<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 1996
ANNUAL MEETING
AND
PROXY STATEMENT
<PAGE>
DATA I/O CORPORATION
March 28, 1996
TO OUR SHAREHOLDERS:
You are cordially invited to attend the 1996 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 14, 1996. 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 1995 and
the first quarter of 1996 and report on our strategic plan for the future.
Formal business will include the election of Directors, the consideration of a
proposal to amend the Company's 1982 Employee Stock Purchase Plan, and the
consideration of a proposal to approve the 1996 Director Fee 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 14.
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 14, 1996
- --------------------------------------------------------------------------------
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 14, 1996, at the Company's principal offices, 10525 Willows Road
N.E., Redmond, Washington 98052, for the following purposes:
(1) ELECTION OF DIRECTORS:
To elect five directors, each to serve until the next annual meeting
of shareholders or until their successors are elected and qualified.
(2) EMPLOYEE STOCK PURCHASE PLAN:
To consider and vote on a proposal to amend the Data I/O Corporation
1982 Employee Stock Purchase Plan to increase the number of shares
reserved for issuance under the Plan by an additional 400,000 shares.
(3) DIRECTOR FEE PLAN:
To consider and vote on a proposal to approve the Data I/O Corporation
1996 Director Fee Plan which provides for the payment of certain fees
to directors of Data I/O who are not employees of the Company by
delivery of shares of the Company's common stock.
(4) 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 5, 1996, as the
Record Date for the determination of shareholders entitled to notice of, and to
vote at, the 1996 Annual Meeting.
By Order of the Board of Directors
//S//Steven M. Gordon
Steven M. Gordon
Secretary
Redmond, Washington
March 28, 1996
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 14, 1996
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 14, 1996, at 2:00 p.m. Pacific Daylight Time, and at any
adjournment thereof. Shareholders of record at the close of business on March
5, 1996 (the "Record Date") are entitled to notice of and to vote at the
meeting. Management anticipates that this Proxy Statement and a copy of the
Company's 1995 Annual Report to Shareholders will be sent to shareholders on or
about March 28, 1996.
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 amendment to the Data
I/O Corporation 1982 Employee Stock Purchase Plan check the appropriate box
under Item No. 2. To vote on the approval of the Data I/O Corporation 1996
Director Fee Plan check the appropriate box under Item No. 3. For Item Nos. 2
and 3 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 7,105,616 shares of
Common Stock issued and outstanding, and each such share is entitled to one vote
at the 1996 Annual Meeting. The presence in person or by proxy of holders 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 five
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 proposals to amend the Data I/O Corporation 1982 Employee Stock
Purchase Plan and to approve the Data I/O Corporation 1996 Directors Fee Plan
will be approved if each 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 proposals. An abstention from
voting on such proposals has the effect of a vote against the proposals. Broker
non-votes on the proposals will, however, have no effect because such shares are
not considered "shares entitled to vote" on the proposals. Proxies and ballots
will be received and tabulated by Chemical Mellon Shareholder Services, an
independent business entity not affiliated with the Company.
1
<PAGE>
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 5, 1996, was $7.50 per share.
The following table sets forth information with respect to all shareholders as
of March 5, 1996, 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. 751,400 (1) 9.8%
865 South Figueroa Street
Los Angeles, CA 90017
The Killen Group, Inc. 511,700 (2) 6.7%
1189 Lancaster Avenue
Berwyn, PA 19312
Dimensional Fund Advisors, Inc. 381,800 (3) 5.0%
1299 Ocean Avenue - 11th Floor
Santa Monica, CA 90401
</TABLE>
____________________
(1) The holding shown is as of December 31, 1995, as reported by The TCW Group,
Inc., a parent holding company, and by Robert Day, an individual who may be
deemed to control the TCW Group, Inc. and other holders of the common stock
of the Company, on a Schedule 13G filed pursuant to Rule 13d-1(b)(ii)(G)
under the Securities Exchange Act of 1934. Said Schedule 13G indicates
that the TCW Group holds sole voting and dispositive power with respect to
375,700 shares and that Mr. Day holds sole voting and dispositive power
with respect to 375,700 shares.
(2) The holding shown is as of December 31, 1995, 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 509,700 shares
and that Mr. Killen holds sole voting and dispositive power with respect to
2,000 shares.
(2) The holding shown is as of December 31, 1995, as reported by Dimensional
Fund Advisors Inc., a registered investment advisor ("Dimensional"), on a
Schedule 13G filed pursuant to Rule 13d-1(b) or 13d-2 (b) 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
309,300 shares, shared voting power with respect to 72,005 shares and sole
dispositive power with respect to 381,800 shares. Dimensional disclaims
beneficial ownership of all these shares.
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
2
<PAGE>
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.
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 5, 1996. 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 222,443 (1) 3.1%
Frances M. Conley 5,000 (2)
W. Hunter Simpson 30,000 (2)
Donald R. Stenquist 100,000 1.4%
Milton F. Zeutschel 111,274 1.6%
Neil G. Mathison (3) 58,857 (4) (2)
William J. Haydamack 53,875 (5) (2)
Steven M. Gordon 53,883 (6) (2)
Susan Webber 6,976 (7) (2)
All directors and
executive officers
as a group (9 persons) 642,308 (8) 9.0%
</TABLE>
____________________
(1) Includes options to purchase 72,500 shares exercisable within 60 days.
(2) Less than one percent.
(3) Mr. Mathison resigned from the Company effective March 15, 1996.
(4) Includes options to purchase 45,000 shares exercisable within 60 days.
(5) Includes options to purchase 30,000 shares exercisable within 60 days.
(6) Includes options to purchase 34,250 shares exercisable within 60 days.
(7) Includes options to purchase 5,000 shares exercisable within 60 days.
(8) Includes options to purchase 200,500 shares exercisable within 60 days.
PROPOSAL 1: ELECTION OF DIRECTORS
The Board of Directors currently consists of five directors, one of whom is a
member of management and four 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 53, 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>
FRANCES M. CONLEY, age 52, was elected to the Board of Directors of the Company
in August 1995. Since 1982 Ms. Conley has been a Principal of Roanoke Capital,
Ltd., which is General Partner of Roanoke Investors' Limited Partnership, a
venture capital fund that invests in the equities of emerging companies in the
Pacific Northwest. Prior to 1982 Ms. Conley was Senior Vice President and Chief
Administrative Officer of the Washington Division of Rainier National Bank.
Currently, she serves on the boards of Edmark Corporation, Cutter & Buck, Inc.,
and Pacific Linen, Inc.
W. HUNTER SIMPSON, age 69, 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 from 1989 to 1995 was 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, TVW - Public Television, The Institute of Applied Medicine and
Physiology and The Washington Research Foundation.
DONALD R. STENQUIST, age 66, 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 63, 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.
COMMITTEE MEETINGS
The Board of Directors has three standing Committees: the Audit Committee, the
Compensation Committee, and the Nominating Committee. The Board's four
non-management directors, W. Hunter Simpson, Donald R. Stenquist, Milton F.
Zeutschel and Frances M. Conley 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 eight times during fiscal 1995.
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 seven times during fiscal 1995.
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 1997 Annual Meeting of Shareholders". The Nominating
Committee met two times during fiscal 1995.
4
<PAGE>
During the fiscal year ended December 28, 1995, there were ten 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 he or she served during their respective terms of service on the Board.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. Zeutschel served as a member of the Compensation Committee during fiscal
year 1995. 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.
