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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant
[ ] Check the appropriate box:
[ ] Preliminary proxy statement [ ] Confidential, For Use of the
Commission Only (as permitted
[X] Definitive proxy statement by Rule 14a-6(e)(2))
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
ITRON, INC.
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(Name of Registrant as Specified in Its Charter)
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(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials:
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[ ] Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which the
offsetting fee was paid previously. Identify the previous filing by
registration statement number, or the form or schedule and the date of
its filing.
(1) Amount previously paid:
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(2) Form, Schedule or Registration Statement no.:
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(3) Filing Party
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(4) Date Filed:
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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 LOGO
May 15, 2000
Dear Shareholder:
On behalf of our board of directors, I invite you to attend Itron, Inc.'s
2000 Annual Meeting of Shareholders. We hope you can join us. The annual meeting
will be held:
At: The Doubletree Hotel -- Spokane City Center
Grand Ballroom -- Salons 1, 2 and 3
322 North Spokane Falls Court
Spokane, Washington 99201
On: Wednesday, June 28, 2000
Time: 8:00 a.m.
For our shareholders' convenience, we will provide a continental breakfast
beginning at 7:30 a.m. At this time, shareholders will have an opportunity to
meet personally with our directors and officers to 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. We are soliciting proxies so that each shareholder has an opportunity
to vote on all matters that are scheduled to come before the shareholders at the
annual 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 Itron
shares you own, your presence in person or 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
you at our annual meeting.
Sincerely,
/s/ LEROY D. NOSBAUM
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LEROY D. NOSBAUM
President and Chief Executive Officer
Itron, Inc., P.O. Box 15288, Spokane, Washington 99215-5288; (509) 924-9900 or
(800) 635-5461
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ITRON, INC.
2818 NORTH SULLIVAN ROAD
SPOKANE, WASHINGTON 99216
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON JUNE 28, 2000
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of Itron,
Inc. will be held at the Doubletree Hotel -- Spokane City Center, Grand
Ballroom -- Salons 1, 2 and 3, at 322 North Spokane Falls Court, Spokane,
Washington, at 8:00 a.m., local time, on Wednesday, June 28, 2000, for the
following purposes:
(1) To elect five directors;
(2) To approve Itron's 2000 Stock Incentive Compensation Plan; and
(3) To transact any other business that may come before the annual meeting
and any adjournment or postponement of the annual meeting.
The board of directors has established the close of business on April 21,
2000, 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 that
shareholder has returned a proxy.
By order of the board of directors,
/s/ MARILYN R. BLAIR
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MARILYN R. BLAIR
Corporate Secretary
Spokane, Washington
May 15, 2000
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[ITRON LOGO]
PROXY STATEMENT
This proxy statement is being furnished to shareholders of Itron, Inc. in
connection with the solicitation by our board of directors of proxies for use at
the Annual Meeting of Shareholders. The meeting will be held at the Doubletree
Hotel -- Spokane City Center, Grand Ballroom -- Salons 1, 2 and 3, at 322 North
Spokane Falls Court, Spokane, Washington, at 8:00 a.m., local time, on
Wednesday, June 28, 2000, for the purposes listed in the accompanying Notice of
Annual Meeting of Shareholders. Our principal executive offices are located at
2818 North Sullivan Road, Spokane, Washington 99216. We expect to mail this
proxy statement and accompanying proxy to our shareholders on or about May 15,
2000.
MATTERS TO BE CONSIDERED AT THE ANNUAL MEETING
At the annual meeting, shareholders of record of Itron as of the close of
business on April 21, 2000 will consider and vote on the following matters:
(1) the election of two directors for a term of one year (until 2001) and
the election of three directors for a term of three years (until 2003);
(2) the approval of Itron's 2000 Stock Incentive Compensation Plan; and
(3) such other business that may come before the annual meeting and any
adjournment or postponement of the annual meeting.
RECORD DATE AND OUTSTANDING SHARES
Holders of record of our common stock at the close of business on April 21,
2000, are entitled to notice of, and to vote at, the annual meeting. On the
record date, there were 15,098,344 shares of our common stock outstanding. As of
the record date, our directors and executive officers and their affiliates may
be deemed to be the beneficial owners of approximately 7.5% of the outstanding
shares of our common stock. Each of our directors and executive officers plans
to vote or direct the vote of all shares of common stock over which he or she
has voting control in favor of the election of the nominees for director and the
approval of our 2000 stock incentive compensation plan.
REVOCABILITY OF PROXIES
Shares represented at the annual meeting by properly signed proxies in the
accompanying form will be voted at the annual meeting in accordance with the
instructions given in the proxy. A shareholder may revoke a proxy given by the
shareholder for use at the annual meeting at any time before the vote. A proxy
may be revoked by:
- submitting a later-dated proxy for the same shares at any time before the
proxy is voted;
- delivering written notice of revocation to the Corporate Secretary of
Itron at any time before the vote; or
- attending the annual meeting and voting in person. Mere attendance at the
annual meeting will not in and of itself revoke a proxy.
If the annual meeting is postponed or adjourned for any reason, at any
subsequent reconvening of the annual meeting all proxies will be voted in the
same manner as the proxies would have been voted at the original convening of
the annual meeting (except for any proxies that have at that time effectively
been revoked or withdrawn), even if the proxies had been effectively voted on
the same or any other matter at a previous meeting.
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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.
With respect to the election of directors, the nominees receiving the
greatest number of votes duly cast will be elected as directors. 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
proposal to approve the 2000 Stock Incentive Compensation Plan will be approved
if the number of votes in favor of the proposal exceeds the number of votes
against the proposal. Abstentions from voting on this proposal will have no
impact on the outcome of the proposal because such votes have not been cast for
or against the proposal. There can be no broker nonvotes on the election of
directors because brokers who hold shares for the accounts of their clients have
discretionary authority to vote such shares with respect to the election of
directors. With respect to the proposal to approve the 2000 Stock Incentive
Compensation Plan, broker nonvotes will have no effect on the outcome because
they will not represent votes cast at the Annual Meeting for this purpose.
PROXY SOLICITATION COSTS
We have retained Corporate Investor Communications, Inc., 111 Commerce
Road, Carlstadt, New Jersey, to aid in the solicitation of proxies. We will bear
the cost of soliciting proxies, which we estimate will be approximately $4,500
plus expenses. Proxies may be solicited by personal interview, mail, telephone
or facsimile. In addition, we may reimburse brokerage firms and other persons
representing beneficial owners of our common stock for their expenses in
forwarding solicitation materials to the beneficial owners. Our directors,
officers and regular employees may also solicit proxies, without additional
compensation, personally or by telephone.
ITEM 1 -- ELECTION OF DIRECTORS
Our board of directors is divided into three classes, with each director
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 one year (until 2001), and three directors are to be
elected for a term of three years (until 2003) or, in each case, until his or
her respective successor is duly elected and qualified. Two directors are being
elected to one-year terms instead of three-year terms because Washington law
requires the number of directors in each class to be as equal as possible.
Unless authority 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 of these nominees will be unable to
serve as a director. If any of the nominees becomes unavailable, however, the
persons named as proxies will have discretionary authority to vote for a
substitute nominee.
NOMINEES TO SERVE UNTIL 2001
Michael J. Chesser (age 51) has been a director of Itron since August 1999.
Mr. Chesser is chief executive officer and president of GPU Energy, a subsidiary
of GPU, Inc. From June 1999 to March 2000, he was president and chief executive
officer of Itron. He also served as chairman of Itron's board from January 2000
to March 2000. From 1994 to 1998, Mr. Chesser was president and chief operating
officer of Atlantic Energy, Inc., the holding company for Atlantic City Electric
and other related companies. Prior to Atlantic Energy, Mr. Chesser spent 23
years with Baltimore Gas and Electric where he held a number of executive
positions with responsibilities in marketing and customer service. Mr. Chesser
also serves as a director of Great Bay Casino Corporation and on the Board of
Advisors of ElecTrade.com, Inc.
LeRoy D. Nosbaum (age 53) was named president and chief executive officer
of Itron in March 2000. Mr. Nosbaum joined Itron in March 1996 and had executive
responsibilities covering manufacturing, product development, operations and
marketing before being promoted to president and chief executive officer. Before
joining Itron, Mr. Nosbaum was executive vice president and general manager of
Metricom, Inc.'s UtiliNet
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Division, and held a variety of positions with Metricom from 1989 to 1996. Prior
to joining Metricom, he was employed by Schlumberger, Ltd. and Sangamo Electric
for 20 years.
NOMINEES TO SERVE UNTIL 2003
Michael B. Bracy (age 58) has been a director of Itron since 1992. 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. Before 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. Mr. Bracy also serves as a director of El Paso
Energy Partners, L.P., a publicly traded limited partnership.
Mary Ann Peters (age 56) has been a director of Itron since 1994. 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.
Graham M. Wilson (age 55) has been a director of Itron since 1990. Mr.
Wilson has been employed by Westcoast Energy Inc., an integrated energy 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, and
Centra Gas, Inc., both of which are affiliates of Westcoast Energy Inc.
CONTINUING DIRECTORS
Ted C. DeMerritt (age 68) has been a director of Itron since 1994. Mr.
DeMerritt's term as a director expires in 2002. Until his retirement in 1998,
Mr. DeMerritt was chairman of the board and chief executive officer of Olsy
North America (formerly ISC Systems Corporation), which develops and implements
system solutions for the financial services and retail industries. From 1963 to
1980, he was employed at Sacramento Savings and Loan Association, where he
served as controller/senior vice president in charge of the Savings and
Operations division. Mr. DeMerritt is also a trustee of the Washington State
University Foundation.
Jon E. Eliassen (age 53) has been a director of Itron since 1987. Mr.
Eliassen's term as a director expires in 2002. Mr. Eliassen is senior vice
president and chief financial officer of Avista Corporation ("Avista"),
previously known as The Washington Water Power Company. He joined Avista in 1970
and held numerous positions within the finance department before assuming his
current responsibilities in 1986. He serves as a director of Pentzer Corporation
as well as other various subsidiaries and affiliates of Avista. He also is a
director of Northwest Venture Associates.
Paul A. Redmond (age 63) has been a director of Itron since 1985. Mr.
Redmond's term as a director expires in 2001. Until his retirement in June 1998,
Mr. Redmond was chairman of the board and chief executive officer of The
Washington Water Power Company ("WWP"), now known as Avista. Mr. Redmond joined
WWP in 1965, where he held numerous management and executive positions. Mr.
Redmond also serves as a director of USBancorp, Hecla Mining Co. and Source
Capital.
S. Edward White (age 49) was named chairman of Itron in March 2000 and has
been a director since 1996. Mr. White's term as a director expires in 2002. Mr.
White was an executive vice president of Itron from March 1996, when Itron
acquired Utility Translation Systems, Inc. (UTS), through December 1999. Before
founding UTS in 1980, Mr. White held numerous engineering and marketing
management positions in the Meter Division of Westinghouse Electric Corporation
for 12 years.
OUR BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE ELECTION OF THE
FIVE NOMINEES FOR DIRECTOR.
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COMPENSATION OF DIRECTORS
For 1999, our nonemployee directors received an annual $8,000 retainer,
payable quarterly. In addition, our nonemployee directors received $800 for each
board meeting and $800 for each committee meeting they attended (or $900 for
each committee meeting in which they served as chairperson). Nonemployee
directors who participated on behalf of Itron in business activities, such as
meetings with investors, meetings with customers and other third-party meeting
activities, received $800 for each business activity. In March 2000, the amount
of the annual retainer was increased to $12,000, 50% of which will be paid with
Itron common stock if the 2000 Plan is approved, and the amount paid for meeting
attendance was increased to $1,000 per meeting.
