Your prompt return of the enclosed proxy card will save the postage expense of
additional mailings. Your immediate attention to these materials is greatly
appreciated.
ITRON
Johnny M. Humphreys
President and
Chief Executive Officer
Dear Shareholder:
On behalf of the Board of Directors, it is my pleasure to extend to you an
invitation to attend the 1998 Annual Meeting of Shareholders of Itron, Inc. We
hope you can join us. The Annual Meeting will be held:
At: DoubleTree Hotel - City Center
Spokane Falls Ballroom - Suite A
322 North Spokane Falls Court
Spokane, Washington 99201
On: Wednesday, May 6, 1998
Time: 8:00 a.m.
For our shareholders' convenience, a continental breakfast will be
available beginning at 7:30 a.m., at which time shareholders will have an
opportunity to meet personally with the Company's directors and officers and
discuss any questions they may have. The Annual Meeting will begin promptly at
8:00 a.m. The Notice of the Annual Meeting and the Proxy Statement accompany
this letter.
We know that many of our shareholders will be unable to attend the Annual
Meeting. Proxies are solicited so that each shareholder has an opportunity to
vote on all matters that are scheduled to come before the meeting. Whether or
not you plan to attend, please take the time now to read the Proxy Statement and
vote your shares by signing, dating and returning your proxy card promptly in
the enclosed postage-paid envelope. You may revoke your proxy at any time before
it is exercised. Regardless of the number of Company shares you own, your
presence by proxy is important for quorum purposes and your vote is important
for proper corporate action.
Thank you for your continuing interest in Itron. We look forward to seeing
as many of you as possible at our Annual Meeting.
Sincerely,
Johnny M. Humphreys
President and Chief Executive Officer
Itron, Inc., P.O. Box 15288, Spokane, Washington 99215-5288;
(509) 924-9900 or (800) 635-5461
<PAGE>
ITRON, INC.
2818 North Sullivan Road
Spokane, Washington 99216
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 6, 1998
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of Itron,
Inc. will be held at the DoubleTree Hotel - City Center, Spokane Falls Ballroom
- - Suite A, 322 North Spokane Falls Court, Spokane, Washington, at 8:00 a.m.,
local time, on Wednesday, May 6, 1998 (the "Annual Meeting") for the following
purposes:
(1) To elect two directors of the Company;
(2) To approve the amendment of the Company's Employee Stock
Purchase Plan;
(3) To ratify the appointment of the auditors of the Company; and
(4) To transact such other business as may come before the
meeting and any adjournment or postponement thereof.
The Board of Directors has fixed the close of business on February 27,
1998, as the record date for the determination of shareholders entitled to
notice of and to vote at the Annual Meeting.
All shareholders are cordially invited to attend the Annual Meeting in
person.
To ensure representation at the Annual Meeting, shareholders are urged to
mark, sign, date and return the enclosed Proxy as promptly as possible, even if
they plan to attend the Annual Meeting. A return envelope, which requires no
postage if mailed in the United States, is enclosed for this purpose. Any
shareholder attending the Annual Meeting may vote in person even if such
shareholder has returned a Proxy.
By order of the Board of Directors
MariLyn R. Blair
Corporate Secretary
Spokane, Washington
April 1, 1998
<PAGE>
ITRON
PROXY STATEMENT
This Proxy Statement is furnished in connection with the solicitation by
the Board of Directors of Itron, Inc. (the "Company") of proxies for use at the
Annual Meeting of Shareholders (the "Annual Meeting") to be held at the
DoubleTree Hotel - City Center, Spokane Falls Ballroom - Suite A, 322 North
Spokane Falls Court, Spokane, Washington, at 8:00 a.m., local time, on
Wednesday, May 6, 1998, for the purposes set forth in the accompanying Notice of
Annual Meeting of Shareholders. The principal executive offices of the Company
are located at 2818 North Sullivan Road, Spokane, Washington 99216. It is
expected that this Proxy Statement and accompanying Proxy will be mailed to
shareholders on or about April 1, 1998.
Record Date and Outstanding Shares
Holders of the Company's common stock (the "Common Stock") of record at the
close of business on February 27, 1998, are entitled to notice of and to vote at
the Annual Meeting. On that date, there were 14,637,041 shares of Common Stock
outstanding.
Revocability of Proxies
Shares represented at the Annual Meeting by properly executed Proxies in
the accompanying form will be voted at the Annual Meeting and, where the
shareholder giving the Proxy specifies a choice, the Proxy will be voted in
accordance with the specification so made. A Proxy given for use at the Annual
Meeting may be revoked by the shareholder giving the Proxy at any time prior to
the exercise of the powers conferred thereby. A Proxy may be revoked either by
(i) filing with the Secretary of the Company prior to the Annual Meeting, at the
Company's principal executive offices, either a written revocation or a duly
executed Proxy bearing a later date or (ii) attending the Annual Meeting and
voting in person, regardless of whether a Proxy has previously been given.
Presence at the Annual Meeting will not revoke the shareholder's Proxy unless
such shareholder votes in person.
Quorum and Voting
Each shareholder will be entitled to one vote per share of Common Stock
held. Holders of Common Stock are not entitled to cumulative voting rights in
the election of directors. The presence at the Annual Meeting, in person or
represented by proxy, of holders of a majority of the outstanding Common Stock
on the record date will constitute a quorum.
A plurality of the votes duly cast is required for the election of
Directors (i.e., the nominees receiving the greatest number of votes will be
elected). Abstentions from voting on the election of directors have no effect on
the outcome of this proposal since the votes have not been cast in favor of any
nominee. The proposals to approve the amendment of the Employee Stock Purchase
Plan and to ratify the appointment of the Company's independent auditors will be
approved if the votes duly cast in favor of the particular proposal exceed the
votes duly cast against the proposal. Abstentions from voting on either of these
proposals will have no impact on the outcome of the proposal since no vote has
been cast for or against the proposal. There can be no broker nonvotes on any of
these matters since brokers who hold shares for the accounts of their clients
have discretionary authority to vote such shares with respect to all of the
matters being presented to shareholders for approval at the Annual Meeting.
<PAGE>
ITEM 1
ELECTION OF DIRECTORS
The Board of Directors is divided into three classes, with each director of
the Company generally holding office for a three-year term or until his or her
successor has been elected and qualified. At the Annual Meeting, two directors
are to be elected for a term of three years until 2001 or, in each case, until
his respective successor shall be elected and shall qualify. Unless authority to
do so is withheld, the persons named as proxies in the accompanying Proxy will
vote for the election of the nominees listed below. The Board of Directors has
no reason to believe that any such nominee will be unable to serve as a
director. If, however any such nominee shall become unavailable, the persons
named as proxies will have discretionary authority to vote for a substitute
nominee. Assuming the election of Messrs. Redmond and Humphreys as directors at
the Annual Meeting, Mr. Humphreys is expected to be appointed Chairman of the
Board. Mr. Redmond, who has served as the Company's Chairman since, 1987, would
relinquish that title but would continue to serve as a director of the Company.
Nominees to Serve Until 2001
Paul A. Redmond (age 61) has served as Chairman of the Board of Directors
of the Company since 1987. He is Chairman of the Board and Chief Executive
Officer of The Washington Water Power Company ("WWP"). Mr. Redmond joined WWP in
1965, where he has held numerous management and executive positions prior to his
being elected to his current position in 1985. Mr. Redmond also serves as a
director of Washington RoundTable, U.S. Bancorp, and Hecla Mining Co., as well
as Pentzer Corporation and other various subsidiaries and affiliates of WWP.
Johnny M. Humphreys (age 60) has been President, Chief Executive Officer
and a director of Itron since 1987. From 1975 to 1986, Mr. Humphreys was
employed by Datachecker Systems, Inc. ("Datachecker"), a subsidiary of National
Semiconductor Corporation ("NSC"), in various executive positions, including
President from 1980 to 1986. In 1986, Mr. Humphreys was appointed Senior Vice
President of NSC's Information Systems Group and was responsible for strategic
planning for three operating divisions, National Advanced Systems, Microcomputer
Products Group and Datachecker.
Continuing Directors
Michael B. Bracy (age 56) has been a director of the Company since 1992.
Mr. Bracy's term as a director expires in 2000. Until his retirement in August
1997, Mr. Bracy was Executive Vice President, Chief Financial Officer and a
director of NorAm Energy Corp. ("NorAm"), previously known as Arkla, Inc., an
integrated natural gas company. After joining NorAm in 1984, he held various
executive positions, including Chief Executive Officer of the Arkla Pipeline
Group. Prior to his joining NorAm, Mr. Bracy served as Executive Vice President
and Chief Financial Officer of El Paso Natural Gas Company, which he joined in
1977.
