As filed with the Securities and Exchange Commission on January 5, 2005
Registration No. 333-
-------------------------------------------------------------------------------
                UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM S-8
                             REGISTRATION STATEMENT
                        UNDER THE SECURITIES ACT OF 1933

                              DATA I/O CORPORATION
             (Exact name of registrant as specified in its charter)

           Washington                                     91-0864123
 (State or other jurisdiction of            (I.R.S. Employer Identification No.)
 incorporation or organization)

                             10525 Willows Road N.E.
                            Redmond, Washington 98052
                     Address of Principal Executive Offices

     DATA I/O CORPORATION 2000 STOCK COMPENSATION INCENTIVE PLAN, AS AMENDED
                            (Full title of the plan)

                                 Joel S. Hatlen
        Vice President, Chief Financial Officer, Secretary and Treasurer
                             10525 Willows Road N.E.
                            Redmond, Washington 98052
                     (Name and address of agent for service)

                                 (425) 881-6444
          (Telephone number, including area code, of agent for service)
<TABLE>
<CAPTION>

                         CALCULATION OF REGISTRATION FEE

 =================================================================================================================================

       Title of Each Class of               Amount to            Proposed Maximum         Proposed Maximum         Amount of
     Securities to be Registered          be Registered         Offering Price Per       Aggregate Offering     Registration Fee
                                                                       Share                  Price
 ---------------------------------------------------------------------------------------------------------------------------------
<S>                                        <C>                   <C>                     <C>                    <C>
 Common Shares subject to
 outstanding options under the 2000
 Stock Compensation Incentive Plan            985,863                $2.21(1)                $2,178,757             $256(1)
 ---------------------------------------------------------------------------------------------------------------------------------
 Common Shares not subject to
 outstanding options under the 2000
 Stock Compensation Incentive Plan            442,923                $3.29(2)                $1,457,217             $172(2)
 =================================================================================================================================
</TABLE>

(1)  Based on the average exercise price of options granted under the 2000 Stock
     Compensation Incentive Plan, as amended,  outstanding as of the date of the
     filing of this registration statement.

(2)  The proposed maximum offering price per share and the registration fee were
     calculated in  accordance  with Rule 457(c) and (h) based on the average of
     the high and low  prices  for shares of the  registrant's  common  stock on
     January 4, 2005, as quoted by Nasdaq SmallCap Market. The closing price for
     shares of the  registrant's  common stock on January 4, 2005,  as quoted by
     Nasdaq SmallCap Market, was $3.30.

                               Page 1 of 6 pages.
                        Exhibit Index begins at page 6.

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

<PAGE>


                                     PART II

               INFORMATION REQUIRED IN THE REGISTRATION STATEMENT


Item 3.           Incorporation of Documents by Reference.

The following documents,  which have been filed with the Securities and Exchange
Commission (the "Commission") by Data I/O Corporation,  a Washington corporation
(the "Company"),  are incorporated by reference in this Registration  Statement,
as of their respective dates:

(a)  the Company's Annual Report on Form 10-K for the fiscal year ended December
     31, 2003;

(b)  the Company's  Quarterly  Reports on Form 10-Q for the quarters ended March
     31, 2004, June 30, 2004 and September 30, 2004;

(c)  the Company's  Current Report on Form 8-K filed on February 18, 2004, April
     26, 2004, August 5, 2004, October 25, 2004, and December 23, 2004;

(c)  the  description of the Company's  Common Stock, no par value per share, as
     contained  in Item 1 of the  Registration  Statement  on Form 8-A  filed on
     April 29, 1982  including  any amendment or report filed for the purpose of
     updating  such   description   filed  for  the  purpose  of  updating  such
     description.

All documents  filed by the Company  pursuant to Sections  13(a),  13(c), 14 and
15(d) of the Securities Exchange Act of 1934, as amended, subsequent to the date
hereof and prior to the filing of a  post-effective  amendment  which  indicates
that all  securities  offered  hereby  have been sold or which  deregisters  all
securities  remaining  unsold  shall be deemed to be  incorporated  by reference
herein  and to be a part  hereof  from the  respective  dates of  filing of such
documents.

Item 4.  Description of Securities.

         Not applicable.

Item 5.  Interests of Named Experts and Counsel.

