DATA I/O CORPORATION
NOTICE OF 2019
ANNUAL MEETING
and
PROXY STATEMENT
DATA I/O CORPORATION
April 3, 2019
To Our Shareholders:
You are cordially invited to attend the 2019 Annual Meeting of Data I/O Corporation,
which will be held at Data I/O’s headquarters at 6645 185th Ave NE, Suite 100, Redmond,
Washington 98052. The meeting will begin at 10:00 a.m. Pacific Daylight Time on Monday, May
20, 2019.
Officers of Data I/O will be attending and will respond to questions after the meeting.
Formal business will include the election of directors, ratification of the continued appointment
of Grant Thornton LLP as Data I/O’s independent auditors, and an advisory vote on executive
compensation.
Please read the proxy materials carefully. Your vote is important. Data I/O appreciates
you considering and acting on the proposals presented. We look forward to seeing you on May
20, 2019.
Sincerely,
Anthony Ambrose
President and Chief Executive Officer
DATA I/O CORPORATION
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS - May 20, 2019
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” or “Data I/O”) will be held at 10:00
a.m. Pacific Daylight Time, on Monday, May 20, 2019, at Data I/O’s principal offices, 6645 185th Ave NE, Suite 100, Redmond, Washington 98052,
for the following purposes:
(1)
(2)
(3)
(4)
Election of Directors:
To elect five directors, each to serve until the next annual meeting of shareholders or until his or her successor is elected and
qualified or until such director’s earlier death, resignation, or removal.
Ratification of Independent Auditors:
To ratify the continued appointment of Grant Thornton LLP as Data I/O’s independent auditors for the calendar year ended
December 31, 2019.
Say on Pay – Advisory Vote on Executive Compensation:
To consider and vote on an advisory resolution on the compensation of our named executive officers.
Other Business:
To consider and vote upon such other business as may properly come before the meeting or any adjournments or
postponements thereof.
Important Notice Regarding the Availability of Proxy Materials for the Shareholder Meeting To Be Held on May 20, 2019. The proxy statement
and annual report to security holders are also available at http://www.dataio.com/company/investorrelations/annualmeeting.aspx.
The Board of Directors has fixed the close of business on March 21, 2019, as the Record Date for the determination of shareholders entitled to
notice of, and to vote at, the 2019 Annual Meeting and any adjournment or postponement thereof.
By Order of the Board of Directors
/s/ Anthony Ambrose
Anthony Ambrose
President and Chief Executive Officer
Redmond, Washington
April 3, 2019
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, or you may vote by the internet at http://www.investorvote.com/DAIO or by telephone at 1-800-652-8683, as provided in the
instructions on the proxy card. This will ensure the presence of a quorum at the meeting. Promptly returning a signed and dated proxy card, or
voting by the internet or by telephone, will save Data I/O 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. If
you vote by mail, an addressed, postage-paid envelope is provided in order to make certain that your shares will be represented at the Annual
Meeting.
DATA I/O CORPORATION
6645 185th Ave NE, Suite 100
Redmond, Washington 98052
____________________
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
May 20, 2019
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 (“Board of Directors”) of Data I/O Corporation (the “Company” or “Data I/O”) for use at the Annual Meeting of
Shareholders to be held on Monday, May 20, 2019, at 10:00 a.m. Pacific Daylight Time at Data I/O’s principal offices, 6645 185th Ave
NE, Suite 100, Redmond, Washington 98052, and at any adjournment of the meeting (the “Annual Meeting”). Shareholders of
record at the close of business on March 21, 2019, (the “Record Date”) are entitled to notice of, and to vote at, the Annual Meeting.
This Proxy Statement and a copy of Data I/O’s 2018 Annual Report to Shareholders are being mailed to shareholders on or about
April 12, 2019.
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, or you may vote by the internet at
http://www.investorvote.com/DAIO, or by telephone at 1-800-652-8683, as provided in the instructions on the proxy card. If you
vote by the internet or by telephone, you do not need to mail back the proxy card.
A proxy in the accompanying form, which is properly signed, dated and returned and not revoked, will be voted in accordance with
its instructions. To vote on the election of directors, check the appropriate box under Proposal 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 Proposal 2 to ratify the
continued appointment of Grant Thornton LLP as Data I/O’s independent auditors for the calendar year ended December 31, 2019,
check the appropriate box under Proposal 2 on your proxy card. You may (a) vote “FOR” approval of the ratification of Grant
Thornton LLP as Data I/O’s independent auditors, (b) vote “AGAINST” approval of the ratification of Grant Thornton LLP as Data I/O’s
independent auditors, or (c) “ABSTAIN” from voting on the ratification of Grant Thornton LLP as Data I/O’s independent auditors. To
vote on Proposal 3, Say on Pay – Advisory Vote on Executive Compensation, you may vote (a) “FOR” the advisory resolution, (b)
“AGAINST” the advisory resolution, or (c) “ABSTAIN” from voting on the advisory resolution on executive compensation.
Proxies which are returned to Data I/O 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 voting on any matter (without, however, affecting any vote taken
prior to such revocation) by (i) delivering written notice of revocation to the Secretary of Data I/O at Data I/O’s principal offices, (ii)
executing and delivering to Data I/O another proxy dated as of a later date, or (iii) voting in person at the Annual Meeting.
VOTING SECURITIES AND PRINCIPAL HOLDERS
The only outstanding voting securities of Data I/O are shares of common stock (the “Common Stock”). As of the Record Date, there
were 8,301,736 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 for a
quorum for transacting 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 Data I/O’s charter documents, if a
quorum is present, the five nominees for election to the Board of Directors who receive the greatest number of affirmative votes
cast at the Annual Meeting will be elected directors. Abstentions and broker non-votes will have no effect on the election of
directors because they are not cast in favor of any particular candidate.
The proposal to ratify the continued appointment of Grant Thornton as Data I/O’s independent auditors 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 the proposals.
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Abstentions and broker non-votes on the proposals will have no effect because approval of the proposal is based solely on the votes
cast.
Say on Pay – The advisory vote on the compensation of Data I/O’s named executive officers will be approved, if a quorum is present,
if the number of votes cast in favor of the advisory resolution exceeds the number of votes cast against the advisory resolution.
Abstentions and broker non-votes on the advisory resolution will have no effect because approval of the advisory resolution is based
solely on the votes cast.
Proxies and ballots will be received and tabulated by Computershare, an independent business entity not affiliated with Data I/O.
Effect of Not Casting Your Vote
If you hold your shares in street name, it is critical that you instruct your broker or bank how to vote if you want it to count in
Proposal 1, the election of directors; Proposal 3, Say on Pay. Regulations no longer allow your bank or broker to vote your
uninstructed shares in the election of directors on a discretionary basis. If you hold your shares in street name and you do not
instruct your bank or broker how to vote in the Proposal 1, election of directors; and Proposal 3, Say on Pay, votes will not be cast on
your behalf for these Proposals. Your bank or broker will, however, continue to have discretion to vote any uninstructed shares on
Proposal 2, ratification of the appointment of Data I/O’s independent auditors. If you are a shareholder of record and you do not
cast your vote, votes will not be cast on your behalf on any of the items of business at the Annual Meeting.
The Common Stock is traded on The NASDAQ Capital Market under the symbol “DAIO”. The last sale price for the Common Stock, as
reported by The NASDAQ Capital Market on March 21, 2019, was $5.71 per share.
Principal Holders of Data I/O’s Common Stock
The following table sets forth information for all shareholders known by Data I/O to be the beneficial owners of more than five
percent of its outstanding Common Stock as of March 21, 2019. Except as noted below, each person or entity has sole voting and
investment powers with for the shares shown.
Name and Address
DH Partners, LLC
Delafield Hambrecht Partners Fund, L.P.
Delafield Hambrecht, Inc.
John D. Delafield
1301 2nd Avenue, suite 2850
Seattle, WA 98101
Renaissance Technologies LLC
Renaissance Technologies Holding
Corporation
800 Third Avenue
New York, NY 10022
Dimensional Fund Advisors LP
Building One
6300 Bee Cave Road
Austin, TX 78746
Amount and Nature
of Beneficial
Ownership
Percent of Shares
Outstanding
584,309
(1)
7.04%
666,588
(2)
8.03%
432,071
(3)
5.20%
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(1) The holding shown is as of December 31, 2018, as jointly reported by DH Partners, LLC (“DHP”); Delafield Hambrecht Partners
Fund, L.P. (“DHPF”); Delafield Hambrecht, Inc. (“DHI”); and; John D. Delafield, on the most recent (filed February 14, 2019)
Schedule 13G/A filed pursuant to Rule 13d-1 under the Securities Exchange Act of 1934. The Schedule 13G indicates that DHPF
has shared voting power and dispositive power of 584,309 shares. DHP (General Partner of DHPF), DHI (Manager of DHP) and
John D. Delafield (President of DHI) each have shared voting power and dispositive power as beneficial owner for 584,309
shares.