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 1995 of $5,000 for each quarter of service plus $1,000 for each Board
meeting attended. At the annual meeting, the shareholders of the Company will
be asked to approve a Director Fee Plan, pursuant to which the directors'
quarterly retainer will be paid entirely in shares of the Company's Common
Stock. See Proposal 3 below. The Company reimburses non-management directors
for actual travel and out-of-pocket expenses incurred in connection with service
to the Company.
The following table shows compensation paid by the Company to non-management
directors during fiscal year 1995.
<TABLE>
<CAPTION>
Cash Compensation Security Grants
--------------------------------------- --------------------------
Number of
Securities
Annual Consulting Underlying
Retainer Meeting Fees/Other Number of Options/
Name Fees ($) Fees ($) Fees ($) Shares (#) SARs (#)
- ---- --------- --------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Frances M. Conley (1) 6,667 3,000 0 0 0
W. Hunter Simpson 20,000 9,000 0 0 0
Donald R. Stenquist 20,000 9,000 0 0 0
Milton F. Zuetschel 20,000 9,000 0 0 0
</TABLE>
__________
(1) Ms. Conley was elected to the Board on August 30, 1995.
COMPLIANCE WITH SECTION 16
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors, certain officers and persons who own more than ten percent of a
registered class of the Company's equity securities ("Reporting Persons") to
file with the Securities and Exchange Commission initial reports of ownership
and reports of changes in ownership of Common Stock and other equity securities
of the Company. Reporting Persons are required by SEC regulations to furnish
the Company with copies of all Section 16(a) reports.
To the Company's knowledge, based solely on its review of copies of such reports
furnished to the Company and written representations that no other reports were
required, all Section 16(a) filing requirements applicable to its officers and
directors were complied with except for one report filed late by Steven M.
Gordon, the Company's Vice President of Finance & Administration, Chief
Financial Officer, Secretary and Treasurer, regarding the expiration of options,
and one report filed late by Frances M. Conley, a new Director of the Company,
reporting her ownership of Common Stock at the time of election to the Board.
5
<PAGE>
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 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 1995 the executive officer
group as a whole received cash compensation which, according to survey data, was
approximately equal to 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 1995 MICP guidelines for executive officers other
than the President ranged from 25% to 40%, while the guideline for the President
was 50%.
The actual MICP payout to an executive officer in relation to his or her
guideline for 1995 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 1995 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 1995 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. For 1995, the threshold, target and
maximum earning levels for payout under MICP were set at 30 cents, 45 cents and
60 cents per share, respectively.
- ---------------------
(1) Earnings per share for purposes of MICP is calculated as audited pre-tax
income, adjusted for any unplanned business acquisitions, excluding any gains or
losses on sales or disposals of assets other than those sold or disposed of in
the ordinary course of operations, less taxes at a fixed, pre-determined tax
rate, divided by a predetermined annual weighted average shares outstanding.
For 1995 the tax rate for MICP purposes was set at 38%.
6
<PAGE>
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 1995 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 Record Date, the
Company's outstanding options represented approximately 12% of outstanding
shares, which is below average 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.
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 development and execution
of short- and long-term strategic objectives, Company growth in revenue and
profitability, and employee morale, 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 entered into agreements (the "Severance Agreements") with 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, 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
7
<PAGE>
that no compensation paid by the Company during 1996 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
Milton F. Zeutschel, Chairman
W. Hunter Simpson
Donald R. Stenquist
Frances M. Conley
March 28, 1996
8
<PAGE>
SUMMARY ANNUAL COMPENSATION TABLE
The following table shows compensation paid by the Company for services rendered
during fiscal years 1995, 1994 and 1993 to the Chief Executive Officer during
fiscal year 1995 and the four most highly compensated executive officers of the
Company at December 28, 1995, whose salary and bonus exceeded $100,000 in 1995.
<TABLE>
<CAPTION>
Long-Term
Compensation
Awards
Annual Compensation ------------
Name -------------------------------------- Securities
and Other Underlying All
Principal Annual Options/ Other
Position Salary Bonus Compensation SARs Compensation
Year ($) ($)(1) ($) (2) (#) (3) ($) (4)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
William C. Erxleben 1995 205,000 134,275 0 85,000 11,256
President / 1994 181,917 92,474 0 50,000 78,969 (7)
Chief Executive Officer (5) 1993 31,545 7,708 (6) 0 150,000 5,245 (7)
Neil G. Mathison 1995 145,000 66,483 0 5,000 9,240
Vice President 1994 139,142 56,584 0 15,000 5,634
Worldwide Sales 1993 132,250 0 8,500 0 67,262 (9)
& Service (8)
William J. Haydamack 1995 143,000 65,566 0 0 11,256
Senior Vice President / 1994 136,192 48,462 0 40,000 8,380
General Manager, Synario 1993 51,250 22,750 (6) 3,359 30,000 39,863(11)
Design Automation
Division (10)
Steven M. Gordon 1995 136,000 62,356 0 10,000 9,495
Vice President 1994 127,833 38,989 0 41,000 5,648
Finance & Administration / 1993 113,750 0 8,500 0 4,736
Chief Financial Officer
Secretary/Treasurer (12)
Susan S. Webber 1995 88,000 28,820 0 2,000 4,109
Vice President 1994 57,898 19,716 0 20,000 5,083
Quality & Human 1993 0 0 0 0 0
Resources (13)
</TABLE>
- -----------------
(1) For 1994 and 1995 these represent amounts earned under the MICP. For 1993
these represent amounts earned under the MICP and the Profit Sharing Plan.
(2) Amounts reported under this column represent 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.
9
<PAGE>
(8) Mr. Mathison resigned from the Company effective March 15, 1996.
(9) Includes relocation payments of $60,516 in 1993.
(10) Mr. Haydamack joined the Company in August 1993 as Vice President and
General Manager, Design Software Business Unit. He was promoted to Senior
Vice President and General Manager, Synario Design Automation Division in
December 1995.
(11) Includes relocation payments of $36,183 in 1993.
(12) Mr. Gordon joined the Company as Corporate Controller in April 1989 and
became Vice President of Finance in May 1992. He was promoted to Chief
Financial Officer, Secretary and Treasurer in October 1993.
(13) Ms. Webber joined the Company in April 1994 as Director of Quality. She
was promoted to Vice President of Quality and Human Resources in December
1995.
OPTION/SAR GRANTS TABLE
OPTION/SAR GRANTS IN THE LAST FISCAL YEAR
<TABLE>
<CAPTION>
Number of Potential Realizable
Securities Percent Value at Assumed Annual
Underlying of Total Rates of Stock Price
Options/ Options/SARs Exercise Appreciation for Option Term (5)
SARs Granted to or ----------------------------------
Granted Employees Base Price Expiration 0% 5% 10%
Name (#) (1) in Fiscal Year ($/Sh)(2)(3) Date (4) ($) ($) ($)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
William C. Erxleben 85,000 33.1% 8.50 8/30/01 0 245,719 557,453
Neil G. Mathison (6) 5,000 1.9% 8.50 8/30/01 0 14,454 32,791
William J. Haydamack 0 - - - 0 0 0
Steven M. Gordon 10,000 3.9% 8.50 8/30/01 0 28,908 65,583
Susan S. Webber 2,000 0.8% 8.50 8/30/01 0 5,782 13,117
</TABLE>
- ------------------
(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 1995 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. Mathison resigned from the Company effective March 15, 1996. All of
his options/SARs expire on June 14, 1996.