Under our 1992 Stock Option Plan for Nonemployee Directors, we grant our
nonemployee directors an option to purchase 10,000 shares of our common stock
when they are initially appointed or elected as a director, and an option to
purchase 4,000 shares of our common stock in each subsequent year. Prior to
March 2000 nonemployee directors were granted an option to purchase 2,000 shares
per year. The exercise price of the options is the fair market value of the
common stock on the date of grant. These options are fully vested and
immediately exercisable on the date of grant. If the 2000 Plan is approved, we
will suspend the 1992 Stock Option Plan for Nonemployee Directors and will make
these option grants pursuant to the 2000 Plan.
INFORMATION ON COMMITTEES OF THE BOARD OF DIRECTORS AND MEETINGS
Our board of directors has established an audit/finance committee and a
compensation committee.
The audit/finance committee reviews our accounting practices, internal
accounting controls and financial results and oversees the engagement of our
independent auditors. The audit/finance committee, whose members are Jon E.
Eliassen, Graham M. Wilson and Ted C. DeMerritt, held eight meetings during
1999.
The compensation committee is responsible for setting compensation levels
for our executive officers, overseeing the administration of various incentive
compensation and benefit plans and performing any other functions regarding
compensation that the Board may delegate. The compensation committee, whose
members are Michael B. Bracy, Mary Ann Peters and Paul A. Redmond, held four
meetings in 1999.
There were six board meetings in 1999. All board members attended at least
75 percent of the meetings of the board and of each committee of which they were
a member.
ITEM 2 -- APPROVAL OF 2000 STOCK INCENTIVE COMPENSATION PLAN
Our board of directors has approved, and recommends the shareholders
approve, the 2000 Stock Incentive Compensation Plan ("2000 Plan"). The 2000 Plan
is successor to our Restated 1989 Stock Option Plan and our 1992 Stock Option
Plan for Nonemployee Directors. At March 31, 2000, there were 16,037 shares and
32,000 shares remaining available for grant under the 1989 and 1992 Plans,
respectively. On March 31, 2000, approximately 1,000 of our employees, officers,
directors, consultants and agents would have been eligible to receive awards
under the 2000 Plan. The closing price of a share of common stock on that date,
as reported by the "Nasdaq" National Market, was $6.94.
A copy of the 2000 Plan is attached to this proxy statement as Appendix A.
The following description of the 2000 Plan is a summary and does not purport to
be fully descriptive. You should refer to Appendix A for more detailed
information.
INTRODUCTION
The purpose of the 2000 Plan is to allow the Company to provide long-term
incentives to selected individuals who make substantial contributions to the
Company's growth and success. The 2000 Plan's purpose is also to enhance the
Company's ability to attract and retain participants' services in the highly
competitive employment market in which the Company operates and to encourage
them to acquire and maintain ownership in Itron. The Company believes stock
ownership, including awards of restricted stock that
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are conditional upon the Company reaching certain long-term performance
measures, aligns employee interests with shareholder value creation.
AWARDS
The 2000 Plan provides for grants of stock options and stock awards
(including restricted stock). We may make awards singly, in combination or in
tandem so that the settlement or payment of one automatically reduces or cancels
the other. We may also make awards in combination or in tandem with, as
alternatives to, or as the payment form for, grants or rights under any other
employee or compensation plan of Itron or in substitution for, or by the
assumption of, awards issued under plans of an acquired entity.
Stock Subject to the 2000 Plan
Subject to adjustment from time to time as provided in the 2000 Plan, a
maximum of 1,800,000 shares of common stock are authorized for issuance under
the plan. In addition, any authorized shares that were not issued or subject to
an outstanding award under the 1989 Plan and any shares subject to outstanding
awards that cease to be subject to such awards (other than by reason of exercise
or payment of the awards) will cease to be available under the 1989 Plan and
will become available for issuance under the 2000 Plan, up to an aggregate
maximum of 25,000 shares. No more than 400,000 shares may be issued as stock
awards (including restricted stock), or other stock-based awards other than
stock options under the 2000 Plan. No more than 300,000 shares may be subject to
awards granted to any participant in any one fiscal year, except that we can
make one-time grants of up to 600,000 shares per fiscal year, to newly hired or
newly promoted individuals, to the extent such limitations are required for
compliance with certain provisions of Section 162(m) of the Internal Revenue
Code of 1986 (the Code), which precludes us from taking a tax deduction for
compensation payments to executives in excess of $1 million, unless such
payments qualify for the "performance-based" exemption from the $1 million
limitation.
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, vested and
nonforfeitable shares) will be available for issuance in connection with future
awards under the 2000 Plan.
Eligibility to Receive Awards
Awards may be granted under the 2000 Plan to those officers, directors and
employees of Itron and our subsidiaries that our plan administrator from time to
time selects. Awards may also be made to consultants, agents, advisors and
independent contractors who provide services to us or our subsidiaries.
Terms and Conditions of Stock Option Grants
Options granted under the 2000 Plan may be "incentive stock options" (as
defined in Section 422 of the Code) or "nonqualified stock options." The option
price for each option granted under the 2000 Plan will be determined by the plan
administrator, but will not be less than 100% of the common stock's fair market
value on the date of grant with respect to incentive stock options (or 110% of
fair market value in the case of a more than 10% shareholder). The option price
may not be less than 85% of fair market value with respect to nonqualified stock
options. For purposes of the 2000 Plan, "fair market value" means the closing
price for our common stock as reported by the "Nasdaq" National Market for a
single trading day.
The exercise price for shares purchased under options must be paid by cash
or check, except that the plan administrator may authorize payment in cash
and/or already-owned common stock, a full-recourse promissory note, delivery of
a properly executed exercise notice, together with irrevocable instructions to a
broker, or such other consideration as the plan administrator may specify. We
may require the optionee to pay applicable withholding taxes upon exercise of
the option as a condition to receiving the stock. The withholding tax may be
paid in cash or by the withholding or delivery of common stock.
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The option term will be fixed by the plan administrator. If not so fixed,
the term of the option will be ten years. Each option will be exercisable
pursuant to a vesting schedule determined by the plan administrator. If not so
established, options generally will vest 25% per year over a four-year period
with the first 25% vesting one year after the date of grant. The plan
administrator will also determine the circumstances under which an option will
be exercisable in the event the optionee ceases to provide services to us or one
of our subsidiaries. If not so established, options generally will be
exercisable for one year after termination of services as a result of disability
or death and for three months after all other terminations. An option will not
be exercisable if the optionee's services are terminated for cause, as defined
in the 2000 Plan.
Stock Awards
The plan administrator is authorized to make awards of common stock to
participants on such terms and conditions and subject to such restrictions as
the plan administrator may determine (whether based on periods of continuous
service with Itron or performance goals related to profits, profit growth,
profit-related return ratios, cash flow, total shareholder return, funds from
operations, customer service, employee satisfaction or performance against
budget, whether applicable to Itron or any relevant subsidiary or business unit,
comparisons with competitor companies or groups and with stock market indices,
or any combination thereof). Restrictions may include repurchase or forfeiture
rights in favor of Itron.
Loans, Loan Guarantees and Installment Payments
To assist a holder (including a holder who is an officer or director of
Itron) in acquiring shares of common stock pursuant to an award granted under
the 2000 Plan, the plan administrator may authorize (a) the extension of a full
recourse loan to the holder by Itron, (b) the payment by the holder of the
purchase price, if any, of the common stock in installments, or (c) the
guarantee by Itron of a full recourse loan obtained by the grantee from a third
party. The terms of any loans, installment payments or guarantees, including the
interest rate and terms of repayment, will be subject to the plan
administrator's discretion, and may be granted with or without security.
Transferability
Except as otherwise determined by the plan administrator and to the extent
permitted by Section 422 of the Code, no option, stock appreciation right,
performance award, other stock-based award or dividend equivalent right will be
assignable or otherwise transferable by the holder other than by will or the
laws of descent and distribution and, during the holder's lifetime, may be
exercised only by the holder.
Adjustment of Shares
In the event of any changes in our outstanding stock by reason of stock
dividends, stock splits, spin-offs, combinations or exchanges of shares,
recapitalizations, mergers, consolidations, distributions to shareholders other
than a normal cash dividend, or other changes in our corporate or capital
structure, the plan administrator, in its sole discretion, shall make any
equitable adjustments it deems appropriate in (a) the maximum number and kind of
securities subject to the 2000 Plan, (b) the maximum number and kind of
securities that may be made subject to awards to any participant, and (c) the
number and kind 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.
Corporate Transaction
If specified corporate transactions occur (such as a merger or
consolidation, or a sale, lease, exchange or transfer of all or substantially
all of our assets), a successor corporation will continue or assume all
outstanding options, or will issue equivalent substitute options to purchase
common stock of the successor corporation. The replacement options assumed by
the successor would be fully vested and exercisable regardless of whether the
vesting requirements have been satisfied. If the successor does not assume,
continue or replace outstanding options, the vesting schedule of all outstanding
options will automatically accelerate and all options will
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become 100% vested and exercisable immediately prior to the corporate
transaction. At that time option holders would have the right to exercise their
options, but this right would expire at the end of a specified time period
conditioned on completion of the transaction.
Unless the letter agreement evidencing a stock award (such as restricted
stock) states otherwise, if we effect a corporate transaction, the vesting for
unvested stock awards would accelerate, and the forfeiture provisions would
lapse, if and to the same extent that vesting of outstanding options
accelerates.
Further Adjustment of Awards
The plan administrator shall have the discretion, exercisable at any time
before a sale, merger, consolidation, reorganization, liquidation or change in
control of Itron, as defined by the plan administrator, to take such further
action as it determines to be necessary or advisable, and fair and equitable to
holders, with respect to awards. Such authorized action may include, but is not
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 action with respect to all holders, to
certain categories of holders or only to individual holders. The plan
administrator may take such action 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, liquidation or change in control
that is the reason for such action.
Administration
The 2000 Plan will be administered by our compensation committee, except to
the extent our board of directors appoints another committee or committees
consisting of one or more members of the board. The board may delegate the
responsibility for administering the 2000 Plan with respect to designated
classes of eligible participants to different committees, subject to such
limitations as the board deems appropriate. Committee members will serve for
such term as the board may determine, subject to removal by the board at any
time. The composition of any committee responsible for administering the 2000
Plan with respect to our officers and directors who are subject to Section 16 of
the Exchange Act with respect to Itron securities will comply with the
requirements of Rule 16b-3 under Section 16(b) of the Exchange Act, or any
successor provision.
Amendment and Termination
The board may terminate the 2000 Plan, or modify or amend it, subject to
shareholder approval in certain instances, as set forth in the 2000 Plan. The
2000 Plan does not have a fixed expiration date, but no incentive stock options
may be granted more than ten years after the later of the plan's adoption by the
board or the adoption of any amendment to the plan that constitutes a new plan
for purposes of Section 422 of the Code.
Federal Income Tax Consequences
The federal income tax consequences to us and to any person granted an
award under the 2000 Plan under the existing applicable provisions of the Code
and the regulations under the Code are substantially as follows:
Under present law and regulations, no income will be recognized by a
participant upon the grant of stock options, stock appreciation rights, other
stock-based awards or performance awards. Upon the exercise of a nonqualified
stock option, the optionee will recognize taxable ordinary income in an amount
equal to the excess of the fair market value of the shares acquired over the
option price. Upon a later sale of those shares, the optionee will have
short-term or long-term capital gain or loss, as the case may be, in an amount
equal to the difference between the amount realized on such sale and the tax
basis of the shares sold. If payment of the option price is made entirely in
cash, the tax basis of the shares will be equal to their fair market value on
the exercise date (but not less than the option price), and the shares' holding
period will begin on the day after the exercise date.
7
<PAGE> 11
If the optionee uses already owned shares to exercise an option in whole or
in part, the transaction will not be considered to be a taxable disposition of
the already owned shares. The optionee's tax basis and holding period of the
already owned shares will be carried over to the equivalent number of shares
received upon exercise. The tax basis of the additional shares received upon
exercise will be the fair market value of the shares on the exercise date (but
not less than the amount of cash, if any, used in payment), and the holding
period for such additional shares will begin on the day after the exercise date.