Ted C. DeMerritt (age 66) has been a director of the Company since 1994.
Mr. DeMerritt's term as a director expires in 1999. Mr. DeMerritt has been
employed by Olsy North America, which develops and implements system solutions
for the financial services and retail industries, and its predecessor, ISC
Systems Corporation, since 1980, where he currently serves as its Chairman. From
1963 to 1980, he was with Sacramento Savings and Loan Association, where he
served as Controller/Senior Vice President in charge of the Savings and
Operations Division. Mr. DeMerritt is a Trustee of the Washington State
University Foundation.
<PAGE>
Jon E. Eliassen (age 51) has been a director of the Company since 1987. Mr.
Eliassen's term as a director expires in 1999. Mr. Eliassen is Senior Vice
President and Chief Financial Officer of WWP. He joined WWP in 1970 and held
numerous positions within the finance department prior to assuming his current
responsibilities in 1986. He also serves as a director of Northwest Venture
Partners Corporation and Pentzer Corporation as well as other various
subsidiaries and affiliates of WWP.
Mary Ann Peters (age 54) has been a director of the Company since 1994. Ms.
Peters' term as director expires in 2000. Ms. Peters is Managing Director of
McGillicuddy and Peters, a business and marketing consultancy she founded in
1984. She began her marketing career with International Business Machines
Corporation in 1972 and subsequently held a variety of marketing positions with
General Electric Company, Wells Fargo and Company, Inc., Atari Corp. and Apple
Computer, Inc.
Stuart Edward White (age 47) has been a director of the Company since 1996.
Mr. White's term as a director expires in 1999. Mr. White has been Executive
Vice President of Itron, and Chairman of Utility Translation Systems, Inc.
("UTS"), since October 1997. Prior to founding UTS, which was acquired by Itron
in March 1996, Mr. White held numerous engineering and marketing management
positions with Westinghouse Electric Corporation, Meter Division, for 13 years.
Graham M. Wilson (age 53) has been a director of the Company since 1990.
Mr. Wilson's term as a director expires in 2000. Mr. Wilson has been
employed by Westcoast Energy Inc., a major Canadian natural resource company,
since 1988, where he is currently Executive Vice President and Chief Financial
Officer. From 1983 to 1988, he was Vice President, Finance and Administration of
Petro-Canada Inc. Mr. Wilson also serves as a director of Union Gas Limited,
Pacific Northern Gas Ltd. and Centra Gas, Inc., all of which are affiliates of
Westcoast Energy, Inc.
Compensation of Directors
Nonemployee directors receive an annual $8,000 retainer which is payable
quarterly. In addition, nonemployee directors receive $800 for each Board
meeting attended ($900 for the Chairman of the Board) and $800 for each
Committee meeting attended ($900 for each of those Committee meetings at which
they serve as chairperson). Under the Company's 1992 Stock Option Plan for
Nonemployee Directors, nonemployee directors receive stock option grants to
purchase 10,000 shares of the Company's Common Stock upon their initial
appointment or election as a director and option grants to purchase 2,000 shares
of the Company's Common Stock annually thereafter. The exercise price of such
options is the fair market value of the Common Stock on the date of grant. Such
options are fully vested and immediately exercisable on the date of grant.
Information on Committees of the Board of Directors and Meetings
The Company's Board of Directors has established an Audit/Finance Committee
and a Compensation Committee.
The Audit/Finance Committee reviews the Company's accounting practices,
internal accounting controls and financial results and oversees the engagement
of the Company's independent auditors. The Audit/Finance Committee consists of
Jon E. Eliassen, Graham M. Wilson and Ted C. DeMerritt and held eight meetings
during 1997.
The Compensation Committee is responsible for setting compensation levels
for the Company's executive officers, overseeing the administration of various
incentive compensation and benefit plans and performing such other functions
regarding compensation as the Board may delegate. The Compensation Committee
consists of Paul A. Redmond, Michael B. Bracy and Mary Ann Peters. The
Compensation Committee held seven meetings in 1997.
During 1997 there were seven Board meetings. All Board members attended at
least 75% of the meetings of the Board and each committee of which they were a
member.
<PAGE>
ITEM 2
APPROVAL OF AMENDMENT OF THE
ITRON, INC. EMPLOYEE STOCK PURCHASE PLAN
The Company's 1996 Employee Stock Purchase Plan (the "Plan") provides a
means for eligible employees of the Company and its subsidiaries to purchase
shares of Itron Common Stock under favorable terms through payroll deductions.
Approximately 890 employees are eligible for participation in the Plan,
including each of the executive officers named in the compensation table and
eight other executive officers. Nonemployee directors of the Company are not
eligible to participate in the Plan. The Plan, which was approved by the
Shareholders on April 30, 1996, has an aggregate of 80,000 shares of Itron stock
authorized to be available for issuance. On February 10, 1998, the Company's
Board of Directors unanimously adopted an amendment to the Plan that, subject to
shareholder approval, would authorize an additional 100,000 shares to be
available for future issuance under the Plan. As of the date of this Proxy
Statement, approximately 16,000 shares remained available for future issuance
under the Plan.
The Board believes that the allocation of additional shares to the Plan
will promote the interests of the Company and its shareholders by assisting the
Company in attracting, retaining, and stimulating the performance of employees,
and by aligning employees' interests through their purchases of the Company's
Common Stock with the interests of shareholders.
A copy of the Plan is attached to this Proxy Statement as Appendix A and is
incorporated herein by reference. The following description of the Plan as
proposed to be amended is a summary and does not purport to be a complete
description. See Appendix A for more detailed information.
Eligible employees under the Plan are those who have completed three months
of service, work more than 20 hours each week, and are employed more than five
months in any calendar year. Employees who own 5% or more of Itron Common Stock
are not eligible to participate in the Plan. Eligible employees may authorize
payroll deductions between 1% and 10% of their regular cash compensation. Such
deductions are applied toward the discounted purchase of the Company's Common
Stock, subject to a maximum fair market value purchase amount in any calendar
year of $25,000.
Separate six-month offering periods ("Offerings") commence on January 1 and
July 1 of each year. Each Offering period consists of two consecutive purchase
periods ("Purchase Periods") commencing on January 1, April 1, July 1 and
October 1. On the last business day of each Purchase Period (the "Purchase
Date"), the employee is deemed to have exercised the right to purchase as many
shares as his or her accumulated payroll deductions allow, at the purchase
price. The purchase price is 85% of the lesser of (a) the fair market value of
the stock on the first business day of the Offering, or (b) the fair market
value of the stock on the Purchase Date.
An aggregate of 180,000 shares of Itron stock are authorized for
issuance under the Plan, subject to adjustment from time to time for stock
dividends and certain other changes in capitalization as provided in the Plan.
An employee's right to acquire Itron stock under the Plan is not transferable
and may not be exercised after termination of employment.
<PAGE>
The Company intends that the Plan qualifiy as an "employee stock purchase
plan" under Section 423 of the Internal Revenue Code. Section 423 allows an
employer to grant options to its employees to purchase company stock at a
stipulated price without having the employees realize taxable income at the time
the option is granted or when exercised. The basis of the stock received on
exercise of an option under this Plan is the exercise price paid for the stock.
The required holding period for favorable tax treatment upon disposition of the
Itron Common Stock acquired under the Plan is the later of two years after the
grant date or one year after the purchase date. When the stock is sold after
this holding period, the employee will realize ordinary income up to the amount
of any discount (up to a maximum of 15%) from the fair market value of the Itron
Common Stock as of the grant date. Any further gain is taxed at capital gain
rates. If the stock is sold before the holding period expires, the employee will
realize ordinary income to the extent of the difference between the price
actually paid for the stock and the fair market value of the stock at the
purchase date, regardless of the price at which the stock is sold. If the sale
price is less than the fair market value of the stock at the purchase date, then
the employee will have a capital loss equal to such difference.
The Company may not take a deduction for the difference between the fair
market value of the stock and the purchase price paid for the stock by the
employee unless the employee disposes of the stock before the statutory holding
period expires.
