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                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10K

            |X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

                   For the fiscal year ended December 31, 1999

                                       OR

          |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                        SECURITIES EXCHANGE ACT OF 1934
                        For the transition period from to

                         Commission file number 0-22418

                                   ITRON, INC.
             (Exact name of registrant as specified in its charter)

                              Washington 91-1011792
                    (State of Incorporation) (I.R.S. Employer
                             Identification Number)

                            2818 North Sullivan Road
                         Spokane, Washington 99216-1897
                                 (509) 924-9900
   (Address and telephone number of registrant's principal executive offices)

          Securities registered pursuant to Section 12(b) of the Act:

                                      None
          Securities registered pursuant to section 12(g) of the Act:
                               Title of each class
                           Common stock, no par value

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days. Yes__X___ No_____

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-K is not contained  herein,  and will not be contained,  to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. ____

As of  February  29,  2000,  there  were  outstanding  15,037,724  shares of the
registrant's  common stock,  no par value,  which is the only class of common or
voting stock of the registrant.  As of that date, the aggregate  market value of
the shares of common stock held by  non-affiliates  of the registrant  (based on
the closing price for the common stock on the Nasdaq National Market on February
29, 2000) was approximately $112,797,930.

                       DOCUMENTS INCORPORATED BY REFERENCE
The  information  called for by Part III is  incorporated  by  reference  to the
definitive Proxy Statement for the Annual Meeting of Shareholders of the Company
to be held June 28, 2000.

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<PAGE>


PART I


Item 1:  BUSINESS

                                                   OVERVIEW
General

     Itron,  Inc. was incorporated in Washington in 1977 and is a leading global
provider of integrated system solutions for collecting, communicating, analyzing
and  managing  information  about energy and water  usage.  We design,  develop,
manufacture,  market,  install and service  hardware,  software  and  integrated
systems primarily for use by the utility industry. Our expertise is in providing
communications  technologies  and data  management  products for automatic meter
reading and advanced data collection systems ("AMR"), which systems also include
commercial and industrial  ("C&I") meter data  collection  systems,  and complex
billing and settlement systems for the wholesale energy markets.

     Our first  systems,  shipped  in the early  1980s,  consisted  of  handheld
computers and software, which replaced the manual,  paper-intensive systems used
by most utilities at that time to read meters.  Handheld systems allow a utility
to capture  visually  obtained  meter data in a handheld  computer  for  billing
purposes.  Many of  these  systems  are  still  in wide use  today.  Over  1,500
utilities  around the world in more than 45 counties use our handheld systems to
read   approximately   275  million   meters.   Our  systems  are  installed  at
approximately 75% of the largest utilities (those with 50,000 or more meters) in
the United States and Canada including 22 of the largest 25 utilities.  Handheld
products and services represented 36% of our total revenues in 1999.

     In the  early  1990s,  we took  meter  reading  one step  further  with the
introduction  of highly  automated and  integrated AMR  technologies,  primarily
focused on  residential  customers.  In 1996, we expanded  further into advanced
energy usage data  collection and analysis with the  acquisition of technologies
for C&I  customers.  In the late  1990s we also began  working  on  systems  for
managing  transactions  related  to  wholesale  energy  distribution.   Our  AMR
technologies  today provide  utilities and their customers with information that
goes  far  beyond  meter   reading.   Using  an  assortment  of   communications
technologies,  our AMR  systems  collect  data  from a variety  of  residential,
commercial and industrial  meters and deliver it to our customers as value-added
information.  We are the largest  supplier of systems for the AMR market  having
shipped over 15.4 million AMR meter  modules to 550 utilities as of December 31,
1999. In addition, our C&I data collection systems are now used by more than 500
utilities  throughout the world. AMR systems sales,  services,  and outsourcing,
were 64% of our total revenues in 1999.

Industry Overview and Current Market for AMR

     The electric  utility  industry is  undergoing  a structural  sea change as
electric power generation is opened up to full competition with retail customers
ultimately having access to multiple suppliers.  We believe there are additional
changes  in the  industry  that  will have an  impact  on how  energy  and water
providers run their businesses and serve their customers. These include:

|X|  The  growth  and   development  of  new  energy   generation  and  delivery
     technologies,  which  incorporate  fuel  cells,  micro  turbines  and other
     innovations   will  create  an  entirely   new  type  of  energy   delivery
     infrastructure  characterized by distributed generation and microgrids. Our
     competencies in communications technologies and advanced energy information
     management position us well to provide solutions that will help manage this
     new industry dynamic.



<PAGE>



|X|  Energy  and water  suppliers  must  find new ways to  interact  with  their
     customers  or they will  risk  losing  them.  The data and  information  we
     collect is a part of the vital new link to their customers.  With the rapid
     deployments  of advanced  broadband  technologies  we have an even  greater
     opportunity to assist our customers' abilities to repackage the information
     we collect and deliver it in new and exciting  ways.  Our goal is to become
     an integral part of changing the way energy and water suppliers communicate
     with their customers.


     While utility companies may retain many of their traditional functions,  we
expect it is likely that our future  customer  base will consist of  traditional
utility  companies  as well  as new  market  entrants.  Some  functions  will be
provided by new  entities  such as  Independent  System  Operators  ("ISOs") and
Energy Service Providers ("ESPs"). Utilities may turn the operational control of
certain of their  transmission  facilities over to ISOs. Our Energy  Information
Systems ("EIS")  strategic  business unit has developed some new products and is
already  working with a number of new entities in the wholesale  energy markets.
ESPs and aggregators are expected to provide both electricity and natural gas to
commercial,  industrial  and  residential  customers  and may,  in some  places,
perform meter reading and customer billing. In addition to ESPs, a number of new
entities  will  likely  emerge  to  provide  metering  and data  services.  Such
companies  also  may buy and  sell  electricity  and may  have to deal  with the
frequent changes in prices and costs for the transfer of power.

     In the gas industry,  we believe  deregulation will create many of the same
needs as  deregulation of the electric  industry,  such as an increased focus on
customer   retention  and  the  ability  to  forecast  usage  requirements  more
accurately.

     In  addition to changes in the  electric  and gas  industries,  there are a
number of changes and  important  factors to  consider in the water  industry as
well.  Only 60% of the  households  in North America are being metered for water
usage today.  There are  approximately  60 million water meters in North America
with new construction  adding  approximately  4.5 million new meters every year.
With  utility  rate  increases  for water  averaging  twice  that of the  annual
consumer  price index in the last four years,  there is  tremendous  pressure on
water  utilities to reduce  operating  costs  through  metering  and  technology
solutions.

     We  believe  that the major  changes  taking  place in the energy and water
industries  will  create  opportunities  which  we are well  positioned  to take
advantage of. Our advanced  energy data  management and  communications  product
offerings are more extensive than those of any other AMR supplier. Our solutions
support  electric,  gas,  and water  service and include  all  customer  types -
residential, commercial and industrial. We utilize radio, telephone and cellular
technologies  as well as private  and public  communications  networks.  We have
significant  experience  in  high-volume  AMR meter module  production.  We have
established  relationships  with  over  1,500  utilities  worldwide  and  proven
interfaces with numerous utility  host-billing  systems.  We have communications
capabilities and advanced software for large commercial and industrial customers
and systems that provide critical  billing and settlement  transactions for open
supply  markets.  We have and are  increasingly  moving into the new and rapidly
growing market for water submetering.

1999 Highlights

     We hired a new CEO,  Mike  Chesser,  in June  1999 and made a number of key
changes to the executive  management  team. In the last half of 1999,  under the
direction of the executive team, we took a very hard look at our business with a
focus on improving our profitability and prospects for growth.  Our efforts were
largely   directed  at  creating  a  more   efficient,   effective  and  focused
organization. We refined our vision and strategies and made a number of sweeping
and fundamental changes in our organization,  people,  business  processes,  and
culture.

     Effective  January 1, 2000, we replaced our  product-driven  organizational
structure with strategic  business units ("SBUs")  focused on specific  customer
segments  that we serve.  These new business  units  include  Electric  Systems,
Natural Gas Systems,  Water and Public Power Systems, and International Systems.
In addition,  an Energy Information Systems SBU was created to capitalize on our
rapidly growing business of developing  customized  wholesale energy information
systems.  These  business  units now have  strategic,  financial,  and  resource
development targets to drive performance and accountability. In conjunction with
this reorganization we streamlined processes, functions and headcount throughout
the company.

     In addition to the organizational  structure changes, we took action in the
last half of 1999 in a number of other key areas:

|X|  We  consolidated  our  high-volume   manufacturing  operations  from  three
     locations  to one. We expect this to result in a  significant  reduction in
     our  manufacturing  costs  by  reducing  overhead  and  increasing  factory
     efficiency.

|X|  We consolidated handheld, mobile, network and AMR telephone development and
     support into one group.  We continued  the reduction in the number of meter
     reading hardware and software platforms we are offering.

|X|  We  substantially   repositioned  our  European  operations  with  a  sharp
     reduction  in the scope  and  spending  level of  product  development  not
     related  to our core  business.  We are  also  moving  from a direct  sales
     approach to one that is more distributor-based.

     Overall, the organizational  restructuring and other actions above resulted
in a  total  company-wide  headcount  reduction  of  approximately  15%,  with a
reduction  in  management  levels of close to 25%.  Charges  during 1999 for all
restructuring  actions totaled $16.7 million.  See "Management's  Discussion and
Analysis of Financial Condition and Results of Operations."

     In February 2000, we signed a non-binding  memorandum of understanding with
DQE,  the parent  company of  Duquesne  Light  Company  ("Duquesne"),  for their
purchase  (by  Duquesne or an  affiliate)  of our  network-based  system,  which
provides AMR services to  Duquesne.  We expect to incur a loss of  approximately
$50  million  in  connection  with this  sale,  which is  reflected  in our 1999
financial results.  The sale will free up a large amount of cash which will give
us  additional  financial  resources to pursue other  investment  opportunities,
which we believe  will result in greater  financial  returns.  The sale does not
indicate any change in our plans to sell and install new  network-based  systems
or to develop new  applications  for our  network  products.  See  "Management's
Discussion and Analysis of Financial Condition and Results of Operations."

     In March 2000,  we announced  that LeRoy D.  Nosbaum,  our chief  operating
officer,  had been named  president and CEO,  replacing Mike Chesser,  chairman,
president and CEO, who was leaving the Company to become  president and CEO of a
large east coast utility in April 2000. In addition, Rob Neilson, vice-president
strategy and business  development  was named chief  operating  officer,  and S.
Edward  White,  a director  and a former  executive  officer of ours,  was named
chairman of the board.



<PAGE>




                             DESCRIPTION OF BUSINESS

Itron Solutions and Benefits

Solutions

     We have an extensive and cost-effective  portfolio of energy and water data
management and communication solutions that provide utilities and other industry
participants with numerous options for responding to evolving operational needs,
marketing opportunities and regulatory reform requirements.

     Our solutions integrate a broad array of meter modules, radio and telephone
based  communications  systems,  and  data  management,   delivery  and  storage
applications.   This  integrated   approach  provides  our  customers  with  the
flexibility  needed to apply the most  cost-effective  solution to each of their
situations  -  rural,  suburban,  urban;  residential,  commercial,  industrial;
electricity, natural gas, and water.

     Our technologies are designed to accommodate the inevitability of change so
that our customers can select  solutions  that meet their needs today while also
laying the foundation for more advanced solutions to meet their future corporate
goals and objectives. Our radio-based solutions encompass handheld ("off-site"),
mobile and network  reading  technology  options.  Because the same  radio-based
meter  modules  can  be  used  with  any of  these  alternatives,  our  products
facilitate  the migration from one level of systems  automation to another.  Our
telephone-based  solutions offer an economically  attractive alternative for low
density or selective deployment situations.

     We have developed  software  solutions with  applications  that  integrate,
manage and store data from various data collection  systems.  These applications
enable our customers to integrate data from different technologies into a common
format.  This allows the deployment of various collection  technologies within a
service  territory,  tailored to the economic and functional  considerations  of
different portions of the territory.

     We work  with our  customers  to  facilitate  alternative  ways in which to
finance our technologies.  We sell products,  outsource entire systems,  provide
installation,  operations,  and  maintenance  services,  and arrange  customized
financial solutions for our customers. These customized financial solutions vary
from simple third party leases to complex project financing structures depending
on the financial and operational goals of our customers.

Benefits

     AMR  market  penetration  is still at an early  stage.  Traditionally,  our
customers  that  have  deployed  AMR  technology  territory-wide  have  done  so
primarily on the basis of reducing  costs and improving the  efficiency of meter
reading  applications.  While  this  remains a  critical  piece of the AMR value
proposition,  our  products,  systems  and  solutions  provide  a wide  range of
benefits to our  customers  that go far beyond meter  reading and  billing.  Our
customers are finding that AMR technology can be an integral  component of their
operational  and strategic  objectives  of reducing  costs,  improving  customer
service,  delivering real process improvement,  and successfully  evolving their
businesses  to manage the threats and seize the  opportunities  presented  by an
increasingly competitive marketplace. Our AMR technologies provide our customers
with operational improvements and returns on investment in the areas of:

|X|      Revenue Cycle Services
|X|      Management of Distribution Assets
|X|      Management of Market Change and Customer Choice
|X|      Delivery of New Value-Added Services

     Revenue Cycle Services: Automation of the meter reading function results in
a number of obvious  benefits in the area of revenue  cycle  services  including
reductions in meter reading staff and the operational  support costs,  increased
accuracy,  improved safety,  elimination of estimated  reads,  elimination of or
large  reductions in special reads,  reductions in customer  complaints and call
center traffic, and reductions in billing adjustments.  One of our customers,  a
large water utility,  reduced their percentage of estimated (rather than actual)
reads from 70% to less than 1% with the installation of our AMR technology. That
improvement resulted in significant reductions in costs associated with customer
complaints,   billing  adjustments  and  back-office  administrative  functions.
Another customer,  a large electric  utility,  reduced their read to bill period
for  special  reads  from  nine  days  to  one  day  resulting  in   significant
improvements  in cash flow.  Our  technology  also provides  benefits to improve
revenue assurance through tamper and energy theft detection, which is an ongoing
benefit,  as well as a one time benefit from improved  meter  accuracy as meters
are inspected during the installation process. One of our large electric and gas
customers  experienced a year-to-year revenue increase of $2 million for 200,000
accounts by removing  older,  slow-running  meters from  service  during the AMR
installation process.

     Management  of  Distribution  Assets:  The use of metering  information  to
manage local distribution systems more efficiently applies to electric,  gas and
water  utilities.  Our  technologies,  installed  in a saturated  or a selective
deployment basis,  increase the number of outage detection points throughout our
customers'  distribution  systems.  This  increased  ability to  pinpoint  where
electric  system outages have occurred can  dramatically  improve  service,  and
ultimately, improve distribution system reliability. By delivering accurate load
(electric and gas) and volume  (water)  information,  our  technologies  provide
utilities  with the  information  they  need to  identify,  locate  and  replace
improperly sized equipment,  and to identify  potential  equipment  failures and
leaks.  This  information  helps our customers fine tune the deployment of their
distribution  assets and take corrective action before improperly sized or under
rated equipment results in service disruptions,  expensive maintenance, property
damage and  customer  complaints.  Optimizing  the use of  current  distribution
assets helps our customers  avoid,  minimize or defer  expensive  investments in
additional  infrastructure.  For example,  a mid-sized water utility customer is
using our technology to understand  residential water usage patterns in order to
create  conservation  programs and incentives they hope will aid their effort to
minimize or defer  expensive  investments  in water  purification  and treatment
facilities as the area's population grows.

     Management of Market Change and Customer Choice:  With  deregulation  plans
underway  in at least  half the  states,  customer  choice  is  moving  from the
exception to the norm. Our communications and energy data management  technology
and  systems  provide  critical  information  to our  customers  and  others  to
effectively manage how much energy is put into distribution systems and by whom,
and how much is taken out and by whom. Our technology enables access to critical
information  necessary for reconciliation and settlements in a timely manner for
a number of market participants. In several deregulated states, utilities face a
variety of  financial  or pricing  penalties  associated  with  deviations  from
scheduled usage. Load information  provided by our technology  enables utilities
to increase their  forecasting  accuracy.  Our technology has enabled one of our
large electric  customers to improve their  forecasted use to within one percent
of actual usage in a state that has mandated a 1 1/2%  deviation  rule.  In many
deregulated  states,  load  profiling is becoming  increasingly  necessary and a
common requirement for sample customers or for different  customer classes.  Our
communications  and energy data management  technology  enables our customers to
cost-effectively perform load-profiling functions without the burdensome task of
moving  expensive load profile meters from place to place.  Our technology helps
utilities receive incentives rather than incur penalties in deregulating  states
where  performance-based  rate making is resulting in new  requirements  such as
reductions  in  estimated  reads and  reductions  in the number and  duration of
outages.

     Delivery of New  Value-Added  Services:  To ensure  growth and success in a
competitive marketplace, utilities must develop, market and deliver new products
and  services  that  offer real  value to their  customers.  We believe a key to
successfully  developing  and  marketing new products and services is getting to
know the customer better - who they are, how and when they use energy and water,
and what services  deliver value to them. A few of the  value-added  new product
and service offerings that advanced AMR technology creates include aggregated or
disaggregated  billing  options for customers  with multiple  meters at multiple
sites, selectable billing dates or frequency,  customized billing and invoicing,
outage  monitoring and  notification  services,  Internet access to data,  usage
management and consulting, and forecasting services.

Itron's Vision and Strategies

     Our current  products  and systems  touch some portion of nearly 70% of the
energy  transactions  representing  $200 billion of energy  related  business in
North  America  alone.  We will  continue to  aggressively  pursue the  numerous
opportunities  available  for advanced  metering and billing  systems.  From the
strong standing we have in the AMR market,  we believe we are well positioned to
move in two  directions,  energy  delivery  optimization  and connecting  energy
customers and suppliers. We will be pursuing opportunities for electric, gas and
water  utilities to optimize  their assets and increase  their gross  margins by
applying  our  current  and future  technologies,  advanced  energy  information
management systems and industry knowledge. Our goal will be to provide solutions
that enhance our customers' abilities to delivery energy and water more reliably
and cost  effectively.  In addition,  energy and water suppliers are looking for
ways to serve  and  communicate  with  their  customers.  We will  help  them by
providing new ways to interact  with their  customers,  such as  delivering  and
receiving the valuable information we collect over the Internet.


Core Business Strategies

     In our core business we will continue to build upon our extensive  customer
base and  industry  experience.  We have  established  ourselves  as the world's
leading  supplier of AMR systems having shipped more than 15.4 million AMR meter
modules to  approximately  550  utilities as of December 31, 1999.  Our C&I data
collection  systems  are used by more than 500  utilities  throughout  the world
including  more than 70% of the major electric  utilities in North America.  Our
handheld  systems have been  installed  at over 1,500  utilities in more than 45
countries and are being used to read approximately 275 million meters worldwide.
These installations  include approximately 75% of the utilities in North America
that have meter  populations  greater  than  50,000.  We believe  our  extensive
customer  base,   long-term  customer   relationships,   upgrade  and  migration
capabilities of our current products, multiple systems integration capabilities,
and proven  interfaces with numerous  utility host billing  systems,  provide us
with a solid  foundation  upon  which we can expand our  product  offerings  and
services to existing  utility  customers,  as well as new utility  customers and
other industry participants.

Following are key elements of our strategies for our core business SBUs:


     Natural Gas Systems: There are approximately 66 million total gas meters in
North America, of which 9 million have AMR technology  installed.  Of those, 93%
are using Itron's AMR technology. Our AMR technology is compatible with more gas
meter types than that of any other  vendor.  Our battery  life for our AMR meter
modules is unmatched in the industry.  We have a number of new,  lower-cost  AMR
reading  technologies  that make the value  proposition  even more  economically
attractive  for gas  utilities.  The  Natural  Gas  Systems  SBU is  focused  on
approximately 60 primarily natural gas only utilities,  which represent about 36
million gas meters.  The vast majority of these meters,  roughly 27 million,  do
not have AMR  technology  and are being read today using our  handheld  systems.
This large base of current customers represents a strong upgrade opportunity for
us in this market segment.

     Water and  Public  Power  Systems:  There are  approximately  60,000  water
utilities and 3,000  municipal  electric and gas and rural electric  cooperative
utilities  in North  America  that are the focus of this market  segment.  These
water utilities  represent  approximately 60 million water meters. With only 60%
of  customers/households  being metered for water, new construction is resulting
in an addition of roughly 4.5 million  meters  annually.  Only about 2% of water
meters are currently automated.  With utility rate increases for water averaging
two times that of the annual consumer price index in the last four years,  there
is  tremendous  pressure on water  utilities to reduce  operating  costs through
metering and technology  solutions.  The public power  utilities in this segment
represent  approximately  30  million  electric  and gas  meters.  Public  power
utilities are increasingly  feeling the effects of deregulation and the pressure
to operate more  efficiently  and improve  customer  service.  As in Natural Gas
Systems, we have a number of new, lower-cost AMR reading  technologies that make
the value  proposition  economically  attractive  for these  utilities.  We will
continue to expand our product offerings for this market.  Sales in this SBU are
primarily through a distributor-based  model, of which we have approximately 30.
We are well  positioned  with a number  of the key  water  meter  manufacturers,
including ABB, Badger,  and Hersey.  We will continue to seek new  relationships
for delivery of our products and services in this SBU.

     Electric Systems:  There are approximately 170 operating  utilities in this
market segment,  primarily large,  investor-owned electric only and electric and
gas  combination  utilities.  In total,  these  customers  represent 102 million
electric  meters and 11 million gas meters.  Roughly 10% of those meters have or
are scheduled to have AMR technology  installed in them today,  half of which is
our technology. Close to 90% of these customers are currently using our handheld
meter reading  systems and almost all of them use our MV-90 software  systems to
read their large  commercial and industrial  meters.  C&I customers are the ones
most  currently  impacted  by  the  industry  transformation  to  a  competitive
marketplace.  Because of the service  territories  and the mix of customers  the
utilities in this segment serve - electric and gas; residential,  commercial and
industrial; rural, suburban and urban populations - they have diverse needs when
it comes to advanced  metering.  We believe we have a more extensive AMR product
offering  than any other  supplier  to provide  these  utilities  with  multiple
cost-effective   solutions  to  meet  their  diverse  needs.   Electric  utility
executives  are beginning to understand  that AMR goes beyond just meter reading
cost  reductions and operating  efficiencies.  We intend to expand our strategic
relationships  and  product  offerings  in  order  to  deliver  more  value  for
optimizing  distribution  system benefits and to enhance their  connections with
their customers.

     International  Systems:  This SBU is focused on sales of products,  systems
and  services  outside  of North  America.  We  estimate  that  outside of North
America,  there are two to three  times the number of meters as there are inside
North  America..  The  majority  of  revenues  for this SBU consist of sales and
servicing of our handheld  meter  reading  systems.  Interest in AMR systems and
technology  varies widely from country to country and overall is at a very early
penetration  level.  In  late  1999,  we  began  transitioning  this  SBU  to  a
"distributor  model" as our primary  sales  channel.  In that, we are focused on
establishing  new  relationships  and enhancing  existing  relationships  with a
number of strategic partners.  In addition, we are eliminating non-core business
development projects and are consolidating  development activities with those of
our North  American  operations.  Near term,  we are  focused on  improving  the
profitability of our  international  operations while laying a strong foundation
for growth as interest in AMR develops internationally.

New Business Strategies

     We  intend  to  leverage   our   expertise,   market   position  and  radio
communications  competencies  in order to  deliver  new  products  and  services
outside of our core  business.  We believe that as the  industry  transformation
continues,  there will be a heightened  focus by  utilities,  ESPs and others on
serving the advanced  metering needs of the largest users of electricity.  There
will  also  be  opportunities  for the  sale of  systems  directly  to  end-user
customers.   Regulatory  reform  is  also  creating  new  opportunities  on  the
"wholesale"  side of the business such as systems for  reconciling the supply of
power to and  purchases of power from  electric  power  transmission  grids.  We
believe there are numerous possibilities for growth.

     Energy  Information  Systems:  The EIS market  encompasses a broad range of
customer segments including distribution utilities,  power generators, and large
regional and state  independent  system operators  (ISO).  This SBU is currently
taking the greatest  advantage of the deregulating  energy market.  EIS products
and  systems  are  currently  being used to manage  critical  market  settlement
transactions for the electric transmission grids in the UK, California, Arizona,
and Ontario,  Canada.  In addition to supplying timely and accurate  information
for managing  the  wholesale  energy  market,  EIS products and systems  provide
value-added  services  for data  retrieval,  analysis  and  billing  from  large
commercial and industrial meters, outage and alarm monitoring, data delivery via
the Internet, data warehousing,  load profiling and forecasting, and information
on customer  switching.  Over 70% of the commercial and industrial meters in the
U.S.  and  Canada are read using our MV-90  software  systems.  We will focus on
selling additional  products and services to our current installed base. We will
also leverage our experience and  relationships  on the wholesale side to pursue
additional opportunities to participate in state and regional ISO and power grid
market settlement systems.

     Submetering:  An exciting new business opportunity we are pursuing is water
submetering. Submetering is the automated process of collecting consumption data
and generating  invoices to bill tenants  directly for their actual water usage,
thereby  eliminating  water  utility  costs  from  a  property  owner's  monthly
operating  expenses.  A submetering system integrates AMR technology with radio,
telephone,  and/or  cellular  communications  to collect and transmit usage data
from  tenant  meters  to  a  standard   computer  for   processing.   There  are
approximately  10 million  apartments in the U.S.  alone that contain 50 or more
apartments.  Submetering  includes both the sale of equipment as well as monthly
transaction  reading  services.  We will  pursue  opportunities  in this  market
through  indirect sales and our strategy is to develop  several strong  business
reseller  relationships  for  equipment  sales.  We also  intend to  expand  our
services offering by providing services for billing and collection.

Automatic Meter Reading Systems and Products

     Our AMR product  line  primarily  involves  the use of radio and  telephone
communications  technology  to collect and transmit  meter data.  The  Company's
radio-based  AMR solutions  encompass  Off-Site AMR, Mobile AMR and Network AMR.
Due to the  geographic  features and varying  population  density of a utility's
service territory, generally no single meter reading solution is technologically
or economically suited to all parts of the utility's service territory.  Our AMR
applications  are  intended  to  provide   flexibility  ranging  from  selective
installation for high  cost-to-read  meters or  geographically  dispersed meters
requiring  advanced  metering  functionality,  to full  implementation of an AMR
system  covering a large  portion of a utility's  service area. In a deregulated
marketplace, target marketing of specific features will be desirable. We provide
technology that can be selectively deployed to targeted end-use customers.  This
flexibility  enables our customers to achieve economic and operational  benefits
from their initial  investments in our AMR systems,  while enabling migration to
more comprehensive AMR solutions in the future as the marketplace requires.

     Meter  Modules:  Our core  business  AMR product  offerings  are based on a
family of meter modules.  These meter modules,  which can be easily  attached to
utility  meters,  encode  consumption  and tamper  information and transmit this
data,  including meter module  identification,  to a remote  receiver.  We began
shipping our radio meter  modules to customers in late 1986 and have adapted the
radio meter module core  technology to read numerous types of electric,  gas and
water  meters,  including  the most  common  meter  types  made by  major  meter
manufacturers.  Our  compact  radio meter  modules for gas and water  meters are
self-contained  low-power units, powered by long-life batteries with an expected
minimum life in excess of ten years.  Radio meter  modules for electric  meters,
which are normally  integrated under the glass of standard  residential  meters,
are powered by the electrical current in the meter and do not require batteries.
Radio  meter  modules  can be  installed  by the meter  manufacturer  during the
manufacturing process or can easily be retrofitted in existing meters.

     We also offer a separate  line of meter  modules  for use  outside of North
America.  The primary  differences between the meter modules used by the Company
in North America and those used in international markets are the radio frequency
band in which they operate and the physical configuration of the module.

     Off-Site Meter Reading:  Our Off-Site AMR solution  enables  radio-equipped
meters to be read remotely, by a person with a handheld computer equipped with a
radio unit. Off-Site AMR offers a practical and cost-effective way for utilities
to read high  cost-to-read  meters by eliminating  the need for meter readers to
gain visual  access to those  meters.  Once a customer has upgraded our handheld
computers with radio technology,  they can selectively  install meter modules on
high   cost-to-read   meters.   System   software    automatically    identifies
radio-equipped meters within a route. When remote reads are needed, the handheld
prompts the meter reader to initiate a radio read. Meter information is shown on
the handheld  display and is  automatically  recorded in the handheld  database,
allowing the meter reader to move on to the next meter on a route.  When a route
is  completed,  data from both  visual  and radio  reads are  uploaded  from the
handheld computer to the utility host system for customer billing.

     Mobile AMR: Our Mobile AMR solution  uses a Data  Collection  Unit ("DCU"),
which is mounted  in a  vehicle,  or a Datapac  which is  transportable  between
vehicles,  to collect and store data transmitted by meter modules as the vehicle
passes   module-equipped   meters.  The  DCU  or  Datapac  receives  information
transmitted by multiple  meter modules  simultaneously.  A touch-screen  display
enables  the  operator to observe  and  operate  the  equipment.  The Mobile AMR
application  includes  software that manages and moves information to and from a
utility's billing system.  Once installed,  the software  transfers  information
from the host  system to create  route  files for the DCU and  Datapac  for each
route,  manages the storage of the meter data as it is collected and, at the end
of the day,  uploads the information to the utility's  billing system.  A Mobile
AMR system enables an operator to read in an eight-hour day an average of 10,000
to  12,000  meters  with a DCU or  roughly  half that  number  of meters  with a
Datapac. This compares to an average walking route of 300 to 500 meters per day.
Factors  affecting  the actual  number of reads per day include,  among  others,
route  density and design,  speed  limits,  weather and  environment,  and other
factors.

     Network  AMR:  We offer a number  of  Network  AMR  products.  Our  Network
solutions  provide  utilities with the capability of automating meter reading in
segments of a utility's service area, thereby eliminating the need to send meter
readers  to  or  near  customer  premises.  We  have  large  scale  Network  AMR
deployments with two utilities and smaller scale  installations at ten utilities
covering  approximately one million meters. Our Network AMR technology  provides
utilities with a number of utility-related applications, including daily or more
frequent  meter reads,  time-of-use  pricing,  on-request  meter reads for final
reads or customer inquiries, tamper monitoring and reporting,  high-level outage
detection  and  power   restoration   reporting,   load  profiling  and  virtual
connect/disconnect capabilities.

     Meter data  collected by our radio meter modules is  transmitted  to a Cell
Control Unit ("CCU").  The CCU is a neighborhood  concentrator  that reads meter
modules, processes data into a variety of applications, stores data temporarily,
and transports data to the host processor when required.  Weighing approximately
15 pounds,  our CCU can be easily installed on utility poles,  streetlights,  or
other locations.  While the geographic area covered by each CCU varies depending
on local topography,  physical structures, terrain and other factors, in general
each CCU serves an average of 50 homes.  Information  collected  by CCUs is then
transmitted to a Network Control Node ("NCN"),  which is a regional concentrator
and routing device that is installed in radio communications  facilities such as
leased towers, substations or other communication facilities. Each NCN typically
supports between 250 to 400 CCUs. NCNs manage information routing in the network
between CCUs and the system host  processor  and can serve as a gateway to other
communication  networks.  Communications  between the CCUs and NCNs  utilize the
Company's nationwide licensed frequencies in the 1427-1432 MHz band.

     The final link in our Network AMR  solution is from the NCNs to one or more
head-end host processors,  known as the Genesis Itron Host Processors  ("GIHP").
The GIHP manages the collection of data from network devices and facilitates the
download of schedules and other application  information to appropriate  network
devices.  The  GIHP  also  transfers  the data to a  database  for  storage  and
retrieval.  Communications between NCNs and the utility's GIHP typically utilize
radio, telephone, frame relay or other wired communication media.

     In late  1998,  we  introduced  a new  Network  AMR  product  known  as the
MicroNetwork.  The  MicroNetwork  is a low-cost,  drop-in  network meter reading
solution that can be selectively  deployed to deliver monthly,  weekly, or daily
and  unscheduled  reads  from  groups  of meters in a wide  variety  of  service
environments.  It is suited for smaller  clusters of meters  that  require  more
frequent reads,  but where there are not enough meter points to justify the cost
of  saturated  network  infrastructure.  This makes it an ideal data  collection
solution for apartment complexes,  campuses, small residential communities, high
rise buildings, strip malls, suburban neighborhoods and rural communities.

     Our MicroNetwork  infrastructure consists of a series of Concentrator Units
deployed  over  radio-based  meter modules  installed on electric,  gas and / or
water meters that  communicate  using 900 MHz  channels.  The locally  installed
Concentrator  Units collect data from meter modules,  temporarily  store it, and
then forward the data to the host  processor via public  network  communications
such as telephone and cellular systems.

     Telephone-Based  Technology. We also offer products that allow electric and
gas  utilities to implement  telephone-based  AMR  solutions.  These systems use
inbound  communications  in which the  meter  modules  call in to the  utility's
central  processing  computer at  pre-scheduled  times to report  meter  reading
information.  The devices are connected to and share existing customer telephone
lines.  Telephone-based  AMR  functionality is primarily  designed for selective
deployments of direct access customers or for geographically dispersed customers
requiring advanced metering functionality such as regional or national accounts.
Additionally,  telephone-based  devices  that  report  power  outages  and power
quality  events  (over  and  under  voltages)  can be  selectively  deployed  to
strategic  points in the utility  distribution  system.  This  provides a target
solution to achieve operational and system reliability improvements where a full
saturation  network is difficult to cost justify.  This  technology  may also be
used to automate  areas not suited for  cost-effective  implementation  of radio
technologies such as remote or rural areas.

     For  residential and commercial  applications,  our telephone based modules
for  electric  meters  attach  under the glass of those  meters and  collect and
report  consumption,  demand,  time-of-use  and load profile  data. In addition,
certain   telephone-based   modules  for  electric  use  report  power  outages,
restoration of power and power quality information.  For the electric market, in
addition to meter reading devices, we also offer other  telephone-based  devices
that monitor and report power outage,  restoration and power quality (over/under
voltage)  information.  These  devices  are  easily  installed  by  the  end-use
customer.  The devices may be deployed at key  locations  throughout a utility's
distribution  system to improve  operations,  enhance  power quality and improve
overall system  reliability and service by allowing utilities to isolate outages
and determine  when power has been  restored more quickly.  For large volume gas
meters,  our  telephone-based  modules collect  information that is used to bill
transport gas and interruptible  gas customers,  as well as critical load survey
data for  applications  such as peak day  forecasting,  supply  forecasting  and
assessments,  rate  design and  marketing.  For  residential  gas  applications,
including   hard-to-read  meters,  modules  are  attached  to  existing  or  new
residential gas meters to provide consumption and load survey data.


Commercial and Industrial Data Collection and Management Solutions

     Commercial  and  industrial  ("C&I")  meters  have much more  sophisticated
measurement  capabilities than do meters for residential  customers.  Therefore,
they have much more data that must be conveyed back to energy providers from the
meter.  There  are a  wide  variety  of  these  meters  with  no  standards  for
communications  agreed upon by the multiple  meter  vendors.  We are the leading
worldwide  provider  of software  systems  for  metering  data  acquisition  and
analysis for the large C&I customers of electric and gas  utilities.  We believe
that  competition  in the utility  industry will drive  metering  technology and
systems  toward  enhancing  and  facilitating  communications  between large C&I
customers  and  their  power  suppliers  and we have  released  a number  of new
products in the last few years aimed at this critical customer group.

     Our  proprietary  MV-90  product  gathers,  processes  and  analyzes  large
quantities of complex data for revenue  billing,  load research and  demand-side
management and is used by approximately 70% of the major utilities in the United
States and most of the electric and gas utilities in Canada,  Europe, the Middle
East, Australia,  Central America and South America.  MV-90 supports all methods
of data retrieval from large C&I meters (handheld readers,  radio, telephone and
other  communication  technologies)  and  was  designed  with  a full  range  of
applications  software to support data collection  from meters,  data validation
and editing,  and analysis of energy usage data.  MV-90 software can be licensed
for use on single computers or local/wide area networks. In addition to the base
system, there are layered application packages that support applications such as
load research,  real time pricing (hourly price  transmission to C&I customers),
gas  transportation,  outage and alarm monitoring,  and data aggregation.  MV-90
software  allows C&I  customers  to read the energy  provider's  delivery  point
meters (both  electric and gas) on a frequent  basis to analyze their own energy
consumption  and can  provide  hourly  pricing  data from energy  suppliers  for
customers who purchase  power on a real-time  pricing basis (price varies by the
hour).

     Our proprietary  MV-PBS billing and settlement  solution  provides a client
server-based billing application that produces customized bills and invoices for
commercial, industrial and wholesale energy users. The application interfaces to
MV-90  and  supports  billing  on  demand,   energy  rates,   real-time  pricing
applications,   interruptible  rates  and  gas  transportation,  and  settlement
charges.  With  MV-PBS,  a bill  can  be  tailored  to  meet  specific  customer
requirements.  Prior to MV-PBS,  these key customers were often billed  manually
due to the expense  associated  with modifying  traditional  billing systems for
different  customer  rates and  tariffs.  MV-PBS is  capable of  generating  and
sending  invoices  directly to customers via email or the  Internet.  The system
also  supports  financial  settlement  for the  state and  regional  competitive
markets.

