DATA I/O CORPORATION
NOTICE OF 2000
ANNUAL MEETING
and
PROXY STATEMENT
DATA I/O CORPORATION
March 27, 2000
To Our Shareholders:
You are cordially invited to attend the 2000 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.
Pacific Daylight Time on Friday, May 19, 2000. 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 respond to questions either during or after the meeting. We
will review the business operations of the Company for 1999 and the first
quarter of 2000 and report on our strategic plan for the future. Formal business
will include the election of directors and the consideration of the approval of
the Company's 2000 Stock Incentive Compensation 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 19.
Sincerely,
//S//Frederick R. Hume
Frederick R. Hume
President and Chief Executive Officer
DATA I/O LOCATION MAP
DATA I/O CORPORATION
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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS - May 19, 2000
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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
Friday, May 19, 2000, at the Company's principal offices, 10525 Willows Road
N.E., Redmond, Washington 98052, for the following purposes:
(1) Election of Directors:
To elect six directors, each to serve until the next annual meeting
of shareholders or until their successors are elected and qualified.
(2) Stock Incentive Compensation Plan:
To consider and vote on a proposal to approve the Data I/O
Corporation 2000 Stock Incentive Compensation Plan which provides
for an additional 300,000 shares of Common Stock to be reserved for
issuance under the Plan.
(3) Other Business:
To consider and vote upon such other business as may properly come
before the meeting or any adjournments or postponements thereof.
The Board of Directors has fixed the close of business on March 10, 2000, as the
Record Date for the determination of shareholders entitled to notice of, and to
vote at, the 2000 Annual Meeting and any adjournment or postponement thereof.
By Order of the Board of Directors
//S//Frederick R. Hume
Frederick R. Hume
President and Chief Executive Officer
Redmond, Washington
March 27, 2000
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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. Your proxy is revocable at your request any time before it is
voted. If you attend the meeting, you may vote in person if you wish even if you
have previously returned your proxy card. An addressed, postage-paid envelope is
provided in order to make certain that your shares will be represented at the
Annual Meeting.
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Page 1
DATA I/O CORPORATION
10525 Willows Road N.E.
Redmond, Washington 98052
--------------------
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
May 19, 2000
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 Friday, May 19, 2000, at 2:00 p.m. Pacific Daylight Time at the
Company's principal offices, 10525 Willows Road N.E., Redmond, Washington 98052,
and at any adjournment thereof (the "Annual Meeting"). Shareholders of record at
the close of business on March 10, 2000 (the "Record Date") are entitled to
notice of and to vote at the Annual Meeting. This Proxy Statement and a copy of
the Company's 1999 Annual Report to Shareholders is being mailed to shareholders
on or about March 27, 2000.
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 Data I/O Corporation 2000 Stock
Incentive Compensation Plan (the "2000 Plan"), check the appropriate box under
Item No. 2 on your proxy card. You may (a) vote "FOR" approval of the 2000 Plan,
(b) vote "AGAINST" approval of the 2000 Plan, or (c) "ABSTAIN" from voting on
the approval of the 2000 Plan. Proxies which are returned to the Company without
instructions will be voted as recommended by the Board of Directors. Any
shareholder who returns a proxy may 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 Annual 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 7,365,063 shares of
Common Stock issued and outstanding, and each such share is entitled to one vote
at the Annual Meeting. The presence in person or by proxy of holders of record
of a majority of the outstanding shares of Common Stock is required to
constitute a quorum for the transaction of business at the Annual Meeting.
Shares of Common Stock underlying abstentions 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 six 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 will have no effect on the election of directors since they are not
cast in favor of any particular candidate. There can be no broker non-votes on
the election of directors since brokers who hold shares for the accounts of
their clients have discretionary authority to vote such shares with respect to
the election of directors. The proposal to approve the Stock Plan will be
approved, if a quorum is present, if the number of votes cast in favor of the
proposal exceeds the number of votes cast against it. Abstentions and broker
non-votes on this proposal will have no effect since approval of this proposal
is based solely on the votes cast. Proxies and ballots will be received and
tabulated by ChaseMellon Shareholder Services, an independent business entity
not affiliated with the Company.
Page 2
The Common Stock is traded on the NASDAQ Stock Market under the symbol DAIO. The
last sale price for the Common Stock, as reported by the NASDAQ Stock Market on
March 10, 2000, was $6.25 per share.
The following table sets forth information with respect to all shareholders
known by the Company to be the beneficial owners of more than five percent of
its outstanding Common Stock as of March 10, 2000. Except as noted below, each
person or entity has sole voting and investment powers with respect to the
shares shown.
Amount & Nature
of Beneficial Percent of Shares
Name and Address Ownership Outstanding
---------------- --------------- ----------------
Glen F. Ceiley 1,445,3(1) 19.6%
Bisco Industries Inc.
704 W. Southern Avenue
Orange, CA 92865
Robert E. Killen 380,213(2) 5.2%
c/o The Killen Group, Inc.
1199 Lancaster Avenue
Berwyn, PA 19312
Dimensional Fund Advisors, Inc. 477,600(3) 6.5%
1299 Ocean Avenue - 11th Floor
Santa Monica, CA 90401
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(1) The holding shown is as of December 7, 1999, as reported by Glen F. Ceiley,
Matthew Ceiley, Zachary Ceiley, Bisco Industries, Inc. ("Bisco"), Bisco
Industries, Inc. Profit Sharing and Savings Plan (the "Bisco Plan"), and
Family Steak Houses of Florida, Inc. on a Schedule 13D filed pursuant to
Rule 13d-1(b) or 13d-2(b) of the Securities Exchange Act of 1934. Said
Schedule 13D indicates that Mr. Glen Ceiley holds sole voting and
dispositive power with respect to 900 shares, Matthew Ceiley holds sole
voting and dispositive power with respect to 700 shares, Zachary Ceiley
holds sole voting and dispositive power with respect to 800 shares, Bisco
holds sole voting and dispositive power with respect to 973,400 shares, the
Bisco Plan holds sole voting and dispositive power with respect to 460,025
shares and Family Steak Houses of Florida, Inc. holds sole voting and
dispositive power with respect to 6,000 shares. Mr. Glen Ceiley is the
President, director, and sole shareholder of Bisco and is also the sole
trustee of the Bisco Plan. Mr. Glen Ceiley is Chairman of the Board and,
through his beneficial ownership, a major shareholder of Family Steak
Houses of Florida, Inc. In addition to the shares reported above, Mr. Glen
Ceiley also owns 3,557 which he received in January 2000 as part of his
director's compensation for services rendered on the Company's Board in
1999.
(2) The holding shown is as of February 11, 2000, as reported by The Killen
Group, Inc., a registered investment advisor, and by Robert E. Killen, its
Chairman, Chief Executive Officer and sole shareholder, on a Schedule 13G
filed pursuant to Rule 13d-1 of the Securities Exchange Act of 1934. Said
Schedule 13G indicates that the Killen Group holds sole voting power with
respect to 248,855 shares and sole dispositive power with respect to
378,213 shares and that Mr. Killen holds sole voting and dispositive power
with respect to 2,000 shares.
(3) The holding shown is as of February 3, 2000, 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 and dispositive power
with respect to 477,600 shares. Dimensional disclaims beneficial ownership
of all of these shares.
Directors' and Officers' Share Ownership
The following table indicates ownership of the Company's Common Stock by each
director of the Company, including nominees for director, each executive officer
named in the compensation tables appearing later in this
Page 3
Proxy Statement, and by all directors and executive officers as a group, all as
of March 10, 2000. The Company is not aware of any family relationships between
any director, director nominee or executive officer of the Company.
Amount &
Nature of Percent of
Beneficial Shares
Name Ownership Outstanding
Glen F. Ceiley 1,445,382 (1) 19.6%
Paul A. Gary 81,932 (2) 1.1%
Joel S. Hatlen 79,305 (3) 1.1%
Mark L. Edelsward 77,830 (4) 1.1%
James M. Rounds 53,250 (5) (6)
Frederick R. Hume 52,557 (7) (6)
Helmut Adamski 31,250 (8) (6)
Keith L. Barnes 27,834 (2) (6)
Edward D. Lazowska 13,598 (2) (6)
Daniel A. DiLeo (9) 0 (6)
David C. Bullis (10) 0 (6)
All current directors and
executive officers
as a group (9 persons) 1,862,938 (11) 25.3%
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(1) See a description of Mr. Ceiley's ownership and beneficial ownership on
Page 3.
(2) Includes options to purchase 4,375 shares exercisable within 60 days.
(3) Includes options to purchase 44,750 shares exercisable within 60 days.
(4) Includes options to purchase 51,750 shares exercisable within 60 days.
(5) Includes options to purchase 53,250 shares exercisable within 60 days.
(6) Less than 1 percent each.
(7) Includes options to purchase 50,000 shares exercisable within 60 days.
(8) Includes options to purchase 31,250 shares exercisable within 60 days.
(9) Mr. DiLeo has been nominated for election to the Board of Directors
at the Annual Meeting.
(10) Mr. Bullis resigned as President and Chief Executive Officer on February
22, 1999, but remained on the Board of Directors until his resignation
from the Board in September 1999.
(11) Includes options to purchase 244,125 shares exercisable within 60 days.
PROPOSAL 1: ELECTION OF DIRECTORS
At the Annual Meeting, the shareholders will vote on the election of six
directors to serve until the next Annual Meeting or until a successor has been
qualified and elected. The Board of Directors has approved the six nominees
named below, all of whom, with the exception of Mr. DiLeo, are currently members
of the Board of Directors. Each of the nominees has indicated that they are
willing and able to serve as directors. However, should one or more of the
nominees 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.
Keith L. Barnes, age 48, has been a director of the Company since December 1996.
Since 1991 Mr. Barnes has been the President of Integrated Measurement Systems,
Inc. (IMS), a manufacturer of integrated circuit test equipment. Since 1995 he
also has been the Chief Executive Officer of IMS and since 1991 has served on
its Board of Directors.
Glen F. Ceiley, age 54, has been a director of the Company since February 1999
when he was appointed to the Board of Directors pursuant to a Standstill
Agreement dated February 10, 1999 which expired on February 10, 2000. Since
1973, Mr. Ceiley has been the President and Chief Executive Officer of Bisco
Industries, a distributor of
Page 4
fasteners and electronic components, which owns approximately 19.6% (based on
share ownership as of December 7, 1999) of the stock of the Company. Mr. Ceiley
is also Chairman of the Board of Family Steak Houses of Florida, Inc., which
owns less than one percent (based on share ownership as of December 7, 1999) of
the stock of the Company. In May 1998, the Securities and Exchange Commission
issued a cease and desist order against Bisco in connection with Bisco's
purchase of certain shares of Family Steak Houses while its tender offer for
shares of Family Steak Houses was outstanding in violation of Rule 10b-13 of the
Exchange Act. Bisco consented to the entry of the order without admitting or
denying the findings set forth in the order.
Daniel A. DiLeo, age 52, has been nominated for election to the Board of
Directors at the Annual Meeting. Mr. DiLeo has more than 25 years in both system
and semiconductor divisions with Lucent Technologies and AT&T Companies.
Currently, Mr. DiLeo is President, Optoelectronics Division at Lucent
Technologies, Microelectronics Group. In addition, he serves as a Director of
OIDA (Optoelectronics Industry Development Association).
Paul A. Gary, age 59, has been a director of the Company since March 1998 and
was named Chairman of the Board in May 1999. From 1987 until his retirement in
1996, Mr. Gary worked for Lucent Microelectronics (formerly AT&T
Microelectronics) in various management positions, the last of which was as Vice
President of the Netcom IC Business unit. From 1981 to 1987 he held management
positions with Western Electric Company, including Director of Engineering and
Director of Manufacturing. From 1967 to 1981, Mr. Gary worked for Bell
Laboratories. Mr. Gary is also a director of TriQuint Semiconductors Inc. and
Integrated Measurement Systems, Inc.