         Not applicable.

Item 6.  Indemnification of Directors and Officers.

The Company's  articles of  incorporation  and bylaws limit the liability of the
Company's  directors to the fullest extent permitted by the Washington  business
corporation  act (the "WBCA") as it currently  exists or as it may be amended in
the future.  Consequently,  subject to the WBCA,  no director will be personally
liable to the Company or its shareholders  for monetary  damages  resulting from
his or her conduct as a director, except liability for:

o acts or omissions involving intentional misconduct or knowing violations of
  law;

o unlawful distributions; or

o transactions from which the director personally receives a benefit in money,
  property or services to which the director is not legally entitled.

The  Company's  articles  of  incorporation  also  provide  that the Company may
indemnify any individual made a party to a proceeding because that individual is
or was a director or officer of the Company,  and this right to  indemnification
will continue as to an individual who has ceased to be a director or officer and
will inure to the benefit of his or her heirs, executors or administrators.  Any
subsequent repeal of or modification to the Company's  articles of incorporation
will not  adversely  affect any right of a director or officer of ours who is or
was a director  or officer at the time of such  repeal or  modification.  To the
extent the  provisions of the Company's  articles of  incorporation  provide for
indemnification  of  directors  or officers for  liabilities  arising  under the
Securities Act of 1933, as amended (the "Securities Act"), those provisions are,
in the opinion of the  Commission,  against  public  policy as  expressed in the
Securities Act and therefore unenforceable.

The Company's articles of incorporation and bylaws provide that the Company will
indemnify its  directors and officers and may indemnify its other  employees and
agents to the fullest extent permitted by law. The Company's directors, officers
and  employees  also may be  indemnified  against  liability  they may incur for
serving in that capacity pursuant to a liability  insurance policy maintained by
the Company for such purpose.

Item 7.         Exemption from Registration Claimed.

                Not applicable.

<PAGE>

Item 8.         Exhibits.

Exhibit Number  Exhibit

4.1             Data I/O Corporation 2000 Stock Compensation Incentive Plan, as
                amended
5.1             Opinion of Dorsey & Whitney LLP
23.1            Consent of Grant Thornton, an independent registered public
                accounting firm
23.2            Consent of Dorsey & Whitney LLP (Included in Exhibit 5.1)
24.1            Power of Attorney (See signature pages of this Registration
                Statement)

<PAGE>


                                   Signatures

The Registrant.  Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-8 and has duly caused this Registration
Statement or amendment to be signed on its behalf by the undersigned,  thereunto
duly authorized, in Redmond, Washington, on January 5, 2005.


                                 DATA I/O CORPORATION


                                 By:/s/ Joel S. Hatlen
                                 Vice President, Chief Financial Officer,
                                 Secretary and Treasurer


<PAGE>


                                Power of Attorney

Each person whose  signature  appears  below  constitutes  and appoints  each of
Fredrick  R. Hume and Joel S. Hatlen as his or her  attorney-in-fact  and agent,
with the full power of substitution and resubstitution,  for them in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this Registration Statement,  and to file the same, with exhibits thereto and
other  documents  in  connection  therewith,  with the  Securities  and Exchange
Commission, hereby ratifying and confirming all that said attorneys-in-fact,  or
their substitute or substitutes, may do or cause to be done by virtue hereof.

Pursuant to the  requirements  of the Securities  Act of 1933, as amended,  this
Registration  Statement  has  been  signed  by  the  following  persons  in  the
capacities and on the date indicated.


Signature               Title                                 Date

/s/ Fredrick R. Hume    Chief Executive Officer,              January 5, 2005
                        President and a director
                        (Principal Executive Officer)

/s/ Joel S. Hatlen      Vice President of Finance,            January 5, 2005
                        Chief Financial Officer
                        Secretary and Treasurer
                        (Principal Financial Officer
                        and Accounting Officer

