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NOTE 11 - STOCK AND RETIREMENT PLANS

12 Months Ended

Dec. 31, 2012

Stock Option Plans

At December 31, 2012, there were 561,831 shares available for future grant under Data I/O Corporation 2000 Stock Compensation Incentive Plan (“2000 Plan”). There were 1,850,236 shares of Common Stock reserved for issuance consisting of 1,575,236 under the 2000 plan and 275,000 under the inducement grant reserve. Pursuant to this 2000 Plan, options are granted to our officers and key employees with exercise prices equal to the fair market value of the Common Stock at the date of grant and generally vest over four years. Options granted under the plans have a maximum term of six years from the date of grant. Stock awards may also be granted under the 2000 Plan. Inducement grants were made to our new chief executive officer consisting of 200,000 options and 75,000 restricted shares, which were not made out of the 2000 Plan shares but were made under the terms of the 2000 Plan.

Employee Stock Purchase Plan

Under the Employee Stock Purchase Plan (“ESPP”), eligible employees may purchase shares of our Common Stock at six-month intervals at 95% of the fair market value on the last day of each six-month period. Employees may purchase shares having a value not exceeding 10% of their gross compensation during an offering period. During 2012 and 2011, a total of 6,884 and 4,018 shares, respectively, were purchased under the plan at average prices of $3.35 and $5.78 per share, respectively. At December 31, 2012, a total of 72,568 shares were reserved for future issuance.

Stock Appreciation Rights Plan

We have a Stock Appreciation Rights Plan (“SAR”) under which each director, executive officer or holder of 10% or more of our Common Stock has a SAR with respect to each exercisable stock option. The SAR entitles the SAR holder to receive cash from us for the difference between the market value of the stock and the exercise price of the option in lieu of exercising the related option. SARs are only exercisable following a tender offer or exchange offer for our stock, or following approval by shareholders of Data I/O of any merger, consolidation, reorganization or other transaction providing for the conversion or exchange of more than 50% of the common shares outstanding. As no event has occurred, which would make the SARs exercisable, and no such event is deemed probable, no compensation expense has been recorded under this plan.

Director Fee Plan

We have a Director Fee Plan, not currently in use, which had provided for payment to directors who are not employees of Data I/O Corporation by delivery of shares of our Common Stock. No shares were issued from the plan for 2012 or 2011 board service and 151,332 shares remain available in the plan as of December 31, 2012.

Retirement Savings Plan

We have a savings plan that qualifies as a cash or deferred salary arrangement under Section 401(k) of the Internal Revenue Code. Under the plan, participating U.S. employees may defer their pre-tax salary or post-tax salary if Roth is elected, subject to IRS limitations. In fiscal years 2012 and 2011, we contributed one dollar for each dollar contributed by a participant, with a maximum contribution of 4% of a participant’s earnings. Our matching contribution expense for the savings plan was approximately $166,000 and $191,000 in 2012 and 2011.

Share Repurchase Program

On October 20, 2011, we announced a stock repurchase program to buy back up to $1 million dollars of stock over four quarters. Through December 31, 2011, we repurchased 62,916 shares of stock at an average price of $3.97 for a total repurchase amount of $249,986 plus $2,551 in commissions. For the year ended December 31, 2012 an additional 10,581 shares were repurchased under this plan at an average price of $3.90 for a total repurchase amount of $41,274 plus $432 in commissions. Since this program began, we have repurchased 73,497 shares of stock at an average price of $3.96 for a total of $291,260 plus $2,983 in commissions. On January 13, 2012, this stock repurchase program was terminated.

On January 9, 2012, our board of directors approved a new and expanded 2012 share repurchase program with provisions to buy back up to $6 million dollars of stock. The program included establishing a Rule 10b5-1 plan under the Exchange Act to provide flexibility to make purchases at any time. The 10b5-1 trading plan allows us to repurchase our common stock in the open market during periods in which stock trading is otherwise closed for us. For the year ended December 31, 2012, 1,472,208 shares of stock have been repurchased at an average price of $4.03 for a total of $5,927,937 plus $56,938 in commissions, completing the program.

The following is a summary of share repurchase activity under both plans through December 31, 2012:

	Total Number of Shares Purchased		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Repurchase Program		Approximate Dollar Value of Shares that May Yet Be Purchased under the Program

$1 million program dated October 20, 2011:
November 2011		32,068	$	3.88		32,068	$	874,328
December 2011		30,848	$	4.07		30,848	$	747,463
January 2012 (1)		10,581	$	3.90		10,581	$	0

$6 million program dated January 9, 2012:
January 2012		171,832	$	4.18		171,832	$	5,274,294
February 2012		243,862	$	4.25		243,862	$	4,228,920
March 2012 (2)		1,056,514	$	3.95		1,056,514	$	0
Total		1,545,705	$	4.02		1,545,705

(1) Program terminated January 13, 2012
(2) Program terminated March 26, 2012