Exhibit 10.4

ITRON, INC.

AMENDED AND RESTATED

2000 STOCK INCENTIVE PLAN

As adopted by the board on February 16, 2006 and approved by the shareholders on
May 9, 2006

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SECTION 1.    PURPOSE

The purpose of the Itron, Inc. Amended and Restated 2000 Stock Incentive 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 any Option, Stock Award or Performance Shares and Performance
Units granted pursuant to the provisions of the Plan.

“Board” means the Board of Directors of the Company.

“Cause,” unless otherwise defined in the instrument evidencing the Award or in a
written employment or services agreement between the Participant and the Company
or a Related Corporation in connection with an Award, 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, no par value per share, of the Company.

“Corporate Transaction” has the meaning set forth in Section 14.3.1.

“Covered Employee” means a “covered employee” as that term is defined in
Section 162(m)(3) of the Code or any successor provision.

“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 16.

“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 Stock Market,
the closing sales price for the Common Stock as reported by The NASDAQ Stock
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

 

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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 authorizing the grant of an Award or such later date specified
by the Plan Administrator, and on which 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.

“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 8.8 in connection with
Incentive Stock Options, means any entity, whether now or hereafter existing,
that directly or indirectly controls the Company.

“Participant” means the person to whom an Award is granted.

“Performance Award” means any Award of Performance Shares or Performance Units
granted pursuant to Section 10.

“Performance Share” has the meaning set forth in Section 10.1.

“Performance Unit” has the meaning set forth in Section 10.2.

“Plan Administrator” has the meaning set forth in Section 3.1.

“Related Corporation” means any Parent or Subsidiary of the Company.

“Related Party Transaction” has the meaning set forth in Section 14.3.1.

“Retirement,” unless otherwise defined by the Plan Administrator from time to
time for purposes of the Plan, means retirement on or after the individual’s
normal retirement date under the Company’s 401(k) plan or other similar
successor plan applicable to salaried employees.

“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 8.8 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 14.3.2.

“Termination Date” has the meaning set forth in Section 7.6.

“Vesting Base Date” means the Grant Date or such other date selected by the Plan
Administrator as the date from which an Option begins to vest for purposes of
Section 7.4.

 

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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 Plan Administrator pursuant to the Plan, shall be conclusive and
binding on all parties involved or affected. In no event, however, shall the
Plan Administrator have the right to (a) without shareholder approval, cancel or
amend outstanding Options for the purpose of repricing, replacing or regranting
such Options with a purchase price that is less than the purchase price for the
original Options, except in connection with adjustments provided in
Section 14.1, or (b) issue an Option or amend an outstanding Option to provide
for the grant or issuance of a new Option on exercise of the original Option.
The Plan Administrator may delegate ministerial duties to such of the Company’s
officers as it so determines. The Plan Administrator, for purposes of
determining the effect on an Award of a Company-approved leave of absence or a
Participant’s working less than full-time, shall be the chief executive officer
of the Company or his designee.

SECTION 4.    STOCK SUBJECT TO THE PLAN

4.1    Authorized Number of Shares

Subject to adjustment from time to time as provided in Section 14.1, the number
of shares of Common Stock that shall be available for issuance under the Plan
shall be 4,525,000. 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

Subject to adjustment from time to time as provided in Section 14.1, not more
than an aggregate of 300,000 shares shall be available for issuance pursuant to
grants of Awards other than Options under the Plan. This Section 4.2(a) is not
intended as a limit on the number of Options that may be granted under the Plan.

 

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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.

6.2    Settlement of Awards

The Company may settle Awards through the delivery of shares of Common Stock,
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.

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.

 

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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. 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 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:

 

    

Period of Participant’s Continuous Employment

or Service With the Company or Its Related

Corporations From the Vesting Base Date

     

Percent of Total Option

That Is Vested and Exercisable

     

After 1 year

    25%    

After 2 years

    50%    

After 3 years

    75%    

After 4 years

    100%  

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 or who takes a Company-approved leave of absence.