     In order to manage high  volumes of C&I meters,  we  developed  MV-COMM,  a
communications  front-end  processor  for the base MV-90  platform  that greatly
enhances  speed,  performance  and  communication  between  meters  and the host
processor. MV-COMM supports many different communication formats - TCP/IP, CDPD,
PSTN,  ARDIS, RF, etc.  Initially  developed for the ISO in California,  MV-COMM
enabled  the  Company to meet the ISO's  requirement  to read a minimum of 3,000
electronic meters with five-minute  interval data within two-minute time periods
at the end of each  hour.  MV-COMM  has now  been  installed  at  several  other
locations,  including in the UK, where more than 80,000  electronic  meters with
1/2  hourly  data are read each  night.  MV-COMM  enables  energy  providers  to
transition  from  operating  systems  serving  low volumes of C&I  customers  to
successfully  managing  large-scale,  advanced data collection  systems for high
volumes of widely-dispersed C&I customers.

     We have  exclusive  distribution  rights in North America for the STAR Data
Management  System  (MV-STAR).  MV-STAR was originally  developed by UKDCS,  the
operator  of  the  meter  data  collection  system  supporting  the  competitive
electricity  supply market in England and Wales and is now being  modified by us
for the North America  competitive  energy markets.  When integrated with MV-90,
MV-STAR is a data  warehouse  solution that manages and stores  extremely  large
volumes of load  profile  data  gathered  from C&I  meters,  wholesale  delivery
points,  and major  entity grid  points.  This data is processed in a very short
time period and delivered, via batch or interactive mode to the system users and
data  subscribers in industry  standard data formats.  MV-STAR also provides the
ability to retain data history as it changes over time,  preserving all versions
of the data and tagging  the data to show how it has been used in the  reporting
process. In ISO environments,  MV-STAR supports contract management of ISO / ESP
end-customer  relationships,  including  historical storage of contract changes.
The system also  supports  data  aggregation  and load  profile  inputs into the
settlements process.

     Large energy users are  increasingly  looking for easy access to load data.
They need to forecast  energy  costs,  adjust  usage,  react to rate changes and
manage  their  energy  consumption  and  bottom-line.  By using the  Internet to
deliver  load data,  customers  can use  proven,  cost-effective  communications
infrastructure  that is already in place to access their detailed  interval-load
data. Our MV-WEB  product  interfaces to the MV-90 base platform and to MV-STAR.
Designed to work with standard web browsers,  MV-WEB  provides a secure Internet
connection for C&I customers to view and graph  recorded  quantities of interval
load data,  as well as  calculated  quantities.  MV-Web also provides a flexible
method of data delivery to energy market participants.

     In 1998,  we  completed  initial  testing  of our new C&I  Network  and are
currently beta testing the product at one customer.  The C&I Network operates in
much the same manner as the Company's  MicroNetwork but is specifically designed
for  solid  state  C&I  electric  and gas  meters.  Traditionally,  the only way
utilities could deliver advanced  metering and data management  functionality to
their key C&I customers was to install a dedicated  phone line.  While utilities
could easily cost justify that ongoing expense for large C&I customers, it often
proved  cost-prohibitive  for smaller  customers.  Our C&I Network  utilizes our
radio-based   communications   technology   combined   with   available   public
communications  technology  and  systems to provide  the  benefits  of  advanced
metering to this critical customer group at a much lower cost by eliminating the
ongoing expense of dedicated phone lines.

     The C&I Network  accomplishes  this by deploying our external meter modems,
or EMM's, to communicate  advanced energy usage data from  solid-state  electric
and gas meters. Using our radio communications  technology, the metering data is
transmitted from the meter modems, using peer to peer communications,  through a
system of radio relays to a hub which  routes data from a designated  population
of C&I meters.  Using  telephone  and/or cellular  communications,  the hub then
routes  all the data  collected  from C&I  meters  in its area to an MV-90  host
processor,  where the data is used for a variety of billing,  load  research and
system engineering applications.

Handheld Systems and Products

     Almost all  utilities  in the U.S.  and Canada,  and  utilities in numerous
other countries around the world, use handheld meter reading systems to automate
a   substantial   portion  of  their  meter   reading  and  billing   functions.
Approximately  75% of the largest  utilities (those with 50,000 or more meters),
in the United States and Canada,  including 22 of the largest 25 utilities,  use
our handheld  systems.  We provide several models of handheld  computers to meet
the varying  requirements  of our  customers.  Each model is designed for use in
harsh environments with standard text and graphics,  back-lit displays,  several
memory sizes, multiple communications options,  interface devices for electronic
meters and easy to use keyboards  that can be customized to the needs of the our
customers.

     Handheld  systems are used as follows:  (1) key customer data is downloaded
from  the  utility's  host  processor  to  our  handheld   computers   prior  to
commencement of a meter reader's daily route;  (2) a meter reader visually reads
meters along a route and enters the readings into a handheld  computer;  and (3)
after a meter  reader's  daily  route  has  been  completed,  collected  data is
uploaded directly into the utility's host billing system. Our family of software
systems  provides data  consolidation  and storage,  reformatting,  linkage to a
utility's host billing system, meter reading route management, route downloading
and time-of-use and interval data recording data management and distribution.

Customers

     Our handheld  systems are installed at over 1,500 electric,  gas, water and
combination  utilities  in more than 45  countries  and are  being  used to read
approximately  275 million meters  worldwide.  Approximately  75% of the largest
utilities  (those with 50,000 or more meters),  in the United States and Canada,
including 22 of the largest 25 utilities,  use our handheld systems. As a result
of the high market  penetration we have already achieved in the domestic market,
handheld   sales  are  expected  to  be   predominantly   system   upgrades  and
replacements.  We  estimate  that the number of meters  outside of the  domestic
market is  approximately  two to three  times the number of meters  within  that
market.  Because  utilities  in many  industrialized  countries  outside  of the
domestic market are only now beginning to automate their meter reading function,
we believe that  international  markets represent a growth opportunity for sales
of our handheld systems.

     We have  established  ourselves  as the world's  largest  supplier of meter
modules for the  expanding  AMR market as a result of having  shipped  over 15.4
million  meter  modules as of December 31, 1999 to  approximately  550 customers
around the world. In total our shipments represent  approximately 65% of all AMR
meter module shipments.

     We have installed the great majority of the world's largest AMR systems for
electric,  gas and water  utilities.  The  largest  AMR system is at New Century
Energies  (formerly Public Service Company of Colorado) and is comprised of over
1.5 million  electric and gas meter modules.  The largest gas installation is at
Minnegasco, representing just over 900,000 endpoints. Finally, the largest water
AMR system is installed with the City of Philadelphia Water Department  covering
approximately 430,000 water meters.

     We also  have 500  energy  providers  and  wholesalers  using  our C&I data
collection and management systems. In our EIS customer segment, we have a number
of large systems  installed or currently  being  installed  for the  competitive
wholesale  energy data  markets such as systems in the UK, the ISO for the state
of California,  Tucson Electric Power and the Independent  Market Operator (IMO)
in Ontario, Canada.

Sales and Distribution

     In  our  Electric   Systems  SBU,  Natural  Gas  Systems  SBU,  and  Energy
Information  Systems SBU, we primarily  utilize direct sales,  and technical and
administrative  support teams to serve the needs of the  customers  that are the
focus of these SBUs.  In our Water and Public  Power SBU, we  primarily  conduct
sales and technical support activities through numerous business  associates and
manufacturer representatives, including several major meter manufacturers.

     To serve International  customers, we have subsidiary operations located in
Reading,  England;  Vienne,  France; and Sydney,  Australia.  While we utilize a
direct sales approach in some areas, we are transitioning to a distributor-based
model in most areas outside of North America.

     We also sell electric and water meter modules  through  original  equipment
manufacturer  ("OEM")  arrangements with several major meter  manufacturers,  in
which the  manufacturers  incorporate  our meter modules at their own facilities
into new meters and then offer them for sale.  In addition to direct  sales,  we
also offer products and services  through  long-term  outsourcing  arrangements,
which  may  include  providing  AMR  products,  system  project  management  and
installation,  on going meter  reading  services,  meter shop services and other
services.  Outsourcing  contracts  usually cover long  timeframes  and typically
involve  contracts in which either a customer  owns the equipment and we provide
services for a fee, or where we both own and operate the system for a fee.

Marketing

     Marketing  activities include product marketing,  industry  marketing,  and
marketing  communications.  Our  marketing  efforts focus on product and company
awareness  principally  through  trade  shows,  symposiums,   published  papers,
advertising  and  direct  mail.  These  marketing  efforts  include   brochures,
newsletters,  exhibits,  conferences, an annual user's forum, industry standards
committee   representation  and  regulatory  support.   Several  major  industry
conferences  are keystones in the  Company's  marketing  program,  including the
Distributech   Conference  held  every  winter,   the  Company's   Annual  Users
Conference,  typically  held in June in  conjunction  with  the  National  Meter
Reading  Association  meetings,  and the  Automatic  Meter  Reading  Association
conference usually held in September.  The Company maintains communications with
its  customers  through  its  Users  Advisory  Board and a  program  of  regular
mailings, newsletters and new customer announcements.

Global Service and Support

     We provide our customers  with  implementation  services that include among
other things, system design, installation, training and project management. Each
of  these  services  is  tailored  to meet a  particular  customer's  needs.  In
addition,  for  Network  AMR  systems,  we  offer  network  design,  propagation
analysis,  mapping support,  centralized operation and system support. We offers
system  maintenance  and  support  services  to each of our  customers.  Service
contract  prices are based on a number of  factors,  including  system  size and
complexity  and the  expected  degree of service  support  required.  Our system
maintenance and support services  include  24-hour,  toll-free hot line support,
customer  service  representatives,   consulting  services,   regional  training
programs,  equipment repair and preventative  maintenance,  software support and
maintenance, system troubleshooting and network management services.

Product Development

     We  have  maintained  our  leadership  position  in  part  because  of  our
commitment to  developing  new products and  continued  enhancement  of existing
products.  Our product  development  efforts have been focused on expanding  and
upgrading  our  communications  and energy data  collection  product  offerings,
particularly  for C&I  customers,  and  developing  new  hardware  and  software
platforms  for  handheld   systems.   In  1998  and  1999,  we  undertook  major
restructuring   measures  which  included  the   consolidation   of  development
activities both  geographically and in terms of product teams. See "Management's
Discussion  and  Analysis of  Financial  Condition  and Results of  Operations -
Restructuring."

     Our  future  success  will  depend in part on our  ability to  continue  to
develop or acquire new competitive products and technology.  In particular,  our
ability to further  enhance  our  network  and other  products  or to develop or
acquire new products that provide energy  suppliers with the ability to optimize
the distribution  aspects of their business and to provide Internet  connections
to energy  consumers.  There  can be no  assurance  that we will not  experience
unforeseen problems or delays with respect to our product  development  efforts.
Delays in the  availability  of new and enhanced  products could have a material
adverse effect on our business,  financial  condition and results of operations.
See "Certain Risk Factors--Dependence on New Product Development."

Manufacturing

     We manufacture meter modules,  network components and other  communications
technology  products,  as well as  certain  handheld  computers  and  peripheral
equipment.  Our  primary  manufacturing  objective  is  to  design  and  produce
cost-effective,   high-quality   meter  modules  and  other  network  components
utilizing high-volume automation equipment.

     In 1999, our restructuring  measures included the consolidation of our high
volume products into one location. See "Management's  Discussion and Analysis of
Financial  Condition  and  Results of  Operations  Restructuring."  Our  primary
manufacturing  facility is located in Waseca,  Minnesota.  We currently have the
capacity to produce approximately 3.3 million (combination of electric,  gas and
water) meter modules annually on a two-shift basis. With the addition of a third
shift  and  certain  ancillary  equipment,  we  could  expand  our  capacity  to
approximately 4.8 million meter modules annually.

     We  have   installed   extensive   automated   testing   equipment  in  our
manufacturing  facilities to provide quality control and process  repeatability.
Our testing includes both visual  inspection and automated  testing of technical
parameters  established for each of our products.  Our quality control equipment
also includes a sophisticated information system that collects data from testing
equipment  and  provides  extensive  reports  and  analyses  of such data.  This
information  system  permits  us to  promptly  identify  potential  problems  or
weaknesses in our manufacturing processes. We have been ISO 9000 certified since
1993 and received ISO 9002 certification of our Waseca facility in 1998.

     In the near-term,  our Spokane  manufacturing  facility is responsible  for
manufacturing  certain  handheld  systems and peripheral  equipment,  as well as
other  lower-volume  AMR products,  and is the primary  repair  facility for our
handheld systems products.  We have signed a memorandum of understanding ("MOU")
and are in the process of negotiating  definitive  agreements to outsource these
activities  to a  contract  manufacturer.  The MOU  provides  that the  contract
manufacturer will purchase certain of our manufacturing  equipment and inventory
from  us and  lease  approximately  two  thirds  of  the  space  in our  Spokane
manufacturing facility, approximately 24,000 square feet.

     Certain  of  our  handheld   systems   products,   telephone   modules  and
international meter module products are manufactured for us by third parties.

Employees

     As  of  March  1,  2000,  we  employed  935  full-time   persons:   31%  in
manufacturing,  14% in  product  development,  4% in  marketing,  14% in  global
service and support, 18% in finance and corporate administration, and 19% in our
SBUs.  Of these  employees,  92% were  located in the U.S.  and Canada,  and the
remainder in Europe and Australia.  We continues to recruit and seek to maintain
highly qualified management,  marketing, technical and administrative personnel.
None of our employees is represented by a labor union.  We have not  experienced
any work stoppages and consider our employee relations to be good.

Competition

     Although  we are the  industry  leader in  supplying  energy and water data
collection  products,  systems and  services to the  utility  industry,  we face
competition  from a variety of  companies  in each of the markets we serve.  The
emerging  market for network  communications  systems for the utility  industry,
together   with  the   potential   market  for  other   two-way   communications
applications,  have led  communications,  electronics  and utility  companies to
begin developing various systems, some of which currently compete, and others of
which may in the future compete,  with the our products,  systems, and services.
These  competitors  can be  expected  to offer a  variety  of  technologies  and
communications  approaches,  as well as meter  reading,  installation  and other
services to utilities and other industry participants.

     We believe that we enjoy a number of competitive advantages. We believe the
diversity of our energy and water data collection  products is broader than that
of  any  other  provider.  This  diversity  gives  us  the  ability  to  provide
comprehensive  solutions  to  our  customers.  Our  radio-based   communications
solutions  utilize the same AMR radio meter modules and facilitate the migration
from one level of systems automation to another.  We believe that we are able to
price our AMR meter modules  competitively  as a result of our highly  automated
manufacturing  lines as well as high production volumes. We have a substantially
larger installed base of  handheld-based  EMR systems and AMR meter modules than
any of our  competitors  which  gives us the  advantage  of a proven  record  of
providing  cost-efficient,  quality products and services and the proven ability
to interface meter data with a wide variety of utility host billing systems.  In
addition,  we benefit  from our  nationwide  license of 5 MHz of spectrum in the
1427-1432MHz band. See "FCC Regulation."

     As of December  31,  1999,  we had roughly 65% market share in terms of AMR
meter modules  shipped.  Our largest  competitors in the AMR meter module market
include  CellNet  Data  Systems  ("CellNet")  and  Schlumberger,  in  particular
Schlumberger's Resource Management Services division.  These companies currently
offer  alternative  solutions and compete  aggressively  with us. In addition to
being a competitor,  Schlumberger  also acts as a reseller and integrator of our
solutions.  In February  2000, it was announced that CellNet would be filing for
bankruptcy and that  Schlumberger  intended to acquire  CellNet's  assets.  On a
combined basis, they would have roughly 20% of AMR meter module shipments.



<PAGE>



     In our EIS  market,  there are many  market  participants  that may be both
competitors  and  potential  partners.  We face  competition  from a  number  of
companies  such  as  ABB,  Siemens,   Lodestar,  Ernst  &  Young,  and  Anderson
Consulting.  In competitive wholesale markets in California and Ontario, Canada,
we have partnered with ABB and Ernst & Young to offer a total integrated  system
solution.  We will  continue to partner with some of these  companies to address
future competitive energy markets.

     We  believe  that as we expand  our  offerings  towards  optimizing  energy
delivery products, systems and solutions, there are several very large suppliers
of equipment, services or technology to the utility industry that have developed
or could develop  competitive  products for this market,  such as ABB,  Siemens,
Invensys, and Honeywell.  Similarly, we believe that as we move towards offering
systems and  solutions for end-user  customers,  we will face  competition  from
telecommunications,  billing,  and  controls  companies.  We expect  to  develop
cooperative relationships with several of these companies to jointly develop and
offer solutions to the market.

     Many of our present and potential  competitors have  substantially  greater
financial,  marketing, technical and manufacturing resources, and in some cases,
greater name recognition and experience.  Our competitors may be able to respond
more  quickly  to  new  or  emerging   technologies   and  changes  in  customer
requirements or to devote greater  resources to the  development,  promotion and
sale of their  products  and  services  than we can.  In  addition,  current and
potential  competitors may make strategic  acquisitions or establish cooperative
relationships among themselves or with third parties that increase their ability
to  address  the  needs of the our  prospective  customers.  Accordingly,  it is
possible that new competitors or alliances among current and new competitors may
emerge and rapidly gain significant market share. There can be no assurance that
we will be able to compete  successfully against current and future competitors,
and any failure to do so would have a material  adverse  effect on our business,
financial  condition,  results of  operations  and cash flow.  See "Certain Risk
Factors--Competition."

Intellectual Property

     We own or license numerous United States,  Canadian and foreign patents and
have  filed  various  patent  applications.  These  patents  cover  a  range  of
technologies  for meter  reading,  portable  handheld  computer and  AMR-related
technologies. We also rely on copyrights to protect our proprietary software and
documentation. We have registered trademarks for most of our major product lines
in the  United  States and many  foreign  countries.  While we believe  that our
patents,  trademarks and other  intellectual  property have  significant  value,
there can be no assurance  that these patents or  trademarks,  or any patents or
trademarks issued in the future, will provide meaningful competitive advantages.
The  Company  is  currently  involved  in a number of legal  actions  related to
infringement  of its  patents or the  Company's  alleged  infringement  of other
patents,  see "Legal Proceedings." We believe that our continued success will be
based  on  continued  innovation,  market  knowledge,  technical  and  marketing
capabilities,  existing product  relationships  with utilities and a fundamental
commitment    to   customer    service    excellence.    See    "Certain    Risk
Factors--Intellectual Property."

FCC Regulation Intellectual Property

     Certain  of our  products  made  for use in the  United  States  use  radio
frequencies, the access to and use of which are regulated by the FCC pursuant to
the Communications Act of 1934, as amended.  In general, a radio station license
issued by the FCC is  required  to operate a radio  transmitter.  The FCC issues
these licenses for a fixed term, and the licenses must be periodically  renewed.
Because of interference constraints,  the FCC can generally issue only a limited
number of radio  station  licenses  for a particular  frequency  band in any one
area.

     Although radio licenses generally are required for radio stations,  Part 15
of the FCC's rules permit certain low-power radio devices ("Part 15 devices") to
operate on an  unlicensed  basis.  Part 15 devices  are  designed  to be used on
frequencies used by others.  These other users may include licensed users, which
have  priority  over Part 15 users.  Part 15 devices are not  permitted to cause
harmful   interference  to  licensed  users  and  must  be  designed  to  accept
interference  from licensed radio  devices.  Our radio meter modules are Part 15
devices which transmit  information  back to either the our handheld,  mobile or
network AMR reading devices in the 910-920 MHz band pursuant to these rules.

     Our products are designed to eliminate  virtually all interference to other
frequency  users,  while still  enabling a complete and  accurate  read from our
radio  meter  modules.   However,   if  we  were  unable  to  eliminate  harmful
interference  caused by our Part 15 devices through technical or other means, we
or our  customers  could  be  required  to cease  operations  in the band in the
locations affected by the harmful  interference.  Further, in the event that the
unlicensed  frequencies used by our customers and us become unacceptably crowded
or restrictive, and no additional frequencies that are suitable are available or
allocated, our business could be materially and adversely affected.

     In late  February  1997,  the FCC adopted a Notice of Proposed  Rule Making
("NPRM")  seeking  comments  concerning the rules for multiple  address  systems
("MAS").  We use licensed MAS  frequencies to interrogate or "wake up" our meter
modules.  The  FCC  proposed  to  change  the  method  for  licensing  some  MAS
frequencies  from  individual site licenses to wide area licenses and to conduct
auctions for mutually  exclusive  applications  in some MAS frequency  bands. In
conjunction with the NPRM, the FCC instituted a freeze on accepting applications
proposing  to  use  our  MAS  frequency  bands  for  subscriber-based  services,
effectively  confining the use of these frequency bands to "private" operations,
such as ours.

     In July 1999,  the FCC issued a further NPRM and  extended its freeze,  for
applications  after July 1, 1999, to applications for private  operations in the
MAS bands we use. The FCC issued a Report and Order in January 2000, lifting the
freeze on new license  applications but providing that our MAS bands can be used
only for private  operations.  During the time that our customers were unable to
obtain new MAS licenses, our business was adversely affected.

     We also have been issued a non-exclusive  nationwide FCC license to operate
in the 1427-1432  MHz band.  With the exception of meter modules that operate in
the MAS bands and the 910-920 MHz band  described  above,  our network  products
operate within this band. At the time our license was issued,  the 1427-1432 MHz
band  was  allocated  primarily  for the use of the  federal  government,  which
consented to our use of the band on a secondary, non-interference basis. Current
government  use of the band is  limited  to a  discrete  number of  well-defined
locations,  and we do not  expect  the fact  that we are  secondary  to  federal
government operations to have a material impact on our business.

     The 1427-1432 MHz band is among 235 MHz of spectrum that has been earmarked
for  reallocation  from federal  government users to private sector users (to be
licensed by the FCC). The band is subject to continuing  federal  government use
in  specified  areas  through  2004.  The FCC  initially  decided to include the
1427-1432  MHz band in a  spectrum  reserve  that would not be  reallocated  and
assigned until 2006. In July 1999, however,  the FCC proposed to accelerate this
timetable  and  allocate  the upper  portion of the band for  medical  telemetry
operations. Itron has filed a petition for rulemaking proposing instead that the
band be allocated for automatic meter reading and utility telemetry  operations.
Itron also has had discussions with the medical telemetry  community  concerning
the  possibility  of  sharing  the band.  There can be no  assurance  that these
discussions will be successful, or that the FCC will adopt an allocation for the
band that is compatible with Itron's business.

     The regulatory environment we operate in is subject to change. There can be
no assurance  that the FCC or Congress will not take  regulatory  actions in the
future  that would  have a material  adverse  effect on us.  See  "Certain  Risk
Factors--Availability  and Regulation of Radio Spectrum." We are also subject to
regulatory requirements in international markets. These regulations,  which vary
by country,  require  modifications  to our  products,  including  operating  on
different frequencies with different power specifications.

Backlog of Orders

     Our twelve-month  revenue backlog of unshipped factory orders at the end of
1999 and 1998 was  approximately  $50  million  and $69  million,  respectively,
excluding  amounts  related to our contract  with  Duquesne.  See  "Management's
Discussion  and  Analysis  of  Financial  Condition  and  Results of  Operations
Duquesne  Contract".   We  expect  that  substantially  all  of  the  orders  in
twelve-month  backlog  at the  end of 1999  will  be  shipped  during  2000.  In
addition,  we have  multi-year  contracts  to supply  radio  meter  modules  and
multi-year  outsourcing  arrangements  with several  customers.  Total  backlog,
including  revenues  beyond the next twelve  months,  was $164  million and $195
million at December 31, 1999 and 1998,  respectively,  excluding amounts related
to our contract with Duquesne. While backlog is one indicator of future revenues
for us, our backlog  fluctuates from  quarter-end to quarter-end  primarily as a
result of the timing of large  contracts.  In recent years we have increased the
amount of revenue derived from  distribution  channels for smaller utilities and
municipalities. To the extent that future revenues are derived from this segment
of the market,  which  typically has a smaller order size that may book and ship
within the same quarter, or from service offerings verses product sales, backlog
may not be as reliable an indicator of near-term revenues.

Environmental Regulations

     In the  ordinary  course of our  business,  we use  metals,  solvents,  and
similar  materials  which are stored on site.  The waste created by use of these
materials is transported off site on a regular basis by a state-registered waste
hauler.  Although we are not aware of any material claim or  investigation  with
respect to these activities, there can be no assurance that such a claim may not
arise in the future or that the cost of complying with governmental  regulations
in the future will not have a material adverse effect on us.

Other

     We do not have any contracts with the federal  government.  Our business is
not significantly seasonal.

Certain Risk Factors

     Dependence  on Utility  Industry;  Uncertainty  Resulting  From Mergers and
Acquisitions and Regulatory Reform: We derive  substantially all of our revenues
from sales of products and services to the utility industry. We have experienced
variability of operating  results,  on both an annual and a quarterly basis, due
primarily to utility purchasing patterns and delays of purchasing decisions as a
result of mergers  and  acquisitions  in the  utility  industry  and  changes or
potential  changes in the state and federal  regulatory  frameworks within which
the utility industry operates.

     The utility industry, both domestic and foreign, is generally characterized
by long budgeting,  purchasing and regulatory process cycles that can take up to
several years to complete.  Our utility  customers  typically issue requests for
quotes  and  proposals,   establish  evaluation  committees,   review  different
technical   options  with  vendors,   analyze   performance   and   cost/benefit
justifications  and perform a  regulatory  review,  in addition to applying  the
normal budget approval process within a utility.  Purchases of our products are,
to a substantial  extent,  deferrable in the event that utilities reduce capital
expenditures  as a result of mergers and  acquisitions,  pending or  unfavorable
regulatory decisions,  poor revenues due to weather conditions,  rising interest
rates or general economic downturns, among other factors.

     The domestic electric utility industry is currently the focus of regulatory
reform  initiatives in virtually every state. These initiatives have resulted in
significant  uncertainty for industry participants and raised concerns regarding
assets that would not be  considered  for recovery  through  ratepayer  charges.
Consequently,  in recent years, many utilities have delayed purchasing decisions
that involve significant capital  commitments.  While we expect some states will
act on these  regulatory  reform  initiatives  in the near term, and some states
have, there can be no assurance that the current regulatory  uncertainty will be
resolved in the near future or that the advent of new regulatory frameworks will
not have a material  adverse  effect on our  business,  financial  condition and
results  of  operations.  Moreover,  in  part  as a  result  of the  competitive
pressures in the utility  industry  arising from the regulatory  reform process,
many utility companies are pursuing merger and acquisition  strategies.  We have
experienced  considerable  delays in purchase  decisions by utilities  that have
become parties to merger or acquisition  transactions.  Typically, such purchase
decisions  are put on hold  indefinitely  when merger  negotiations  begin.  The
pattern of merger and acquisition  activity among utilities may continue for the
foreseeable  future.  If such merger and acquisition  activity  continues at its
current  rate  or  intensifies,  our  revenues  may  continue  to be  materially
adversely affected.

     Certain state  regulatory  agencies are  considering  the  "unbundling"  of
metering  and  certain  other  services  from the  basic  transport  aspects  of
electricity distribution. Unbundling includes the identification of the separate
costs of metering and other  services and may extend to subjecting  metering and
other services to  competition.  For example,  in California,  the CPUC issued a
decision that subjects  metering,  billing and related  services to  competitive
supply. Other states,  including Arizona, Nevada and Pennsylvania,  have adopted
or are adopting similar measures.  The  discontinuance  of a utility's  metering
monopoly could have a significant  impact upon the manner in which we market and
sell our  products and  services.  As the customer for our products and services
could change from utilities alone to utilities and their  competitive  suppliers
of  metering  services,  we could also be required  to modify our  products  and
services  (or  develop  new  products  and  services)  to meet the  needs of the
participants in a competitive meter services market.

     Recent Operating  Losses:  We have experienced  operating losses in certain
quarters of each of the past four years and may experience  quarterly  losses in
2000. There can be no assurance that we will maintain  consistent  profitability
on a quarterly or annual basis.  We have  experienced  variability  of quarterly
results and believe our quarterly results will continue to fluctuate as a result
of factors such as size and timing of  significant  customer  orders,  delays in
customer purchasing  decisions,  FCC or other governmental  actions,  timing and
levels of development and other operating  expenses,  shifts in product or sales
channel  mix,  and  increased  competition.  Our  operating  margins  have  been
adversely affected by excess  manufacturing  capacity.  We expect competition in
the AMR market to  increase  as  current  competitors  and new  market  entrants
introduce competitive products.  Operating margins also may be affected by other
factors.  For example,  in the past, we entered into large network AMR contracts
with Duquesne and Virginia Power with margins significantly below our historical
margins  due to the early  stage of the our  network  products at the time those
systems were shipped and installed, and due to competitive pressures.

     Customer Concentration: In some years, our revenues are concentrated with a
limited number of customers,  the identity of which changes over time. From time
to time,  we are  dependent on large,  multiyear  contracts  that are subject to
cancellation or  rescheduling by our customers.  Cancellation or postponement of
one or more of these contracts would have a material adverse effect on us.

     Dependence on New Product Development: We have made, and expect to continue
to make, substantial investments in technology  development.  Our future success
will depend,  in part, on our ability to continue to design and  manufacture new
competitive  products  and  to  enhance  our  existing  products.  This  product
development  will require  continued  investment in order to maintain our market
position. There can be no assurance that unforeseen problems will not occur with
respect to the development, performance or market acceptance of our technologies
or  products.  Development  schedules  for  technology  products  are subject to
uncertainty,  and  there  can be no  assurance  that we will  meet  our  product
development  schedules.  We have previously  experienced  significant delays and
cost overruns in the development of new products,  and there can be no assurance
that delays or cost overruns will not be  experienced  in the future.  Delays in
new product development, including software, can result from a number of causes,
including changes in product definition during the development stage, changes in
customer  requirements,  initial failures of products or unexpected  behavior of
products under certain conditions, failure of third-party-supplied components to
meet  specifications  or lack of  availability  of  such  components,  unplanned
interruptions  caused by  problems  with  existing  products  that can result in
reassignment of product development resources,  and other factors. Delays in the
availability  of new  products,  or the  inability  to  successfully  develop or
acquire   products  that  meet  customer   needs,   could  result  in  increased
competition, the loss of revenue or increased service and warranty costs, any of
which would have a material adverse effect on our business,  financial condition
and results of operations.

     Dependence on the  Installation,  Operations and Maintenance of AMR Systems
Pursuant to  Outsourcing  Contracts:  A portion of the our business  consists of
outsourcing,  wherein we install,  operate and  maintain AMR systems that we may
continue to own in order to provide meter reading and other related  services to
utilities and their customers. We currently have four outsourcing contracts. The
largest of the contracts, which is with Duquesne Light Company, involves network
AMR. The other three contracts involve mobile AMR solutions and, in one of those
cases,  the system  has been sold on a turnkey  basis.  We use the  cost-to-cost
percentage of  completion  method of  accounting  for our long-term  outsourcing
contracts  which involves our having to estimate  revenues and expenses into the
future. To the extent we need to revise our estimates, our financial results can
be adversely  affected.  For example,  in 1999 we incurred  approximately  $24.1
million in  charges  related  to  revisions  of our  estimates  on the  Duquesne
contract.  See "Management's  Discussion and Analysis of Financial Condition and
Result of Operations - Revenues and Gross Margins and Note 3 to our accompanying
financial  statements." In addition,  these long-term  outsourcing contracts are
subject to cancellation or termination in certain  circumstances in the event of
a material and continuing  failure on our part to meet  contractual  performance
standards on a consistent basis over agreed time periods.

     In February 2000, we signed a non-binding  memorandum of understanding with
DQE,  the parent  company of  Duquesne,  for their  purchase  (by Duquesne or an
affiliate) of our network-based AMR system in Pittsburgh which we were currently
operating for Duquesne pursuant to our outsourcing contract with them. We expect
to incur a loss of approximately $50 million in connection with this sale, which
is reflected,  in our 1999 financial results.  See "Management's  Discussion and
Analysis of Financial  Condition  and Results of Operations - Revenues and Gross
Margins."

     Increasing  Competition:  We face  competitive  pressures from a variety of
companies  in each of the  markets  we serve.  In the  radio-based  network  AMR
market,  companies such as CellNet,  Whisper and  Schlumberger  currently  offer
alternative  solutions to the utility industry and compete aggressively with us.
The emerging market for two-way communications systems for advanced metering and
billing for the utility  industry,  together with the  potential  market for the
same kind of  systems to  provide  energy  delivery  optimization  and  Internet
connections  to  customers,  have led  communications,  electronics  and utility
companies to begin developing various systems,  some of which currently compete,
and others of which may in the future  compete,  with the our current and future
product  and service  offerings.  These  competitors  can be expected to offer a
variety of technologies and communications approaches, as well as meter reading,
installation and other services, to utilities and other industry participants.

     We  believe  that  several  large  suppliers  of  equipment,   services  or
technology to the utility  industry may be developing  competitive  products for
the AMR market.  In  addition,  large meter  manufacturers  could  expand  their
current  product and services  offerings so as to compete  directly  with us. To
stimulate demand,  and due to increasing  competition in the AMR market, we have
from time to time  lowered  prices on our AMR products and may continue to do so
in the future.  We also anticipate  increasing  competition  with respect to the
features and functions of our products.  In the handheld systems market, we have
encountered  competition  from  a  number  of  companies,  resulting  in  margin
pressures  in the  maturing  domestic  handheld  systems  business  and in  some
international markets.

     Many of our present and  potential  future  competitors  have, or may have,
substantially   greater  financial,   marketing,   technical  and  manufacturing
resources,  and in some cases,  greater name  recognition and experience than we
do. Our  competitors  may be able to  respond  more  quickly to new or  emerging
technologies and changes in customer requirements or to devote greater resources
to the  development,  promotion and sale of their  products and services than we
can.  In  addition,   current  and  potential  competitors  may  make  strategic
acquisitions or establish  cooperative  relationships  among  themselves or with
third  parties  that  increase  their  ability  to  address  the  needs  of  our
prospective  customers.  It is possible that new  competitors or alliances among
current and new  competitors  may emerge and  rapidly  gain  significant  market
share.  For example,  in February  2000, it was announced  that CellNet would be
filing for  bankruptcy  and that  Schlumberger  intended  to  acquire  CellNet's
assets. On a combined basis, they would account for roughly 20% of the market in
terms of AMR meter module  shipments to date.  There can be no assurance that we
will be able to compete successfully against current and future competitors, and
any  failure  to do so would  have a material  adverse  effect on our  business,
financial condition, results of operations and cash flow.

     Uncertainty  of Market  Acceptance  of New  Technology:  The AMR  market is
evolving, and it is difficult to predict the future growth rate and size of this
market  with any  assurance.  The AMR  market has not grown as quickly in recent
years as we expected.  Further market acceptance of the our new AMR products and
systems,  will depend in part on our ability to demonstrate cost  effectiveness,
and strategic and other  benefits,  of our products and systems,  the utilities'
ability to justify such  expenditures  and the direction and pace of federal and
state regulatory reform actions. In the event that the utility industry does not
adopt our  technology  or does not adopt it as quickly as we expect,  our future
results will be materially and adversely affected.  International  market demand
for AMR systems  varies by country based on such factors as the  regulatory  and
business environment, labor costs and other economic conditions.

     Rapid Technological Change: The telecommunications  industry, including the
data transmission segment thereof,  currently is experiencing rapid and dramatic
technology advances.  The advent of computer-linked  electronic networks,  fiber
optic  transmission,   advanced  data  digitization  technology,   cellular  and
satellite communications capabilities,  and private communications networks have
greatly  expanded  communications  capabilities and market  opportunities.  Many
companies  from  diverse  industries  are  actively  seeking  solutions  for the
transmission  of  data  over  traditional   communications  mediums,   including
radio-based  and  cellular  telephone  networks.  Competitors  may be capable of
offering significant cost savings or other benefits to our customers.  There can
be no assurance  that  technological  advances will not cause our  technology to
become obsolete or uneconomical.

     Availability and Regulation of Radio Spectrum: A significant portion of our
products use radio  spectrum and in the United  States are subject to regulation
by the U.S. Federal  Communications  Commission (the "FCC").  Licenses for radio
frequencies  must be  obtained  and  periodically  renewed,  and there can be no
assurance  that any license  granted to us or our  customers  will be renewed on
acceptable  terms,  if at all,  or that the FCC will keep in place rules for our
frequency bands that are compatible with our business.  In the past, the FCC has
adopted changes to the  requirements  for equipment  using radio  spectrum,  and
there can be no  assurance  that the FCC or Congress  will not adopt  additional
changes in the future.  For example,  in July 1999,  the FCC instituted a freeze
precluding new licenses in a band used for certain of our AMR products,  and the
freeze remained in effect until January 2000. During the time that our customers
were unable to obtain new  licenses and our  business  was  adversely  affected.
There can be no  assurance  that the FCC will not take  similar  actions  in the
future.

     We have committed,  and will continue to commit,  significant  resources to
the development of products that use particular radio frequencies. Action by the
FCC could require  modifications to our products,  and there can be no assurance
that we would be able to modify our products to meet such requirements,  that we
would not experience delays in completing such modifications or that the cost of
such  modifications  would not have a  material  adverse  effect  on our  future
financial condition and results of operations.