(2) The holding reported as of December 31, 2018, as jointly reported by Renaissance Technologies LLC (“RTC”) and Renaissance
Technologies Holding Corporation (“RTHC”) on the most recent (filed February 13, 2019) Schedule 13G/A filed under the
Securities Exchange Act of 1934. The Schedule 13G indicates that RTC has sole voting power and dispositive power for 666,588
shares and RTHC has sole voting power and dispositive power for 666,588 shares comprising the shares beneficially owned by
RTHC, because of RTHC’s majority ownership of RTC.
(3) The holding reported as of December 31, 2018, as reported by Dimensional Fund Advisors LP (“DFA”) together with its
subsidiaries on the most recent (filed February 8, 2019) Schedule 13G filed under the Securities Exchange Act of 1934. The
Schedule 13G indicates that DFA has sole voting power for 408,366 and sole dispositive power for 432,071 shares and disclaims
beneficial ownership of such securities.
Directors’ and Officers’ Share Ownership
The following table indicates ownership of Data I/O’s Common Stock by each director of Data I/O, each executive officer named in
the compensation tables appearing later in this Proxy Statement, and by all directors and executive officers as a group, all as of
March 21, 2019. Data I/O is not aware of any family relationships between any director, director nominee or executive officer of
Data I/O.
Name
Anthony Ambrose
Joel S. Hatlen
Rajeev Gulati
Douglas W. Brown
Brian T. Crowley(2)
Alan B. Howe
Mark J. Gallenberger
All current directors and executive officers
as a group (7 persons)
Amount and Nature of
Beneficial Ownership
Percent of Shares
Outstanding
206,194
116,007
45,942
37,774
50,556
32,900
27,900
517,255
2.5%
1.4%
(1)
(1)
(1)
(1)
(1)
6.2%
(1) Less than 1 percent each.
(2) Mr. Crowley will not be standing for election at the 2019 Annual Meeting of Shareholders.
Data I/O is not aware of any arrangement the operation of which may at a subsequent date result in a change of control of Data I/O.
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Board Charters
CORPORATE GOVERNANCE
The Board of Directors has adopted Corporate Governance and Nominating Committee, Audit Committee and Compensation
Committee Charters. All our Charters are reviewed and updated periodically by our Board of Directors. All of our Charters were
reviewed during 2018 and again in early 2019 and no changes were made. The current versions of our Charters are posted on the
corporate governance page of our website at www.dataio.com/company/investorrelations/corporategovernance.aspx. All of these
Charters are consistent with the applicable requirements of United States security laws and our NASDAQ listing standards.
Code of Ethics
is posted on
Our Code of Ethics was reviewed by our Board of Directors during 2018 and again in early 2019 and no changes were made. The
current version of our Code of Ethics
the corporate governance page of our website at
www.dataio.com/company/corporategovernance.axp. Data I/O’s Code of Ethics apply to all directors, officers and employees of
Data I/O, including the named executive officers. The key principles of the Code are to act legally, and with integrity in all work for
Data I/O. We will post any amendments to our Code of Ethics on the corporate governance page of our website at
www.dataio.com/company/investorrelations/corporategovernance.aspx. In the unlikely event that the Board of Directors approves
any waiver to the Code of Ethics for our executive officers or directors, information concerning such waiver will also be posted on
our website. In addition to posting information regarding amendments and waivers on our website, the same information will be
included in a Current Report on Form 8-K within four business days following the date of the amendment or waiver, unless website
posting of such amendments or waivers is permitted by the rules of The NASDAQ Stock Market LLC.
Risk Oversight
Our Board of Directors consists of four independent directors, and one non-independent director, our Chief Executive Officer. Risk
oversight is generally handled by our entire Board of Directors, although certain risk oversight areas such as internal control and
cyber risk are handled by our Audit Committee, and compensation is handled by our Compensation Committee, respectively.
Director Independence
Messrs. Crowley, Gallenberger, Howe, and Brown are independent directors, and Mr. Delafield, a director nominee, is also
independent, as defined by applicable NASDAQ listing standards. Mr. Ambrose, our Chief Executive Officer, is not an independent
director.
Leadership Structure
Our Chairman, Mr. Howe, is an independent director and Mr. Ambrose is our Chief Executive Officer, President, and Director.
PROPOSAL 1: ELECTION OF DIRECTORS
At the 2018 Annual Meeting, the shareholders elected five directors to serve until the next Annual Meeting or until such director’s
successor has been qualified and elected or such director’s earlier death, resignation or removal. For the 2019 Annual Meeting, the
Board of Directors has approved the five nominees named below. Four nominees are currently members of the Board of Directors
and one is a new nominee. 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.
Anthony Ambrose, age 57, was appointed a director of Data I/O effective October 25, 2012. He joined Data I/O October 25, 2012,
and has served as President and Chief Executive Officer (“CEO”). Prior to Data I/O, Mr. Ambrose was Owner and Principal of Cedar
Mill Partners, LLC, a strategy consulting firm since 2011. From 2007 to 2011, he was Vice President and General Manager at RadiSys
Corporation, a leading provider of embedded wireless infrastructure solutions, where he led three product divisions and worldwide
engineering. At RadiSys, he established the telecom platform business and grew it to over $125M in annual revenues. Until 2007,
he was general manager and held several other progressively responsible positions at Intel Corporation, where he led development
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and marketing of standards based telecommunications platforms, and grew the industry standard server business to over $1B in
revenues. He is a member of the Evergreen Health Foundation Board of Trustees. Mr. Ambrose has a Bachelor’s of Science in
Engineering from Princeton University.
Mr. Ambrose has extensive semiconductor and mobile broadband networks industry operating experience. He has significant
executive experience in strategy development, business management, marketing, engineering, and new product development. His
role as our President and CEO gives him knowledge as well as unique insight into our challenges, opportunities and operations that
the Board of Directors believes qualifies him to serve as a director of Data I/O.
Douglas W. Brown, age 63, was appointed a director of Data I/O effective April 1, 2011. Mr. Brown retired in 2019 from Executive
Chairman of All Star Directories, Inc., Seattle, Washington, a Web-based publisher of post-secondary online and career school
directories which he joined as President in 2005 and served in that capacity until 2016. From 2003 to 2005, he provided governance
and interim executive services, with engagements including Interim President and Board member, to venture-backed clients. From
1998 to 2003, he was a Board member of GoAhead Software and was appointed its President in 2001. From 1993 to 1999, he was a
President of a Seattle-area manufacturing company which became a Division of Leggett & Platt in 1996. Prior to that time, he was
the Chief Financial Officer (“CFO”) of Seattle Silicon, and Executive Vice President, Finance and Operations at Phamis. He started his
career as a Certified Public Accountant at Arthur Young & Co, now Ernst & Young, in Seattle. Mr. Brown has a Bachelor’s degree in
Business from University of Idaho.
Mr. Brown has extensive software, financial, CEO, CFO, and board level experience that the Board of Directors believes qualifies him
to serve as a director of Data I/O.
Mark J. Gallenberger, age 55, was appointed a director of Data I/O effective January 31, 2013. He served, until it’s acquisition in
October 2018, as Senior Vice President, Chief Financial Officer, Chief Operating Officer and Treasurer of Xcerra Corporation (formerly
called LTX-Credence Corporation) (NASDAQ:XCRA), a global provider of test and handling capital equipment, interface products, test
fixtures, and services to the semiconductor, industrial, and electronics manufacturing industries, which he joined in 2000. For the six
years prior, he was Vice President/Senior Manager with Ernst &Young (Cap Gemini) in their consulting practice, establishing the
Deals & Acquisitions Group. Previously, he held management and technical positions with Digital Equipment Corporation. He has a
Master’s of Business Administration from Northwestern University and a Bachelor’s of Science – Electrical Engineering from
Rochester Institute of Technology.