The same rules apply to an incentive stock option that is exercised more
than three months after the optionee's termination of employment (or more than
12 months thereafter in the case of permanent and total disability, as defined
in the Code).
Upon the exercise of an incentive stock option during employment or within
three months after the optionee's termination of employment (12 months in the
case of permanent and total disability, as defined in the Code), for regular tax
purposes, the optionee will recognize no income at the time of exercise
(although the optionee will have income for alternative minimum income tax
purposes at that time as if the option were a nonqualified stock option), and no
deduction will be allowed to Itron for federal income tax purposes in connection
with the grant or exercise of the option. If the acquired shares are sold or
exchanged after the later of (a) one year from the date of exercise of the
option and (b) two years from the date of grant of the option, the difference
between the amount realized by the optionee on that sale or exchange and the
option price will be taxed to the optionee as a long-term capital gain or loss.
If the shares are disposed of before such holding period requirements are
satisfied, then the optionee will recognize taxable ordinary income in the year
of disposition in an amount equal to the excess, on the date of exercise of the
option, of the fair market value of the shares received over the option price
paid (or generally, if less, the excess of the amount realized on the sale of
the shares over the option price), and the optionee will have capital gain or
loss, long-term or short-term, as the case may be, in an amount equal to the
difference between (i) the amount realized by the optionee upon that disposition
of the shares and (ii) the option price paid by the optionee increased by the
amount of ordinary income, if any, so recognized by the optionee.
Upon payment to a participant in settlement of a stock option or pursuant
to another stock-based award, the participant will recognize taxable ordinary
income in an amount equal to the cash and the fair market value of the common
stock received.
In all the foregoing cases, we will be entitled to a deduction at the same
time and in the same amount as the participant recognizes ordinary income,
subject to the following limitations. 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.
Under Section 162(m), however, compensation above $1,000,000 may be deducted if
it is "performance-based compensation" within the meaning of the Code. The 2000
Plan has been drafted to allow compliance with those performance-based criteria.
OUR BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR APPROVAL OF THE 2000
STOCK INCENTIVE COMPENSATION PLAN.
8
<PAGE> 12
EXECUTIVE OFFICERS
Our executive officers and their ages as of March 31, 2000 are:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
LeRoy D. Nosbaum......... 53 President and Chief Executive Officer
Robert D. Neilson........ 43 Chief Operating Officer
Andrew H. Alpert......... 35 Vice President and General Manager, Water &
Public Power Systems
William L. Brown......... 54 Vice President, Competitive Resources
Russell N. Fairbanks, 56 Vice President and General Counsel
Jr.....................
John W. Hengesh.......... 45 Vice President and General Manager, Natural Gas
Systems
Randi L. Neilson......... 37 Vice President, Marketing
David G. Remington....... 58 Vice President and Chief Financial Officer
Jemima G. Scarpelli...... 41 Vice President, Investor Relations and
Corporate Communications
Dennis A. Shepherd....... 51 Vice President and General Manager, EIS Systems
</TABLE>
For biographical information about Mr. Nosbaum, please see the section
above captioned "Election of Directors."
Rob Neilson was named Chief Operating Officer in March 2000. Previously, he
had been Vice President, Strategy and Business Development since October 1997
and Vice President, Marketing from 1993 to 1997. He joined Itron in 1983 as
manager of market development and planning, and served as Director of Marketing
from 1987 to 1993. As Director of Marketing, Rob's responsibilities included
marketing for AMRplus Partners. Rob is the husband of Randi Neilson, the
Company's Vice President, Marketing.
Andrew Alpert became Vice President and General Manager, Water & Public
Power Systems in January 2000. With Itron since 1996, Andrew was previously Vice
President Customer Solutions and Business Development. Prior to joining Itron,
Andrew was an Associate Director in the Communications and Electronics practice
at A.T. Kearney/EDS, a Manager in the consulting practice of Deloitte & Touche,
and worked at GTE Telephone Operations in network planning, engineering, and
operations.
Bill Brown was named Vice President, Competitive Resources in January 2000
and has responsibility for human resources, information systems, corporate
training, facilities and security. Bill joined Itron in 1997 as Vice President,
Network Systems Operations responsible for deploying Itron's radio-based network
AMR systems. He later became Vice President, Residential Systems Operations
where he assumed responsibility for customer service as well as project
management for all domestic AMR systems. Prior to joining Itron, from 1990 to
1996 Bill served in numerous operational assignments with the federal government
throughout the world, including serving as the U.S. Defense Representative to
the government of Norway, and as a senior advisor on defense matters to the U.S.
Ambassador to Honduras.
Russ Fairbanks joined Itron in February 2000 as Vice President and General
Counsel. From 1997 to 1999, Russ served as Vice President and General Counsel
for ASM America, Inc., a manufacturer of chemical vapor deposition equipment
used to make integrated circuits. Prior to that, he was Vice President, General
Counsel and Secretary for Cyrix Corporation, a manufacturer of high performance
X-86 microprocessors from 1993 until 1997 when Cyrix became a subsidiary of
National Semiconductor. Russ was with EDS Corporation from 1985 to 1993 and
served in a variety of corporate law and strategic roles.
John Hengesh has been with Itron since 1984 and became Vice President and
General Manager, Natural Gas Systems in January 2000. He has served in a number
of positions with Itron covering sales, marketing, hardware and software
development, manufacturing, quality and customer and field support. He was most
recently Vice President Handheld, Mobile and Telephone Solutions, and previous
to that was General Manager for Itron Telephone Solutions in Boise. Prior to
joining Itron, John was the western regional sales manager for the Computer
Products Division of General Instrument.
9
<PAGE> 13
Randi Neilson was named Vice President, Marketing in January 2000 and has
responsibility for all marketing communications, market research, product
management, regulatory and marketing support. Randi joined Itron in 1990 and has
served in a number of positions, most recently as Director of Solutions and
Product Marketing where her responsibilities included product marketing, program
management, installation and servicing of Itron's radio-based network AMR
products as well as marketing communications. Prior to joining Itron, Randi was
the Director of Marketing for American Sign and Indicator, a leading supplier of
electronic signage and scoreboard systems. Randi is the wife of Rob Neilson, the
Company's Chief Operating Officer.
Dave Remington joined Itron in early 1996 as Vice President and Chief
Financial Officer. Before joining Itron, Dave was an investment banker and
Managing Director at Dean Witter Reynolds Inc. and Dean Witter Realty Inc. from
1988 to 1996. Previously, he spent 15 years in the financial services industry
and two years with a high technology firm. During this time, he was Vice
President-Finance, and later President, of Steiner Financial Corporation and the
founding President of one if its subsidiaries.
Mima Scarpelli was promoted from Director to Vice President, Investor
Relations and Corporate Communications in January 2000. She has responsibilities
for all investor relations activities, employee communications, and corporate
communications activities. Mima has been with Itron since 1985 and has held
numerous positions in the finance and accounting area including Treasurer and
Controller before assuming her present responsibilities in 1995. Prior to
joining Itron, Mima was a CPA and audit manager with the Seattle office of
Deloitte & Touche.
Dennis Shepherd was named Vice President and General Manager, Energy
Information Systems in January 2000. Prior to assuming his present position, he
was Vice President, Commercial & Industrial Systems since July 1998. Dennis
joined Itron as Vice President of Marketing and Sales of Utility Translation
Systems, Inc. in March 1996, when Itron acquired UTS. Dennis worked for UTS for
11 years where he led the company's sales and marketing and product planning
activities. Prior to joining UTS, Dennis was an industrial engineer and
marketing representative for Westinghouse Electric Corporation.
10
<PAGE> 14
EXECUTIVE COMPENSATION
COMPENSATION SUMMARY
The following table provides information regarding the compensation paid
for services rendered to Itron in all capacities during 1999, 1998 and 1997 to
(a) our chief executive officer at December 31, 1999 (Mr. Chesser, who is no
longer serving as CEO), (b) each of our four other most highly compensated
executive officers during 1999 who were serving as such as of the end of the
year (including Mr. Nosbaum who became CEO in March 2000), (c) a former chief
executive officer, and (d) two other persons who served as executive officers
during 1999, but were not serving as executive officers at December 31, 1999.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------
ANNUAL COMPENSATION SECURITIES
-------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(1) OPTIONS# COMPENSATION(2)
- --------------------------- ---- -------- --------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
LeRoy D. Nosbaum...................... 1999 $221,981 $ 75,000 -- $ 5,000
President and CEO 1998 $212,300 $ 0 60,000 $ 23,239
1997 $178,833 $ 84,924 30,000 $ 4,750
David G. Remington.................... 1999 $265,375 $ 0 -- $ 11,760
Chief Financial Officer 1998 $265,375 $ 0 70,000 $ 11,362
1997 $262,990 $130,772 40,000 $ 11,000
Robert D. Neilson..................... 1999 $183,350 $ 50,000 -- $ 3,886
Chief Operating Officer 1998 $183,350 $ 0 55,000 $ 5,936
1997 $178,833 $ 87,909 12,000 $ 4,750
Russell E. Vanos(3)(4)................ 1999 $234,368 $ 0 -- $ 5,000
Former Vice President 1998 $260,021 $ 0 60,000 $ 4,800
Utility & Energy Systems 1997 $267,306 $ 49,648 10,000 $ 4,750
Johnny M. Humphreys(5)................ 1999 $400,487 $ 0 -- $856,449
Former President and 1998 $400,475 $ 0 100,000 $ 24,505
Chief Executive Officer 1997 $378,706 $196,409 70,000 $ 18,000
Michael J. Chesser(4)................. 1999 $223,077 $125,000 10,000 $201,964
Former President and 1998 $ 0 $ 0 -- $ 0
Chief Executive Officer 1997 $ 0 $ 0 -- $ 0
S. Edward White(5).................... 1999 $289,489 $ 0 -- $609,500
Chairman and Former 1998 $289,495 $ 0 80,000 $ 4,800
Vice President 1997 $210,392 $ 98,035 10,000 $ 10,000
Michael J. O'Callaghan(5)............. 1999 $212,300 $ 0 -- $480,131
Former Vice President 1998 $212,300 $ 0 52,000 $ 39,700
Corporate Relationships 1997 $210,392 $101,657 12,000 $ 10,000
</TABLE>
- ---------------
(1) Includes annual incentive amounts paid under the Company's Executive
Compensation Plan and other special incentive bonuses.
(2) For the year ended December 31, 1999 consists of matching contributions to a
401(k) savings plan ($5,000 for Messrs. Nosbaum, Remington, Vanos,
Humphreys, White, and O'Callaghan respectively and $3,231 for Mr. Chesser
and $2,750 for Mr. Neilson) and matching contributions to a deferred
compensation plan ($6,760, $15,224, $7,923, and $5,815 for each of Messrs.
Remington, Humphreys, Chesser, and O'Callaghan, respectively). Also includes
$1,136, $6,225, $4,500, and $716 of reimbursed medical and other expenses
for Messrs. Neilson, Humphreys, White, and O'Callaghan, respectively.
Includes $190,810 of reimbursed relocation expenses for Mr. Chesser.
Includes $830,000, $600,000 and $468,600 in separation payments for Messrs.
Humphreys, White and O'Callaghan, respectively.
(3) Includes $94,443, $120,096 and $130,551 paid to Mr. Vanos for commissions in
1999, 1998 and 1997 respectively.
(4) Mr. Chesser and Mr. Vanos were no longer officers of the Company at March
31, 2000.
11
<PAGE> 15
(5) Mr. Humphreys, Mr. White and Mr. O'Callaghan were no longer officers of the
Company at December 31, 1999.
OPTION GRANTS
In October 1998, executive officers received a grant of options that were
an acceleration of option grants expected to be awarded in 1999. As such, there
were no option grants in 1999 for any of our executive officers for whom
compensation is reported in this proxy statement with the exception of Michael
J. Chesser. Mr. Chesser received a grant of 200,000 shares in June 1999 when he
joined the Company. All but 10,000 of those options were cancelled when Mr.