                                                              January 5, 2005
/s/ Glen F. Ceiley      Director


/s/ Daniel A. DiLeo     Director                              January 5, 2005


/s/ Paul A. Gary        Director                              January 5, 2005


/s/ Edward D. Lazowska  Director                              January 5, 2005


/s/ Steven M. Quist     Director                              January 5, 2005


/s/ William R. Walker   Director                              January 5, 2005


<PAGE>


                                  Exhibit Index


Exhibit        Exhibit
Number

4.1            Data I/O Corporation 2000 Stock Compensation Incentive Plan,
               as amended
5.1            Opinion of Dorsey & Whitney LLP
23.1           Consent of Grant Thornton, an independent registered public
               accounting firm
23.2           Consent of Dorsey & Whitney LLP (included in Exhibit 5.1)
24.1           Power of Attorney (see signature pages of this Registration
               Statement)


<PAGE>



                                   EXHIBIT 4.1

                              DATA I/O CORPORATION
                     2000 STOCK COMPENSATION INCENTIVE PLAN

1.   PURPOSES

     1.1  The  purpose  of the  Data I/O  Corporation  2000  Stock  Compensation
          Incentive  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 Data I/O
          and its  Subsidiaries (as defined in Section 2) to participate in Data
          I/O's  growth  and  success,  and to  encourage  them to remain in the
          service of Data I/O and its  Subsidiaries  and to acquire and maintain
          stock ownership in Data I/O.

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 Data I/O.

     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 Data I/O, 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 Data I/O 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 Data I/O
immediately prior to such merger,  consolidation or other reorganization or (ii)
the sale,  transfer or other  disposition  of all or  substantially  all of Data
I/O's assets. A transaction shall not constitute a Change in Control if its sole
purpose  is to  change  the  state of Data  I/O's  incorporation  or to create a
holding company that will be owned in substantially  the same proportions by the
persons who held Data I/O's securities immediately before such transaction.

     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 Data I/O.

     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 Data I/O 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  Market,  the
mean between the high and low selling prices for the Common Stock as reported by
the NASDAQ 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 Data
I/O (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 Data I/O (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 Data I/O (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 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
Data I/O 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 Data I/O 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 Data I/O to repurchase  some
or all of such shares at the original  purchase price (if any) upon  termination
of the Holder's services to Data I/O.

     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>

     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 Data I/O or in which Data I/O has a
significant ownership interest, as determined by the Plan Administrator, and any
entity that may become a direct or indirect parent of Data I/O.

     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 Data I/O's
officers as it so determines.

<PAGE>

4. STOCK SUBJECT TO THE PLAN

     4.1 Authorized Number of Shares.

     As of March 10,  2000,  Data I/O 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 2000 Stock Option Plan (the "2000 Plan") and 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. See also Section 18 for
Plan amendments.

     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 Data I/O 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 Data I/O 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 of Ethics 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 Data I/O 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 Data I/O 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 Data I/O.

<PAGE>

     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 Data I/O;  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 Data I/O,  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 Data I/O 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 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 Data I/O'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 Data I/O to deliver  promptly to Data I/O 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) Data I/O 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, Data I/O 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 Data I/O 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 Data I/O 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  Data  I/O  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 Data I/O 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 Data I/O) 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>

     8.2 10% Shareholders.

     If a  Participant  owns  more  than 10% of the  total  voting  power of all
classes of Data I/O'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  Data  I/O 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 Data I/O  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>

     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 Data I/O 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 Data I/O 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, Data I/O 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>

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
Data I/O) 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 Data I/O, (b) the
payment by the Holder of the purchase price, if any, of the Common Stock in
installments, or (c) the guarantee by Data I/O 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 Data I/O'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
Data I/O or of any other corporation or (b) new, different or additional
securities of Data I/O or of any other corporation being received by the holders
of shares of Common Stock of Data I/O, 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.


      14.2   Dissolution, Liquidation or Change in Control Transactions.

             (a) In the event of the proposed dissolution or liquidation of Data
I/O, Data I/O 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
Data I/O 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 Data I/O'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 Data I/O 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 Data I/O'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 Data I/O 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 financial
reporting purposes, and if Data I/O'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 Data I/O's right to repurchase shall not occur to
the extent that Data I/O'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 Data I/O, 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 Data I/O 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 Data I/O (if Data I/O 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  Data  I/O'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

     Data I/O may  require  the  Holder to pay to Data I/O in cash the amount of
any withholding  taxes that Data I/O is required to withhold with respect to the
grant,  exercise,  payment or settlement  of any Award.  Data I/O 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 Data
I/O to the  Participant an amount equal to such taxes.  Data I/O may also deduct
from any Award  any  other  amounts  due from the  Participant  to Data I/O or a
Subsidiary.