Mr. Gallenberger has extensive semiconductor equipment industry, mergers & acquisition, capital markets, engineering technical,
operations, financial, and CFO experience that the Board of Directors believes qualifies him to serve as a director of Data I/O.
Alan B. Howe, age 57, was appointed a director of Data I/O effective January 31, 2013. He has served as the Co-founder and
Managing Partner of Broadband Initiatives LLC, a boutique corporate advisory and consulting firm, since 2001. He served as Vice
President of Strategic and Wireless Business Development
Inc., a national broadband
telecommunications company from May 2005 to October 2008. He served as CFO and Vice President of Corporate Development for
Teletrac, Inc. from April 1995 to April 2001. Previously, he held various executive management positions for Sprint PCS, and
Manufacturers Hanover Trust Company. He is currently a board member since 2009 and Vice Chairman of Determine, Inc.
(NASDAQ: DTRM); a board member since July 2017 of Widepoint (NYSE AMERICAN: WYY); a board member since June 2018 of
Resonant (NASDAQ: RESN); and has served on a number of private and public boards including in the past five years MagicJack
Vocaltec, Cafepress, Proxim Wireless, Urban Communications, and Qualstar. He has a Master’s of Business Administration in
Finance from Indiana University and a Bachelor’s of Science – Business Administration and Marketing from University of Illinois.
for Covad Communications,
Mr. Howe has extensive wireless, business development, financial, CEO, CFO, board level, and Chairman experience that the Board
of Directors believes qualifies him to serve as a director of Data I/O.
John D. Delafield, age 53, was nominated to be elected as a director effective with the 2019 annual meeting on May 20, 2019. He
has served as the President of Delafield Hambrecht, Inc., an investment firm based in Seattle, since 2001. Previously, he co-founded
WR Hambrecht + Co. and held a number of positions including Chief Operating Officer. Prior to WR Hambrecht + Co., he worked at
Morgan Stanley in investment banking in New York and Singapore and at The Coca-Cola Company in Beijing. He is on the board of
directors of Seattle Bank, a private boutique bank in Seattle, Washington. He has served on a number of private and public boards,
including in the past five years Cascade Microtech, Inc. (NASDAQ: CSCD). He has a Master’s of Business Administration from Harvard
Business School and a Bachelor of Arts from Princeton University.
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Mr. Delafield is President of a significant shareholder, has experience as a CEO and public company director, prior director
experience in industries related to ours, and financial management experience, as well as experience in mergers and acquisitions,
that the Board of Directors believes qualifies him to serve as a director of Data I/O.
Communications with the Board of Directors
THE BOARD OF DIRECTORS
Shareholders may communicate with the Board of Directors by sending an email or by sending a letter to Data I/O Corporation
Board of Directors, c/o the Secretary, 6645 185th Ave NE, Suite 100, Redmond, WA 98052. The Secretary will receive the
correspondence and forward it to the Chairman of the applicable Board of Directors Committee or to any individual director or
directors to whom the communication is directed.
BOARD COMMITTEES
During the year ended December 31, 2018, there were seven meetings of the Board of Directors. Each of the incumbent directors
who was on the Board of Directors during 2018 attended 100% 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 of Directors. Data I/O does not have a policy requiring members of the Board of Directors to attend the Annual
Meeting, although we typically encourage our Board of Directors to attend. Mr. Brown, Mr. Crowley, and Mr. Ambrose attended our
2018 Annual Meeting in person and Mr. Gallenberger and Mr. Howe attended via telephone.
The Board of Directors had three standing Committees during 2018: the Corporate Governance and Nominating Committee, the
Audit Committee, and the Compensation Committee. Each committee was comprised solely of independent directors during 2018,
as defined by applicable NASDAQ listing standards including director independence generally as well as additional independence
requirements for audit and compensation committees, and the Sarbanes-Oxley Act of 2002. The following table shows the
composition of the Board Committees and Board Leadership structure during 2018 and through the date of this Proxy Statement.
Audit Committee
Chair
Director
M=member
Doug Brown
Brian Crowley
Alan Howe
M
Mark Gallenberger M
Anthony Ambrose
JD Delafield
Compensation
Committee
M
M
Chair
Corporate Governance
and
Nominating Committee
M
Chair
M
M
Comments
Not standing for re-election
Chairman of the Board
President & CEO
Director Nominee, not yet
assigned to committees
Corporate Governance and Nominating Committee
The Corporate Governance and Nominating Committee, or “CGNC”, develops, recommends to the Board of Directors, and monitors
a set of corporate governance principles applicable to Data I/O. The CGNC seeks qualified candidates to serve on the Board of
Directors, recommends them for the Board of Directors’ consideration for election as directors at the Annual Meeting of
Shareholders and proposes candidates to fill vacancies on the Board of Directors. The CGNC met two times in 2018. The CGNC
continues to seek qualified candidates and recommends the director nominees to the Board of Directors. The CGNC identifies,
evaluates, and recommends director nominees and Committee assignments which are described in greater detail below.
Audit Committee
The Audit Committee appoints, oversees, evaluates, and engages independent certified public accountants for the ensuing year and
approves the compensation and other terms of such engagement; reviews the scope of the audit; periodically reviews Data I/O’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 Data I/O. Each member of the Audit Committee is an independent
director, as defined by applicable NASDAQ listing standards and the Sarbanes-Oxley Act of 2002. During 2018 and through the date
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of this Proxy statement, all Audit Committee members are “audit committee financial experts” as defined by the applicable
Securities and Exchange (“SEC”) rules adopted pursuant to the Sarbanes-Oxley Act of 2002. The Audit Committee met five times
during 2018. See the “Report of the Audit Committee” for additional information.
Compensation Committee
The Compensation Committee is composed entirely of independent directors, as defined by applicable NASDAQ listing standards for
compensation committees. The Compensation Committee is responsible for setting and administering the policies which govern all
of the compensation programs of Data I/O.
The Compensation Committee makes recommendations to the Board of Directors concerning the compensation of Data I/O’s
executive officers. The Compensation Committee administers Data I/O’s long-term equity incentive plans. The Compensation
Committee reviews all employee benefit programs and approves significant changes in major programs and all new programs. The
Compensation Committee met three times during 2018.
As authorized by the Compensation Committee charter, the Compensation Committee may retain consultants or other advisors to
assist in carrying out its responsibilities. An independent compensation consultant, Radford a part of AON, was engaged by the
Compensation Committee for $4,200 in 2017 for consulting on 2018 Board of Director compensation. Additionally, general
compensation surveys were purchased during the year.
Consideration of Director Nominees
The Corporate Governance and Nominating Committee has developed, and the Board has approved, Board Responsibilities and
Director Recruitment Objectives, which further outline our directors roles and responsibilities and desired traits, diversity,
characteristics, experience and criteria for selection. The Corporate Governance and Nominating Committee, or the independent
members of the Board of Directors, as applicable, in evaluating and determining whether to recommend a person as a candidate for
election as a director consider, in light of the Board Responsibilities and Director Recruitment Objectives, the relevant management
and/or technology industry experience of potential director candidates (such as experience as chief executive, operations or
financial officer, or similar positions); business development, mergers and acquisitions experience, public/corporate board
experience, diversity, knowledge of Data I/O; educational experience; commitment to maximizing shareholder value; certain values
such as integrity, accountability, judgment and adherence to high performance standards; independence pursuant to applicable
guidelines; ability and willingness to undertake the required time commitment to Board functions; shareholder input; and an
absence of conflicts of interest with Data I/O.
Director Diversity
The Corporate Governance and Nominating Committee also considers issues of diversity, such as diversity of gender, race and
national origin, education, professional experience and differences in viewpoints and skills. The CGNC does not have a formal policy
on Board diversity; however, the CGNC believes that it is important for Board members to represent diverse viewpoints. In
considering candidates for the Board, the CGNC considers the entirety of each candidate’s credentials in the context of these
standards. With respect to evaluating the nomination of continuing directors for re-election, the CGNC considered each director’s
contributions to the company as well as the results of the Board of Directors self-evaluations process.
Identifying Director Nominees; Consideration of Nominees of the Shareholders
The Corporate Governance and Nominating Committee may employ a variety of methods for identifying and evaluating nominees
for director. The CGNC regularly assesses the size of the Board, the need for particular expertise on the Board, and whether any
vacancies on the Board are expected due to retirement or otherwise. In the event that vacancies are anticipated, or otherwise arise,
the CGNC considers various potential candidates for director which may come to the CGNC’s attention through current Board
members, professional search firms, shareholders, or other persons and evaluates these candidates in light of the Board
Responsibilities and Director Recruitment Objectives. These candidates are evaluated at regular or special meetings of the CGNC,
and may be considered at any point during the year.