Chesser resigned in March 2000. The 10,000 remaining options represent what Mr.
Chesser would have received for his initial appointment as a director of the
Company. The following table provides information regarding the options granted
to Mr. Chesser during 1999.
OPTION GRANTS IN 1999
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------------------------ POTENTIAL REALIZABLE
PERCENT OF VALUE AT ASSUMED ANNUAL
NUMBER OF TOTAL OPTIONS RATES OF STOCK PRICE
SHARES GRANTED TO APPRECIATION FOR OPTION
UNDERLYING EMPLOYEES IN EXERCISE TERM(3)
OPTIONS LAST FISCAL PRICE EXPIRATION -----------------------
NAME GRANTED(1) YEAR(2) ($/SHARE) DATE 5% 10%
---- ------------ -------------- --------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Michael J. Chesser............ 200,000 34.2% $7.31 6/7/09 $919,444 $2,330,051
</TABLE>
- ---------------
(1) Only 10,000 of the 200,000 options granted remain outstanding. Those options
were granted on June 7, 1999 and vest on a three-year schedule, with the
options becoming fully exercisable on June 7, 2002, provided the holder
remains a director of Itron. The exercise price of the options is the fair
market value of our common stock on the date of grant.
(2) We granted options to purchase 585,500 shares of common stock to our
employees in 1999.
(3) Represents the future value of the 200,000 shares granted, assuming
appreciation of 5% and 10% per year over the ten-year option period, of
which only 10,000 options remain outstanding. The potential realizable value
for the remaining 10,000 options was $45,972 and $116,503 at 5% and 10%
stock price appreciation, respectively. The actual value realized may be
greater than or less than the potential realizable values listed in the
table.
12
<PAGE> 16
OPTION EXERCISES IN 1999 AND YEAR-END OPTION VALUES
The following table provides information regarding options exercised in
1999 and options held as of December 31, 1999 by each of our executive officers
for which compensation is reported in this proxy statement.
AGGREGATED 1999 OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
TOTAL NUMBER OF VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS
SHARES FISCAL YEAR-END AT FISCAL YEAR-END(1)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
LeRoy D. Nosbaum.............. 48,333 161,667 $12,918 $25,832
David G. Remington............ 91,667 83,333 $16,146 $32,292
Robert D. Neilson............. 125 $652 101,333 97,167 $12,918 $25,832
Russell E. Vanos.............. 62,167 56,667 $12,918 $25,832
Johnny M. Humphreys........... 72,917 97,093 $16,146 $32,292
Michael J. Chesser............ -- 200,000 $ -- $ --
S. Edward White............... 29,167 60,833 $16,146 $32,292
Michael J. O'Callaghan........ 77,959 43,541 $12,918 $25,832
</TABLE>
- ---------------
(1) Calculated based on a price of $6.13 per share (the closing price of our
common stock on December 31, 1999, as reported by the "Nasdaq" National
Market), less the exercise price.
CHANGE OF CONTROL AGREEMENTS
We have entered into change-of-control agreements with our executive
officers to provide compensation and benefits in the event of a change of
control of Itron. Under these agreements, our executive officers have agreed to
remain employed by Itron on an annual basis and are compensated by an annual
salary and bonus as determined by the compensation committee of our board of
directors. If we terminate the employment relationship other than for cause or
if the executive officer terminates his or her employment for good reason within
a specified period following a change of control, (the "Change of Control
Period," which is three years for Mr. Remington and Mr. Fairbanks, was three
years for Mr. Humphreys and Mr. White, and is two years or one year for other
executive officers), the executive officer will receive any salary or bonus due
to the executive officer, group insurance benefits and severance pay equal to
the executive's annual base salary and bonus for the fiscal year in which the
termination occurs, multiplied by the Change of Control Period. Severance
amounts are partially offset if the executive officer realizes a benefit from
the acceleration of stock options in connection with the change of control. The
executive officer will also receive a bonus equal to his or her annual salary
plus annual bonus if his or her employment continues for a full one-year period
following a change of control.
EMPLOYMENT AGREEMENTS
Michael J. Chesser, our President and Chief Executive Officer from June 7,
1999 until his resignation on March 7, 2000, was party to an employment contract
with us at the end of the 1999 fiscal year. This agreement provided for an
initial base salary of $400,000, with annual increases to be made at the
discretion of the board or the compensation committee. The agreement also
provided for annual incentive bonus payments and for reimbursement of Mr.
Chesser's relocation expenses. The agreement was terminable by either party
under certain conditions. Upon termination of the agreement by Itron, we would
have been required to pay Mr. Chesser an amount equal to 24 months of his
then-current annual base salary. Under the agreement, we granted Mr. Chesser
options to purchase 200,000 shares of our common stock at the fair market value
of our common stock on the date he commenced employment with the company. These
options were scheduled to vest annually over a three-year period commencing one
year after grant. The agreement contained vesting acceleration clauses in the
event of a change of control of the company. In accordance with the provisions
of Mr. Chesser's employment agreement, we paid Mr. Chesser his unpaid annual
base salary which had accrued
13
<PAGE> 17
for services already performed as of the date of his resignation, March 7, 2000,
as well as $125,000 in incentive compensation earned by Mr. Chesser in 1999.
Johnny M. Humphreys, our former president and chief executive officer, was
a party to an employment agreement with us. At the time of his resignation, we
entered into a separation agreement with Mr. Humphreys (described under
"Separation Agreements" below) which superceded the provisions of his employment
agreement.
David G. Remington, our vice president and chief financial officer since
February 1996, is party to an employment agreement with us. This agreement
provides for an initial base salary of $250,000, which may be increased annually
by our chief executive officer, subject to the approval of the compensation
committee. The agreement also provides for annual incentive bonus payments to
the extent they are earned in accordance with the Company's executive incentive
compensation plan. The agreement may be terminated by either party under certain
conditions. If we terminate the agreement other than for cause, we are required
to pay Mr. Remington an amount equal to his then-current annual base salary.
Under the agreement, we granted Mr. Remington options to purchase 45,000 shares
of our common stock at the fair market value of our common stock on the date of
the grant. These options are now fully vested. The agreement contains vesting
acceleration clauses for termination, death or disability.
SEPARATION AGREEMENTS
On January 6, 2000, we entered into a separation agreement and general
release with Johnny Humphreys. Pursuant to that agreement, Mr. Humphreys will
have no duties or obligations other than to perform advisory services on an
as-needed basis until his employment relationship with the company terminates on
December 31, 2001. Under the terms of the agreement, Mr. Humphreys will receive
no wages after December 31, 1999 but instead received a lump-sum payment of
$830,000 in January 2000. Mr. Humphreys' options will continue to vest in
accordance with his option agreements and all of his options will terminate on
January 1, 2005. All unexercised shares shall be deemed to be nonqualified stock
options as of the date of the separation agreement.
On December 30, 1999, we entered into a separation agreement and general
release with Stuart Edward White. Pursuant to that agreement, Mr. White will
remain on the company payroll but will have no duties or obligations other than
to provide consulting services on a fairly active basis until his employment
relationship with the Company terminates on December 31, 2001. Under the terms
of the agreement, Mr. White will receive no wages after December 31, 1999 but
instead received a lump sum payment of $600,000 in January 2000. Mr. White's
options will continue to vest in accordance with his option agreements, and all
of his options will terminate on January 1, 2005. All unexercised shares shall
be deemed to be nonqualified stock options as of the date of the separation
agreement. Mr. White was appointed chairman of our board effective March 7,
2000.
On January 12, 2000, we entered into a separation agreement and general
release with Michael J. O'Callaghan. Pursuant to that agreement, Mr. O'Callaghan
will remain on the company payroll but will have no duties or obligations other
than to perform advisory services on an as-needed basis until his employment
relationship with the Company terminates on June 30, 2001. Under the terms of
the agreement, Mr. O'Callaghan will receive no wages after December 31, 1999 but
instead received a lump sum payment of $468,600 in January 2000. Mr.
O'Callaghan's options will continue to vest in accordance with his option
agreements, and all of his options will terminate on January 1, 2005. All
unexercised shares were deemed to be nonqualified stock options as of the date
of the separation agreement. The Company also agreed to reimburse Mr.
O'Callaghan's reasonable expenses for transition out of his position at the
company, up to an aggregate amount of $20,000.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The compensation committee of our board of directors (the "Committee")
annually reviews and recommends to the full board the compensation levels for
our executive officers. The Committee is comprised of board members who are not
employees of Itron.
14
<PAGE> 18
The Committee's primary objective in establishing compensation
opportunities for our executive officers is to support our goal of maximizing
the value of our shareholders' interests in Itron. To achieve this objective,
the Committee believes it is critical to:
- Pay competitively to attract, retain and motivate a highly competent
executive team;
- 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
- Align executives' financial interests with the creation of shareholder
value by providing long-term incentives in the form of options to acquire
common stock and, assuming shareholder approval of the 2000 Plan,
performance-based restricted stock.
The Committee makes recommendations to the board regarding our 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 our current compensation plans support our business
mission and contribute to our 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. Under Section 162(m),
however, compensation above $1,000,000 may be deducted if it is
"performance-based compensation" within the meaning of the Code. When consistent
with our compensation philosophy, the Committee intends to structure our
compensation program so that compensation expense is deductible by Itron 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, company performance and job performance. The Committee targets base
salaries 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 that have similar executive-level jobs, which the
Committee believes is a highly competitive job market. These companies are not
necessarily the same as the companies included in our peer reference group used
in the performance graph. In general, for 2000, base salaries for the executive
officers are near the 50th percentile of the market.
During 1999, Mr. Chesser's compensation was paid in accordance with the
terms of his employment agreement (see previous discussion under "Employment
Agreements"). With respect to our current chief executive officer's
compensation, in March 2000 the Committee determined that a $350,000 base salary
for Mr. Nosbaum was appropriate and consistent with the Company's overall salary
plan. The Committee believes that it is important that Mr. Nosbaum's base salary
be competitive with those of other chief executive officers with similar
responsibilities and broad leadership experience in the market defined. The
Committee recognizes and highly values Mr. Nosbaum's visionary leadership,
breadth of knowledge, and business and utility experience, all of which have
contributed significantly to the long-term success of the Company.
Executive Incentive Compensation Plan ("EIC Plan")
The EIC plan provides the opportunity for our executive officers to earn
both annual and long-term incentives in addition to their base salaries. The
Committee believes that having as much as or more than 50% of an executive
officer's total compensation at risk fosters achievement of our short-term and
long-term financial performance goals.
Annual Incentives: Each year, the compensation committee establishes annual
financial goals that relate to one or more indicators of corporate financial
performance and targets amounts as a specified percentage of
15
<PAGE> 19
the executive officer's salary. For 1999, these percentages ranged from 42% to
60% of base salary. Incentive awards, which are made in cash, are paid to
participating executives under the EIC Plan only when the established financial
goals are achieved. For 1999, depending on the extent to which corporate goals
were achieved, an executive officer was entitled to receive from zero to 200% of
the targeted award. Targets are established for the chief executive officer in
the same manner as for other officers. For 1999, the annual incentive award
opportunity was contingent upon attaining an established level of net profit
after tax. This goal was not achieved during 1999, so no incentive compensation
was earned. The Board did approve special cash incentive payments to certain
executive officers for recognition of their efforts and contributions in
connection with the Company's strategic planning and restructuring initiatives.
Our annual incentive payments and any special incentive payments are included in
the Summary Compensation Table under the column entitled "Bonus."
Long-Term Incentives: In 1999, our long-term incentives consisted 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. All options are granted with an option
exercise price equal to the fair market value of our common stock on the date of
grant. This closely links a significant portion of executive compensation to
benefits produced for all shareholders. The Committee approved normal stock
option grants for key employees, including executive officers, based on the
above criteria during its regular meeting on May 4, 1999. In addition, on June
7, 1999, options were granted to Mr. Chesser in accordance with his employment
agreement. These options are shown in the "Option Grants in 1999" table in this
proxy statement.