The Compensation Committee of the Board of Directors is authorized to serve
as the Administrator of the Plan. Subject to the terms and conditions of the
Plan, the Administrator may set different Offering and Purchase Periods and,
subject to the maximum allowable discount described above, a different purchase
price for an Offering period. The closing price of a share of Itron Common Stock
on February 27, 1998, was $21.125, as reported by the Nasdaq National Market.
The Board of Directors recommends that shareholders vote FOR approval of
the amendment of the Company's Employee Stock Purchase Plan.
ITEM 3
RATIFICATION OF AUDITORS
Shareholders are asked to ratify the selection of Deloitte & Touche LLP as
independent auditors for the Company for the fiscal year ending December 31,
1998. Unless instructed otherwise, it is the intention of the persons named in
the accompanying Proxy to vote shares represented by properly executed Proxies
for ratification of the selection of Deloitte & Touche LLP as independent
auditors.
Deloitte & Touche LLP audited the books and records of the Company for the
fiscal years ended December 31, 1995, 1996 and 1997. It is anticipated that
representatives of Deloitte & Touche LLP will be present at the Annual Meeting.
Such representatives will have the opportunity to make a statement, if they so
desire, and are expected to be available to respond to appropriate questions
from shareholders.
The Board of Directors recommends a vote FOR the ratification of Deloitte &
Touche LLP as independent auditors.
OTHER BUSINESS
The Board of Directors does not intend to present any business at the
Annual Meeting other than as set forth in the accompanying Notice of Annual
Meeting of Shareholders and has no present knowledge that any others intend to
present business at the meeting. If, however, other matters requiring the vote
of the shareholders properly come before the Annual Meeting or any adjournment
or postponement thereof, the persons named in the accompanying form of proxy
will have discretionary authority to vote the proxies held by them in accordance
with their judgment as to such matters.
<PAGE>
EXECUTIVE COMPENSATION
Compensation Summary
The following table sets forth certain information as to Itron's Chief
Executive Officer and each of the four other most highly compensated executive
officers who were executive officers at December 31, 1997, for services rendered
in all capacities for the Company during the fiscal years ended December 31,
1997, 1996 and 1995.
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Long-Term
Compensation Compensation
----------------------------------------- ---------------
Securities
Underlying All Other
Name and Principal Position Year Salary Bonus (1) Options Compensation(2)
- --------------------------- ---- ------ ------ ------- ------------
<S> <C> <C> <C> <C> <C>
Johnny M. Humphreys 1997 $378,706 $196,409 70,000 $24,339
President and Chief Executive 1996 363,142 - - 14,958
Officer 1995 306,633 140,190 - 12,556
Carl Robert Aron (3) 1997 315,588 173,674 30,000 13,051
Executive Vice President and 1996 299,986 - 70,000 56,778
Chief Strategist 1995 27,500 163,379 60,000
David G. Remington (4) 1997 262,990 124,572 40,000 11,000
Vice President and 1996 208,654 6,200 45,000 8,708
Chief Financial Officer 1995 - - - -
Richard G. Geiger 1997 210,392 91,657 12,000 35,333
Senior Vice President and 1996 200,000 - 22,000 21,181
General Manager, Technical 1995 188,468 72,128 12,000 6,803
Management
Michael J. O'Callaghan 1997 210,392 101,657 12,000 12,000
Senior Vice President and 1996 206,494 - 17,500 9,206
General Manager, Global 1995 176,597 66,730 10,000 6,307
Handheld & Mobile Systems
- -----------
</TABLE>
(1) Includes amounts paid under the Company's Executive Compensation Plan,
certain incentive bonuses, and a signing bonus for Mr. Aron paid in 1995.
(2) For the year ended December 31, 1997, consists of matching contributions to
a 401(k) savings plan ($4,750 for Messrs. Humphreys, Aron, Remington,
Geiger and O'Callaghan) and matching contributions to a deferred
compensation plan ($13,250, $7,500, $6,250, $5,250, and $5,250 for each of
Messrs. Humphreys, Aron, Remington, Geiger and O'Callaghan, respectively).
Also includes $6,339 of reimbursed medical and other expenses for Mr.
Humphreys, $801 for reimbursed medical and other expenses for Mr. Aron, a
non-recurring $25,333 for bonus based on royalties paid pursuant to a
development partnership for Mr. Geiger, and $2,000 for reimbursed medical
and other expenses for Mr. O'Callaghan.
(3) Mr. Aron joined the Company in November 1995.
(4) Mr. Remington joined the Company in February 1996.
<PAGE>
Option Grants
The following table sets forth certain information regarding options
granted during the year ended December 31, 1997 to the Company's executive
officers for whom compensation is reported in this Proxy Statement.
Option Grants in 1997
<TABLE>
<CAPTION>
Individual Grants
------------------------------------------------------------- -------------------------
Percent of Potential Realizable
Number of Total Options Exercise Value at Assumed Annual
Options Granted to Price Expiration Rates of Stock Price
Name Granted (1) Employees in ($/Share) Date (1) Appreciation
(2) Fiscal Year (2) for Option Term (2)
------------- ---------------- -------------- ------------- ---------------------------
------------- -------------
5% 10%
------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Johnny M. Humphreys 35,000 4.15% $22.38 2/03/07 $492,503 $1,248,100
35,000 4.15% 21.06 4/29/07 463,613 1,174,887
Carl Robert Aron 30,000 3.56% 21.06 4/29/07 397,383 1,007,046
David G. Remington 20,000 2.37% 22.38 2/03/07 281,430 713,200
20,000 2.37% 21.06 4/29/07 264,922 671,364
Richard G. Geiger 12,000 1.42% 21.06 4/29/07 158,953 402,818
Michael J. O'Callaghan 12,000 1.42% 21.06 4/29/07 158,953 402,818
</TABLE>
(1) The options vest on a four-year schedule, with the options becoming fully
exercisable on February 3, 2001 and April 29, 2001, respectively provided
the holder remains employed by the Company. The exercise price of the
options is the fair market value of the Company's stock on the date of
grant.
(2) Future value of current year grants assuming appreciation of 5% and 10% per
year over the ten-year option period. The actual value realized may be
greater than or less than the potential realizable values set forth on the
table.
Option Exercises and Year-End Values
The following table sets forth certain information regarding options
exercised during the year ended December 31, 1997, and held as of December 31,
1997 by each of the Company's executive officers for whom compensation is
reported in this Proxy Statement.
AGGREGATED OPTION EXERCISES AND 1997 FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Value of Unexercised
Total Number of Unexercised in-the-Money Options
Options at Fiscal Year-End at Fiscal Year-End(1)
------------------------------ ---------------------------------
Shares Acquired Value
Name on Exercise (#) Realized $ Exercisable Unexercisable Exercisable Unexercisable
---- ----------------- ------------ ------------- ----------------- ---------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Johnny M. Humphreys - - - 70,000 - -
Carl Robert Aron - - 47,499 112,501 $ 4,375 $13,125
David G. Remington - - 15,000 70,000 3,750 7,500
Richard G. Geiger 8,750 $184,188 61,500 27,500 330,563 3,875
Michael J. O'Callaghan - - 45,207 24,293 180,802 3,073
</TABLE>
(1) Calculated based on a price of $18.00 per share (the closing price of the
Company's Common Stock on December 31, 1997 as reported by the Nasdaq
National Market), less the exercise price.
<PAGE>
Compensation Committee Report on Executive Compensation
The Compensation Committee of the Company's Board of Directors (the
"Committee") annually reviews and recommends to the full Board compensation
levels for executive officers of the Company. The Committee is comprised of
Board members who are not employees of the Company.
The Committee's primary objective in establishing compensation
opportunities for the Company's executive officers is to support the Company's
goal of maximizing the value of shareholders' interests in the Company. To
achieve this objective, the Committee believes it is critical to:
o Pay competitively to attract, retain and motivate a highly competent
executive team;
o Provide incentive opportunities that link corporate performance and
executive pay and pay executives competitive levels of incentive
compensation when corporate financial performance expectations are
achieved; and
o Align executives' financial interests with the creation of shareholder
value by providing long-term incentives in the form of options to acquire
Common Stock.
The Committee makes recommendations to the Board of Directors pertaining to
the Company's executive compensation plans which promote the objectives detailed
above. The Committee periodically engages outside consultants to determine
approximate compensation levels among executives in comparable jobs in
comparable high-tech companies. The Committee believes that the Company's
current compensation plans support the Company's business mission and contribute
to the Company's financial success. Section 162(m) of the Internal Revenue Code
limits the tax deduction available to public companies for compensation paid to
individual executive officers to $1 million in any taxable year, unless certain
performance, disclosure and shareholder approval requirements are met. When
consistent with its compensation philosophy, the Committee intends to structure
its compensation programs so that compensation expense is deductible by the
Company for tax purposes.