     Our  radio-based  products  currently  employ both licensed and  unlicensed
radio frequencies.  There must be sufficient radio spectrum allocated by the FCC
for the use we intend. As to the licensed  frequencies,  there is some risk that
there may be insufficient  available  frequencies in some markets to sustain our
planned operations.  The unlicensed frequencies are available for a wide variety
of uses and are not entitled to protection from  interference by other users. In
the  event  that the  unlicensed  frequencies  become  unacceptably  crowded  or
restrictive,  and no additional frequencies are allocated, tour business will be
materially adversely affected.

     We are also subject to regulatory  requirements  in  international  markets
that vary by country.  To the extent we wish to introduce  products designed for
use in the United States or another country into a new market, such products may
require  significant  modification  or  redesign  in  order  to  meet  frequency
requirements and power specifications.  Further, in some countries,  limitations
on frequency  availability  or the cost of making  necessary  modifications  may
preclude us from selling our products.

     Dependence  on Key  Personnel:  Our success  depends in large part upon our
ability to retain highly qualified technical and management personnel,  the loss
of one or more of whom could have a material adverse effect on our business. Our
success  depends  upon our  ability to  continue  to attract  and retain  highly
qualified  personnel in all disciplines.  There can be no assurance that we will
be successful in hiring or retaining the requisite personnel.

     Intellectual  Property:  While we believe that our patents,  trademarks and
other  intellectual  property have significant  value, there can be no assurance
that these patents and  trademarks,  or any patents or trademarks  issued in the
future,  will  provide  meaningful  competitive  advantages.  There  can  be  no
assurance  that our  patents or  pending  applications  will not be  challenged,
invalidated or  circumvented  by  competitors or that rights granted  thereunder
will provide meaningful proprietary protection. Despite our efforts to safeguard
and maintain our  proprietary  rights,  there can also be no assurance that such
rights will remain  protected  or that our  competitors  will not  independently
develop patentable technologies that are substantially equivalent or superior to
our technologies.

     Dependence  on  Key  Vendors,   Components,   and  Internal   Manufacturing
Capabilities: Certain of our products, subassemblies and components are procured
from a single  source,  and others are procured only from limited  sources.  Our
reliance  on such  components  or on these  limited  or sole  source  vendors or
subcontractors  involves  certain risks,  including the possibility of shortages
and reduced control over delivery schedules,  manufacturing capability,  quality
and costs.  In  particular,  we  currently  obtain the  majority of our handheld
devices from one vendor located in the United Kingdom.  Also, we may be affected
by worldwide  shortages of certain components such as capacitors,  inductors and
certain types of memory and discrete  semiconductor devices. A significant price
increase in certain  components or  subassemblies  could have a material adverse
effect on our results of operations.  Although we believe alternative  suppliers
of these products,  subassemblies and components are available,  in the event of
supply problems from our sole- or limited-source vendors or subcontractors,  our
inability to develop  alternative  sources of supply quickly or cost-effectively
could materially impair our ability to manufacture our products and,  therefore,
could have a material  adverse effect on our business,  financial  condition and
results of operations.  In the event of a significant interruption in production
at our manufacturing facilities,  considerable time and effort could be required
to establish an alternative production line. Depending on which production lines
were affected,  such a break in production  would have a material adverse effect
on our business, financial condition and results of operations.

     Dependence on Outsourcing Financing: We intend to utilize limited recourse,
long-term, fixed-rate project financing for our future outsourcing contracts. We
have established Itron Finance,  Inc. as a wholly owned Delaware  subsidiary and
plan to establish bankruptcy-remote,  single and special purpose subsidiaries of
Itron Finance, Inc. for this purpose.  Although we completed a project financing
facility for an AMR project in 1997,  and we currently  have a commitment  for a
project  financing  that we expect to close in 2000,  there can be no  assurance
that we will be able to close the current  commitment  or effect  other  project
financing facilities.  If we are unable to utilize limited recourse,  long-term,
fixed-rate  project  financing  for our  outsourcing  contracts,  our  borrowing
capacity  will be  reduced,  and we may be  subject to the  negative  effects of
floating interest rates if we cannot hedge this exposure.

     International Operations: International sales and operations may be subject
to risks such as the imposition of government controls,  political  instability,
export license requirements,  restrictions on the export of critical technology,
currency exchange rate  fluctuations,  generally longer  receivables  collection
periods,  trade restrictions,  changes in tariffs,  difficulties in staffing and
managing international operations, potential insolvency of international dealers
and  difficulty  in collecting  accounts  receivable.  In addition,  the laws of
certain  countries do not protect our products to the same extent as do the laws
of the United States. There can be no assurance that these factors will not have
a material adverse effect on our future  international sales and,  consequently,
on our business, financial condition and results of operations.

     Anti-takeover  Considerations:  We have the  authority  to issue 10 million
shares  of  preferred  stock  in one or  more  series  and  to fix  the  powers,
designations, preferences, and relative, participating, optional or other rights
thereof without any further vote or action by our shareholders.  The issuance of
preferred  stock could  dilute the voting  power of holders of Common  Stock and
could  have the  effect of  delaying  or  preventing  a change in control of the
Company. Certain provisions of our Restated Articles of Incorporation,  Restated
Bylaws,  shareholder  rights  plan  and  employee  benefit  plans,  as  well  as
Washington  law,  may operate in a manner that could  discourage  or render more
difficult a takeover of the  Company or the removal of  management  or may limit
the price  certain  investors may be willing to pay in the future for our shares
of Common Stock.

     Regulatory  Compliance:  We  are  subject  to  various  federal  and  state
governmental  regulations related to occupational safety and health,  labor, and
wage practices as well as federal,  state,  and local  governmental  regulations
relating to the storage, discharge, handling, emission, generation, manufacture,
and  disposal  of  toxic or  other  hazardous  substances  used to  produce  our
products.  We believe  that we are  currently in material  compliance  with such
regulations.  Failure to comply with current or future environmental regulations
could  result  in the  imposition  of  substantial  fines on us,  suspension  of
production,  alteration of our production processes, cessation of operations, or
other  actions  which  could  materially  and  adversely  affect  our  business,
financial  condition,  and results of operations.  In the ordinary course of our
business, we use metals,  solvents,  and similar materials,  which are stored on
site. The waste created by use of these  materials is transported  off site on a
regular basis by a state-registered  waste hauler.  Although we are not aware of
any material claim or investigation with respect to these activities,  there can
be no assurance that such a claim will not arise in the future, or that the cost
of  complying  with  governmental  regulations  in the  future,  will not have a
material adverse effect on us.





<PAGE>



I
tem 1a: EXECUTIVE OFFICERS OF THE REGISTRANT

     Set forth below are the names, ages, titles with the Company, and principal
occupations  and  employment  for the last five years of the persons  serving as
executive officers of Itron as of March 15, 2000.


         Name                               Age      Position

         Current Officers:
         
         LeRoy D. Nosbaum                    51     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                    51     Vice President, Competitive
                                                    Resources

         Russel N. Fairbanks, Jr.            56     Vice President and General
                                                    Counsel

         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

         Past Officers:

         Michael J. Chesser                  51     Chairman, President, and 
                                                    Chief Executive Officer

     LeRoy  Nosbaum was named  President  and Chief  Executive  Officer in March
2000.  Previously,  he had been Chief Operating  Officer.  LeRoy joined Itron in
March  1996  and had Vice  President  responsibilities  covering  manufacturing,
product  development,  operations  and marketing  before being promoted to Chief
Operating  Officer.  Before  joining us, LeRoy was Executive  Vice President and
General  Manager of Metricom,  Inc.'s UtiliNet  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, most recently
as General Manager of the Integrated  Metering  Systems  Division of Electricity
Management--North America, an operating group of Schlumberger.

     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.

     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 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 and 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, 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 January 2000 as Vice President and General
Counsel.  Previously,  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.

     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.

     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. or 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.

     Mike Chesser was President and Chief  Executive  Officer of Itron from June
1999 until  March 2000 when he resigned to become  Chief  Executive  officer and
president of GPU Energy.  Prior to joining  Itron,  he was with Atlantic  Energy
Inc., the holding company for Atlantic City Electric and other companies,  where
he served as President and Chief Operating  Officer from 1994 to 1998.  Prior to
that,  Mike spent 23 years with  Baltimore Gas & Electric where he held a number
of executive positions in the areas of marketing and customer service, including
all metering, billing and collection activities.




Item 2: PROPERTIES

     Our headquarters are located in approximately  137,000 square feet of owned
space in Spokane,  Washington,  including  50,000  square feet of  manufacturing
space.  We are in the process of  subleasing  the majority of the  manufacturing
space in this facility to a subcontract  manufacturer  who will manufacture most
of our low volume  hardware  products.  We also own a building  adjacent  to our
Spokane  facility with  approximately  28,000 square feet of  manufacturing  and
office space.  We intend to sell or sublease this  facility.  In Raleigh,  North
Carolina,  we own approximately 24,000 square feet and are leasing an additional
25,000 square feet used for activities  related to our EIS Systems business.  In
Waseca,  Minnesota, we lease 86,000 square feet of manufacturing and engineering
space.  In late  1998,  we began  relocating  activities  from our  facility  in
Lakeville,  Minnesota to the Waseca facility and have  sub-leased  approximately
40% of the 32,000 square feet in the Lakeville  facility.  We have approximately
54,000 square feet of leased space in various  cities in North America for sales
and  service  including  14,000  square  feet of  leased  space  in  Pittsburgh,
Pennsylvania which is used for our operations and maintenance of our outsourcing
activities  at  Duquesne.  Additionally,  we lease  sales  offices in the United
Kingdom,  France and  Australia  and in  various  cities  throughout  the United
States.  Our 1999  aggregate  domestic  and  international  base  monthly  lease
obligation  was  approximately  $135,000.  All the above  facilities are in good
condition and we believe our current  manufacturing and other properties will be
sufficient to support our operations for the foreseeable future.



<PAGE>




Item 3:  LEGAL PROCEEDINGS

     On October 3, 1996,  the Company filed a patent  infringement  suit against
CellNet Data Systems  ("CellNet")  in the United States  District  Court for the
District of Minnesota,  alleging that CellNet is infringing on its United States
Patent No.  5,553,094,  entitled  "Radio  Communication  Network for Remote Data
Generating  Stations,"  issued on  September  3,  1996.  The  Company is seeking
injunctive  relief as well as monetary  damages,  costs and attorneys'  fees. On
January 28, 1999, the Court issued its decision on motions and cross motions for
summary  judgment that had previously been filed by the Company and CellNet.  In
its decision, the Court held the Company's patent valid, but not infringed.  The
Company  believes the  non-infringement  decision was incorrect and has filed an
appeal.  The  appeal is  currently  stayed as a result of  CellNet's  filing for
bankruptcy  protection.  The Company is seeking a lift of the stay. There can be
no assurance  that the Company will prevail on appeal in this action or, even if
it does prevail, that legal costs incurred in connection therewith will not have
a material adverse effect on its financial condition.

     On April 29, 1997,  CellNet  served the Company  with a complaint  alleging
patent  infringement  in the United  States  District  Court for the District of
California.  CellNet sought injunctive relief and damages.  On November 2, 1998,
the  District  Court  ruled in the  Company's  favor that none of the  Company's
accused products  infringed any of the asserted claims in CellNet's patent,  and
the Court of Appeals for the Federal Circuit  affirmed the ruling.  The case was
returned to the District Court for disposition of the Company's  counterclaim of
invalidity,  and  motion for  attorney's  fees,  and then  stayed as a result of
CellNet's filing for bankruptcy protection.

     On May 29, 1997,  the Company and its then  President  and Chief  Executive
Officer,  Johnny M. Humphreys,  were served with a complaint alleging securities
fraud filed by Mark G. Epstein  (Epstein v Itron,  et al.) on his own behalf and
alleged to be on behalf of a class of all others similarly situated, in the U.S.
District  Court  for the  Eastern  District  of  Washington  (Civil  Action  No.
CS-97-214 RHW). The complaint alleges, among other matters, that the Company and
Mr. Humphreys violated Section 10(b) of the Securities  Exchange Act of 1934, as
amended,  and  Rule  10b-5  thereunder  by  making  allegedly  false  statements
regarding the development status,  performance and technological capabilities of
its Fixed  Network  AMR system and  regarding  the  suitability  of its  encoder
receiver  transmitter devices for use with an advanced Fixed Network AMR system.
The complaint sought monetary damages, costs and attorneys' fees and unspecified
equitable or injunctive  relief.  On March 10, 1999,  the Court  certified  this
action as a class action on behalf of all  purchasers  of the  Company's  common
stock between September 11, 1995 and October 22, 1996.

     On June 3, 1999 the Company reached an agreement to settle the lawsuit by a
payment  to the  plaintiff  class of $12  million,  all of which  was  funded by
insurance  proceeds.  The court finally  approved the settlement on November 19,
1999.  Neither the Company nor Mr.  Humphreys  have  admitted  wrongdoing or any
liability and none has been found by the court.

     On April 3, 1999, the Company served Ralph Benghiat, an individual,  with a
Complaint  seeking a  declaratory  judgment  that a patent  owned by Benghiat is
invalid and not  infringed.  Benghiat has filed a counterclaim  alleging  patent
infringement  in the United States District Court for the District of Minnesota.
The patent infringement  allegations relate to certain of the Company's handheld
meter reading technology.  The matter is currently in the discovery stage with a
ready trial date in October, 2000. While the Company believes the allegations of
infringement  are  incorrect,  there can be no assurance that it will prevail in
this matter, or that if it does prevail, that legal costs incurred in connection
therewith will not have a material adverse effect on its financial condition.

     The Company is not involved in any other material legal proceedings.



<PAGE>




Item 4:  SUBMISSION OF MATTERS  TO A VOTE OF SECURITY HOLDERS

     No matters  were  submitted to a vote of  shareholders  of Itron during the
fourth quarter of 1999.


PART II



Item 5: MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER   MATTERS

Market Information for Common Stock

     Itron's common stock is traded on the NASDAQ National Market. The following
table  reflects  the range of high and low  closing  sales  prices  for all four
quarters of 1999 and 1998 as reported by the NASDAQ National Market.

<TABLE>
<CAPTION>

                                            1999                              1998
                              --------------------------------------------------------------------
                                    HIGH             LOW              HIGH             LOW
                              --------------------------------------------------------------------
<S>                          <C>                <C>              <C>               <C>   
        First Quarter               $9.56            $6.88           $21.69           $15.69
        Second Quarter               9.50             6.75            20.63            12.75
        Third Quarter                8.88             5.88            13.50             6.38
        Fourth Quarter               6.94             4.25             9.50             4.63


</TABLE>


Holders

     At March 15, 2000,  there were  approximately  600 holders of record of our
Common Stock.

Dividends

     We have never declared or paid cash  dividends.  We intend to retain future
earnings,  if any, for the  development  of our  business and do not  anticipate
paying cash dividends in the foreseeable future.




<PAGE>




Item 6: SELECTED CONSOLIDATED FINANCIAL INFORMATION

<TABLE>
<CAPTION>


                                                                         Year Ended December 31,
Statement of Operations Data                           1999           1998             1997           1996           1995
------------------------------------------------------------------------------------------------------------------------------
                                                                  (in thousands, except per share data) 
<S>                                                <C>            <C>               <C>           <C>          <C>     
Revenues
  AMR systems                                          $111,449        $164,148         $143,472      $129,576       $ 98,724
  Handheld systems                                       69,557          53,957           49,409        45,084         60,952
  Outsourcing                                            12,406          23,297           23,236         2,924          1,659
                                                    ------------   -------------  ---------------  ------------  -------------
  Total revenues                                        193,412         241,402          216,117       177,584        161,335

Cost of revenues                                        200,104         164,599          135,359       104,708         89,596
                                                    ------------   -------------  ---------------  ------------  -------------

Gross profit                                            (6,692)          76,803           80,758        72,876         71,739

Operating expenses
  Sales and marketing                                    27,780          26,668           29,613        28,847         20,054
  Product development                                    26,764          33,493           32,220        33,285         27,080
  General and administrative                             13,497          12,834           12,064        10,970          7,589
  Amortization of intangibles                             1,986           2,261            2,190         1,542          2,336
  Restructuring charges                                  16,686           3,930                -             -              -
                                                    ------------   -------------  ---------------  ------------  -------------
  Total operating expenses                               86,713          79,186           76,087        74,644         57,059

Operating income (loss)                                (93,405)         (2,383)            4,671       (1,768)         14,680

Other income (expense)
  Equity in affiliates                                    (600)         (1,154)          (1,120)          (50)              -
  Gain on sale of business interests                          -               -            2,000             -              -
  Interest, net                                         (6,261)         (6,508)          (3,916)         (316)          1,721
                                                    ------------   -------------  ---------------  ------------  -------------
  Total other income (expense)                          (6,861)         (7,662)          (3,036)         (366)          1,721
                                                    ------------   -------------  ---------------  ------------  -------------

Income (loss) before taxes and extraordinary          (100,266)        (10,045)            1,635       (2,134)         16,401
    item
Income tax benefit (provision)                          28,010           3,820            (625)           670        (5,250)
                                                    ------------   -------------  ---------------  ------------  -------------
Net income (loss) before extraordinary item            (72,256)         (6,225)            1,010       (1,464)         11,151
Extraordinary gain on early extinguishment of
   debt, net of income taxes of $1,970                    3,660               -                -             -              -
                                                    ------------   -------------  ---------------  ------------  -------------
                                                    ------------   -------------  ---------------  ------------  -------------
Net income (loss)                                     $(68,596)       $ (6,225)          $ 1,010      $(1,464)        $11,151
                                                    ------------   -------------  ---------------  ------------  -------------
Earnings per Share
Basic
  Income (loss) before extraordinary item                $ (4.87)       $ (.42)           $  .07       $ (.11)         $ .85
  Extraordinary item                                          .25             -                -             -              -
                                                     -------------  ------------  ---------------  ------------  ------------
  Basic net income (loss) per share                      $ (4.62)       $ (.42)           $  .07       $ (.11)        $  .85
                                                     -------------  ------------  ---------------  ------------  ------------
Diluted
  Income (loss) before extraordinary item                $ (4.87)       $ (.42)           $  .07       $ (.11)        $  .81
  Extraordinary item                                          .25             -                -             -             -
                                                     -------------  ------------  ---------------  ------------  ------------
  Diluted net income (loss) per share                    $ (4.62)       $ (.42)           $  .07       $ (.11)        $  .81
                                                     -------------  ------------  ---------------  ------------  ------------
Average number of shares outstanding
  Basic                                                    14,851        14,668           14,118        13,297        13,095
  Diluted                                                  14,851        14,668           14,562        13,297        13,775
Balance Sheet Data
  Working capital                                        $ 44,260      $ 54,230         $ 68,307      $ 26,239      $ 64,536
  Total assets                                            192,079       247,755          240,211       186,671       149,718
  Total debt                                               74,998        92,197           73,814        39,502         5,668
  Shareholders' equity                                     47,525       115,022          120,427       114,222       111,273

</TABLE>



<PAGE>



Item 7:  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 
         RESULTS OF OPERATIONS

     The following  discussion and analysis  should be read in conjunction  with
"Selected  Consolidated  Financial  Information" and the Consolidated  Financial
Statements and Notes thereto.

Overview

     Itron is a leading  provider to the energy and water industry of integrated
systems  solutions  for  collecting,   communicating,   analyzing  and  managing
information  about  energy and water  usage.  We design,  develop,  manufacture,
market,  install and service  hardware,  software  and  integrated  systems that
enable customers to obtain,  analyze and use meter data. Our major product lines
include  Automatic Meter Reading ("AMR") systems and electronic meter reading or
Handheld systems. We both sell our products and provide outsourcing services.

     Effective January 2000, we reorganized internally around strategic business
units  ("SBUs")  focused on the customer  segments that we serve.  These include
Natural  Gas  Systems,  Water  and  Public  Power  Systems,   Electric  Systems,
International  Systems and Energy Information  Systems.  We have also created an
SBU focused on  potential  new  business.  Future  reporting  of  financial  and
operating results will include information about SBU results.

     Our AMR  solutions  primarily  utilize  radio and  telephone  technology to
collect  meter  data and  include  Off-Site  AMR,  Mobile  AMR and  Network  AMR
technology reading options.  Off-Site AMR utilizes a radio device attached to an
Itron handheld  computer that collects data from meters  equipped with our radio
meter  modules.  Mobile AMR uses a transceiver in a vehicle to collect data from
meters  equipped with our radio meter modules as the vehicle passes by. We offer
a number of Network AMR solutions that utilize radio, telephone,  cellular, or a
combination of these  technologies,  to collect and transmit  meter  information
from a variety of fixed  locations.  Our handheld  systems product line includes
the sale and service of ruggedized  handheld  computers and supporting  products
that record visually obtained meter data. Outsourcing services typically involve
the  installation,  operation  and/or  maintenance of systems that provide meter
information for billing and management purposes.  Outsourcing  contracts usually
cover long timeframes and typically  involve  contracts in which we own, operate
and maintain the system for a periodic fee.

     We currently derive substantially all of our revenue from product sales and
services  to  utilities.  However,  we have done  business  with  other  utility
industry  participants  such as energy service providers and end user customers,
and we may see an  increasing  percentage of sales to these  customers.  We have
experienced  variability of operating  results on both an annual and a quarterly
basis due  primarily to utility  purchasing  patterns  and delays of  purchasing
decisions.  In recent years these delays have generally resulted from changes or
potential changes to the federal and state regulatory frameworks in the electric
utility industry, and mergers and acquisitions in the utility industry.

     Prior to 1999, our growth was driven primarily by new product introductions
and by  acquisitions  of  businesses  or  technologies  for the AMR  market.  We
expected  the AMR  market  prior  to 1999 to grow  much  faster  than it did and
invested in  manufacturing  capacity  and product  development  to support  that
growth.  Partly as a result of slower overall  market growth than  expected,  we
incurred  losses for five of the last eight  quarters.  With minimal overall AMR
market   penetration,   we  believe  that  there  are  still  tremendous  growth
opportunities in that market.

     In 1998 we initiated  some limited  restructuring  measures to reduce costs
and improve  operating  efficiencies.  In 1999,  we  aggressively  extended  our
restructuring  activities  to further  reduce  spending  and to provide  greater
focus.  These  restructuring  activities  are described in more detail below and
have resulted in significant  changes,  which will enable us to be profitable in
2000.

Results of Operations

Revenues

     The  following  table shows our  revenue and percent  change from the prior
year by type of system or service.

<TABLE>
<CAPTION>

                                                                  Year Ended December 31,
====================================================================================================================================
(in millions)                                        1999          Change             1998          Change             1997
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                         <C>            <C>              <C>            <C>             <C>   
AMR systems                                        $111.4           (32)%           $164.1             14%           $143.5
Handheld systems                                     69.6             29%             54.0              9%             49.4
Outsourcing                                          12.4           (47)%             23.3              3%             23.2
                                              ------------                     ------------                    -------------
Total revenues                                     $193.4           (20)%           $241.4             12%           $216.1
                                              ------------                     ------------                    -------------

</TABLE>


1999 compared to 1998

     1999  marked the first year in our  history in which AMR  systems  revenues
declined from the previous year. The largest decrease in AMR revenues was in the
electric  segment of the market,  which is our market  segment most  impacted by
deregulation  and industry  consolidation.  Also affecting AMR revenues for 1999
was an order  issued  by the FCC  mid-year,  which  temporarily  restricted  our
customers'  abilities to get access to radio licenses required to use certain of
our AMR products and  therefore  resulted in lower AMR revenues in the last half
of 1999. The order was lifted shortly before the end of 1999. We shipped 435,000
electric meter modules in 1999, down 50% from the 870,000 units shipped in 1998.
The largest  factor  impacting  this was that in 1998, we had a very large order
with one  electric  utility  customer  for a network  AMR system  covering  over
400,000  meters  that we did not  replace  with a similar  sized  order in 1999.
Additionally,  1999  revenues  from that same  customer  were  reduced by a $4.2
million  price  concession  related  to a number of  changes  in the  customer's
requirements  for the  system,  including  the  elimination  of  their  need for
meter-level outage information.

     Both gas and water meter module shipment  volume  increased in 1999 and was
1.3 million units total on a combined  basis,  representing  an 8% increase over
1998. We believe  revenues in our gas business will be somewhat flat or slightly
lower in 2000  compared  to 1999 as we  complete  shipments  on a contract  to a
single large gas utility in the first half of 2000. We expect to continue to see
good  growth  in our  water  market  as only 2% of  meters  in this  market  are
currently automated.

     AMR revenues  from the sale of products in our Energy  Information  Systems
(EIS) market  increased 38% to $16 million in 1999. EIS systems include products
for large commercial and industrial (C&I) customers of utilities,  such as power
billing systems, as well as products and systems for deregulated environments to
manage  wholesale  market  settlement  transactions.  We  believe  that  we will
continue to  experience  good  growth in the EIS market as products  and systems
aimed at C&I  customers  (the largest  users of energy and water) and  wholesale
markets  will  be  of  increasing  importance  as  deregulation  of  the  energy
marketplace continues.

     Handheld systems revenues  increased 29% over 1998 from increased volume to
both North American and  International  markets.  Customer  upgrades to handheld
systems that were Y2K compliant and sales of our portable  network  ("PN") radio
card, a new product  introduced in late 1998,  drove the increase.  We expect to
have future handheld  systems revenues from upgrades and replacements of systems
in North America and from further  penetration into  International  markets.  We
expect revenues from these systems to be somewhat flat over the long term.

     Outsourcing revenues,  which are included in our finance segment,  declined
47%, or $11 million,  in 1999. We use the cost-to-cost  percentage-of-completion
method of  accounting  for  outsourcing  contracts and about $6.6 million of the
decrease resulted from an adjustment to our estimates of revenues to be received
in  providing  meter  reads  under our  contract  with  Duquesne  Light  Company
("Duquesne").  This contract is a 15-year outsourcing agreement, in which we own
and operate a network AMR system,  and provide  information  from that system to
Duquesne.  We update our estimates every quarter for our  outsourcing  contracts
and as required by the percentage of completion  accounting  method,  record any
material  changes in estimates in the quarter they are  determined.  We recorded
the $6.6 million  reduction in  outsourcing  revenues in the fourth  quarter for
changed estimates on the Duquesne contract.  Subsequent to December 31, 1999, we
entered into a  non-binding  MOU with  Duquesne to sell the system to them.  See
additional  comments below under "Gross  Margin" and Note 3 to our  accompanying
financial statements.

     Assuming the sale to Duquesne is completed  and no other large  outsourcing
agreements  are  signed,   we  expect  our  outsourcing   revenues  to  decrease
significantly in 2000.Additional  information about revenues is provided in Note
15 of our accompanying financial statements.

1998 compared to  1997

     In 1998, AMR systems revenues  increased 14%, or $20.7 million,  over 1997.
The  increased   revenues  were  primarily  the  result  of  shipments  to,  and
installation of, a large network system for one electric utility.  Substantially
all shipments and installations under this contract were completed by the end of
1998.  Sales of new AMR  hardware,  primarily  for water  meters,  and  software
products introduced in 1997 also contributed to the increase.

     Handheld systems revenues increased $4.5 million, or 9%, in 1998 over 1997.
The  increased  revenues  came  from  sales  of the new PN  cards  for  handheld
computers.  PN cards are credit card sized radio  devices,  that provide  remote
reads of meters equipped with Itron radio meter modules.  1998 also had a higher
proportion of software and service revenue than 1997.

     Outsourcing  revenues in 1998 remained fairly level with 1997. The majority
of  outsourcing  revenues for 1998 were related to the  Company's  contract with
Duquesne.

Gross Margin

     Our gross margin was (3)% in 1999  compared to 32% in 1998 and 37% in 1997.
The table below reflects gross margin as a percentage of  corresponding  revenue
and the percentage change from the prior year.


<TABLE>
<CAPTION>

                                                                   Year Ended December 31,
============================================================================================================================
                                                                   Increase                          Increase
                                                      1999        (Decrease)            1998        (Decrease)          1997
----------------------------------------------------------------------------------------------------------------------------
<S>                                               <C>        <C>                <C>            <C>              <C>
AMR systems                                            31%             3%               28%           (13%)              41%
Handheld systems                                       43%           (6%)               49%             16%              33%
Outsourcing operations cost                         (172)%         (188%)               16%            (6%)              22%
Outsourcing - loss on
  project sale                                      (402)%              -                 -               -                -
Total gross margin                                    (3)%          (35%)               32%            (5%)              37%

</TABLE>


1999 compared to 1998

     There were a number of significant charges affecting gross margins in 1999.
These included a $49.8 million  charge for the write-down of outsourcing  assets
related  to the  proposed  sale of those  assets  to  Duquesne  (see  additional
discussion under  outsourcing  gross margins below), a $6.6 million reduction in
revenue and a $17.5 million  increase to cost of sales for the impact of changes
in estimates to complete the Duquesne contract (see additional  discussion under
the "Revenues"  caption above and  outsourcing  gross margins  below),  the $4.2
million sales concession  mentioned under the "Revenues" caption above, and $2.9
million of forward losses on AMR development contracts in Europe in which we now
expect costs to exceed the committed funding.  The international  forward losses
were discovered in our analysis of European operations during the fourth quarter
of  1999,  at  which  time  it  was   determined   that  we  had   significantly
underestimated the development  efforts needed to complete our commitments under
four development  contracts.  The total of the above items is approximately  $81
million,  and without them,  gross margin for the year would have been closer to
the level reported for 1997.

     Overall AMR  systems  gross  margin in 1999  improved  as a  percentage  of
revenue,  but declined in total dollars, due to lower sales volumes. AMR margins
would  have been even  higher as a  percentage  of  revenues  without  the sales
concession and  international  forward losses  discussed  above.  Margins on the
large network system in 1998 for the electric utility  mentioned in the revenues
discussion  above were  significantly  lower than  normal,  and the 1999  margin
improvement reflects the absence of that lower margin business.

     We  shipped   approximately   1.9  million  meter  modules  in  1999,  down
approximately 20% from 1998.  Reduced capacity  utilization has burdened overall
gross  margins in recent  years.  Our 1999  restructuring  actions  included the
consolidation of high volume manufacturing  operations from Spokane,  Washington
and Boise,  Idaho into our Waseca,  Minnesota plant (see discussion  below under
"Restructuring").  The consolidation  was substantially  completed in the fourth
quarter of 1999 and we expect to reduce annual  manufacturing  costs by $4 to $5
million as a result of these actions.

     Handheld  gross  margins  decreased  to 43% of revenues in 1999 from 49% in
1998.  In  1999,   handheld  systems  revenues  were  mostly  from  upgrade  and
replacement  sales,  which typically have lower net selling prices. In addition,
each sale of upgrade/replacement systems initiates a new warranty period for the
customer where we do not receive post-sale service revenue for a period of time,
typically one year.  The mix of sales between North  American and  International
customers,  and the size of the  systems  sold,  can also  significantly  affect
handheld systems gross margins.

     Outsourcing  gross  margins  were  negative  (574%) in 1999  because  of an
expected loss on the sale of our outsourced network AMR system at Duquesne to an
affiliate of Duquesne,  and because of additional accruals in 1999 for estimated
costs to complete our remaining  obligations for this customer.  These two items
had the impact of reducing  outsourcing  gross  profits by  approximately  $67.3
million.

     On February 8, 2000, we entered into a Memorandum of Understanding  ("MOU")
with DQE, the parent of Duquesne Light Company, to sell them (or an affiliate of
theirs) our network AMR system that provides Duquesne with meter information for
billing and other purposes for their customers in the Pittsburgh area. The sale,
which  is  dependent  upon  satisfactory  completion  of  due  diligence  and is
scheduled  to close  in late  March or early  April  2000,  provides  for a cash
payment of $33  million  for the  purchase of the  system.  The  expected  $49.8
million loss resulting from this sale has been recognized in 1999 in outsourcing
cost of  sales,  consisting  primarily  of a  write-off  of all of the  Duquesne
contract  receivables  (current and  non-current,  net of certain  liabilities),
which was approximately  $31.2 million,  and an $18.6 million  impairment charge
for the assets being sold.  In  connection  with the sale,  we will enter into a
warranty and  maintenance  agreement  under which  Duquesne  will pay us for the
period from closing  through  December 31, 2013,  for certain  defined  services
related to the equipment.

     We use the cost-to-cost  percentage of completion  method of accounting for
our  long-term  outsourcing  contracts  which  involves  our having to  estimate
revenues and  expenses,  typically  for periods of ten to fifteen years into the
future.  During  the  fourth  quarter  of 1999,  in  connection  with our normal
practice of  reviewing  estimates  for the Duquesne  contract,  and in the first
quarter  of 2000,  in  connection  with due  diligence  on the  above  sale,  we
determined that we needed to increase our estimates for future costs,  primarily
for ongoing  maintenance  and support  activities,  and to decrease  our revenue
estimates for future  services  related to advanced  services reads. We estimate
that we will incur  approximately  $24 million in  expenditures  between now and
December  31,  2013 to complete  all  remaining  obligations  to  Duquesne.  Our
remaining  expenditures  will be partially offset by  approximately  $10 million
that we will receive from Duquesne over that period for warranty and maintenance
services.

     In the fourth  quarter of 1999, to reflect the changes in estimates for our
outsourcing  contract as well as obligations  under the warranty and maintenance
agreement,  we recorded a $6.6  million  reduction in  outsourcing  revenues and
accrued an additional  $17.5 million  forward loss accrual which is reflected in
outsourcing  cost of  sales.  See  additional  details  on this  transaction  in
"Revenues" above,  "Financial Condition" below and in Note 3 to our accompanying
financial statements.

1998 compared to 1997

     AMR systems  margins were 28% of AMR systems  revenues in 1998  compared to
41% in 1997 and 1996.  This margin  decline is primarily the result of the large
network system for the electric utility customer at substantially  lower margins
and a higher level of installation activities, which tend to have lower margins,
in 1998. The large lower margin contract was primarily  driven by the early life
cycle status of our network products and related installation activities at that
time.

     Handheld systems margins of 49% in 1998 were significantly  better than the
33%  experienced  in 1997.  The  increased  margins in 1998 were due to a higher
component of total  revenues  derived from software and services,  which tend to
have higher  margins,  and a new higher margin hardware  product.  Additionally,
handheld  systems  margins  were down in 1997  because of a lower  than  average
margin sale to a large international customer.

     Outsourcing  margins dropped to 16% in 1998 from 22% in 1997. The decreased
margins were due to a larger portion of  outsourcing  revenues from our contract
with  Duquesne.  Outsourcing  revenues in 1997 were also  largely  derived  from
Duquesne revenues; however, overall outsourcing margins in 1997 were better than
in 1998 because one customer  converted its  outsourcing  contract to a purchase
that resulted in a one-time gain.

Operating Expenses

     Total 1999 operating expenses increased to $86.7 million from $79.2 million
in the prior year mostly due to increased restructuring charges.

<TABLE>
<CAPTION>

                                                                   Year Ended December 31,
=============================================================================================================================
                                                                   Increase                        Increase
(in millions)                                         1999        (Decrease)           1998        (Decrease)           1997
-----------------------------------------------------------------------------------------------------------------------------
<S>                                           <C>             <C>            <C>             <C>              <C>  
Sales and marketing                                  $27.8             4%             $26.7           (10%)            $29.6
Product development                                   26.8          (20%)              33.5              4%             32.2
General and administrative                            13.5             5%              12.8              6%             12.1
Amortization of intangibles                            2.0          (12%)               2.3              3%              2.2
Restructuring charges                                 16.6           325%               3.9               -                -
                                               ------------                     ------------                     ------------
Total operating expenses                             $86.7            10%             $79.2              4%            $76.1
                                               ------------                     ------------                     ------------
</TABLE>








<PAGE>






1999 compared to 1998

     Sales and  marketing  expenses  increased  4% in 1999 to  represent  14% of
revenues,  up from 11% of revenues in 1998. Most of the increased  expenses were
caused by staff additions for our EIS systems product marketing, sales and sales
support activities. As noted above, sales for this market increased 38% in 1999.
Total sales and  marketing  expenses in 2000 are  expected to remain  relatively
flat.

     1999 product  development  expenses  decreased 20% from 1998 as a result of
our restructuring activities.  During 1999 we consolidated our handheld, mobile,
network and AMR telephone  development  operations into one group,  resulting in
the closure of  development  operations  in Minnesota  and  California.  We also
announced a plan to consolidate our Boise, Idaho operations,  and sharply reduce
our European  development  activities  not related to our core business over the
course of 2000. Product development expenses are expected to decline slightly in
2000.

     General and administrative expenses were up 5% in 1999 over 1998, primarily
from  recruiting and relocation  expenses.  Overall  general and  administrative
expenses are expected to remain relatively level in 2000.

     Amortization of intangibles  decreased  slightly in 1999 and is expected to
remain  approximately  level in 2000.  Additional  information  about  operating
expenses  by  business  segment  is  provided  in  Note  15 of our  accompanying
financial statements.


Restructuring
     Restructuring   expenses  of  $16.7  million  in  1999  were  incurred  for
severance,  facility  closures,  and the  disposition  of  excess  manufacturing
equipment (see Note 2 to our accompanying financial  statements).  Restructuring
actions  taken  during  1999   included:   1)   consolidation   of  high  volume
manufacturing  operations  from three  locations to one; 2) a reduction of meter
reading  hardware  and  software  platforms  supported,   and  consolidation  of
geographically diverse development operations;  3) substantial  repositioning of
operations in Europe to reduce the scope of  development  activities  and change
from a direct sales approach to one that is more  distributor  based; and 4) key
changes  in  the  executive  management  team.  Approximately  300  people  were
terminated as part of the 1999 restructuring  activities,  half of which were in
manufacturing,  25% in product development, and the rest in sales and marketing,
and  general  and  administrative  functions.  We  expect to  replace  about 100
manufacturing   positions   as  part  of  the   consolidation   of  high  volume
manufacturing  operations in our Waseca,  Minnesota plant.  Management positions
accounted for about 25% of the total staff reductions.