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

 

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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
promissory note or (ii) the guarantee by the Company of a loan obtained by the
Participant from a third party; provided, however, that any such note or loan
must be full-recourse to the extent necessary to avoid charges to the Company’s
earnings for financial reporting purposes. Subject to the foregoing, the Plan
Administrator shall in its sole discretion specify the terms of any loans or
loan guarantees, including the interest rate and terms of and security for
repayment.

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,
Retirement, death or Disability, the three-month anniversary of such Termination
Date; and

(iii) if the Participant’s Termination Date occurs by reason of Retirement,
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. If any facts that would constitute termination for Cause are
discovered

 

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after a Participant’s Termination Date, any Option then held by the Participant
may be immediately terminated by the Plan Administrator, in its sole discretion.

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 or vice versa, 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% Shareholders

If an individual owns more than 10% of the total combined voting power of all
classes of the stock of the Company or of its parent or subsidiary corporations,
then the exercise price per share of an Incentive Stock Option shall not be less
than 110% of the Fair Market Value of the Common Stock on the Grant Date and the
Option Term shall not exceed five 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.

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.

8.6    Taxation of Incentive Stock Options

In order to obtain certain tax benefits afforded to Incentive Stock Options
under Section 422 Internal Revenue Code of 1986 (“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

 

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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.

8.8    Code Definitions

For purposes of this Section 8, “parent corporation” and “subsidiary
corporation” shall have the meanings attributed to those terms for purposes of
Section 422 of the Code.

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), 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.

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.    PERFORMANCE AWARDS

10.1    Performance Shares

The Plan Administrator may grant Awards of performance shares (“Performance
Shares”) and designate the Participants to whom Performance Shares are to be
awarded and determine the number of Performance Shares and the terms and
conditions of each such Award. Performance Shares shall consist of a unit valued
by reference to a designated number of shares of Common Stock, the value of
which may be paid to the Participant by delivery of such property as the Plan
Administrator shall determine, including, without limitation, cash, shares of
Common Stock, other property, or any combination thereof, upon the

 

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attainment of performance goals, as established by the Plan Administrator, and
other terms and conditions specified by the Plan Administrator. Notwithstanding
the satisfaction of any performance goals, the amount to be paid under an Award
of Performance Shares may be adjusted on the basis of such further consideration
as the Plan Administrator shall determine in its sole discretion.

10.2    Performance Units

The Plan Administrator may grant Awards of performance units (“Performance
Units”) and designate the Participants to whom Performance Units are to be
awarded and determine the number of Performance Units and the terms and
conditions of each such Award. Performance Units shall consist of a unit valued
by reference to a designated amount of property other than shares of Common
Stock, which value may be paid to the Participant by delivery of such property
as the Plan Administrator shall determine, including, without limitation, cash,
shares of Common Stock, other property, or any combination thereof, upon the
attainment of performance goals, as established by the Plan Administrator, and
other terms and conditions specified by the Plan Administrator. Notwithstanding
the satisfaction of any performance goals, the amount to be paid under an Award
of Performance Units may be adjusted on the basis of such further consideration
as the Plan Administrator shall determine in its sole discretion.

SECTION 11.    CODE SECTION 162(m) PROVISIONS

(a) Notwithstanding any other provision of the Plan, if the Plan Administrator
determines at the time a Stock Award or a Performance Award is granted to a
Participant who is then an officer that such Participant is, or is likely to be
as of the end of the tax year in which the Company would claim a tax deduction
in connection with such Award, a Covered Employee, then the Plan Administrator
may provide that this Section 11 is applicable to such Award.

(b) If a Stock Award or a Performance Award is subject to this Section 11, then
the lapsing of restrictions thereon and the distribution of cash, shares of
Common Stock or other property pursuant thereto, as applicable, shall be subject
to the achievement of one or more objective performance goals established by the
Plan Administrator, which shall be based on the attainment of specified levels
of one or any combination of the following business criteria of the Company as a
whole or any business unit of the Company, as reported or calculated by the
Company: cash flows (including, but not limited to, operating cash flow, free
cash flow or cash flow return on capital); working capital; earnings per share;
book value per share; operating income (including or excluding depreciation,
amortization or other expenses); revenues; operating margins; return on assets;
return on equity; debt; debt plus equity; market or economic value added; stock
price appreciation; total stockholder return; cost control; strategic
initiatives; market share; net income; return on invested capital; improvements
in capital structure; or customer satisfaction, employee satisfaction, services
performance, subscriber, cash management or asset management metrics. Such
performance goals also may be based on the achievement of specified levels of
Company performance (or performance of an applicable affiliate or business unit
of the Company) under one or more of the measures described above relative to
the performance of other corporations. Such performance goals shall be set by
the Plan Administrator within the time period prescribed by, and shall otherwise
comply with the requirements of, Section 162(m) of the Code, or any successor
provision thereto, and the regulations thereunder.