The Corporate Governance and Nominating Committee will consider candidates recommended by shareholders, when the
nominations are properly submitted, under the criteria summarized above in “Consideration of Director Nominees” and in
accordance with the procedures described below in “Shareholder Nominations and Proposals for the 2019 Annual Meeting of
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Shareholders.” Following verification of the shareholder status of persons proposing candidates, the CGNC makes an initial analysis
of the qualifications of any candidate recommended by shareholders or others pursuant to the criteria summarized above to
determine if the candidate is qualified for service on the Data I/O Board of Directors before deciding to undertake a complete
evaluation of the candidate. If any materials are provided by a shareholder or professional search firm in connection with the
nomination of a director candidate, such materials are forwarded to the CGNC as part of its review. Other than the verification of
compliance with procedures and shareholder status, and the initial analysis performed by the CGNC, a potential candidate
nominated by a shareholder is treated like any other potential candidate during the review process by the CGNC. For eligible
shareholder nominees to be placed on the ballot for the 2019 Annual Meeting of Shareholders, shareholders were required to
deliver nominations for proposed director nominees to Data I/O by February 17, 2019. While no formal candidate nominations were
made by shareholders for election at the 2019 Annual Meeting, Mr. Delafield is President of a significant shareholder and Mr. Howe
and Mr. Gallenberger were initially identified by discussions with significant shareholders and the Board.
Certain Relationships and Related Transactions
Our Audit Committee is charged with monitoring and reviewing issues involving potential conflicts of interest, and reviewing and
approving related party transactions as set forth in the Code of Ethics, which is posted on the corporate governance page of our
website at www.dataio.com/company/investorrelations/corporategovernance.aspx. Under our Code of Ethics, our directors,
officers and employees are expected to avoid conflicts of interest with Data I/O and are required to report any such conflicts of
interest to our Chief Executive Officer or Chief Financial Officer, or to the Chair of our Audit Committee. Our Audit Committee
reviews all such transactions and relationships by our directors and executive officers that come to its attention either through the
director and officer questionnaires or otherwise, and considers whether to approve or take other appropriate action with respect to
such transactions or relationships. During 2017 and 2018, no related party transactions that were significant or material occurred.
BOARD COMPENSATION
Employee directors (Anthony Ambrose) do not receive additional compensation for serving on the Board of Directors. During 2018,
non-employee directors received a cash retainer of $7,750 for each quarter of service. Data I/O paid additional quarterly
compensation to the non-employee directors who served as Chairman of the Board of Directors or as a Committee chair: $3,750 for
Chairman of the Board of Directors; $2,500 for Chairman of the Audit Committee; $2,000 for Chairman of the Compensation
Committee; and $2,000 for Chairman of the Corporate Governance and Nominating Committee. Fees are prorated based on time
served for changes in directors and assignments.
In addition, each non-employee Board of Directors member as of May 21, 2018, was granted a restricted stock award for 6,000
shares of Data I/O stock. New non-employee members who join the Board of Directors are granted 15,000 nonqualified stock
options as an initial grant. The stock options and restricted stock awards were granted under the provisions and terms of the
Amended and Restated 2000 Stock Compensation Incentive Plan (“2000 Plan”). Data I/O also reimburses non-employee directors
for actual travel and out-of-pocket expenses incurred in connection with service to Data I/O.
Each Data I/O non-employee member of the Board of Directors is required to achieve ownership of Data I/O stock at least equal to
three times the annual director cash retainer fee based on Data I/O’s then current share price. Non-employee directors have five
years from their initial election or appointment to meet the ownership target requirement. Amounts that count toward meeting the
target requirement include: shares owned; shared ownership (shares owned or held in trust by immediate family); and the gain
amount from in-the-money vested options. If the stock ownership target requirement has not been met by any non-employee
director, until such time as such director reaches the target requirement, he or she will be required to retain any Data I/O shares
issued by Data I/O to such director (other than those disposed of to pay for the exercise and associated taxes on those shares). As of
the Record Date, all non-employee directors have met the stock ownership target requirement.
The Chief Executive Officer (“CEO”) is required to achieve ownership of Data I/O stock of at least two times the base pay of the CEO
based on Data I/O’s then current share price. The CEO has five years from appointment to meet the ownership target requirement.
Amounts that count toward meeting the target requirement are the same as for the Board of Directors. If the stock ownership
target requirement has not been met by the CEO, until such time as the CEO reaches the requirement amount, he or she will be
required to retain any Data I/O shares issued by Data I/O (other than those disposed of to pay for the exercise and associated taxes
on those shares). As of the Record Date the CEO has met the stock ownership target requirement.
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DIRECTOR COMPENSATION
The following table shows compensation paid by Data I/O to non-employee directors during 2018.
Fees Earned
or Paid in
Cash
($)
(b)
Stock
Awards
($)
(c)
Option
Awards
($)
(d)
Non-Equity
Incentive Plan
Compensation
($)
(e)
Nonqualified
Deferred
Compensation
Earnings
($)
(f)
All Other
Compensation
($)
(g)
Name
(a)
Douglas W. Brown (1)(2)
$41,000 $42,570
Brian T. Crowley (1)(2)
$39,000 $42,570
Alan B. Howe (1)(2)
$46,000 $42,570
Mark J. Gallenberger (1)(2)
$39,000 $42,570
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
Total
($)
(h)
$83,570
$81,570
$88,570
$81,570
(1) Each outside director elected at the annual meeting in 2018 was awarded 6,000 shares of restricted stock with a fair value
of $42,570 on May 21, 2018, vesting in one year or the next annual meeting, if earlier.
(2) No outside director had option awards outstanding at December 31, 2018.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires Data I/O’s directors, certain officers and persons who own more than
ten percent (10%) of Data I/O’s Common Stock (“Reporting Persons”) to file with the SEC initial reports of ownership and reports of
changes in ownership of Common Stock and other equity securities of Data I/O. Reporting Persons are required by SEC regulations
to furnish Data I/O with copies of all Section 16(a) reports.
To Data I/O’s knowledge, based solely on its review of copies of such reports furnished to Data I/O and representations that no
other reports were required, all Section 16(a) filing requirements applicable to its Reporting Persons were complied with during
2018.
REPORT OF THE AUDIT COMMITTEE
The Audit Committee oversees Data I/O’s financial reporting process on behalf of the Board of Directors. Management has the
primary responsibility for the consolidated financial statements and the reporting process, including the systems of internal controls.
Audit Committee members are not professional accountants, or auditors and their functions are not intended to duplicate or to
certify the activities of management or the independent auditors. In fulfilling its oversight responsibilities, the Committee reviewed
the audited consolidated financial statements in the Annual Report (Form 10-K) with management, including a discussion of the
quality, not just the acceptability, of the accounting principles, the reasonableness of significant judgments, and the clarity of
disclosures in the financial statements.
The Committee reviewed with the independent auditors, who are responsible for expressing an opinion on the conformity of those
audited consolidated financial statements with generally accepted accounting principles in the United States, their judgments as to
the quality, not just the acceptability, of Data I/O’s accounting principles and such other matters as are required to be discussed by
Auditing Standards No. 61, as amended, with the Committee under generally accepted auditing standards. In addition, the
Committee has discussed with the independent auditors the auditors’ independence from management and Data I/O including the
matters in the written disclosures and the letter provided by the independent auditors, as required by the applicable requirements
of the Public Company Oversight Board for independent auditor communications with Audit Committees concerning independence,
and considered the compatibility of non-audit services with the auditors’ independence.
The Committee selects and engages Data I/O’s independent auditors, is involved in selecting and approving the independent
auditors’ lead audit partner, and discusses the overall scope and plans for the audits. The Committee meets with the independent
auditors, with and without management present, to discuss the results of their examinations, their evaluations of Data I/O’s internal
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controls, and the overall quality of Data I/O’s financial reporting. The Committee held five meetings during 2018, of which five were
attended by Data I/O’s independent auditors.
In reliance on the reviews and discussions referred to above, the Committee recommended to the Board of Directors (and the Board
has approved) that the audited consolidated financial statements be included in Data I/O’s Annual Report (Form 10-K) for the year
ended December 31, 2018, for filing with the Securities and Exchange Commission. The Committee has considered the Shareholder
vote of approval of 98.34% in May 2018, as well as the impact of changing independent auditors and has selected Grant Thornton
LLP as Data I/O’s auditors for the current year.