     We expect the restructuring  measures to reduce annual  manufacturing costs
by $4 to $5 million with much improved capacity  utilization.  We also expect to
reduce annual operating expenses by a like amount; however these reductions will
be offset by payments of approximately $1 million in project  completion bonuses
and relocation  payments for key personnel,  and may be further partially offset
by investments in new business initiatives and by incentive compensation, to the
extent it is earned based on our financial and operating performance. We believe
our  restructuring  measures will provide for a return to profitability  for the
year 2000.



<PAGE>




1998 compared to 1997

     Sales and marketing  expenses in 1998  decreased $2.9 million from 1997 and
decreased as a  percentage  of revenues  from 14% to 11%. The lower  expenses in
1998 resulted from: 1) a corporate reorganization in 1997 that redefined certain
jobs previously classified as sales and marketing to general and administrative;
and 2) a greater  utilization of sales support  personnel for  revenue-producing
activities, resulting classification of those expenses as cost of sales.

     Product development expenses in 1998 increased by $1.3 million, or 4%, over
1997 but  decreased  as a  percentage  of  revenues  from 15% to 14%.  The lower
expenses as a percent of revenue were caused by restructuring  activities in the
third quarter of 1998 where we eliminated  approximately 150 positions,  most of
which were in product development.

     General  and  administrative   expenses  in  1998  increased  approximately
$770,000, or 3%, over 1997, but decreased as a percentage of revenues to 5% from
6%. The increased expenses in 1998 were primarily due to the reclassification of
expenses discussed in sales and marketing above.

Restructuring

     In the third quarter of 1998 we began to implement  restructuring  measures
to reduce costs and improve operating  efficiencies.  These measures resulted in
$3.9 million in restructuring charges (see Note 2 to our accompanying  financial
statements.) Restructuring measures involved the elimination or consolidation of
approximately  150 positions,  primarily product  development,  the write-off of
certain  intangible assets due to a reduction in the scope of planned technology
development,  consolidation of some of our facilities and  discontinuation  of a
jointly owned entity.


Other Income (Expense)

<TABLE>
<CAPTION>

                                                                      Year Ended December 31,
==============================================================================================================================

(in millions)                                                     1999                      1998                        1997
------------------------------------------------------------------------------------------------------------------------------
<S>                                                     <C>                       <C>                         <C>   
Equity in affiliates                                            $(0.6)                    $(1.2)                      $(1.1)
Gain on sale of business interest                                    -                         -                         2.0
Interest, net                                                    (6.3)                     (6.5)                       (3.9)
                                                           ------------              ------------              --------------
Total other income (expense)                                    $(6.9)                    $(7.7)                      $(3.0)
                                                           ------------              ------------              --------------
</TABLE>


     Over the  three-year  period,  we have had a shared  ownership  interest in
three  entities,  which have been accounted for using the equity  method.  These
entities provide specialized services, such as installation, load profiling, and
meter  reading  services,  or act as  distributors  for our products in specific
utility market  segments.  Equity in affiliates' net operating  losses decreased
markedly  in 1999 due to  improved  sales of  products  through  one  entity and
curtailed operations of another entity. In 1997 we recorded a $2 million gain on
the sale of our ownership  interest in a jointly owned entity. In March 2000, we
sold our interest in another entity to our partner for $400,000,  resulting in a
gain of approximately $170,000.

     Net  interest  expense in 1999  decreased  slightly  from 1998 due to lower
average  short-term  borrowings.  Additionally,  in the first quarter of 1999 we
completed  an offer to  exchange  convertible  subordinated  notes for new notes
carrying a lower conversion  price.  The offer is described  further below under
"Extraordinary  Item."  The  effect of the  exchange  offer  was to  reduce  the
principal  amount of outstanding  notes,  thereby also reducing  annual interest
expense.  Interest  expense  increased  in 1998  over  1997 due to the  original
issuance of the convertible  subordinated  notes. See Note 5 to our accompanying
financial statements.  We capitalized $260,000 of interest costs in 1998 related
to the  construction  of outsourcing  projects in that year,  down from $994,000
capitalized in 1997. No interest was capitalized in 1999.

Income Taxes

     The  effective  income tax rate in 1999  decreased to 28% from the 38% rate
recorded  in 1998 and  1997.  The lower  effective  rate in 1999  resulted  from
valuation allowances provided for certain domestic tax credits and international
net  operating  losses,  which may be subject to  expiration  before they can be
utilized.  Our  effective  income tax rate may vary from year to year because of
fluctuations in foreign operating  results,  changes in valuation  allowances on
deferred tax assets, new or revised tax legislation, and changes in the level of
business performed in differing tax jurisdictions.

Extraordinary Item - Gain on Early Extinguishment of Debt

     In March 1999 we completed an offer  ("exchange  offer") to exchange  $15.8
million  principal  amount  of 6 3/4%  convertible  subordinated  notes due 2004
("exchange  notes") for $22.0 million  principal amount of original  convertible
subordinated notes ("original notes").  The exchange offer was made on the basis
of $720  principal  amount of  exchange  notes for  $1,000  principal  amount of
original  notes.  The  exchange  notes  have  substantially  the same  terms and
conditions as the original notes, except for a reduction in the conversion price
for  converting  the notes into common  stock,  an  extension of the date before
which we may not call the  exchange  notes,  and the  removal of the  redemption
premium.  The exchange  offer  reduced our  long-term  debt and annual  interest
expense  by  taking  advantage  of  market  discounts.  The gain on  early  debt
extinguishment, net of issuance expenses and income taxes, was $3.7 million.



Financial Condition

<TABLE>
<CAPTION>
                                                                   Year Ended December 31,
==============================================================================================================================
                                                                 Increase                           Increase
Cash flow information (in millions)                 1999        (Decrease)             1998        (Decrease)           1997
------------------------------------------------------------------------------------------------------------------------------
<S>                                             <C>            <C>              <C>                 <C>           <C>   
Operating activities                               $ 24.5           1390%            $ (1.9)            72%            $(3.2)
Investing activities                               (16.1)            (6%)             (17.1)           (47%)           (34.1)
Financing activities                                (9.6)          (151%)              18.7            (51%)            38.1
                                                 ---------                       ------------                       ----------
Net increase (decrease) in cash                    $(1.2)          (330%)            $ (0.3)          (136%)            $ .8
                                                 ---------                       ------------                       ----------
</TABLE>


     Operating  activities  provided $24.5 million in 1999 compared to consuming
$1.9  million  in 1998 and $3.2  million  in 1997.  Wages and  benefits  payable
increased  $10  million  in 1999  from  restructuring  charges  for  involuntary
employee termination benefits that will be paid in 2000.  Restructuring  charges
for facility  closures and cost of sales charges for forward losses on contracts
not yet complete will require  approximately $8 million in cash in 2000, and $12
million total over subsequent years.  Operating  cash  flow  for 1999  was  much
improved  over  1998 from  decreases  in unbilled  accounts receivable and lower
inventory levels. Unbilled  accounts  receivable  are recorded when revenues are
recognized upon product shipment or service delivery  and  invoicing occurs at a
later  date,   and  there  are  no  material  uncertainties  related  to  system
acceptance.  Unbilled  receivables  decreased  $14  million in  1999  due to the
billing and collection of two large, turnkey installations. Further improvements
in   inventory  management  across  all  product  lines  and  locations  reduced
inventories  by $5  million  in  1999.  1999 operating  cash flow  was offset by
deferred  income tax benefits for net operating loss  carryforwards.   Operating
activities used  less cash in  1998 than 1997  because   of  improved  inventory
management  and  improved  accounts receivables turns.



<PAGE>



     Investing  activities  required  $16.1  million in 1999,  compared to $17.1
million  in 1998  and  $34.1  million  in  1997.  Construction  of the  Duquesne
outsourcing  project required  significant cash over the three-year  period. The
sale of the Duquesne  system in March 2000 is expected to reduce  investments in
equipment  used  for  outsourcing  in  2000.  See  additional  details  on  this
transaction  in  "Revenues"  and  "Gross  Margin"  above  and  in  Note 3 to our
accompanying  financial  statements.  We  intend  to  project  finance  a mobile
outsourcing project currently under construction and due to be completed in 2000
with  long-term,  fixed-rate  debt.  The  project  financing  is  expected to be
approximately $9 million  compared to an installed  project cost of $12 million,
of  which  we spent  $3.3  million  in cash on this  project  in  1999.  Capital
acquisitions for internal use in 1999 were approximately level with 1998 and are
expected to remain level in 2000.

     Financing  activities required $9.6 million in 1999 mostly due to repayment
of  short-term  bank  borrowings.  Financing  cash in  1998  was  provided  from
short-term bank borrowings and project financing of one outsourcing  project. In
1997 we issued $63.4 million of  convertible  subordinated  notes  payable,  the
proceeds from which were used primarily to repay short-term bank borrowings. The
exercise of employee stock options and employee stock purchases provided cash of
$1.6 million in 1999, $2.4 million in 1998, and $4.6 million in 1997. In January
2000, we signed an agreement  with a bank for a new four-year  revolving line of
credit  up to a maximum  amount of $35  million.  As with the  previous  line of
credit,  borrowings  available  under the new  facility  are  based on  accounts
receivable  and  inventory.  Availability  under  the  new  line of  credit  has
decreased  since the end of the year  primarily  due to lower levels of accounts
receivable.

     We expect to collect approximately $33 million in cash from the sale of the
Duquesne  system in March or April of 2000.  The cash  received  will be used to
repay any short term borrowings,  cover the cash needs of restructuring measures
discussed  above,  and for general  corporate  purposes.  Some portion of excess
cash,  if any,  may be used to retire  long-term  debt or to  repurchase  stock.
Management believes that the cash to be received from the Duquesne sale, the new
borrowing  facility,  project  financing  proceeds and cash to be generated from
operations are more than adequate to meet our needs for 2000.

Year 2000 Compliance

     None of our products,  internal business systems, or suppliers incurred any
significant problems related to the "year 2000 rollover".  Our total spending to
address year 2000 issues was approximately $2.4 million.

Certain Forward-Looking Statements

     When  included  in  this  discussion,   the  words  "expects,"   "intends,"
"anticipates,"  "plans," "projects" and "estimates," and similar expressions are
intended to identify forward-looking statements. Such statements, are inherently
subject to a variety  of risks and  uncertainties  that  could  cause our actual
results  to differ  materially  from  those  reflected  in such  forward-looking
statements.  Such risks and uncertainties  include, among others, our ability to
complete  negotiations  with  Duquesne  for the  systems  sale,  our  ability to
accurately  forecast  future  revenues  and costs on  long-term  contracts,  our
estimates of the future  impact of  restructuring  measures,  changes in law and
regulation (including FCC licensing actions),  changes in the utility regulatory
environment,  delays or  difficulties in introducing new products and acceptance
of those products,  ability to obtain project  financing in amounts necessary to
fund future  outsourcing  agreements,  increased  competition  and various other
matters, many of which are beyond our control. These forward-looking  statements
speak only as of the date of this report.  The Company  expressly  disclaims any
obligation or  undertaking  to release  publicly any updates or revisions to any
forward-looking  statement  contained  herein  to  reflect  any  change  on  the
Company's  expectations with regard thereto or any change in events,  conditions
or  circumstances  on which any such  statement  is based.  For a more  complete
description of these and other risks, see our Annual Report of Form 10-K for the
year ended December 31, 1999.


I
tem 7A:  QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK

     We have  exposure to interest rate risk from our  short-term  and long-term
debt. Our long-term debt is fixed rate and the short-term debt is variable rate.
We had $70.7  million and $77.7  million of long-term  debt at December 31, 1999
and 1998, respectively.  (See Note 5 of our accompanying financial statement for
additional information on its short-term and long-term borrowings).  Market risk
for  fixed-rate  long-term  debt is estimated as the potential  decrease in fair
value resulting from a hypothetical  100 basis points increase in interest rates
and amounts to $2.9 million as of December 31,  1999.  We do not use  derivative
financial instruments to manage interest rate risk.

     From  time to time,  we enter  into  forward  contracts  on known  purchase
commitments in foreign currencies and for inter-company  settlements.  We do not
enter into derivatives for trading purposes.  As of December 31, 1999 we did not
have any outstanding foreign exchange contracts.

     Our earnings are affected by fluctuations in the value of the U.S.  dollar,
as  compared  to  foreign  currencies,  as a result of  transactions  in foreign
markets.  We have performed a sensitivity  analysis  assuming a hypothetical 10%
strengthening in the value of the dollar relative to the currencies in which our
transactions  are denominated.  As of December 31, 1999, the analysis  indicated
that  such  market  movements  would  not  have  had a  material  effect  on our
consolidated  results of operations  or on the fair value of our  risk-sensitive
financial  instruments.  The  model  assumes  a  parallel  shift in the  foreign
currency exchange rates.  Exchange rates rarely move in the same direction.  The
assumption  that exchange  rates change in a parallel  fashion may overstate the
impact of changing  exchange  rates on assets and  liabilities  denominated in a
foreign currency,  consequently,  actual effects on operations in the future may
differ materially from that analysis.



<PAGE>



Item 8:  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

REPORT OF MANAGEMENT

To the Board of Directors and Shareholders of Itron, Inc.

     Management is responsible for the preparation of our consolidated financial
statements and related information  appearing in this annual report.  Management
believes that the consolidated  financial statements fairly reflect the form and
substance of transactions and that the financial  statements  reasonably present
our financial  position and results of operations in conformity  with  generally
accepted  accounting  principles.  Management  has  included  in  our  financial
statements  amounts  based on  estimates  and  judgments  that it  believes  are
reasonable under the circumstances.

     Management's  explanation  and  interpretation  of  our  overall  operating
results and financial position,  with the basic financial statements  presented,
should be read in conjunction with the entire report.  The Notes to Consolidated
Financial  Statements,  an  integral  part of the  basic  financial  statements,
provide additional detailed financial information. Our Board of Directors has an
Audit  Committee  composed of  non-management  Directors.  The  Committee  meets
regularly  with  financial  management  and  Deloitte  &  Touche  LLP to  review
accounting control, auditing and financial reporting matters.



LeRoy D. Nosbaum                          David G. Remington
President and Chief                       Vice President and Chief
Executive Officer                         Financial Officer


REPORT OF INDEPENDENT AUDITORS

To the Board of Directors and Shareholders of Itron, Inc.

     We have audited the accompanying consolidated balance sheets of Itron, Inc.
and  subsidiaries as of December 31, 1999 and 1998 and the related  consolidated
statements of  operations,  shareholders'  equity and cash flows for each of the
three years in the period ended  December 31, 1999. Our audits also included the
financial  statement  schedule  listed in the index at Item 14. These  financial
statements  and  financial  statement  schedule  are the  responsibility  of the
Company's  management.  Our  responsibility  is to  express  an opinion on these
financial statements and financial statement schedule based on our audits.

     We conducted  our audits in accordance  with  generally  accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

     In our opinion,  such consolidated  financial statements present fairly, in
all material respects, the financial position of Itron, Inc. and subsidiaries at
December  31, 1999 and 1998 and the results of their  operations  and their cash
flows for each of the three  years in the  period  ended  December  31,  1999 in
conformity with generally accepted accounting principles.  Also, in our opinion,
such  financial  statement  schedule,  when  considered in relation to the basic
consolidated  financial  statements  taken as a whole,  presents  fairly  in all
material respects the information set forth therein.



Deloitte & Touche LLP
Seattle, Washington
March 28, 2000




<PAGE>


CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                                                      Year Ended December 31,
(in thousands, except per share data)                                                  1999            1998              1997
------------------------------------------------------------------------------------------------------------------------------
<S>                                                                        <C>              <C>               <C>  
Revenues
  AMR systems                                                                      $111,449        $164,148          $143,472
  Handheld systems                                                                   69,557          53,957            49,409
  Outsourcing                                                                        12,406          23,297            23,236
                                                                              --------------    ------------      ------------
  Total revenues                                                                    193,412         241,402           216,117

Cost of revenues
  AMR systems                                                                        76,826         117,519            84,069
  Handheld systems                                                                   39,704          27,415            33,108
  Outsourcing                                                                        83,574          19,665            18,182
                                                                              --------------
                                                                                                ------------      ------------
  Total cost of revenues                                                            200,104         164,599           135,359
                                                                              --------------    ------------      ------------

Gross profit                                                                        (6,692)          76,803            80,758

Operating expenses
  Sales and marketing                                                                27,780          26,668            29,613
  Product development                                                                26,764          33,493            32,220
  General and administrative                                                         13,497          12,834            12,064
  Amortization of intangibles                                                         1,986           2,261             2,190
  Restructuring charges                                                              16,686           3,930                 -
                                                                              --------------    ------------      ------------
  Total operating expenses                                                           86,713          79,186            76,087
                                                                              --------------    ------------      ------------

Operating income (loss)                                                            (93,405)         (2,383)             4,671

Other income (expense)
  Equity in affiliates                                                                (600)         (1,154)           (1,120)
  Gain on sale of business interest                                                       -               -             2,000
  Interest, net                                                                     (6,261)         (6,508)           (3,916)
                                                                              --------------    ------------      ------------
  Total other income (expense)                                                      (6,861)         (7,662)           (3,036)
                                                                              --------------    ------------      ------------

Income (loss) before income taxes and extraordinary item                          (100,266)        (10,045)             1,635
Income tax benefit (provision)                                                       28,010           3,820             (625)
                                                                              --------------    ------------      ------------
Income (loss) before extraordinary item                                            (72,256)         (6,225)             1,010
Extraordinary gain on early extinguishment of debt,
   net of income taxes of $1,970                                                      3,660               -                 -
                                                                              --------------    ------------      ------------
Net income (loss)                                                                 $(68,596)        $(6,225)            $1,010
                                                                             ---------------    ------------      ------------

Earnings per Share
Basic and diluted
  Income (loss) before extraordinary item                                           $(4.87)          $(.42)              $.07
  Extraordinary item                                                                    .25               -                 -
                                                                              --------------    ------------      ------------
  Basic net income (loss) per share                                                 $(4.62)          $(.42)              $.07
                                                                              --------------    ------------      ------------
Average number of shares outstanding
  Basic                                                                              14,851          14,668            14,118
  Diluted                                                                            14,851          14,668            14,562

</TABLE>




The accompanying notes are an integral part of these financial statements.




<PAGE>



CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                                             At December 31,
(in thousands, except share data)                                                                      1999             1998
----------------------------------------------------------------------------------------------------------------------------
<S>                                                                                         <C>              <C>   
Assets
Current assets
  Cash and cash equivalents                                                                          $1,538           $2,743
  Accounts receivable, net                                                                           46,561           62,253
  Current portion of long-term contracts receivable                                                   2,579           13,498
  Inventories, net                                                                                   15,300           20,654
  Equipment held for sale, net                                                                       32,750                -
  Deferred income tax asset                                                                           8,016            6,938
  Other                                                                                               1,340            2,306
                                                                                                ------------     ------------
  Total current assets                                                                              108,084          108,392

Property, plant and equipment, net                                                                   31,627           42,390
Equipment used in outsourcing, net                                                                    5,951           50,746
Intangible assets, net                                                                               15,196           18,142
Long-term contracts receivable                                                                        1,813           23,712
Deferred income tax asset                                                                            26,922            1,906
Other                                                                                                 2,486            2,467
                                                                                                ------------     ------------
Total assets                                                                                       $192,079         $247,755
                                                                                                ------------     ------------

Liabilities and shareholders' equity
Current liabilities
  Short-term borrowings                                                                              $3,646         $ 14,000
  Accounts payable and accrued expenses                                                              34,747           24,791
  Wages and benefits payable                                                                         16,396            6,246
  Mortgage notes and leases payable                                                                     622              472
  Deferred revenue                                                                                    8,413            8,653
                                                                                                ------------     ------------
  Total current liabilities                                                                          63,824           54,162

Mortgage notes and leases payable                                                                     6,280            6,603
Convertible subordinated debt                                                                        57,234           63,400
Project financing                                                                                     7,216            7,722
Warranty and other obligations                                                                       10,000              846
                                                                                                ------------     ------------
Total liabilities                                                                                   144,554          132,733

Commitments and contingencies (Note 8)                                                                    -                -

Shareholders' equity
  Common stock, no par value, 75 million shares authorized,
  14,958,788 and 14,698,121 shares issued and outstanding                                           107,603          106,039
  Accumulated other comprehensive income                                                            (1,572)          (1,107)
  Retained earnings (deficit)                                                                      (58,506)           10,090
                                                                                                ------------     ------------
  Total shareholders' equity                                                                         47,525          115,022
                                                                                                ------------     ------------
Total liabilities and shareholders' equity                                                         $192,079         $247,755
                                                                                                ------------     ------------
</TABLE>



The accompanying notes are an integral part of these financial statements.



<PAGE>


CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>

                                                                                  Accumulated
                                                                                     Other
                                                                                   Comprehen-      Retained
(in thousands)                           Shares        Amount       Warrants      sive Income      Earnings        Total
-----------------------------------------------------------------------------------------------------------------------------
<S>                                  <C>            <C>           <C>          <C>            <C>            <C>           <C>    
Balances at December 31, 1996             13,387         $98,686        $  338         $  (107)      $ 15,305      $ 114,222
Net income                                                                                              1,010          1,010
Currency translation adjustment                                                           (974)                        (974)
                                                                                                                -------------
Total comprehensive income                                                                                                36
Stock issues:
   Options exercised and
   related tax benefits                       57             827                                                         827
   Employee savings plan                      44             935                                                         935
   Employee stock purchase plan               43             451                                                         451
   Warrants exercised                        312           3,915         (281)                                         3,634
   DCI acquisition                           759             322                                                         322

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

Balances at December 31, 1997               14,602       105,136            57          (1,081)        16,315        120,427
Net loss                                                                                              (6,225)        (6,225)
Currency translation adjustment                                                            (26)                         (26)
                                                                                                                -------------
Total comprehensive income                                                                                           (6,251)
Stock issues:
   Options exercised and
   related tax benefits                         37           452                                                         452
   Stock repurchased by Company              (109)       (1,554)                                                     (1,554)
   Employee savings plan                        87         1,161                                                       1,161
   Employee stock purchase plan                 81           787                                                         787
   Warrants expired                                           57          (57)                                             -

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

Balances at December 31, 1998               14,698       106,039             -          (1,107)        10,090        115,022
Net loss                                                                                             (68,596)       (68,596)
Currency translation adjustment                                                           (465)                        (465)
                                                                                                                -------------
Total comprehensive income                                                                                          (69,061)
Stock issues:
   Options exercised and
   related tax benefits                         38            95                                                          95
   Employee savings plan                       139         1,045                                                       1,045
   Employee stock purchase plan                 84           424                                                         424

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

Balances at December 31, 1999               14,959      $107,603   $         -         $(1,572)     $(58,506)       $47,525
----------------------------------------------------------------------------------------------------------------------------

</TABLE>




The accompanying notes are an integral part of these financial statements.



<PAGE>


CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>

                                           Year Ended December 31,
(in thousands)                                                                         1999            1998             1997
----------------------------------------------------------------------------------------------------------------------------
<S>                                                                            <C>            <C>               <C> 
Operating activities
   Net income (loss)                                                              $(68,596)       $ (6,225)          $ 1,010
   Noncash charges (credits) to income:
     Depreciation and amortization                                                   18,474          19,865           16,781
     Deferred income tax provision (benefit)                                       (28,064)         (4,550)              107
     Equity in affiliates, net                                                          600           1,154            (880)
     Extraordinary gain on early extinguishment of debt                             (3,660)               -                -
     Write-off of long-term contracts receivable                                     34,492               -                -
     Loss on equipment sale or disposal                                              23,369               -                -
Changes in operating accounts, net of acquisitions:
     Accounts receivable                                                             15,668         (1,811)         (19,158)
     Inventories                                                                      5,354          11,331            3,194
     Accounts payable and accrued expenses                                           18,572         (2,663)            7,107
     Wages and benefits payable                                                      10,151         (2,935)            5,177
     Deferred revenue                                                                 (240)           1,894              (8)
     Long-term contracts receivable                                                 (1,674)        (17,646)         (18,377)
     Other, net                                                                          52           (312)            1,829
                                                                                ------------    ------------     ------------
Cash provided (used) by operating activities                                         24,498         (1,898)          (3,218)

Investing activities
     Acquisition of property, plant and equipment                                   (7,416)         (6,364)          (9,329)
     Equipment used in outsourcing                                                  (9,859)        (10,746)         (27,478)
     Proceeds from sale of equipment used in outsourcing                                  -               -            3,035
     Proceeds from sale of business interest                                              -           1,000            1,000
     Acquisitions of intangibles and patent defense costs                             (171)         (1,002)          (1,703)
     Other, net                                                                       1,362               8              410
                                                                                ------------    ------------     ------------
Cash (used) by investing activities                                                (16,084)        (17,104)         (34,065)

Financing activities
     Change in short-term borrowings, net                                          (10,354)          12,440         (31,502)
     Proceeds from (payments on) project financing                                    (506)           5,308            2,414
     Issuance of common stock                                                         1,564           2,400            6,169
     Purchase and retirement of common stock                                              -         (1,554)                -
     Issuance of convertible subordinated debt                                            -               -           63,400
     Debt issuance costs                                                                  -               -          (2,355)
     Other, net                                                                       (323)             128             (63)
                                                                                ------------    ------------     ------------
Cash provided (used) by financing activities                                        (9,619)          18,722           38,063
                                                                                ------------    ------------     ------------

Increase (decrease) in cash and cash equivalents                                    (1,205)           (280)              780
Cash and cash equivalents at beginning of period                                      2,743           3,023            2,243
                                                                                ------------    ------------     ------------
Cash and cash equivalents at end of period                                          $ 1,538         $ 2,743          $ 3,023
                                                                                ------------    ------------     ------------
</TABLE>


The accompanying notes are an integral part of these financial statements.



<PAGE>



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1: Summary of Significant Accounting Policies

Business
     We are a leading  global  provider of  solutions  for  utilities  and other
customers to collect,  communicate,  analyze and manage information about energy
and water usage. We design,  develop,  manufacture,  market,  sell,  install and
service  hardware,  software and integrated  systems for automatic meter reading
("AMR")  and  electronic  meter  reading or Handheld  systems.  We both sell our
products and provide outsourcing services.

Basis of Consolidation
     The consolidated  financial  statements include the accounts of Itron, Inc.
and our wholly owned subsidiaries. All significant intercompany transactions and
balances  are  eliminated.  Investments  in  affiliates,  in  which  we  have  a
non-controlling interest, are accounted for using the equity method. At December
31, 1999 we had a 50% interest in two joint ventures. In March 2000, we sold our
interest in one of those to our partner. In 1997 and 1998, we had a 50% interest
in another venture, and in 1998, sold that interest to our partner.

Cash and Cash Equivalents
     We consider all highly liquid instruments with original maturities of three
months or less to be cash  equivalents.  Cash  equivalents are recorded at cost,
which approximates fair value.

Inventories
     Inventories  are stated at the lower of cost or market using the  first-in,
first-out method. Cost includes raw materials and labor, plus applied direct and
indirect costs.  Service  inventories  consist primarily of  sub-assemblies  and
components necessary to support post-sale maintenance.

Property, Plant and Equipment
     Property,  plant and  equipment  are  stated at cost.  Depreciation,  which
includes the  amortization of assets recorded under capital leases,  is computed
using the  straight-line  method over the assets estimated useful lives of three
to seven years,  or over the term of the applicable  capital lease,  if shorter.
Equipment used in outsourcing  contracts is depreciated  using the straight-line
method over the shorter of the useful life or the term of the contract. Plant is
depreciated over 30 years using the straight-line method. We review the carrying
value of property,  plant and  equipment on a regular basis for  impairment.  In
1999,  1998 and 1997 total interest  expense was $6.7 million,  $6.6 million and
$5.2 million,  respectively.  Of these  amounts,  we  capitalized  interest as a
component of the cost of property,  plant and equipment  constructed for our own
use of $260,000  and  $994,000 in 1998 and 1997,  respectively.  No interest was
capitalized  in 1999.  Equipment held for sale is reported at the selling price,
less estimated selling costs of $250,000.

Intangible Assets
     Goodwill  represents  the excess cost of  businesses  that we have acquired
over the fair value of their net assets and is amortized using the straight-line
method over periods  ranging  from three to 20 years.  Patents,  patent  defense
costs,  distribution  and product rights are amortized  using the  straight-line
method over their  remaining  lives of three to 17 years.  Capitalized  software
includes  costs  incurred  subsequent  to  the  establishment  of  technological
feasibility  of the related  product and is  amortized  using the  straight-line
method for a period not to exceed five years.  We regularly  review the carrying
value of intangible assets for impairment.

Warranty
     We offer  standard  warranty  terms on our  product  sales.  Provision  for
estimated  warranty  costs is  recorded  at the  time of sale  and  periodically
adjusted to reflect actual  experience.  The long-term  warranty  reserve covers
future  expected  costs  of  testing  and  replacement  of  radio  meter  module
batteries.  Warranty  expense was $5.7 million in 1999, $4.2 million in 1998 and
$3.8 million in 1997.

Income Taxes
     We account for income  taxes using the asset and  liability  method.  Under
this method,  deferred  income taxes are recorded for the temporary  differences
between  the  financial  reporting  basis  and  tax  basis  of  our  assets  and
liabilities. These deferred taxes are measured using the provisions of currently
enacted  tax  laws.  We  believe  that it is more  likely  than not that we will
generate  sufficient taxable income to allow the realization of our deferred net
tax asset.

Foreign Exchange
     Our  consolidated  financial  statements  are  prepared  in  United  States
dollars.  Assets and  liabilities  of foreign  subsidiaries  are  denominated in
foreign  currencies  and are translated to United States dollars at the exchange
rates in effect on the balance  sheet  date.  Revenues,  costs of  revenues  and
expenses for these  subsidiaries  are  translated  using an average rate for the
relevant reporting period.  Translation  adjustments resulting from this process
are a component of comprehensive income in shareholders' equity.

Revenue Recognition
     System  sales:  Revenues  from sales of hardware and software  licenses are
generally recognized upon shipment. Service revenues are recognized ratably over
the periods  covered by the service  contracts or as the services are performed.
Revenues for shipments or post-sale  maintenance  not yet billed are included in
accounts  receivable or other long-term  assets depending on the expected period
of collection.  Deferred  revenue is recorded for products or services that have
been paid for by a customer but have not yet been provided. Unbilled receivables
are recorded  when  revenues  are  recognized  upon product  shipment or service
delivery  and  invoicing  occurs at a later  date,  and  there  are no  material
uncertainties related to system acceptance.
     Large  custom  systems and  outsourcing  contracts:  Large  custom  systems
include  those in  which  there  is a  substantial  amount  of  custom  software
development.  Outsourcing  services may  encompass the  installation,  operation
and/or  maintenance of meter reading  systems to provide meter  information to a
customer  for billing and  management  purposes.  Revenues for both large custom
systems  and  outsourcing  contracts  are  recognized  using  the  cost-to-cost,
percentage-of-completion  method of long-term  contract  accounting.  Under this
method, revenue reported during a period is based on the percentage of estimated
total revenues to be received  under the contract  measured by the percentage of
costs incurred to date to total estimated  costs for each contract.  This method
is used  because we believe  costs  incurred are the best  available  measure of
progress on these  contracts.  Contract  costs  include all direct  material and
labor costs and other  indirect  costs related to contract  performance  such as
indirect labor, supplies,  tools, repairs and depreciation costs. Provisions for
estimated losses on uncompleted  contracts are recognized in the period in which
such losses are determined and were $20.4 million in 1999,  $750,000 in 1998 and
$0 in 1997.  Changes in estimated  profitability,  including  those arising from
contract  penalty  provisions  and final  contract  settlements,  may  result in
revisions  to costs and  income  and are  recognized  in the period in which the
revisions are  determined.  Revenues from large custom  systems and  outsourcing
contracts  that are  recognized  in excess of  amounts  billed are  included  in
long-term  contracts  receivable or the current  portion of long-term  contracts
receivable  depending  on the  expected  period of  collection.  Amounts  billed
related to our outsourcing  contracts were $10.7 million,  $5.6 million and $2.6
million in 1999, 1998 and 1997, respectively.



<PAGE>




Earnings per Share
     Basic earnings per share ("EPS") is calculated  using net income divided by
the weighted average common shares  outstanding  during the year. Diluted EPS is
similar to Basic EPS except that the weighted average common shares  outstanding
are increased to include the number of additional  common shares that would have
been  outstanding  if the  dilutive  options  had been  issued  and  convertible
subordinated  notes had been  converted.  Diluted EPS assumes that common shares
were issued upon exercise of stock  options for which the market price  exceeded
the  exercise  price,  less  shares  that could have been  repurchased  with the
related proceeds  ("Treasury  Stock" method).  It also assumes that any dilutive
convertible  subordinated  notes  outstanding at the beginning of each year were
converted, with related interest adjusted accordingly ("if converted" method).

Derivatives
     In June 1998, the Financial  Accounting Standards Board issued Statement of
Financial  Accounting  Standards  ("SFAS") No. 133,  "Accounting  for Derivative
Instruments  and Hedging  Activities."  SFAS 133 requires an entity to recognize
all  derivatives  as either assets or  liabilities in the statement of financial
position  and  measure  those  instruments  at fair  value.  We limit our use of
derivative financial  instruments to the management of foreign currency risk and
had no  derivatives  outstanding  during 1999. We are currently  evaluating  the
impact of SFAS 133 on our financial statements.

Use of Estimates
     The  preparation  of financial  statements  in  conformity  with  generally
accepted  accounting  principles  requires us to make estimates and assumptions.
These  estimates  and  assumptions  affect  the  reported  amounts of assets and
liabilities  and contingent  assets and liabilities at the date of the financial
statements  and the  reported  amounts  of  revenues  and  expenses  during  the
reporting  period.  Our  accounting  for  long-term  contracts  requires that we
estimate our total  revenues and our costs of  providing  outsourcing  and other
services  over long  periods  of time,  typically  15 years.  Because of various
factors affecting future costs and operations,  actual results could differ from
estimates.

Reclassifications
     Certain  amounts  in the 1998  and  1997  financial  statements  have  been
reclassified to conform to the 1999 presentation.

Note 2: Restructuring
1999 Charges:
     In our ongoing efforts to improve efficiencies and reduce costs we recorded
restructuring  charges of $16.7  million  during 1999.  Our  restructuring  plan
included  the  consolidation  of  high  volume  manufacturing  to our  plant  in
Minnesota,  a reduction  of products  and  software  platforms  supported by the
Company,  consolidation  of product  development  locations,  the  transition in
Europe from  direct  sales to more of a  distributor-based  sales  approach  and
changes in key management positions. The majority of the charges were related to
a reduction in force of approximately 300 people of which approximately 50% were
in manufacturing,  25% in product  development and the remainder  throughout the
Company.  Twenty-five percent of the reductions were management  positions.  The
additional  charges relate to impairment of equipment and estimated future lease
payments  for  abandoned  facilities.  Total  1999  restructuring  charges as of
December 31, 1999, are as follows:



<PAGE>



<TABLE>
<CAPTION>
                                                                                                                  Reserve
                                                            Cash/           Restructuring                         Balance
(in thousands)                                             Non-cash             Charge           Activity         12/31/99
                                                        ---------------    -----------------    ------------    -------------
<S>                                                  <C>                <C>                 <C>              <C>
Severance and related charges                                Cash                  $9,237             $249           $8,988
Asset impairment                                           Non-cash                 4,764            1,164            3,600
Consolidation of facilities                                  Cash                   2,685              133            2,552
                                                                           -----------------    ------------    -------------
Total restructuring charges                                                      $ 16,686           $1,546          $15,140
                                                                           -----------------    ------------    -------------
</TABLE>


     The reserve balances for severance and related charges and asset impairment
are expected to be fully utilized in 2000. Facility  consolidation  reserves are
dependent  on  our  ability  to  sublease   vacant  space,   which  is  under  a
non-cancelable operating lease through 2008. 

1998 Charges:
     In 1998,  in  connection  with  management's  measures to reduce  costs and
improve  operating  efficiencies,  we  recorded  restructuring  charges  of $3.9
million.  The  restructuring  measures  primarily  involved the  elimination  or
consolidation of approximately 150 positions,  primarily in product development,
the write-off of certain of our intangible  assets and the  consolidation of one
of our product  development  locations.  Total 1998 restructuring  charges as of
December 31, 1999, are as follows:
                                                                               

<TABLE>
<CAPTION>
                                                                                                                  Reserve
                                                           Cash/            Restructuring                         Balance
(in thousands)                                            Non-cash              Charge           Activity         12/31/99
                                                      -----------------    -----------------    ------------    -------------
<S>                                                 <C>                <C>                   <C>              <C>
Severance and related charges                               Cash                   $1,920           $1,920                -
Intangible asset impairment                               Non-cash                  1,104            1,104                -
Consolidation of facilities                                 Cash                      665              236              429
Other                                                     Non-cash                    241              241                -
                                                                           -----------------    ------------    -------------
Total restructuring charges                                                        $3,930           $3,501             $429
                                                                           -----------------    ------------    -------------
</TABLE>


     Facility  consolidation  reserves are  dependent on our ability to sublease
vacant space, which is under a non-cancelable operating lease through 2008.