Base Salary
The Committee annually reviews each executive officer's base salary. The
factors that the Committee considers in making recommendations regarding base
salary include: levels of pay among executives in similar jobs within similar
high-tech companies, level of responsibility, prior experience, breadth of
knowledge and job performance. Base salaries are targeted at the 50-75th
percentile of the market. The market is defined as similar high-tech companies,
nationwide, the annual revenues of which are approximately $250 million and
which have similar executive level jobs. These companies are not necessarily the
same as the companies included in the Nasdaq Computer Manufacturers Stock Index
used in the performance graph. In general, in 1997, base salaries for the
executive officers are near the 75th percentile of the market.
With respect to the Chief Executive Officer's compensation in 1997, the
Committee determined that a $378,000 base salary for Mr. Humphreys was
appropriate and consistent with the Company's overall salary plan. The Committee
believes that it is important that Mr. Humphreys' base salary be competitive
with those of other chief executive officers with similar responsibilities and
broad leadership experience in the market defined above because the Committee
recognizes and highly values Mr. Humphreys' visionary leadership, breadth of
knowledge, and business and utility experience, all of which have contributed
significantly to the success of the Company.
<PAGE>
Due to an emphasis on cost containment in 1997, all executive officers
deferred any increase in base salary until certain year end performance targets
were met. Those targets were met, and each executive officer was paid a lump sum
payment for their salary deferral along with earned bonus amounts. The lump sum
salary deferral has been included in the summary compensation table as "base
salary." In 1998, the Committee plans to return to the customary practice of
providing annual reviews of each executive officer's base salary with the
increase being effective at the beginning of the calendar year.
Executive Incentive Compensation Plan ("EIC Plan")
The EIC plan provides the opportunity for executive officers to earn both
annual and long-term incentives in addition to their base salaries. The
Committee believes that having as much or more than 50% of an executive
officer's total compensation at risk fosters achievement of the Company's
short-term and long-term financial performance goals.
Annual Incentives: The Compensation Committee each year establishes annual
financial goals which relate to one or more indicators of corporate financial
performance and targets amounts as a specified percentage of the executive
officer's salary. For 1997, such percentages ranged from 35% to 50% of base
salary. Incentive awards are paid to participating executives under the EIC Plan
only when the established financial goals are achieved. Depending on the extent
to which corporate goals are achieved, an executive officer may be entitled to
receive from zero up to 150% of such targeted award. For 1997, the annual
incentive award opportunity was contingent upon attaining an established level
of revenues and net profit after tax. These goals were achieved at approximately
the 100% level in 1997. Payouts relating to annual incentives under the EIC Plan
are made in cash. Annual incentive payments are reflected in the Summary
Compensation Table under the column entitled "Bonus".
Long-Term Incentives: Long-term incentives consist of stock options. The
number of stock options granted is determined by the recipient's position and
amount of options currently held, and is intended to recognize different levels
of responsibility. The Compensation Committee granted Johnny Humphreys options
to purchase a total of 70,000 shares of Common Stock in 1997. These are the
first option grants Mr. Humphreys has received from the Company. Previously Mr.
Humphreys had the option to purchase stock through a Stock Purchase Agreement
which has since expired. All options are granted with an option exercise price
equal to the fair market value of the Company's Common Stock on the date of
grant. This closely links a significant portion of executive compensation to
benefits produced for all shareholders.
Members of the Compensation Committee
Paul A. Redmond Michael B. Bracy Mary Ann Peters
<PAGE>
Performance Graph
The following graph compares the cumulative total return to shareholders on
the Company's Common Stock with the cumulative total return of the Nasdaq U.S.
Stock Market and the Nasdaq Computer Manufacturers Stocks for the period
beginning November 5, 1993, the first day of trading as a public company and
ending December 31, 1997, the end of the Company's latest fiscal year.
Comparison of Cumulative Total Return Among Itron, Inc.,
Nasdaq Computer Manufacturers Stocks and Nasdaq US Stock Market
(For the period November 5, 1993 to December 31, 1997)
<TABLE>
<CAPTION>
5-Nov-89 31-Dec-93 31-Dec-94 30-Dec-95 29-Dec-96 31-Dec-97
<S> <C> <C> <C> <C> <C> <C>
Itron, Inc. $100 $133 $150 $250 $130 $133
Nasdaq Computer Manufacturers Stock $100 $108 $119 $187 $251 $304
Nasdaq U.S. Stock Market $100 $105 $102 $144 $178 $218
</TABLE>
The above presentation assumes $100 invested on November 5, 1993, in
Itron Common Stock, Nasdaq Computer Manufacturers Stock and Nasdaq U.S. Market
Stock, with all dividends reinvested. Stock prices shown above for the Common
Stock are historical and not necessarily indicative of future price performance.
Section 16 (a) Beneficial Ownership Compliance Reporting
Section 16(a) of the Exchange Act requires the Company's officers and
directors, and persons who own more than 10% of a registered class of the
Company's equity securities, to file reports of ownership and changes in
ownership with the Securities and Exchange Commission (the "Commission").
Officers, directors and greater than 10% shareholders are required by Commission
regulation to furnish the Company with copies of all Section 16(a) forms they
file.
Based solely on its review of the copies of such forms received by the
Company, or written representations from certain reporting persons, the Company
believes that during the 1997 fiscal year all filing requirements applicable to
its officers, directors and beneficial owners of greater than 10% were complied
with by such persons.
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth as of February 28, 1998 certain information
with respect to the beneficial ownership of the Company's Common Stock by (i)
each director of the Company, (ii) each of the Company's executive officers for
whom compensation is reported in this Proxy Statement, (iii) all directors and
executive officers of the Company as a group, and (iv) each person known by the
Company to own beneficially more than 5% of the Common Stock. Except as
otherwise noted, the Company believes that the beneficial owners of the Common
Stock listed below, based on information furnished by such owners, have sole
voting and investment power with respect to such shares.
<TABLE>
<CAPTION>
Shares Beneficially Owned
Name Number Percent
- ----------------------------------------------------------- ----------------------- ----------------------
<S> <C> <C>
Directors and Executive Officers:
Johnny M. Humphreys (1) 199,293 1.36%
Carl Robert Aron (2) 47,761 *
David G. Remington (3) 24,209 *
Richard G. Geiger (4) 62,981 *
Michael J. O'Callaghan (5) 46,296 *
Paul A. Redmond (6) 22,000 *
Jon E. Eliassen (7) 16,000 *
Michael B. Bracy (8) 17,000 *
Graham M. Wilson (9) 17,000 *
Ted C. DeMerritt (10) 16,150 *
Mary Ann Peters (11) 14,000 *
All directors and executive officers as a group 1,398,878 9.56%
(19 persons) (6) (7) (8) (9) (10) (11) (12)
Greater than 5% Shareholders:
Kopp Investment Advisors, Inc. (13) 3,030,384 20.70%
6600 France Ave. South, Suite 672
Edina, MN 55435
Franklin Resources Inc. (14) 1,800,423 11.90%
777 Mariners Island Blvd.
San Mateo, CA 94404
Houston Industries (15) 1,502,547 10.27%
P.O. Box 2628
Houston, TX 77252
- ------------------
* Less than 1%.
</TABLE>
<PAGE>
1. Includes 8,750 shares issuable upon exercise of outstanding options that
are exercisable by Mr. Humphreys within 60 days at a weighted average
exercise price of $22.38 per share. Also includes 2,814 shares of common
stock held for Mr. Humphreys' individual account under the Company's 401(k)
employee savings plan. Also includes 300 shares held by Mr. Humphreys as
custodian under UGMA for his granddaughter and 300 shares held by Mr.
Humphreys as custodian under UGMA for his grandson.
2. Includes 47,499 shares issuable upon exercise of outstanding options that
are exercisable by Mr. Aron within 60 days at a weighted average exercise
price of $24.26 per share. Also includes 262 shares of Common Stock held
for Mr. Aron's individual account under the Company's 401(k) employee
savings plan.
3. Includes 20,000 shares issuable upon exercise of outstanding options that
are exercisable by Mr. Remington within 60 days at a weighted average
exercise price of $18.91 per share. Also includes 209 shares of Common
Stock held for Mr. Remington's individual account under the Company's
401(k) employee savings plan.