Respectfully submitted,
AUDIT COMMITTEE
Douglas W. Brown (Chair)
Mark Gallenberger
Alan B. Howe
April 3, 2019
PRINCIPAL ACCOUNTANT’S FEES AND SERVICES
Audit Fees: Aggregate fees billed by Grant Thornton LLP for professional services rendered for the audit of Data I/O’s financial
statements for each of the years ended December 31, 2018, and 2017 and for review of the financial statements included in each of
Data I/O’s quarterly reports on Form 10-Q during each of the years ended December 31, 2018, and 2017, were approximately
$203,343 and $197,610, respectively.
Audit Related Fees: No aggregate fees were billed for the years ended December 31, 2018, and 2017 for assurance and subsidiary
related services by Grant Thornton LLP that are reasonably related to the performance of the audit or review of Data I/O’s financial
statements that are not reported under the caption “Audit Fees” above, including accounting treatment consultations.
Tax Fees: $5,145 and $0 aggregate fees were billed for the years ended December 31, 2018, and 2017, respectively, for professional
services rendered by Grant Thornton LLP for tax advice and tax planning.
All Other Fees: No aggregate fees were billed for the years ended December 31, 2018, and 2017 for all other products and services
provided by Grant Thornton LLP that are not otherwise disclosed above.
Policy on Pre-Approval by Audit Committee of Services Performed by Independent Auditors
The Audit Committee’s policy is to pre-approve all audit and permissible non-audit services provided by the independent auditors.
These services may include audit services, non-audit services, tax services and other services. Pre-approval is detailed as to the
particular service or category of service and is subject to a specific engagement authorization.
During the year, circumstances may arise when it may become necessary to engage the independent auditors for additional services
not contemplated in the original pre-approval. In those circumstances, the Audit Committee has delegated pre-approval authority
to the Chair of the Audit Committee for those instances when pre-approval is needed prior to a scheduled Audit Committee
meeting. These additional approvals should be reported at the next scheduled Audit Committee meeting.
For 2018, all services provided by the independent auditors were pre-approved.
Shareholder Vote
EXECUTIVE COMPENSATION
At our 2018 Annual Meeting of Shareholders, our shareholders approved, in an advisory vote, the compensation of our Named
Executive Officers, as disclosed in the Executive Compensation discussion and analysis, the compensation tables and the related
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disclosures in our Proxy Statement. The proposal was approved by our shareholders with 95.86 percent of the votes cast voting
“for” approval and 4.14 percent voting “against” approval. In light of the level of approval by our stockholders, the Compensation
Committee considered the result of the vote and did not make changes to our compensation policies or practices specifically in
response to the stockholder vote.
Elements of Our Company’s Compensation Plan
Annual executive officer compensation consists of the following elements which are described in more detail below:
• Annual base salary;
• Management Incentive Compensation Plan or “MICP”;
•
• Benefits; and
•
Perquisites and other perceived benefits.
Long-term equity incentives;
It is the Compensation Committee’s policy to set total executive officer compensation at competitive levels based on compensation
surveys with similar positions in similar sized company revenue ranges and at levels sufficient to attract and retain a strong,
motivated leadership team. Our philosophy for compensation of executive officers is based on the following two principles:
Executive base compensation levels should be established by comparison of job responsibility to similar
positions in comparable companies and be adequate to retain highly-qualified personnel; and
i.
ii. Variable compensation should be a critical element of compensation and be set to be comparably competitive and
to provide strong incentives to improve performance and shareholder value.
• Annual Base Salary. The Compensation Committee establishes a base salary structure for each executive officer position.
This structure defines the salary levels and the relationship of base salary to total cash compensation. The Compensation
Committee reviews the salary structure periodically.
• MICP. The MICP offers each executive officer a performance-based opportunity to earn the variable component of annual
cash compensation in an amount tied to a percentage of the executive officer’s base salary. The Compensation
Committee’s philosophy in setting executive MICP percentages and the formulas for MICP payout is to pay above average
total compensation for better than average historical or expected financial performance and below average compensation
for lower than or average historical or expected financial performance. The percentages of base salary targeted for MICP
payout (“the MICP Target”) for specific executive officers for a given year are generally the same as the previous year, but
can be changed by the Compensation Committee on an annual basis. The MICP payout can range from 0% to 200% of each
executive’s MICP Target based upon the actual achieved MICP Measures for the period. The 2017 and 2018 MICP Target
percentages for our executive officers were as follows:
Executive's
Prorated MICP
2017 Target
65.0%
Executive's
MICP
2018 Target
70%
47.5%
47.5%
50%
50%
Ambrose
Gulati
Hatlen
Estimated
Payout at
Maximum
Measure
for 2019
140%
100%
100%
The Compensation Committee determined that for 2017 it was critical to emphasize growth, profitability and cash
preservation, as well as completion of key development and operational projects and corporate cost and spending
objectives to deliver future new revenue and profitability. Given Data I/O’s growing profitability over the last several years
as well as the increased level of operating expense, The Compensation Committee had determined for 2018 and again for
2019 that it will be critical to emphasize profitability. For 2017, the Compensation Committee established two measures;
one for Financial Performance (“FP”) is based on achievement of various levels of operating income as percentage of
revenue. See below for the Financial Performance Matrix. The second measure for Product and Spending Performance
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(“PSP”) was based for 2017 on the completion of key development and operational projects including new product
deliverables, spending and cost reductions, and new customer targets. The PSP was based upon an incentive compensation
pool allocated among project development and operational goals typically related to delivery, cost, milestones, pilot
customers, and releases, as well as spending goals related to certain product cost reduction targets and spending reduction
targets. The achieved PSP result was prorated among participants based on their “at target” percentage incentive
compensation. The PSP pool for 2017 was set, such that up to approximately 27% of target percentage incentive
compensation could be achieved by this measure. For 2017, the payout was a combination of the two (FP & PSP) measures.
For 2018 and 2019, the FP is based on achievement of various levels of operating income established for the year as a
percentage of revenue, and no PSP measures are being utilized.
The Compensation Committee believes that for 2017, 2018 and 2019, the applicable measures of key results for Data I/O
have affected or will affect near-term and long-term shareholder value. A greater or lesser percentage of MICP Target is to
be paid based on Data I/O’s actual achievement of these measures with the payout target typically based on company
financial plans as the Board determines appropriate. For 2017 the MICP payout was approximately 192% of target with
payout achieved under the combined FP and PSP measure. For 2018 the MICP earned under the FP measure was 99.1%
was increased by the Board to a payout was 100% of target. The Compensation Committee retains discretion to adjust the
calculation of the two measures for changes outside normal business operations such as acquisitions or asset sales.
Data I/O Corporation 2017 & 2018 MICP Variable Compensation Matrix
Range of Payouts (actual results interpolated)
The 2017 MICP Variable Compensation Matrix consists of two possible alternative measures. Project and Spending
Performance (PSP) and Financial Performance (FP) with the payout based upon the combination of the two measures
achieved. The 2018 MICP Variable Compensation Matrix consists solely of Financial Performance (FP).
Project and Spending Performance (PSP) For 2017, an incentive compensation pool set to allow achievement of up to
approximately the first 27% of target payout with points allocated among project development goals related to delivery,
cost, milestones, pilot or new customers, and releases, as well as spending goals related to certain product cost reduction
targets and spending reduction targets.
2017 Financial Performance Matrix (FP)
Operating Profit as a % of Revenue
FP matrix payout as a % of Target
0.0%
0%
2.5%
50%
2018 Financial Performance Matrix (FP)
Operating Profit as a % of Revenue
FP matrix payout as a % of Target
0.0%
0%
3.0%
50%
Target
Payout
5.0%
100%
Target
Payout
6.0%
100%
Target 200%
Payout
12.0%
200%
Target 200%
Payout
12.0%
200%
8.5%
150%
9.0%
150%
• Long-Term Equity Incentives. The Compensation Committee approves grants under the Data I/O Corporation 2000 Plan
(“the 2000 Plan”). This is Data I/O’s only long-term employee incentive plan. The primary purpose of the 2000 Plan is to
make a significant element of executive pay a reward for taking actions which maximize shareholder value over time.