<PAGE>

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 Data I/O to
comply  with or to avail Data I/O,  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.

     Data I/O'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 Data I/O any right to be retained in the employ of
Data I/O or limit Data I/O's right to terminate  the  employment  or services of
the Participant.

      17.3   Registration; Certificates For Shares.

     Data I/O 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.
Data I/O may issue certificates for shares with such legends and subject to such
restrictions on transfer and stop-transfer  instructions as counsel for Data I/O
deems  necessary or desirable for  compliance by Data I/O with federal and state
securities laws.

     Inability  of  Data  I/O  to  obtain,   from  any  regulatory  body  having
jurisdiction, the authority deemed by Data I/O'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 Data I/O 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>

     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 Data I/O 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 Data I/O.

      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 Data I/O's  shareholders  at any time within twelve
(12) months of such adoption.

Original Plan adopted by the Board on February 28, 2000 and approved by Data
I/O's shareholders in May 2000. The Plan was amended and approved by the Board
and Data I/O's shareholders in 2002 to add an additional 200,000 shares of
Common Stock to be reserved for issuance under the Plan.  An additional 300,000
shares of Common Stock were reserved in 2004.

<PAGE>


                                  EXHIBIT 5.1

                              DORSEY & WHITNEY LLP
                      U.S. Bank Building Center, Suite 400
                               1420 Fifth Avenue
                               Seattle, wa 98101

January 5, 2005

Data I/O Corporation
10525 Willows Road N.E.
Redmond, Washington 98052


Re: Registration Statement on Form S-8

Ladies and Gentlemen:

     We have acted as counsel to Data I/O Corporation,  a Washington corporation
(the  "Company"),  in connection with a Registration  Statement on Form S-8 (the
"Registration Statement") relating to the sale by the Company of up to 1,428,786
shares  of the  Company's  common  stock,  without  par  value  per  share  (the
"Shares"),  pursuant  to  the  Data  I/O  Corporation  2000  Stock  Compensation
Incentive Plan, as amended (the "Plan").

     We have examined such  documents and have reviewed such questions of law as
we have  considered  necessary and  appropriate for the purposes of the opinions
set forth below.

     In rendering our opinions set forth below, we have assumed the authenticity
of all documents submitted to us as originals, the genuineness of all signatures
and the  conformity to authentic  originals of all documents  submitted to us as
copies. We have also assumed the legal capacity for all purposes relevant hereto
of all  natural  persons  and,  with  respect to all  parties to  agreements  or
instruments  relevant  hereto other than the Company,  that such parties had the
requisite power and authority  (corporate or otherwise) to execute,  deliver and
perform such agreements or instruments, that such agreements or instruments have
been duly authorized by all requisite action (corporate or otherwise),  executed
and delivered by such parties and that such  agreements or  instruments  are the
valid,  binding and enforceable  obligations of such parties. As to questions of
fact material to our opinions,  we have relied upon  certificates of officers of
the Company and of public officials.

     Based on the foregoing, we are of the opinion that, upon issuance, delivery
and payment  therefore in accordance with the terms of the Plan, the Shares will
be validly issued, fully paid and nonaccessable.

     Our  opinions  expressed  above  are  limited  to the laws of the  state of
Washington.

     We hereby  consent  to the  filing of this  opinion  as an  exhibit  to the
Registration  Statement.

                                Very truly yours,


                                /s/ Dorsey & Whitney LLP

KRA/___

<PAGE>

                                  EXHIBIT 23.1


               Consent of Independent Registered Public Accounting Firm

We have issued our report dated  February 6, 2004,  accompanying  the  financial
statements of Data I/O  Corporation on Form 10-K for the year ended December 31,
2003 which are  incorporated  by reference in this  Registration  Statement.  We
consent to the incorporation by reference in this Registration  Statement of the
aforementioned report.