10
<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 28, 1995 at December 28, 1995
Acquired on Value (#) (2) ($) (3)
Exercise Realized -------------------------------------------------------
Name (#) ($) (1) Exercisable/Unexercisable Exercisable/Unexercisable
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------
William C. Erxleben 60,000 305,625 72,500/152,500 277,891/233,672
Neil G. Mathison (4) 0 0 58,750/16,250 121,367/34,102
William J. Haydamack 0 0 30,000/40,000 109,531/139,844
Steven M. Gordon 5,000 9,063 34,250/40,750 103,234/102,703
Susan Webber 1,250 5,703 5,000/15,750 15,664/42,695
</TABLE>
- ---------------------
(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. Mathison resigned from the Company effective March 15, 1996. All of
his options/SARs expire on June 14, 1996.
11
<PAGE>
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 and the S & P High Tech Composite. This
cumulative return includes the reinvestment of cash dividends.
COMPARATIVE FIVE-YEAR TOTAL RETURNS (1)
Data I/O Corporation, Russell 2000, and S & P High Tech Composite
(Performance results as of year end through 12/31/95)
[ Graph on disk ]
<TABLE>
<CAPTION>
1990 1991 1992 1993 1994 1995
<S> <C> <C> <C> <C> <C> <C>
DAIO $100 $233 $211 $108 $244 $306
Russell 2000 $100 $144 $167 $196 $189 $239
S & P High Tech Composite $100 $111 $113 $137 $158 $225
</TABLE>
(1) Assumes $100 invested at the close of trading on December 31, 1990, in
Data I/O Common Stock, in the Russell 2000 Index and in the S & P High
Tech Composite. Cumulative total return assumes reinvestment of
dividends.
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 long as such offer remains open, unless,
upon consummation thereof, such person would be the beneficial owner of
12
<PAGE>
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.
In 1983 the Company adopted a Stock Appreciation Rights ("SARs") Plan 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.
The Company entered into Severance Agreements with each of the following
executive officers on the following dates: William C. Erxleben, Neil G.
Mathison, William J. Haydamack, and Steven M. Gordon in March 1995; Susan S.
Webber in December 1995; and Larry D. Vandendriessche, Vice President and
General Manager, Programming Systems Division, in January 1996 (collectively the
"Officers"). The Severance Agreements 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) 90 days prior and 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 required
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.
In March 1996 the Company entered into an agreement with William J. Haydamack
(the "Agreement") to provide certain benefits in the event of a sale of the
Company's software products division (any such transaction referred to as a
"Sale"). Under this Agreement, the Company is obligated to pay Mr. Haydamack a
cash bonus in an amount equal to $100,000 less certain other payments made to
Mr. Haydamack in connection with the Sale, provided the net consideration
received by the Company from such Sale meets or exceeds a minimum amount as
stipulated in the Agreement (the "Minimum Sale Proceeds"). In addition,
effective on the date of closing of a Sale (the "Closing Date"), all options to
acquire shares of the Company's Common Stock granted to Mr. Haydamack by the
Company prior to the Closing Date shall immediately vest whether or not such
Sale generates the Minimum Sale Proceeds.
13
<PAGE>
Lastly, under the Agreement, should Mr. Haydamack's employment be terminated
without cause (as defined in the Agreement) within one year from the Closing
Date, the Company shall make a lump sum payment to him in an amount equal to one
year's annual salary less any other severance payments.
PROPOSAL 2: AMENDMENT TO 1982 EMPLOYEE STOCK PURCHASE PLAN
At the annual meeting, the shareholders of the Company will be asked to approve
an amendment to the Company's 1982 Employee Stock Purchase Plan, as amended (the
"Purchase Plan"), which, if approved, will increase the number of shares of
Common Stock available for purchase under the Purchase Plan by 400,000 shares to
an aggregate of 1,550,000 shares. The Board of Directors believes that the
Purchase Plan has 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.
Since its inception, a total of 1,024,951 shares of Common Stock have been
purchased under the Purchase Plan, and a total of 125,049 shares remained
available for purchase thereunder as of the Record Date.
The proposed increase in the number of shares available for purchase under the
Purchase Plan will simply enable the Company to continue the Purchase Plan and
is not required or intended to supply or "cover" outstanding awards to Purchase
Plan participants. As such, no "New Plan Benefits" have been granted to date
and future awards under the Purchase Plan are not yet determinable.
The affirmative vote of at least a majority of the shares of Common Stock
present in person or represented by proxy at the 1996 Annual Meeting and
entitled to vote on the proposal is required for approval of the amendment to
the Purchase Plan. THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE FOR
APPROVAL OF THE PROPOSED AMENDMENT TO THE PURCHASE 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
above-referenced amendment to the Purchase Plan.
DESCRIPTION OF THE 1982 STOCK PURCHASE PLAN
The following description of the Purchase 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. The
Purchase Plan, which is intended to qualify under Section 423 of the Internal
Revenue Code ("the Code"), was adopted by the Board of Directors in February
1982 and approved by its shareholders in May 1982. The Purchase Plan was
amended by the Company's shareholders in May 1991 to increase the number of
shares of Common Stock available for purchase from 500,000 to 750,000, and was
again amended by the Company's shareholders in May 1993 to increase the number
of shares available for purchase from 750,000 to 1,150,000.
GENERAL. Employees are eligible to participate, with certain exceptions, if
they are employed by the Company or its subsidiaries for at least 20 hours per
week. As of the Record Date the number of eligible participants was
approximately 390. Employees who own five percent or more of the voting stock
of the Company or its subsidiaries are not eligible to participate in the
Purchase Plan. Each participant agrees to a payroll deduction for each semi-
annual six-month plan period (a "Payment Period"), which periods commence on
August 1 and February 1 of each year and terminate on January 31 and July 31,
respectively. Aggregate deductions may not be greater than 10% of an employee's
base pay in any Payment Period. No employee shall be granted options which
permit his or her rights to purchase Common Stock under the Purchase Plan and
any other option plan of the Company or any subsidiary corporations to accrue at
a rate which exceeds $25,000 in fair market value of such stock (determined at
date of grant) for each calendar year in which such options are at any time
outstanding.
Participants in the plan receive an option to purchase, generally on the last
day of a Payment Period, at a price determined as described below (the "Purchase
Price"), the number of full shares of Common Stock of the Company which the
participant's accumulated payroll deductions on the last day of such Payment
Period will purchase at the Purchase Price. The Purchase Price for each Payment
Period is the lesser of 85% of the fair market value of the Common Stock on the
first business day of the Payment Period or 85% of the fair market value of the
Common Stock on the last business day of the Payment Period. The Company has
determined the "fair market value" on any given day to be the last sale price of
the Common Stock as reported by the NASDAQ National Market System on such day.
A participant may withdraw from participation in the Purchase Plan by delivering
written notice at any time prior to the last business day of any Payment Period,
in which event the Company will promptly refund the
14
<PAGE>
entire balance of the participant's account. Termination of employment cancels
the participant's right to continue in the Purchase Plan and results in a refund
of the participant's account. Purchase rights granted under the Plan are not
assignable or transferable. The Board of Directors may at any time amend,
modify or terminate the Purchase Plan with the exception that, without prior
approval of the shareholders of the Company, the Board of Directors may not
increase the number of shares which may be issued pursuant to the Purchase Plan.