Generally, new options or stock awards are granted under the 2000 Plan. New options or stock awards may also be granted
to the Board of Directors under the 2000 Plan.
Award Criteria
The Compensation Committee grants options or restricted stock unit awards 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 highly-
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qualified executives who typically command compensation packages which include a significant equity incentive. All
restricted stock unit awards granted to our executive officers in 2017 and 2018 were based on these criteria.
Exercise Price
Historically, all options granted by Data I/O have been granted with an exercise price equal to the fair market value (an
average of the day’s high and low selling price) of Data I/O’s Common Stock on the date of grant and, accordingly, will only
have value if Data I/O’s stock price increases. Options granted to employees are non-qualified.
Vesting and Exercise
Options granted to employees vest quarterly over 4 years at a rate of 6.25% per quarter and have a six year term. Options
granted to non-employee Directors are also non-qualified options and vest quarterly over a three year period. The current
primary form of equity compensation is restricted stock grants. Restricted stock grants to employees vest annually over a 4
year period. Restricted stock grants to non-employee Directors vest in one year or on the date of the next Annual Meeting
of Shareholders, if earlier. All grants are subject to acceleration of vesting in connection with certain events leading to a
change in control of Data I/O or in the event in a change in control or at any other time at the discretion of the
Compensation 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 Data I/O. See “Change in Control and
other Termination Arrangements.”
Award Process
The timing of our typical grant/award is usually determined well in advance, with approval at a scheduled meeting of our
Board of Directors or its Compensation Committee with the grant date generally to be effective on the date of our next
Annual Meeting of Shareholders. The Annual Meeting of Shareholders does not coincide with any of our scheduled earning
releases. We do not anticipate option grants or restricted stock awards at other dates, except for grants/awards to new
employees based on their first date of employment or in specific circumstances approved by the Compensation Committee.
The grant/award date is established when the Compensation Committee approves the grant/award and all key terms have
been determined. If at the time of any planned grant/award date, any member of our Board of Directors or Executive
Officers is aware of material non-public information, the Company would not generally make the planned grant/award. In
such an event, as soon as practical after material information is made public, the Compensation Committee would
authorize the delayed grant/award.
• Benefits. Executive Officers of Data I/O are eligible for the same benefits as other Data I/O employees. Data I/O has no
defined benefit pension programs. Data I/O has a 401(k) tax qualified retirement savings plan in which all U.S. based
employees, including U.S. Executive Officers are able to contribute the lesser of up to 100% of their annual salary or the
limit prescribed by the IRS on a Roth or pre-tax basis. Data I/O will match up to 4% of pay contributed. Matching
contributions in any year require employment on December 31, except in the case of retirement per the plan, and vest
after three years of service credit.
• Perquisites and Other Personal Benefits. We believe perquisites are not conditioned upon performance, create divisions
among employees, undermine morale, and are generally inconsistent with our compensation philosophy and policy of
equitable treatment of all employees based upon their contribution to our business. No executive officer received
perquisites valued at $10,000 or more in 2017 or 2018.
• Individual Executive Officers’ Performance. 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 review by the President and Chief Executive Officer, evaluating
the executive’s prior year performance against their individual job responsibilities and attainment of corporate objectives
and Data I/O’s financial performance. In developing executive compensation packages to recommend to the Compensation
Committee, the President and Chief Executive Officer considers, in addition to each executive’s prior year performance, the
executive’s long-term value to Data I/O, 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 Compensation Committee then reviews the President and Chief Executive Officer’s recommendations for executive
officers’ total compensation and approves final decisions on pay for each executive officer based on the President and Chief
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Executive Officer’s summary of the executive officers performance and on the other criteria and survey data described
above. In this process, the Compensation Committee consults with Data I/O’s President and Chief Executive Officer.
The base salary, total cash compensation, and long term equity incentive compensation for the President and CEO are
reviewed annually by the Compensation Committee. This review includes a written evaluation of the CEO’s performance
for the previous year. The Compensation 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 Data I/O’s financial performance for the prior year, the Committee reviewed compensation surveys for chief
executive officers and the President and Chief Executive Officer’s individual performance, including development and
execution of short- and long-term strategic objectives, Data I/O revenue growth and profitability, the achievement of which
is expected to increase shareholder value.
The Compensation Committee determined the compensation package, including salary, bonus, MICP participation, stock
option grants, restricted stock awards, and other benefits for Mr. Ambrose, President and Chief Executive Officer, based on
the Committee’s perception of his qualifications for the position and his ability to affect future shareholder value, results
delivered, compensation surveys and the competitive conditions in the market. No salary base pay adjustments were made
from 2013 to 2016 or in 2018 for Mr. Ambrose. His compensation adjustments previously were in the form of increases in
the number of shares of restricted stock unit awards. In July 2017, he received an increase to $330,000 in base salary per
year and an increase in his MICP target from 60% to 70%.
Consideration of Risk in Compensation
The Compensation Committee believes that promoting the creation of long-term value discourages behavior that leads to excessive
risk. The Compensation Committee believes that the following features of our compensation programs provide incentives for the
creation of long-term shareholder value and encourage high achievement by our executive officers without encouraging
inappropriate or unnecessary risks:
• Our long-term incentives in the form of stock options or restricted stock awards are at the discretion of the Compensation
Committee and not formulaic.
•
Stock options become exercisable over a four year period and remain exercisable for up to six years from the date of grant
and restricted stock awards vest over a four year period, encouraging executives to look to long-term appreciation in equity
values.
• We balance short and long-term decision-making with the annual cash incentive program and stock options and restricted
stock that vest over four years.
• Because of the extent of the CEO and CFO’s direct stock ownership, they could lose significant wealth if Data I/O were
exposed to inappropriate or unnecessary risks which in turn affected our stock price.
•
•
The metric used in the MICP measure is set by the Compensation Committee, which believes it will drive shareholder value.
Moreover, the Committee attempts to set ranges for these measures that encourage success without encouraging
excessive risk-taking to achieve short-term results.
In addition, the overall MICP incentive compensation cannot exceed two times the MICP Target amount, no matter how
much performance exceeds the measures established for the year.
Accounting and Tax Considerations of our Compensation Program
Options granted to employees are non-qualified options because of the more favorable tax treatment for Data I/O. We are
required to value granted stock options under the fair value method and expense those amounts in the income statement over the
stock option’s remaining vesting period. Restricted stock is valued at its fair value on the award date and is expensed over its vesting
period.
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We have structured our compensation program in the past to comply with Internal Revenue Code Sections 162(m) and 409A. Under
Section 162(m) of the Internal Revenue Code, a limitation was placed on tax deductions of any publicly-held corporation for
individual compensation to covered employees (generally the chief executive officer and the three other most highly compensated
executive officers, other than the chief financial officer, whose compensation must be disclosed pursuant to rules and regulations
under the Securities Exchange Act of 1934) exceeding $1 million in any taxable year, unless the compensation is performance-based.
Tax reform in 2017 has revised and eliminated the performance-based pay exception for new or modified compensation
arrangements for 2018 and beyond. The Compensation Committee is aware of this limitation and believes that no compensation
paid in 2018 or to be paid in 2019 by Data I/O will exceed the $1 million limitation of Section 162(m), as portions of taxable equity
compensation expected to be issued in 2019 continue to be excluded under a prior unmodified performance-based compensation
arrangement, except possibly related to a change of control. The new Section 162(m) treatment will be part of future compensation
considerations.
Change in Control and other Termination Arrangements
• Change in Control Arrangements. Data I/O has entered into agreements (the “Executive Agreements”) with Messrs.
Ambrose, Gulati, and Hatlen which entitle them to receive payments if they are terminated without cause or resign with
good reason within specified periods before or after the occurrence of certain events deemed to involve a change in control
of Data I/O. Effective July 30, 2014, the Executive Agreements of Messrs. Ambrose, Gulati, and Hatlen were amended and
restated and the term of their Executive Agreements was extended with automatic renewal provisions. The Executive
Agreements ensure appropriate incentives are in place for Messrs. Ambrose, Gulati and Hatlen to complete any change in
control related transaction and transition, as well as comply with the provisions of Section 409A of the Internal Revenue
Code. The Executive Agreements state that the resulting additional severance will be calculated under the Executive
Agreements based on Data I/O’s severance arrangements in place immediately preceding the date of a change in control
(See: ”Other Termination Arrangements” below for current severance policy). The Executive Agreements provide for
continuation and vesting in Data I/O’s matching 401(k) contributions through the date of termination after a change in
control and include a reimbursement allowance of $20,000 for outplacement services. The Executive Agreements also have
a transaction closing incentive of one half year’s annual salary for Messrs. Ambrose, Gulati, and Hatlen to encourage the
consideration of all forms of strategic alternatives.