Seattle, Washington
January 5, 2005
[{"type": "S-8", "sequence": "1", "filename": "fs8qtr42004b.txt", "description": "FORM S-8", "secsgml_size_bytes": 67135}]
{"company-data": {"conformed-name": "DATA I/O CORP", "cik": "0000351998", "assigned-sic": "3825", "irs-number": "910864123", "state-of-incorporation": "WA", "fiscal-year-end": "1231"}, "filing-values": {"form-type": "S-8", "act": "33", "file-number": "333-121861", "film-number": "05513770"}, "business-address": {"street1": "10525 WILLOWS RD NE", "street2": "P O BOX 97046", "city": "REDMOND", "state": "WA", "zip": "98073-9746", "phone": "4258676922"}, "mail-address": {"street1": "P O BOX 97046", "street2": "10525 WILLOWS RD NE", "city": "REDMOND", "state": "WA", "zip": "98073-9746"}}
As filed with the Securities and Exchange Commission on January 5, 2005
Registration No. 333-
-------------------------------------------------------------------------------
                UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM S-8
                             REGISTRATION STATEMENT
                        UNDER THE SECURITIES ACT OF 1933

                              DATA I/O CORPORATION
             (Exact name of registrant as specified in its charter)

           Washington                                     91-0864123
 (State or other jurisdiction of            (I.R.S. Employer Identification No.)
 incorporation or organization)

                             10525 Willows Road N.E.
                            Redmond, Washington 98052
                     Address of Principal Executive Offices

     DATA I/O CORPORATION 2000 STOCK COMPENSATION INCENTIVE PLAN, AS AMENDED
                            (Full title of the plan)

                                 Joel S. Hatlen
        Vice President, Chief Financial Officer, Secretary and Treasurer
                             10525 Willows Road N.E.
                            Redmond, Washington 98052
                     (Name and address of agent for service)

                                 (425) 881-6444
          (Telephone number, including area code, of agent for service)
CALCULATION OF REGISTRATION FEE

 =================================================================================================================================

       Title of Each Class of               Amount to            Proposed Maximum         Proposed Maximum         Amount of
     Securities to be Registered          be Registered         Offering Price Per       Aggregate Offering     Registration Fee
                                                                       Share                  Price
 ---------------------------------------------------------------------------------------------------------------------------------
Common Shares subject to
 outstanding options under the 2000
 Stock Compensation Incentive Plan            985,863                $2.21(1)                $2,178,757             $256(1)
 ---------------------------------------------------------------------------------------------------------------------------------
 Common Shares not subject to
 outstanding options under the 2000
 Stock Compensation Incentive Plan            442,923                $3.29(2)                $1,457,217             $172(2)
 =================================================================================================================================
(1)  Based on the average exercise price of options granted under the 2000 Stock
     Compensation Incentive Plan, as amended,  outstanding as of the date of the
     filing of this registration statement.

(2)  The proposed maximum offering price per share and the registration fee were
     calculated in  accordance  with Rule 457(c) and (h) based on the average of
     the high and low  prices  for shares of the  registrant's  common  stock on
     January 4, 2005, as quoted by Nasdaq SmallCap Market. The closing price for
     shares of the  registrant's  common stock on January 4, 2005,  as quoted by
     Nasdaq SmallCap Market, was $3.30.

                               Page 1 of 6 pages.
                        Exhibit Index begins at page 6.

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------
PART II

               INFORMATION REQUIRED IN THE REGISTRATION STATEMENT

Item 3.           Incorporation of Documents by Reference.

The following documents,  which have been filed with the Securities and Exchange
Commission (the "Commission") by Data I/O Corporation,  a Washington corporation
(the "Company"),  are incorporated by reference in this Registration  Statement,
as of their respective dates:

(a)  the Company's Annual Report on Form 10-K for the fiscal year ended December
     31, 2003;

(b)  the Company's  Quarterly  Reports on Form 10-Q for the quarters ended March
     31, 2004, June 30, 2004 and September 30, 2004;

(c)  the Company's  Current Report on Form 8-K filed on February 18, 2004, April
     26, 2004, August 5, 2004, October 25, 2004, and December 23, 2004;

(c)  the  description of the Company's  Common Stock, no par value per share, as
     contained  in Item 1 of the  Registration  Statement  on Form 8-A  filed on
     April 29, 1982  including  any amendment or report filed for the purpose of
     updating  such   description   filed  for  the  purpose  of  updating  such
     description.