Frederick R. Hume, age 57, became President and Chief Executive Officer of the
Company on February 23, 1999. He has been a director of the Company since
January 1999. From 1988 until his retirement in 1998, Mr. Hume was Vice
President and General Manager of Keithley Instruments in Cleveland, Ohio. From
1972 to 1988, he held various management positions at John Fluke Manufacturing,
including Group Vice President for Manufacturing and Research and Development.
Mr. Hume is also a director of ILX Lightwave.
Edward D. Lazowska, age 49, has been a director of the Company since August
1996. Since 1977, Dr. Lazowska has been a member of the faculty of the
University of Washington's Department of Computer Science and Engineering. Since
1993, he has held the position of Professor and Department Chair.
Board and Committee Meetings
The Board of Directors has three standing Committees: the Audit Committee, the
Compensation Committee, and the Nominating Committee. The Audit Committee
consisted of Messrs. Gary and Barnes from January through mid-May 1999 and
Messrs. Lazowska, Barnes, and Bullis (until his resignation from the Board) from
mid-May through December 1999. The Compensation Committee consisted of Mr.
Lazowska from January through mid-May 1999 and Messrs. Gary and Ceiley from
mid-May through December 1999. The Nominating Committee consisted of Messrs.
Lazowska and Gary throughout 1999.
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 3 times during fiscal 1999.
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, stock purchase and stock appreciation rights plans. The
Compensation Committee reviews all employee benefit programs and approves
significant changes in major programs and all new programs. The Compensation
Committee met 2 times during fiscal 1999.
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 director nominees which
are submitted to the Secretary of the Company in accordance with the
Page 5
procedures described below under the caption, "Shareholder Nominations and
Proposals for the 2001 Annual Meeting of Shareholders". The Nominating Committee
did not meet as a separate body apart from the whole Board during fiscal 1999.
During the fiscal year ended December 31, 1999, there were 11 meetings of the
Board of Directors. Each of the incumbent directors who were on the Board of
Directors during fiscal 1999 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 served during his
term of service on the Board.
Compensation Committee Interlocks and Insider Participation
From January to mid-May 1999, the Compensation Committee of the Board of
Directors consisted of Mr. Lazowska. From mid-May to December 1999, the
Compensation Committee consisted of Messrs. Ceiley and Gary. None of these
individuals has served at any time as an officer or employee of the Company or
as a member of the Board of Directors or Compensation Committee of any entity
that has had one or more executive officers which served as a member of the
Company's Board of Directors or Compensation Committee.
Board Compensation
Employee directors do not receive additional compensation for serving on the
Board of Directors. Non-employee directors received a cash retainer for fiscal
year 1999 of $3,750 for each quarter of service plus $1,000 for each full Board
meeting attended and $500 for each teleconference Board meeting attended.
Beginning May 11, 1999, additional quarterly compensation was paid to the
non-employee directors for serving as Chairman of the Board or as a committee
chair; $2,500 for Chairman of the Board and $750 for the audit, compensation,
and nominating committee chairs. In addition, each non-employee Board member as
of May 11, 1999 was granted $5,000 worth of Common Stock based upon the May 11
value. The stock was earned prorata throughout the remainder of the year and was
issued in January 2000. These shares were issued under the provisions and terms
of the 1996 Director Fee Plan. The Company also reimburses non-employee
directors for actual travel and out-of-pocket expenses incurred in connection
with service to the Company.
The following table shows compensation paid by the Company to non-employee
directors during fiscal year 1999.
Cash Compensation Security Grants
---------------------------------------- ----------------
Chairman of the Board/
Board Committee Chairman Number of
Name Retainer Retainer ($) Meeting Fees Shares (#)(1)
- ---- --------- ------------ ------------- -------------
($) ($)
--- ---
Keith L. Barnes $15,000 $1,912 $8,500 3,557
David C. Bullis (2) $0 $0 $0 0
Glen F. Ceiley (3) $13,334 $1,912 $5,500 3,557
Paul A. Gary $15,000 $6,374 $8,500 3,557
Edward D. Lazowska $15,000 $1,912 $8,500 3,557
- -------------------
(1) Shares of Company's Common Stock were distributed to the directors in
January 2000.
(2) After Mr. Bullis resigned as President and Chief Executive Officer in
February 1999, he remained on the Board of Directors as a non-compensated
member. He resigned from the Board of Directors in September 1999.
(3) Mr. Ceiley was elected to the Board of Directors in February 1999.
Section 16(a) Beneficial Ownership Reporting Compliance
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 the
Company's Common Stock ("Reporting Persons") to file with the Securities and
Exchange Commission ("SEC") 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.
Page 6
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 during 1999 except for one amended report filed by
each of the following: Paul A. Gary, director, and Joel S. Hatlen, Vice
President Finance and Chief Financial Officer. The amended report for Mr. Gary
corrected the purchase price of 20,000 shares originally reported for November
1999 at $2.25 per share to 14,100 shares purchased at $2.25 per share and 5,900
shares purchased at $2.2187 per share. The amended report for Mr. Hatlen
corrected the number of shares purchased through the Employee Stock Purchase
Plan in August 1999 originally reported as 4,516 shares to 4,878 shares.
Page 7
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 the Company'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 periodically based on
surveys of compensation paid to executives performing similar duties with
electronic manufacturing and software companies of approximately the same size
as the Company, located primarily in the United States. 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 1999, the executive officer
group as a whole received cash compensation which, according to survey data, was
within the 25th to 75th percentile of the aggregate median cash compensation
paid to officers in similar positions at similar-sized electronics companies.
Management Incentive Compensation Plan ("MICP"). The MICP offers each executive
officer a performance- based opportunity to earn additional annual cash
compensation in an amount tied to a percentage of the executive officer's base
salary. The Committee's objective in setting executive MICP percentages and the
formulas for MICP payout is to pay above industry average total compensation for
better than industry average historical financial performance and below industry
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 early in the year.
The 1999 MICP guidelines for executive officers ranged from 25% to 40% of base
salary.
The actual MICP payout to an executive officer in relation to his guideline for
1999 was a function of two or three measurements. For Mr. Hume, the President,
and Mr. Edelsward, the Vice President of Worldwide Sales, there were two
measurements: the Company's revenue and the Company's net income compared to
predetermined targets. For each of the other officers, there was a third
measurement which was the accomplishment of certain operating objectives that
were unique to each officer. The Committee believes that these targets and
metrics were measures of key activities for the Company during 1999 which will
affect near-term and long-term shareholder value. MICP payouts to executive
officers for 1999 were based entirely on a formula which included these two or
three variables. Guideline MICP is to be paid to an executive officer if the
Company and the officer achieves a combined result versus targets and objectives
of 100%. A greater or lesser percentage of guideline is to be paid if a combined
result of greater or less than 100% is achieved.
The MICP for 1999 provided that MICP payouts would be based on the achievement
of a certain level of the combined objectives described above. In some cases,
not all officers would receive an MICP payout. The maximum payout to executive
officers under MICP cannot exceed 150% of guideline. For 1999, the revenue and
net income targets were not achieved. The individual operating objective targets
were achieved to varying degrees and resulted in a 5% average payout to
executive officers, excluding Messrs. Hume and Edelsward who did not receive a
payout. See "Summary Annual Compensation Table."
Stock Option Plan. The Committee approves grants under the Data I/O Corporation
1986 Employee Stock Option Plan, as amended and restated (the "1986 Plan"). This
is the Company's only long-term incentive plan. The primary purpose of the 1986
Plan is to make a significant element of executive pay a reward for taking
actions which
Page 8
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 other executive officer in
1999 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 13% of outstanding shares, which
the Company believes is slightly below the average within the electronics
industry.
Historically, all options granted by the Company have been granted with an
exercise price equal to the fair market value 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 options granted during 1999, except those granted in
January 1999, become exercisable at a rate of 25% per year. Options granted in
January 1999 become exercisable at a rate of 12.5% per quarter. All 1998 options
granted during and after August 1998 become exercisable at a rate of 12.5% per
quarter. All outstanding options granted prior to August 1998 become exercisable
at a rate of 25% per year. In January 2000, the Board of Directors approved a
modification to Mr. Hume's outstanding options providing that if the Company
performs at 125% of a predetermined profit target in 2000, 50% of Mr. Hume's
outstanding unvested options would vest at December 31, 2000 with the remaining
unvested options vesting as originally scheduled. All grants are subject to
acceleration of vesting in connection with certain events leading to a change in
control of the Company or at any other time at the discretion of the Committee.
All options granted to executive officers are issued 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."
For additional information concerning the number of new options granted in
fiscal 1999 to the Chief Executive Officer and other executive officers, see
"Option/SAR Grants in the Last Fiscal Year."
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 and Chief Executive Officer,
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 and Chief
Executive Officer'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 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.
At the time he was hired, the Compensation Committee determined the 1999
compensation package, including salary, bonus, stock option grants, and other
benefits for Frederick R. Hume, President and Chief Executive Officer, based on
the Committee's perception of his qualifications for the position, his ability
to affect future shareholder value, compensation surveys (as noted above under
"Annual Base Salary Structure"), and the competitive conditions in the market.
Page 9
The Company has entered into agreements (the "Severance Agreements") with
certain 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 the
four other most highly compensated executive officers of publicly held companies
is limited to $1 million per officer per fiscal year unless such compensation
meets certain requirements. The Committee is aware of this limitation and
believes that no compensation paid by the Company during 2000 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
Glen F. Ceiley
Paul A. Gary
March 27, 2000
Page 10
SUMMARY COMPENSATION TABLE
The following table shows compensation paid by the Company for services rendered
during fiscal years 1999, 1998 and 1997 to all persons who served as the Chief
Executive Officer in 1999 and the four other most highly compensated executive
officers of the Company at December 31, 1999, whose salary and bonus exceeded
$100,000 in 1999.
Long-Term
Compensation
Annual Compensation Awards
--------------------------------------
Securities
Name Underlying All
and Options/ Other
Principal Salary Bonus SARs Compensation
Position Year ($) ($)(1) (#)(2) ($)(3)
- -------------------------------------------------------------------------
Frederick R. Hume 1999 190,962 0 200,000 76,013 (5)
President/ 1998 0 0 0 0
Chief Executive 1997 0 0 0 0
Officer (4)
David C. Bullis 1999 36,059 0 0 213,502 (7)
President/ 1998 166,672 58,333 (8) 214,000 38,700 (9)
Chief Executive 1997 0 0 0 0
Officer (6)
Helmut P. Adamski 1999 146,500 4,069 5,000 41,203 (11)
Vice President 1998 0 0 50,000 0
Semiconductor 1997 0 0 0 0
Relations, General
Manager Device
Support (10)
Mark L. Edelsward 1999 145,000 0 36,000 23,262 (12)
Vice President 1998 145,000 37,700 53,500 17,644 (13)
Worldwide Sales 1997 152,896 0 34,500 6,909
Joel S. Hatlen 1999 130,000 10,111 43,000 19,365 (14)
Vice President 1998 130,000 29,575 47,000 7,008
Finance/ 1997 99,000 17,226 5,000 10,518
Chief Financial
Officer,
Secretary/Treasurer
James M. Rounds 1999 200,000 10,000 10,000 9,280
Vice President & 1998 58,333 39,000 71,000 714
General Manager, 1997 0 0 0 0
Programming
Systems (15)
- ----------------------
(1) Represents amounts earned under the Management Incentive Compensation Plan
(see also Footnote 8).