FEDERAL INCOME TAX CONSEQUENCES. This description of the federal income tax
consequences of participation in the Purchase Plan is intended merely to provide
basic information with respect to the tax treatment applied to the Purchase
Plan. Although the Company believes the following statements are correct based
on existing provisions of the Code and its legislative history, Treasury
regulations promulgated thereunder and administrative and judicial
interpretations thereof, the Company cannot assure that legislative,
administrative or judicial changes or interpretations will not occur which would
modify such statements. In connection with their particular income tax
liability, employees participating in the Purchase Plan ("Participants") are
urged to obtain professional advice regarding the applicability of federal,
state, and local tax laws.
Under Section 423(a) of the Code, the transfer of a share of stock to a
Participant pursuant to the Purchase Plan is entitled to the benefits of Section
421(a) of the Code. Under that Section, a Participant will not be required to
recognize income at the time the option is granted or at the time the option is
exercised. As the option price under the Purchase Plan is less than the fair
market value of the stock on the date of grant, Section 423(c) of the Code
requires, in general, that, provided the holding periods described below are
met, when the shares of stock received pursuant to the Purchase Plan are sold or
otherwise disposed of in a taxable transaction the Participant will recognize
compensation income (taxed as ordinary income) in an amount equal to the lesser
of either the excess of the fair market value of the Common Stock at the time of
such disposition over the amount paid for the stock or 15% of the stock's fair
market value at the date the option was granted. The company will not be
entitled to any business expense deduction with respect to the Purchase Plan,
except in connection with a disqualifying disposition as discussed below. Any
additional gain or loss resulting from the disposition, measured by the
difference between the amount paid for the shares and the amount realized (less
the amount recognized as a compensation income as described above), will be
recognized to the Participant as long-term capital gain or loss. No portion of
the amount received pursuant to such a disposition will be subject to
withholding for federal income taxes or be subject to FICA or FUTA taxes.
Under current law, net capital gains are subject to tax at a maximum rate of
28%, whereas ordinary income will generally be taxed at up to a maximum rate of
39.6%. The deductibility of capital losses is limited to an amount equal to
capital gains for the tax year, plus $3,000 ($1,500 for married taxpayers filing
separate returns).
In order for a Participant to receive the favorable tax treatment provided by
Section 421(a) of the Code, Section 423(a) requires that the Participant make no
disposition of the shares within two years from the date the option was granted
nor within one year from the date such option was exercised and the shares were
transferred to him or her. In addition, the Participant must, with certain
exceptions with respect to death or disability, be an employee of the
corporation granting the option (or of a parent or subsidiary of such
corporation, as defined in Section 424(e) and (f) of the Code, or a corporation,
or parent or subsidiary thereof, issuing or assuming the option in a transaction
to which Section 424(a) applies) at all times within the period beginning on the
date of the grant of the option and ending on a date within three months before
the date of the exercise.
If a Participant disposes of the stock before the expiration of the holding
period requirements set forth above, the Participant will realize, at the time
of the disposition, ordinary income to the extent the fair market value of the
stock on the date the shares were purchased exceeds the purchase price. The
amount of ordinary income recognized on such a disposition is added to the
Participant's basis in the shares. The difference between the amount realized
on such a disposition and the Participant's basis in the share shall be treated
as a capital gain or loss. Income recognized as a result of such a disposition
may be subject to the income tax withholding requirements of the Code as well as
the FUTA and FICA taxes. The Participant is required to reimburse the Company
for all withholding taxes (e.g., Federal income tax and FICA) the Company is
required to pay on behalf of the Participant. At the time of the disposition,
the Company will be allowed a corresponding business expense deduction under
Section 162 of the Code to the extent of the amount of the Participant's
ordinary income, provided such amount, when added to any other compensation paid
to the Participant, is reasonable. The Purchase Plan is not generally subject
to the provisions of the Employee Retirement Income Security Act of 1974, as
amended, and is not qualified under Section 401 of the Code.
15
<PAGE>
PROPOSAL 3: ADOPTION OF THE 1996 DIRECTOR FEE PLAN
At the annual meeting, the shareholders will be asked to approve the Data I/O
Corporation 1996 Director Fee Plan (the "Director Fee Plan"), which will provide
for the payment of annual retainer fees to non-employee directors of Data I/O
Corporation by delivery of shares of the Company's common stock (the "Common
Stock"). If approved, the effective date of the Director Fee Plan will be
January 1, 1996. A total of 200,000 shares of the Company's Common Stock are
proposed to be reserved for issuance pursuant to this plan.
The affirmative vote of at least a majority of the shares of Common Stock
present in person or represented by proxy at the 1996 Annual Meeting and
entitled to vote on the proposal is required for approval of the Director Fee
Plan. THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE FOR APPROVAL OF
THE DIRECTOR FEE 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 adoption of the Director Fee Plan.
DESCRIPTION OF THE 1996 DIRECTORS' FEE PLAN
The following description of the Directors' Fee Plan is qualified in its
entirety by reference to the full text of such plan, a copy of which is attached
to this Proxy Statement as Exhibit A. A total of 200,000 shares of authorized
but unissued Common Stock are proposed to be reserved for issuance pursuant to
the Director Fee Plan.
PURPOSES. The purpose of the Director Fee Plan is to provide a means for paying
non-employee directors their annual retainer with shares of the Company's Common
Stock, thereby increasing their personal interest in enhancing shareholder
value.
NATURE OF PLAN; ELIGIBILITY. Persons eligible to receive Common Stock under the
Director Fee Plan are all directors of the Company who are not otherwise
employed by the Company or any related corporation (as defined in the Director
Fee Plan). The Company currently has four eligible non-employee directors:
Frances M. Conley, W. Hunter Simpson, Donald R. Stenquist, and Milton F.
Zuetschel. Each eligible director shall be entitled to receive shares of Common
Stock in consideration of his or her service on the Board, payable annually in
arrears. The number of shares of Common Stock payable each calendar year shall
be determined by dividing $20,000(1) by the Share Price (as defined below), pro
rated for actual days of service as a director of the Company during the
calendar year. For purposes of this formula, the Share Price is defined as the
average of the high and low sale prices per share of Common Stock on the first
trading day of the calendar year as reported by the NASDAQ National Market
System. With respect to shares of Common Stock payable to a director for
service as a director during the calendar year in which such person was first
elected to the Board, the number of shares will be determined by using the Share
Price as of the day such Director is elected to the Board of Directors, or, if
such date is not a trading day, the first trading day thereafter.
Certificates for shares deliverable under the Director Fee Plan are earned as of
January 1 of the year following the year of service regardless of whether the
director remains a Director on such date, and are to be delivered to each
director by no later that February 15 of such following year. Payment under the
plan will be accelerated if the shareholders of the Company receive securities
of a third party or cash in connection with a merger or other transaction
providing for the conversion or exchange of all or substantially all outstanding
shares of Common Stock. Shares of Common Stock issued pursuant to the Director
Fee Plan may not be disposed of until the expiration of six months after the
conclusion of the calendar year to which the grant of shares relates. As a
condition to participation in this plan, each eligible director will make such
arrangements as the Company may require for the satisfaction of any federal,
state, local or foreign withholding tax obligations that may arise in connection
with delivery of shares under this plan.
AMENDMENT OF PLAN. The Board of Directors of the Company may, at any time,
modify, amend or terminate the Director Fee Plan, provided that the plan is not
amended in any material respect, with certain exceptions, more than once every
six months.