All documents  filed by the Company  pursuant to Sections  13(a),  13(c), 14 and
15(d) of the Securities Exchange Act of 1934, as amended, subsequent to the date
hereof and prior to the filing of a  post-effective  amendment  which  indicates
that all  securities  offered  hereby  have been sold or which  deregisters  all
securities  remaining  unsold  shall be deemed to be  incorporated  by reference
herein  and to be a part  hereof  from the  respective  dates of  filing of such
documents.

Item 4.  Description of Securities.

         Not applicable.

Item 5.  Interests of Named Experts and Counsel.

         Not applicable.

Item 6.  Indemnification of Directors and Officers.

The Company's  articles of  incorporation  and bylaws limit the liability of the
Company's  directors to the fullest extent permitted by the Washington  business
corporation  act (the "WBCA") as it currently  exists or as it may be amended in
the future.  Consequently,  subject to the WBCA,  no director will be personally
liable to the Company or its shareholders  for monetary  damages  resulting from
his or her conduct as a director, except liability for:

o acts or omissions involving intentional misconduct or knowing violations of
  law;

o unlawful distributions; or

o transactions from which the director personally receives a benefit in money,
  property or services to which the director is not legally entitled.

The  Company's  articles  of  incorporation  also  provide  that the Company may
indemnify any individual made a party to a proceeding because that individual is
or was a director or officer of the Company,  and this right to  indemnification
will continue as to an individual who has ceased to be a director or officer and
will inure to the benefit of his or her heirs, executors or administrators.  Any
subsequent repeal of or modification to the Company's  articles of incorporation
will not  adversely  affect any right of a director or officer of ours who is or
was a director  or officer at the time of such  repeal or  modification.  To the
extent the  provisions of the Company's  articles of  incorporation  provide for
indemnification  of  directors  or officers for  liabilities  arising  under the
Securities Act of 1933, as amended (the "Securities Act"), those provisions are,
in the opinion of the  Commission,  against  public  policy as  expressed in the
Securities Act and therefore unenforceable.

The Company's articles of incorporation and bylaws provide that the Company will
indemnify its  directors and officers and may indemnify its other  employees and
agents to the fullest extent permitted by law. The Company's directors, officers
and  employees  also may be  indemnified  against  liability  they may incur for
serving in that capacity pursuant to a liability  insurance policy maintained by
the Company for such purpose.

Item 7.         Exemption from Registration Claimed.

                Not applicable.
Item 8.         Exhibits.

Exhibit Number  Exhibit

4.1             Data I/O Corporation 2000 Stock Compensation Incentive Plan, as
                amended
5.1             Opinion of Dorsey & Whitney LLP
23.1            Consent of Grant Thornton, an independent registered public
                accounting firm
23.2            Consent of Dorsey & Whitney LLP (Included in Exhibit 5.1)
24.1            Power of Attorney (See signature pages of this Registration
                Statement)
Signatures

The Registrant.  Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-8 and has duly caused this Registration
Statement or amendment to be signed on its behalf by the undersigned,  thereunto
duly authorized, in Redmond, Washington, on January 5, 2005.

                                 DATA I/O CORPORATION

                                 By:/s/ Joel S. Hatlen
                                 Vice President, Chief Financial Officer,
                                 Secretary and Treasurer
Power of Attorney

Each person whose  signature  appears  below  constitutes  and appoints  each of
Fredrick  R. Hume and Joel S. Hatlen as his or her  attorney-in-fact  and agent,
with the full power of substitution and resubstitution,  for them in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this Registration Statement,  and to file the same, with exhibits thereto and
other  documents  in  connection  therewith,  with the  Securities  and Exchange
Commission, hereby ratifying and confirming all that said attorneys-in-fact,  or
their substitute or substitutes, may do or cause to be done by virtue hereof.

Pursuant to the  requirements  of the Securities  Act of 1933, as amended,  this
Registration  Statement  has  been  signed  by  the  following  persons  in  the
capacities and on the date indicated.