Note 3: Sale of Outsourcing Equipment

     On February 8, 2000,  we entered into a Memorandum  of  Understanding  with
DQE,  the parent of Duquesne  Light  Company,  to sell them (or an  affiliate of
theirs) our network AMR system that provides Duquesne with meter information for
billing and other purposes for their customers in the Pittsburgh area. The sale,
which  is  dependent  upon  satisfactory  completion  of  due  diligence  and is
scheduled  to close  in late  March or early  April  2000,  provides  for a cash
payment of $33 million for the purchase of the system,  $1 million of which will
be held in escrow for post  closing  items.  The  expected  $49.8  million  loss
resulting  from this sale has been  recognized  in 1999 in  outsourcing  cost of
sales,  consisting  primarily of a write-off  of all of the  Duquesne  contracts
receivable  (both  current  and  non-current,  net of  certain  liabilities)  of
approximately $31.2 million,  and $18.6 million for the impairment of the assets
being sold.  In  connection  with this sale,  we will enter into a warranty  and
maintenance  agreement  under  which  we  will  provide  Duquesne  with  certain
maintenance and support  services for the period from closing  through  December
31,  2013.  Duquesne  will pay us  approximately  $695,000  per  year for  those
services. In connections with our performance  responsibilities  thereunder,  we
have  furnished  Duquesne  with a $5 million  standby  letter of  credit.  As of
December 31, 1999, we accrued  forward  losses for  expenditures  related to our
remaining obligations to Duquesne that were in excess of amounts to be received.

<PAGE>



Note 4: Balance Sheet Components

<TABLE>
<CAPTION>

                                                                                                             At December 31,
(in thousands):                                                                                        1999             1998
-----------------------------------------------------------------------------------------------------------------------------
<S>                                                                                         <C>             <C>  
Accounts receivable
  Trade (net of allowance for doubtful accounts of $1,311 and $1,485)                              $ 40,747         $ 41,702
  Unbilled revenue                                                                                    5,814           20,551
                                                                                                ------------     ------------
  Total accounts receivable                                                                        $ 46,561         $ 62,253
                                                                                                ------------     ------------

Inventories, net
  Material                                                                                           $6,428           $9,041
  Work in process                                                                                     1,462            1,599
  Finished goods                                                                                      5,702            6,947
  Field inventories awaiting installation                                                               466                -
                                                                                                ------------     ------------
  Total manufacturing inventories                                                                    14,058           17,587
  Service inventories                                                                                 1,242            3,067
                                                                                                ------------     ------------
  Total inventories                                                                                $ 15,300         $ 20,654
                                                                                                ------------     ------------

Property, plant and equipment
  Machinery and equipment                                                                          $ 37,740         $ 44,140
  Equipment used in outsourcing                                                                      13,257           54,766
  Computers and purchased software                                                                   28,331           25,909
  Buildings, furniture and improvements                                                              22,132           21,412
  Land                                                                                                2,195            2,195
                                                                                                ------------     ------------
  Total cost                                                                                        103,655          148,422
  Accumulated depreciation                                                                         (66,077)         (55,286)
                                                                                                ------------     ------------
  Property, plant and equipment, net                                                               $ 37,578         $ 93,136
                                                                                                ------------     ------------

Intangible assets
  Goodwill                                                                                         $ 16,991         $ 16,991
  Capitalized software                                                                                6,309            6,370
  Distribution and product rights                                                                     2,475            2,475
  Patents                                                                                             6,968            6,737
                                                                                                ------------     ------------
  Total cost                                                                                         32,743           32,573
  Accumulated amortization                                                                         (17,547)         (14,431)
                                                                                                ------------     ------------
  Intangible assets, net                                                                           $ 15,196         $ 18,142
                                                                                                ------------     ------------


</TABLE>





<PAGE>





Note 5: Short-term Borrowings and Long-term Debt

Short-term Borrowings
     In  January  2000 we  signed a new  four-year  agreement  with a bank for a
revolving  line of credit up to a maximum  amount of $35 million.  This replaced
the  previous  line of credit that we had with two banks.  Borrowings  available
under the new facility are based on accounts  receivable  and  inventory and are
secured by those and certain cash accounts. Interest rates depend on the form of
borrowing  and  vary  based  on  published  rates  and  financial   performance.
Additionally,  an  annual  commitment  fee of .375% is  required  on the  unused
portion of the available line of credit.  The new agreement  contains  covenants
which require the Company to maintain certain liquidity and coverage ratios. Any
borrowings  mature on January 19, 2004.  Our  previous  revolving line of credit
also  allowed maximum  borrowings  up  to $35 million,  based  on and secured by
accounts  receivable and inventory. At December 31, 1999, the  maximum amount we
could  borrow  under  this  agreement was $20 million.  At December 31, 1999 and
1998, the weighted average interest rate was  approximately  9.0% and 7.9%. This
line of credit, which contained certain financial  covenants,  was fully paid in
January 2000.

Mortgage Notes Payable

<TABLE>
<CAPTION>
                                                 At December 31,
(in thousands)                                                                                         1999             1998
----------------------------------------------------------------------------------------------------------------------------
<S>                                                                                              <C>         <C>
Secured mortgage note payable to a shareholder with principal and
interest payments of 9% until maturity on August 1, 2015.                                            $5,402           $5,555

Secured mortgage note payable to a shareholder with principal and
interest payments of 8 1/2% until maturity on June 1, 2019.                                          $  832            $ 840

</TABLE>


     We  incurred  the  above  notes in  conjunction  with the  purchase  of our
headquarters and related manufacturing space in Spokane,  Washington.  Principal
payments due under these notes are $182,000 in 2000,  $199,000 in 2001, $217,000
in 2002, $238,000 in 2003, $260,000 in 2004 and $5.1 million thereafter.

Project Financing

<TABLE>
<CAPTION>
                                               At December 31,
(in thousands)                                                                                         1999              1998
-----------------------------------------------------------------------------------------------------------------------------
<S>                                                                                              <C>        <C>
Secured note payable with principal and interest payments
of 7.6% until maturity on May 31, 2009.                                                              $7,216           $7,722
</TABLE>


     We incurred the above note in conjunction with project financing for one of
our  outsourcing  contracts.  The note is secured by the assets of the  project.
Principal  payments due under the note are  $546,000 in 2000,  $589,000 in 2001,
$635,000  in  2002,  $685,000  in  2003,  $739,000  in  2004  and  $4.0  million
thereafter.



<PAGE>




Convertible Subordinated Debt

<TABLE>
<CAPTION>
                                               At December 31,
(in thousands)                                                                                         1999             1998
-----------------------------------------------------------------------------------------------------------------------------
<S>                                                                                              <C>           <C>    
Unsecured, convertible subordinated notes.                                                          $57,234          $63,400
</TABLE>


     We completed a $63.4  million  convertible  subordinated  note  offering in
March and April 1997.  Interest of 6 3/4% on the notes is payable  semi-annually
on March 31 and  September 30 of each year until  maturity on March 31, 2004. In
February 1999 we exchanged $22 million  principal  amount of original  notes for
$15.8 million  principal  amount of exchange notes.  The exchange notes have the
same maturity date,  interest payment dates and rate of interest as the original
notes.  Both the  original  notes and the  exchange  notes have no sinking  fund
requirements and are redeemable,  in whole or in part, at our option at any time
on or after April 4, 2000,  (for the original  notes) or March 12, 2002 (for the
exchange notes).  The notes are convertible,  in whole or in part, at the option
of the  holder at any time  prior to  maturity  at a price of $23.70  per common
share for the original notes and $9.65 per common share for the exchange  notes.
The excess of principal  amount of the original notes exchanged over that of the
exchange notes,  net of issuance costs,  has been recognized as an extraordinary
gain on early extinguishment of debt.

Note 6: Fair Values of Financial Instruments
     The estimated fair value of financial  instruments  has been  determined by
using available market information and appropriate valuation methodologies.  The
values provided are  representative  of fair values only as of December 31, 1999
and 1998 and do not reflect subsequent changes in the economy,  interest and tax
rates,  and other  variables that may effect  determination  of fair value.  The
following methods and assumptions were used in estimating fair values.

     Cash,  cash  equivalents  and  accounts  receivable:   The  carrying  value
approximates fair value due to the short maturity of these instruments.

     Long-term contracts  receivable:  The fair value of the non-current portion
of long-term  contracts  receivable is based on the discounted value of expected
cash flows at our current borrowing rate.

     Mortgage  notes  payable:  The fair  value is  estimated  based on  current
borrowing rates available for similar debt.

     Project  financing:  The fair value is  estimated  based on quoted  spreads
above treasury rates for similar issues.

     Convertible  subordinated  debt:  The fair value is estimated  based on the
current trading activity of the notes.

<TABLE>
<CAPTION>

                                                                            1999                             1998
                                                                 ---------------------------      ---------------------------
                                                                 Carrying           Fair           Carrying           Fair
(in thousands)                                                    Amount            Value           Amount            Value
-----------------------------------------------------------------------------------------------------------------------------
<S>                                                          <C>              <C>             <C>             <C>    
Cash, cash equivalents and accounts receivable                     $48,099          $48,099         $64,996         $64,996
Long-term contracts receivable                                       1,813            1,616          23,712          20,662
Mortgage notes payable                                               6,234            6,191           6,395           6,949
Project financing                                                    7,216            6,715           7,722           7,722
Convertible subordinated debt                                       57,234           32,910          63,400          41,210

</TABLE>


Note 7:  Statement  of Cash  Flows  Data  Supplemental  disclosure  of cash flow
     information:

<TABLE>
<CAPTION>

                                           Year Ended December 31,
(in thousands)                                                                         1999            1998             1997
-------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                 <C>             <C>              <C> 
Income taxes paid                                                                      $614            $156             $569
Interest paid                                                                         5,279           6,037            3,580

</TABLE>


Note 8: Commitments and Contingencies

Commitments
     We have  noncancelable  capital leases for computer equipment and software,
and  operating  leases for  office,  production  and storage  space  expiring at
various dates through June 2008. Rents under the Company's operating leases were
$2.4  million in 1999,  $2.0  million in 1998 and $1.6  million in 1997.  Assets
under capital leases are included in the consolidated balance sheets as follows:

<TABLE>
<CAPTION>

                                               At December 31,
(in thousands)                                                                                         1999             1998
-----------------------------------------------------------------------------------------------------------------------------
<S>                                                                                         <C>                <C> 
Computers and software                                                                               $1,188             $905
Accumulated amortization                                                                              (394)            (172)
                                                                                                ------------     ------------
Net capital leases                                                                                     $794             $733
                                                                                                ------------     ------------
</TABLE>


     Future  minimum  payments,  by  year  and  in  the  aggregate,   under  the
aforementioned leases and other non-cancelable  operating leases with initial or
remaining terms in excess of one year are as follows:


<TABLE>
<CAPTION>
                                               At December 31,
                                                                                                Capital         Operating
(in thousands)                                                                                  Leases            Leases
----------------------------------------------------------------------------------------------------------------------------
<S>                                                                                          <C>              <C>   
2000                                                                                                $449             $2,973
2001                                                                                                  93              1,972
2002                                                                                                  13              1,454
2003                                                                                                   _                926
2004                                                                                                   _                644
Thereafter                                                                                             _              1,327
                                                                                              ------------    ---------------
Total minimum lease payments                                                                        $555             $9,296
Less amount representing interest                                                                   (19)
                                                                                              ------------
Present value of net minimum lease payment                                                           536
Less current portion                                                                               (433)
                                                                                              ------------
Long-term portion                                                                                  $ 103
                                                                                              ------------
</TABLE>


     In order  to  maintain  certain  distribution  rights,  we have  agreed  to
purchase  minimum  quantities  of  components  from various  suppliers.  Minimum
purchase  requirements  under these agreements are approximately $7.9 million in
2000,  $1.0  million  in 2001  and  $1.0  million  in  2002.  We  believe  these
commitments are not in excess of our requirements.

Contingencies
     We maintain performance bonds for certain customers.  The performance bonds
usually cover the installation phase of a contract and may on occasion cover the
operations and maintenance phase of outsourcing contracts. Additionally, we have
standby letters of credit to guarantee our performance under certain  contracts.
The  outstanding  amounts of standby  letters of credit  were $6.3  million  and
$778,000 at December 31, 1999 and 1998 respectively.

     We are a party to  various  lawsuits  and  claims,  both as  plaintiff  and
defendant, and have contingent liabilities arising from the conduct of business,
none of which,  in the  opinion of  management,  is  expected to have a material
effect on our financial  position or results of  operations.  We believe that we
have made adequate provisions for such contingent liabilities.


Note 9: Shareholder Rights Plan
     We  adopted a  Shareholder  Rights  Plan and in  November  1993  declared a
dividend of one common share  purchase  right (a "Right")  for each  outstanding
share of our common stock. Under certain conditions, each Right may be exercised
to  purchase  one share of common  stock at a purchase  price of $135 per share,
subject to adjustment.  The Rights will be exercisable only if a person or group
has  acquired  15% or  more  of the  outstanding  shares  of  our  common  stock
(excluding  certain persons who owned more than 15% of the common stock when the
Shareholder Rights Plan was adopted).  If a person or group acquires 15% or more
of the then  outstanding  shares of common  stock,  each Right will  entitle its
holder to receive,  upon  exercise,  common stock having a market value equal to
two times the exercise price of the Right. In addition,  if we are acquired in a
merger or other business  combination  transaction,  each Right will entitle its
holder to purchase that number of the acquiring company's common shares having a
market value of twice the Right's  exercise price. We are entitled to redeem the
Rights at $.001 per Right at any time prior to the earlier of the  expiration of
the Rights in July 2002 or the time that a person has  acquired a 15%  position.
The Rights do not have  voting or  distribution  rights,  and until they  become
exercisable they have no effect on our earnings.


Note 10: Business Combination
     On May 2, 1997, we acquired Design Concepts,  Inc. ("DCI"),  an Idaho-based
company  that  supplies  outage  detection,  power  quality  monitoring  and AMR
systems,  that  communicate  collected  data over  telephone  lines for electric
meters.  Pursuant to the  acquisition,  we issued 759,297 shares of unregistered
Itron common stock to the  shareholders  of DCI in exchange for all  outstanding
shares of DCI. Certificates representing 75,930 shares issued in the acquisition
were placed in escrow. In 1998, all but 1,517 of the shares were released to DCI
shareholders  and the remaining shares  were cancelled and not issued because of
expenses we incurred in relation to former DCI obligations.  The transaction was
accounted for as pooling-of-interests.

Note 11: Earnings Per Share and Capital Structure

<TABLE>
<CAPTION>

                                           Year Ended December 31,
(in thousands)                                                                         1999            1998             1997
----------------------------------------------------------------------------------------------------------------------------
<S>                                                                          <C>             <C>              <C>   
Weighted average shares outstanding                                                  14,851          14,668           14,118
Effect of dilutive securities:
  Warrants                                                                                -               -              107
  Stock options                                                                           -               -              337
                                                                                ------------    ------------     ------------
Weighted average shares outstanding assuming conversion                              14,851          14,668           14,562
                                                                                ------------    ------------     ------------
</TABLE>


     We have granted  options to purchase  common stock to directors,  employees
and other key personnel at fair market value on the date of grant. Additionally,
we issued warrants in conjunction with a private  placement in 1989 and 1990 for
the formation of AMRplus Partners. As of December 31, 1998 there were no further
warrants  outstanding.  The  dilutive  effect of these  options and  warrants is
included for purposes of  calculating  dilutive EPS using the  "treasury  stock"
method. We also have subordinated convertible notes outstanding. These notes are
not included in the above  calculation  as the shares are  anti-dilutive  in all
periods when using the "if  converted"  method.  There is no dilutive  effect in
1999 and 1998,  as the Company  incurred a loss for each year and  including the
securities would have been anti-dilutive.

Note 12: Employee Benefit Plans

Employee Savings Plan
     We have an  employee  incentive  savings  plan in which  substantially  all
employees  are  eligible  to  participate.   Employees  may  contribute,   on  a
tax-deferred basis, up to 22% of their salary, 50% of which we match by issuance
of common stock,  subject to certain  limitations.  The expense for our matching
contribution  was $1.2 million in 1999, $1.2 million in 1998 and $1.1 million in
1997. We do not offer post-employment or post-retirement benefits.

Stock Option Plans
     At  December 31, 1999, we  had two stock-based  compensation  plans,  which
are  described  below.  We apply APB Opinion 25 and related  interpretations  in
accounting  for our plans.  Because all stock options were issued at fair value,
no  compensation  cost has been  recognized  for our  stock  option  plans.  The
following  table  summarizes  information  about stock  options  (including  the
weighted  average  remaining  contractual life and the weighted average exercise
price) outstanding at December 31, 1999:

<TABLE>
<CAPTION>

                                                    Outstanding Options                         Exercisable Options
                                     ----------------------------------------------------------------------------------------
                                            Shares             Life                               Shares
Range of Exercise Prices                  (in 000's)          (years)           Price           (in 000's)          Price
-----------------------------------------------------------------------------------------------------------------------------
<S>                                 <C>                  <C>            <C>              <C>                   <C>           
$  .86 - $ 2.91                                   6              3.70             $1.87                 6            $1.89
$ 4.63 - $ 5.16                               1,361              8.82              4.97               461             4.97
$ 6.20 - $ 8.66                                 657              8.66              7.91               110             7.73
$12.60 - $17.88                                 674              6.23             15.90               481            16.02
$19.88 - $24.50                                 359              6.84             22.04               227            22.41
$58.75                                           12              6.33             58.75                12            58.75
                                        ---------------                                        -------------
$   .86 - $58.75                              3,069              7.97            $10.20             1,297           $12.85
                                        ---------------                                        -------------
</TABLE>


1989 Restated Stock Option Plan

     Under our 1989  Restated  Stock  Option Plan,  we have  granted  options to
purchase  shares of common  stock to  employees  at prices no less than the fair
market value on the date of grant. Those options become fully exercisable within
three or four years from the date granted and  terminate ten years from the date
granted.  Incentive  stock options and  nonqualified  options are exercisable at
prices  ranging  from $.86 to $24.25  per  share.  The  price  range of  options
exercised  was $.17 to $2.91 in 1999,  $.86 to $17.88 in 1998 and $.86 to $24.25
in 1997. At December 31, 1999,  there were 3.1 million shares of unissued common
stock under the plan, of which  options for the purchase of 314,040  shares were
available for future grants.  Share amounts (in thousands) and weighted  average
exercise prices are as follows:



<PAGE>


<TABLE>
<CAPTION>


                                           Year Ended December 31,
                                                       1999                      1998                        1997
                                            ------------------------    -----------------------      -------------------------
                                               Shares         Price        Shares         Price         Shares          Price
------------------------------------------------------------------------------------------------------------------------------
<S>                                        <C>          <C>            <C>          <C>             <C>           <C>   
Outstanding at beginning of year                2,557        $ 9.76         1,995        $18.78          1,267         $17.24
Granted                                           427          8.16         2,283          8.55            843          21.29
Exercised                                          38          2.47          (36)         12.45           (57)          10.98
Canceled                                          157          7.17       (1,685)         18.72           (58)          23.27
                                            ----------                  ----------                  -----------
Outstanding at end of year                      2,789        $ 9.76         2,557        $ 9.76          1,995         $18.78
                                            ----------                  ----------                  -----------

Options exercisable at year end                1,176         $11.68           542        $14.96            690         $15.69

</TABLE>


1992 Stock Option Plan for Nonemployee Directors

     Our 1992 Stock  Option  Plan for  Nonemployee  Directors  provides  for the
annual grant of nonqualified options to purchase 2,000 shares of common stock to
our  nonemployee  directors at an exercise  price that is not less than the fair
market value per share at the date of grant.  Outstanding  options granted under
the plan are  exercisable at prices ranging from $8.29 to $58.75 per share.  The
granted  options are fully vested and immediately  exercisable.  At December 31,
1999,  there were 153,000  shares of unissued  common  stock under the plan,  of
which options for the purchase of 32,000 shares were available for future grant.
Share  amounts  (in  thousands)  and  weighted  average  exercise  prices are as
follows:


<TABLE>
<CAPTION>
                                           Year Ended December 31,
                                                        1999                       1998                        1997
                                            -------------------------    -------------------------     -------------------------
                                               Shares         Price        Shares         Price          Shares         Price
--------------------------------------------------------------------------------------------------------------------------------
<S>                                         <C>        <C>             <C>            <C>           <C>           <C>   
Outstanding at beginning of year                  109        $25.96              97        $27.11           85        $28.14
Granted                                            12          8.29              12         16.63           12         19.88
Exercised                                           -             -               -             -            -
                                              ---------                   -----------                 ----------
Outstanding at end of year                        121        $24.21             109        $25.96           97        $27.11
                                              ---------                   -----------                 ----------

Options exercisable at year end                   121        $24.21             109        $25.96           97        $27.11

</TABLE>


Pro forma Net Income and Per Share Amounts

     Had the  compensation  cost for our  stock-based  compensation  plans  been
determined  based on the fair value at the grant  dates for awards  under  those
plans consistent with the method  prescribed in SFAS No. 123, our net income and
earnings  per share would have been reduced to the pro forma  amounts  indicated
below:

<TABLE>
<CAPTION>

                                           Year Ended December 31,
(in thousands except per share data)                                               1999             1998            1997
-----------------------------------------------------------------------------------------------------------------------------
<S>                                                 <C>                 <C>                  <C>              <C>
Net income (loss)                                         As reported              (68,596)         $(6,225)         $1,010
                                                          Pro forma                (68,801)          (9,012)         (3,679)

Diluted earnings per share                                As reported                (4.62)            (.42)            .07
                                                          Pro forma                  (4.63)            (.61)           (.25)

</TABLE>



<PAGE>




     The  weighted  average fair value of options  granted was $8.16,  $7.82 and
$12.86 during 1999,  1998 and 1997  respectively.  The fair value of each option
granted is estimated on the date of grant using the Black-Scholes option-pricing
model using the following assumptions:

<TABLE>
<CAPTION>
                                                                                   1999            1998             1997
----------------------------------------------------------------------------------------------------------------------------
<S>                                                                            <C>             <C>              <C>
Dividend yield                                                                         0%               0%               0%
Expected volatility                                                                   59%              64%              57%
Risk-free interest rate                                                              5.8%             4.7%             6.5%
Expected life (years)                                                                 5.9              5.3              6.0
</TABLE>


Employee Stock Purchase Plan

     Under our Employee  Stock  Purchase  Plan, we are authorized to issue up to
430,000  shares of common stock to our  eligible  employees  who have  completed
three months of service, work more than 20 hours each week and are employed more
than  five  months in any  calendar  year.  Employees  who own 5% or more of our
common stock are not eligible to participate in the Plan. Under the terms of the
Plan, eligible employees can choose payroll deductions each year of up to 10% of
their  regular  cash  compensation.  Such  deductions  are  applied  toward  the
discounted  purchase price of our common stock. The purchase price of the common
stock is 85% of the fair  market  value of the  stock as  defined  in the  Plan.
Approximately 23% of eligible  employees have participated in the Plan since its
inception  on July 1,  1996.  Under the Plan we sold  81,382,  88,683 and 42,558
shares to employees in 1999, 1998 and 1997, respectively.

Note 13: Income Taxes

     A reconciliation  of income taxes at the U.S. federal statutory rate of 35%
to the consolidated effective tax for continuing operations is as follows:

<TABLE>
<CAPTION>

                                           Year Ended December 31,
(in thousands)                                                                      1999            1998             1997
------------------------------------------------------------------------------------------------------------------------------
<S>                                                                           <C>             <C>             <C>
Expected federal income tax provision (benefit)                                   $ (35,093)       $ (3,515)            $ 572
Change in valuation allowance                                                          7,048           (200)              739
State income taxes                                                                   (1,233)           (397)               89
Goodwill amortization                                                                    309             309              302
Foreign sales corporation                                                                  -           (158)            (107)
Tax credits                                                                                -           (285)            (348)
Foreign operations                                                                       429             307            (913)
UTS acquisition                                                                            -               -              152
Meals and entertainment                                                                  122             212              134
Other, net                                                                               408            (93)                5
                                                                              ---------------    ------------     ------------
Total provision (benefit) for income taxes                                        $ (28,010)       $ (3,820)            $ 625
                                                                              ---------------    ------------     ------------
</TABLE>


     The domestic and foreign components of income before taxes were:

<TABLE>
<CAPTION>

                                           Year Ended December 31,
(in thousands)                                                                     1999               1998            1997
-------------------------------------------------------------------------------------------------------------------------------
<S>                                                                         <C>               <C>                <C>   
Domestic                                                                           $ (92,108)        $ (8,296)          $2,965
Foreign                                                                               (8,158)          (1,749)          (1,330)
                                                                              ----------------     ------------    ------------
Income (loss) before income taxes                                                 $ (100,266)        $(10,045)          $1,635
                                                                              ----------------     ------------    ------------
</TABLE>





<PAGE>



     The provision for income taxes consisted of the following:

<TABLE>
<CAPTION>

                                           Year Ended December 31,
(in thousands)                                                                     1999            1998             1997
-----------------------------------------------------------------------------------------------------------------------------
<S>                                                                           <C>             <C>              <C> 
Current:
  Federal                                                                         $ (2,931)          $  344           $  331
  State and local                                                                     1,000             324              133
  Foreign                                                                                10              60               54
                                                                              --------------    ------------     ------------
  Total current                                                                   $ (1,921)          $  728           $  518

Deferred:
  Federal                                                                          (28,625)         (3,332)              762
  State and local                                                                   (2,076)           (651)               38
  Foreign                                                                           (2,436)           (365)          (1,432)
                                                                              --------------    ------------     ------------
  Total deferred                                                                   (33,137)         (4,348)            (632)

  Change in valuation allowance                                                       7,048           (200)              739
                                                                              --------------    ------------     ------------
  Total provision (benefit) for income taxes                                      $(28,010)       $ (3,820)           $  625
                                                                              --------------    ------------     ------------

</TABLE>


     Deferred income taxes consisted of the following:


<TABLE>
<CAPTION>

                                               At December 31,
(in thousands)                                                                    1999             1998             1997
-----------------------------------------------------------------------------------------------------------------------------
<S>                                                                         <C>             <C>               <C> 
Deferred tax assets

  Loss carry forwards                                                               $20,796        $ 14,715         $  6,259
  Tax credits                                                                         7,066           5,925            4,999
  Accrued expenses                                                                    6,507           5,367            4,033
  Inventory valuation                                                                 1,806           1,889            2,175
  Depreciation and amortization                                                         356               -                -
  Long term contracts                                                                 6,814               -                -
  Other, net                                                                            284             228               97
                                                                              --------------    ------------    -------------
  Total deferred tax assets                                                         $43,629         $28,124          $17,563

Deferred tax liabilities
  Acquisitions                                                                        (173)           (292)            (391)
  Depreciation and amortization                                                           -         (2,789)          (4,469)
  Long term contracts                                                                     -        (14,729)          (6,739)
                                                                              --------------    ------------    -------------
  Total deferred tax liabilities                                                      (173)        (17,810)           11,599

  Valuation allowance                                                               (8,518)         (1,470)          (1,670)
                                                                              --------------    ------------    -------------

Net deferred tax assets                                                             $34,938         $ 8,844          $ 4,294
                                                                              --------------    ------------    -------------

</TABLE>




<PAGE>



     Valuation  allowances  of $0 and $5.4  million  in 1999,  $70,000  and $1.4
million in 1998 and $70,000 and $1.6 million in 1997,  were provided for capital
loss carryforwards and foreign net operating loss  carryforwards,  respectively,
for which we may not receive  future  benefits.  A valuation  allowance  of $3.0
million was provided for research and development tax credits in 1999.
     We have  research  and  development  tax  credits  and net  operating  loss
carryforwards available to offset future income tax liabilities. The tax credits
of $4.5  million  expire  from  2000-2012  and the loss  carryforwards  of $21.8
million begin to expire in 2018.
     We also have alternative  minimum tax credits,  totaling  $830,000 that are
available to offset future tax liabilities indefinitely.

Note 14: Other Related Party Transactions

     Certain of our customers are also shareholders with more than 10% ownership
interest  and/or hold  positions  on our Board of  Directors.  Revenue from such
customers  was $4.6  million in 1999,  $4.5  million in 1998 and $4.8 million in
1997.  Accounts  receivable  from these  customers were $137,000 and $303,000 at
December 31, 1999 and 1998,  respectively.  Interest expense related to mortgage
notes  payable to a  shareholder  was  $561,000  in 1999,  $475,000  in 1998 and
$483,000 in 1997.

Note 15: Segment Information
     We review our  operations  using a variety  of  matrices,  however,  senior
management has primarily  reviewed our  manufacturing  and sales operations on a
domestic  vs.  international  basis  and  revenues  and cost of sales  have been
reviewed based on our major product lines of AMR systems,  handheld  systems and
outsourcing.  Our outsourcing agreements are reported in the finance segment and
include  those in which we both own and  operate the  system.  These  agreements
require a large amount of capital investment and related project and other debt.
Senior management reviews financing operations separately from manufacturing and
sales  operations  because  they  are  essentially   different  businesses  with
significantly different operating and leverage characteristics.
     Segment debt and interest expense related to our finance and  international
operations includes both direct and allocated debt and interest expense. Segment
debt and related interest expense are allocated based on each segment's  funding
requirements for capital or operations.  Intersegment revenues include shipments
to  wholly  owned  subsidiaries  and are  eliminated  in  consolidation.  EBITDA
includes  earnings for each segment before  interest,  taxes,  depreciation  and
amortization  and is used to  allow a  comparison  of each  segment's  operating
results. Segment Debt/EBITDA is a ratio that is used to compare segment leverage
ratios to comparable  industry  ratios.  We do not allocate  income taxes to our
operating  segments and the accounting  policies of our reportable  segments are
the same as those  described  in Note 1 to the Notes to  Consolidated  Financial
Statements.



<PAGE>




Year Ended December 31, 1999

<TABLE>
<CAPTION>

                                           Manufacturing and Sales
                                   --------------------------------------------
(in thousands)                       Domestic       International     Total       Finance     Eliminations     Consolidated
------------------------------------------------------------------------------------------------------------------------------
<S>                               <C>            <C>             <C>          <C>           <C>              <C>
Revenues from external customers:
  AMR systems                          $108,436         $3,013       $111,449              _               _        $111,449
  Handheld systems                       52,469         17,088         69,557              _               _          69,557
  Outsourcing                                 _              _              _         12,406               _          12,406
Intersegment revenues                     1,241            157          1,398              _         (1,398)               _
                                    ------------  -------------  -------------  -------------  --------------  --------------
Total revenues                         $162,146        $20,258       $182,404        $12,406       $ (1,398)        $193,412

Interest income                             382             47            429              _           (327)             102
Interest and other expense              (1,227)        (2,305)        (3,532)        (3,758)             327         (6,963)
Depreciation and amortization            14,515            660         15,175          3,299               _          18,474
Segment loss                           (15,702)        (9,757)       (25,459)       (69,296)             119        (94,636)

Segment assets                          137,426         11,159        148,585         43,494                         192,079
Segment debt                             39,335         25,319         64,654         10,343                          74,997

Cash flows:
  Operating activities                  $52,152      $ (4,999)        $47,153      $(22,654)               _         $24,498
  Investing activities (1)              (6,150)          (168)        (6,318)        (9,766)               _        (16,084)
                                    ------------  -------------  -------------  -------------  --------------  --------------
  Net operating and investing           $46,002      $ (5,167)        $40,835      $(32,420)               _          $8,414

EBITDA (2)                               $(946)      $ (6,716)       $(7,662)      $(62,239)               _      $ (69,901)
Segment debt/EBITDA                      *             *              *              *               *               *
</TABLE>



<TABLE>
<CAPTION>

Year Ended December 31, 1998
                                           Manufacturing and Sales
                                   --------------------------------------------
(in thousands)                       Domestic       International     Total       Finance     Eliminations     Consolidated
------------------------------------------------------------------------------------------------------------------------------
<S>                               <C>           <C>               <C>         <C>          <C>              <C>

Revenues from external customers:
  AMR systems                          $155,511        $ 8,637       $164,148          $   -          $    -        $164,148
  Handheld systems                       42,774         11,183         53,957              -               -          53,957
  Outsourcing                                 -              -              -         23,297               -          23,297
  Intersegment revenues                   3,680            211          3,891              -         (3,891)               -
                                    ------------  -------------  -------------  -------------  --------------  --------------
  Total revenues                       $201,965        $20,031       $221,996        $23,297       $ (3,891)        $241,402

Interest income                             408             46            454             21               -             475
Interest and other expense                (972)        (1,715)        (2,687)        (4,296)               -         (6,983)
Depreciation and amortization            15,585          1,554         17,139          2,726               -          19,865
Segment loss                            (3,009)        (4,915)        (7,924)          (664)         (1,457)        (10,045)
Segment assets                          172,700         12,533        185,233         88,623        (26,101)         247,755
Segment debt                              7,010         19,787         26,797         74,083         (8,683)          92,197

Cash flows:
  Operating activities                  $13,153      $ (3,416)         $9,737     $ (11,635)           $   -       $ (1,898)
  Investing activities (1)              (5,716)          (537)        (6,253)       (10,851)               -        (17,104)
                                    ------------  -------------  -------------  -------------  --------------  --------------
  Net operating and investing           $ 7,437      $ (3,953)         $3,484     $ (22,486)           $   -      $ (19,002)

EBITDA (2)                              $11,554      $ (1,584)         $9,970        $ 6,358           $   -        $ 16,328
Segment debt/EBITDA                         .61              *           3.10          11.65               -            5.65

</TABLE>




<PAGE>



Year Ended December 31, 1997

<TABLE>
<CAPTION>

                                            Manufacturing and Sales
                                   --------------------------------------------
(in thousands)                       Domestic       International     Total       Finance     Eliminations     Consolidated
------------------------------------------------------------------------------------------------------------------------------
<S>                               <C>          <C>               <C>         <C>           <C>            <C>

Revenues from external customers:
  AMR systems                          $138,109       $  5,363      $143,472          $   -         $     -       $143,472
  Handheld systems                       31,907         17,502        49,409              -               -         49,409
  Outsourcing                                 -              -             -         23,236               -         23,236
  Intersegment revenues                     817            658         1,475              -         (1,475)              -
                                    ------------  ------------- -------------  -------------  -------------- --------------
  Total revenues                       $170,833        $23,523      $194,356       $ 23,236       $ (1,475)       $216,117

Interest income                             529             15           544              -            (71)            473
Interest (expense)                        (206)        (1,477)       (1,683)        (2,777)              71        (4,389)
Depreciation and amortization            14,316          1,289        15,605          1,176               -         16,781
Segment income (loss)                     3,783        (3,634)           149          2,206           (720)          1,635

Segment assets                          178,465         11,763       190,228         62,805        (12,822)        240,211
Segment debt                              6,440         16,140        22,580         51,425           (191)         73,814

Cash flows:
  Operating activities                  $ 3,405         $  946       $ 4,351       $(7,569)           $   -      $ (3,218)
  Investing activities (1)              (9,029)          (662)       (9,691)       (24,374)               -       (34,065)
                                    ------------  ------------- -------------  -------------  -------------- --------------
  Net operating and investing         $ (5,624)         $  284     $ (5,340)      $(31,943)           $   -     $ (37,283)

EBITDA (2)                              $17,478      $ (1,305)      $ 16,173        $ 6,159           $   -       $ 22,332
Segment debt/EBITDA                         .37              *          1.40           8.35               -           3.31

</TABLE>


     Domestic information  includes the United States and Canada.  International
information  includes  the results of wholly owned  subsidiaries  located in the
United  Kingdom,  France  and  Australia,  as well  as  sales  to  international
distributors,  which were $7.5  million in 1999,  $3.0  million in 1998 and $9.7
million in 1997.  International  revenue includes sales to customers  located in
Asia, Europe, Australia, Japan, Latin America and the Middle East. Approximately
16% of 1998  consolidated  revenue  related to a contract with Virginia Power is
included in the domestic  manufacturing and sales segment.  At December 31, 1999
and  1998,  approximately  4% and  34%,  respectively,  of  total  accounts  and
contracts receivable were due from one customer.

1  Investing  activities  primarily  consist  of capital  expenditures  for each
segment


2 EBITDA is calculated by adding net interest,  depreciation,  and  amortization
expense  to  pre-tax  income  or  loss,  including  extraordinary  item,  and is
presented  because we believe that it allows for a more complete analysis of our
results of operations. This information should not be considered as an indicator
of our overall financial  performance.  Additionally,  EBITDA as reported herein
may not be comparable to similarly titled measures reported by other companies.


* Not meaningful.