(2) All options granted to executive officers 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 and Severance Arrangements."
(3) 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. The amounts also include relocation expenses and related income
taxes, vacation payouts, and severance payments, as noted in subsequent
footnotes.
(4) Mr. Hume was named President and Chief Executive Officer of the Company on
February 23, 1999.
Page 11
(5) Includes a signing bonus of $50,000 and relocation expenses and payment of
related income taxes aggregating $23,388.
(6) Mr. Bullis was hired in May 1998 and resigned from the Company effective
February 22, 1999, but remained a director until his resignation from the
Board in September 1999.
(7) Includes a severance payment of $175,000 paid in accordance with an
agreement entered into with the Board of Directors in August 1998, a
vacation payout of $15,234, and relocation expenses and payment of related
income taxes aggregating $22,844.
(8) Represents a guaranteed 100% target prorated bonus for 1998.
(9) Includes relocation expenses and payment of related income taxes
aggregating $37,484.
(10) Mr. Adamski was hired as the Vice President of Marketing in December 1998
when Data I/O Corporation purchased SMS Holding GmbH ("SMS"). Mr. Adamski
was the Managing Director of SMS at the time of the purchase. In October
1999, Mr. Adamski was named Vice President Semiconductor Relations and
General Manager Device Support.
(11) Includes relocation expenses and payment of related income taxes
aggregating $29,727, a payout of excess vacation accrued of $7,073, and an
auto allowance of $4,200.
(12) Includes payout of excess vacation accrued of $16,148.
(13) Includes relocation expenses and payment of related income taxes
aggregating $4,027 and commissions earned in 1997 but paid in 1998
aggregating $6,503.
(14) Includes payout of excess vacation accrued of $11,511.
(15) Mr. Rounds was hired as Vice President, Engineering in September 1998. In
October 1999, Mr. Rounds was named Vice President and General Manager,
Programming Systems.
Page 12
OPTION/SAR GRANTS TABLE
Option/SAR Grants in the Last Fiscal Year
Potential Realizable Value
Number of Percent at Assumed Annual Rates of
Securities of Total Stock Price Appreciation
Underlying Options/SARs Exercise for Option Term (4)
Options/SARs Granted to or --------------------------
Granted Employees Base Price Expiration 0% 5% 10%
Name (#)(1) In Fiscal Year ($/Sh)(2)(3) Date ($) ($) ($)
- ------------------------------------------------------------------------------------------------------
Frederick R. Hume 200,000(5)(7) 38.33% 1.75 02/23/05 0 119,033 270,046
David C. Bullis 0 0.00% 0 0 0
(8)
Helmut P. Adamski 5,000 (5) 0.96% 2.45 12/08/05 0 4,171 9,463
Mark L. Edelsward 20,000(6) 3.83% 2.41 01/29/05 0 16,369 37,135
16,000(5) 3.07% 2.45 12/08/08 0 13,348 30,282
Joel S. Hatlen 20,000(6) 3.83% 2.41 01/29/05 0 16,369 37,135
23,000(5) 4.41% 2.45 12/08/05 0 19,188 43,531
James M. Rounds 10,000(5) 1.92% 2.45 12/08/05 0 8,343 18,926
(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 and Severance Arrangements."
(2) Under the terms of the Data I/O Corporation 1986 Stock Option Plan, as
amended and restated, 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) 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 feflect the
Company's estimate of future stock price growth.
(5) With the exception of options granted in January 1999, all options granted
during 1999 become exercisable commencing twelve months after the grant
date, with 25% of the shares becoming exercisable at that time and an
additional 25% of the shares becoming exercisable on each successive
anniversary of the grant date, with full vesting occurring on the fourth
anniversary of such date. Options which have been outstanding for at least
six months will become exercisable in full upon the occurrence of certain
events leading to a change in control of the Company. See "Change in
Control and Severance Arrangements". Options expire six years from the date
of grant, subject to earlier termination if the optionee's employment is
terminated. (See also Footnote 7.)
(6) All new options granted in January 1999 become exercisable commencing three
months after grant date, with 12.5% of the shares becoming exercisable at
that time and an additional 12.5% of the shares becoming exercisable on
each successive quarter after the grant date, with full vesting occurring
on the second anniversary of such date. Options which have been outstanding
for at least six months will become exercisable in full upon the occurrence
of certain events leading to a change in control of the Company. See
"Change in Control and Severance Arrangements". Options expire six years
from the date of grant, subject to earlier termination if the optionee's
employment is terminated.
(7) In January 2000, the Board of Directors approved a modification to Mr.
Hume's outstanding options providing that if the Company performs at 125%
of a predetermined profit target in 2000, 50% of Mr. Hume's outstanding
unvested options would vest at December 31, 2000, with the remaining
options vesting as originally scheduled.
Page 13
(8) Mr. Bullis resigned as President and Chief Executive Officer of the
Company on February 22, 1999, but remained a director until his resignation
from the Board in September 1999. Mr. Bullis was not granted options
in 1999.
OPTIONS/SAR EXERCISES AND YEAR-END VALUE TABLE
Aggregated Options/SAR Exercises in Last Fiscal Year
# of Securities Underlying Value of Unexercised
Options/SARs at In-the-Money Options/SARs
Shares December 30, 1999 at December 30, 1999
Acquired on Value (#) (2) ($) (3)
Exercise Realized -----------------------------------------------------
Name (#) ($)(1) Exercisable/Unexercisabe Exercisable/Unexercisable
- ---------------------------------------------------------------------------------------------------
Frederick R. Hume 0 0 0 / 200,000 0 / 200,000
David C. Bullis (4) 0 0 0 / 0 0 / 0
Helmut P. Adamski 0 0 25,000 / 30,000 28,900 / 30,385
Mark L. Edelsward 0 0 42,375 / 51,625 0 / 0
Joel S. Hatlen 0 0 29,500 / 63,000 0 / 0
James M. Rounds 0 0 44,375 / 36,625 16,641 / 12,954
- --------------------
(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 in
the employment of 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 and Severance Arrangements."
(3) This value is calculated by multiplying the market value of the Common Stock
at December 30, 1999 less the exercise or base price by the number of
in-the-money options/SARs held. If the number is zero, the aggregate value
of the options are out-of-the-money.
(4) Mr. Bullis resigned as President and Chief Executive Officer of the Company
on February 22, 1999, but remained a director until his resignation from the
Board in September 1999.
Page 14
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 December 31, 1999)
[OBJECT OMITTED]
- -----------------------------------------------------------------------------
1994 1995 1996 1997 1998 1999
DAIO $100 $125 $95 $111 $31 $50
Russell 2000 $100 $126 $144 $174 $168 $201
S & P High Tech Composite $100 $143 $202 $253 $437 $763
- -----------------------------------------------------------------------------
(1) Assumes $100 invested at the close of trading on December 31, 1994, 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 and Severance Arrangements
Options reported in the Option/SAR compensatory tables appearing above have been
granted pursuant to the 1986 Plan. Historically most options granted under the
1986 Plan have been granted subject to a vesting schedule of either 25% per year
or 12.5% per quarter. However, the 1986 Plan provides that options which have
been outstanding for at least six months will become exercisable in full 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 combined voting power of the Company's outstanding securities,
unless such accumulation is previously approved by a disinterested majority of
the plan's administrators; (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 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) immediately prior to
consummation of (a) any merger, consolidation, reorganization or other
transaction pursuant to which persons who hold the outstanding Common Stock
immediately prior to the transaction have less than 40% of the combined voting
power of the surviving entity; or (b) any sale, lease, exchange or other
transfer not in the ordinary course of all or substantially all of the Company's
assets. With
Page 15
any of the foregoing transactions, the Company will give each option holder
notice 20 days prior to the proposed consummation date and each option holder
will then be entitled to exercise their options in full or part at any time
prior to consummation of such transaction. A holder's exercise of those options
that become vested only as a result of such acceleration will be contingent upon
consummation of such transaction.
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 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 (the "Severance Agreements") with
each of the following executive officers on the following dates: Joel S. Hatlen,
Vice President Finance, Chief Financial Officer, Secretary and Treasurer in July
1998; Mark L. Edelsward, Vice President World Wide Sales in July 1998; and
Frederick R. Hume, President and Chief Executive Officer in February 1999. The
respective agreements with Messrs. Hatlen, Edelsward, and Hume 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 one year following a change of
control of the Company. The amount of the lump sum payment 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 "base"). The guideline for the
multiple for each of the officers is one times the base. The size of the
multiple declines on a straight-line basis throughout the specified period,
following a change in control, except that the multiple is never less than
one-half. The amount payable under the Severance Agreements for Messrs. Hatlen,
Edelsward, and Hume is subject to reduction if the aggregate present value of
all payments received in connection with a change in control 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. The Company entered into an employment contract with Helmut P. Adamski,
Vice President Semiconductor Relations, General Manager Device Support, in
November 1998 which guarantees his salary through November 2000 in exchange for
his agreement to move to the United States. The Company entered into a letter
agreement with James M. Rounds, Vice President and General Manager, Programming
Systems, in September 1998 which provides for the payment of one year's salary
(base salary plus bonus) in the event of Mr. Round's layoff.
In connection with execution of the Severance Agreements, the Company required
Messrs. Hatlen, Edelsward, and Hume 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. In connection with his employment contract, Mr. Adamski
is restricted from competing with or soliciting employees from the Company for a
period of six months following termination. In connection with his letter
agreement, Mr. Rounds is restricted from soliciting employees for a one year
period following termination. The Board of Directors believes that the terms and
conditions of the Severance Agreements and the agreements with Messrs. Adamski
and Rounds are in the best interest of the Company because the Severance
Agreements and the agreements with Messrs. Adamski and Rounds 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 or termination of their employment.
PROPOSAL 2: Adoption of the 2000 Stock Incentive Compensation Plan
The Board of Directors has approved, subject to shareholder approval, the
adoption of the Data I/O Corporation 2000 Stock Incentive Compensation Plan (the
"2000 Plan") which will provide for the issuance of up to an additional 300,000
shares of Common Stock pursuant to incentive stock options, nonqualified stock
options, stock appreciation rights, stock awards, or other stock-based awards.
In addition, subject to adjustment from time to time,
Page 16
awards of the authorized but unissued shares of Common Stock under the Company's
1986 Stock Option Plan (the "1986 Plan") or shares of Common Stock that become
available under the 1986 Plan as a result of the expiration or termination of
options, may be granted under the 2000 Plan. As of March 10, 2000, the Company
has outstanding options with respect to 1,215,000 shares of Common Stock and
270,499 shares of Common Stock available for additional grants under its 1986
Plan. A copy of the 2000 Plan is attached to this proxy statement (see Exhibit
A). The following description of the 2000 Plan is a summary and so is qualified
by reference to the complete text of the 2000 Plan.
Description of the 2000 Plan
The purpose of the 2000 Plan is to enhance the long-term shareholder value of
the Company by offering opportunities to employees, persons to whom offers of
employment have been extended, directors, officers, consultants, agents,
advisors and independent contractors of the Company and its subsidiaries to
participate in the Company's growth and success, and to encourage them to remain
in the service of the Company and its subsidiaries and to acquire and maintain
stock ownership in the Company. The 2000 Plan may be administered either by the
Board or a committee or committees appointed by (in either case, the
"Committee"), and consisting of two or more members of, the Board. The Committee
will have broad discretion to determine the amount and type of awards and terms
and conditions of the awards. Individual grants will generally be based on a
person's present and potential contribution to the Company.