4. Includes 61,500 shares issuable upon exercise of outstanding options that
are exercisable by Mr. Geiger within 60 days at a weighted average exercise
price of $12.63 per share. Also includes 1,481 shares of Common Stock held
for Mr. Geiger's individual account under the Company's 401(k) employee
savings plan.
5. Includes 45,207 shares issuable upon exercise of outstanding options that
are exercisable by Mr. O'Callaghan within 60 days at a weighted average
exercise price of $14.00 per share. Also includes 1,089 shares of common
stock held for Mr. O'Callaghan's individual account under the Company's
401(k) employee savings plan.
6. Includes 19,500 shares issuable to Mr. Redmond upon exercise of outstanding
options at a weighted average exercise price of $23.51 per share. Excludes
291,788 shares held by Avista Corporation, a subsidiary of WWP, as to which
Mr. Redmond disclaims beneficial ownership. Mr. Redmond is a director of
WWP.
7. Includes 16,000 shares issuable to Mr. Eliassen upon exercise of
outstanding options at a weighted average exercise price of $27.36 per
share. Excludes 291,788 shares held by Avista Corporation, a subsidiary of
WWP, as to which Mr. Eliassen disclaims beneficial ownership.
8. Includes 17,000 shares issuable to Mr. Bracy upon exercise of outstanding
options at a weighted average exercise price of $26.54 per share.
9. Includes 17,000 shares issuable to Mr. Wilson upon exercise of outstanding
options at a weighted average exercise price of $26.54 per share. Excludes
608,340 shares held by Centra, as to which Mr. Wilson disclaims beneficial
ownership. Mr. Wilson is a director of Centra Gas Inc.
10. Includes 16,000 shares issuable to Mr. DeMerritt upon exercise of
outstanding options at a weighted average exercise price of $27.27 per
share.
11. Includes 14,000 shares issuable to Ms. Peters upon exercise of outstanding
options at a weighted average exercise price of $28.73 per share.
12. Includes 389,575 shares issuable upon exercise of outstanding options that
are held by executive officers and are exercisable within 60 days. Also
includes 14,969 shares of Common Stock held for such officers' individual
accounts under the Company's 401(k) employee savings plan and 62 shares
held for such officers' individual accounts under the Company's employee
stock ownership plan.
13. Information is based on a Schedule 13G dated February 9, 1998 filed by Kopp
Investment Advisors, Inc. and LeRoy Kopp with the Securities and Exchange
Commission. Such filing indicates that Kopp Investment Advisors, Inc. has
shared investment discretion over 2,770,384 of these shares, has sole
investment discretion over 140,000 of these shares, and has sole voting
power over 359,000 of these shares. In addition, such filing indicates that
Mr. Kopp has sole investment and voting power over 120,000 of these shares.
14. Information is based on a Schedule 13G dated January 30, 1998, as amended
February 4, 1998, filed by Franklin Resources, Inc., Franklin Advisers,
Inc., Charles B. Johnson and Rupert H. Johnson, Jr. with the Securities and
Exchange Commission. Includes 495,733 shares of Common Stock that are
issuable upon the conversion of $11,750,000 of the Company's Convertible
Subordinated Debentures.
15. Information is based on a Schedule 13D dated October 15,1997 filed by
Houston Industries Incorporated, NorAm Energy Corp., and Arkla Finance
Corporation with the Securities and Exchange Commission. Such filing
indicates that these three entities share investment and voting power as to
these shares.
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Change of Control Agreements
The Company has entered into Change of Control Agreements with some of its
executive officers to provide compensation and benefits in the event of a change
of control of the Company. Pursuant to such agreements, executive officers agree
to remain employed by the Company on an annual basis and are compensated by an
annual salary and bonus as determined by the Compensation Committee of the Board
of Directors. In the event the employment relationship is terminated by the
Company for other than cause or by the executive officer for good reason within
the one year period following a change of control, the executive officer will
receive any salary or bonus due to such executive officer, group insurance
benefits for one-year after termination and severance pay equal to the annual
base salary for the fiscal year in which the termination occurs. The executive
officers will also receive such payments if their employment continues for the
full one-year period following a change of control.
Employment Agreements
Johnny M. Humphreys, President and Chief Executive Officer of the Company,
is party to an Employment Agreement with the Company dated February 9, 1987. The
only remaining operative provision of the Employment Agreement, which may be
terminated by either party at any time, is if termination is by the Company, it
is obligated to pay Mr. Humphreys' base salary and benefits for a six-month
period.
Carl Robert Aron, who joined the Company as Executive Vice President and
Chief Operating Officer in November 1995, is party to an Employment Agreement
with the Company. The Agreement provided for an initial base salary of $275,000,
which was subsequently increased. In addition, a signing bonus of $150,000 was
approved in November 1995 and paid to Mr. Aron in January 1996. The Agreement
also provided for annual incentive bonus payments ranging from 50% to 75% of
base salary depending on the Company's performance, and for an option grant of
100,000 shares of the Company's Common Stock at the fair market value of the
Company's Common Stock on the date of grant. These options become vested ratably
over a four-year period. The Agreement contains certain vesting acceleration
clauses for termination, death, disability and changes in control. The Agreement
was amended on December 17, 1997, and a further amendment is currently being
finalized, As it is expected to be amended, the Employment Agreement will
provide that Mr. Aron will serve as the Company's Executive Vice President and
Chief Strategist at an annual salary of $315,000. The amended Employment
Agreement will terminate on February 28, 1999, unless extended on a
month-to-month basis thereafter through written agreement of the parties. Upon
the termination of the Employment Agreement in accordance with its terms, or
upon the earlier termination of Mr. Aron's employment for any reason, Mr. Aron
will be entitled to receive a termination payment of $750,000 and certain bonus
payments, and vesting of all outstanding options held by Mr. Aron will
accelerate by 15 months.
David G. Remington, who joined the Company as Vice President and Chief
Financial Officer in February 1996, is party to an Employment Agreement with the
Company. The Agreement provides for an initial base salary of $250,000 which may
be increased annually by the Chief Executive Officer, subject to the approval of
the Compensation Committee. The Agreement also provides for annual incentive
bonus payments. The Agreement may be terminated by either party under certain
conditions. If termination is by the Company for other than cause the Company is
required to pay Mr. Remington an amount equal to his then current annual base
salary. The Agreement also provided for an option grant of 45,000 shares of the
Company's Common Stock at the fair market value of the Company's Common Stock on
the date of the grant. These options become vested ratably over a three-year
period. The Agreement contains certain vesting acceleration clauses for
termination, death or disability.
<PAGE>
Other Related Party Agreements
In July 1995, the Company purchased its principal office and manufacturing
facilities in Spokane, Washington, from Pentzer Development Corporation. Pentzer
Development Corporation is a subsidiary of Pentzer Corporation, a significant
shareholder of the Company and a subsidiary of WWP. Cash paid at closing was
$2.4 million. The Company has a long-term note payable to Pentzer for $5.6
million related to the purchase. The principal balance of the note bears
interest at a rate of 7.5% through July 1998 and 9% thereafter. Monthly payments
of interest only are due through August 1998 with payments of principal and
interest due from September 1998 to maturity in August 2015.
In May 1996, the Company purchased an additional facility from Pentzer
Development Corporation for its manufacturing and engineering operations. Of the
total purchase price, $210,000 was paid at closing with the remaining $840,000
due under a note payable. The note payable bears interest-only payments at 7.5%
through June 1, 1999 and then principal and interest payments at 8.5% through
maturity on June 1, 2019.
ANNUAL REPORT AND FINANCIAL STATEMENTS
A copy of the Company's Annual Report to Shareholders for the year 1997,
including financial statements, accompanies this Proxy Statement.
ADDITIONAL INFORMATION
Shareholder Proposals
Shareholder proposals intended for inclusion in the proxy materials for the
Company's 1999 Annual Meeting of Shareholders must be received by the Company no
later than December 1, 1998.
Such proposals should be directed to the Corporate Secretary, Itron, Inc.,
2818 North Sullivan Road, P.O. Box 15288, Spokane, Washington 99215-5288.
Proxy Solicitation Costs
The Company has retained Corporate Investor Communications, Inc., 111
Commerce Road, Carlstadt, New Jersey, to aid in the solicitation of Proxies. It
is estimated that the cost of these services will be approximately $4,500 plus
expenses. The cost of soliciting Proxies will be borne by the Company. Proxies
will be solicited by personal interview, mail and telephone. In addition, the
Company may reimburse brokerage firms and other persons representing beneficial
owners of shares of Common Stock for their expenses in forwarding solicitation
materials to such beneficial owners. Proxies may also be solicited by certain of
the Company's directors, officers and regular employees, without additional
compensation, personally or by telephone.