<PAGE>




Note 16: Development Agreements

     We received  funding to develop  certain  products under joint  development
agreements with several companies. We retain the intellectual property rights to
the products that are  developed.  Funding  received  under these  agreements is
credited against product development expenses.  The agreements require us to pay
royalties if successful  products are developed and sold.  Additionally,  we are
required to pay royalties on future sales of products  incorporating certain AMR
technologies.  Funding received and royalty expense under these  arrangements is
as follows:

<TABLE>
<CAPTION>

                                           Year Ended December 31,
(in thousands)                                                                         1999            1998             1997
-------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                 <C>            <C>             <C> 
Funding received                                                                       $382          $  485             $731
Royalties paid                                                                          506           1,130            1,524
</TABLE>





<PAGE>



Note 17: Quarterly Results (Unaudited) Quarterly results are as follows:

<TABLE>
<CAPTION>

(in thousands, except per share and stock            First          Second            Third           Fourth            Total
price data)                                        Quarter         Quarter          Quarter          Quarter             Year
-------------------------------------------------------------------------------------------------------------------------------
<S>                                            <C>            <C>              <C>             <C>             <C>  

1999
Statement of operations data:
    Total revenues                                 $51,945         $51,221          $48,533          $41,713         $193,412
    Gross profit                                    19,301          17,201           18,293         (61,487)          (6,692)
    Net income (loss) before
      extraordinary item                             (231)         (1,584)          (5,868)         (64,573)         (72,256)
    Gain on extinguishment of debt                   3,660               -                -                -            3,660
    Net income (loss)                               $3,429        $(1,584)         $(5,868)       $ (64,573)        $(68,596)
Basic net income (loss) per share
    Before extraordinary item                      $ (.02)         $ (.11)          $ (.39)         $ (4.32)         $ (4.87)
    Extraordinary item                                 .25               -                -                -              .25
                                               ------------    ------------     ------------    -------------    -------------
    Basic net income (loss) per share               $  .23         $ (.11)          $ (.39)         $ (4.32)         $ (4.62)
Diluted net income (loss) per share
    Before extraordinary item                      $ (.02)         $ (.11)          $ (.39)         $ (4.32)         $ (4.87)
    Extraordinary item                                 .24               -                -                -              .25
                                               ------------    ------------     ------------    -------------    -------------
    Basic net income (loss) per share               $  .22         $ (.11)          $ (.39)         $ (4.32)         $ (4.62)
Stock Price:
    High                                            $ 9.56          $ 9.50           $ 8.88           $ 6.94           $ 9.56
    Low                                             $ 6.88          $ 6.75           $ 5.88           $ 4.25           $ 4.25

1998

Statement of operations data:
    Total revenues                                 $63,708         $60,769          $54,839          $62,086         $241,402
    Gross profit                                    20,795          19,968           15,031           21,009           76,803
    Net income (loss)                                  153         (1,076)          (5,929)              627          (6,225)
Basic net income (loss) per share                    $ .01          $(.07)           $(.40)          $   .04          $ (.42)
Diluted net income (loss) per share                  $ .01          $(.07)           $(.40)          $   .04          $ (.42)
Stock Price:
    High                                            $21.69          $20.63           $13.50            $9.50           $21.69
    Low                                             $15.69          $12.75            $6.38            $4.63            $4.63

</TABLE>




<PAGE>





I
tem  9:  CHANGES  IN AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
          FINANCIAL DISCLOSURE

None.


PART III


Item 10:  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
     The  section  entitled  "Election  of  Directors"  appearing  in our  Proxy
Statement  for the Annual  Meeting of  Shareholders  to be held on June 28, 2000
(the "2000 Proxy  Statement") sets forth certain  information with regard to our
directors and is incorporated herein by reference.

     Certain  information with respect to persons who are or may be deemed to be
executive officers of Itron is set forth under the caption  "Executive  Officers
of the Registrant" in Part I of this Annual Report on Form 10-K.


Item 11:  EXECUTIVE COMPENSATION
     The section entitled "Executive  Compensation"  appearing in the 2000 Proxy
Statement sets forth certain  information  (except for those sections  captioned
"Compensation  Committee  Report on  Executive  Compensation"  and  "Performance
Graph",  which are not  incorporated  by  reference  herein) with respect to the
compensation  of  management of the  Registrant  and is  incorporated  herein by
reference.



Item 12:  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
     The section entitled  "Security  Ownership of Certain Beneficial Owners and
Management" appearing in the 2000 Proxy Statement sets forth certain information
with  respect  to  the  ownership  of  the  Registrant's  Common  Stock  and  is
incorporated herein by reference.



Item 13:  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
     The section  entitled  "Certain  Relationships  and  Related  Transactions"
appearing  in the 2000 Proxy  Statement  sets  forth  certain  information  with
respect to the  certain  business  relationships  and  transactions  between the
Registrant  and  its  directors  and  officers  and is  incorporated  herein  by
reference.





<PAGE>





PART IV


Item 14:  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

2)  List of Financial Statement Schedules:

         Schedule II - Valuation and Qualifying Accounts

3)  Exhibits:

Exhibit
Number   Description of Exhibits

3.1      Restated Articles of Incorporation of the Registrant. (A) (Exhibit 3.1)

3.2      Restated Bylaws of the Registrant. (A) (Exhibit 3.2) [Need to file]

4.1      Rights  Agreement  between the Registrant and Chemical Trust Company of
         California  dated as of  July 15, 1992. (A) (Exhibit 4.1)

4.2      Indenture  dated as of March 12, 1997 between the  Registrant  and 
         Chemical Trust Company of California, as trustee. *(G) (Exhibit 4.1)

10.1     Form of Change of Control  Agreement  between  Registrant  and certain 
         of its  executive  officers,  together  with  schedule executive  
         officers  who are parties  thereto.  *

10.2     Schedule of certain executive  officers who are parties to Change of
         Control Agreements (see Exhibit 10.1 hereto) with the Registrant.

10.4     Form of Confidentiality Agreement normally entered into with employees.
         (A) (Exhibit 10.7)

10.5     Amended and Restated  Registration  Rights Agreement among the
         Registrant and certain  holders of its securities  dated March 25, 1996
         (D) (Exhibit 10.4)

10.6     1989 Restated Stock Option Plan. (D) (Exhibit 10.5)

10.7     1992 Restated Stock Option Plan for Nonemployee Directors. (E)

10.8     Executive Deferred Compensation Plan. *(A) (Exhibit 10.12)

10.9     Form of  Indemnification  Agreements  between  the  Registrant  and  
         certain  directors  and officers.

10.10    Schedule of directors and executive officers who are parties to  
         Indemnification  Agreements (see Exhibit 10.09 hereto) with the
         Registrant.

10.11    Employment  Agreement between the Registrant and David G. Remington
         dated February 29, 1996. * (C) (Exhibit 10.16)

10.12    Office Lease between the  Registrant  and Woodville  Leasing Inc. dated
         October 4, 1993. (B) (Exhibit 10.24).

10.13    Contract between the Registrant and Duquesne Light Company dated
         January 15, 1996. (DELTA) (C) (Exhibit 10.18)

10.14    Amendment No. 1 to Amended and Restated Utility  Automated Meter Data
         Acquisition  Lease and Services  Agreement  between the Registrant  and
         Duquesne Light Company dated September 11, 1997. (DELTA)(F)(Exhibit 10)

10.15    Purchase  Agreement  between the Registrant and Pentzer  Development 
         Corporation dated July 11, 1995.  (C) (Exhibit 10.19)

10.16    Loan Agreement between Itron, Inc. and GE Capital Corporation dated
         January 18, 2000.

10.17    Employment Agreement between the Registrant and Michael J. Chesser
         dated May 17, 1999. * (I) (Exhibit 10.17)

10.18    First Amendment to Credit Agreement dated February 28, 2000.

12       Statement of Computation of Ratios

21       Subsidiaries of the Registrant

23       Independent Auditors' Consent

27       Financial Data Schedule.

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

(A)      Incorporated  by  reference  to  designated  exhibit  included  in  the
         Company's Registration Statement on Form S-1 (Registration  #33-49832),
         as amended, filed on July 22, 1992.

(B)      Incorporated  by  reference  to  designated  exhibit  included  in  the
         Company's 1993 Annual Report on Form 10-K filed on March 30, 1994.

(C)      Incorporated  by  reference  to  designated  exhibit  included  in  the
         Company's 1995 Annual Report on Form 10-K filed on March 30, 1996.

(D)      Incorporated  by  reference  to  designated  exhibit  included  in  the
         Company's 1996 Annual Report on Form 10-K filed on March 5, 1997.

(E)      Incorporated  by  reference to Appendix A to the  Company's  designated
         Proxy  Statement  dated  April  4,  1997  for  its  annual  meeting  of
         shareholders held on April 29, 1997.

(F)      Incorporated  by  reference  to  designated  exhibit  included  in  the
         Company's Quarterly Report on Form 10-Q for the quarter ended September
         30, 1997.

(G)      Incorporated  by  reference  to  designated  exhibit  included  in  the
         Company's Current Report on Form 8-K dated March 18, 1997.

(H)      Incorporated  by  reference  to  designated  exhibit  included  in  the
         Company's 1997 Annual Report on Form 10-K dated March 30, 1998.

(I)      Incorporated  by  reference  to  designated  exhibit  included  in  the
         Company's Quarterly Report on Form 10-Q dated August 13, 1999.

*        Management contract or compensatory plan or arrangement.

(DELTA) Confidential treatment requested for a portion of this agreement.


4) Reports on Form 8-K:

     There were no Current  Reports on Form 8-K filed during the fourth  quarter
of 1999.



<PAGE>



Schedule II:  VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
<CAPTION>

(In thousands of dollars)                               Additions                            
                                                       ----------        
                                         Balance at    Charged to                            Balance at end of period
                                         beginning      costs and                         ----------------------------
             Description                 of period      expenses            Deductions      Current     Non current
----------------------------------------------------------------------------------------------------------------------
<S>                                  <C>            <C>                 <C>            <C>          <C> 

Year ended December 31, 1997:
   Inventory obsolescence                    4,131          7,831                8,138        3,824
   Warranty                                  3,369          7,600                7,451        2,666           852
   Allowance for doubtful accts.               752            745                  745          752

Year ended December 31, 1998:
   Inventory obsolescence                    3,824          8,316                7,374        4,766
   Warranty                                  3,518          7,381                4,953        5,100           846
   Allowance for doubtful accts.               752            952                  219        1,485

Year ended December 31, 1999:
   Inventory obsolescence                    4,766          2,697                4,093        3,370
   Warranty                                  5,946          5,717                4,801        6,062           800
   Allowance for doubtful accts.             1,485          4,808                4,982        1,311

</TABLE>





<PAGE>



SIGNATURES

     Pursuant  to the  requirements  of  Section  13 or 15(d) of the  Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its  behalf  by the  undersigned,  thereunto  duly  authorized,  in the  City of
Spokane, State of Washington, on the 26th day of March 2000.

                                            ITRON, INC.
                                            By      /s/DAVID G. REMINGTON       
                                                       David G. Remington
                                                       Chief Financial Officer

     Pursuant to the  requirements of the Securities  Exchange Act of 1934, this
report has been  signed by the  following  persons in the  capacities  indicated
below on the 26th day of March, 2000.

Signature                                           Title

             /s/LEROY D. NOSBAUM                   President and Chief Executive
                LeRoy D. Nosbaum                   Officer (Principal  Executive
                                                   Officer)

             /s/DAVID G. REMINGTON                 Chief   Financial   Officer  
                David G. Remington                 (Principal Financial and
                                                   Accounting Officer)

             /s/S. EDWARD WHITE                    Chairman of the Board
                S. Edward White

             /s/MICHAEL B. BRACY                   Director
                Michael B. Bracy

             /s/MICHAEL J.CHESSER                  Director
                Michael J. Chesser

             /s/TED C. DEMERRITT                   Director
                Ted C. DeMeritt

             /s/JON E. ELIASSEN                    Director
                Jon E. Eliassen

             /s/MARY ANN PETERS                    Director
                Mary Ann Peters

             /s/PAUL A. REDMOND                    Director
                Paul A. Redmond

            /s/GRAHAM M. WILSON                    Director
               Graham M. Wilson








                           CHANGE OF CONTROL AGREEMENT


         This  Change  of  Control  Agreement  (this  "Agreement"),  dated as of
______________,  199_, is between  Itron,  Inc., a Washington  corporation  (the
"Company"), and NAME (the "Executive").

         The Board of Directors of the Company (the "Board") has determined that
it is in the best interests of the Company and its  stockholders  to ensure that
the Company will have the continued dedication of the Executive, notwithstanding
the  possibility,  threat or  occurrence  of a Change of Control  (as defined in
Appendix A to this Agreement, which is incorporated herein by this reference) of
the Company.  The Board  believes it is  imperative  to diminish the  inevitable
distraction of the Executive  arising from the personal  uncertainties and risks
created  by a  pending  or  threatened  Change  of  Control,  to  encourage  the
Executive's  full attention and  dedication to the Company  currently and in the
event  of any  threatened  or  pending  Change  of  Control,  to  encourage  the
Executive's  willingness to serve a successor in an equivalent capacity,  and to
provide the Executive with reasonable  compensation and benefits arrangements in
the event that a Change of Control results in the Executive's loss of equivalent
employment.

         In order to  accomplish
  these  objectives,  the Board has  caused  the
Company to enter into this Agreement.

1.       EMPLOYMENT

         1.1        Certain Definitions

                  (a)  "Effective  Date"  shall mean the first  date  during the
Change of  Control  Period (as  defined in Section  1.1(b)) on which a Change of
Control occurs.

                  (b)  "Change  of  Control   Period"   shall  mean  the  period
commencing  on the date of this  Agreement  and  ending  on the  [first][second]
anniversary  of the date the  Company  gives  notice to the  Executive  that the
Change of Control Period shall be terminated.

         1.2        Employment Period

         The Company hereby agrees to continue the Executive in its employ or in
the employ of its  affiliated  companies,  and the  Executive  hereby  agrees to
remain in the employ of the Company or its affiliated  companies,  in accordance
with the terms and provisions of this  Agreement,  for the period  commencing on
the Effective Date and ending on the [first][second][third]  anniversary of such
date (the "Employment Period").

         1.3        Position and Duties

         During the Employment  Period,  the  Executive's  position,  authority,
duties and  responsibilities  shall be at least  reasonably  commensurate in all
material  respects  with  the most  significant  of those  held,  exercised  and
assigned  at any  time  during  the  90-day  period  immediately  preceding  the
Effective Date.

         1.4        Location

         During  the  Employment  Period,  the  Executive's  services  shall  be
performed at the  Company's  headquarters  on the  Effective  Date or any office
which is subsequently  designated as the headquarters of the Company and is less
than 50 miles from such location.

         1.5        Employment at Will

         The Executive and the Company acknowledge that, except as may otherwise
be expressly provided under any other written  employment  agreement between the
Executive and the Company, the employment of the Executive by the Company or its
affiliated  companies is "at will" and may be terminated by either the Executive
or the Company or its affiliated  companies at any time.  Moreover,  if prior to
the Effective Date the Executive's employment with the Company or its affiliated
companies terminates, then the Executive shall have no further rights under this
Agreement.

         1.6        Board of Directors

         The  Executive is either  currently or at some future time may become a
member of the Board.  His  continuation  as such shall be subject to the will of
the Company's  stockholders and the Board, as provided in the Company's  by-laws
and certificate of incorporation.  Removal of the Executive from, or nonelection
of the Executive to, the Board by the Company's  stockholders  or the Board,  as
provided in the  Company's  by-laws and articles of  incorporation,  shall in no
event be deemed a breach of this Agreement by the Company.

2.       ATTENTION AND EFFORT

         During the Employment Period, and excluding any periods of vacation and
sick leave to which the Executive is entitled,  the Executive will devote all of
his professional productive time, ability,  attention and effort to the business
and affairs of the Company and the discharge of the responsibilities assigned to
him  hereunder,  and  will  use his  best  efforts  to  perform  faithfully  and
efficiently such responsibilities. It shall not be a violation of this Agreement
for the  Executive  to (a) serve on  corporate,  civic or  charitable  boards or
committees,  (b) deliver  lectures,  fulfill  speaking  engagements  or teach at
educational institutions,  and (c) manage personal investments,  so long as such
activities  do  not   significantly   interfere  with  the  performance  of  the
Executive's  responsibilities in accordance with this Agreement. It is expressly
understood and agreed that to the extent any such activities have been conducted
by the Executive prior to the Employment  Period,  the continued conduct of such
activities  (or the conduct of activities  similar in nature and scope  thereto)
during the  Employment  Period shall not  thereafter be deemed to interfere with
the performance of the Executive's responsibilities to the Company.

3.       COMPENSATION

         During the Employment  Period, the Company agrees to pay or cause to be
paid to the  Executive,  and the Executive  agrees to accept in exchange for the
services rendered hereunder by him, the following compensation:

         3.1        Salary

         The  Executive  shall  receive an annual base salary (the  "Annual Base
Salary"),  at least equal to the annual salary  established  by the Board or the
Compensation Committee of the Board (the "Compensation  Committee") prior to the
Effective Date for the fiscal year in which the Effective Date occurs or, if the
Executive's  annual salary has not been established for the fiscal year in which
the  Effective  Date occurs prior to the  Effective  Date,  then the Annual Base
Salary shall be the Executive's annual salary for the preceding fiscal year. The
Annual Base Salary shall be paid in substantially  equal installments and at the
same intervals as the salaries of other officers of the Company are paid.

         3.2        Bonus

         In addition to Annual Base Salary,  the  Executive  shall be awarded an
annual  bonus  (the  "Annual  Bonus")  in cash at  least  equal  to the  average
annualized  (for any fiscal year  consisting  of less than 12 full months) bonus
paid or payable,  including by reason of any  deferral,  to the Executive by the
Company  and its  affiliated  companies  in  respect of the three  fiscal  years
immediately  preceding  the  fiscal  year in which the  Effective  Date  occurs;
provided,  however,  that  payment  of the  Annual  Bonus  may be tied to either
personal or Company  performance  goals reasonably  consistent with those in the
Company's bonus plan during the immediately  preceding three fiscal years.  Each
such  Annual  Bonus  shall be paid no later  than 90 days  after  the end of the
fiscal year for which the Annual Bonus is awarded,  unless the  Executive  shall
elect to defer the receipt of such Annual Bonus.

4.       BENEFITS

         4.1        Benefit Plans; Vacation

         During the  Employment  Period,  the  Executive  shall be  entitled  to
participate,   subject  to  and  in  accordance  with   applicable   eligibility
requirements,  in such  fringe  benefit  programs  as shall be provided to other
executives of the Company and its affiliated  companies from time to time during
the  Employment  Period  by action  of the  Board  (or any  person or  committee
appointed  by  the  Board  to  determine   fringe  benefit  programs  and  other
emoluments),  including,  without  limitation,  paid  vacations;  any incentive,
savings  and  retirement  plan,  practice,  policy or  program;  and all welfare
benefit plans, practices, policies and programs (including,  without limitation,
medical,  prescription,  dental, disability, salary continuance,  employee life,
group life, accidental death and travel accident insurance plans and programs).

         4.2        Expenses

         During the  Employment  Period,  the  Executive  shall be  entitled  to
receive prompt reimbursement for all reasonable  employment expenses incurred by
him in accordance with the policies, practices and procedures of the Company and
its  affiliated  companies in effect for the  executives  of the Company and its
affiliated companies during the Employment Period.

5.       TERMINATION

         Employment  of  the  Executive  during  the  Employment  Period  may be
terminated as follows but, in any case,  the  nondisclosure  and  noncompetition
provisions  set forth in Section 8 hereof shall survive the  termination of this
Agreement and the termination of the Executive's employment with the Company:

         5.1        By the Company or the Executive

         Upon giving Notice of Termination (as defined  below),  the Company may
terminate  the  employment  of the  Executive  with or without Cause (as defined
below),  and the  Executive may  terminate  his  employment  for Good Reason (as
defined below) or for any reason, at any time during the Employment Period.

         5.2        Automatic Termination

         This  Agreement and the  Executive's  employment  during the Employment
Period shall terminate  automatically  upon the death or Total Disability of the
Executive. The term "Total Disability" as used herein shall mean the Executive's
inability,  as determined by a physician  selected by the Company and acceptable
to the  Executive,  to perform  the duties set forth in Section 1.3 hereof for a
period or periods  aggregating  120 calendar  days in any  12-month  period as a
result of physical or mental illness,  loss of legal capacity or any other cause
beyond  the  Executive's  control,  unless the  Executive  is granted a leave of
absence by the Board; provided,  however, that the Executive shall not be deemed
to have a "Total  Disability"  if the  Executive  is capable of  performing  the
essential functions of his position after being provided with such accommodation
as may be necessary so long as such accommodation does not place undue burden on
the  Company.  The  Executive  and  the  Company  hereby  acknowledge  that  the
Executive's  presence and ability to perform the duties specified in Section 1.3
hereof is of the essence of this Agreement.

         5.3        Notice of Termination

         Any  termination  by  the  Company  or  by  the  Executive  during  the
Employment  Period shall be  communicated  by Notice of Termination to the other
party  given  in  accordance  with  Section  10  hereof.  The  term  "Notice  of
Termination"  shall  mean a written  notice  which (a)  indicates  the  specific
termination  provision  in this  Agreement  relied  upon  and (b) to the  extent
applicable,  sets forth in reasonable detail the facts and circumstances claimed
to  provide a basis for  termination  of the  Executive's  employment  under the
provision so indicated. The failure by the Executive or the Company to set forth
in the Notice of Termination  any fact or  circumstance  which  contributes to a
showing of Good  Reason or Cause shall not waive any right of the  Executive  or
the Company  hereunder or preclude the  Executive or the Company from  asserting
such fact or circumstance  in enforcing the Executive's or the Company's  rights
hereunder.

         5.4        Date of Termination

         During the Employment  Period,  "Date of Termination"  means (a) if the
Executive's  employment  is  terminated  by reason  of death,  at the end of the
calendar month in which the  Executive's  death occurs,  (b) if the  Executive's
employment  is  terminated  by reason of Total  Disability,  immediately  upon a
determination by the Company of the Executive's Total Disability, and (c) in all
other cases,  five days after the date of personal delivery of or mailing of, as
applicable,   the  Notice  of  Termination.   The  Executive's   employment  and
performance  of services will continue  during such five-day  period;  provided,
however, that the Company may, upon notice to the Executive and without reducing
the Executive's  compensation during such period,  excuse the Executive from any
or all of his duties during such period.

6.       TERMINATION PAYMENTS

         In the event of termination of the  Executive's  employment  during the
Employment  Period,  all  compensation  and benefits set forth in this Agreement
shall terminate except as specifically provided in this Section 6.

         6.1 Termination by the Company for Other Than Cause or by the Executive
for Good Reason

         If the Company  terminates the  Executive's  employment  other than for
Cause or the Executive  terminates  his  employment for Good Reason prior to the
end of the Employment Period, the Executive shall be entitled to:

                  (a)      receive payment of the following accrued obligations 
         (the "Accrued Obligations"):

                           (i)      the Executive's Annual Base Salary through 
         the Date of Termination to the extent not theretofore paid;

                           (ii) the product of (x) the Annual Bonus payable with
         respect to the fiscal year in which the Date of Termination  occurs and
         (y) a  fraction,  the  numerator  of which is the number of days in the
         current  fiscal  year  through  the  Date  of   Termination,   and  the
         denominator of which is 365; and

                           (iii) any  compensation  previously  deferred  by the
         Executive  (together with accrued interest or earnings thereon, if any)
         as such deferred  compensation becomes payable under the deferral plan,
         and  any  accrued  vacation  pay,  in  each  case  to  the  extent  not
         theretofore paid;

                  (b) for [one][two] year[s] after the Date of Termination,  the
Executive and/or the Executive's  family,  as the case may be, shall be eligible
for participation in and shall receive all benefits under group health insurance
plans and other group insurance programs (such as life,  disability,  etc.) such
that the Executive and/or the Executive's  family is provided with benefits that
are, in the aggregate,  substantially  equivalent to those which would have been
provided  to them in  accordance  with the  Company  plans  that would have been
available to Executive if the  Executive's  employment had not been  terminated;
provided,  however,  that  if the  Executive  becomes  reemployed  with  another
employer  and is eligible to receive  health or other group  insurance  benefits
under  another  employer-provided  plan,  the health and other  group  insurance
benefits  described herein shall be secondary to those provided under such other
plan during such  applicable  period of eligibility  (such  continuation of such
benefits for the period herein set forth shall be hereinafter referred to as the
"Welfare Benefit Continuation"); and

                  (c)  subject to  adjustment  as  provided  in Section  6.2, an
amount as severance pay equal to the product of (i)  [three][two][one]  and (ii)
the sum of the  Executive's  (x) Annual Base Salary and (y) Annual Bonus payable
for the fiscal year in which the Date of Termination occurs.

         6.2        Option Acceleration Value Adjustment to Severance Pay

         If the  multiplicand in clause 6.1(c)(i) above is "three" or "two," the
amount  otherwise  payable  to  Executive  under  Section  6.1(c) is  subject to
reduction  as  provided  in this  Section  6.2 in the event  that the  Executive
receives value from  acceleration of vesting of stock options in connection with
the Change of Control which  triggered the Effective  Date of this Agreement (as
further  defined  below,  the "Option  Acceleration  Value").  In such case, any
amounts payable to Executive under Section 6.1(c) shall be reduced by the lesser
of (a) the amount  calculated  pursuant  to clause  6.1(c)(ii)  above or (b) the
Option Acceleration Value.

         The  "Option  Acceleration  Value,"  if any,  shall  be  calculated  by
multiplying (y) the amount by which the per share consideration  received by the
Company's  shareholders in connection with the Change of Control exceeds the per
share  exercise  price of options  held by the  Executive,  by (z) the number of
options  accelerated  in  connection  with the Change of Control which would not
have subsequently vested prior to the termination of Executive's employment.  If
Executive holds more than one option at varying exercise  prices,  the foregoing
calculation  shall be done with  respect to each  option and the results of such
calculations shall be aggregated to determine the Option Acceleration Value.

         The  following   example  is  intended  to  illustrate   the  foregoing
calculation of Option  Acceleration Value. Facts assumed for purposes of example
only:  (a) Executive is granted an option on November 1, 1998 to purchase  1,000
shares of the Company's common stock at an exercise price of $10 per share, with
vesting 25% annually over a four-year period;  (b) a Change of Control occurs on
March 31,  2000,  in which the  Company's  shareholders  exchange  each of their
shares of the  Company's  common  stock  for $25  worth of  common  stock of the
acquiring  company;  (c)  vesting  of  the  unvested  portion  (750  shares)  of
Executive's option is accelerated in connection with the Change of Control;  and
(d)  Executive's  employment  is  terminated  by the  Company  without  Cause on
November  30,  2000.  Although  vesting of options  to  purchase  750 shares was
accelerated in connection  with the Change of Control,  because  Executive would
have  vested  (on  November  1,  2000) an  additional  250  shares  prior to his
termination,   the  benefit   Executive   realized  from  the  acceleration  was
acceleration of vesting of 500 shares.  Executive's Option Acceleration Value is
therefore ($25 - $10) x 500, which equals $7,500.

         6.3        Termination for Cause or Other Than for Good Reason

         If the  Executive's  employment  shall be terminated by the Company for
Cause or by the  Executive  for other than Good  Reason  during  the  Employment
Period,  this  Agreement  shall  terminate  without  further  obligation  to the
Executive  other than the  obligation  to pay to the  Executive  his Annual Base
Salary  through  the Date of  Termination  plus the  amount of any  compensation
previously  deferred by the  Executive (as such  deferred  compensation  becomes
payable under the deferral plan), in each case to the extent theretofore unpaid.

         6.4        Stay Bonus

         If the  Executive's  employment  is not  terminated  prior to the first
anniversary of the Effective Date,  upon the first  anniversary of the Effective
Date the Executive  shall be entitled to receive a bonus equal to the sum of the
Executive's  then  current  Annual Base Salary and Annual  Bonus paid or payable
with respect to the Company's most recently  completed  fiscal year,  whether or
not  Executive's   employment  with  the  Company  continues  beyond  the  first
anniversary  of the  Effective  Date.  The bonus  payable under this Section 6.4
shall be in  addition  to all  other  compensation  to which  the  Executive  is
entitled.

         6.5        Termination Because of Death or Total Disability

         If  the   Executive's   employment  is  terminated  by  reason  of  the
Executive's  death  or Total  Disability  during  the  Employment  Period,  this
Agreement  shall  terminate  automatically  without  further  obligations to the
Executive  or his legal  representatives  under this  Agreement,  other than for
payment of Accrued Obligations (which shall be paid to the Executive's estate or
beneficiary, as applicable in the case of the Executive's death), and the timely
payment or provision of the Welfare Benefit Continuation.

         6.6        Payment Schedule

         All  payments  under  Section  6.1(a)  and  (c)  shall  be  paid to the
Executive in a lump sum in cash within 30 days of the Date of Termination.

         6.7        Excise Taxes

                  (a) In the event that the  Executive  becomes  entitled to the
payments or other  benefits  described  in Section 6.1 hereof and the  Executive
becomes subject to the tax imposed by Section 4999 of the Internal  Revenue Code
of 1986, as amended (the "Code"),  or any successor provision (the "Excise Tax")
as a result of such  payments and  benefits  and any other  payments or benefits
from the Company required to be taken into account under Code Section 280G(b)(2)
(collectively,  "Parachute  Payments"),  the Company  shall pay to  Executive an
additional amount (the "Make-Whole  Payment") equal to the sum of (i) the Excise
Tax  payable  to the  Executive  prior to the  Make-Whole  Payment  and (ii) the
Federal,  state and local income tax and Excise Tax  (including  any interest or
penalties  thereon) payable upon all payments made under  subparagraphs  (i) and
(ii) of this Section 6.7(a).

                  (b) All determinations  required to be made under this Section
6.7, including whether the Executive has received a Parachute Payment,  shall be
made by the  Company's  accounting  firm (the  "Accounting  Firm")  which  shall
provide detailed  supporting  calculations both to the Company and the Executive
within 15 business  days of the receipt of notice  from the  Executive  that the
Executive  has received a payment  under Section 6.1, or such earlier time as is
requested by the Company.  In the event that the  Accounting  Firm is serving as
accountant or auditor for the  individual,  entity or group effecting the Change
of Control, the Executive shall appoint another nationally recognized accounting
firm to make the determinations  required hereunder (which accounting firm shall
then be referred to as the Accounting Firm hereunder).  All fees and expenses of
the Accounting Firm shall be borne solely by the Company. If the Accounting Firm
determines that no Excise Tax is payable by the Executive,  it shall furnish the
Executive  with a written  opinion  that failure to report the Excise Tax on the
Executive's  applicable  federal  income  tax  return  would  not  result in the
imposition  of a  negligence  or similar  penalty.  As promptly  as  practicable
following  such  determination,  the Company shall pay to or distribute  for the
benefit of the Executive  such  payments as are then due to the Executive  under
this Agreement.  Any  determination by the Accounting Firm shall be binding upon
the Company and Executive.

         6.8        Cause

         For  purposes  of this  Agreement,  "Cause"  means  cause  given by the
Executive to the Company and shall include,  without limitation,  the occurrence
of one or more of the following events:

                  (a)  Failure or refusal to carry out any lawful  duties of the
Executive  described  in  Section  1.3  hereof  or any  directions  of the Board
reasonably  consistent  with the duties  herein set forth to be performed by the
Executive;

                  (b) Violation by the Executive of a state or federal  criminal
law  involving  the  commission  of a crime  against  the  Company  or any other
criminal act involving moral turpitude;

                  (c) Current  abuse by the  Executive of alcohol or  controlled
substances;  deception, fraud, misrepresentation or dishonesty by the Executive;
any incident  materially  compromising the Executive's  reputation or ability to
represent  the  Company  with the public;  any act or omission by the  Executive
which substantially impairs the Company's business,  goodwill or reputation;  or
any other misconduct; or

                  (d) Any other  material  violation  of any  provision  of this
Agreement.

         6.9        Good Reason

         For purposes of this Agreement, "Good Reason" means

                  (a) The assignment to the Executive of any duties inconsistent
in any material  respect with the  Executive's  position,  authority,  duties or
responsibilities  as  contemplated  by Section 1.3 hereof or any other action by
the Company which results in a diminution in such position, authority, duties or
responsibilities,  excluding for this purpose an isolated and inadvertent action
not taken in bad  faith and which is  remedied  by the  Company  promptly  after
receipt  of  notice  thereof  given  by the  Executive,  and  further  excluding
reasonable changes in particular duties and reporting responsibilities which may
result from the Company becoming part of a larger business  organization at some
future  time  provided  that such  changes in the  aggregate  do not result in a
material  alteration  in  the  Executive's   position,   authority,   duties  or
responsibilities;

                  (b) Any  failure  by the  Company  to  comply  with any of the
provisions of Section 3 hereof,  other than an isolated and inadvertent  failure
not occurring in bad faith and which is remedied by the Company  promptly  after
receipt of notice thereof given by the Executive;

                  (c) The  Company's  requiring the Executive to be based at any
office or location other than that described in Section 1.4 hereof; or

                  (d) Any  failure  by the  Company to comply  with and  satisfy
Section 11 hereof,  provided that the Company's  successor has received at least
ten  days'  prior  written  notice  from the  Company  or the  Executive  of the
requirements of Section 11 hereof.

7.       REPRESENTATIONS, WARRANTIES AND OTHER CONDITIONS

         In order to  induce  the  Company  to enter  into this  Agreement,  the
Executive represents and warrants to the Company as follows:

         7.1        Health

         The  Executive  is in good  health and knows of no  physical  or mental
disability which, with or without any accommodation which may be required by law
and  which  places  no undue  burden  on the  Company,  would  prevent  him from
fulfilling  his  obligations  hereunder.  The Executive  agrees,  if the Company
requests,  to  submit  to  periodic  medical  examinations  by  a  physician  or
physicians  designated  by, paid for and arranged by the Company.  The Executive
agrees that the examination's medical report shall be provided to the Company.

         7.2        No Violation of Other Agreements

         The Executive represents that neither the execution nor the performance
of this  Agreement by the Executive will violate or conflict in any way with any
other agreement by which the Executive may be bound.

8.       NONDISCLOSURE; NONCOMPETITION; RETURN OF MATERIALS

         The Company and the Executive  hereby  reaffirm the Employee  Invention
and Nondisclosure  Agreement  previously  executed by the Executive (attached as
Exhibit A to this Agreement),  and expressly incorporated herein as part of this
Agreement.  Consistent with the Employee Invention and Nondisclosure  Agreement,
Employee agrees that at no time during the Employment  Period or within one year
thereafter  will Employee  become  involved in any activity or with any business
entity  anywhere in the world which  directly or  indirectly  competes  with any
material product or service of the Company or its affiliates.

         All documents,  records, notebooks, notes, memoranda, drawings or other
documents  pertaining  to the Company and its  business  made or compiled by the
Executive  at any  time,  or in his  possession,  including  any and all  copies
thereof, shall be the property of the Company and shall be held by the Executive
in trust and solely for the benefit of the  Company,  and shall be  delivered to
the Company by the Executive upon termination of employment or at any other time
upon request by the Company.

         The  Executive  understands  that the  Company  will be relying on this
Agreement in continuing the  Executive's  employment,  paying him  compensation,
granting him any promotions or raises,  or entrusting  him with any  information
which helps the Company compete with others.

9.       NOTICE AND CURE OF BREACH

         Whenever a breach of this  Agreement  by either party is relied upon as
justification  for any action taken by the other party pursuant to any provision
of this  Agreement,  other than  clause  (b),  (c) or (d) of Section 6.8 hereof,
before such action is taken,  the party  asserting the breach of this  Agreement
shall  give the  other  party at least  ten days'  prior  written  notice of the
existence and the nature of such breach before taking further  action  hereunder
and shall give the party purportedly in breach of this Agreement the opportunity
to correct such breach during the ten-day period.

10.      FORM OF NOTICE

         Every notice  required by the terms of this Agreement shall be given in
writing by serving the same upon the party to whom it was  addressed  personally
or by registered or certified mail, return receipt requested, at the address set
forth below or at such other  address as may  hereafter be  designated by notice
given in compliance with the terms hereof:

         If to the Executive:



         If to the Company:                          Itron, Inc.
                              2818 N. Sullivan Rd.
                                Spokane, WA 99215
                                                     Attention:  President

or such other address as shall be provided in accordance  with the terms hereof.
Except as set forth in Section  5.4  hereof,  if notice is mailed,  such  notice
shall be effective upon mailing.

11.      ASSIGNMENT

         This Agreement is personal to the Executive and shall not be assignable
by the  Executive.  The  Company  may  assign its  rights  hereunder  to (a) any
corporation resulting from any merger,  consolidation or other reorganization to
which the Company is a party or (b) any corporation, partnership, association or
other person to which the Company may transfer all or  substantially  all of the
assets and  business  of the Company  existing  at such time.  All the terms and
provisions of this  Agreement  shall be binding upon and inure to the benefit of
and be  enforceable by the parties  hereto and their  respective  successors and
permitted assigns.

         The Company will require any successor (whether direct or indirect,  by
purchase,  merger,  consolidation or otherwise) to all or substantially  all the
business  and/or assets of the Company to assume  expressly and agree to perform
this  Agreement in the same manner and to the same extent that the Company would
be required to perform it if no such succession had taken place. As used in this
Agreement,  "Company"  shall mean Itron,  Inc. and any successor to its business
and/or assets as aforesaid which assumes and agrees to perform this Agreement by
operation of law, or otherwise.

12.      FULL SETTLEMENT

         The  Company's  obligation  to make the  payments  provided for in this
Agreement  and  otherwise  to perform  its  obligations  hereunder  shall not be
affected by any set-off, counterclaim, recoupment, defense or other claim, right
or action that the Company may have against the Executive or others. In no event
shall the  Executive  be obligated  to seek other  employment  or take any other
action by way of mitigation of the amounts payable to the Executive under any of
the provisions of this  Agreement,  and,  except as provided in Section  6.1(b),
such amounts  shall not be reduced  whether or not the  Executive  obtains other
employment.  The Company agrees to pay promptly upon invoice, to the full extent
permitted by law, all legal fees and expenses  that the Executive may incur as a
result of any contest  (regardless of the outcome  thereof) by the Company,  the
Executive or others of the validity or  enforceability  of, or liability  under,
any  provision  of  this  Agreement  or any  guarantee  of  performance  thereof
(including as a result of any contest by the  Executive  about the amount of any
payment pursuant to this Agreement).