Data I/O’s option grants and stock awards have been granted pursuant to the provisions of the 2000 Plan. The Change in
Control provision applicable to the 2000 Plan is as follows:
2000 Plan
The 2000 Plan allows for the granting of “Awards”, which include options, restricted stock and other awards made pursuant
to the 2000 Plan. Subject to any different terms set forth in the award agreement, vesting of “qualifying” options and
restricted stock awards may be affected by a Change in Control as described out in the table below. 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 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. A “Qualifying Award’ is defined as
an option or other Award that has been held for at least 180 days as of the Change of Control. “Qualifying Shares” means
common stock issued pursuant to a Qualifying Award which are subject to the right of Data I/O to repurchase some or all of
such shares at the original purchase price (if any) upon the holder’s termination of services to Data I/O.
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Treatment of Awards on a Change in Control
The outstanding Awards do not remain outstanding or are
not assumed by the surviving entity or replaced with
comparable Awards.
The outstanding Awards remain outstanding after a Change
of Control or are assumed by the surviving entity or
replaced with comparable Awards.
The outstanding Awards remain outstanding after a Change
of Control or are assumed by the surviving entity or
replaced with comparable Awards, but the holder of a
Qualifying Award is terminated involuntarily within 180 days
of the Change of Control.
Acceleration of Vesting
Subject to certain limitations, the vesting of Qualifying
Awards is accelerated in full. Restricted stock will vest and
options will be exercisable in full prior to the effective date
of the Change of Control.
Subject to certain limitations, the vesting of outstanding
Qualifying Awards will be accelerated to the extent of 25%
of the unvested portion thereof. The remaining 75% of the
unvested portion will vest in accordance with the vesting
schedule set forth in the applicable Award agreement.
All Awards held by such person will be accelerated in full.
Restricted stock will vest and options will be exercisable in
full for a period of 90 days commencing on the effective
date of the involuntary termination, or if shorter, the
remaining term of the option.
In 1983, Data I/O adopted a SAR Plan which allows the Board of Directors to grant to each director, executive officer or
holder of 10% or more of the stock of Data I/O a SAR with respect to certain options granted to these parties. A SAR has
been granted in tandem with each option granted to an executive officer of Data I/O. 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 Data I/O (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 Data I/O’s Common Stock into securities of a third party, or cash, or
property, or a combination of any of the foregoing.
• Other Termination Arrangements. Data I/O has a severance policy for U.S. employees that provides for severance payouts
for terminations without cause based upon years of service. The current formula, effective March 1, 2014, is 1 week pay for
each year of service with a limit of six months’ pay. For Mr. Hatlen, the prior standard formula applies, with pay and service
years frozen at March 1, 2014, which provided 1.5 weeks of pay for each year of service for those with 10 or more years of
service. Mr. Ambrose, Mr. Hatlen, and Mr. Gulati had at March 21, 2019, approximately 6, 27, and 6 years of service,
respectively. Mr. Ambrose is entitled to a one year of base salary severance, except in the case of a change in control, as
part of his employment arrangement. Mr. Gulati is entitled to a one-half year of base salary severance, except in the case
of a change in control, as part of his employment arrangement. Data I/O does not have a formal policy regarding executive
severance but has generally provided an amount it believes is consistent with severance typically provided for executives in
similar positions and with similar periods of service.
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Change in Control and Other Termination Arrangements
Termination
without cause
and Change in
Control not
applicable
Termination without cause and
Change in Control applicable
Change in Control applicable without
termination
Name
Compensation (3)
Compensation (2)
Option/SAR/RSA
Vesting (1)
Compensation (4)
Option/SAR/RSA
Vesting (1)
Anthony Ambrose (5)
$330,000
$846,956
127,500
$165,000
127,500
Joel S. Hatlen (3)
Rajeev Gulati (6)
$134,351
$669,763
56,252
$120,000
56,252
$115,000
$537,907
52,502
$115,000
52,502
(1) Maximum vesting on Change in Control as of March 21, 2019.
(2) Represents the Data I/O standard employee severance, alternative Executive/Employment Agreement severance, change in
control transition/closing incentive, and outplacement expense reimbursement, as applicable as of March 21, 2019.
(3) Minimum amount per Data I/O standard employee severance plan; no formal executive severance plan is in place as of
March 21, 2019. A letter agreement provides that Mr. Hatlen’s severance shall be equal to the Data I/O standard severance
in effect at March 1, 2014. (See (5) below for Mr. Ambrose and (6) below for Mr. Gulati.)
(4) Represents change in control transition/closing incentive as of March 21, 2019.
(5) Mr. Ambrose entitled to a one year of base salary severance, except in the case of a change in control, as part of his
employment arrangement.
(6) Mr. Gulati is entitled to a one-half year of base salary severance, except in the case of a change in control, as part of his
employment arrangement.
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SUMMARY COMPENSATION TABLE
The following table shows compensation paid by Data I/O for services rendered during 2017 and 2018 to each of our named
executive officers.
Name1
(a)
Year
(b)
Salary2
(c)
Bonus3
(d)
Stock
Awards4
(e)
Option
Awards4,5
(f)
Non-Equity
Incentive
Plan
Compen-
sation6
(g)
Non-
Qualified
Deferred
Compen-
sation
Earnings7
(h)
All Other
Compen-
sation8
(i)
Total
(j)
Anthony Ambrose
Chief Executive
Officer &
President
Joel Hatlen
Vice President
Chief Operating &
Financial Officer
Secretary,
Treasurer
Rajeev Gulati
Vice President
Chief Technical
Officer
2018
2017
$330,000
$320,000
$0
$150
$319,275
$435,900
$0
$0
$231,000
$398,892
$0
$0
$12,949
$893,224
$12,949 $1,167,890
2018
2017
$240,000
$232,500
$0
$0
$133,045
$181,625
$0
$0
$120,000
$213,003
$0
$0
$12,093
$12,093
$505,138
$639,221
2018
2017
$230,000
$227,500
$3,150
0
$133,045
$181,625
$0
$0
$115,000
$206,052
$0
$0
$12,428
$12,428
$493,623
$627,605
(1) Data I/O currently has three named executive officers.
(2) No base pay adjustments were made for executive officers in 2018. Base pay adjustments for executive officers were
(3)
(4)
(5)
last made effective July 1, 2017.
Employee patent and service awards paid in 2018 to Mr. Gulati and employee service award paid in 2017 to Mr.
Ambrose.
Amount represents the fair value of restricted stock or the fair value of stock options granted during the year.
All options granted to executive officers are granted in tandem with an equal number of SARs. SARs are only
exercisable upon the occurrence of certain events leading to a change in the control of Data I/O. See “Change in
Control and Other Termination Arrangements.” No options and SARs were awarded to executive officers in 2017 or
2018.
Amounts earned under the MICP variable compensation arrangement in place for the year as approved by the Board.
(6)
(7) Not applicable for Data I/O.
(8)
These amounts represent for Mr. Ambrose, Mr. Hatlen, and Mr. Gulati, Data I/O’s matching contributions to Data I/O’s
401(k) Plan, and the value of group term life insurance in excess of premiums paid by each of the executive officers
under the standard employee benefit plans.
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OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
Option Awards
Stock Awards
Number of
Securities
Underlying
Unexer-
cised
Options
Exercisable
(#)
Number of
Securities
Underlying
Unexe-
rcised
Options
Unexer-
cisable
(#)
Equity
Incentive
Plan
Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options
(#)
Name
Option
Exercise
Price
($)
Option
Expiration
Date
Equity
Incentive
Plan
Awards:
Number
of
Unearned
Shares,
Units or
Other
Rights
That
Have Not
Vested
(#)
Number
of
Shares
or Units
of Stock
Held
That
Have
Not
Vested
#
Market
Value of
Shares or
Units of
Stock
That
Have Not
Vested
($)
(a)
(b)
(c)
(d)
(e)
(f)
(g)
(h)
(i)
Equity
Incentive
Plan
Awards:
Market
or Payout
Value of
Unearned
Shares,
Units or
Other
Rights
That
Have Not
Vested
($)
(j)
$0
Anthony
Ambrose
Joel
Hatlen
Rajeev
Gulati
0
0
0
0
0
0
0
0
0
127,500 $637,500
0
56,252 $281,260
0
$0
52,502 $262,510
0
$0
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EQUITY COMPENSATION PLAN INFORMATION
The following table gives information about Data I/O’s Common Stock that may be issued upon the exercise of options and rights
under all of Data I/O’s existing equity compensation plans as of December 31, 2018.