As of March 10, 2000, the Company had approximately 200 employees, 4
non-employee directors and 40 consultants, agents, advisors, and independent
contractors who would be eligible to participate in the 2000 Plan. Since the
grant of awards is based upon a determination made by the Committee after a
consideration of various factors, the Company currently cannot determine the
nature and amount of any awards that will be granted in the future to any
eligible individual or group of individuals. However, the maximum number of
shares that can be granted under the 2000 Plan during any calendar year to any
executive officer whose compensation is required to be disclosed pursuant to the
rules and regulations under the Exchange Act (generally, the chief executive
officer and the four other most highly compensated executive officers) is
200,000, except that the Company may make additional one-time grants to newly
hired participants of up to 100,000 shares per such participant. In addition,
the maximum number of shares that can be granted to a non-employee director of
the Company during any calendar year is limited to 100,000. The Company believes
that with these limitations and other provisions of the 2000 Plan, options
granted under the 2000 Plan will generate "qualified performance-based
compensation" within the meaning of Section 162(m) of the Internal Revenue Code
and will therefore not be subject to the $1,000,000 cap on deductibility for
federal income tax purposes of certain compensation payments in excess of
$1,000,000. See "Certain Federal Income Tax Consequences" below.
Awards may be granted in the form of incentive stock options ("ISOs") within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"), nonqualified stock options ("NQOs") (each ISO or NQO, an "Option" and
collectively, "Options"), stock appreciation rights, stock awards in the form of
restricted stock ("Restricted Stock"), or other arrangements determined by the
Committee. Any award may be granted either alone or in tandem with other awards
granted under the 2000 Plan. The option price of ISOs shall be as determined by
the Committee, but shall not be less than 100% of the fair market value of the
Common Stock on the grant date. The option price of NQOs may be less than the
fair market value of the Common Stock on the date of grant. The Committee may
condition the grant of the award upon the attainment of specified performance
goals or other criteria, which need not be the same for all participants. No
ISOs may be granted under the 2000 Plan on or after May 19, 2010, but ISOs
outstanding under the 2000 Plan may extend beyond that date.
Options. Options granted under the 2000 Plan may be ISOs or NQOs. The exercise
price of ISOs may not be less than the fair market value of the shares subject
to the ISO on the date of grant. The term of any ISO granted under the 2000 Plan
may not exceed ten years. In addition, ISOs are subject to certain other
limitations in order to take advantage of the favorable U.S. tax treatment that
may be available for ISOs.
Restricted Stock. Restricted Stock awards consist of non-transferable shares of
Common Stock of the Company which may be subject to a right of purchase by the
Company. The Committee may provide for the lapse of the transfer restrictions
over a period of time, or may accelerate or waive such restrictions, in whole or
in part, based on service, performance or other criteria determined by the
Committee.
Page 17
Stock Appreciation Rights. A stock appreciation right will give the holder the
right to receive an appreciation distribution in an amount equal to the excess
of the fair market value of the number of shares of Common Stock covered by the
right over the exercise price per share subject to the right. Stock appreciation
rights may be granted separately or in tandem with a related Option. Payment may
be made in a combination of shares of Common Stock or in cash, as determined by
the Committee.
The consideration payable upon issuance or exercise of an award and any taxes
related to an award must generally be paid in cash or check. However, the
Committee, in its sole discretion, may, either at the time the Option is granted
or at any time before it is exercised and subject to such limitations as the
Committee may determine, authorize payment by the tender of Common Stock already
owned by the participant for at least six months having a fair market value on
the day prior to the exercise date equal to the aggregate Option exercise price,
by delivery of a promissory note, by delivery of a properly executed exercise
notice, together with irrevocable instructions (i) to a third party designated
by the Company to deliver to the Company the amount of sale or loan proceeds to
pay the exercise price and withholding tax obligations and (ii) to the Company
to deliver the certificates for such shares to the third party, or by such other
consideration as the Committee may permit. In addition, to assist a holder of an
award (including a holder who is an officer or director of the Company) in
acquiring shares of Common Stock pursuant to an award granted under the 2000
Plan, the Committee, in its sole discretion, may authorize, either at the grant
date or at any time before the acquisition of Common Stock pursuant to the
award, the extension of a loan to the holder by the Company, the payment by the
holder of the purchase price, if any, of the Common Stock in installments, or
the guarantee by the Company of a loan obtained by the grantee from a third
party. Awards generally may be exercised at any time within three months after
termination of a participant's employment by, or consulting relationship with,
the Company (but, only to the extent exercisable or payable at the time of
termination). However, if termination is due to the participant's death or
disability, the award generally may be exercised for one year. Except as
authorized by the Committee, no award shall be assignable or otherwise
transferable by a participant other than by will or by the laws of descent and
distribution.
The Committee may adjust the performance goals and measurements applicable to
awards. The Committee also may waive in whole or in part any or all
restrictions, conditions, vesting or forfeiture with respect to any award
granted under the Stock Plan. The Board may amend, alter or discontinue the 2000
Plan or any award at any time, except that the consent of a participant is
required if the participant's rights under an outstanding award would be
impaired. In addition, the shareholders of the Company must approve any
amendment, alteration or discontinuance of the 2000 Plan that would (i) increase
the total number of shares reserved under the 2000 Plan, (ii) with respect to
provisions solely as they relate to ISOs, to the extent required for the 2000
Plan to comply with Section 422 of the Code, (iii) to the extent required by
other applicable laws, rules or regulations or (iv) to the extent that the Board
otherwise concludes that shareholder approval is advisable.
The 2000 Plan constitutes an unfunded plan for incentive and deferred
compensation. The Company is not required to create trusts or arrangements to
meet its obligations under the 2000 Plan to deliver stock or make payments.
In the event of a "change in control" of the Company, as defined in the 2000
Plan, in which the outstanding options do not remain outstanding or are not
assumed by the surviving entity or replaced with comparable options, the vesting
of outstanding "qualifying" awards under the 2000 Plan will, unless the
applicable agreement with respect to the award or the Committee determines
otherwise, subject to certain limitations, be accelerated in full. If
outstanding options remain outstanding after a change of control or are assumed
by the surviving entity or replaced with comparable options, subject to certain
limitations, the vesting of outstanding "qualifying" options will be accelerated
to the extent of 25% of the unvested portion thereof and the vesting of
outstanding "qualifying" restricted stock awards will be accelerated to the
extent of 25% of the unvested portion thereof. Further, if the holder of any
"qualifying" award which remains outstanding or is assumed by the surviving
entity in a change of control transaction is terminated involuntarily within 180
days of the change of control, the vesting of all options and other awards held
by such person will be accelerated in full. A "qualifying" award is defined as
an option or award that has been held for at least 180 days as of the change of
control. A "change in control" is defined to include (i) a merger or
consolidation of the Company in which more than 50% of the voting power of the
Company's outstanding stock outstanding after the transaction is owned by
persons who are not shareholders immediately prior to such transaction, and (ii)
the sale or transfer of all or substantially all of the Company's assets.
Page 18
Certain Federal Income Tax Consequences
THE FOLLOWING SUMMARY OF FEDERAL INCOME TAX CONSEQUENCES IS BASED UPON EXISTING
STATUTES, REGULATIONS AND INTERPRETATIONS THEREOF. THE APPLICABLE RULES ARE
COMPLEX, AND INCOME TAX CONSEQUENCES MAY VARY DEPENDING UPON THE PARTICULAR
CIRCUMSTANCES OF EACH PLAN PARTICIPANT. THIS PROXY STATEMENT DESCRIBES FEDERAL
INCOME TAX CONSEQUENCES OF GENERAL APPLICABILITY, BUT DOES NOT PURPORT TO
DESCRIBE PARTICULAR CONSEQUENCES TO EACH INDIVIDUAL PLAN PARTICIPANT, OR
FOREIGN, STATE OR LOCAL INCOME TAX CONSEQUENCES, WHICH MAY DIFFER FROM THE
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES.
Incentive Stock Options
Awards and Exercise of Options. ISOs are intended to constitute "incentive stock
options" within the meaning of Section 422 of the Code. ISOs may be granted only
to employees of the Company (including directors who are also employees). The
recipient of an Option (the "Optionee") does not recognize taxable income upon
either the grant or exercise of an ISO. However, the excess of the fair market
value of the shares purchased upon exercise over the Option exercise price (the
"Option Spread") is includable in the Optionee's "alternative minimum taxable
income " ("AMTI") for purposes of the alternative minimum tax ("AMT"). The
Option Spread is generally measured on the date of exercise and is includable in
AMTI in the year of exercise. Special rules regarding the time of AMTI inclusion
may apply for shares subject to a "substantial risk of forfeiture" (including,
in the case of each person subject to the reporting requirements of Section
16(b) of the Exchange Act). In addition, when stock is acquired subject to a
"substantial risk of forfeiture", an Optionee's holding period for purposes of
determining whether any capital gain or loss on sale is long-term will generally
not begin until the restriction lapses or the Optionee files an election under
Section 83(b) of the Code (a "Section 83(b) Election").
Sale of Option Shares. If an Optionee holds the shares purchsed under an ISO for
at least two years from the date the ISO was granted and for at least one year
from the date such shares where transferred to the Optionee, any gain from a
sale of the shares other than to the Company should be taxable as capital gain.
Under these circumstances, the Company would not be entitled to a tax deduction
at the time the ISO was exercised or at the time the stock was sold, If an
Optionee were to dispose of stock acquired pursuant to an ISO before the end of
the required holding periods (a "Disqualifying Disposition"), the amount by
which the market value of the stock at the time the ISO was exercised exceeded
the exercise price (or, if less, the amount of gain realized on the sale) would
be taxable as ordinary income, and the Company would be entitled to a
corresponding tax deduction. Such income is subject to information reporting
requirements and may become subject to withholding. Gain from a Disqualifying
Disposition in excess of the amount required to be recognized as ordinary income
is capital gain. Optionees are required to notify the Company promptly after
making a Disqualifying Disposition. If the stock is sold to the Company rather
than to a third party, the sale may not produce capital gain or loss. A sale of
shares to the Company will constitute a redemption of such shares, which could
be taxable as a dividend unless the redemption is "not essentially equivalent to
a dividend" within the meaning of the Code.
Exercise With Stock. If an Optionee pays for ISO shares with shares of the
Company acquired under an ISO or a qualified employee stock purchase plan
("statutory option stock"), the tender of shares is a Disqualifying Disposition
of the statutory option stock if the above described (or other applicable)
holding periods respecting those shares have not been satisfied. If the holding
periods with respect to the statutory option stock are satisfied, or the shares
were not acquired under a statutory stock option of the Company, then any
appreciation in value of the surrendered shares is not taxable upon surrender.
Special basis and holding period rules apply where previously-owned stock is
used to exercise an ISO.
Nonqualified Stock Options
Awards and Exercise of Options. An Optionee is not taxable upon the award of an
NQO. Federal income tax consequences upon exercise will depend upon whether the
shares thereby acquired are subject to a "substantial risk of forfeiture". If
the shares are not subject to a "substantial risk of forfeiture", or if they are
so restricted and the Optionee files a Section 83(b) Election with respect to
the shares, the Optionee will have ordinary income at the time of exercise
measured by the Option Spread on the exercise date. The Optionee's tax basis in
the shares will be their fair market value on the date of exercise, and the
holding period for purposes of determining whether capital gain or
Page 19
loss upon sale is long- or short-term also will begin on that date. If the
shares are subject to a "substantial risk of forfeiture" and no Section 83(b)
Election is filed, the Optionee will not be taxable upon exercise, but instead
will have ordinary income on the date the stock is no longer subject to a
"substantial risk of forfeiture", in an amount equal to the difference between
the amount paid for the shares under the Option and their fair market value as
of the date of lapse; in addition, the Optionee's holding period will begin on
the date of lapse.