In 2000, assuming shareholder approval of the 2000 Plan, the committee
intends to implement economic value-added (EVA) performance targets in any
awards of restricted stock that the company makes to executives.
Members of the compensation committee
Michael B. Bracy Mary Ann Peters Paul A. Redmond
16
<PAGE> 20
PERFORMANCE GRAPH
The following graph compares the cumulative total return to shareholders on
our common stock with the cumulative total return of the "Nasdaq" U.S. Stock
Market and our peer group for the period beginning December 31, 1994 and ending
December 31, 1999, the end of our latest fiscal year.
PERFORMANCE GRAPH
<TABLE>
<S> <C> <C>
Itron, Inc. Nasdaq U.S. Stock Market
31-Dec-94 100 100
31-Dec-95 163 157
31-Dec-96 86 211
31-Dec-97 87 255
31-Dec-98 35 553
31-Dec-99 30 1163
<S> <C>
Peer Group
31-Dec-94 100
31-Dec-95 137
31-Dec-96 86
31-Dec-97 107
31-Dec-98 100
31-Dec-99 398
</TABLE>
Our peer group is comprised of companies that provide data collection,
analysis and management solutions, including wireless, wired and handheld
technologies. The investment community and others use many of these companies
for comparative purposes, and we have selected this combination to best
represent our unique mix of products and services. The peer group includes the
following companies: Aerial Communications, Inc., CellNet Data Systems, Inc.,
Corsair Communications, Kronos, Inc., LCC International, Inc., Lightbridge,
Inc., Metrocall, Inc., Metricom, Inc., PageMart Wireless, Inc., Tekelec, Telxon
Corp., T-Netix, Inc., and Trimble Navigations, Ltd.
The above presentation assumes $100 invested on December 31, 1994 in the
common stock of Itron, our peer group, and the "Nasdaq" U.S. Stock Market, with
all dividends reinvested. With respect to companies in our peer group, the
returns of each such company have been weighted to reflect relative stock market
capitalization. The stock prices shown above for our common stock are historical
and not necessarily indicative of future price performance.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires our officers
and directors, and persons who own more than 10% of a registered class of our
equity securities, to file reports of ownership and changes in ownership with
the Securities and Exchange Commission. SEC regulations require our officers,
directors and greater-than-10% shareholders to give us copies of all Section
16(a) forms they file.
Based solely on our review of the copies of these forms we have received,
or written representations from reporting persons that no such forms were
required for those persons, we believe that during 1999 all of our officers,
directors and greater-than-10% beneficial owners complied with all applicable
filing requirements except for one Form 4, which was inadvertently filed late by
Dennis A. Shepherd.
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<PAGE> 21
SECURITY OWNERSHIP OF PRINCIPAL
SHAREHOLDERS AND MANAGEMENT
The following table provides information with respect to the beneficial
ownership of our common stock as of March 31, 2000 by
- each of our directors;
- each of our current and former executive officers for whom compensation
is reported in this proxy statement;
- each person that we know beneficially owns more than 5% of our common
stock; and
- all of our directors and executive officers as of March 31, 2000 as a
group.
The percentage ownership data is based on 15,068,157 shares of our common
stock outstanding as of March 31, 2000. Under SEC rules, beneficial ownership
includes shares over which the indicated beneficial owner exercises voting
and/or investment power. Shares of common stock subject to options that are
currently exercisable or will become exercisable within 60 days are deemed
outstanding for computing the number of shares and the percentage ownership of
the person holding the option, but are not deemed outstanding for purposes of
computing the percentage ownership of any other person. Except as otherwise
noted, we believe that the beneficial owners of the shares of common stock
listed below have sole voting and investment power with respect to all shares
beneficially owned, subject to applicable community property laws.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED
--------------------
NAME NUMBER PERCENT
---- --------- -------
<S> <C> <C>
DIRECTORS AND EXECUTIVE OFFICERS:
LeRoy D. Nosbaum(1)...................................... 70,170 *
Robert D. Neilson(2)..................................... 121,655 *
David G. Remington(3).................................... 113,436 *
S. Edward White(4)....................................... 555,266 3.68%
Michael B. Bracy(5)...................................... 47,000 *
Michael J. Chesser(6).................................... 25,527 *
Ted C. DeMerritt(7)...................................... 28,150 *
Jon E. Eliassen(8)....................................... 31,000 *
Mary Ann Peters(9)....................................... 24,000 *
Paul A. Redmond(10)...................................... 34,000 *
Graham M. Wilson(11)..................................... 27,000 *
Johnny M. Humphreys(12).................................. 289,486 1.91%
Michael J. O'Callaghan(13)............................... 85,934 *
Russell E. Vanos(14)..................................... 63,691 *
All directors and executive officers as a group (18
persons)(15)........................................... 1,161,670 7.44%
GREATER-THAN-5% SHAREHOLDERS:
Kopp Investment Advisors, Inc.(16)....................... 3,024,852 20.07%
7701 France Ave. So., Suite 500 Edina, MN 55435
Reliant Energy(17)....................................... 1,502,547 9.97%
P.O. Box 2628 Houston, TX 77252
Franklin Resources Inc.(18).............................. 1,232,500 8.18%
777 Mariners Island Blvd San Mateo, CA 94404
The TCW Group, Inc.(19).................................. 966,300 6.41%
865 South Figueroa Street Los Angeles, CA 90017
</TABLE>
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<PAGE> 22
- ---------------
* Less than 1%.
(1) Includes 60,833 shares issuable on exercise of outstanding options
exercisable by Mr. Nosbaum within 60 days at a weighted average exercise
price of $15.82 per share. Also includes 1,137 shares of common stock held
for Mr. Nosbaum's individual account under our 401(k) employee savings
plan.
(2) Includes 108,083 shares issuable on exercise of outstanding options
exercisable by Mr. Neilson within 60 days at a weighted average exercise
price of $15.32 per share. Also includes 3,103 shares of common stock held
for Mr. Neilson's individual account under our 401(k) employee savings
plan, and 9,189 shares held by Mr. Neilson's wife.
(3) Includes 101,667 shares issuable on exercise of outstanding options
exercisable by Mr. Remington within 60 days, at a weighted average exercise
price of $16.62 per share. Also includes 1,050 shares of common stock held
for Mr. Remington's individual account under our 401(k) employee savings
plan and 4,219 shares of common stock issuable on conversion of $100,000 of
Itron's convertible subordinated debentures owned by Mr. Remington.
(4) Includes 39,167 shares issuable on exercise of outstanding options
exercisable by Mr. White within 60 days, at a weighted average exercise
price of $12.10 per share. Also includes 1,099 shares of common stock held
for Mr. White's individual account under our 401(k) employee savings plan.
(5) Includes 27,000 shares issuable on exercise of outstanding options
exercisable by Mr. Bracy within 60 days, at a weighted average exercise
price of $20.41 per share.
(6) Includes 10,000 shares issuable on exercise of outstanding options
exercisable by Mr. Chesser within 60 days at a weighted average exercise
price of $7.31 per share. Also includes 527 shares of common stock held for
Mr. Chesser's individual account under our 401(k) employee savings plan.
(7) Includes 26,000 shares issuable on exercise of outstanding options
exercisable by Mr. DeMerritt within 60 days, at a weighted average exercise
price of $20.62 per share.
(8) Includes 26,000 shares issuable on exercise of outstanding options
exercisable by Mr. Eliassen within 60 days, at a weighted average exercise
price of $20.68 per share. Excludes 291,788 shares held by Avista
Corporation, as to which Mr. Eliassen disclaims beneficial ownership. Mr.
Eliassen is an officer of Avista.
(9) Includes 24,000 shares issuable on exercise of outstanding options
exercisable by Ms. Peters within 60 days, at a weighted average exercise
price of $20.92 per share.
(10) Includes 27,000 shares issuable on exercise of outstanding options
exercisable by Mr. Redmond within 60 days, at a weighted average exercise
price of $20.41 per share.
(11) Includes 27,000 shares issuable on exercise of outstanding options
exercisable by Mr. Wilson within 60 days, at a weighted average exercise
price of $20.41 per share. Excludes 608,340 shares held by Centra Gas Inc.,
as to which Mr. Wilson disclaims beneficial ownership. Mr. Wilson is a
director of Centra Gas.
(12) Includes 94,167 shares issuable on exercise of outstanding options
exercisable by Mr. Humphreys within 60 days, at a weighted average exercise
price of $17.09 per share. Also includes 3,658 shares of common stock held
for Mr. Humphreys' individual account under our 401(k) employee savings
plan. Also includes 600 shares held by Mr. Humphreys as custodian under
UGMA for his grandchildren.
(13) Includes 83,959 shares issuable on exercise of outstanding options
exercisable by Mr. O'Callaghan within 60 days, at a weighted average
exercise price of $13.91 per share. Also includes 1,975 shares of common
stock held for Mr. O'Callaghan's individual account under our 401(k)
employee savings plan
(14) Includes 60,083 shares issuable on exercise of outstanding options
exercisable by Mr. Vanos within 60 days at a weighted average exercise
price of $20.74 per share. Also includes 3,576 shares of common stock held
for Mr. Vanos's individual account under our 401(k) employee savings plan.
(15) Includes 540,683 shares issuable on exercise of outstanding options that
are held by executive officers and are exercisable within 60 days. Also
includes 16,687 shares of common stock held for such officers' individual
accounts under our 401(k) employee savings plan, 46 shares held for such
officers' individual
19
<PAGE> 23
accounts under our employee stock ownership plan, and 4,219 shares of
common stock issuable on conversion of $100,000 of Itron's convertible
subordinated debentures.
(16) Information is based on a Schedule 13D dated filed with the SEC on January
20, 2000 by Kopp Investment Advisors, Inc. and LeRoy Kopp. This filing
indicates that Kopp Investment Advisors, Inc. has shared investment
discretion over 2,207,852 of these shares, has sole investment discretion
over 590,000 of these shares, and has sole voting power over 996,500 of
these shares. In addition, the filing indicates that Mr. Kopp has sole
investment and voting power over 227,000 of these shares.
(17) Information is based on a Schedule 13G filed with the SEC on March 9, 1999
by Houston Industries Incorporated (d/b/a Reliant Energy, Incorporated),
Reliant Energy Resources Corp. (formerly NorAm Energy Corp.) and Arkla
Finance Corporation. This filing indicates that these three entities share
investment and voting power over these shares.
(18) Information is based on a Schedule 13G filed with the SEC on January 25,
2000, by Franklin Resources, Inc., Franklin Advisers, Inc., Charles B.
Johnson and Rupert H. Johnson, Jr.
(19) Information is based on a Schedule 13G filed with the SEC on February 14,
2000, by the TCW Group, Inc. and Robert Day.
RELATED-PARTY TRANSACTIONS
In July 1995, we purchased our principal office and manufacturing
facilities in Spokane, Washington, from Pentzer Development Corporation, a
subsidiary of Avista Corporation, for $8 million. A member of our board of
directors is an employee of Avista Corporation. We have a long-term note for
$5.6 million payable to Avista, related to the purchase. The note bears interest
at a rate of 9%, and monthly payments of principal and interest are due through
maturity in August 2015.
In May 1996, we purchased an additional facility from Pentzer Development
Corporation for some of our manufacturing and engineering operations. We paid
$210,000 of the total purchase price at closing, with the remaining $840,000 due
under a note payable. The note payable bears interest at 8.5% through maturity
on June 1, 2019, with principal and interest payments due through that date.
ANNUAL REPORT AND FINANCIAL STATEMENTS
A copy of our 1999 Annual Report to Shareholders, which includes our
financial statements, accompanies this proxy statement. We have filed with the
SEC our annual report on Form 10-K for the fiscal year ended December 31, 1999.
Shareholders who did not receive a copy of the Annual Report to Shareholders or
would like to obtain a copy of the Form 10-K may obtain a copy without charge by
contacting Investor Relations at our principal executive offices.