13.      WAIVERS

         No delay or failure by any party hereto in  exercising,  protecting  or
enforcing any of its rights,  titles,  interests or remedies  hereunder,  and no
course of dealing or performance with respect thereto, shall constitute a waiver
thereof.  The express waiver by a party hereto of any right, title,  interest or
remedy in a particular  instance or  circumstance  shall not constitute a waiver
thereof in any other instance or circumstance.  All rights and remedies shall be
cumulative and not exclusive of any other rights or remedies.

14.      TERMINATION; AMENDMENTS IN WRITING

         The Company may unilaterally  terminate the Change of Control Period by
notice given to the  Executive in accordance  with Section  1.1(b) and Section 9
hereof. No other amendment,  modification,  waiver,  termination or discharge of
any  provision  of this  Agreement,  nor consent to any  departure  therefrom by
either party hereto, shall in any event be effective unless the same shall be in
writing,  specifically  identifying this Agreement and the provision intended to
be amended, modified, waived, terminated or discharged and signed by the Company
and the Executive, and each such amendment, modification, waiver, termination or
discharge shall be effective only in the specific  instance and for the specific
purpose  for which  given.  No  provision  of this  Agreement  shall be  varied,
contradicted  or  explained  by  any  oral  agreement,   course  of  dealing  or
performance  or any other  matter not set forth in an  agreement  in writing and
signed by the Company and the Executive.

15.      APPLICABLE LAW

         This  Agreement  shall  in  all  respects,  including  all  matters  of
construction,  validity  and  performance,  be governed  by, and  construed  and
enforced in accordance with, the laws of the State of Washington, without regard
to any rules governing conflicts of laws.

16.      SEVERABILITY

         If any provision of this  Agreement  shall be held invalid,  illegal or
unenforceable  in  any  jurisdiction,   for  any  reason,   including,   without
limitation, the duration of such provision, its geographical scope or the extent
of the  activities  prohibited  or  required  by it,  then,  to the full  extent
permitted by law, (a) all other provisions hereof shall remain in full force and
effect in such  jurisdiction and shall be liberally  construed in order to carry
out the  intent of the  parties  hereto as nearly as may be  possible,  (b) such
invalidity,  illegality  or  unenforceability  shall not  affect  the  validity,
legality or enforceability  of any other provision hereof,  and (c) any court or
arbitrator  having  jurisdiction  thereover  shall have the power to reform such
provision to the extent  necessary for such  provision to be  enforceable  under
applicable law.

17.      ENTIRE AGREEMENT

         This  Agreement  on and as of the date  hereof  constitutes  the entire
agreement  between  the Company and the  Executive  with  respect to the subject
matter hereof and all prior or contemporaneous  oral or written  communications,
understandings or agreements  between the Company and the Executive with respect
to such subject matter are hereby  superseded and nullified in their entireties,
with  the  exception  of the  Employee  Invention  and  Nondisclosure  Agreement
referenced in Section 8.

18.      WITHHOLDING

         The Company may withhold from any amounts  payable under this Agreement
such federal,  state or local taxes as shall be required to be withheld pursuant
to any applicable law or regulation.

19.      COUNTERPARTS

         This  Agreement  may  be  executed  in  counterparts,   each  of  which
counterpart  shall  be  deemed  an  original,  but all of which  together  shall
constitute one and the same instrument.

         IN WITNESS  WHEREOF,  the parties  have  executed and entered into this
Agreement on the date set forth above.

                                               EXECUTIVE



                                               [Executive]

                                               ITRON, INC.


                                               By                          
                                               Its Chairman of the Board,
                                               President & CEO







                                  APPENDIX A TO

                           CHANGE OF CONTROL AGREEMENT



         For purposes of this Agreement, a "Change of Control" shall mean:

         (a) A "Board Change" which, for purposes of this Agreement,  shall have
occurred if a majority  (excluding  vacant  seats) of the seats on the Company's
Board are occupied by  individuals  who were neither (i) nominated by a majority
of the  Incumbent  Directors nor (ii)  appointed by directors so  nominated.  An
"Incumbent  Director" is a member of the Board who has been either (i) nominated
by a majority of the  directors of the Company then in office or (ii)  appointed
by directors so nominated,  but excluding, for this purpose, any such individual
whose  initial  assumption  of office  occurs as a result of either an actual or
threatened election contest (as such terms are used in Rule 14a-11 of Regulation
14A  promulgated  under the  Securities  Exchange  Act of 1934,  as amended (the
"Exchange  Act")) or other  actual or  threatened  solicitation  of  proxies  or
consents  by or on behalf of a Person (as  hereinafter  defined)  other than the
Board; or

         (b) The  acquisition  by any  individual,  entity or group  (within the
meaning of Section  13(d)(3) or 14(d)(2) of the  Exchange  Act) (a  "Person") of
beneficial  ownership  (within the meaning of Rule 13d-3  promulgated  under the
Exchange  Act) of (i) 20% or more of either (A) the then  outstanding  shares of
Common Stock of the Company (the "Outstanding  Company Common Stock") or (B) the
combined voting power of the then outstanding  voting  securities of the Company
entitled to vote  generally  in the  election  of  directors  (the  "Outstanding
Company  Voting  Securities"),  in the case of either (A) or (B) of this  clause
(i), which acquisition is not approved in advance by a majority of the Incumbent
Directors,  or (ii) 33% or more of either  (A) the  Outstanding  Company  Common
Stock or (B) the Outstanding  Company Voting  Securities,  in the case of either
(A) or (B) of this clause (ii),  which  acquisition  is approved in advance by a
majority of the  Incumbent  Directors;  provided,  however,  that the  following
acquisitions  shall not  constitute  a Change of  Control:  (w) any  acquisition
directly  from  the  Company,  (x)  any  acquisition  by the  Company,  (y)  any
acquisition  by any  employee  benefit  plan (or  related  trust)  sponsored  or
maintained  by the Company or any  corporation  controlled by the Company or (z)
any  acquisition  by any  corporation  pursuant to a  reorganization,  merger or
consolidation,  if, following such reorganization,  merger or consolidation, the
conditions  described in clauses (i), (ii) and (iii) of  subsection  (c) of this
Appendix A are satisfied; or

         (c) Approval by the  stockholders  of the Company of a  reorganization,
merger or  consolidation,  in each  case,  unless,  immediately  following  such
reorganization, merger or consolidation, (i) more than 60% of, respectively, the
then outstanding  shares of common stock of the corporation  resulting from such
reorganization,  merger or  consolidation  and the combined  voting power of the
then  outstanding  voting  securities  of  such  corporation  entitled  to  vote
generally in the election of directors is then beneficially  owned,  directly or
indirectly,  by all or  substantially  all the individuals and entities who were
the beneficial owners, respectively, of the Outstanding Company Common Stock and
the   Outstanding   Company  Voting   Securities   immediately   prior  to  such
reorganization,  merger or consolidation in substantially the same proportion as
their   ownership   immediately   prior  to  such   reorganization,   merger  or
consolidation  of the  Outstanding  Company  Common  Stock  and the  Outstanding
Company  Voting  Securities,  as the case may be, (ii) no Person  (excluding the
Company,  any employee  benefit  plan (or related  trust) of the Company or such
corporation resulting from such reorganization,  merger or consolidation and any
Person beneficially owning, immediately prior to such reorganization,  merger or
consolidation,  directly or indirectly,  33% or more of the Outstanding  Company
Common  Stock  or the  Outstanding  Voting  Securities,  as  the  case  may  be)
beneficially owns,  directly or indirectly,  33% or more of,  respectively,  the
then outstanding  shares of common stock of the corporation  resulting from such
reorganization, merger or consolidation or the combined voting power of the then
outstanding voting securities of such corporation  entitled to vote generally in
the election of  directors,  and (iii) at least a majority of the members of the
board of directors of the corporation resulting from such reorganization, merger
or  consolidation  were the Incumbent  Directors at the time of the execution of
the   initial   agreement   providing   for  such   reorganization,   merger  or
consolidation; or

         (d)  Approval  by the  stockholders  of the  Company  of (i) a complete
liquidation or dissolution of the Company or (ii) the sale or other  disposition
of  all or  substantially  all  the  assets  of the  Company,  other  than  to a
corporation  with  respect  to which  immediately  following  such sale or other
disposition, (A) more than 60% of, respectively,  the then outstanding shares of
common  stock of such  corporation  and the  combined  voting  power of the then
outstanding voting securities of such corporation  entitled to vote generally in
the election of directors is then beneficially owned, directly or indirectly, by
all or  substantially  all the  individuals and entities who were the beneficial
owners,   respectively,   of  the  Outstanding  Company  Common  Stock  and  the
Outstanding  Company Voting  Securities  immediately prior to such sale or other
disposition in substantially the same proportion as their ownership, immediately
prior to such sale or other disposition, of the Outstanding Company Common Stock
and the Outstanding Company Voting Securities, as the case may be, (B) no Person
(excluding  the  Company,  any employee  benefit plan (or related  trust) of the
Company or such  corporation  and any Person  beneficially  owning,  immediately
prior to such sale or other disposition,  directly or indirectly, 33% or more of
the  Outstanding   Company  Common  Stock  or  the  Outstanding  Company  Voting
Securities,  as the case may be) beneficially owns, directly or indirectly,  33%
or more of,  respectively,  the then outstanding  shares of common stock of such
corporation  and the  combined  voting  power  of the  then  outstanding  voting
securities  of such  corporation  entitled to vote  generally in the election of
directors  and (C) at least a majority of the members of the board of  directors
of such  corporation  were approved by a majority of the Incumbent  Directors at
the time of the  execution  of the  initial  agreement  or  action  of the Board
providing for such sale or other disposition of assets of the Company.

         Notwithstanding  the foregoing,  there shall not be a Change of Control
if, in advance of such event,  the  Executive  agrees in writing that such event
shall not constitute a Change of Control.



Change  of  Control  Agreements  indicated  below  between  Company  and each of
following executives:
Godwin, David C.
Neilson, Robert D.
Nosbaum, LeRoy D.
Remington, David G.
Scarpelli, Jemima G.
Shepherd, Dennis A.
Smith, John A.
White, Stuart Edward
Chesser, Michael
Fairbanks, Russell






                                ITRON, INC.

                            INDEMNIFICATION AGREEMENT

         THIS INDEMNIFICATION AGREEMENT (this "Agreement") dated as of , 1999 is
made between  Itron,  Inc.,  a Washington  corporation  (the  "Company"),  and a
director and/or officer of the Company ("Indemnitee").

                                    Recitals

         A.       Indemnitee is a director and/or officer of the Company and in 
such capacity is performing valuable services for the Company.

         B. The Company and  Indemnitee  recognize  the  difficulty in obtaining
directors'  and officers'  liability  insurance,  the  significant  cost of such
insurance and the general reduction in the coverage of such insurance.

         C.  The  Company  and  Indemnitee  further  recognize  the  substantial
increase in litigation subjecting directors and officers to expensive litigation
risks at the same time that such liability insurance has been severely limited.

         D. The  shareholders  of the Company have adopted bylaws (the "Bylaws")
providing  for  the  indemnification  of the  directors,  officers,  agents  and
employees of the Company to the full extent permitted by the Washington Business
Corporation Act (the "Statute").

         E. The Bylaws and the Statute  specifically  provide  that they are not
exclusive,  and thereby  contemplate  that contracts may be entered into between
the Company
  and the members of its Board of  Directors  and its  officers  with
respect to indemnification of such directors and officers.

         F. In order to induce  Indemnitee  to  continue  to serve as a director
and/or  officer  of the  Company,  the  Company  has  agreed to enter  into this
Agreement with Indemnitee.

                                    Agreement

         In  consideration  of the  recitals  above,  the mutual  covenants  and
agreements  herein contained,  and Indemnitee's  continued service as a director
and/or  officer after the date hereof,  the parties to this  Agreement  agree as
follows:

1.       Indemnity of Indemnitee

         1.1.     Scope

         The Company  agrees to hold  harmless and  indemnify  Indemnitee to the
full extent permitted by law,  notwithstanding  that such indemnification is not
specifically   authorized  by  this   Agreement,   the  Company's   Articles  of
Incorporation, the Bylaws, the Statute or otherwise. In the event of any change,
after  the  date of this  Agreement,  in any  applicable  law,  statute  or rule
regarding  the right of a  Washington  corporation  to indemnify a member of its
board of directors or an officer,  such  changes,  to the extent that they would
expand Indemnitee's rights hereunder,  shall be within the Scope of Indemnitee's
rights and the  Company's  obligations  hereunder,  and, to the extent that they
would  narrow  Indemnitee's  rights  hereunder,  shall  be  excluded  from  this
Agreement;  provided,  however,  that any change that is required by  applicable
laws,  statutes  or rules to be  applied to this  Agreement  shall be so applied
regardless of whether the effect of such change is to narrow Indemnitee's rights
hereunder.

         1.2.     Nonexclusivity

         The  indemnification  provided  by this  Agreement  shall not be deemed
exclusive of any rights to which  Indemnitee may be entitled under the Company's
Articles of Incorporation,  the Bylaws, any agreement,  any vote of shareholders
or  disinterested  directors,  the Statute or  otherwise,  whether as to actions
taken by Indemnitee in Indemnitee's official capacity or otherwise.

         1.3.     Included Coverage

         If  Indemnitee  was or is made a party,  or is  threatened to be made a
party, to or is otherwise involved (including, without limitation, as a witness)
in any  Proceeding  (as defined  below),  the Company  shall hold  harmless  and
indemnify  Indemnitee  from and  against any and all  losses,  claims,  damages,
liabilities or expenses  (including  attorneys' fees,  judgments,  fines,  ERISA
excise  taxes or  penalties,  amounts  paid in  settlement  and  other  expenses
incurred in connection with such Proceeding) (collectively, "Damages").

         1.4.     Definition of Proceeding

         For  purposes of this  Agreement,  "Proceeding"  shall mean any actual,
pending  or  threatened  action,  suit,  claim  or  proceeding,  whether  civil,
criminal,  administrative  or investigative  and whether formal or informal,  in
which  Indemnitee  is,  was or  becomes  involved  by  reason  of the fact  that
Indemnitee  is or was a director,  officer,  employee or agent of the Company or
that,  being or  having  been  such a  director,  officer,  employee  or  agent,
Indemnitee  is or was  serving  at the  request of the  Company  as a  director,
officer,  employee, trustee or agent of another corporation or of a partnership,
joint venture,  trust or other  enterprise  (collectively a "Related  Company"),
including service with respect to an employee benefit plan, whether the basis of
such  proceeding  is alleged  action (or  inaction) by Indemnitee in an official
capacity  as a  director,  officer,  employee,  trustee or agent or in any other
capacity  while  serving as a  director,  officer,  employee,  trustee or agent;
provided,  however,  that,  except  with  respect  to an action to  enforce  the
provisions of this Agreement,  "Proceeding" shall not include any action,  suit,
claim or proceeding  instituted by or at the direction of Indemnitee unless such
action, suit, claim or proceeding is or was authorized by the Company's Board of
Directors.

         1.5.     Determination of Entitlement

         In the  event  that a  determination  of  Indemnitee's  entitlement  to
indemnification is required pursuant to  Section+23B.08.550  of the Statute or a
successor statute or pursuant to other applicable law, the appropriate  decision
maker shall make such determination;  provided,  however,  that Indemnitee shall
initially  be  presumed in all cases to be  entitled  to  indemnification,  that
Indemnitee may establish a conclusive  presumption of any fact necessary to such
a determination by delivering to the Company a declaration made under penalty of
perjury  that such fact is true and that,  unless the Company  shall  deliver to
Indemnitee  written notice of a determination that Indemnitee is not entitled to
indemnification within twenty (20) days of the Company's receipt of Indemnitee's
initial  written  request  for   indemnification,   such   determination   shall
conclusively be deemed to have been made in favor of the Company's  provision of
indemnification and the Company hereby agrees not to assert otherwise.

         1.6.     Survival

         The  indemnification  provided under this Agreement  shall apply to any
and  all  Proceedings,  notwithstanding  that  Indemnitee  has  ceased  to  be a
director,  officer,  employee,  trustee  or agent of the  Company  or a  Related
Company.

2.       Expense Advances

         2.1.     Generally

         The right to  indemnification  of Damages  conferred by Section 1 shall
include  the  right  to  have  the  Company  pay  Indemnitee's  expenses  in any
Proceeding  as such  expenses are  incurred and in advance of such  Proceeding's
final  disposition  (such  right  is  referred  to  hereinafter  as an  "Expense
Advance").

         2.2.     Conditions to Expense Advance

         The Company's  obligation  to provide an Expense  Advance is subject to
the following conditions:

                  2.2.1.      Undertaking

                  If  the  Proceeding  arose  in  connection  with  Indemnitee's
service  as a  director  and/or  officer  of the  Company  (and not in any other
capacity in which Indemnitee rendered service,  including service to any Related
Company),  then  Indemnitee  or  his  representative  shall  have  executed  and
delivered to the Company an undertaking,  which need not be secured and shall be
accepted without reference to Indemnitee's  financial ability to make repayment,
by or on behalf of Indemnitee to repay all Expense Advances if and to the extent
that it  shall  ultimately  be  determined  by a  final,  unappealable  decision
rendered by a court having  jurisdiction  over the parties and the question that
Indemnitee is not entitled to be indemnified for such Expense Advance under this
Agreement or otherwise.

                  2.2.2.      Cooperation

                  Indemnitee   shall  give  the  Company  such  information  and
cooperation  as it may  reasonably  request and as shall be within  Indemnitee's
power.

                  2.2.3.      Affirmation

                  Indemnitee  shall furnish,  upon request by the Company and if
required under applicable law, a written  affirmation of Indemnitee's good faith
belief that any applicable standards of conduct have been met by Indemnitee.

3.       Procedures for Enforcement

         3.1.     Enforcement

         In the  event  that a  claim  for  indemnity,  an  Expense  Advance  or
otherwise  is made  hereunder  and is not paid in full  within  sixty  (60) days
(twenty (20) days for an Expense  Advance) after written notice of such claim is
delivered to the Company,  Indemnitee  may, but need not, at any time thereafter
bring suit  against the  Company to recover  the unpaid  amount of the claim (an
"Enforcement Action").

         3.2.     Presumptions in Enforcement Action

         In any Enforcement Action the following presumptions (and limitation on
presumptions) shall apply:

         (a) The Company  shall  conclusively  be presumed to have  entered into
this Agreement and assumed the  obligations  imposed on it hereunder in order to
induce Indemnitee to continue as a director and/or officer of the Company;

         (b) Neither  (i)+the  failure of the Company  (including  the Company's
Board of  Directors,  independent  or special  legal  counsel  or the  Company's
shareholders)  to have made a  determination  prior to the  commencement  of the
Enforcement  Action  that   indemnification  of  Indemnitee  is  proper  in  the
circumstances  nor (ii)+an  actual  determination  by the Company,  its Board of
Directors,  independent or special legal counsel or shareholders that Indemnitee
is not entitled to indemnification  shall be a defense to the Enforcement Action
or create a  presumption  that  Indemnitee  is not  entitled to  indemnification
hereunder; and

         (c) If Indemnitee is or was serving as a director,  officer,  employee,
trustee or agent of a corporation of which a majority of the shares  entitled to
vote in the election of its  directors is held by the Company or in an executive
or  management  capacity  in  a  partnership,  joint  venture,  trust  or  other
enterprise of which the Company or a wholly owned subsidiary of the Company is a
general partner or has a majority ownership, then such corporation, partnership,
joint  venture,  trust or  enterprise  shall  conclusively  be  deemed a Related
Company and Indemnitee  shall  conclusively be deemed to be serving such Related
Company at the request of the Company.

         3.3.     Attorneys' Fees and Expenses for Enforcement Action

         In the event Indemnitee is required to bring an Enforcement Action, the
Company shall indemnify and hold harmless Indemnitee against all of Indemnitee's
fees and expenses in bringing and pursuing  the  Enforcement  Action  (including
attorneys' fees at any stage, including on appeal); provided,  however, that the
Company shall not be required to provide such indemnity for such attorneys' fees
or expenses if a court of  competent  jurisdiction  determines  that each of the
material  assertions made by Indemnitee in such Enforcement  Action was not made
in good faith or was frivolous.

4.       Limitations on Indemnity; Mutual Acknowledgment

         4.1.     Limitation on Indemnity

         No  indemnity  pursuant  to this  Agreement  shall be  provided  by the
Company:

         (a) On account of any suit in which a final,  unappealable  judgment is
rendered against  Indemnitee for an accounting of profits made from the purchase
or  sale  by  Indemnitee  of  securities  of the  Company  in  violation  of the
provisions  of  Section  16(b)  of  the  Securities  Exchange  Act of  1934  and
amendments thereto or

         (b) For  Damages  that have  been paid  directly  to  Indemnitee  by an
insurance carrier under a policy of directors' and officers' liability insurance
maintained by the Company.

         4.2.     Mutual Acknowledgment

         The Company and  Indemnitee  acknowledge  that,  in certain  instances,
federal law or public policy may override  applicable state law and prohibit the
Company from  indemnifying  Indemnitee  under this  Agreement or otherwise.  For
example, the Company and Indemnitee acknowledge that the Securities and Exchange
Commission  (the  "SEC")  has taken the  position  that  indemnification  is not
permissible for liabilities  arising under certain federal  securities laws, and
federal  legislation  prohibits  indemnification  for certain ERISA  violations.
Furthermore,  Indemnitee  understands  and  acknowledges  that the  Company  has
undertaken or may be required in the future to undertake  with the SEC to submit
the  question  of  indemnification  to a court in  certain  circumstances  for a
determination   of  the  Company's   right  under  public  policy  to  indemnify
Indemnitee.

5.       Notification and Defense of Claim

         5.1.     Notification

         Promptly after receipt by Indemnitee of notice of the  commencement  of
any  Proceeding,  Indemnitee  will, if a claim in respect  thereof is to be made
against the Company under this Agreement, notify the Company of the commencement
thereof;  but the omission so to notify the Company will not relieve the Company
from any liability which it may have to Indemnitee  under this Agreement  unless
and only to the extent that such  omission can be shown to have  prejudiced  the
Company's ability to defend the Proceeding.

         5.2.     Defense of Claim

         With respect to any such Proceeding as to which Indemnitee notifies the
Company of the commencement thereof:

         (a)      The Company may participate therein at its own expense;

         (b) The Company,  jointly with any other  indemnifying  party similarly
notified,   may  assume  the  defense  thereof,  with  counsel  satisfactory  to
Indemnitee.  After notice from the Company to  Indemnitee  of its election so to
assume the defense thereof,  the Company shall not be liable to Indemnitee under
this Agreement for any legal or other expenses (other than  reasonable  costs of
investigation)  subsequently  incurred  by  Indemnitee  in  connection  with the
defense  thereof  unless  (i)+the  employment of counsel by Indemnitee  has been
authorized by the Company,  (ii)+Indemnitee shall have reasonably concluded that
there may be a conflict of interest  between the Company and  Indemnitee  in the
conduct of the defense of such action,  or (iii)+the  Company  shall not in fact
have  employed  counsel to assume the defense of such  action,  in each of which
cases the fees and  expenses of counsel  shall be at the expense of the Company.
The Company  shall not be entitled to assume the defense of any action,  suit or
proceeding  brought  by or on behalf of the  Company  or as to which  Indemnitee
shall have made the conclusion provided for in (ii)+above;

         (c) The Company shall not be liable to indemnify  Indemnitee under this
Agreement for any amounts paid in settlement of any Proceeding  effected without
its written consent;

         (d) The  Company  shall not  settle  any  action or claim in any manner
which would impose any penalty or limitation on Indemnitee without  Indemnitee's
written consent; and

         (e) Neither the Company nor Indemnitee will unreasonably  withhold its,
his or her consent to any proposed settlement.

6.       Severability

         Nothing in this  Agreement is intended to require or shall be construed
as requiring  the Company to do or fail to do any act in violation of applicable
law.  The  Company's  inability,   pursuant  to  court  order,  to  perform  its
obligations  under  this  Agreement  shall  not  constitute  a  breach  of  this
Agreement.  The provisions of this Agreement shall be severable,  as provided in
this Section+6.  If this Agreement or any portion hereof shall be invalidated on
any  ground by any  court of  competent  jurisdiction,  then the  Company  shall
nevertheless indemnify Indemnitee to the full extent permitted by any applicable
portion of this Agreement that shall not have been invalidated,  and the balance
of this Agreement not so invalidated shall be enforceable in accordance with its
terms.

7.       Governing Law; Binding Effect; Amendment and Termination

         (a) This Agreement shall be interpreted and enforced in accordance with
the laws of the State of Washington.

         (b)  This  Agreement  shall be  binding  upon  Indemnitee  and upon the
Company,  its  successors  and  assigns,  and  shall  inure  to the  benefit  of
Indemnitee,  Indemnitee's heirs, personal representatives and assigns and to the
benefit of the Company, its successors and assigns.

         (c) No amendment,  modification,  termination or  cancellation  of this
Agreement shall be effective unless in writing signed by both parties hereto.




<PAGE>



         IN WITNESS WHEREOF,  the parties hereto have executed this Agreement on
and as of the day and year first above written.


                                               COMPANY:

                                               ITRON, INC.



                                               By                             
                                                 Its [Chairman, President and
                                                      Chief Executive Officer]

                                               INDEMNITEE:




                                                 [Director and/or Officer]




Indemnification Agreements between Company and each of following directors and/
or officers:
MariLyn R. Blair
Michael B. Bracy
Jemima G. Brennan
Jon E. Eliassen
Keith N. Hylton
Paul A. Redmond
Graham M. Wilson
Robert D. Neilson
Ted C. DeMerritt
Mary Ann Peters
David G. Remington
Stuart Edward White
LeRoy D. Nosbaum
J. Michael Quinlivan
Dennis A. Shepherd
John A. Smith
Deloris R. Duquette
Michael Chesser








                                CREDIT AGREEMENT

                          Dated as of January 18, 2000,

                                      among

                                   ITRON, INC.
                                       and
                       UTILITY TRANSLATION SYSTEMS, INC.,

                                  as Borrowers,

                   THE OTHER CREDIT PARTIES SIGNATORY HERETO,

                               as Credit Parties,

                          THE LENDERS SIGNATORY HERETO
                               FROM TIME TO TIME,

                                   as Lenders,

                                       and

                      GENERAL ELECTRIC CAPITAL CORPORATION,

                              as Agent and a Lender







<PAGE>



                                TABLE OF CONTENTS
                                                                           Page

1.       AMOUNT AND TERMS OF CREDIT.......................... ................1
         1.1      Credit Facilities...........................................1
         1.2      Letters of Credit...........................................5
         1.3      Prepayments.................................................5
         1.4      Use of Proceeds.............................................7
         1.5      Interest and Applicable Margins.............................7
         1.6      Eligible Accounts..........................................10
         1.7      Eligible Inventory.........................................12
         1.8      Cash Management System.....................................14
         1.9      Fees.......................................................14
         1.10     Receipt of Payments........................................14
         1.11     Application and Allocation of Payments.....................14
         1.12     Loan Account and Accounting................................15
         1.13     Indemnity..................................................15
         1.14     Access.....................................................16
         1.15     Taxes......................................................17
         1.16     Capital Adequacy; Increased Costs; Illegality..............18
         1.17     Single Loan................................................19
        
2.       CONDITIONS PRECEDENT................................................19
         2.1      Conditions to the Initial Loans............................19
         2.2      Further Conditions to Each Loan............................20

3.       REPRESENTATIONS AND WARRANTIES .....................................21
         3.1      Corporate Existence; Compliance with Law...................21
         3.2      Executive Offices; Collateral Locations; FEIN..............22
         3.3      Corporate Power, Authorization, Enforceable Obligations....22
         3.4      Financial Statements and Projections.......................22
         3.5      Material Adverse Effect....................................23
         3.6      Ownership of Property; Liens...............................23
         3.7      Labor Matters..............................................24

         3.8      Ventures, Subsidiaries and Affiliates; Outstanding Stock
                  and Indebtedness...........................................24
         3.9      Government Regulation......................................24
         3.10     Margin Regulations.........................................24
         3.11     Taxes......................................................25
         3.12     ERISA......................................................25
         3.13     No Litigation..............................................26
         3.14     Brokers....................................................26
         3.15     Intellectual Property......................................26
         3.16     Full Disclosure............................................26
         3.17     Environmental Matters......................................27
         3.18     Insurance..................................................27
         3.19     Deposit and Disbursement Accounts..........................27
         3.20     Government Contracts.......................................27
         3.21     Customer and Trade Relations...............................27
         3.22     Agreements and Other Documents.............................28
         3.23     Solvency...................................................28
         3.24     Year 2000 Representations..................................28
         3.25     Subordinated Debt..........................................28
        
4.       FINANCIAL STATEMENTS AND INFORMATION................................29
         4.1      Reports and Notices........................................29
         4.2      Communication with Accountants.............................29

5.       AFFIRMATIVE COVENANTS...............................................29
         5.1      Maintenance of Existence and Conduct of Business...........29
         5.2      Payment of Obligations.....................................29
         5.3      Books and Records..........................................30
         5.4      Insurance; Damage to or Destruction of Collateral..........30
         5.5      Compliance with Laws.......................................32
         5.6      Supplemental Disclosure....................................32
         5.7      Intellectual Property......................................32
         5.8      Environmental Matters......................................32
         5.9      Landlords' Agreements, Mortgagee Agreements
                  and Bailee Letters.........................................33
         5.10     Further Assurances.........................................33

6.       NEGATIVE COVENANTS..................................................33
         6.1      Mergers, Subsidiaries, Etc.................................33
         6.2      Investments; Loans and Advances............................34
         6.3      Indebtedness...............................................35
         6.4      Employee Loans and Affiliate Transactions..................36
         6.5      Capital Structure and Business.............................36
         6.6      Guaranteed Indebtedness....................................37
         6.7      Liens......................................................37
         6.8      Sale of Stock and Assets...................................37
         6.9      ERISA......................................................39
         6.10     Financial Covenants........................................39
         6.11     Hazardous Materials........................................39
         6.12     Sale-Leasebacks....................................... ....39
         6.13     Cancellation of Indebtedness...............................39
         6.14     Restricted Payments........................................39
         6.15     Change of Corporate Name or Location;
                  Change of Fiscal Year......................................40
         6.16     No Impairment of Intercompany Transfers....................40
         6.17     No Speculative Transactions................................41
         6.18     Changes Relating to Subordinated Debt 
                  and Other Indebtedness.....................................41
         6.19     SCE Project................................................41
         6.20     Bank Accounts..............................................41

7.       TERM................................................................42
         7.1      Termination................................................42
         7.2      Survival of Obligations Upon Termination of
                  Financing Arrangements.....................................42

8.       EVENTS OF DEFAULT; RIGHTS AND REMEDIES..............................42
         8.1      Events of Default..........................................42
         8.2      Remedies...................................................44
         8.3      Waivers by Credit Parties..................................44
     
9.       ASSIGNMENT AND PARTICIPATIONS; APPOINTMENT OF AGENT.................45
         9.1      Assignment and Participations..............................45
         9.2      Appointment of Agent.......................................46
         9.3      Agent's Reliance, Etc......................................47
         9.4      GE Capital and Affiliates..................................47
         9.5      Lender Credit Decision.....................................48
         9.6      Indemnification............................................48
         9.7      Successor Agent............................................48
         9.8      Setoff and Sharing of Payments.............................49
         9.9      Advances; Non-Funding Lenders; 
                  Information; Actions in Concert............................49
     
10.      SUCCESSORS AND ASSIGNS..............................................51

11.      MISCELLANEOUS.......................................................52
         11.1     Complete Agreement; Modification of Agreement..............52
         11.2     Amendments and Waivers.....................................52
         11.3     Fees and Expenses..........................................54
         11.4     No Waiver..................................................55
         11.5     Remedies...................................................55
         11.6     Severability...............................................55
         11.7     Conflict of Terms..........................................55
         11.8     Confidentiality............................................55
         11.9     GOVERNING LAW..............................................56
         11.10    Notices....................................................57
         11.11    Section Titles.............................................57
         11.12    Counterparts...............................................57
         11.13    WAIVER OF JURY TRIAL.......................................57
         11.14    Press Releases.............................................57
         11.15    Reinstatement..............................................58
         11.16    Advice of Counsel..........................................58
         11.17    No Strict Construction.....................................58
         11.18    WASHINGTON STATUTE OF FRAUDS...............................58
      
12.      CROSS-GUARANTY......................................................58
         12.1     Cross-Guaranty.............................................58
         12.2     Waivers by Borrowers.......................................59
         12.3     Benefit of Guaranty........................................59
         12.4     Subordination of Subrogation, Etc..........................59
         12.5     Election of Remedies.......................................60
         12.6     Limitation.................................................60
         12.7     Contribution with Respect to Guaranty Obligations..........60
         12.8     Liability Cumulative.......................................61
      



<PAGE>


                  INDEX OF APPENDICES

Annex A (Recitals)          -  Definitions
Annex B (Section 1.2)       -  Letters of Credit
Annex C (Section 1.8)       -  Cash Management System
Annex D (Section 2.1(a))    -  Schedule of Documents
Annex E (Section 4.1(a))    -  Financial Statements and Projections -- Reporting
Annex F (Section 4.1(b))    -  Collateral Reports
Annex G (Section 6.10)      -  Financial Covenants
Annex H (Section 9.9(a))    -  Lenders' Wire Transfer Information
Annex I (Section 11.10)     -  Notice Addresses
Annex J ("Commitments")     -  Commitments as of Closing Date

Exhibit 1.1(a)(i)           -  Form of Notice of Revolving Credit Advance
Exhibit 1.1(a)(ii)          -  Form of Revolving Note
Exhibit 1.1(b)(ii)          -  Form of Swing Line Note
Exhibit 1.1(c)              -  Form of Notice of Authorized Representatives
Exhibit 1.5(a)              -  Form of Applicable Margin Certificate
Exhibit 1.5(e)              -  Form of Notice of Conversion/Continuation
Exhibit 4.1(b)              -  Form of Borrowing Base Certificate
Exhibit 9.1(a)              -  Form of Assignment Agreement
Exhibit A                   -  Form of Compliance Certificate

Schedule (1.1)              -  Agent Representative
Disclosure Schedule (1.4)   -  Sources and Uses; Funds Flow Memorandum
Disclosure Schedule (3.2)   -  Executive Offices; Collateral Locations; FEIN
Disclosure Schedule (3.4(a))-  Financial Statements
Disclosure Schedule (3.4(b))-  Pro Forma
Disclosure Schedule (3.4(c))-  Projections
Disclosure Schedule (3.6)   -  Real Estate and Leases
Disclosure Schedule (3.7)   -  Labor Matters
Disclosure Schedule (3.8)   -  Ventures and Affiliates; Stock
Disclosure Schedule (3.11)  -  Tax Matters
Disclosure Schedule (3.12)  -  ERISA Plans
Disclosure Schedule (3.13)  -  Litigation
Disclosure Schedule (3.15)  -  Intellectual Property
Disclosure Schedule (3.17)  -  Hazardous Materials
Disclosure Schedule (3.18)  -  Insurance
Disclosure Schedule (3.19)  -  Deposit and Disbursement Accounts
Disclosure Schedule (3.20)  -  Government Contracts
Disclosure Schedule (3.22)  -  Material Agreements
Disclosure Schedule (5.1)   -  Trade Names
Disclosure Schedule (6.2)   -  Investments
Disclosure Schedule (6.3)   -  Indebtedness
Disclosure Schedule (6.4(a))-  Transactions with Affiliates
Disclosure Schedule (6.7)   -  Existing Liens
Disclosure Schedule (A)     -  Restructuring Activities
Disclosure Schedule (B)     -  International Loans and Advances
Disclosure Schedule (C)     -  Duquesne Agreement Termination Payments


<PAGE>


                  THIS CREDIT AGREEMENT ("Agreement") is entered into as January
18, 2000,  by and among ITRON,  INC., a Washington  corporation  ("Itron"),  and
UTILITY TRANSLATION  SYSTEMS,  INC., a North Carolina corporation ("UTS") (Itron
and UTS are sometimes  collectively  referred to herein as the  "Borrowers"  and
individually  as a  "Borrower");  the other  Credit  Parties  signatory  hereto;
GENERAL ELECTRIC CAPITAL CORPORATION,  a New York corporation (in its individual
capacity, "GE Capital"),  for itself, as a Lender, and as Agent for Lenders; and
the other Lenders signatory hereto from time to time.

                                    RECITALS

                  A.  Borrowers  have  requested that Lenders extend a revolving
credit facility to Borrowers of up to Thirty-Five Million Dollars  ($35,000,000)
in the  aggregate  for  the  purpose  of  refinancing  certain  indebtedness  of
Borrowers and to provide (i) working capital financing for Borrowers, (ii) funds
for other general corporate  purposes of Borrowers,  and (iii) funds for certain
fees and expenses in  connection  with the financing  transactions  contemplated
herein;  and Lenders are willing to make certain  loans and other  extensions of
credit to Borrowers of up to such amount upon the terms and conditions set forth
herein.