(c) Notwithstanding any provision of the Plan other than Section 14, with
respect to any Stock Award or Performance Award that is subject to this
Section 11, the Plan Administrator may adjust downwards, but not upwards, the
amount payable pursuant to such Award, and the Plan Administrator may not waive
the achievement of the applicable performance goals except in the case of the
death or disability of the Covered Employee.

(d) The Plan Administrator shall have the power to impose such other
restrictions on Awards subject to this Section 11 as it may deem necessary or
appropriate to ensure that such Awards satisfy all requirements for
“performance-based compensation” within the meaning of Section 162(m)(4)(C) of
the Code, or any successor provision thereto.

 

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(e) Subject to adjustment from time to time as provided in Section 14.1, no
Covered Employee may be granted Options, Stock Awards or Performance Shares
subject to this Section 11 in any calendar year period with respect to more than
300,000 shares of Common Stock for such Award, except that the Company may make
additional one time grants of such Awards for up to 600,000 shares to newly
hired individuals, and the maximum dollar value payable with respect to
Performance Units subject to this Section 11 granted to any Covered Employee in
any one calendar year is $1,000,000.

SECTION 12.    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.

SECTION 13.    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, except to the extent a Participant designates
a beneficiary on a Company-approved form who may exercise the Award or receive
payment under the Award after the Participant’s death. During a Participant’s
lifetime, 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 or transfer;
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 14.    ADJUSTMENTS

14.1    Adjustment of Shares

In the event that, at any time or from time to time, a stock dividend, stock
split, spin-off, combination or exchange of shares, recapitalization, merger,
consolidation, distribution to shareholders other than a normal cash dividend,
or other change in 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, (ii) 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, and (iii) and the number and kind of securities automatically granted
pursuant to a formula program established under the Plan. 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 14.1 but shall be governed by Sections 14.2 and 14.3, respectively.

14.2    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

 

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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.

14.3    Corporate Transaction

14.3.1    Definitions

“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 8.8) 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.

14.3.2    Options

In the event of a Corporate Transaction, except as otherwise provided in the
instrument evidencing the Award or in written employment or services agreement
between a Participant and the Company or a Related Corporation in connection
with an 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. If the 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 14.3, the Option shall be considered assumed if,
following the Corporate Transaction, the option or right confers the right to

 

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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.

14.3.3    Stock Awards

In the event of a Corporate Transaction, except as otherwise provided in the
instrument evidencing the Award or in a written employment or services agreement
between a Participant and the Company or a Related Corporation in connection
with an 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.

14.3.4    Performance Awards

In the event of a Corporate Transaction, the vesting and payout of Performance
Awards shall be as provided in the instrument evidencing the Award or in a
written employment or services agreement between a Participant and the Company
or a Related Corporation.

14.4    Further Adjustment of Awards

Subject to Sections 14.2 and 14.3, 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.

14.5    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.

14.6    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.

 

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SECTION 15.    AMENDMENT AND TERMINATION OF PLAN

15.1    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.

15.2    Suspension or 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.

15.3    Consent of Participant

The suspension, amendment or termination of the Plan or a portion thereof 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 14 shall not be subject to these restrictions.

SECTION 16.    GENERAL

16.1    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.

16.2    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.

16.3    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.

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
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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.

16.4    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.

16.5    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 16 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.

16.6    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 ensure the viability of the benefits from Awards
granted to Participants employed in such countries and to meet the objectives of
the Plan.

16.7    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.

16.8    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.

16.9    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 17.    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 shareholders at any time within 12
months of such adoption.

 

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