SHAREHOLDER PROPOSALS
Under the SEC's proxy rules, shareholder proposals that meet specified
conditions may be included in our proxy statement and proxy for the 2001 annual
meeting. Shareholders that intend to present a proposal at our 2001 annual
meeting must give us notice of the proposal not later than January 16, 2001 for
the proposal to be considered for inclusion in our proxy materials for that
meeting. In addition, shareholders desiring to bring proposals before the annual
meeting that will not be included in the proxy materials must do so in
accordance with the advance notice provisions and other applicable requirements
set forth in our bylaws. Our bylaws provide, among other things, that notice of
the proposed business must be received by Itron at least 90 days prior to the
anniversary date of the prior year's annual meeting. Accordingly, shareholders
who intend to present proposals at the 2001 annual meeting that will not be
included in our proxy materials must provide to our Corporate Secretary written
notice of the business they wish to propose no later than March 30, 2001.
However, our timely receipt of a proposal by a qualified shareholder will not
guarantee the proposal's inclusion in our proxy materials or presentation at the
2001 annual meeting, because there are other requirements in the proxy rules. We
reserve the right to reject, rule out of order or take other appropriate action
with respect to any
20
<PAGE> 24
proposal that does not comply with all applicable requirements of the SEC's
proxy rules, state law and our bylaws.
Shareholder proposals should be directed to our Corporate Secretary, Itron,
Inc., P.O. Box 15288, Spokane, Washington 99215-5288.
INDEPENDENT AUDITORS
Deloitte & Touche LLP has audited our books and records for the fiscal
years ended December 31, 1997, 1998 and 1999. We anticipate that representatives
of Deloitte & Touche LLP will be present at the annual meeting. The
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.
OTHER BUSINESS
We do not intend to present any business at the annual meeting other than
the matters described in the accompanying Notice of Annual Meeting of
Shareholders, and we have no present knowledge that any other person intends to
present business at the meeting. If other matters requiring the vote of the
shareholders properly come before the annual meeting or any adjournment or
postponement of the meeting, however, the persons named in the accompanying
proxy will have discretionary authority to vote the proxies held by them in
accordance with their judgment as to those matters.
21
<PAGE> 25
APPENDIX A
ITRON, INC.
2000 STOCK INCENTIVE COMPENSATION PLAN
SECTION 1. PURPOSE
The purpose of the ITRON, INC. 2000 Stock Incentive Compensation Plan (the
"Plan") is to enhance the long-term shareholder value of ITRON, INC., a
Washington corporation (the "Company"), by offering opportunities to selected
persons to participate in the Company's growth and success, and to encourage
them to remain in the service of the Company and its Related Corporations (as
defined in Section 2) and to acquire and maintain stock ownership in the
Company.
SECTION 2. DEFINITIONS
For purposes of the Plan, the following terms shall be defined as set forth
below:
"AWARD" means an award or grant made pursuant to the Plan, including,
without limitation, awards or grants of Stock Awards and Options, or any
combination of the foregoing.
"BOARD" means the Board of Directors of the Company.
"CAUSE" means dishonesty, fraud, misconduct, unauthorized use or disclosure
of confidential information or trade secrets, or conviction or confession of a
crime punishable by law (except minor violations), in each case as determined by
the Plan Administrator, and its determination shall be conclusive and binding.
"CODE" means the Internal Revenue Code of 1986, as amended from time to
time.
"COMMON STOCK" means the common stock, par value $0.01 per share, of the
Company.
"CORPORATE TRANSACTION" has the meaning set forth in Section 12.3.1.
"DISABILITY," unless otherwise defined by the Plan Administrator, means a
mental or physical impairment of the Participant that is expected to result in
death or that has lasted or is expected to last for a continuous period of 12
months or more and that causes the Participant to be unable, in the opinion of
the Company, to perform his or her duties for the Company or a Related
Corporation and to be engaged in any substantial gainful activity.
"EFFECTIVE DATE" has the meaning set forth in Section 17.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"FAIR MARKET VALUE" shall be as established in good faith by the Plan
Administrator or (a) if the Common Stock is listed on the Nasdaq National
Market, the closing sales price for the Common Stock as reported by the Nasdaq
National Market for a single trading day or (b) if the Common Stock is listed on
the New York Stock Exchange or the American Stock Exchange, the closing sales
price for the Common Stock as such price is 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.
"GRANT DATE" means the date on which the Plan Administrator completes the
corporate action relating to the grant of an Award and all conditions precedent
to the grant have been satisfied, provided that conditions to the exercisability
or vesting of Awards shall not defer the Grant Date.
"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.
"NONQUALIFIED STOCK OPTION" means an Option to purchase Common Stock
granted under Section 7 other than an Incentive Stock Option.
<PAGE> 26
"OPTION" means the right to purchase Common Stock granted under Section 7.
"OPTION TERM" has the meaning set forth in Section 7.3.
"PARENT," except as otherwise provided in Section 8.3 in connection with
Incentive Stock Options, means any entity, whether now or hereafter existing,
that directly or indirectly controls the Company.
"PARTICIPANT" means (a) the person to whom an Award is granted; (b) for a
Participant who has died, the personal representative of the Participant's
estate, the person(s) to whom the Participant's rights under the Award have
passed by will or by the applicable laws of descent and distribution, or the
beneficiary designated in accordance with Section 11; or (c) the person(s) to
whom an Award has been transferred in accordance with Section 11.
"PLAN ADMINISTRATOR" means the Board or any committee or committees
designated by the Board or any person to whom the Board has delegated authority
to administer the Plan under Section 3.1.
"RELATED CORPORATION" means any Parent or Subsidiary of the Company.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"STOCK AWARD" means shares of Common Stock or units denominated in Common
Stock granted under Section 9, the rights of ownership of which may be subject
to restrictions prescribed by the Plan Administrator.
"SUBSIDIARY," except as otherwise provided in Section 8.3 in connection
with Incentive Stock Options, means any entity that is directly or indirectly
controlled by the Company.
"SUCCESSOR CORPORATION" has the meaning set forth in Section 12.3.
"TERMINATION DATE" has the meaning set forth in Section 7.6.
SECTION 3. ADMINISTRATION
3.1 Plan Administrator
The Plan shall be administered by the Board and/or a committee or
committees (which term includes subcommittees) appointed by, and consisting of
two or more members of, the Board (a "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 members of any committee acting as
Plan Administrator, with respect to any persons subject or likely to become
subject to Section 16 of the Exchange Act, the provisions regarding (a) "outside
directors" as contemplated by Section 162(m) of the Code and (b) "nonemployee
directors" as contemplated by Rule 16b-3 under the Exchange Act. Notwithstanding
the foregoing, the Board may delegate the responsibility for administering the
Plan with respect to designated classes of eligible persons to different
committees consisting of two or more 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. To the extent consistent with applicable law, the Board may authorize one
or more senior executive officers of the Company to grant Awards to designated
classes of eligible persons, within the limits specifically prescribed by the
Board.
3.2 Administration and Interpretation by Plan Administrator
Except for the terms and conditions explicitly set forth in the Plan, the
Plan Administrator shall have exclusive authority, in its 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 the terms of any instrument evidencing the Award 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
2
<PAGE> 27
Plan Administrator pursuant to the Plan, shall be conclusive and binding on all
parties involved or affected. The Plan Administrator may delegate administrative
duties to such of the Company's officers as it so determines.
SECTION 4. STOCK SUBJECT TO THE PLAN
4.1 Authorized Number of Shares
Subject to adjustment from time to time as provided in Section 12.1, the
number of shares of Common Stock that shall be available for issuance under the
Plan shall be 1,800,000.
In addition, (a) any authorized shares not issued or subject to outstanding
awards under the Company's 1989 Stock Option Plan (the "Prior Plan") on the
Effective Date and (b) any shares subject to outstanding awards under the Prior
Plan on the Effective Date that cease to be subject to such awards (other than
by reason of exercise or payment of the awards to the extent they are exercised
for or settled in shares), up to an aggregate maximum of 25,000 shares, which
shares shall cease, as of the date of shareholder approval of the Plan, to be
available be available for grant and issuance under the Prior Plan, but 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.
4.2 Limitations
(a) Subject to adjustment from time to time as provided in Section 12.1,
not more than an aggregate of 400,000 shares shall be available for issuance
pursuant to grants of Stock Awards under the Plan.
(b) Subject to adjustment from time to time as provided in Section 12.1,
not more than 300,000 shares of Common Stock may be made subject to Awards under
the Plan to any individual in the aggregate in any one fiscal year of the
Company, except that the Company may make additional one-time grants of up to
600,000 shares to newly hired individuals, such limitation to 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.
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 vested and
nonforfeitable shares) shall again be available for issuance in connection with
future grants of Awards under the Plan; provided, however, that for purposes of
Section 4.2, any such shares shall be counted in accordance with the
requirements of Section 162(m) of the Code.
SECTION 5. ELIGIBILITY
Awards may be granted under the Plan to those officers, directors and
employees of the Company and its Related Corporations as the Plan Administrator
from time to time selects. Awards may also be made to consultants, agents,
advisors and independent contractors who provide services to the Company and its
Related Corporations; provided, however, that such Participants render bona fide
services that are not in connection with the offer and sale of the Company's
securities in a capital-raising transaction and do not directly or indirectly
promote or maintain a market for the Company's securities.
SECTION 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 and Stock Awards. Awards may be granted singly or in combination.
3
<PAGE> 28
6.2 Settlement of Awards
The Company may settle Awards through the delivery of shares of Common
Stock, cash payments, the granting of replacement Awards or any combination
thereof as the Plan Administrator shall determine. Any Award settlement,
including payment deferrals, may be subject to such conditions, restrictions and
contingencies as the Plan Administrator shall determine. The Plan Administrator
may permit or require the deferral of any Award payment, subject to such rules
and procedures as it may establish, which may include provisions for the payment
or crediting of interest, or dividend equivalents, including converting such
credits into deferred stock equivalents. The Plan Administrator may at any time
offer to buy out, for a payment in cash or Common Stock, an Award previously
granted based on such terms and conditions as the Plan Administrator shall
establish and communicate to the Participant at the time such offer is made.
6.3 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 stock, reorganization or liquidation (the
"Acquisition Transaction"). In the event that a written agreement pursuant to
which the 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.
SECTION 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 and not less than 85% of the Fair Market Value of the
Common Stock on the Grant Date with respect to Nonqualified Stock Options. For
Incentive Stock Options granted to a more than 10% shareholder, the Option
exercise price shall be as specified in Section 8.2.
7.3 Term of Options
The term of each Option (the "Option Term") shall be as established by the
Plan Administrator or, if not so established, shall be ten years from the Grant
Date. For Incentive Stock Options, the maximum Option Term shall be as specified
in Sections 8.2 and 8.4.
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 vest and become exercisable, which provisions may be waived or
modified by the Plan Administrator at any time. If not so established in the
instrument evidencing
4
<PAGE> 29
the Option, the Option shall vest and become exercisable according to the
following schedule, which may be waived or modified by the Plan Administrator at
any time:
<TABLE>
<CAPTION>
PERIOD OF PARTICIPANT'S CONTINUOUS
EMPLOYMENT OR SERVICE WITH THE COMPANY OR
ITS RELATED CORPORATIONS FROM THE OPTION PERCENT OF TOTAL OPTION
GRANT DATE THAT IS VESTED AND EXERCISABLE
- ----------------------------------------- ------------------------------
<S> <C>
After 1 year 25%
After 2 years 50%
After 3 years 75%
After 4 years 100%
</TABLE>
The Plan Administrator may adjust the vesting schedule of an Option held by
a Participant who works less than "full-time" as that term is defined by the
Plan Administrator.
To the extent that an Option has vested and become exercisable, the Option
may be exercised from time to time by delivery to the Company of a written stock
option exercise agreement or notice, in a form and in accordance with procedures
established by the Plan Administrator, setting forth the number of shares with
respect to which the Option is being exercised, the restrictions imposed on the
shares purchased under such exercise agreement, if any, and such representations
and agreements as may be required by the Plan Administrator, accompanied by
payment in full as described in Section 7.5. An Option may not be exercised for
less than a reasonable number of shares at any one time, as determined by the
Plan Administrator.