Signature               Title                                 Date

/s/ Fredrick R. Hume    Chief Executive Officer,              January 5, 2005
                        President and a director
                        (Principal Executive Officer)

/s/ Joel S. Hatlen      Vice President of Finance,            January 5, 2005
                        Chief Financial Officer
                        Secretary and Treasurer
                        (Principal Financial Officer
                        and Accounting Officer

                                                              January 5, 2005
/s/ Glen F. Ceiley      Director

/s/ Daniel A. DiLeo     Director                              January 5, 2005

/s/ Paul A. Gary        Director                              January 5, 2005

/s/ Edward D. Lazowska  Director                              January 5, 2005

/s/ Steven M. Quist     Director                              January 5, 2005

/s/ William R. Walker   Director                              January 5, 2005
Exhibit Index

Exhibit        Exhibit
Number

4.1            Data I/O Corporation 2000 Stock Compensation Incentive Plan,
               as amended
5.1            Opinion of Dorsey & Whitney LLP
23.1           Consent of Grant Thornton, an independent registered public
               accounting firm
23.2           Consent of Dorsey & Whitney LLP (included in Exhibit 5.1)
24.1           Power of Attorney (see signature pages of this Registration
               Statement)
EXHIBIT 4.1

                              DATA I/O CORPORATION
                     2000 STOCK COMPENSATION INCENTIVE PLAN

1.   PURPOSES

     1.1  The  purpose  of the  Data I/O  Corporation  2000  Stock  Compensation
          Incentive  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 Data I/O
          and its  Subsidiaries (as defined in Section 2) to participate in Data
          I/O's  growth  and  success,  and to  encourage  them to remain in the
          service of Data I/O and its  Subsidiaries  and to acquire and maintain
          stock ownership in Data I/O.

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 Data I/O.

     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 Data I/O, 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 Data I/O 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 Data I/O
immediately prior to such merger,  consolidation or other reorganization or (ii)
the sale,  transfer or other  disposition  of all or  substantially  all of Data
I/O's assets. A transaction shall not constitute a Change in Control if its sole
purpose  is to  change  the  state of Data  I/O's  incorporation  or to create a
holding company that will be owned in substantially  the same proportions by the
persons who held Data I/O's securities immediately before such transaction.

     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 Data I/O.

     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 Data I/O 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  Market,  the
mean between the high and low selling prices for the Common Stock as reported by
the NASDAQ 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 Data
I/O (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 Data I/O (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 Data I/O (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 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
Data I/O 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 Data I/O 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 Data I/O to repurchase  some
or all of such shares at the original  purchase price (if any) upon  termination
of the Holder's services to Data I/O.

     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.
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 Data I/O or in which Data I/O has a
significant ownership interest, as determined by the Plan Administrator, and any
entity that may become a direct or indirect parent of Data I/O.

     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 Data I/O's
officers as it so determines.
4. STOCK SUBJECT TO THE PLAN

     4.1 Authorized Number of Shares.

     As of March 10,  2000,  Data I/O 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 2000 Stock Option Plan (the "2000 Plan") and 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. See also Section 18 for
Plan amendments.

     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 Data I/O 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 Data I/O 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 of Ethics 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 Data I/O 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 Data I/O 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 Data I/O.
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 Data I/O;  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 Data I/O,  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 Data I/O 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 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 Data I/O'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 Data I/O to deliver  promptly to Data I/O 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) Data I/O 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, Data I/O 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 Data I/O 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 Data I/O 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  Data  I/O  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 Data I/O 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 Data I/O) 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.
8.2 10% Shareholders.

     If a  Participant  owns  more  than 10% of the  total  voting  power of all
classes of Data I/O'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  Data  I/O 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 Data I/O  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.
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 Data I/O 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 Data I/O 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, Data I/O 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.
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
Data I/O) 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 Data I/O, (b) the
payment by the Holder of the purchase price, if any, of the Common Stock in
installments, or (c) the guarantee by Data I/O 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 Data I/O'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
Data I/O or of any other corporation or (b) new, different or additional
securities of Data I/O or of any other corporation being received by the holders
of shares of Common Stock of Data I/O, 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.

      14.2   Dissolution, Liquidation or Change in Control Transactions.

             (a) In the event of the proposed dissolution or liquidation of Data
I/O, Data I/O 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
Data I/O 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 Data I/O'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 Data I/O 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 Data I/O'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 Data I/O 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 financial
reporting purposes, and if Data I/O'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 Data I/O's right to repurchase shall not occur to
the extent that Data I/O'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 Data I/O, 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 Data I/O 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 Data I/O (if Data I/O 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  Data  I/O'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

     Data I/O may  require  the  Holder to pay to Data I/O in cash the amount of
any withholding  taxes that Data I/O is required to withhold with respect to the
grant,  exercise,  payment or settlement  of any Award.  Data I/O 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 Data
I/O to the  Participant an amount equal to such taxes.  Data I/O may also deduct
from any Award  any  other  amounts  due from the  Participant  to Data I/O 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 Data I/O to
comply  with or to avail Data I/O,  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.