Whether of not the shares are subject to a "substantial risk of forfeiture", the
amount of ordinary income taxable to an Optionee who was an employee at the time
of grant constitutes "supplemental wages" subject to a withholding of income and
employment taxes by the Company, and the Company receives a corresponding income
tax deduction.
Sale of Option Shares. Upon sale, other than to the Company, of shares acquired
under a NQO, an Optionee generally will recognize capital gain or loss to the
extent of the difference between the sale price and the Optionee's tax basis in
the shares, which will be long-term gain or loss if the employee's holding
period in the shares is more than one year. If the stock is sold to the company
rather than to a third party, the sale may not produce capital gain or loss. A
sale of shares to the Company will constitute a redemption of such shares, which
could be taxable as a dividend unless the redemption is "not essentially
equivalent to a dividend" within the meaning of the Code.
Exercise With Stock. If an Optionee tenders Common Stock (other than statutory
option stock - see above) to pay all or part of the exercise price of a NQO, the
Optionee will not have a taxable gain or deductible loss on the surrendered
shares. Instead, shares acquired upon exercise that are equal in value to the
fair market value of the shares surrendered in payment are treated as if they
had been substituted for the surrendered shares, taking as their basis and
holding period the basis and holding period that the Optionee had in the
surrendered shares. The additional shares are treated as newly acquired with a
zero basis.
If the surrendered shares are statutory option stock as described above under
"Incentive Stock Options", with respect to which the applicable holding period
requirements for favorable income tax treatment have not expired, then the newly
acquired shares substituted for the statutory option shares should remain
subject to the federal income tax rules governing the surrendered shares, but
the surrender should not constitute a Disqualifying Disposition of the
surrendered stock.
Section 162(m) Limitations
Section 162(m) of the Code limits to $1,000,000 per person the amount that the
Company may deduct for compensation paid to any of its most highly compensated
executive officers in any year after 1993. Under current regulations,
compensation received through the exercise of an option will not be subject to
the $1,000,000 limit if the option and the plan meet certain requirements. One
such requirement is that the plan must state the maximum number of shares with
respect to which options may be granted to any employee during a specified
period. Accordingly, the Stock Plan provides that no participant, with certain
exceptions, may be granted options to acquire more than 200,000 in any year.
Shareholders are being asked to approve the adoption of the Stock Plan. The
affirmative vote of the holders of a majority of the outstanding shares of the
Common Stock of the Company represented and voting at the Annual Meeting is
required to adopt the Stock Plan.
INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors, upon recommendation of the Company's Audit Committee,
has engaged Ernst & Young LLP to continue as the Company's principal accounting
firm for the current year. 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 shareholders is properly presented at the meeting, the holders
of the proxies will vote or refrain from voting in accordance with their best
judgment.
Page 20
SHAREHOLDER NOMINATIONS AND PROPOSALS FOR THE
2001 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 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; (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; and (v) with
respect to the nominations, the consent of each nominee to serve as a director
of the Company if elected.
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.
Shareholders who intend to have a proposal considered for inclusion in the
Company's proxy materials for presentation at the 2001 Annual Meeting must
submit the proposal to the Company no later than November 27, 2000. Shareholders
who intend to present a proposal at the 2001 Annual Meeting without inclusion of
such proposal in the Company's proxy materials are required to provide notice of
such proposal to the Company no later than February 18, 2001. The Company
reserves the right to reject, rule out of order, or take appropriate action with
respect to any proposal that does not comply with these and other applicable
requirements.
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//Frederick R. Hume
Frederick R. Hume
President and Chief Executive Officer
Redmond, Washington
March 27, 2000
Page 21
Exhibit A
DATA I/O CORPORATION
2000 STOCK INCENTIVE COMPENSATION PLAN
1. PURPOSES
1.1 The purpose of the Data I/O Corporation 2000 Stock Incentive Compensation
Plan (the "Plan") is to enhance the long-term shareholder value of Data I/O
Corporation, a Washington corporation (the "Company"), by offering opportunities
to employees, persons to whom offers of employment have been extended,
directors, officers, consultants, agents, advisors and independent contractors
of the Company and its Subsidiaries (as defined in Section 2) to participate in
the Company's growth and success, and to encourage them to remain in the service
of the Company and its Subsidiaries and to acquire and maintain stock ownership
in the Company.
2. DEFINITIONS
For purposes of the Plan, the following terms shall be defined as set forth
below:
2.1 Acquired Entities.
---------------------
"Acquired Entities" has the meaning given in Section 6.2.
2.2 Acquisition Transaction.
---------------------------
"Acquisition Transaction" has the meaning given in Section 6.2.
2.3 Award.
---------
"Award" means a grant made to a Participant pursuant to the Plan, including,
without limitation, grants of Options, Stock Appreciation Rights, Stock Awards,
Other Stock-Based Awards or any combination of the foregoing.
2.4 Board.
---------
"Board" means the Board of Directors of the Company.
2.5 Cause.
---------
"Cause" means dishonesty, fraud, misconduct, disclosure of confidential
information, conviction of, or a plea of guilty or no contest to, a felony under
the laws of the United States or any state thereof, habitual absence from work
for reasons other than illness, intentional conduct which causes significant
injury to the Company, habitual abuse of alcohol or a controlled substance, in
each case as determined by the Plan Administrator, and its determination shall
be conclusive and binding.
2.6 Change in Control.
---------------------
"Change in Control" means (i) the consummation of a merger or consolidation
of the Company with or into another entity or any other corporate
reorganization, if more than 50% of the combined voting power of the continuing
or surviving entity's securities outstanding immediately after such merger,
consolidation or other reorganization is owned by persons who were not
shareholders of the Company immediately prior to such merger, consolidation or
other reorganization or (ii) the sale, transfer or other disposition of all or
substantially all of the Company's assets. A transaction shall not constitute a
Change in Control if its sole purpose is to change the state of the Company's
incorporation or to create a holding company that will be owned in substantially
the same proportions by the persons who held the Company's securities
immediately before such transaction.
Page 22
2.7 Code.
--------
"Code" means the Internal Revenue Code of 1986, as amended from time to time.
2.8 Common Stock.
----------------
"Common Stock" means the common stock, no par value, of the Company.
2.9 Disability.
--------------
"Disability" means a medically determinable mental or physical impairment or
condition of the Holder which is expected to result in death or which has lasted
or is expected to last for a continuous period of twelve (12) months or more and
which causes the Holder to be unable, in the opinion of the Plan Administrator
on the basis of evidence acceptable to it, to perform his or her duties for the
Company and, in the case of a determination of Disability for purposes of
determining the exercise period for an Incentive Stock Option, to be engaged in
any substantial gainful activity. Upon making a determination of Disability, the
Plan Administrator shall, for purposes of the Plan, determine the date of the
Holder's termination of employment, service or contractual relationship.
2.10 Exchange Act.
------------------
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
2.11 Fair Market Value.
-----------------------
"Fair Market Value" shall be as established in good faith by the Plan
Administrator or (a) if the Common Stock is listed on the Nasdaq National
Market, the mean between the high and low selling prices for the Common Stock as
reported by the Nasdaq National Market for a single trading day or (b) if the
Common Stock is listed on the New York Stock Exchange or the American Stock
Exchange, the mean between the high and low selling prices for the Common Stock
as such prices are officially quoted in the composite tape of transactions on
such exchange for a single trading day. If there is no such reported price for
the Common Stock for the date in question, then such price on the last preceding
date for which such price exists shall be determinative of Fair Market Value.
2.12 Grant Date.
----------------
"Grant Date" means the date the Plan Administrator adopted the granting
resolution or a later date designated in a resolution of the Plan Administrator
as the date an Award is to be granted.
2.13 Holder.
------------
"Holder" means the Participant to whom an Award is granted or the personal
representative of a Holder who has died.
2.14 Incentive Stock Option.
----------------------------
"Incentive Stock Option" means an Option to purchase Common Stock granted
under Section 7 with the intention that it qualify as an "incentive stock
option" as that term is defined in Section 422 of the Code.
2.15 Involuntary Termination.
-----------------------------
"Involuntary Termination" means termination of the Holder's service to the
Company (or the parent or subsidiary company employing such Holder) or the other
party to the transaction constituting a Change in Control by reason of (i) the
involuntary discharge of such Holder by the Company (or the parent or subsidiary
company employing such Holder) or the other party to the transaction
constituting a Change in Control for reasons other than Cause or (ii) the
voluntary resignation of the Holder following (A) a change in such Holder's
position with the Company (or its successor or the parent or subsidiary company
that employs such Holder) or the other party to the transaction constituting a
Change in Control that materially reduces such Holder's level of authority or
responsibility
Page 23
or (B) a reduction in such Holder's compensation (including base
salary, fringe benefits and participation in bonus or incentive programs based
on corporate performance) by more than 20%.
2.16 Nonqualified Stock Option.
-------------------------------
"Nonqualified Stock Option" means an Option to purchase Common Stock granted
under Section 7 other than an Incentive Stock Option.
2.17 Option.
------------
"Option" means the right to purchase Common Stock granted under Section 7.
2.18 Option Shares.
-------------------
"Option Shares" means the shares of Common Stock issuable upon a Holder's
exercise of an Option granted under the Plan.
2.19 Other Stock-Based Award.
-----------------------------
"Other Stock-Based Award" means an Award granted under Section 11.
2.20 Participant.
-----------------
"Participant" means an individual who is a Holder of an Award or, as the
context may require, any employee, director (including directors who are not
employees), officer, consultant, agent, advisor or independent contractor of the
Company or a Subsidiary who has been designated by the Plan Administrator as
eligible to participate in the Plan.
2.21 Plan Administrator.
------------------------
"Plan Administrator" means the Board or any committee designated to
administer the Plan under Section 3.1.
2.22 Qualifying Award.
----------------------
"Qualifying Award" means an Option or an Award that is held by a person who
had been an employee, director, consultant or agent to the Company for at least
180 days as of the effective date of a Change in Control.
2.23 Qualifying Shares.
-----------------------
"Qualifying Shares" means shares of Common Stock issued pursuant to a
Qualifying Award which are subject to the right of the Company to repurchase
some or all of such shares at the original purchase price (if any) upon
termination of the Holder's services to the Company.
2.24 Restricted Stock.
----------------------
"Restricted Stock" means shares of Common Stock granted pursuant to a Stock
Award under Section 10, the rights of ownership of which are subject to
restrictions prescribed by the Plan Administrator.
2.25 Securities Act.
--------------------
"Securities Act" means the Securities Act of 1933, as amended.
2.26 Stock Appreciation Right.
------------------------------
"Stock Appreciation Right" means an Award granted under Section 9.
Page 24
2.27 Stock Award.
-----------------
"Stock Award" means an Award granted under Section 10.
2.28 Subsidiary.
----------------
"Subsidiary," except as expressly provided otherwise, means any entity that
is directly or indirectly controlled by the Company or in which the Company has
a significant ownership interest, as determined by the Plan Administrator, and
any entity that may become a direct or indirect parent of the Company.
2.29 Unvested Portion.
----------------------
"Unvested Portion" means the portion of a Qualifying Award or Qualifying
Shares that is/are unvested as of the effective date of a Change in Control.
2.30 Vested Portion.
--------------------
"Vested Portion" means the portion of a Qualifying Award or Qualifying Shares
that is/are vested as of the effective date of a Change in Control.