7.5 Payment of Exercise Price
The exercise price for shares purchased under an Option shall be paid in
full to the Company by delivery of consideration equal to the product of the
Option exercise price and the number of shares purchased. Such consideration
must be paid in cash or by check or, unless the Plan Administrator in its sole
discretion determines otherwise, either at the time the Option is granted or at
any time before it is exercised, in any combination of
(a) cash or check;
(b) 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) shares of Common Stock already owned by the Participant for at
least six months (or any shorter period necessary to avoid a charge to the
Company's earnings for financial reporting purposes) having a Fair Market
Value on the day prior to the exercise date equal to the aggregate Option
exercise price;
(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 brokerage
firm designated by the Company to deliver promptly to the Company the
aggregate amount of sale or loan proceeds to pay the Option exercise price
and any withholding tax obligations that may arise in connection with the
exercise and (ii) the Company to deliver the certificates for such
purchased shares directly to such brokerage firm, all in accordance with
the regulations of the Federal Reserve Board; or
(d) such other consideration as the Plan Administrator may permit.
In addition, to assist a Participant (including a Participant who is an
officer or a director of the Company) in acquiring shares of Common Stock
pursuant to an Award granted under the Plan, the Plan Administrator, in its sole
discretion, may authorize, either at the Grant Date or at any time before the
acquisition of Common Stock pursuant to the Award, (i) the payment by a
Participant of a full-recourse promissory note, (ii) the payment by the
Participant of the purchase price, if any, of the Common Stock in installments,
or (iii) the guarantee by the Company of a full-recourse loan obtained by the
Participant from a third party. Subject to the foregoing, the Plan Administrator
shall in its sole discretion specify the terms of any loans, installment
payments or loan guarantees, including the interest rate and terms of and
security for repayment.
5
<PAGE> 30
7.6 Post-Termination Exercises
The Plan Administrator shall establish and set forth in each instrument
that evidences an Option whether the Option shall continue to be exercisable,
and the terms and conditions of such exercise, if a Participant ceases to be
employed by, or to provide services to, the Company or its Related Corporations,
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
shall be exercisable according to the following terms and conditions, which may
be waived or modified by the Plan Administrator at any time:
(a) Any portion of an Option that is not vested and exercisable on the
date of termination of the Participant's employment or service relationship
(the "Termination Date") shall expire on such date.
(b) Any portion of an Option that is vested and exercisable on the
Termination Date shall expire upon the earliest to occur of
(i) the last day of the Option Term;
(ii) if the Participant's Termination Date occurs for reasons other
than Cause, death or Disability, the three-month anniversary of such
Termination Date; and
(iii) if the Participant's Termination Date occurs by reason of
Disability or death, the one-year anniversary of such Termination Date.
Notwithstanding the foregoing, if the Participant dies after the
Termination Date while the Option is otherwise exercisable, the portion of the
Option that is vested and exercisable on such Termination Date shall expire upon
the earlier to occur of (y) the last day of the Option Term and (z) the first
anniversary of the date of death, unless the Plan Administrator determines
otherwise.
Also notwithstanding the foregoing, in case of termination of the
Participant's employment or service relationship for Cause, the Option shall
automatically expire upon first notification to the Participant of such
termination, unless the Plan Administrator determines otherwise. If a
Participant's employment or service relationship with the Company is suspended
pending an investigation of whether the Participant shall be terminated for
Cause, all the Participant's rights under any Option likewise shall be suspended
during the period of investigation.
A Participant's transfer of employment or service relationship between or
among the Company and its Related Corporations, or a change in status from an
employee to a consultant, agent, advisor or independent contractor, shall not be
considered a termination of employment or service relationship for purposes of
this Section 7. The effect of a Company-approved leave of absence on the terms
and conditions of an Option shall be determined by the Plan Administrator, in
its sole discretion.
SECTION 8. INCENTIVE STOCK OPTION LIMITATIONS
To the extent required by Section 422 of the Code, Incentive Stock Options
shall be subject to the following additional terms and conditions:
8.1 Dollar Limitation
To the extent the aggregate Fair Market Value (determined as of the Grant
Date) of Common Stock with respect to which Incentive Stock Options are
exercisable for the first time during any calendar year (under the Plan and all
other stock option plans of the Company) exceeds $100,000, such portion in
excess of $100,000 shall be treated as a Nonqualified Stock Option. In the event
the Participant holds two 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 are granted.
8.2 More Than 10% Stockholders
If an individual owns more than 10% of the total voting power of all
classes of the Company's stock, then the exercise price per share of an
Incentive Stock Option shall not be less than 110% of the Fair Market Value
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<PAGE> 31
of the Common Stock on the Grant Date and the Option Term shall not exceed five
years. The determination of more than 10% ownership shall be made in accordance
with Section 422 of the Code.
8.3 Eligible Employees
Individuals who are not employees of the Company or one of its parent
corporations or subsidiary corporations may not be granted Incentive Stock
Options. For purposes of this Section 8.3, "parent corporation" and "subsidiary
corporation" shall have the meanings attributed to those terms for purposes of
Section 422 of the Code.
8.4 Term
Subject to Section 8.2, the Option Term shall not exceed ten years.
8.5 Exercisability
An Option designated as an Incentive Stock Option shall cease to qualify
for favorable tax treatment as an Incentive Stock Option to the extent it is
exercised (if permitted by the terms of the Option) (a) more than three months
after the Termination Date for reasons other than death or Disability, (b) more
than one year after the Termination Date by reason of Disability, or (c) after
the Participant has been on leave of absence for more than 90 days, unless the
Participant's reemployment rights are guaranteed by statute or contract.
For purposes of this Section 8.5, Disability shall mean "disability" as
that term is defined for purposes of Section 422 of the Code.
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 years after the Grant Date and
one year from the date of exercise. A Participant may be subject to the
alternative minimum tax at the time of exercise of an Incentive Stock Option.
The Participant shall give the Company prompt notice of any disposition of
shares acquired by the exercise of an Incentive Stock Option prior to the
expiration of such holding periods.
8.7 Promissory Notes
The amount of any promissory note delivered pursuant to Section 7.5 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.
SECTION 9. STOCK AWARDS
9.1 Grant of Stock Awards
The Plan Administrator is authorized to make Awards of Common Stock or
Awards denominated in units of Common Stock on such terms and conditions and
subject to such restrictions, if any (which may be based on continuous service
with the Company or the achievement of performance goals related to Iprofits,
profit growth, profit-related return ratios, cash flow or total shareholder
returnJ, 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 the Stock Award shall occur by reason of termination of the
Participant's employment or service relationship.
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9.2 Issuance of Shares
Upon the satisfaction of any terms, conditions and restrictions prescribed
in respect to a Stock Award, or upon the Participant's release from any terms,
conditions and restrictions of a Stock Award, as determined by the Plan
Administrator, the Company shall release, as soon as practicable, to the
Participant or, in the case of the Participant's death, to the personal
representative of the Participant's estate or as the appropriate court directs,
the appropriate number of shares of Common Stock.
9.3 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 Stock Award under such circumstances and
subject to such terms and conditions as the Plan Administrator shall deem
appropriate; provided, however, that the Plan Administrator may not adjust
performance goals for any Stock Award intended to be exempt under Section 162(m)
of the Code for the year in which the Stock Award is settled in such a manner as
would increase the amount of compensation otherwise payable to a Participant.
SECTION 10. WITHHOLDING
The Company may require the Participant to pay to the Company the amount of
any withholding taxes that the Company is required to withhold with respect to
the grant, vesting or exercise of any Award. Subject to the Plan and applicable
law, the Plan Administrator may, in its sole discretion, permit the Participant
to satisfy withholding obligations, in whole or in part, (a) by paying cash, (b)
by electing to have the Company withhold shares of Common Stock (up to the
minimum required federal tax withholding rate) or (c) by transferring to the
Company shares of Common Stock (already owned by the Participant for the period
necessary to avoid a charge to the Company's earnings for financial reporting
purposes), in such amounts as are equivalent to the Fair Market Value of the
withholding obligation. The Company shall have the right to withhold from any
Award or any shares of Common Stock issuable pursuant to an Award or from any
cash amounts otherwise due or to become due from the Company to the Participant
an amount equal to such taxes.
SECTION 11. ASSIGNABILITY
Awards granted under the Plan and any interest therein may not be assigned,
pledged or transferred by the Participant and may not be made subject to
attachment or similar proceedings otherwise than by will or by the applicable
laws of descent and distribution, and, during the Participant's lifetime, such
Awards may be exercised only by the Participant. 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 Participant to designate a beneficiary who may exercise the
Award or receive compensation under the Award after the Participant's death;
provided, however, that any Award so assigned or transferred shall be subject to
all the same terms and conditions contained in the instrument evidencing the
Award.
SECTION 12. ADJUSTMENTS
12.1 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 stockholders other than a normal cash
dividend, or other change in the Company's corporate or capital structure
results in (a) the outstanding shares, or any securities exchanged therefor or
received in their place, being exchanged for a different number or class of
securities of the Company or of any other corporation or (b) new, different or
additional securities of the Company or of any other corporation being received
by the holders of shares of Common Stock of the Company, then the Plan
Administrator shall make proportional adjustments in (i) the maximum number and
kind of securities subject to the Plan as set forth in Section 4.1 and the
maximum number and kind of securities that may be made subject to Stock Awards
and to Awards to any individual as set forth in Section 4.2, and (ii) the number
and kind of securities that are subject to any outstanding Award and the per
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<PAGE> 33
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.
Notwithstanding the foregoing, a dissolution or liquidation of the Company or a
Corporate Transaction shall not be governed by this Section 12.1 but shall be
governed by Sections 12.2 and 12.3, respectively.
12.2 Dissolution or Liquidation
In the event of the proposed dissolution or liquidation of the Company, the
Plan Administrator shall notify each Participant as soon as practicable prior to
the effective date of such proposed transaction. The Plan Administrator in its
discretion may permit a Participant to exercise an Option until ten days prior
to such transaction with respect to all vested and exercisable shares of Common
Stock covered thereby and with respect to such number of unvested shares as the
Plan Administrator shall determine. In addition, the Plan Administrator may
provide that any forfeiture provision or Company repurchase option applicable to
any Award shall lapse as to such number of shares as the Plan Administrator
shall determine, contingent upon the occurrence of the proposed dissolution or
liquidation at the time and in the manner contemplated. To the extent an Option
has not been previously exercised, the Option shall terminate automatically
immediately prior to the consummation of the proposed action. To the extent a
forfeiture provision applicable to a Stock Award has not been waived by the Plan
Administrator, the Stock Award shall be forfeited automatically immediately
prior to the consummation of the proposed action.
12.3 Corporate Transaction
12.3.1 Definition
"CORPORATE TRANSACTION" means any of the following events:
(a) Consummation of any merger or consolidation of the Company with or
into another corporation;
(b) Consummation of any sale, lease, exchange or other transfer in one
transaction or a series of related transactions of all or substantially all
the Company's outstanding securities or substantially all the Company's
assets other than a transfer of the Company's assets to a majority-owned
subsidiary corporation (as defined in Section 8.3) of the Company; or
(c) Acquisition by a person, within the meaning of Section 3(a)(9) or
of Section 13(d)(3) (as in effect on the date of adoption of the Plan) of
the Exchange Act of a majority or more of the Company's outstanding voting
securities (whether directly or indirectly, beneficially or of record).
Ownership of voting securities shall take into account and shall include
ownership as determined by applying Rule 13d-3(d)(1)(i) (as in effect on
the date of adoption of the Plan) under the Exchange Act.
"RELATED PARTY TRANSACTION" means (i) a merger of the Company in which the
holders of shares of Common Stock immediately prior to the merger hold at least
a majority of the shares of Common Stock in the surviving corporation or parent
thereof immediately after the merger, (ii) a mere reincorporation of the Company
or (iii) a transaction undertaken for the sole purpose of creating a holding
company.