---------------------------
A copy of the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1997, as filed with the Commission, will be furnished without
charge to beneficial shareholders or shareholders of record on February 27,
1998, upon request to Investor Relations at the Company's principal executive
offices.
<PAGE>
Appendix A
ITRON, INC.
1996 EMPLOYEE STOCK PURCHASE PLAN
SECTION 1. PURPOSE
The purposes of the Itron, Inc. 1996 Employee Stock Purchase Plan (the
"Plan") are to (a) assist employees of Itron, Inc., a Washington corporation
(the "Company"), and its parent and subsidiary corporations in acquiring a stock
ownership interest in the Company pursuant to a plan that is intended to qualify
as an "employee stock purchase plan" under Section 423 of the Internal Revenue
Code of 1986, as amended (the "Code"), and (b) help employees provide for their
future security and to encourage them to remain in the employment of the Company
and its subsidiary corporations.
SECTION 2. DEFINITIONS
For purposes of the Plan, the following terms shall be defined as set forth
below.
"Board" means the Board of Directors of the Company.
"Change Notice Date" has the meaning set forth in Section 9.2.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" means Itron, Inc., a Washington corporation.
"Designated Corporation" has the meaning set forth under the definition
of "Eligible Employee" in this Section 2.
"Eligible Compensation" means all regular cash compensation, including
overtime, cash bonuses and commissions. Regular cash compensation does
not include severance pay, hiring and relocation bonuses, pay in lieu
of vacations, sick leave or any other special payments.
"Eligible Employee" means any employee of the Company (or any Parent
Corporation or Subsidiary Corporation designated by the Plan
Administrator (a "Designated Corporation")) who is in the employ of the
Company (or any such Designated Corporation) on one or more Offering
Dates and who meets the following criteria:
(a) the employee does not, immediately after the Option is
granted, own stock (as defined by Code Sections 423(b)(3) and
424(d)) possessing 5% or more of the total combined voting
power or value of all classes of stock of the Company or of a
Parent Corporation or Subsidiary Corporation of the Company;
(b) the employee's customary employment is not 20 hours or fewer
per week;
(c) the employee's customary employment is for more than five
months in any calendar year; and
(d) the employee has been employed for at least three months.
If the Company permits any employee of a Designated Corporation to
participate in the Plan, then all employees of that Designated Corporation
who meet the requirements of this paragraph shall also be considered
Eligible Employees.
<PAGE>
"ESPP Broker" has the meaning set forth in Section 10.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Offering" has the meaning set forth in Section 5.1.
"Offering Date" means the first day of an Offering.
"Offering Period" has the meaning set forth in Section 5.1.
"Option" means an option granted under the Plan to an Eligible Employee
to purchase shares of Stock.
"Parent Corporation" means any corporation, other than the Company, in
an unbroken chain of corporations ending with the Company if, at the
time of the granting of the Option, each of the corporations, other
than the Company, owns stock possessing 50% or more of the total
combined voting power of all classes of stock in one of the other
corporations in such chain.
"Participant" means any Eligible Employee who has elected to
participate in an Offering in accordance with the procedures set forth
in Section 6.1 and who has not withdrawn from the Offering or whose
participation in the Offering is not terminated.
"Plan" means the Itron, Inc. 1996 Employee Stock Purchase Plan.
"Plan Administrator" means any committee of the Board designated to
administer the Plan under Section 3.1.
"Purchase Date" means the last day of each Purchase Period.
"Purchase Period" has the meaning set forth in Section 5.2.
"Purchase Price" has the meaning set forth in Section 8.
"Stock" means the Common Stock, no par value, of the Company.
"Subscription Date" means the last regular business day prior to an
Offering Date.
"Subsidiary Corporation" means any corporation, other than the Company,
in an unbroken chain of corporations beginning with the Company if, at
the time of the granting of the Option, each of the corporations, other
than the last corporation in the unbroken chain, owns stock possessing
50% or more of the total combined voting power of all classes of stock
in one of the other corporations in such chain.
SECTION 3. ADMINISTRATION
3.1 Plan Administrator
The Plan shall be administered by the Compensation Committee of the
Board, except to the extent that the Board appoints another committee or
committees (which term includes subcommittees) consisting of one or more
members of the Board to administer the Plan. Committee members shall serve
for such terms as the Board may determine, subject to removal by the Board
at any time. The administration of the Plan with respect to officers and
directors of the Company who are subject to Section 16 of the Exchange Act
with respect to securities of the Company shall comply with the
requirements of Rule 16b-3 under Section 16(b) of the Exchange Act as then
in effect.
<PAGE>
3.2 Administration and Interpretation by the Plan Administrator
Subject to the provisions of the Plan, the Plan Administrator shall
have exclusive authority, in its discretion, to determine all matters
relating to Options granted under the Plan, including all terms,
conditions, restrictions and limitations of Options; provided, however,
that all Participants granted Options pursuant to the Plan shall have the
same rights and privileges within the meaning of Code Section 423(b)(5).
The Plan Administrator shall also have exclusive authority to interpret the
Plan and may from time to time adopt, and change, rules and regulations of
general application for the Plan's administration. The Plan Administrator's
interpretation of the Plan and its rules and regulations, and all actions
taken and determinations made by the Plan Administrator pursuant to the
Plan, shall be conclusive and binding on all parties involved or affected.
The Plan Administrator may delegate administrative duties to such of the
Company's officers or employees as it so determines.
SECTION 4. STOCK SUBJECT TO PLAN
Subject to adjustment from time to time as provided in Section 21, a
maximum of 180,000 shares of Stock shall be available for issuance under
the Plan. Shares issued under the Plan shall be drawn from authorized and
unissued shares or shares now held or subsequently acquired by the Company.
Any shares of Stock that have been made subject to an Option that cease to
be subject to the Option (other than by reason of exercise of the Option),
including, without limitation, in connection with the cancellation or
termination of the Option shall again be available for issuance in
connection with future grants of Options under the Plan.
SECTION 5. OFFERING DATES
5.1 Offering Periods
Except as otherwise set forth below, the Plan shall be implemented by
a series of Offerings (each, an "Offering"). Offerings shall commence on
January 1 and July 1 of each year and end on the next June 30 and December
31, respectively, occurring thereafter. Notwithstanding the foregoing, the
Plan Administrator may establish (a) a different term for one or more
Offerings and (b) different commencing and ending dates for such Offerings;
provided, however, that an Offering Period (the "Offering Period") may not
exceed five years; and provided further that if the Purchase Price may be
less than 85% of the fair market value of the Stock on the Purchase Date,
the Offering Period may not exceed 27 months. An employee who becomes
eligible to participate in the Plan after an Offering Period has commenced
shall not be eligible to participate in such Offering but may participate
in any subsequent Offering, provided that such employee is still an
Eligible Employee as of the commencement of any such subsequent Offering.
Eligible Employees may not participate in more than one Offering at a time.
In the event the first or the last day of an Offering Period is not a
regular business day, then the first day of the Offering Period shall be
deemed to be the next regular business day and the last day of the Offering
Period shall be deemed to be the last preceding regular business day.
5.2 Purchase Periods
Each Offering Period shall consist of two consecutive Purchase Periods
(each, a "Purchase Period"). The last day of each Purchase Period shall be
the Purchase Date for such Purchase Period. Purchase Periods commencing on
January 1, April 1, July 1 and October 1 shall end on the next March 31,
June 30, September 30 and December 31, respectively. Notwithstanding the
foregoing, the Plan Administrator may establish (a) a different term for
one or more Purchase Periods and (b) different commencing dates and
Purchase Dates for any such Purchase Period. In the event the first or last
day of a Purchase Period is not a regular business day, then the first day
of the Purchase Period shall be deemed to be the next regular business day
and the last day of the Purchase Period shall be deemed to be the last
preceding regular business day.