- ----------------
(1) $20,000 is the current amount payable as a full year retainer to members of
the Board of Directors.
16
<PAGE>
TERM. Assuming the Director Fee Plan is approved by shareholders, the effective
date of the plan will be January 1, 1996, and the plan will continue until
terminated by action of the Board of Directors or until all authorized shares
have been consumed.
ADJUSTMENTS. Upon any change in the Company's capitalization, such as a merger,
reorganization, consolidation, conversion or exchange of Common Stock,
recapitalization, stock dividend or stock split, the class and number of shares
yet to be delivered to any director and the class and number of shares reserved
for distribution under the plan shall be adjusted accordingly.
NEW PLAN BENEFITS. Assuming that the Director Fee Plan is approved by the
Company's shareholders, the Company would distribute to each eligible director
of the Company by February 15, 1997, 2,935 shares of Common Stock for his or her
service in the 1996 calendar year, based on the Share Price of $6.81 on January
2, 1996. The number of shares issuable to eligible directors in each subsequent
year is not determinable at this time as the number will depend on the Share
Price as of the first trading day of each subsequent year.
FEDERAL INCOME TAX CONSEQUENCES. A director of the Company receiving a
distribution of Common Stock under the Director Fee Plan as described above will
generally recognize ordinary income subject to taxes (and the Company will be
entitled to a corresponding deduction) upon the distribution of the Common Stock
in the amount of the fair market value of the Common Stock at the time of the
distribution. If shares are held at least one year after the date of the
distribution, then upon the sale of the shares the director will have long-term
capital gains or losses equal to the difference between the sale price and the
fair market value of the shares on the date of distribution.
Under current law, net capital gains are subject to tax at a maximum rate of
28%, whereas ordinary income will generally be taxed at up to a maximum rate of
39.6%.
INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors, upon recommendation of the Company's Audit Committee,
engaged Ernst & Young LLP as the Company's principal accounting firm for the
audit of the Company's 1995 consolidated financial statements. A representative
of Ernst & Young LLP, 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
1997 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
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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 1997 Annual Meeting of Shareholders, shareholder proposals or
nominations to be presented at the 1997 Annual Meeting of Shareholders must be
received by the Company at its executive offices by November 29, 1996.
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 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 28, 1996
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EXHIBIT A
DATA I/O CORPORATION
1996 DIRECTOR FEE PLAN
This 1996 Director Fee Plan (the "Plan") provides for the payment of certain
fees to directors of Data I/O Corporation, a Washington corporation (the
"Company") who are not employees of the Company by delivery of shares of the
Company's common stock (the "Common Stock").
ELIGIBILITY
Persons eligible to receive Common Stock under this Plan shall be all directors
of the Company who are not otherwise employed by the Company or any Related
Corporation, as defined below (each, a "Director", collectively, the
"Directors").
As used in this Plan, the term "Related Corporation," when referring to a
subsidiary corporation, shall mean any corporation (other than the Company) in
an unbroken chain of corporations beginning with the Company if, at the time of
the granting of the Common Stock, each of the corporations other than the last
corporation in the unbroken chain owns stock possessing fifty percent (50%) or
more of the total combined voting power of all classes of stock of one of the
other corporations in such chain. When referring to a parent corporation, the
term "Related Corporation" shall mean any corporation (other than the Company)
in an unbroken chain of corporations ending with the Company if, at the time of
granting of the Common Stock, each of the corporations other than the Company
owns stock possessing fifty percent (50%) or more of the total combined voting
power of all classes of stock of one of the other corporations in such chain.
STOCK
Subject to approval of this Plan by the shareholders of the Company as described
in Section 7 hereof, so long as this Plan is in effect, each person serving as a
member of the Board of Directors of the Company shall be entitled to receive
shares of Common Stock in consideration of his or her service on the Board,
payable annually in arrears. The number of shares of Common Stock payable
hereunder each calendar year shall be determined pursuant to the following
formula, rounded down to the nearest whole number:
(A/365) x ($20,000/Share Price)
A = the number of days of service as a director during the calendar year
The Share Price shall mean the price per share of Common Stock determined as
provided in this paragraph. If the Common Stock of the Company is publicly
traded on the first trading day of the calendar year, the Share Price shall be
the average of the high and low sale prices per share of Common Stock on such
date or, in case no reported sales take place on such date, the average of the
last reported bid and asked prices, in either case on the principal national
securities exchange on which the Common Stock is listed or admitted to trading,
or if not listed or admitted to trading on any national securities exchange, on
the National Association of Securities Dealers Automated Quotation System. If
the Common Stock is not traded in such manner that the quotations referred to
above are available as of such date, the Share Price shall be deemed to be the
greater of (i) the book value per share as set forth on the most recent
quarterly financial statement of the Company available on such date, or (ii) the
fair market value per share at such date as determined in good faith by the
Board of Directors. Notwithstanding the foregoing, with respect to shares of
Common Stock payable to a Director for service as a Director during the calendar
year in which such person was first elected to the Board of Directors, the Share
Price shall be determined in the manner described above as of the day on which
such Director is elected to the Board of Directors, or if the Common Stock is
publicly traded and such day is not a trading day, the first trading day
thereafter.
Certificates for shares deliverable under this Plan shall be earned as of
January 1 of the year following the year of service regardless of whether the
Director remains a Director on such date and shall be delivered to each Director
by not later than February 15 of such following year. Shares of Common Stock
issued pursuant to this Plan may not be sold, assigned or otherwise transferred
or hypothecated until the expiration of six months after the conclusion of the
calendar year to which the grant of shares relates. At the option of the
Company, a stop-transfer order may be placed
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upon the stock books and records of the Company to enforce this limitation.
Furthermore, certificates representing ownership of shares of Common Stock
issued pursuant to this Plan shall bear the following legend:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, ASSIGNED OR
OTHERWISE HYPOTHECATED FOR VALUE PRIOR TO JULY 1, 199__.
RESERVATION OF COMMON STOCK.
Subject to adjustment as set forth in Section 6 hereof, a total of 200,000
shares of authorized but unissued or reacquired Common Stock are hereby reserved
for grant under this Plan.
RIGHTS AS A SHAREHOLDER.
A Director shall have no rights as a shareholder with respect to any shares to
be delivered under this plan until such Director becomes a record holder of such
shares. Subject to the provisions of Sections 6 below, no rights shall accrue
to a Director and no adjustments shall be made on account of dividends (ordinary
or extraordinary, whether in cash, securities or other property) or
distributions or other rights declared on, or created in, the Common Stock for
which the record date is prior to the date the Director becomes a record holder
of the shares of Common Stock.
SECURITIES REGULATION AND TAX WITHHOLDING.
No shares of Common Stock shall be delivered hereunder unless the issuance and
delivery of such shares shall comply with all relevant provisions of law,
including, without limitation, any applicable state securities laws, the
Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as
amended, the rules and regulations thereunder and the requirements of any stock
exchange or consolidated reporting system upon which such shares may then be
listed or quoted. The inability of the Company to obtain from any regulatory
body the authority deemed by the Company to be necessary for the lawful issuance
of any shares under this Plan, or the unavailability of an exemption from
registration for the issuance of any shares under this Plan shall relieve the
Company of any liability with respect to the non-issuance of such shares;
provided, however, if the Company refrains from issuing shares hereunder, the
Director shall receive cash in lieu of shares at a rate of $20,000 per year, pro
rated for actual days of service during the year.