3. ADMINISTRATION
3.1 Plan Administrator.
------------------------
The Plan shall be administered by the Board or a committee or committees
(which term includes subcommittees) appointed by, and consisting of two or more
members of, the Board. Any such committee shall have the powers and authority
vested in the Board hereunder (including the power and authority to interpret
any provision of the Plan or of any Award). The Board, or any committee thereof
appointed to administer the Plan, is referred to herein as the "Plan
Administrator." If and so long as the Common Stock is registered under Section
12(b) or 12(g) of the Exchange Act, the Board shall consider in selecting the
Plan Administrator and the membership of any committee acting as Plan
Administrator for any persons subject or likely to become subject to Section 16
under the Exchange Act the provisions regarding (a) "outside directors" as
contemplated by Section 162(m) of the Code and (b) "Non-Employee Directors" as
contemplated by Rule 16b-3 under the Exchange Act. The Board or Plan
Administrator may delegate the responsibility for administering the Plan with
respect to designated classes of eligible Participants to one or more senior
executive officers or committees thereof, the members of which need not be
members of the Board, subject to such limitations as the Board deems
appropriate. Committee members shall serve for such term as the Board may
determine, subject to removal by the Board at any time.
3.2 Administration and Interpretation by the Plan Administrator.
-----------------------------------------------------------------
Except for the terms, conditions and limitations explicitly set forth in the
Plan, the Plan Administrator shall have exclusive authority, in its absolute
discretion, to determine all matters relating to Awards under the Plan,
including the selection of individuals to be granted Awards, the type of Awards,
the number of shares of Common Stock subject to an Award, all terms, conditions,
restrictions and limitations, if any, of an Award and the terms of any
instrument that evidences the Award. The Plan Administrator shall also have
exclusive authority to interpret the Plan and may from time to time adopt,
change and rescind rules and regulations of general application for the Plan's
administration. This authority shall include the sole authority to correct any
defect, supply any omission or reconcile any inconsistency in this Plan and make
all other determinations necessary or advisable for the administration of the
Plan and do everything necessary or appropriate to administer the Plan. The Plan
Administrator's interpretation of the Plan and its rules and regulations, and
all actions taken and determinations made by the Plan Administrator pursuant to
the Plan, shall be conclusive and binding on all parties involved or affected.
The Plan Administrator may delegate administrative duties to such of the
Company's officers as it so determines.
Page 25
4. STOCK SUBJECT TO THE PLAN
4.1 Authorized Number of Shares.
------------------------------------
As of March 10, 2000, the Company has outstanding options with respect to
1,215,000 shares of Common Stock and 270,499 shares of Common Stock available
for additional grants under its 1986 Stock Option Plan ("1986 Plan"). Subject to
adjustment from time to time as provided in Section 14.1, Awards of the
authorized but unissued shares of Common Stock under the 1986 Plan, or shares of
Common Stock that become available under the 1986 Plan as a result of the
expiration or termination of options, may be granted under this Plan. Awards for
an additional 300,000 shares of Common Stock shall also be available for
issuance under the Plan. Shares issued under the Plan shall be drawn from
authorized and unissued shares.
4.2 Limitations.
--------------------
(a) Subject to adjustment from time to time as provided in Section 14.1,
not more than 200,000 shares of Common Stock may be made subject to Awards under
the Plan to any individual Participant in the aggregate in any one (1) calendar
year, except that the Company may make additional one-time grants to newly hired
Participants of up to 100,000 shares per such Participant; such limitation shall
be applied in a manner consistent with the requirements of, and only to the
extent required for compliance with, the exclusion from the limitation on
deductibility of compensation under Section 162(m) of the Code.
(b) Subject to adjustment from time to time as provided in Section 14.1,
not more than 100,000 shares of Common Stock may be made subject to Awards to
any non-employee director in the aggregate in any one calendar year.
4.3 Reuse of Shares.
------------------------
Any shares of Common Stock that have been made subject to an Award that cease
to be subject to the Award (other than by reason of exercise or payment of the
Award to the extent it is exercised for or settled in shares) and any shares
repurchased by the Company from a Holder upon exercise of a right of repurchase
shall again be available for issuance in connection with future grants of Awards
under the Plan; provided, however, that any such shares shall be counted in
accordance with the requirements of Section 162(m) of the Code if and to the
extent applicable. Shares that are subject to tandem Awards shall be counted
only once. Also, upon a stock-for-stock exercise only the net number of shares
will be deemed to have been used under this Plan.
5. ELIGIBILITY
Awards may be granted under the Plan to those officers, directors and key
employees of the Company and its Subsidiaries as the Plan Administrator from
time to time selects. Awards may also be made to consultants, agents, advisors
and independent contractors who provide services to the Company and its
Subsidiaries.
6. AWARDS
6.1 Form and Grant of Awards.
---------------------------------
The Plan Administrator shall have the authority, in its sole discretion, to
determine the type or types of Awards to be made under the Plan. Such Awards may
include, but are not limited to, Incentive Stock Options, Nonqualified Stock
Options, Stock Appreciation Rights, Stock Awards and Other Stock-Based Awards.
Awards may be granted singly, in combination or in tandem so that the settlement
or payment of one automatically reduces or cancels the other. Awards may also be
made in combination or in tandem with, in replacement of, as alternatives to, or
as the payment form for, grants or rights under any other employee or
compensation plan of the Company.
Page 26
6.2 Acquired Company Awards.
--------------------------------
Notwithstanding anything in the Plan to the contrary, the Plan Administrator
may grant Awards under the Plan in substitution for awards issued under other
plans, or assume under the Plan awards issued under other plans, if the other
plans are or were plans of other acquired entities ("Acquired Entities") (or the
parent of the Acquired Entity) and the new Award is substituted, or the old
Award is assumed, by reason of a merger, consolidation, acquisition of property
or of stock, reorganization or liquidation (an "Acquisition Transaction"). If a
written agreement pursuant to which an Acquisition Transaction is completed is
approved by the Board and said agreement sets forth the terms and conditions of
the substitution for or assumption of outstanding awards of the Acquired Entity,
said terms and conditions shall be deemed to be the action of the Plan
Administrator without any further action by the Plan Administrator, except as
may be required for compliance with Rule 16b-3 under the Exchange Act, and the
persons holding such Awards shall be deemed to be Participants and Holders.
7. AWARDS OF OPTIONS
7.1 Grant of Options.
-------------------------
The Plan Administrator is authorized under the Plan, in its sole discretion,
to issue Options as Incentive Stock Options or as Nonqualified Stock Options,
which shall be appropriately designated.
7.2 Option Exercise Price.
------------------------------
The exercise price for shares purchased under an Option shall be as
determined by the Plan Administrator, but shall not be less than 100% of the
Fair Market Value of the Common Stock on the Grant Date with respect to
Incentive Stock Options.
7.3 Term of Options.
------------------------
The term of each Option shall be as established by the Plan Administrator or,
if not so established, shall be six (6) years from the Grant Date.
7.4 Exercise of Options.
----------------------------
The Plan Administrator shall establish and set forth in each instrument that
evidences an Option the time at which or the installments in which the Option
shall become exercisable, which provisions may be waived or modified by the Plan
Administrator at any time. If not so established in the instrument evidencing
the Option or otherwise set at the time of grant, the Option will be subject to
the following: (a) 25% of the Option shall vest and become exercisable on each
anniversary of the Grant Date such that the Option shall be fully vested on the
fourth anniversary of the Grant Date; (b) in no event shall any additional
Option Shares vest after termination of Holder's employment by or service to the
Company; and (c) the Plan Administrator may waive or modify the foregoing
schedule at any time.
To the extent that the right to purchase shares has accrued thereunder, an
Option may be exercised from time to time by written notice to the Company, in
accordance with procedures established by the Plan Administrator, setting forth
the number of shares with respect to which the Option is being exercised and
accompanied by payment in full as described in Section 7.5. An Option may not be
exercised as to less than 100 shares at any one time (or the lesser number of
remaining shares covered by the Option).
7.5 Payment of Exercise Price.
----------------------------------
The exercise price for shares purchased under an Option shall be paid in
full to the Company by delivery of consideration equal to the product of the
Option exercise price and the number of shares purchased. Such consideration
must be paid in cash or check (unless, at the time of exercise, the Plan
Administrator determines not to accept a personal check), except that the Plan
Administrator, in its sole discretion, may, either at the time the Option is
granted or at any time before it is exercised and subject to such limitations as
the Plan Administrator may
Page 27
determine, authorize payment in cash and/or one or more of the following
alternative forms: (a) tendering (either actually or, if and so long as the
Common Stock is registered under Section 12(b) or 12(g) of the Exchange Act, by
attestation) Common Stock already owned by the Holder for at least six months
(or any shorter period necessary to avoid a charge to the Company's earnings for
financial reporting purposes) having a Fair Market Value on the day prior to the
exercise date equal to the aggregate Option exercise price; (b) a promissory
note delivered pursuant to Section 12; (c) if and so long as the Common Stock is
registered under Section 12(b) or 12(g) of the Exchange Act, delivery of a
properly executed exercise notice, together with irrevocable instructions, to
(i) a third party designated by the Company to deliver promptly to the Company
the aggregate amount of sale or loan proceeds to pay the Option exercise price
and any withholding tax obligations that may arise in connection with the
exercise and (ii) the Company to deliver the certificates for such purchased
shares directly to such third party, all in accordance with the regulations of
the Federal Reserve Board; or (d) such other consideration as the Plan
Administrator may permit.
7.6 Post-Termination Exercises.
-----------------------------------
The Plan Administrator may establish and set forth in each instrument that
evidences an Option whether the Option will continue to be exercisable, and the
terms and conditions of such exercise, if a Holder ceases to be employed by, or
to provide services to, the Company or its Subsidiaries, which provisions may be
waived or modified by the Plan Administrator at any time.
If not so established in the instrument evidencing the Option, the Option
will be exercisable according to the following terms and conditions, which may
be waived or modified by the Plan Administrator at any time.
In case of termination of the Holder's employment or services other than by
reason of death or Cause, the Option shall be exercisable, to the extent of the
number of shares purchasable by the Holder at the date of such termination, only
(a) within one (1) year if the termination of the Holder's employment or
services are coincident with Disability or (b) within three (3) months after the
date the Holder ceases to be an employee, director, officer, consultant, agent,
advisor or independent contractor of the Company or a Subsidiary if termination
of the Holder's employment or services is for any reason other than death or
Disability, but in no event later than the remaining term of the Option. Any
Option exercisable at the time of the Holder's death may be exercised, to the
extent of the number of shares purchasable by the Holder at the date of the
Holder's death, by the personal representative of the Holder's estate entitled
thereto at any time or from time to time within one (1) year after the date of
death, but in no event later than the remaining term of the Option. In case of
termination of the Holder's employment or services for Cause, the Option shall
automatically terminate upon first discovery by the Company of any reason for
such termination and the Holder shall have no right to purchase any Shares
pursuant to such Option, unless the Plan Administrator determines otherwise. If
a Holder's employment or services with the Company are suspended pending an
investigation of whether the Holder shall be terminated for Cause, all the
Holder's rights under any Option likewise shall be suspended during the period
of investigation.
A transfer of employment or services between or among the Company and its
Subsidiaries shall not be considered a termination of employment or services.
The effect of a Company-approved leave of absence or short-term break in service
on the terms and conditions of an Option shall be determined by the Plan
Administrator, in its sole discretion.
8. INCENTIVE STOCK OPTION LIMITATIONS
To the extent required by Section 422 of the Code, Incentive Stock Options
shall be subject to the following additional terms and conditions:
8.1 Dollar Limitation.
--------------------------
To the extent the aggregate Fair Market Value (determined as of the Grant
Date) of Common Stock with respect to which Incentive Stock Options are
exercisable for the first time during any calendar year (under the Plan and all
other stock option plans of the Company) exceeds $100,000, such portion in
excess of $100,000 shall be treated as a Nonqualified Stock Option. In the event
the Participant holds two (2) or more such Options that become exercisable
for the first time in the same calendar year, such limitation shall be applied
on the basis of the order in which such Options were granted.
