and the requirements of any stock
exchange upon which such shares may then be listed and shall be further subject
to the approval of counsel for the Corporation with respect to such compliance,
including the availability of an exemption from registration for the issuance
and sale of any shares upon exercise of any Option. Inability of the
Corporation to obtain from any regulatory body having jurisdiction the
authority deemed by the Corporation to be necessary for the lawful issuance and
sale of any shares hereunder, or the unavailability of an exemption from
registration for the issuance and sale of any shares hereunder, shall relieve
the Corporation of any liability in respect of the non-issuance or sale of such
shares as to which such requisite authority shall not have been obtained.
As a condition to the exercise of an Option, the Corporation
may require the Optionee to represent and warrant in writing at the time of
such exercise that the shares are being purchased only for investment and
without any present intention to sell or distribute such shares. At the
Option of the Corporation, a stop-transfer order against any shares of stock
may be placed on the official stock books and records of the Corporation, and
a legend indicating that the stock may not be pledged, sold or otherwise
transferred unless an opinion of counsel is provided stating that such
transfer is not in violation of any applicable law or regulation, may be
stamped on stock certificates in order to assure exemption from registration.
The Plan Administrator may also require such other actions or agreements by
the Optionees as may from time-to-time be necessary to comply with federal
and state securities laws. THE CORPORATION SHALL BE UNDER NO OBLIGATION TO
UNDERTAKE REGISTRATION OF THE OPTIONS OR SHARES OF STOCK ISSUABLE UPON
EXERCISE THEREOF.
(2) As a condition to the exercise of any Option granted
hereunder, the Optionee shall make such arrangements as the Plan
Administrator may require for the satisfaction of any federal, state or local
withholding tax obligations that may arise in connection with such exercise.
(3) Issue, transfer or delivery of certifi cates of
Common Stock pursuant to the exercise of Options may be delayed, at the
discretion of the Plan Administrator until the
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<PAGE>
Plan Administrator is satisfied that the applicable requirements of the federal
and state securities laws and the withholding provisions of the Code have been
met.
(m) STOCK DIVIDEND, REORGANIZATION OR LIQUIDATION.
The aggregate number and class of shares for which Options may be
granted under this Plan, the number and class of shares covered by each
outstanding Option and the exercise price per share thereof (but not the
total price) shall all be proportionately adjusted for any increase or
decrease in the number of issued shares of Common Stock of the Corporation
resulting from a split-up or consolidation of shares or any like capital
adjustment, or the payment of any stock dividend, and to the extent that such
actions shall include an increase or decrease in the number of shares of
Common Stock subject to outstanding Options, the number of shares available
under Section 4 of this Plan shall automatically be increased or decreased,
as the case may be, proportionately, without further action on the part of
the Plan Administrator, the Corporation or the Corporation's shareholders.
In the event of any adjustment in the number of shares covered by
any Option, any fractional shares resulting from such adjustment shall be
disregarded and each such Option shall cover only the number of full shares
resulting from such adjustment.
The foregoing adjustments in the shares subject to Options shall be
made by the Plan Administrator or by any successor administrator of the Plan,
or by the applicable terms of any assumption or substitution document, and
any adjustments so made shall be final, binding and conclusive.
Except as provided in this Section 5(m) or Section 5(n) below, no
Optionee shall have rights by reason of any subdivision or consolidation of
shares of any class including shares of Common Stock, or the payment of any
Common Stock dividend on shares of Common Stock or any other increase or
decrease in the number of shares of Common Stock, or by reason of any
liquidation, dissolution, corporate combination or division; and any issuance
by the Corporation of shares of any class including shares of Common Stock,
or securities convertible into shares of any class including shares of Common
Stock, shall not affect,
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<PAGE>
and no adjustment by reason thereof shall be made with respect to, the number
or price of shares of Common Stock subject to any Option.
The grant of an Option shall not affect in any way the right or
power of the Corporation to make adjustments, reclassifications,
reorganizations or changes in its capital or business structure, or to merge,
consolidate, dissolve or liquidate, or to sell or transfer all or any part of
its business or assets.
(n) CHANGE IN CONTROL.