12.3.2 Options
In the event of a Corporate Transaction, except as otherwise provided in
the instrument evidencing the Award, each outstanding Option shall be assumed,
continued or an equivalent option or right substituted by the surviving
corporation, the successor corporation or its parent corporation, as applicable,
(the "Successor Corporation"). If the Corporate Transaction is not a Related
Party Transaction, upon consummation of the Corporate Transaction the assumed or
substituted options shall automatically become fully vested and exercisable
whether or not the vesting requirements set forth in the applicable option
agreement have been satisfied; provided, that such acceleration will not occur
if, in the opinion of the Company's outside accountants, such acceleration would
render unavailable "pooling of interests" accounting treatment for any Corporate
Transaction for which pooling of interests accounting treatment is sought by the
Company. If the
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Corporate Transaction is a Related Party Transaction, the vesting schedule set
forth in the instrument evidencing the Option shall continue to apply to the
assumed or substituted options.
In the event that the Successor Corporation refuses to assume or substitute
for the Option, the Participant shall fully vest in and have the right to
exercise the Option as to all of the shares of Common Stock subject thereto,
including shares as to which the Option would not otherwise be vested or
exercisable. If an Option will become fully vested and exercisable in lieu of
assumption or substitution in the event of a Corporate Transaction, the Plan
Administrator shall notify the Participant in writing or electronically that the
Option shall be fully vested and exercisable for a specified time period after
the date of such notice, and the Option shall terminate upon the expiration of
such period, in each case conditioned on the consummation of the Corporate
Transaction. For the purposes of this Section 12.3, the Option shall be
considered assumed if, following the Corporate Transaction, the option or right
confers the right to purchase or receive, for each share of Common Stock subject
to the Option, immediately prior to the Corporate Transaction, the consideration
(whether stock, cash, or other securities or property) received in the Corporate
Transaction by holders of Common Stock for each share held on the effective date
of the transaction (and if holders were offered a choice of consideration, the
type of consideration chosen by the holders of a majority of the outstanding
shares); provided, however, that if such consideration received in the Corporate
Transaction is not solely common stock of the Successor Corporation, the Plan
Administrator may, with the consent of the Successor Corporation, provide for
the consideration to be received upon the exercise of the Option, for each share
of Common Stock subject thereto, to be solely common stock of the Successor
Corporation equal in fair market value to the per share consideration received
by holders of Common Stock in the Corporate Transaction. All Options shall
terminate and cease to remain outstanding immediately following the consummation
of the Corporate Transaction, except to the extent assumed by the Successor
Corporation.
12.3.3 Stock Awards
In the event of a Corporate Transaction, except as otherwise provided in
the instrument evidencing the Award, the vesting of Shares subject to Stock
Awards shall accelerate, and the forfeiture provisions to which such Shares are
subject shall lapse, if and to the same extent that the vesting and
exercisability of outstanding Options accelerate in connection with the
Corporate Transaction. If unvested Options are to be assumed, continued or
substituted by a Successor Corporation without acceleration upon the occurrence
of a Corporate Transaction, the forfeiture provisions to which such shares are
subject will continue with respect to shares of the Successor Corporation that
may be issued in exchange for such Shares.
12.4 Further Adjustment of Awards
Subject to Sections 12.2 and 12.3, the Plan Administrator shall have the
discretion, exercisable at any time before a sale, merger, consolidation,
reorganization, liquidation or change in control of the Company, as defined by
the Plan Administrator, to take such further action as it determines to be
necessary or advisable, and fair and equitable to the 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, lifting restrictions 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 action 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, liquidation or change in
control that is the reason for such action.
12.5 Limitations
The grant of Awards shall 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.
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<PAGE> 35
12.6 Fractional Shares
In the event of any adjustment in the number of shares covered by any
Award, each such Award shall cover only the number of full shares resulting from
such adjustment.
SECTION 13. AMENDMENT AND TERMINATION OF PLAN
13.1 Amendment of Plan
The Plan may be amended only by the Board in such respects as it shall deem
advisable; provided, however, that to the extent required for compliance with
Section 422 of the Code or any applicable law or regulation, shareholder
approval shall be required for any amendment that would (a) increase the total
number of shares available for issuance under the Plan, (b) modify the class of
persons eligible to receive Options, or (c) otherwise require shareholder
approval under any applicable law or regulation. Any amendment made to the Plan
that would constitute a "modification" to Incentive Stock Options outstanding on
the date of such amendment shall not, without the consent of the Participant, be
applicable to such outstanding Incentive Stock Options but shall have
prospective effect only.
13.2 Termination of Plan
The Board may suspend or terminate the Plan at any time. The Plan shall
have no fixed expiration date; provided, however, that no Incentive Stock
Options may be granted more than ten years after the later of (a) the Plan's
adoption by the Board and (b) the adoption by the Board of any amendment to the
Plan that constitutes the adoption of a new plan for purposes of Section 422 of
the Code.
13.3 Consent of Participant
The amendment or termination of the Plan or the amendment of an outstanding
Award shall not, without the Participant's consent, impair or diminish any
rights or obligations under any Award theretofore granted to the Participant
under the Plan. Any change or adjustment to an outstanding Incentive Stock
Option shall not, without the consent of the Participant, be made in a manner so
as to constitute a "modification" that would cause such Incentive Stock Option
to fail to continue to qualify as an Incentive Stock Option. Notwithstanding the
foregoing, any adjustments made pursuant to Section 12 shall not be subject to
these restrictions.
SECTION 14. GENERAL
14.1 Evidence of Awards
Awards granted under the Plan shall be evidenced by a written instrument
that shall contain such terms, conditions, limitations and restrictions as the
Plan Administrator shall deem advisable and that are not inconsistent with the
Plan.
14.2 No Individual Rights
Nothing in the Plan or any Award granted under the Plan shall be deemed to
constitute an employment contract or confer or be deemed to confer on any
Participant any right to continue in the employ of, or to continue any other
relationship with, the Company or any Related Corporation or limit in any way
the right of the Company or any Related Corporation to terminate a Participant's
employment or other relationship at any time, with or without Cause.
14.3 Registration
Notwithstanding any other provision of the Plan, the Company shall have no
obligation to issue or deliver any shares of Common Stock under the Plan or make
any other distribution of benefits under the Plan unless such issuance, delivery
or distribution would comply with all applicable laws (including, without
limitation, the requirements of the Securities Act), and the applicable
requirements of any securities exchange or similar entity.
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<PAGE> 36
The Company shall be under no obligation to any Participant to register for
offering or resale or to qualify for exemption under the Securities Act, or to
register or qualify under state securities laws, any shares of Common Stock,
security or interest in a security paid or issued under, or created by, the
Plan, or to continue in effect any such registrations or qualifications if made.
The Company may issue certificates for shares with such legends and subject to
such restrictions on transfer and stop-transfer instructions as counsel for the
Company deems necessary or desirable for compliance by the Company with federal
and state securities laws.
To the extent that the Plan or any instrument evidencing an Award provides
for issuance of stock certificates to reflect the issuance of shares of Common
Stock, the issuance may be effected on a noncertificated basis, to the extent
not prohibited by applicable law or the applicable rules of any stock exchange.
14.4 No Rights as a Shareholder
No Option or Stock Award denominated in units shall entitle the Participant
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.
14.5 Compliance With Laws and Regulations
Notwithstanding anything in the Plan to the contrary, the Plan
Administrator, in its sole discretion, may bifurcate the Plan so as to restrict,
limit or condition the use of any provision of the Plan to Participants who are
officers or directors subject to Section 14 of the Exchange Act without so
restricting, limiting or conditioning the Plan with respect to other
Participants. Additionally, 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.
14.6 Participants in Foreign Countries
The Plan Administrator shall have the authority to adopt such
modifications, procedures and subplans as may be necessary or desirable to
comply with provisions of the laws of foreign countries in which the Company or
its Related Corporations may operate to assure the viability of the benefits
from Awards granted to Participants employed in such countries and to meet the
objectives of the Plan.
14.7 No Trust or Fund
The Plan is intended to constitute an "unfunded" plan. Nothing contained
herein shall require the Company to segregate any monies or other property, or
shares of Common Stock, or to create any trusts, or to make any special deposits
for any immediate or deferred amounts payable to any Participant, and no
Participant shall have any rights that are greater than those of a general
unsecured creditor of the Company.
14.8 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.
14.9 Choice of Law
The Plan and all determinations made and actions taken pursuant hereto, to
the extent not otherwise governed by the laws of the United States, shall be
governed by the laws of the State of Washington without giving effect to
principles of conflicts of laws.
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SECTION 15. EFFECTIVE DATE
The Effective Date is the date on which the Plan is adopted by the Board,
so long as it is approved by the Company's stockholders at any time within 12
months of such adoption.
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PLAN ADOPTION AND AMENDMENTS/ADJUSTMENTS
SUMMARY PAGE
<TABLE>
<CAPTION>
DATE OF BOARD DATE OF SHAREHOLDER
ACTION ACTION SECTION/EFFECT OF AMENDMENT APPROVAL
- ------------- ------ --------------------------- -------------------
<S> <C> <C> <C>
March 7, 2000 Initial Plan Adoption
</TABLE>
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<PAGE> 39
ITRON, INC.
THIS PROXY IS SOLICITED BY ITRON'S BOARD OF DIRECTORS FOR THE ANNUAL MEETING
OF SHAREHOLDERS TO BE HELD ON JUNE 28, 2000
The undersigned hereby appoint(s) LeRoy D. Nosbaum and S. Edward White,
and each of them, as proxies, with full power of substitution, to represent and
vote as designated all shares of common stock of Itron, Inc. held of record by
the undersigned on April 21, 2000 at the Annual Meeting of Shareholders of Itron
to be held at the Doubletree Hotel - Spokane City Center, Grand Ballroom -
Salons 1, 2 and 3, 322 North Spokane Falls Court, Spokane, Washington, at 8:00
a.m., local time, on Wednesday, June 28, 2000, with authority to vote upon the
matters listed on reverse and with discretionary authority as to any other
matters that may properly come before the meeting or any adjournment or
postponement thereof.
IMPORTANT - PLEASE DATE AND SIGN ON THE OTHER SIDE
- --------------------------------------------------------------------------------
- FOLD AND DETACH HERE -
<PAGE> 40
Please mark
your votes as
indicated in
this example. /X/
The board of directors recommends a vote "FOR the Nominees" in Item 1 and "FOR
Adoption" in Item 2.
(1) ELECTION OF DIRECTORS WITHHOLD
Nominees: AUTHORITY
Michael J. Chesser FOR THE TO VOTE FOR THE
LeRoy D. Nosbaum NOMINEES NOMINEES
Michael B. Bracy
Mary Ann Peters / / / /
Graham M. Wilson
WITHHOLD for the following nominee only (write the name of the nominee in the
space below):
___________________________________________
WITHHOLD
AUTHORITY
FOR TO VOTE FOR
ADOPTION ADOPTION
(2) ADOPTION OF ITRON, INC. 2000 STOCK
INCENTIVE COMPENSATION PLAN / / / /
SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS DIRECTED BY THE SHAREHOLDER IN
THE SPACE PROVIDED. IF NO DIRECTION IS GIVEN, THIS PROXY WILL BE VOTED "FOR THE
NOMINEES" IN ITEM 1 AND "FOR ADOPTION" IN ITEM 2.
I plan to attend the Annual Meeting / /
Signature(s)_____________________________________________Date___________________
Please sign exactly as your name appears on your stock certificate. Attorneys,
trustees, executors and other fiduciaries acting in a representative capacity
should sign their names and give their titles. An authorized person should sign
on behalf of corporations, partnerships, associations, etc. and give his or her
title. If your shares are held by two or more persons, each person must sign.
Receipt of the notice of meeting and proxy statement is hereby acknowledged.
- --------------------------------------------------------------------------------
- FOLD AND DETACH HERE -