(a) Number of
securities to be
issued upon the
exercise of
outstanding options,
warrants and rights
(b) Weighted–
average exercise
price of
outstanding
options, warrants
and rights
(c) Number of securities
remaining available for future
issuance under equity
compensation plans
(excluding securities
reflected in column (a))
Equity compensation plans approved
by the security holders (1) (2)
Equity compensation plans not
approved by the security holders
Total
27,763
-
27,763
$7.79
-
$7.79
934,927
-
934,927
(1) Represents shares of our Common Stock issuable pursuant to the Data I/O Corporation 2000 Stock Incentive Compensation
Plan, 1982 Employee Stock Purchase Plan and 1996 Director Fee Plan. Table excludes unvested restricted stock awards of
558,856 from the 2000 Plan.
(2) Stock Appreciation Rights Plan (“SAR”) provides that directors, executive officers or holders of 10% or more of our Common
Stock have an accompanying SAR with respect to each exercisable option. While the plan has been approved by the security
holders, no amounts are included in columns (a), (b), or (c) relating to the SAR.
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PROPOSAL 2: RATIFICATION OF INDEPENDENT AUDITORS
The Board of Directors requests that the shareholders ratify the continued appointment of Grant Thornton LLP to serve as Data I/O’s
independent auditors for calendar year 2019. Grant Thornton LLP examined the consolidated financial statements of Data I/O for
the year ended December 31, 2018. Representatives of Grant Thornton LLP are invited to be present at the Annual Meeting to make
a statement if they desire to do so and to respond to questions by shareholders.
The Board recommends a vote “FOR” the continued appointment of Grant Thornton LLP to serve as Data I/O’s independent
auditors for calendar year 2019.
PROPOSAL 3: SAY ON PAY - ADVISORY VOTE ON EXECUTIVE COMPENSATION
The Board of Directors requests that the shareholders approve, on an advisory basis, the compensation paid to Data I/O’s Named
Executive Officers, as described in “Executive Compensation”, pursuant to the following Advisory Resolution:
“RESOLVED, that Data I/O’s shareholders approve, on an advisory basis, the compensation of Data I/O’s named executive
officers, as disclosed in Data I/O’s Proxy Statement for the 2019 Annual Meeting of Shareholders pursuant to the compensation
disclosure rules of the Securities and Exchange Commission, including the 2018 Summary Compensation Table and the other related
tables and disclosure.”
Our executive compensation program contains elements of cash, incentive and equity-based compensation and is designed to align
the interests of our executives with those of our shareholders. The “Executive Compensation” section of this Proxy Statement,
describes in detail our executive compensation programs.
The Board has implemented an executive compensation program that is intended to reward financial performance based on goals
established by the Board. The Board fosters a performance-oriented culture by linking a significant portion of each executive
officer’s compensation to overall Company financial performance, as measured in 2018 by operating income as a percentage of
revenue, which the Company believes is an important metric for Data I/O and its shareholders. We believe that equity awards align
the interests of our executives with those of our long-term shareholders by encouraging long-term performance and incentivizing
our executives to increase long-term shareholder value. Equity awards represent a key component, and are a significant portion, of
our executive compensation.
The Board has designed Data I/O’s executive compensation program to attract, motivate, reward and retain our executive officers to
achieve Data I/O’s corporate objectives and increase shareholder value.
The Say on Pay vote is advisory and not binding on Data I/O or the Board of Directors; however the Board will consider the outcome
of the vote when making future compensation decisions for our executive officers.
The Board recommends a vote “FOR” the Advisory Resolution (Say on Pay) approving the compensation of the Company’s named
executive officers as described in this Proxy Statement.
OTHER BUSINESS
As of the date of this Proxy Statement, Data I/O 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.
SHAREHOLDER NOMINATIONS AND PROPOSALS FOR THE 2019 ANNUAL MEETING OF SHAREHOLDERS
Data I/O’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 Data I/O at its principal offices on or before February 20, 2019, in the case of the 2019 annual
meeting of shareholders, and 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. Data I/O’s Bylaws also provide that advance
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notice of business to be brought before the 2019 Annual Meeting of Shareholders by a shareholder must be submitted in writing
and delivered to or mailed and received by Data I/O on or before February 20, 2019.
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 Data I/O
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 SEC; and (v) with respect to the nominations, the consent of each nominee
to serve as a director of Data I/O if elected.
A copy of the full text of the provisions of Data I/O’s Bylaws dealing with shareholder nominations and proposals is available to
shareholders from the Secretary of Data I/O upon written request. The Bylaws may also be accessed online, as a Form 10K exhibit as
referenced in our Annual Report on Form 10K. SEC rules establish a deadline for submission of shareholder proposals that are not
intended to be included in Data I/O’s proxy statement with respect to discretionary voting (the “Discretionary Vote Deadline”). The
Discretionary Vote Deadline for the 2019 Annual Meeting was February 20, 2019. If a shareholder gives notice of such a proposal
after the Discretionary Vote Deadline, Data I/O’s proxy holders will be allowed to use their discretionary voting authority to vote
against the shareholder proposal when and if the proposal is raised at the 2019 Annual Meeting.
Eligible shareholders who intend to have a proposal considered for inclusion in Data I/O’s proxy materials for presentation at the
2020 Annual Meeting must submit the proposal to Data I/O at its principal offices no later than December 14, 2019. Shareholders
who intend to present a proposal at the 2020 Annual Meeting without inclusion of such proposal in Data I/O’s proxy materials are
required to provide notice of such proposal to Data I/O no later than February 20, 2020, as further directed above.
To qualify as an “eligible” shareholder, a shareholder must have been a record or beneficial owner of at least one percent (1%) of
Data I/O’s outstanding Common Stock, or shares of Common Stock having a market value of at least $2,000, for a period of at least
one (1) year prior to submitting the proposal, and the shareholder must continue to hold the shares through the date on which the
meeting is held.
Data I/O 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, but only after Data I/O has notified the shareholder(s) who have submitted the
proposal of the problem and such shareholder(s) have failed to correct it. This obligation to notify the appropriate shareholder(s)
does not apply to the failure to submit such proposal prior to the deadlines discussed above.
STOCKHOLDERS SHARING THE SAME ADDRESS
To reduce the expenses of delivering duplicate materials, we are taking advantage of the SEC’s “house holding” rules which permit
us to deliver only one set of proxy materials (or one Notice of Internet Availability of Proxy Materials) to shareholders who share an
address unless otherwise requested. If you share an address with another shareholder and have received only one set of these
materials, you may request a separate copy at no cost to you by contacting
Investor Relations by email at
investorrelations@dataio.com, by phone at (425) 881-6444, by fax at (425) 881-2917 or by writing to Data I/O investor relations,
attention Joel Hatlen, 6645 185th Avenue NE, Suite 100, Redmond WA 98052. For future annual meetings, you may request separate
materials, or request that we send only one set of materials to you if you are receiving multiple copies, by contacting Investor
Relations as noted above.
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SOLICITATION OF PROXIES
The proxy accompanying this Proxy Statement is solicited by the Board of Directors. Proxies may be solicited by officers, directors
and regular supervisory and executive employees of Data I/O, none of whom will receive any additional compensation for their
services. In addition, Data I/O 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. Data I/O 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 such
costs of solicitation of proxies will be paid by Data I/O.
Copies of our annual report on Form 10-K for the year ended December 31, 2018, are being mailed with this Proxy Statement to
each shareholder of record. If you did not receive a copy of our annual report Form 10-K, you may obtain a copy (without exhibits)
without charge by writing c/o Secretary, 6645 185th Avenue NE, Suite 100, Redmond, WA 98052 or by calling (425) 881-6444. Copies
of the exhibits to our annual report on Form 10-K are available
fee or may be viewed at
http://www.dataio.com/company/investorrelations/annualmeeting.aspx or www.sec.gov in the EDGAR filing of our report.
for a nominal
By Order of the Board of Directors
/s/ Anthony Ambrose
Anthony Ambrose
President and Chief Executive Officer
Redmond, Washington
April 3, 2019
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