<PAGE>
SECTION 6. PARTICIPATION IN THE PLAN
6.1 Initial Participation
An Eligible Employee shall become a Participant on the first Offering
Date after satisfying the eligibility requirements and delivering to the
Company's payroll office not later than the last business day before such
Offering Date (the "Subscription Date") a subscription agreement indicating
the Eligible Employee's election to participate in the Plan and authorizing
payroll deductions. An Eligible Employee who does not deliver a
subscription agreement to the Company's payroll office on or before the
Subscription Date shall not participate in the Plan for that Offering
Period or for any subsequent Offering Period, unless such Eligible Employee
subsequently enrolls in the Plan by filing a subscription agreement with
the Company by the Subscription Date for such subsequent Offering Period.
The Plan Administrator may, from time to time, change the Subscription Date
as deemed advisable by the Plan Administrator in its sole discretion for
the proper administration of the Plan.
6.2 Continued Participation
A Participant shall automatically participate in the next Offering
Period until such time as such Participant withdraws from the Plan pursuant
to Section 11.2 or terminates employment as provided in Section 13. If a
Participant withdraws from an Offering pursuant to Section 11.1, the
Participant is not required to file any additional subscription agreements
for the next subsequent Offering in order to continue participation in the
Plan. If a Participant is automatically withdrawn from an Offering at the
end of a Purchase Period pursuant to Section 12, then the Participant shall
automatically participate in the Offering Period commencing on the next
regular business day.
SECTION 7. LIMITATIONS ON RIGHT TO PURCHASE SHARES
7.1 $25,000 Limitation
No Participant shall be entitled to purchase Stock under the Plan (or
any other employee stock purchase plan that is intended to meet the
requirements of Code Section 423 sponsored by the Company, a Parent
Corporation or a Subsidiary Corporation) at a rate that exceeds $25,000 in
fair market value, determined as of the Offering Date for each Offering
Period (or such other limit as may be imposed by the Code), for each
calendar year in which a Participant participates in the Plan (or any other
employee stock purchase plan described in this Section 7.1).
7.2 Pro Rata Allocation
In the event the number of shares of Stock that might be purchased by
all Participants in the Plan exceeds the number of shares of Stock
available in the Plan, the Plan Administrator shall make a pro rata
allocation of the remaining shares of Stock in as uniform a manner as shall
be practicable and as the Plan Administrator shall determine to be
equitable. Fractional shares may be issued under the Plan only to the
extent permitted by the Board or the Plan Administrator.
SECTION 8. PURCHASE PRICE
The purchase price (the "Purchase Price") at which Stock may be
acquired in an Offering pursuant to the exercise of all or any portion of
an Option granted under the Plan shall be 85% of the lesser of (a) the fair
market value of the Stock on the Offering Date of such Offering and (b) the
fair market value of the Stock on the Purchase Date. Notwithstanding the
foregoing, the Plan Administrator may establish a different Purchase Price
for any Offering, which shall not be less than the Purchase Price set forth
in the preceding sentence. The fair market value of the Stock on the
Offering Date or on the Purchase Date shall be the closing price of the
Stock as reported by the Nasdaq National Market (or any national stock
exchange (an "exchange") on which the Stock is at the time listed or
admitted to trading) for a single trading day. If no sales of the Stock
were made on the Nasdaq National Market (or an exchange) on the transaction
date, fair market value shall mean the closing price of a share of the
Stock as reported for the next preceding day on which sales of the Stock
were made on the Nasdaq National Market (or an exchange).
<PAGE>
SECTION 9. PAYMENT OF PURCHASE PRICE
9.1 General Rules
Stock that is acquired pursuant to the exercise of all or any portion
of an Option may be paid for only by means of payroll deductions from the
Participant's Eligible Compensation. Except as set forth in this Section 9,
the amount of compensation to be withheld from a Participant's Eligible
Compensation during each pay period shall be determined by the
Participant's subscription agreement.
9.2 Change Notices
During an Offering Period, a Participant may elect to decrease the
amount withheld from his or her compensation by filing an amended
subscription agreement with the Company's payroll office on or before the
seventh day prior to the end of the pay period for which such election is
to be effective (the "Change Notice Date"); provided, however, that the
Plan Administrator may change such Change Notice Date from time to time.
9.3 Percent Withheld
The amount of payroll withholding with respect to the Plan for any
Participant during any pay period shall be at least 1% of the Participant's
Eligible Compensation for such pay period, but shall not exceed 10% of the
Participant's Eligible Compensation for such pay period. Amounts shall be
withheld in only whole percentages.
9.4 Payroll Deductions
Payroll deductions shall commence on the first payday following the
Offering Date and shall continue to the end of the Offering Period unless
sooner altered or terminated as provided in the Plan.
9.5 Memorandum Accounts
Individual accounts shall be maintained for each Participant for
memorandum purposes only. All payroll deductions from a Participant's
compensation shall be credited to such account, but shall be deposited with
the general funds of the Company. All payroll deductions received or held
by the Company may be used by the Company for any corporate purpose.
9.6 No Interest
Interest shall not be paid on sums withheld from a Participant's
compensation.
9.7 Acquisition of Stock
On each Purchase Date of an Offering Period, each Participant shall
automatically acquire, pursuant to the exercise of the Participant's
Option, the number of whole shares of Stock arrived at by dividing the
total amount of the Participant's accumulated payroll deductions for the
Purchase Period by the Purchase Price; provided, however, that in no event
shall the number of shares of Stock purchased by the Participant exceed the
number of shares of Stock subject to the Participant's Option. Fractional
shares may be issued under the Plan only to the extent permitted by the
Board or the Plan Administrator.
9.8 Refund of Excess Amounts
Any cash balance remaining in the Participant's account shall be
refunded to the Participant as soon as practical after the Purchase Date.
In the event the cash to be returned to a Participant pursuant to the
preceding sentence is in an amount less than the amount necessary to
purchase a whole share of Stock, and the Board or the Plan Administrator
has determined that fractional shares may not be issued, the Plan
Administrator may establish procedures whereby such cash is maintained in
the Participant's account and applied to the purchase of Stock in the
subsequent Purchase Period or Offering Period.
<PAGE>
9.9 Withholding Obligations
At the time the Option is exercised, in whole or in part, or at the
time some or all of the Stock is disposed of, the Participant shall make
adequate provision for federal and state withholding obligations of the Company,
if any, that arise upon exercise of the Option or upon disposition of the Stock.
The Company may, but shall not be obligated to, withhold from the Participant's
compensation the amount necessary to meet such withholding obligations.
9.10 Termination of Participation
No Stock shall be purchased on behalf of a Participant on a Purchase
Date whose participation in the Offering or the Plan has terminated on or before
such Purchase Date.
9.11 Procedural Matters
The Plan Administrator may, from time to time, establish (a)
limitations on the frequency and/or number of changes in the amount withheld
during an Offering, (b) an exchange ratio applicable to amounts withheld in a
currency other than U.S. dollars, (c) payroll withholding in excess of the
amount designated by a Participant in order to adjust for delays or mistakes in
the Company's processing of properly completed withholding elections, and (d)
such other limitations or procedures as deemed advisable by the Plan
Administrator in the Plan Administrator's sole discretion that are consistent
with the Plan and in accordance with the requirements of Code Section 423.
9.12 Leaves of Absence
During leaves of absence approved by the Company and meeting the
requirements of Treasury Regulations Section 1.421-7(h)(2), a Participant may
continue participation in the Plan by delivering cash payments to the Company's
payroll office on the Participant's normal paydays equal to the amount of his or
her payroll deduction under the Plan had the Participant not taken a leave of
absence.
SECTION 10. EVIDENCE OF STOCK OWNERSHIP
Promptly following each Purchase Date, the number of shares of Stock
purchased by each Participant shall be deposited into an account established in
the Participant's name at a stock brokerage or other financial services firm
designated or approved by the Plan Administrator (the "ESPP Broker"). A
Participant shall be free to undertake a disposition of the shares of Stock in
his or her account at any time, but, in the absence of such a disposition, the
shares of Stock must remain in the Participant's account at the ESPP Broker
until the holding period set forth in Code Section 423(a) has been satisfied.
With respect to shares of Stock for which the Code Section 423(a) holding
periods have been satisfied, the Participant may move those shares of Stock to
another brokerage account of the Participant's choosing or request that a stock
certificate be issued and delivered to him or her. A Participant who is not
subject to payment of U.S. income taxes may move his or her shares of Stock to
another brokerage account of his or her choosing or request that a stock
certificate be delivered to him or her at any time, without regard to the Code
Section 423(a) holding period.