As a condition to participation in this Plan, each Director shall make such
arrangements as the Company may require for the satisfaction of any federal,
state, local or foreign withholding tax obligations that may arise in connection
with delivery of shares under this Plan.
The issuance, transfer or delivery of certificates of Common Stock granted under
this Plan may be delayed, at the option of the Company, until the Company is
satisfied that the applicable requirements of the federal and state securities
laws and the withholding provisions of the Internal Revenue Code have been met.
STOCK DIVIDEND, REORGANIZATION OF LIQUIDATION.
If the Company should declare with respect to the Common Stock a stock-split or
a dividend payable in shares of Common Stock, or a reverse-stock split or other
combination of the Common Stock, or a reclassification of the Common Stock
(each, an "Event"), then (1) the class and number of shares yet to be delivered
to any Director subsequent to the record date for the Event, and (2) the class
and number of shares reserved for grant under Section 3 of this Plan, shall be
appropriately adjusted to account for the change in the number and class of
capital stock of the Company outstanding as a result of the Event, without
further action on the part of the Company, its Board of Directors or its
shareholders.
If the shareholders of the Company receive debt or equity securities of another
Person ("Exchange Securities") or cash in exchange for or in place of shares of
Common Stock in any transaction involving any merger, consolidation,
reorganization or other transaction providing for the conversion or exchange of
all or substantially all outstanding shares of Common Stock into Exchange
Securities or cash, then payment to Directors of the retainer fee provided for
by this Plan, pro rated through the date of closing of such transaction, shall
be accelerated to such closing date and shall be paid in the form of Exchange
Securities or cash, as the case may be. In such case, the amount of Exchange
Securities or cash to be delivered in lieu of Common Stock shall be determined
by adjusting the number of shares of Common Stock otherwise deliverable
hereunder in the same proportion as used for determining the shares of
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Exchange Securities or cash the holders of the Common Stock received in such
merger, consolidation, reorganization or other transaction. Notwithstanding the
foregoing, if payment in the form of Exchange Securities would cause a Director
to have engaged in a violation of Section 16 of the Securities Exchange Act of
1934 (taking into consideration any other transactions in the securities of the
Company or Exchange Securities by the Director), then each such Director shall
receive cash in lieu of Common Stock or Exchange Securities at a rate of $20,000
per year, pro rated for actual days of service during the year prior to the
closing of such transaction.
Except as provided in this Section 6, no Director shall have any rights by
reason of any subdivision, combination or reclassification of shares of any
class of the Company's capital stock, including shares of Common Stock, or the
payment of any dividend payable on shares of Common Stock or any other change in
the number or class of shares of the Company's outstanding capital stock, or by
reason of any merger, consolidation, dissolution or liquidation of the Company,
or by reason of any sale of all or substantially all of the assets of the
Company other than in the usual and regular course of business, or by reason of
any issuance of any shares of capital stock of the Company, including shares of
Common Stock or securities convertible into or exchangeable or exercisable for
shares of Common Stock, and no adjustment by reason thereof shall be made with
respect to the number of shares to be granted to Directors as described in
Section 2 hereof.
EFFECTIVE DATE; TERM
The effective date of this Plan shall be January 1, 1996; PROVIDED that no
shares of Common Stock shall be issued hereunder until the Company's
shareholders have approved this Plan by the affirmative vote of a majority of
the voting securities shares represented in person or by proxy at a duly
convened meeting of the shareholders of the Company at which a quorum is
present. If shareholder approval is not obtained by June 30, 1996, then this
Plan shall be deemed abandoned. Otherwise, this Plan shall continue until
terminated by action of the Board of Directors.
INDEMNIFICATION OF BOARD
In addition to all other rights or indemnification they may have as directors of
the Company or as members of the Board, members of the Board shall be
indemnified by the Company for all reasonable expenses and liabilities of any
type and nature, including reasonable attorneys' fees, incurred in connection
with any action, suit or proceeding to which they or any of them are a party by
reason of, or in connection with, the Plan or any grant of Common Stock
hereunder, and against all amounts paid by them in settlement thereof (provided
such settlement is approved by independent legal counsel selected by the
Company), except to the extent that such expenses relate to matters for which it
is adjudged that such Board members are liable for willful misconduct; PROVIDED,
that within fifteen (15) days after the institution of any such action, suit or
proceeding, member(s) of the Board shall, in writing, notify the Company of such
action, suit or proceeding, so that the Company may have the opportunity to make
appropriate arrangements to prosecute or defend the same.
AMENDMENT OF PLAN
The Board of Directors may, at any time, modify, amend or terminate this Plan,
including, without limitation, such modifications or amendments as are necessary
to maintain compliance with applicable statutes, rules or regulations; PROVIDED,
that (i) any amendment for which shareholder approval is required by Securities
and Exchange Commission Rule 16b-3, as amended from time to time, or any
successor rule or regulatory requirements (the "Rule"), in order for the Plan to
be eligible or continue to qualify for the benefits of the Rule, shall be
subject to approval of the shareholders of the Company in accordance with the
Rule; and (ii) this Plan shall not be amended in any material respect more than
once every six (6) months, other than to comport with changes in the Rule, the
Internal Revenue Code of 1986, as amended, the Employee Retirement Security Act
of 1974, as amended, or the rules thereunder.
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DATA I/O CORPORATION
1982 EMPLOYEE STOCK PURCHASE PLAN
AMENDED AND RESTATED SEPTEMBER 1, 1993
1.1 PURPOSE
This 1982 Employee Stock Purchase Plan (the "Plan") is intended as an
incentive and to encourage stock ownership by all eligible employees of Data I/O
Corporation (the "Company") and participating subsidiaries so that they may
share in the fortunes of the Company by acquiring or increasing their
proprietary interest in the Company. The Plan is designed to encourage eligible
employees to remain in the employ of the Company. It is intended that options
issued pursuant to this Plan shall constitute options issued pursuant to an
"employee stock purchase plan" within the meaning of Section 423 of the 1954
Internal Revenue Code (the "Code").
1.2 ELIGIBLE EMPLOYEES
All regular, full-time employees of the Company or any of its
participating subsidiaries shall be eligible to receive options under this Plan
to purchase the Company's common stock, no par value (the "Common Stock")
(except employees in countries whose laws make participating impractical). For
purposes of this Plan, the term employee shall include all employees of the
Company or any of its participating subsidiaries other than persons whose
customary employment is twenty (20) hours or less per week or not more than five
(5) months per year. Persons who are employees on the August 1 next following
the date that this Plan is approved by the stockholders of the Company shall
receive their options as of such August 1. Persons who become eligible to
participate in the Plan after the date on which the initial options are granted
hereunder shall be granted options on the next date on which options are granted
to all eligible employees. In no event may an employee participate in this Plan
if such employee, immediately after the option is granted, owns stock possessing
five percent (5%) or more of the total combined voting power or value of all
classes of stock of the Company or of its parent corporation or subsidiary
corporation, as the terms "parent corporation" and "subsidiary corporation" are
defined in Section 425 (e) and (f) of the Code. For purposes of determining
stock ownership under this paragraph, the rules of Section 425(d) of the Code
shall apply and stock which the employee may purchase under outstanding options
shall be treated as stock owned by the employee.
1.3 STOCK SUBJECT TO THE PLAN
The stock subject to the options shall be shares of the Company's
authorized but unissued Common Stock or shares of Common Stock reacquired by the
Company including shares purchased in the open market. The aggregate number of
shares which may be issued pursuant to the Plan is 1,150,000, subject to
increase or decrease by reason of stock split-ups, reclassifications, stock
dividends, changes in par value and the like.