Page 28
8.2 10% Shareholders.
-------------------------
If a Participant owns more than 10% of the total voting power of all classes
of the Company's stock, then the exercise price per share of an Incentive Stock
Option shall not be less than 110% of the Fair Market Value of the Common Stock
on the Grant Date and the Option term shall not exceed five (5) years. The
determination of 10% ownership shall be made in accordance with Section 422 of
the Code.
8.3 Eligible Employees.
---------------------------
Individuals who are not employees of the Company or one of its parent
corporations or subsidiary corporations may not be granted Incentive Stock
Options. For purposes of this Section 8.3, "parent corporation" and "subsidiary
corporation" shall have the meanings attributed to those terms for purposes of
Section 422 of the Code.
8.4 Term.
-------------
The term of an Incentive Stock Option shall not exceed ten (10) years.
8.5 Exercisability.
-----------------------
To qualify for Incentive Stock Option tax treatment, an Option designated as
an Incentive Stock Option must be exercised within three (3) months after
termination of employment for reasons other than death, except that, in the case
of termination of employment due to total Disability, such Option must be
exercised within one (1) year after such termination. Employment shall not be
deemed to continue beyond the first 90 days of a leave of absence unless the
Participant's reemployment rights are guaranteed by statute or contract.
8.6 Taxation of Incentive Stock Options.
--------------------------------------------
In order to obtain certain tax benefits afforded to Incentive Stock Options
under Section 422 of the Code, the Participant must hold the shares issued upon
the exercise of an Incentive Stock Option for two (2) years after the Grant Date
of the Incentive Stock Option and one (1) year from the date the shares are
transferred to the Participant. A Participant may be subject to the alternative
minimum tax at the time of exercise of an Incentive Stock Option. The
Participant shall give the Company prompt notice of any disposition of shares
acquired by the exercise of an Incentive Stock Option prior to the expiration of
such holding periods.
8.7 Promissory Notes.
-------------------------
The amount of any promissory note delivered pursuant to Section 12 in
connection with an Incentive Stock Option shall bear interest at a rate
specified by the Plan Administrator but in no case less than the rate required
to avoid imputation of interest (taking into account any exceptions to the
imputed interest rules) for federal income tax purposes.
8.8 Incorporation of Other Provisions.
------------------------------------------
With respect to Incentive Stock Options, if this Plan does not contain any
provision required to be included herein under Section 422 of the Code, such
provision shall be deemed to be incorporated herein with the same force and
effect as if such provision had been set out in full herein; provided, however,
that to the extent any Option that is intended to qualify as an Incentive Stock
Option cannot so qualify, the Option, to that extent, shall be deemed to be a
Nonqualified Stock Option for all purposes of this Plan.
9. STOCK APPRECIATION RIGHTS
9.1 Grant of Stock Appreciation Rights.
-------------------------------------------
The Plan Administrator may grant a Stock Appreciation Right separately or in
tandem with a related Option.
Page 29
9.2 Tandem Stock Appreciation Rights.
-----------------------------------------
A Stock Appreciation Right granted in tandem with a related Option will give
the Holder the right to surrender to the Company all or a portion of the related
Option and to receive an appreciation distribution (in shares of Common Stock or
cash or any combination of shares and cash, as the Plan Administrator, in its
sole discretion, shall determine at any time) in an amount equal to the excess
of the Fair Market Value for the date the Stock Appreciation Right is exercised
over the exercise price per share of the right, which shall be the same as the
exercise price of the related Option. A tandem Stock Appreciation Right will
have the same other terms and provisions as the related Option. Upon and to the
extent a tandem Stock Appreciation Right is exercised, the related Option will
terminate.
9.3 Stand-Alone Stock Appreciation Rights.
----------------------------------------------
A Stock Appreciation Right granted separately and not in tandem with an
Option will give the Holder the right to receive an appreciation distribution in
an amount equal to the excess of the Fair Market Value for the date the Stock
Appreciation Right is exercised over the exercise price per share of the right.
A stand-alone Stock Appreciation Right will have such terms as the Plan
Administrator may determine, except that the term of the right, if not otherwise
established by the Plan Administrator, shall be ten (10) years from the Grant
Date.
9.4 Exercise of Stock Appreciation Rights.
----------------------------------------------
Unless otherwise provided by the Plan Administrator in the instrument that
evidences the Stock Appreciation Right, the provisions of Section 7.6 relating
to the termination of a Holder's employment or services shall apply equally, to
the extent applicable, to the Holder of a Stock Appreciation Right.
10. STOCK AWARDS
10.1 Grant of Stock Awards.
------------------------------
The Plan Administrator is authorized to make Awards of Common Stock or of
rights to receive shares of Common Stock to Participants on such terms and
conditions and subject to such restrictions, if any (which may be based on
continuous service with the Company or the achievement of performance goals
related to (i) sales, gross margin, operating profits or profits, (ii) growth in
sales, gross margin, operating profits or profits, (iii) return ratios related
to sales, gross margin, operating profits or profits, (iv) cash flow, (v) asset
management (including inventory management), or (vi) total shareholder return,
where such goals may be stated in absolute terms or relative to comparison
companies), as the Plan Administrator shall determine, in its sole discretion,
which terms, conditions and restrictions shall be set forth in the instrument
evidencing the Award. The terms, conditions and restrictions that the Plan
Administrator shall have the power to determine shall include, without
limitation, the manner in which shares subject to Stock Awards are held during
the periods they are subject to restrictions and the circumstances under which
forfeiture of Restricted Stock shall occur by reason of termination of the
Holder's services or upon the occurrence of other events.
10.2 Issuance of Shares.
Upon the satisfaction of any terms, conditions and restrictions prescribed
with respect to a Stock Award, or upon the Holder's release from any terms,
conditions and restrictions of a Stock Award, as determined by the Plan
Administrator, the Company shall transfer, as soon as practicable, to the Holder
or, in the case of the Holder's death, to the personal representative of the
Holder's estate or as the appropriate court directs, the appropriate number of
shares of Common Stock covered by the Award.
10.3 Waiver of Restrictions.
Notwithstanding any other provisions of the Plan, the Plan Administrator may,
in its sole discretion, waive the forfeiture period and any other terms,
conditions or restrictions on any Restricted Stock under such circumstances and
subject to such terms and conditions as the Plan Administrator shall deem
appropriate.
Page 30
11. OTHER STOCK-BASED AWARDS
The Plan Administrator may grant other Awards under the Plan pursuant to
which shares of Common Stock (which may, but need not, be shares of Restricted
Stock pursuant to Section 10) are or may in the future be acquired, or Awards
denominated in stock units, including ones valued using measures other than
market value. Such Other Stock-Based Awards may be granted alone or in addition
to or in tandem with any Award of any type granted under the Plan and must be
consistent with the Plan's purpose.
12. LOANS, INSTALLMENT PAYMENTS AND LOAN GUARANTEES
To assist a Holder (including a Holder who is an officer or director of the
Company) in acquiring shares of Common Stock pursuant to an Award granted under
the Plan, the Plan Administrator, in its sole discretion, may authorize, either
at the Grant Date or at any time before the acquisition of Common Stock pursuant
to the Award, (a) the extension of a loan to the Holder by the Company, (b) the
payment by the Holder of the purchase price, if any, of the Common Stock in
installments, or (c) the guarantee by the Company of a loan obtained by the
grantee from a third party. The terms of any loans, installment payments or loan
guarantees, including the interest rate and terms of and security for repayment,
will be subject to the Plan Administrator's discretion; provided, however, that
repayment of any Company loan to the Holder shall be secured by delivery of a
full-recourse promissory note for the loan amount executed by the Holder,
together with any other form of security determined by the Plan Administrator.
The maximum credit available is the purchase price, if any, of the Common Stock
acquired, plus the maximum federal and state income and employment tax liability
that may be incurred in connection with the acquisition.
13. ASSIGNABILITY
Except as otherwise specified or approved by the Plan Administrator at the
time of grant of an Award or any time prior to its exercise, no Award granted
under the Plan may be assigned, pledged or transferred by the Holder other than
by will or by the laws of descent and distribution, and during the Holder's
lifetime, such Awards may be exercised only by the Holder. Notwithstanding the
foregoing, and to the extent permitted by Section 422 of the Code, the Plan
Administrator, in its sole discretion, may permit such assignment, transfer and
exercisability and may permit a Holder of such Awards to designate a beneficiary
who may exercise the Award or receive compensation under the Award after the
Holder's death; provided, however, that (i) any Award so assigned or transferred
shall be subject to all the same terms and conditions contained in the
instrument evidencing the Award, (ii) the original Holder shall remain subject
to withholding taxes upon exercise, (iii) any subsequent transfer of an Award
shall be prohibited and (iv) the events of termination of employment or
contractual relationship set forth in subsection 7.6 shall continue to apply
with respect to the original transferor-Holder.
14. ADJUSTMENTS
14.1 Adjustment of Shares.
-------------------------
In the event that, at any time or from time to time, a stock dividend, stock
split, spin-off, combination or exchange of shares, recapitalization, merger,
consolidation, distribution to shareholders other than a normal cash dividend,
or other change in the Company's corporate or capital structure results in (a)
the outstanding shares, or any securities exchanged therefor or received in
their place, being exchanged for a different number or class of securities of
the Company or of any other corporation or (b) new, different or additional
securities of the Company or of any other corporation being received by the
holders of shares of Common Stock of the Company, then the Plan Administrator,
in its sole discretion, shall make such equitable adjustments as it shall deem
appropriate in the circumstances in (i) the maximum number and class of
securities subject to the Plan as set forth in Section 4.1, (ii) the maximum
number and class of securities that may be made subject to Awards to any
individual Participant as set forth in Section 4.2, and (iii) the number and
class of securities that are subject to any outstanding Award and the per share
price of such securities, without any change in the aggregate price to be paid
therefor. The determination by the Plan Administrator as to the terms of any of
the foregoing adjustments shall be conclusive and binding.
Page 31
14.2 Dissolution, Liquidation or Change in Control Transactions.
---------------------------------------------------------------
(a)In the event of the proposed dissolution or liquidation of the
Company, the Company shall notify each Holder at least fifteen (15) days prior
to such proposed action. To the extent not previously exercised, all Awards will
terminate immediately prior to the consummation of such proposed action.
(b)Unless the applicable agreement representing an Option provides
otherwise, or unless the Plan Administrator determines otherwise in its sole and
absolute discretion in connection with any Change in Control, a Qualifying
Option which is not exercisable in full shall become exercisable in connection
with a Change in Control which becomes effective before the Holder's service to
the Company terminates as follows:
(i) If the Qualifying Option remains outstanding following the
Change in Control, is assumed by the surviving entity or its parent, or the
surviving entity or its parent substitutes options with substantially the same
terms for such Qualifying Option, the vesting and exercisability of the
Qualifying Option shall be accelerated to the extent of 25% of the Unvested
Portion thereof, and the remaining 75% of the Unvested Portion of such
Qualifying Option shall vest in accordance with the vesting schedule set forth
in the applicable Option agreement.
(ii) If the Qualifying Option remains outstanding following the
Change in Control, is assumed by the surviving entity or its parent, or the
surviving entity or its parent substitutes options with substantially the same
terms for such Qualifying Option and if the Holder thereof is subject to an
Involuntary Termination within 180 days following such Change in Control, then
all Options held by such Holder (or options issued in substitution thereof)
shall become exercisable in full, whether or not the vesting requirements set
forth in the Option agreement have been satisfied, for a period of 90 days
commencing on the effective date of such Holder's Involuntary Termination, or if
shorter, the remaining term of the option.