(1) Any and all Options that have been outstanding under the
Plan for at least six (6) months at the time of occurrence of any of the
events described in Paragraphs (1), (2) and (3) below (an "Eligible Option")
shall become immediately vested and fully exercisable for the periods
indicated (each such exercise period referred to as an "Acceleration Window"):
(A) For a period of 45 days beginning on the day on which
any Person (as such term is defined in Paragraph (r) of
Section 1 of the Rights Agreement dated as of November 31,
1988 between the Corporation and Chemical Bank (the
"Rights Plan")) together with all Affiliates and
Associates (as such terms are defined in Paragraph (e)
of Section 1 of the Rights Plan) of such Person shall
become the Beneficial Owner (as defined in the Rights
Plan) of 25% or more of the shares of Common Stock then
outstanding, but shall not include the Corporation, any
subsidiary of the Corporation, any employee benefit plan
of the Corporation or of any subsidiary of the
Corporation, or any Person or entity organized, appointed
or established by the Corporation for or pursuant to the
terms of any such employee benefit plan;
(B) Beginning on the date that a tender or exchange offer for
Common Stock by any Person
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<PAGE>
(other than the Corporation, any subsidiary of the
Corporation, any employee benefit plan of the Corporation
or of any subsidiary of the Corporation, or any Person
or entity organized, appointed or established by the
Corporation for or pursuant to the terms of any such
employee benefit plan) is first published or sent or given
within the meaning of Rule 14d-2 under the Securities
Exchange Act of 1934, as amended, and continuing so long
as such offer remains open (including any extensions or
renewals of such offer), unless by the terms of such offer
the offeror, upon consummation thereof, would be the
Beneficial Owner of less than 30% of the shares of Common
Stock then outstanding; or
(C) For a period of 20 days beginning on the day on which the
shareholders of the Corporation (or, if later, approval by
the shareholders of any Person) duly approve any merger,
consolidation, reorganization or other transaction
providing for the conversion or exchange of more than
fifty percent (50%) of the outstanding shares of Common
Stock into securities of any Person, or cash, or property,
or a combination of any of the foregoing;
PROVIDED, HOWEVER, that with respect to the events
specified in Paragraphs (A) and (B) above, such
accelerated vesting shall not occur if the event that
would otherwise trigger the accelerated vesting of
Eligible Options has received the prior approval of a
majority of all of the directors of the Corporation,
excluding for such purposes the votes of directors who
are directors or officers of, or have a material
financial interest in any Person (other than the
Corporation) who is a party to the event specified in
either Paragraph (A) or (B) above which otherwise would
trigger acceleration of vesting and provided, further,
that no Option which is to be converted into an option
to purchase shares of Exchange Stock as stated at
13
<PAGE>
item (3) below shall be accelerated pursuant to this Section 5(n).
(2) The exercisability of any Eligible Option which remains
unexercised following expiration of an Acceleration Window shall be governed
by the vesting schedule and other terms of the Agreement representing such
Option.
(3) If the shareholders of the Corporation receive shares of
capital stock of another Person ("Exchange Stock") in exchange for or in
place of shares of Common Stock in any transaction involving any merger,
consolidation, reorganization or other transaction providing for the
conversion or exchange of all or substantially all outstanding shares of
Common Stock into Exchange Stock, then at the closing of such transaction all
Options granted hereunder shall be converted into options to purchase shares
of Exchange Stock unless the Corporation (by the affirmative vote of a
majority of all of the directors of the Corporation, excluding for such
purposes the votes of directors who are directors or officers of, or have a
material financial interest in the Person issuing the Exchange Stock and any
affiliate of such Person) and the Person issuing the Exchange Stock, in their
sole discretion, determines that any or all such Options granted hereunder
shall not be so converted but instead shall terminate. The amount and price
of converted Options shall be determined by adjusting the amount and price of
the Options granted hereunder in the same proportion as used for determining
the shares of Exchange Stock the holders of the Common Stock received in such
merger, consolidation, reorganization or other transaction. Unless altered
by the Plan Administrator, the vesting schedule set forth in the Option
Agreement shall continue to apply to the Options granted for Exchange Stock.
6. EFFECTIVE DATE; TERM.
This Plan shall be effective as of December 16, 1986 and Incentive Stock
Options may be granted by the Plan Administrator from time to time thereafter
until December 14, 2006; provided, however, that termination of the Plan
shall not terminate any Option granted prior thereto. Non-Qualified Stock
Options may be granted hereunder until this Plan is terminated by the Board
in its sole discretion.
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<PAGE>
7. NO OBLIGATIONS TO EXERCISE OPTION.
The granting of an Option shall impose no obligation upon the Optionees
to exercise such Option.
8. NO RIGHT TO OPTIONS OR EMPLOYMENT.
Whether or not any Options are to be granted hereunder shall be
exclusively within the discretion of the Committee, and nothing contained
herein shall be construed as giving any Optionee any right to participate
hereunder. Granting of an Option hereunder shall in no way constitute any
form of agreement or understanding binding on the Corporation, express or
implied, that the Corporation will employ or contract with an Optionee for
any length of time.
9. APPLICATION OF FUNDS.
The proceeds received by the Corporation from the sale of Common Stock,
pursuant to Options granted hereunder, will be used for general corporate
purposes, unless otherwise directed by the Board.