1.4 PAYMENT PERIODS AND STOCK OPTIONS
The period during which payroll deductions will accumulate under the
Plan shall be six (6) months (the "Payment Period") and there shall be two (2)
such Payment Periods in each calendar year, commencing August 1 and February 1
and terminating on January 31 and July 31 of each year, respectively. Each
Payment Period includes only regular pay days falling within it.
On the first business day of each Payment Period, the Company will grant
to each eligible employee who is then a participant in the Plan an option to
purchase on the last day of such Payment Period at the option price hereinafter
provided such number of full shares of the Common Stock of the Company, reserved
for the purpose of the Plan, as his or her accumulated payroll deductions on the
last day of such Payment Period will pay for at such option price; provided and
on condition that such employee remains eligible to participate in the Plan
throughout such Payment Period; and provided further, that the maximum number of
shares granted to any eligible employee hereunder in any Payment Period shall
not exceed two (2) times the number of full shares of Common Stock as such
employee's accumulated payroll deductions would pay for on the exercise date
assuming an exercise price equal to eighty-five percent (85%) of the fair market
value of the Company's Common Stock on the first day of such Payment Period. The
option price for each Payment Period shall be the lesser of (i) eighty five
percent (85%) of the fair market value of the Company's Common Stock on the
first business day of the Payment Period; or (ii) eight five
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percent (85%) of the fair market value of the Company's Common Stock on the last
business day of the Payment Period, in either case rounded up to avoid fractions
other than 1/4, 1/2 and 3/4 (the "Option Price"). In the event of an increase or
decrease in the number of outstanding shares of Common Stock of the Company
through stock split-ups, reclassifications, stock dividends, changes in par
value and the like, an appropriate adjustment shall be made in the number of
shares and Option Price per share provided for under the Plan, either by a
proportionate increase in the number of shares and a proportionate decrease in
the Option Price per share, or by a proportionate decrease in the number of
shares and a proportionate increase in the Option Price per share, as may be
required to enable an eligible employee who is then a participant in the Plan as
to whom an option is exercised on the last day of any then current Payment
Period to acquire such number of full shares as his accumulated payroll
deductions on such date will pay for at the adjusted Option Price.
For purposes of this Plan the term "fair market value" on any given day
means: (i) if the Common Stock is listed on a national securities exchange, the
average of the high and low prices of the Common Stock of the Company on such
exchange or such other national securities exchange as shall be designated by
the Board of Directors; or (ii) if the Common Stock is traded in the over-the-
counter securities market, the last sale price of the Common Stock as quoted by
NASDAQ National Market System or, if the Common Stock is not quoted in the
National Market System, the mean between the closing bid and asked prices of the
Common Stock as quoted by NASDAQ.
For purposes of this Plan the term "business day" as used herein means a
day on which there is trading on any national securities exchange as shall be
designated by the Board of Directors pursuant to the preceding paragraph.
No employee shall be granted an option which permits his or her rights
to purchase Common Stock under the Plan and any similar plans of the Company or
any parent or subsidiary corporations to accrue at a rate which exceeds twenty
five thousand dollars ($25,000) of fair market value of such stock (determined
at the time such option is granted) for each calendar year which such option is
outstanding at any time. The purpose of the limitation in the preceding sentence
is to comply with Section 423(b)(8) of the Code.
1.5 EXERCISE OF OPTION
Each eligible employee who continues to be a participant in the Plan on
the last business day of a Payment Period shall be deemed to have exercised his
or her option on such date and shall be deemed to have purchased from the
Company such number of full shares of Common Stock reserved for the purpose of
the Plan as his or her accumulated payroll deductions on such date will pay for
at such Option Price. If a participant is not an employee on the last business
day of a Payment Period, such participant shall not be entitled to exercise his
or her option.
1.6 UNUSED PAYROLL DEDUCTIONS
Only full shares of Common Stock may be purchased. Any balance remaining
in an employee's account after a purchase will be reported to the employee and
will be carried forward to the next Payment Period.
1.7 AUTHORIZATION FOR ENTERING PLAN
An employee may enter the Plan by filling out, signing and delivering to
the Vice President - Human Resources's office an authorization (the
"Authorization"):
(a) specifying the exact payroll deduction;
(b) authorizing the purchase of stock in each Payment Period in
accordance with the terms of the Plan; and
(c) specifying the exact name in which stock purchased is to be issued
as provided under 1.11 hereof.
Such Authorization must be received by the Vice President - Human
Resources's office at least ten (10) days before the beginning date of such next
succeeding Payment Period.
Unless an employee files a new Authorization or withdraws from the Plan,
his deductions and purchases under the Authorization on file will continue so
long as the Plan remains in effect.
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All payroll deductions made for an employee shall be deposited in the
Company's general corporate account and shall not bear interest. An employee may
not make any separate cash payment into such account and may reduce the amount
of the deduction once during the Payment Period (see Section 1.9). The Company
will maintain complete records showing the amount of payroll deductions of each
employee.
1.8 MAXIMUM AMOUNT OF PAYROLL DEDUCTIONS
An employee may authorize payroll deductions in any whole dollar amount
up to but not more than ten percent (10%) of his or her regular base pay,
provided, however, that the minimum deduction in respect of any payroll period
shall be five dollars ($5.00) (or such lesser amount as the Committee shall
establish).
The base pay of each Participant for each payroll period is the regular
straight time compensation earned during such payroll period, before any
deductions or withholdings, but excluding overtime, bonuses, amount paid as
reimbursement of expenses and other additional compensation.
1.9 CHANGE IN PAYROLL DEDUCTIONS
Deductions may be decreased only once in a Payment Period. A new
Authorization will be required and must be received in the Vice President -
Human Resources's office no later than six (6) days prior to the individual's
pay date.
1.10 WITHDRAWAL FROM THE PLAN
An employee may withdraw from the Plan, in whole but not in part, at any
time prior to the last business day of each Payment Period by delivering a
Withdrawal Notice to the Vice President - Human Resources's office, in which
event the Company will refund the entire balance of his or her deductions not
theretofore used to purchase stock under the Plan within fifteen (15) days
following receipt of the Withdrawal Notice.
An employee who withdraws from the Plan will be treated like an employee
who has never entered the Plan. To re-enter, an employee must file a new
Authorization at least ten (10) days before the beginning date of the next
Payment Period which cannot, however, become effective before the beginning of
the next Payment Period following withdrawal.
1.11 ISSUANCE OF STOCK
Certificates for stock issued to participants will be delivered as soon
as practicable after each Payment Period.
Stock purchased under the Plan will be issued only in the name of the
employee, or if the Authorization so specifies, in the name of the employee and
another person of legal age as joint tenants with rights of survivorship.
In order to obtain the tax treatment provided by the Code for employee
stock purchase plans within the meaning of Section 423 of the Code, the shares
of stock received after the end of each Payment Period may not be sold by the
employee until after a date which is the later of two (2) years from the date
that the option to purchase such shares is granted (pursuant to Section 1.4
hereof) and one (1) year from the date that the shares are transferred to the
employee. Sale or other disposition of such shares prior to such date may give
rise to federal income tax and Federal Insurance Contribution Act ("FICA")
withholding obligations on the part of the Company. Accordingly, certificates
representing shares issued to employees upon exercise of options granted
hereunder will bear a legend restricting transfer prior to such date, unless the
employee shall have reimbursed the Company for any federal income tax and FICA
withholding obligations arising out of the transaction.