(iii) If a Qualifying Option does not remain outstanding, and either
such Qualifying Option is not assumed by the surviving entity or its parent, or
the surviving entity or its parent does not substitute options with
substantially the same terms for such Qualifying Option, such Qualifying Option
shall become exercisable in full, whether or not the vesting requirements set
forth in the Option agreement have been satisfied, for a period prior to the
effective date of such Change in Control of a duration specified by the Plan
Administrator, and thereafter the Option shall terminate.
(c)Unless the applicable agreement representing an Award provides
otherwise, or unless the Plan Administrator determines otherwise in its sole and
absolute discretion in connection with any Change in Control, the vesting of
Qualifying Shares shall be accelerated, and the Company's repurchase right with
respect to such shares shall lapse, in connection with a Change in Control which
becomes effective before such Holder's service to the Company terminates as
follows:
(i) If Qualifying Options were outstanding at the effective time of
the Change in Control and they are partially accelerated pursuant to Subsection
(b)(i) above or if there were no Qualifying Options outstanding at the effective
time of the Change in Control, the vesting of all Qualifying Shares shall be
accelerated to the extent of 25% of the Unvested Portion thereof, and the
remaining 75% of the Unvested Portion of such Qualifying Shares shall vest in
accordance with the vesting schedule set forth in the applicable Award
agreement.
(ii) If the preceding clause (i) applied and if a Holder of
Qualifying Shares is subject to an Involuntary Termination within 180 days
following the same Change in Control, then all Qualifying Shares held by such
Holder (or shares issued in substitution thereof) shall become vested in full,
whether or not the vesting requirements set forth in the applicable Award
agreement have been satisfied.
(iii) If Qualifying Options were outstanding at the effective time
of the Change in Control and they are accelerated in full pursuant to Subsection
(b)(iii) above or otherwise, the vesting of all Qualifying Shares
shall be accelerated in full, and the Company's repurchase right with respect to
all such shares shall lapse in full, whether or not the vesting requirements set
forth in the applicable Award agreement have been satisfied.
(d)Notwithstanding Subsections (b) and (c) above, if the Company and
the other party to the transaction constituting a Change in Control agree that
such transaction is to be treated as a "pooling of interests" for
Page 32
financial reporting purposes, and if the Company's independent public
accountants and such other party's independent public accountants separately
determine in good faith that the transaction constituting a Change in Control
would qualify for treatment as a "pooling of interests" but for the acceleration
of vesting provided for in Subsections (b) and (c) above, then the acceleration
of exercisability or the lapse of the Company's right to repurchase shall not
occur to the extent that the Company's independent public accountants and such
other party's independent public accountants separately determine in good faith
that such acceleration would preclude the use of "pooling of interests"
accounting for such transaction.
14.3 Further Adjustment of Awards.
---------------------------------
Subject to the preceding Section 14.2, the Plan Administrator shall have the
discretion, exercisable at any time before a sale, merger, consolidation,
reorganization, dissolution, liquidation or Change in Control of the Company, as
defined by the Plan Administrator, to take such further action as it determines
to be necessary or advisable, and fair and equitable to Participants, with
respect to Awards. Such authorized action may include (but shall not be limited
to) establishing, amending or waiving the type, terms, conditions or duration
of, or restrictions on, Awards so as to provide for earlier, later, extended or
additional time for exercise, payment or settlement or lifting restrictions,
differing methods for calculating payments or settlements, alternate forms and
amounts of payments and settlements and other modifications, and the Plan
Administrator may take such actions with respect to all Participants, to certain
categories of Participants or only to individual Participants. The Plan
Administrator may take such actions before or after granting Awards to which the
action relates and before or after any public announcement with respect to such
sale, merger, consolidation, reorganization, dissolution, liquidation or Change
in Control that is the reason for such action. Without limiting the generality
of the foregoing, if the Company is a party to a merger or consolidation,
outstanding Awards shall be subject to the agreement of merger or consolidation.
Such agreement, without the Holder's consent, may provide for:
(a) the continuation of such outstanding Award by the Company (if the
Company is the surviving corporation);
(b the assumption of the Plan and some or all outstanding Awards by the
surviving corporation or its parent;
(c)the substitution by the surviving corporation or its parent of
Awards with substantially the same terms for such outstanding Awards; or
(d) the cancellation of such outstanding Awards with or without
payment of any consideration.
14.4 Limitations.
-----------------
The grant of Awards will in no way affect the Company's right to adjust,
reclassify, reorganize or otherwise change its capital or business structure or
to merge, consolidate, dissolve, liquidate or sell or transfer all or any part
of its business or assets.
14.5 Fractional Shares.
----------------------
In the event of any adjustment in the number of shares covered by any
Option, any fractional shares resulting from such adjustment shall be
disregarded and each such Option shall cover only the number of full shares
resulting from such adjustment.
15. WITHHOLDING
The Company may require the Holder to pay to the Company in cash the amount
of any withholding taxes that the Company is required to withhold with respect
to the grant, exercise, payment or settlement of any Award. The Company shall
have the right to withhold from any Award or any shares of Common Stock issuable
pursuant to an Award or from any cash amounts otherwise due or to become due
from the Company to the Participant an amount
Page 33
equal to such taxes. The Company may also deduct from any Award any other
amounts due from the Participant to the Company or a Subsidiary.
16. AMENDMENT AND TERMINATION OF PLAN
16.1 Amendment of Plan.
-----------------------
The Plan may be amended by the Board in such respects as it shall deem
advisable including, without limitation, such modifications or amendments as are
necessary to maintain compliance with applicable statutes, rules or regulations;
however, to the extent required for compliance with Section 422 of the Code or
any applicable law or regulation, shareholder approval will be required for any
amendment that will increase the aggregate number of shares as to which
Incentive Stock Options may be granted or change the class of persons eligible
to participate. Amendments made to the Plan which would constitute
"modifications" to Incentive Stock Options outstanding on the date of such
Amendments shall not be applicable to such outstanding Incentive Stock Options
but shall have prospective effect only. The Board may condition the
effectiveness of any amendment on the receipt of shareholder approval at such
time and in such manner as the Board may consider necessary for the Company to
comply with or to avail the Company, the Holders or both of the benefits of any
securities, tax, market listing or other administrative or regulatory
requirement which the Board determines to be desirable. Whenever shareholder
approval is sought, and unless required otherwise by applicable law or exchange
requirements, the proposed action shall require the affirmative vote of holders
of a majority of the shares present, entitled to vote and voting on the matter
without including abstentions or broker non-votes in the denominator.
16.2 Termination Of Plan.
-------------------------
The Company's shareholders or the Board may suspend or terminate the Plan at
any time. The Plan will have no fixed expiration date; provided, however, that
no Incentive Stock Options may be granted more than ten (10) years after the
earlier of the Plan's adoption by the Board or approval by the shareholders.
17. GENERAL
17.1 Award Agreements.
----------------------
Awards granted under the Plan shall be evidenced by a written agreement
which shall contain such terms, conditions, limitations and restrictions as the
Plan Administrator shall deem advisable and which are not inconsistent with the
Plan.
17.2 Continued Employment or Services; Rights In Awards.
--------------------------------------------------------
None of the Plan, participation in the Plan as a Participant or any action
of the Plan Administrator taken under the Plan shall be construed as giving any
Participant or employee of the Company any right to be retained in the employ of
the Company or limit the Company's right to terminate the employment or services
of the Participant.
17.3 Registration; Certificates For Shares.
-------------------------------------------
The Company shall be under no obligation to any Participant to register for
offering or resale or to qualify for exemption under the Securities Act, or to
register or qualify under state securities laws, any shares of Common Stock,
security or interest in a security paid or issued under, or created by, the
Plan, or to continue in effect any such registrations or qualifications if made.
The Company may issue certificates for shares with such legends and subject to
such restrictions on transfer and stop-transfer instructions as counsel for the
Company deems necessary or desirable for compliance by the Company with federal
and state securities laws.
Inability of the Company to obtain, from any regulatory body having
jurisdiction, the authority deemed by the Company's counsel to be necessary for
the lawful issuance and sale of any shares hereunder or the unavailability of an
exemption from registration for the issuance and sale of any shares hereunder
shall relieve the Company of any liability in respect of the nonissuance or sale
of such shares as to which such requisite authority shall not have been
obtained.
Page 34
17.4 No Rights As A Shareholder.
-------------------------------
No Option, Stock Appreciation Right or Other Stock-Based Award shall entitle
the Holder to any cash dividend, voting or other right of a shareholder unless
and until the date of issuance under the Plan of the shares that are the subject
of such Award, free of all applicable restrictions.
17.5 Compliance With Laws And Regulations.
-----------------------------------------
In interpreting and applying the provisions of the Plan, any Option granted
as an Incentive Stock Option pursuant to the Plan shall, to the extent permitted
by law, be construed as an "incentive stock option" within the meaning of
Section 422 of the Code.
17.6 No Trust Or Fund.
---------------------
The Plan is intended to constitute an "unfunded" plan. Nothing contained
herein shall require the Company to segregate any monies or other property, or
shares of Common Stock, or to create any trusts, or to make any special deposits
for any immediate or deferred amounts payable to any Participant, and no
Participant shall have any rights that are greater than those of a general
unsecured creditor of the Company.
17.7 Severability.
-----------------
If any provision of the Plan or any Award is determined to be invalid,
illegal or unenforceable in any jurisdiction, or as to any person, or would
disqualify the Plan or any Award under any law deemed applicable by the Plan
Administrator, such provision shall be construed or deemed amended to conform to
applicable laws, or, if it cannot be so construed or deemed amended without, in
the Plan Administrator's determination, materially altering the intent of the
Plan or the Award, such provision shall be stricken as to such jurisdiction,
person or Award, and the remainder of the Plan and any such Award shall remain
in full force and effect.
18. EFFECTIVE DATE
The Plan's effective date is the date on which it is adopted by the Board,
so long as it is approved by the Company's shareholders at any time within
twelve (12) months of such adoption.
Original Plan adopted by the Board on February 28, 2000.
Page 35
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] No fee.
[ ] $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 36
Proxy
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
Data I/O CORPORATION
The undersigned hereby appoints Frederick R. Hume, and Joel S. Hatlen, 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 19, 2000, 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 reverse side)
- --------------------------------------------------------------------------------
FOLD AND DETACH HERE
Please mark
your votes as
indicated in
this example [x]
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 proposal to approve the Data I/O Corporation 2000 Stock Incentive
Compensation Plan. If no specification is made, all shares represented by this
proxy will be voted FOR all of said nominees and will be voted FOR the proposed
Data I/O Corporation 2000 Stock Incentive Compensation 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 thereof.
1. Election of Directors
(INSTRUCTION: To withhold authority to vote for any individual nominee, strike
a line through the nominee's name in the list below.)
Keith L. Barnes
Glen F. Ceiley
Daniel A. DiLeo
Paul A. Gary
Frederick R. Hume
Edward D. Lazowska
FOR all nominees listed at left (except as marked to the contrary at left). [__]
WITHHOLD ALL AUTHORITY to vote for all nominees listed at left. [__]
2. Proposal to approve the Data I/O Corporation 2000 Stock Incentive
Compensation Plan as described in the Proxy Statement for the 2000 Annual
Meeting.
FOR [__] AGAINST [__] ABSTAIN [__]
3. In their discretion, the holders of this proxy are authorized to vote upon
such other business as may properly come before the meeting or any
adjournment thereof.
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 thereof.
Signature(s)_________________________________________________
Date_____________________
NOTE: Please sign exactly as name appears on this proxy. If block is held
jointly, both persons should sign. Persons signing in a representative capacity
should give their title.
FOLD AND DETACH HERE