SECTION 11. VOLUNTARY WITHDRAWAL
11.1 Withdrawal From an Offering
A Participant may withdraw from an Offering by signing and delivering
to the Company's payroll office a written notice of withdrawal on a form
provided by the Plan Administrator for such purpose. Such withdrawal may be
elected at any time prior to the end of an Offering Period; provided, however,
that if a Participant withdraws after the Purchase Date for a Purchase Period of
an Offering, the withdrawal shall not affect Stock acquired by the Participant
in the earlier Purchase Periods. Unless otherwise indicated, withdrawal from an
Offering shall not result in a withdrawal from the Plan or any succeeding
Offering therein. A Participant is prohibited from again participating in the
same Offering at any time upon withdrawal from such Offering. The Company may,
from time to time, impose a requirement that the notice of withdrawal be on file
with the Company's payroll office for a reasonable period prior to the
effectiveness of the Participant's withdrawal.
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11.2 Withdrawal From the Plan
A Participant may withdraw from the Plan by signing a written notice of
withdrawal on a form provided by the Plan Administrator for such purpose and
delivering such notice to the Company's payroll office. In the event a
Participant voluntarily elects to withdraw from the Plan, the withdrawing
Participant may not resume participation in the Plan during the same Offering
Period, but may participate in any subsequent Offering under the Plan by again
satisfying the definition of Participant. The Company may, from time to time
impose a requirement that the notice of withdrawal be on file with the Company's
payroll office for a reasonable period prior to the effectiveness of the
Participant's withdrawal.
11.3 Return of Payroll Deductions
Upon withdrawal from an Offering pursuant to Section 11.1 or from the
Plan pursuant to Section 11.2, the withdrawing Participant's accumulated payroll
deductions that have not been applied to the purchase of Stock shall be returned
as soon as practical after the withdrawal, without the payment of any interest,
to the Participant, and the Participant's interest in the Offering shall
terminate. Such accumulated payroll deductions may not be applied to any other
Offering under the Plan.
SECTION 12. AUTOMATIC WITHDRAWAL FROM AN OFFERING
If the fair market value of the Stock on a Purchase Date of an Offering
(other than the final Purchase Date of such Offering) is less than the fair
market value of the shares on the Offering Date for such Offering and the Plan
Administrator has established that the Purchase Price for the Offering may be
the lesser of the fair market value (or a percentage thereof) of the Stock on
the Offering Date and the fair market value of the Stock on the Purchase Date,
then every Participant shall automatically (a) be withdrawn from such Offering
at the close of such Purchase Date and (b) after the acquisition of Stock for
such Purchase Period, be enrolled in the Offering commencing on the first
business day subsequent to such Purchase Period.
SECTION 13. TERMINATION OF EMPLOYMENT
Termination of a Participant's employment with the Company for any
reason, including retirement, death or the failure of a Participant to remain an
Eligible Employee, shall immediately terminate the Participant's participation
in the Plan. In such event, the payroll deductions credited to the Participant's
account since the last Purchase Date shall, as soon as practical, be returned to
the Participant or, in the case of a Participant's death, to the Participant's
legal representative, and all the Participant's rights under the Plan shall
terminate. Interest shall not be paid on sums returned to a Participant pursuant
to this Section 13.
SECTION 14. RESTRICTIONS UPON ASSIGNMENT
An Option granted under the Plan shall not be transferable otherwise
than by will or the laws of descent and distribution, and is exercisable during
the Participant's lifetime only by the Participant. The Plan Administrator will
not recognize, and shall be under no duty to recognize, any assignment or
purported assignment by a Participant, other than by will or the laws of descent
and distribution, of the Participant's interest in the Plan, of his or her
Option or of any rights under his or her Option.
SECTION 15. EXCHANGE ACT HOLDING PERIOD
Disposition of the shares of Stock obtained upon exercise of the Option
within six months of the Purchase Date by persons required to file Forms 3, 4
and 5 pursuant to Section 16 of the Exchange Act could result in short-swing
liability under Section 16(b) of the Exchange Act.
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SECTION 16. NO RIGHTS OF SHAREHOLDER UNTIL CERTIFICATE ISSUED
With respect to shares of Stock subject to an Option, a Participant
shall not be deemed to be a shareholder of the Company, and he or she shall not
have any of the rights or privileges of a shareholder. A Participant shall have
the rights and privileges of a shareholder of the Company when, but not until,
the shares have been issued following exercise of the Participant's Option.
SECTION 17. AMENDMENT OF THE PLAN
The Board may amend the Plan in such respects as it shall deem
advisable; provided, however, that to the extent required for compliance with
Rule 16b-3 under the Exchange Act, Code Section 423 or any applicable law or
regulation, shareholder approval will be required for any amendment that will
(a) increase the total number of shares as to which Options may be granted under
the Plan, (b) materially modify the class of persons eligible to receive
Options, (c) materially increase the benefits accruing to Participants under the
Plan, (d) decrease the Purchase Price below a price computed in the manner
stated in Section 8, or (e) otherwise require shareholder approval under any
applicable law or regulation.
SECTION 18. TERMINATION OF THE PLAN
The Company's shareholders or the Board may suspend or terminate the
Plan at any time. Unless the Plan shall theretofore have been terminated by the
Company's shareholders or the Board, the Plan shall terminate on, and no Options
shall be made after April 30, 2006, except that such termination shall have no
effect on Options made prior thereto. No Options shall be granted during any
period of suspension of the Plan.
SECTION 19. NO RIGHTS AS AN EMPLOYEE
Nothing in the Plan shall be construed to give any person (including
any Eligible Employee or Participant) the right to remain in the employ of the
Company or a Parent Corporation or Subsidiary Corporation or to affect the right
of the Company and the Parent Corporations and Subsidiary Corporations to
terminate the employment of any person (including any Eligible Employee or
Participant) at any time with or without cause.
SECTION 20. EFFECT UPON OTHER PLANS
The adoption of the Plan shall not affect any other compensation or
incentive plans in effect for the Company or any Parent Corporation or
Subsidiary Corporation. Nothing in the Plan shall be construed to limit the
right of the Company, any Parent Corporation or any Subsidiary Corporation to
(a) establish any other forms of incentives or compensation for employees of the
Company, any Parent Corporation or any Subsidiary Corporation or (b) grant or
assume options otherwise than under the Plan in connection with any proper
corporate purpose, including, but not by way of limitation, the grant or
assumption of options in connection with the acquisition, by purchase, lease
merger, consolidation or otherwise, of the business, stock or assets of any
corporation, firm or association.
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SECTION 21. ADJUSTMENTS
21.1 Adjustment of Shares
In the event that, at any time or from time to time, a stock dividend,
stock split, spin-off, combination or exchange of shares, recapitalization,
merger, consolidation, distribution to shareholders other than a normal
cash dividend, or other change in the Company's corporate or capital
structure results in (a) the outstanding shares, or any securities
exchanged therefor or received in their place, being exchanged for a
different number or class of securities of the Company or of any other
corporation or (b) new, different or additional securities of the Company
or of any other corporation being received by the holders of shares of
Stock, then the Plan Administrator, in its sole discretion, shall make such
equitable adjustments as it shall deem appropriate in the circumstances in
the maximum number of shares of Stock subject to the Plan as set forth in
Section 4. The determination by the Plan Administrator as to the terms of
any of the foregoing adjustments shall be conclusive and binding.
21.2 Limitations
The grant of Options will in no way affect the Company's right to
adjust, reclassify, reorganize or otherwise change its capital or business
structure or to merge, consolidate, dissolve, liquidate or sell or transfer
all or any part of its business or assets.
SECTION 22. GENERAL
22.1 Registration; Certificates for Shares
The Company shall be under no obligation to any Participant to
register for offering or resale under the Securities Act of 1933, as
amended, or register or qualify under state securities laws, any shares of
Stock. The Company may issue certificates for shares with such legends and
subject to such restrictions on transfer and stop-transfer instructions as
counsel for the Company deems necessary or desirable for compliance by the
Company with federal and state securities laws.
22.2 Compliance With Rule 16b-3
It is the Company's intention that, so long as any of the Company's
equity securities are registered pursuant to Section 12(b) or 12(g) of the
Exchange Act, the Plan shall comply in all respects with Rule 16b-3 under
the Exchange Act, and if any Plan provision is later found not to be in
compliance with such Rule, the provision shall be deemed null and void, and
in all events the Plan shall be construed in favor of its meeting the
requirements of Rule 16b-3.
SECTION 23. EFFECTIVE DATE
The Plan's effective date is the date on which it is approved by the
Company's shareholders.