1.12 NO TRANSFER OR ASSIGNMENT OF EMPLOYEE'S RIGHTS
An employee's rights under the Plan are the employee's alone and may not
be transferred or assigned to, or availed of by, any other person. Any option
granted to an employee may be exercised only by such employee.
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1.13 TERMINATION OF EMPLOYEE'S RIGHTS
An employee's rights under the Plan will terminate when he ceases to be
an employee because of resignation, retirement, lay-off, discharge, or change of
status. A Withdrawal Notice will be considered as having been received from the
employee on the day his or her employment ceases, and all payroll deductions not
used will be refunded.
If an employee's employment shall be terminated by reason of death or
disability prior to the end of the current Payment Period, the employee (his or
her designated beneficiary, in the event of his death, or if none, his or her
legal representative) shall have the right, within ninety (90) days thereafter,
to elect to have the balance in his or her account either refunded in cash or
applied at the end of the current Payment Period toward the purchase of Common
Stock.
1.14 TERMINATION AND AMENDMENTS TO PLAN
The Plan may be terminated at any time by the Company's Board of
Directors. It will terminate in any case when all or substantially all of the
unissued shares of Common Stock reserved for the purpose of the Plan have been
purchased. If at any time shares of stock reserved for the purposes of the Plan
remain available for purchase but not in sufficient number to satisfy all then
unfilled purchase requirements, the available shares shall be apportioned among
participants in proportion to their options and the Plan shall terminate. Upon
such termination or any other termination of the Plan, all payroll deductions
not used to purchase stock will be refunded.
The Board of Directors also reserves the right to amend the Plan from
time to time, in any respect, provided, however, that no amendment shall be
effective without prior approval of the stockholders, which would (a) except as
provided in Paragraphs 1.3 and 1.4, increase the number of shares of Common
Stock to be offered above or (b) change the class of employees eligible to
receive options under the Plan.
1.15 LIMITATIONS ON SALE OF STOCK PURCHASED UNDER THE PLAN
The Plan is intended to provide Common Stock for investment and not for
resale. The Company does not, however, intend to restrict or influence any
employee in the conduct of his own affairs. An employee may, therefore, sell
stock purchased under the Plan at any time, provided, however, that because of
certain Federal tax requirements, each employee will agree by signing the
Authorization to promptly give the Company notice of any such stock disposed of
within one (1) year after the date of the last day of the Payment Period during
which the stock was purchased indicating the number of such shares disposed. The
employee assumes the risk of any market fluctuations in the price of such stock.
1.16 COMPANY'S PAYMENT OF EXPENSES RELATED TO THE PLAN
The Company will bear all costs of administering and carrying out the
Plan.
1.17 PARTICIPATING SUBSIDIARIES
The term "participating subsidiaries" shall mean any subsidiary of the
Company which is designated by the Board of Directors to participate in the
Plan. The Board of Directors shall have the power to make such designation
before or after the Plan is approved by the stockholders.
1.18 ADMINISTRATION OF THE PLAN
The Plan shall be administered by a committee appointed by the Board of
Directors of the Company (the "Committee"). The Committee shall consist of not
less than three (3) members of the Company's Board of Directors. The Board of
Directors may from time to time remove members from, or add members to, the
Committee. Vacancies on the Committee, however caused, shall be filled by the
Board of Directors. The Committee shall select one of its members as Chairman,
and shall hold meetings at such times and places as it may determine. Acts by a
majority of the Committee, or acts reduced to or approved in writing by a
majority of the members of the Committee, shall be
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the valid acts of the Committee. No member of the Committee shall be eligible
to participate in the Plan while serving as a member of the Committee.
The interpretation and construction by the Committee of any provisions
of the Plan or of any option granted under it shall be final unless otherwise
determined by the Board of Directors. The Committee may from time to time adopt
such rules and regulations for carrying out the Plan as it may deem best. No
member of the Board of Directors or the Committee shall be liable for any action
or determination made in good faith with respect to the Plan or any option
granted under it.
1.19 OPTIONEES NOT STOCKHOLDERS
Until such time as the applicable Common Stock is actually purchased by
and issued to an employee pursuant to the Plan, no employee shall be considered
a shareholder or have shareholder rights merely by reason of tendering to the
Company an Authorization and, therefore, instituting payroll deductions and
related actions.
1.20 APPLICATION OF FUNDS
The proceeds received by the Company from the sale of Common Stock
pursuant to options granted under the Plan will be used for general corporate
purposes.
1.21 GOVERNMENTAL REGULATION
The Company's obligation to sell and deliver shares of the Company's
Common Stock under this Plan is subject to the approval of any governmental
authority required in connection with the authorization, issuance or sale of
such Common Stock.
1.22 WITHHOLDING OF ADDITIONAL FEDERAL INCOME TAX
In accordance with Section 3402(a) of the Code and the regulations and
rulings promulgated thereunder, the Company will withhold from the wages of
participating employees, in all payroll periods following and in the same
calendar year as the date on which compensation is deemed received by the
employee, additional income taxes in respect of amounts deemed compensation to
be included as includible gross income reported by the employee.
1.23 APPROVAL OF STOCKHOLDERS
The Plan shall not take effect until approved by the holders of a
majority of the outstanding shares of Common Stock of the Company, which
approval must occur within the period beginning twelve (12) months before and
ending twelve (12) months after the date the Plan is adopted by the Board of
Directors.
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PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
DATA I/O CORPORATION
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 Corporation that the undersigned would be
entitled to vote if personally present at the annual meeting of shareholders to
be held on May 14, 1996, 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 comments/address change box on reverse
side.
(Continued, and to be marked, dated and signed, on the other side)
This proxy, when properly executed, will be voted in the manner directed on this
proxy card. The Board of Directors recommends a vote FOR all nominees and FOR
the proposals to amend the Data I/O Corporation 1982 Employee Stock Purchase
Plan and to approve the Data I/O Corporation 1996 Director Fee Plan. If no
specification is made, all shares represented by this proxy will be voted FOR
all of said nominees and FOR the proposed amendment to the Data I/O Corporation
1982 Employee Stock Purchase Plan and for the approval of the Data I/O
Corporation 1996 Director Fee 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.
1. Election of Directors FOR all nominees WITHHOLD AUTHORITY
(INSTRUCTION: To withhold listed at left to vote for all
authority to vote for any (except as marked nominees listed at
individual nominee, strike a line to the contrary at left. [ ]
through the nominee's name in the left). [ ]
list below.)
William C. Erxleben
W. Hunter Simpson
Donald R. Stenquist
Milton F. Zeutschel
Frances M. Conley
2. Proposal to amend the Data For [ ] Against [ ] Abstain [ ]
I/O Corporation 1982 Employee
Stock Purchase Plan as described
in the Proxy Statement for the
1996 Annual Meeting.
3. Proposal to approve the For [ ] Against [ ] Abstain [ ]
Data I/O Corporation 1996 Director
Fee Plan as described in the Proxy
Statement for the 1996 Annual
Meeting.
4. In their discretion, the
holders of this proxy are
authorized to vote upon such other
business as may properly come
before the meeting.
[ ] COMMENTS/ADDRESS CHANGE
Please mark this box if you have written comments/address change on the reverse
side .
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.
Signature(s) Date
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NOTE: 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.