     Data I/O'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 Data I/O any right to be retained in the employ of
Data I/O or limit Data I/O's right to terminate  the  employment  or services of
the Participant.

      17.3   Registration; Certificates For Shares.

     Data I/O 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.
Data I/O may issue certificates for shares with such legends and subject to such
restrictions on transfer and stop-transfer  instructions as counsel for Data I/O
deems  necessary or desirable for  compliance by Data I/O with federal and state
securities laws.

     Inability  of  Data  I/O  to  obtain,   from  any  regulatory  body  having
jurisdiction, the authority deemed by Data I/O'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 Data I/O of any liability in respect of the nonissuance or sale of
such shares as to which such requisite authority shall not have been obtained.
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 Data I/O 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 Data I/O.

      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 Data I/O's  shareholders  at any time within twelve
(12) months of such adoption.

Original Plan adopted by the Board on February 28, 2000 and approved by Data
I/O's shareholders in May 2000. The Plan was amended and approved by the Board
and Data I/O's shareholders in 2002 to add an additional 200,000 shares of
Common Stock to be reserved for issuance under the Plan.  An additional 300,000
shares of Common Stock were reserved in 2004.
EXHIBIT 5.1

                              DORSEY & WHITNEY LLP
                      U.S. Bank Building Center, Suite 400
                               1420 Fifth Avenue
                               Seattle, wa 98101

January 5, 2005

Data I/O Corporation
10525 Willows Road N.E.
Redmond, Washington 98052

Re: Registration Statement on Form S-8

Ladies and Gentlemen:

     We have acted as counsel to Data I/O Corporation,  a Washington corporation
(the  "Company"),  in connection with a Registration  Statement on Form S-8 (the
"Registration Statement") relating to the sale by the Company of up to 1,428,786
shares  of the  Company's  common  stock,  without  par  value  per  share  (the
"Shares"),  pursuant  to  the  Data  I/O  Corporation  2000  Stock  Compensation
Incentive Plan, as amended (the "Plan").

     We have examined such  documents and have reviewed such questions of law as
we have  considered  necessary and  appropriate for the purposes of the opinions
set forth below.

     In rendering our opinions set forth below, we have assumed the authenticity
of all documents submitted to us as originals, the genuineness of all signatures
and the  conformity to authentic  originals of all documents  submitted to us as
copies. We have also assumed the legal capacity for all purposes relevant hereto
of all  natural  persons  and,  with  respect to all  parties to  agreements  or
instruments  relevant  hereto other than the Company,  that such parties had the
requisite power and authority  (corporate or otherwise) to execute,  deliver and
perform such agreements or instruments, that such agreements or instruments have
been duly authorized by all requisite action (corporate or otherwise),  executed
and delivered by such parties and that such  agreements or  instruments  are the
valid,  binding and enforceable  obligations of such parties. As to questions of
fact material to our opinions,  we have relied upon  certificates of officers of
the Company and of public officials.

     Based on the foregoing, we are of the opinion that, upon issuance, delivery
and payment  therefore in accordance with the terms of the Plan, the Shares will
be validly issued, fully paid and nonaccessable.

     Our  opinions  expressed  above  are  limited  to the laws of the  state of
Washington.

     We hereby  consent  to the  filing of this  opinion  as an  exhibit  to the
Registration  Statement.

                                Very truly yours,

                                /s/ Dorsey & Whitney LLP

KRA/___
EXHIBIT 23.1

               Consent of Independent Registered Public Accounting Firm

We have issued our report dated  February 6, 2004,  accompanying  the  financial
statements of Data I/O  Corporation on Form 10-K for the year ended December 31,
2003 which are  incorporated  by reference in this  Registration  Statement.  We
consent to the incorporation by reference in this Registration  Statement of the
aforementioned report.

Seattle, Washington
January 5, 2005