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<PAGE>
10. INDEMNIFICATION OF PLAN ADMINISTRATOR.
In addition to all other rights of indemnification they may have as
members of the Board or of any Committee, the Plan Administrators shall be
indemnified by the Corporation for all reasonable expenses and liabilities of
any type or nature, including attorneys' fees, incurred in connection with
any action, suit or proceeding to which they or any of them are a party by
reason of, or in connection with, the Plan or any Option granted hereunder,
and against all amounts paid by them in settlement thereof (provided such
settlement is approved by independent legal counsel selected by the
Corporation), except to the extent that such expenses relate to matters for
which it is adjudged that such Plan Administrator member is liable for
willful misconduct; provided that within fifteen (15) days after the
institution of any such action, suit or proceeding, the Plan Administrator
involved therein shall, in writing, notify the Corporation of such action,
suit or proceeding, so that the Corporation may have the opportunity to make
appropriate arrangements to prosecute or defend the same.
11. AMENDMENT OF THE PLAN.
The Plan Administrator may, at any time, modify or amend this Plan and
Options granted hereunder, except that no amendment with respect to an
outstanding Option shall be made over the objection of the Optionee thereof;
and provided, further, that any amendment for which shareholder approval is
required by Securities and Exchange Commission Rule 16b-3, as amended from
time to time, or any successor rule or regulatory requirements (the "Rule"),
in order for the Plan to be eligible or continue to qualify for the benefits
of the Rule, shall be subject to approval of the shareholders of the
Corporation in accordance with the Rule.
Effective as of December 16, 1986.
Amended and restated as of February 22, 1995.
DATA I/O CORPORATION
By:_______________________________________
Steve Gordon, Vice President - Finance
16
<PAGE>
DATA I/O CORPORATION
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints William C. Erxleben and Steven M. Gordon, and
each of them as proxies, each with full power of substitution, to represent and
vote for and on behalf of the undersigned, as designated below, the number of
shares of common stock of Data I/O[REGISTERED TRADEMARK] Corporation that the
undersigned would be entitled to vote if personally present at the annual
meeting of shareholders to be held on May 16, 1995, or at any adjournment
thereof. The undersigned directs that this proxy be voted as indicated on the
reverse side hereof:
_________________________________________________________________________
COMMENTS/ADDRESS CHANGE: PLEASE MARK COMMENT/ADDRESS BOX ON REVERSE SIDE
(CONTINUED AND TO BE SIGNED ON THE OTHER SIDE)
<PAGE>
PLEASE MARK
/ X / YOUR CHOICES
LIKE THIS
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE
________________ MANNER DIRECTED ON THIS PROXY CARD. THE BOARD OF DIRECTORS
COMMON RECOMMENDS A VOTE FOR ALL NOMINEES AND FOR THE PROPOSAL
AMENDING THE DATA I/O CORPORATION 1986 STOCK OPTION PLAN. IF
NO SPECIFICATION IS MADE, ALL SHARES REPRESENTED BY THIS
PROXY WILL BE VOTED FOR ALL OF SAID NOMINEES AND FOR THE
APPROVAL OF AMENDMENTS TO THE DATA I/O CORPORATION 1986 STOCK
OPTION PLAN AND WILL BE VOTED IN ACCORDANCE WITH THE
DISCRETION OF THE PROXIES ON ALL OTHER MATTERS WHICH MAY COME
BEFORE THE MEETING OR ANY ADJOURNMENT.
FOR all nominees listed WITHHOLD AUTHORITY to
below (except as marked vote for all nominees
to the contrary below). listed below.
1. ELECTION OF / / / /
DIRECTORS / / / /
(INSTRUCTION: To withhold authority to vote for any individual nominee, strike
a line through the nominee's name in the list below.)
William C. Erxleben W. Hunter Simpson
Donald R. Stenquist Milton F. Zeutschel
For Against Abstain
2. APPROVAL OF THE AMENDMENTS TO THE DATA / / / / / /
I/O CORPORATION 1986 STOCK OPTION PLAN. / / / / / /
3. In their discretion, the holders of this proxy are authorized to vote upon
such other business as may properly come before the meeting.
THE UNDERSIGNED HEREBY REVOKES ANY PROXY OR PROXIES HERETOFORE GIVEN FOR SUCH
SHARES AND RATIFIES ALL THAT SAID PROXIES OR THEIR SUBSTITUTES MAY LAWFULLY DO
BY VIRTUE HEREOF.
Date_________________________________________, 1995
___________________________________________________
Signature
___________________________________________________
Signature if held jointly
Please sign exactly as name appears on this proxy. If stock is held jointly,
both persons should sign. Persons signing in a representative capacity should
give their title.
COMMENTS/ADDRESS CHANGE
PLEASE MARK THIS BOX IF YOU HAVE / /
WRITTEN COMMENTS/ADDRESS / /
CHANGE ON THE REVERSE SIDE / /
PLEASE PROMPTLY DATE, SIGN AND RETURN THIS PROXY CARD.