                  B. Borrowers desire to secure all of their  obligations  under
the Loan Documents by granting to Agent, for the benefit of Agent and Lenders, a
security interest in and lien upon certain of their existing and  after-acquired
personal property.

                  C.  Capitalized  terms used in this  Agreement  shall have the
meanings ascribed to them in Annex A and, for purposes of this Agreement and the
other  Loan  Documents,  the  rules of  construction  set forth in Annex A shall
govern. All exhibits,  schedules,  annexes and other attachments  (collectively,
"Appendices")   hereto,   or  expressly   identified  to  this  Agreement,   are
incorporated herein by reference and, taken together with this Agreement,  shall
constitute but a single agreement.  These Recitals shall be construed as part of
the Agreement.

                                    AGREEMENT

                  NOW,  THEREFORE,  in  consideration  of the  premises  and the
mutual  covenants  hereinafter  contained,  and  for  other  good  and  valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:

1.       AMOUNT AND TERMS OF CREDIT

         1.2      Credit Facilities.

                  (a)      Revolving Credit Facility.

                         (i) Subject to the terms and conditions hereof,  each 
Revolving  Lender agrees to make  available to Borrowers from time to time until
the  Commitment  Termination  Date  its Pro  Rata  Share of  advances  (each,  a
"Revolving  Credit  Advance").  The Pro Rata Share of the Revolving  Loan of any
Revolving  Lender  shall not at any time  exceed  its  separate  Revolving  Loan
Commitment.  The obligations of each Revolving Lender hereunder shall be several
and not joint.  Except to the extent otherwise provided in Section  1.1(a)(iii),
the aggregate amount of Revolving Credit Advances  outstanding  shall not exceed
at any time the lesser of (A) the Maximum Amount and (B) the Aggregate Borrowing
Base,  in each case less the sum of the  Letter  of Credit  Obligations  and the
Swing Line Loan  outstanding at such time and any Reserves  established by Agent
("Borrowing  Availability").  Moreover,  the sum of the Revolving Loan and Swing
Line  Loan  outstanding  to any  Borrower  shall  not  exceed  at any time  that
Borrower's  separate  Borrowing  Base.  Until the Commitment  Termination  Date,
Borrowers  may from time to time borrow,  repay and reborrow  under this Section
1.1(a).  Each  Revolving  Credit  Advance  shall be made on notice  by  Borrower
Representative on behalf of the applicable Borrower to a representative of Agent
identified in Schedule (1.1) at the address specified  therein.  Any such notice
must be given no later than (1) 10:00 a.m. (California time) on the Business Day
of the proposed Revolving Credit Advance,  in the case of an Index Rate Loan, or
(2) 10:00 a.m.  (California  time) on the date that is three Business Days prior
to the proposed Revolving Credit Advance, in the case of a LIBOR Loan. Each such
notice (a "Notice of Revolving  Credit  Advance")  shall be given in writing (by
telecopy or overnight  courier)  substantially in the form of Exhibit 1.1(a)(i),
and shall  include  the  information  required  in such  Exhibit  and such other
information  as may be required by Agent.  If any  Borrower  desires to have the
Revolving  Credit Advances bear interest by reference to a LIBOR Rate,  Borrower
Representative must comply with Section 1.5(e).

                           (ii) Each Borrower  shall execute and deliver to each
Revolving  Lender a note to  evidence  the  Revolving  Loan  Commitment  of such
Revolving  Lender,  which  note  shall  be (A) in the  principal  amount  of the
Revolving Loan Commitment of such Revolving  Lender,  (B) dated the Closing Date
and (C) substantially in the form of Exhibit 1.1(a)(ii) (each a "Revolving Note"
and collectively the "Revolving Notes"). Each Revolving Note shall represent the
obligation  of the  applicable  Borrower  to pay the  amount  of the  applicable
Revolving  Lender's  Revolving  Loan  Commitment  or,  if less,  such  Revolving
Lender's  Pro  Rata  Share  of the  aggregate  unpaid  principal  amount  of all
Revolving  Credit Advances made to such Borrower  together with interest thereon
as  prescribed  in Section  1.5.  The  entire  unpaid  balance of the  aggregate
Revolving Loan and all other noncontingent  Obligations shall be immediately due
and payable in full in immediately available funds on the Commitment Termination
Date.
                           (iii)  At the  request  of  Borrower  Representative,
Agent may (but shall have absolutely no obligation to), in its discretion,  make
Revolving Credit Advances to Borrowers on behalf of Revolving Lenders in amounts
that cause the outstanding balance of the aggregate Revolving Loan to exceed the
Aggregate  Borrowing  Base  (less  the  Swing  Line  Loan)  or  that  cause  the
outstanding  balance of the Revolving  Loan owing by any Borrower to exceed that
Borrower's  separate  Borrowing  Base (less the Swing Line Loan advanced to that
Borrower)  (any such excess  Revolving  Credit  Advances are herein  referred to
collectively as "Overadvances");  provided, that (A) no such event or occurrence
shall  cause or  constitute  a waiver of  Agent's,  the Swing Line  Lender's  or
Revolving Lenders' right to refuse to make any further Overadvances,  Swing Line
Advances  or  Revolving  Credit   Advances,   or  incur  any  Letter  of  Credit
Obligations, as the case may be, at any time that an Overadvance exists or would
result  therefrom,  and (B) any  Overadvance  shall not  constitute a Default or
Event of Default due to any Borrower's  failure to comply with Section 1.3(b)(i)
for so long as Agent permits such  Overadvance to be  outstanding.  In addition,
Overadvances  may be made even if the conditions to lending set forth in Section
2 have not been met. All Overadvances  shall constitute Index Rate Loans,  shall
bear  interest  at the  Default  Rate and shall be payable on demand.  Except as
otherwise  provided  in  Section  1.11(b),   the  authority  of  Agent  to  make
Overadvances (1) is limited to an aggregate amount not to exceed $500,000 at any
time,  (2) shall not cause the  aggregate  Revolving  Loan to exceed the Maximum
Amount, and (3) may be revoked prospectively by a written notice to Agent signed
by Revolving  Lenders  holding fifty percent (50%) or more of the Revolving Loan
Commitments.
                  (b)      Swing Line Facility.

                           (i)      Swing Line Advances.  Agent shall notify the
Swing  Line  Lender  upon  Agent's  receipt of any  Notice of  Revolving  Credit
Advance.  Subject to the terms and conditions hereof, the Swing Line Lender may,
in its  discretion,  make  available  from  time to time  until  the  Commitment
Termination  Date advances (each, a "Swing Line Advance") in accordance with any
such notice.  The aggregate amount of Swing Line Advances  outstanding shall not
exceed  at any time the  lesser  of (A) the Swing  Line  Commitment  and (B) the
lesser of (1) the Maximum Amount and (2) (except for Overadvances) the Aggregate
Borrowing Base, in each case less the outstanding  balance of the Revolving Loan
at such time ("Swing Line Availability"). Moreover, except for Overadvances, the
Swing Line Loan  outstanding  to any Borrower  shall not exceed at any time such
Borrower's  separate  Borrowing Base less the Revolving Loan outstanding to such
Borrower. Until the Commitment Termination Date, Borrowers may from time to time
borrow,  repay and reborrow under this Section  1.1(b).  Each Swing Line Advance
shall be made  pursuant to a Notice of  Revolving  Credit  Advance  delivered to
Agent by  Borrower  Representative  on  behalf  of the  applicable  Borrower  in
accordance  with  Section  1.1(a).  Any such  notice must be given no later than
10:00 a.m.  (California  time) on the Business  Day of the  proposed  Swing Line
Advance.  Unless the Swing Line Lender has received at least one Business  Day's
prior written notice from Agent or Requisite  Revolving  Lenders  instructing it
not to make any Swing Line Advance, the Swing Line Lender shall, notwithstanding
the failure of any condition  precedent set forth in Section 2.2 (other than the
condition  precedent set forth in Section 2.2(e)) be entitled to fund such Swing
Line  Advance  and, in  connection  with such Swing Line  Advance,  to have each
Revolving  Lender make  Revolving  Credit  Advances in  accordance  with Section
1.1(b)(iii) and to purchase  participating  interests in accordance with Section
1.1(b)(iv).  Notwithstanding  any other provision of this Agreement or the other
Loan Documents,  the Swing Line Loan shall constitute an Index Rate Loan. Unless
the Swing Line Lender has  received at least one  Business  Day's prior  written
notice from Agent or Requisite  Revolving Lenders instructing it not to make any
Swing Line Advance, the Swing Line Lender shall,  notwithstanding the failure of
any  condition  precedent  set forth in Section  2.2 (other  than the  condition
precedent  set forth in  Section  2.2(e))  be  entitled  to fund such Swing Line
Advance and, in connection with such Swing Line Advance,  to have each Revolving
Lender make Revolving Credit Advances in accordance with Section 1.1(b)(iii) and
to purchase  participating  interests in  accordance  with  Section  1.1(b)(iv).
Borrowers shall repay the aggregate  outstanding  principal  amount of the Swing
Line  Loan  upon  demand  therefor  by  Agent,  which  repayment  shall  be made
exclusively  from the proceeds of Revolving  Credit  Advances made in accordance
with the terms of this Agreement pursuant to Section 1.11(b) or otherwise.

                           (ii)     Swing Line Notes.  Each Borrower shall 
execute and deliver to the Swing Line Lender a  promissory  note to evidence the
Swing Line  Commitment.  Each note shall be (A) in the  principal  amount of the
Swing Line Commitment,  (B) dated the Closing Date, and (C) substantially in the
form of Exhibit 1.1(b)(ii) (each a "Swing Line Note" and collectively the "Swing
Line  Notes").  Each Swing  Line Note  shall  represent  the  obligation  of the
applicable  Borrower to pay the amount of the Swing Line Commitment or, if less,
the aggregate  unpaid  principal  amount of all Swing Line Advances made to such
Borrower together with interest thereon as prescribed in Section 1.5. The entire
unpaid  balance of the Swing Line Loan and all other  noncontingent  Obligations
shall be immediately  due and payable in full in immediately  available funds on
the Commitment Termination Date if not sooner paid in full.

                           (iii)    Refunding of Swing Line Loans.  The Swing 
Line  Lender,  at any  time  and  from  time to time in its  sole  and  absolute
discretion, but not less frequently than weekly, shall on behalf of any Borrower
(and each Borrower hereby irrevocably authorizes the Swing Line Lender to so act
on its behalf) request each Revolving  Lender  (including the Swing Line Lender)
to make a Revolving  Credit  Advance to such  Borrower  (which shall be an Index
Rate Loan) in an amount equal to such  Revolving  Lender's Pro Rata Share of the
principal  amount of such  Borrower's  Swing Line Loan (the "Refunded Swing Line
Loan")  outstanding  on the date such notice is given.  Unless any of the events
described in Sections  8.1(h) or 8.1(i) shall have  occurred (in which event the
procedures  of Section  1.1(b)(iv)  shall apply) and  regardless  of whether the
conditions  precedent  set forth in this  Agreement to the making of a Revolving
Credit Advance are then satisfied, each Revolving Lender shall disburse directly
to Agent its Pro Rata Share of a Revolving Credit Advance on behalf of the Swing
Line Lender prior to 12:00 noon (California time) in immediately available funds
on the Business Day next succeeding the date such notice is given.  The proceeds
of such Revolving  Credit  Advances shall be immediately  paid to the Swing Line
Lender and  applied  to repay the  Refunded  Swing  Line Loan of the  applicable
Borrower.
                           (iv)     Participation in Swing Line Loans.  If,
prior to refunding a Swing Line Loan with a Revolving Credit Advance pursuant to
Section  1.1(b)(iii),  one of the events  described in Sections 8.1(h) or 8.1(i)
shall have occurred, then, subject to the provisions of Section 1.1(b)(v) below,
each Revolving  Lender shall,  on the date such Revolving  Credit Advance was to
have been made for the benefit of the  applicable  Borrower,  purchase  from the
Swing Line Lender an undivided  participation interest in the Swing Line Loan to
such  Borrower in an amount equal to its Pro Rata Share of such Swing Line Loan.
Upon request,  each Revolving  Lender shall promptly  transfer to the Swing Line
Lender,  in  immediately  available  funds,  the  amount  of  its  participation
interest.
                           (v)      Revolving Lenders' Obligations Unconditional
Each  Revolving  Lender's  obligation  to  make  Revolving  Credit  Advances  in
accordance with Section 1.1(b)(iii) and to purchase  participating  interests in
accordance with Section 1.1(b)(iv) shall be absolute and unconditional and shall
not be affected by any circumstance,  including:  (A) any setoff,  counterclaim,
recoupment,  defense or other right that such Revolving  Lender may have against
the  Swing  Line  Lender,  any  Borrower  or any  other  Person  for any  reason
whatsoever;  (B) the  occurrence  or  continuance  of any  Default  or  Event of
Default;  (C) any inability of any Borrower to satisfy the conditions  precedent
to  borrowing  set  forth  in  this  Agreement  on  the  date  upon  which  such
participating  interest  is to be  purchased;  or (D)  any  other  circumstance,
happening or event  whatsoever,  whether or not similar to any of the foregoing.
If any  Revolving  Lender  does not make  available  to Agent or the Swing  Line
Lender, as applicable,  the amount required pursuant to Sections  1.1(b)(iii) or
1.1(b)(iv),  as the case may be,  the Swing Line  Lender  shall be  entitled  to
recover such amount on demand from such Revolving Lender, together with interest
thereon for each day from the date of  non-payment  until such amount is paid in
full at the Federal  Funds Rate for the first two Business Days and at the Index
Rate thereafter.
                  (c)   Reliance   on   Notices;    Appointment    of   Borrower
Representative.  Agent  shall  be  entitled  to rely  upon,  and  shall be fully
protected in relying upon,  any Notice of Authorized  Representative,  Notice of
Revolving Credit Advance,  Notice of  Conversion/Continuation  or similar notice
believed by Agent to be genuine. Agent may assume that each person identified as
an Authorized  Representative  executing and delivering any such notice was duly
authorized, unless Agent has actual knowledge to the contrary or the most recent
Notice of Authorized  Representative received by Agent does not list such person
as an Authorized  Representative.  Each Borrower hereby  designates Itron as its
representative  and agent on its behalf for the  purposes of issuing  Notices of
Revolving  Credit  Advances  and  Notices  of  Conversion/Continuation,   giving
instructions  with  respect to the  disbursement  of the  proceeds of the Loans,
selecting  interest  rate  options,  requesting  Letters of  Credit,  giving and
receiving  all other  notices and  consents  hereunder or under any of the other
Loan Documents and taking all other actions  (including in respect of compliance
with covenants) on behalf of any Borrower or Borrowers under the Loan Documents.
Borrower  Representative hereby accepts such appointment.  Agent and each Lender
shall be entitled to rely exclusively on the authority of each Person designated
in the most current Notice of Authorized  Representative  received by Agent, and
Agent shall have no duty or obligation to verify the  authenticity of any Person
purporting  to be an  Authorized  Representative  giving any  telephonic  notice
permitted  below.  Agent  and  each  Lender  may  regard  any  notice  or  other
communication  pursuant to any Loan Document from Borrower  Representative  as a
notice  or  communication  from  all  Borrowers,  and may  give  any  notice  or
communication  required or  permitted  to be given to any  Borrower or Borrowers
hereunder to Borrower  Representative  on behalf of such  Borrower or Borrowers.
Each Borrower agrees that each notice,  election,  representation  and warranty,
covenant,   agreement   and   undertaking   made  on  its  behalf  by   Borrower
Representative  shall be  deemed  for all  purposes  to have  been  made by such
Borrower and shall be binding upon and enforceable  against such Borrower to the
same extent as if the same had been made directly by such Borrower. In addition,
as an accommodation to Borrowers,  Agent may permit telephonic  requests setting
forth the  information  in a Notice of  Revolving  Credit  Advance  or Notice of
Conversion/Continuation  (in each case  immediately  confirmed in writing)  from
Borrower  Representative.  Unless Borrower  Representative  specifically directs
Agent in  writing  not to accept or act upon  telephonic  communications,  Agent
shall have no  liability  to  Borrowers  for any loss or damage  suffered by any
Borrower as a result of Agent's  honoring  of any  requests  communicated  to it
telephonically   and   purporting  to  have  been  sent  to  Agent  by  Borrower
Representative,  and Agent  shall  have no duty to verify the origin of any such
communication or the identity or authority of the Person sending it.

         1.3 Letters of Credit.  Subject to and in accordance with the terms and
conditions contained herein and in Annex B, Borrower  Representative,  on behalf
of the  applicable  Borrower,  shall have the right to  request,  and  Revolving
Lenders  agree to  incur,  or  purchase  participations  in,  Letter  of  Credit
Obligations in respect of each Borrower.

         1.4      Prepayments.

                  (a)  Voluntary  Prepayments.  Borrowers  may at any time on at
least five Business  Days' prior written  notice by Borrower  Representative  to
Agent  terminate  the  Revolving  Loan  Commitment;  provided,  that  upon  such
termination,  all Loans  and  other  Obligations  shall be  immediately  due and
payable in full and Borrowers  shall make  arrangements,  in accordance with the
terms and conditions of Annex B, for the satisfaction of any outstanding  Letter
of Credit Obligations. Any such voluntary prepayment and any such termination of
the Revolving Loan Commitment must be accompanied by payment of the Fee required
by Section 1.9(c), if any, Agent's and each Lender's out-of-pocket expenses, and
payment of any LIBOR funding  breakage costs in accordance with Section 1.13(b).
Upon any such prepayment and termination of the Revolving Loan Commitment,  each
Borrower's right to request Revolving Credit Advances, or request that Letter of
Credit  Obligations  be incurred on its behalf,  or request Swing Line Advances,
shall simultaneously be terminated.

                  (b)      Mandatory Prepayments.

                              (i)      If at any time the outstanding balance of
the aggregate  Revolving  Loan exceeds the lesser of (A) the Maximum  Amount and
(B) the Aggregate  Borrowing  Base, in each case less the aggregate  outstanding
Swing  Line  Loan at such  time,  then  Borrowers  shall  immediately  repay the
aggregate  outstanding  Revolving  Credit  Advances  to the extent  required  to
eliminate such excess. If any such excess remains after repayment in full of the
aggregate  outstanding  Revolving Credit Advances,  Borrowers shall provide cash
collateral for the Letter of Credit Obligations in the manner set forth in Annex
B to the extent required to eliminate such excess.  Furthermore,  if at any time
the  outstanding  balance of the  Revolving  Loan of any  Borrower  exceeds such
Borrower's  separate  Borrowing Base less the  outstanding  balance of the Swing
Line Loan of such Borrower at such time,  then such Borrower  shall  immediately
repay its  Revolving  Credit  Advances  in the amount of such  excess  (and,  if
necessary, shall provide cash collateral for its Letter of Credit Obligations as
described above).  Notwithstanding the foregoing,  any Overadvance made pursuant
to Section 1.1(a)(iii) shall be repaid only on demand.

                           (ii)     Except as otherwise permitted in any Loan
Documents,  immediately upon receipt by any Credit Party of cash proceeds of any
asset  disposition  or any sale of Stock of any  Subsidiary of any Credit Party,
Borrowers  shall  prepay the Loans,  in each case in an amount equal to all such
proceeds,  net of (A) commissions and other reasonable and customary transaction
costs, fees and expenses  properly  attributable to such transaction and payable
by Borrowers in connection therewith (in each case, paid to non-Affiliates), (B)
transfer  taxes,  (C) amounts  payable to holders of senior Liens (to the extent
such Liens  constitute  Permitted  Encumbrances  hereunder),  if any, and (D) an
appropriate  reserve  for income  taxes in  accordance  with GAAP in  connection
therewith.  Any such  prepayment  shall be applied in  accordance  with  Section
1.3(c).
                  (c)  Application  of  Certain   Mandatory   Prepayments.   Any
prepayments made by any Borrower pursuant to Sections 1.3(b)(ii) or (b)(iii), or
clause (d) below shall be applied as follows:  first,  to Fees and  reimbursable
expenses  of Agent then due and payable  pursuant to any of the Loan  Documents;
second,  to interest  then due and payable on such  Borrower's  Swing Line Loan;
third to the  principal  balance  of the  Swing  Line Loan  outstanding  to such
Borrower until the same shall have been repaid in full;  fourth to interest then
due and payable on Revolving Credit Advances made to such Borrower; fifth to the
principal  balance of Revolving  Credit  Advances  outstanding  to such Borrower
until the same  shall  have been  repaid in full;  sixth to any Letter of Credit
Obligations of such Borrower to provide cash  collateral  therefor in the manner
set forth in Annex B,  until all such  Letter  of Credit  Obligations  have been
fully  cash  collateralized  in the  manner  set  forth in Annex B;  seventh  to
interest then due and payable on the Swing Line Loan of each other Borrower, pro
rata; eighth to the principal balance of the Swing Line Loan outstanding to each
other Borrower,  pro rata,  until the same shall have been repaid in full; ninth
to interest then due and payable on the Revolving Credit Advances outstanding to
each other Borrower,  pro rata; tenth to the principal  balance of the Revolving
Credit Advances made to each other Borrower, pro rata, until the same shall have
been paid in full,  and last to any Letter of Credit  Obligations  of each other
Borrower,  pro rata, to provide cash collateral therefor in the manner set forth
in Annex B,  until all such  Letter of Credit  Obligations  have been fully cash
collateralized.  Neither  the  Revolving  Loan  Commitment  nor the  Swing  Line
Commitment shall be permanently reduced by the amount of any such prepayments.

                  (d) Application of Prepayments from Insurance and Condemnation
Proceeds. Prepayments from insurance or condemnation proceeds in accordance with
Sections  5.4(c) or 5.4(d),  respectively,  shall be applied in accordance  with
Section  1.3(c).  Neither the Revolving Loan  Commitment nor the Swing Line Loan
Commitment shall be permanently  reduced by the amount of any such  prepayments.
If the insurance or condemnation  proceeds received as to a particular  Borrower
exceed the  outstanding  principal  balances of the Loans to that Borrower or if
the precise amount of insurance or condemnation  proceeds allocable to Inventory
as compared to Equipment, Fixtures and Real Estate are not otherwise determined,
the  allocation  and  application  pursuant to Section  1.3(c) of those proceeds
shall be reasonably determined by Agent.

                  (e) Application of Payments with Respect to Certain Restricted
Payments.  The net cash  proceeds  received  by Itron from (i) its  issuance  of
additional  Subordinated  Debt or common Stock pursuant to Section 6.14(f) shall
be applied first, to the repurchase of Itron's  Subordinated  Debt, and then, to
Agent and  Lenders  in  accordance  with  Section  1.3(c),  and (ii)  either its
restructure  and  reallocation of payments owing by Duquesne Light Company under
the Duquesne Agreement or the financing of the Duquesne Project by a third party
lender  pursuant to Section  6.14(g) shall be allocated up to 30% (at the option
of Itron) to the  repurchase of Itron's  Subordinated  Debt until repaid in full
and the remaining percentage of such proceeds to Agent and Lenders in accordance
with Section 1.3(c).

                  (f) No Consent  to  Prohibited  Transactions.  Nothing in this
Section 1.3 shall be construed to constitute  Agent's or any Lender's consent to
any transaction  that is not permitted by other  provisions of this Agreement or
the other Loan Documents.

         1.5 Use of  Proceeds.  Borrowers  shall  utilize  the  proceeds  of the
Revolving Loan and the Swing Line Advances  solely for the  Refinancing  (and to
pay any related  transaction  expenses),  and for the  financing  of  Borrowers'
ordinary working capital and general corporate needs (but excluding in any event
the making of any  Restricted  Payment  not  specifically  permitted  by Section
6.14).  Disclosure  Schedule (1.4) contains a description of Borrowers'  sources
and uses of funds as of the Closing Date,  including  Loans and Letter of Credit
Obligations to be made or incurred on such date.

         1.6      Interest and Applicable Margins.

                  (a)  Borrowers  shall pay  interest to Agent,  for the ratable
benefit of Lenders  in  accordance  with the  various  Loans  being made by each
Lender,  in arrears on each applicable  Interest  Payment Date, at the following
rates: (i) with respect to the Revolving  Credit  Advances,  the Index Rate plus
the  Applicable  Revolver Index Margin per annum or, at the election of Borrower
Representative,  the applicable  LIBOR Rate plus the  Applicable  Revolver LIBOR
Margin per annum, based on the aggregate  Revolving Credit Advances  outstanding
from time to time;  and (ii) with respect to the Swing Line Loan, the Index Rate
plus the Applicable Revolver Index Margin per annum.

                  The Applicable  Revolver Index Margin and Applicable  Revolver
LIBOR Margin shall be 0.50% and 2.00% per annum, respectively, as of the Closing
Date. The Applicable  Margins shall be adjusted (up or down)  prospectively on a
quarterly  basis as determined by the Fixed Charge  Coverage  Ratio of Borrowers
and their  Subsidiaries  on a  consolidated  basis for the 12-month  period then
ended,  commencing  with the first day of the first  calendar  month that occurs
more than five days after delivery of Borrowers'  quarterly Financial Statements
to Lenders for the Fiscal  Quarter  ending  December  31, 2000.  Adjustments  in
Applicable Margins will be determined by reference to the following grids:

               If Fixed Charge Coverage Ratio is:       Level of
                                                        Applicable Margins:
                            >3.0 to 1                         Level I
                                -
                    >2.5 to 1, but < 3.0 to 1                  Level I I
                                -
                    >2.0 to 1, but < 2.5 to 1                  Level III
                                -
                            <2.0 to  1                         Level IV



                                             Applicable Margins

                          Level I        Level II       Level III      Level IV

Applicable Revolver            0%          0.25%           0.50%          0.75%
Index Margin

Applicable Revolver         1.50%          1.75%           2.00%          2.25%
LIBOR Margin

                  All  adjustments in the Applicable  Margins after December 31,
2000, shall be implemented  quarterly on a prospective  basis, for each calendar
month commencing at least five days after the date of delivery to Lenders of the
quarterly  unaudited  or annual  audited (as  applicable)  Financial  Statements
evidencing  the need for an adjustment.  Concurrently  with the delivery of such
Financial Statements, Borrower Representative shall deliver to Agent and Lenders
a  certificate,  in the form of Exhibit  1.5(a),  signed by its chief  financial
officer, setting forth in reasonable detail the basis for the continuance of, or
any change in, the Applicable Margins.  Failure to timely deliver such Financial
Statements  in  accordance  with Annex E shall,  in addition to any other remedy
provided for in this Agreement,  result in an increase in the Applicable Margins
to the highest  level set forth in the  foregoing  grid until  delivery of those
Financial Statements  demonstrating that such an increase is not required.  If a
Default or Event of Default  shall have  occurred and be  continuing at the time
any reduction in the  Applicable  Margins is to be  implemented,  that reduction
shall be deferred until the first day of the first calendar month  following the
date on which such Default or Event of Default is waived or cured.

                  (b) If any  payment on any Loan  becomes  due and payable on a
day other than a Business Day, the maturity thereof will be extended to the next
succeeding  Business Day (except as set forth in the definition of LIBOR Period)
and, with respect to payments of principal, interest thereon shall be payable at
the then applicable rate during such extension.

                  (c) All  computations  of Fees calculated on a per annum basis
and interest shall be made by Agent on the basis of a 360-day year, in each case
for the  actual  number of days  occurring  in the period for which such Fees or
interest are payable.  Each  determination by Agent of an interest rate and Fees
hereunder shall be final,  binding and conclusive on Borrower  (absent  manifest
error).

                  (d) So long as an Event of Default  shall have occurred and be
continuing  under Sections  8.1(a),  (h) or (i) or so long as any other Event of
Default shall have occurred and be continuing,  and at the election of Agent (or
upon the written request of Requisite  Lenders) confirmed by written notice from
Agent to Borrower Representative, the interest rates applicable to the Loans and
the Letter of Credit Fees shall be increased by two  percentage  points (2%) per
annum above the rates of interest or the rate of such Fees otherwise  applicable
hereunder  (the "Default  Rate"),  and all  outstanding  Obligations  shall bear
interest at the Default Rate applicable to such Obligations. Interest and Letter
of Credit Fees at the Default  Rate shall  accrue from the initial  date of such
Default or Event of Default  until that  Default or Event of Default is cured or
waived and shall be payable upon demand.

                  (e) Subject to the  conditions  precedent set forth in Section
2.2,  Borrower  Representative  shall  have the option to (i)  request  that any
Revolving  Credit Advance be made as a LIBOR Loan,  (ii) convert at any time all
or any part of  outstanding  Loans  (other  than the Swing Line Loan) from Index
Rate Loans to LIBOR Loans,  (iii)  convert any LIBOR Loan to an Index Rate Loan,
subject to payment of LIBOR breakage costs in accordance with Section 1.13(b) if
such  conversion is made prior to the expiration of the LIBOR Period  applicable
thereto,  or (iv)  continue all or any portion of any Loan (other than the Swing
Line Loan) as a LIBOR Loan upon the  expiration of the  applicable  LIBOR Period
and the  succeeding  LIBOR Period of that  continued  Loan shall commence on the
last day of the LIBOR Period of the Loan to be continued. Any Loan to be made or
continued  as, or converted  into,  a LIBOR Loan must be in a minimum  amount of
$2,000,000,  and integral  multiples  of $500,000 in excess of such amount.  Any
such election must be made by 10:00 a.m. (California time) on the third Business
Day prior to (A) the date of any proposed  Advance  that is to bear  interest at
the LIBOR Rate, (B) the end of each LIBOR Period with respect to any LIBOR Loans
to be continued as such, or (C) the date on which Borrower Representative wishes
to convert any Index Rate Loan to a LIBOR Loan for a LIBOR Period  designated by
Borrower  Representative  in such  election.  If no election  is  received  with
respect to a LIBOR Loan by 10:00 a.m.  (California  time) on the third  Business
Day prior to the end of the LIBOR Period with respect thereto (or if an Event of
Default shall have occurred and be  continuing or if the  additional  conditions
precedent  set forth in Section 2.2 shall not have been  satisfied),  that LIBOR
Loan shall be  converted  to an Index Rate Loan at the end of its LIBOR  Period.
Borrower  Representative  must make such election by notice to Agent in writing,
by telecopy or overnight courier. In the case of any conversion or continuation,
such  election  must  be  made  pursuant  to a  written  notice  (a  "Notice  of
Conversion/Continuation") in the form of Exhibit 1.5(e).

                  (f) Notwithstanding anything to the contrary set forth in this
Section 1.5, if a court of competent  jurisdiction  determines  in a final order
that the rate of interest payable hereunder exceeds the highest rate of interest
permissible  under law (the "Maximum Lawful Rate"),  then so long as the Maximum
Lawful Rate would be so exceeded,  the rate of interest payable  hereunder shall
be equal to the Maximum Lawful Rate;  provided,  that if at any time  thereafter
the rate of interest  payable  hereunder  is less than the Maximum  Lawful Rate,
Borrowers  shall  continue to pay interest  hereunder at the Maximum Lawful Rate
until such time as the total interest  received by Agent,  on behalf of Lenders,
is equal to the total  interest  that would have been  received had the interest
rate  payable  hereunder  been (but for the  operation  of this  paragraph)  the
interest  rate  payable  since the Closing  Date as  otherwise  provided in this
Agreement.  Thereafter,  interest  hereunder  shall  be paid at the  rate(s)  of
interest and in the manner  provided in Sections  1.5(a) through (e), unless and
until the rate of interest  again exceeds the Maximum  Lawful Rate,  and at that
time this  paragraph  shall again  apply.  In no event shall the total  interest
received by any Lender  pursuant to the terms hereof exceed the amount that such
Lender  could  lawfully  have  received  had the  interest  due  hereunder  been
calculated  for the full term hereof at the Maximum  Lawful Rate. If the Maximum
Lawful Rate is calculated  pursuant to this  paragraph,  such interest  shall be
calculated  at a daily  rate equal to the  Maximum  Lawful  Rate  divided by the
number  of  days  in  the  year  in  which  such   calculation   is  made.   If,
notwithstanding  the  provisions  of this Section  1.5(f),  a court of competent
jurisdiction  shall  finally  determine  that a  Lender  has  received  interest
hereunder  in excess of the Maximum  Lawful  Rate,  Agent  shall,  to the extent
permitted by applicable  law,  promptly apply such excess in the order specified
in Section  1.11 and  thereafter  shall  refund any excess to  Borrowers or as a
court of competent jurisdiction may otherwise order.

         1.7  Eligible  Accounts.  Based  on  the  most  recent  Borrowing  Base
Certificate  delivered  by each  Borrower  to  Agent  and on  other  information
available to Agent,  Agent shall in its  reasonable  credit  judgment  determine
which  Accounts of each  Borrower  shall be "Eligible  Accounts" for purposes of
this  Agreement.  In  determining  whether a particular  Account of any Borrower
constitutes  an Eligible  Account,  Agent shall not include any such  Account to
which any of the exclusionary  criteria set forth below applies.  Agent reserves
the  right,  at any time and from  time to time  after the  Closing  Date in its
reasonable  credit  judgment,  to adjust any such  criteria,  to  establish  new
criteria, to adjust advance rates, to establish Reserves, and to modify Reserves
with  respect to Eligible  Accounts,  subject to the  approval of  Supermajority
Revolving Lenders in the event any such adjustments or the establishment of such
new  criteria  or  Reserves  have the effect of making  more  credit  available.
Eligible Accounts shall not include any Account of any Borrower:

                  (a)  that  does  not  arise  from  the  sale of  goods  or the
performance of services by such Borrower in the ordinary course of its business;

                  (b) (i) upon which such Borrower's right to receive payment is
not absolute or is contingent upon the  fulfillment of any condition  whatsoever
or (ii) as to which such Borrower is not able to bring suit or otherwise enforce
its remedies against the Account Debtor through judicial process or (iii) if the
Account represents a progress billing consisting of an invoice for goods sold or
used or  services  rendered  pursuant  to a  contract  under  which the  Account
Debtor's obligation to pay that invoice is subject to such Borrower's completion
of further  performance  under such contract or is subject to the equitable Lien
of a surety bond issuer;

                  (c) to the extent that any  defense,  counterclaim,  setoff or
dispute is asserted as to such Account;

                  (d) that represents a pre-billed Account or is not otherwise a
true and correct statement of bona fide  indebtedness  incurred in the amount of
the Account for  merchandise  sold to or services  rendered  and accepted by the
applicable Account Debtor;

                  (e) with respect to which an invoice,  acceptable  to Agent in
form and substance, has not been sent to the applicable Account Debtor;

                  (f) that is not owned by such  Borrower  or is  subject to any
right,  claim,  security  interest or other interest of any other Person,  other
than Liens in favor of Agent, on behalf of itself and Lenders;

                  (g) that arises from a sale to any  director,  officer,  other
employee or Affiliate (other than (i) Centra Gas, (ii) Avista Corporation, (iii)
Houston  Industries,  Inc.,  (iv)  Reliant  Resources  Corporation  or (v) Arkla
Finance Corp.) of any Credit Party, or to any entity that has any common officer
or director with any Credit Party;

                  (h) that is the  obligation  of an Account  Debtor that is the
United States  government or a political  subdivision  thereof,  or any state or
municipality or department,  agency or instrumentality  thereof unless Agent, in
its sole discretion, has agreed to the contrary in writing and such Borrower, if
necessary or desirable,  has complied with the Federal  Assignment of Claims Act
of 1940 or any  applicable  state  statute  or  municipal  ordinance  of similar
purpose and effect, with respect to such obligation;

                  (i) that is the  obligation of an Account  Debtor located in a
foreign  country  other  than  Canada  (excluding  the  provinces  of Quebec and
Newfoundland and the Northwest Territories) unless payment thereof is assured by
a letter of credit assigned and delivered to Agent,  satisfactory to Agent as to
form, amount and issuer;

                  (j) to the extent such Borrower or any  Subsidiary  thereof is
liable for goods sold or services  rendered by the applicable  Account Debtor to
such Borrower or any Subsidiary  thereof but only to the extent of the potential
offset;

                  (k) that arises with respect to goods that are  delivered on a
bill-and-hold,  cash-on-delivery basis or placed on consignment, guaranteed sale
or other terms by reason of which the payment by the Account Debtor is or may be
conditional;

                  (l) that is in default;  provided,  that without  limiting the
generality  of the  foregoing,  an Account  shall be deemed in default  upon the
occurrence of any of the following:

                           (i) such Account is not paid within the earlier of 60
         days following its due date or 90 days  following its original  invoice
         date;

                           (ii) the Account  Debtor  obligated upon such Account
         suspends  business,  makes a  general  assignment  for the  benefit  of
         creditors or fails to pay its debts generally as they come due; or

                           (iii) a petition  is filed by or against  any Account
         Debtor  obligated  upon such Account  under any  bankruptcy  law or any
         other   federal,   state  or   foreign   (including   any   provincial)
         receivership,  insolvency relief or other law or laws for the relief of
         debtors;

                  (m) that is an obligation of an Account Debtor with respect to
which fifty percent (50%) or more of the Dollar amount of all Accounts  owing by
such Account  Debtor are  ineligible  under the other criteria set forth in this
Section 1.6;

                  (n) as to which Agent's Lien thereon,  on behalf of itself and
Lenders, is not a first priority perfected Lien;

                  (o)      as to which any of the representations or warranties
pertaining to Accounts in the Loan Documents is untrue;

                  (p)      to the extent such Account is evidenced by a judgment
Instrument or Chattel Paper;

                  (q) to the  extent  such  Account  exceeds  any  credit  limit
established by Agent, in its reasonable credit judgment,  following prior notice
of such limit by Agent to Borrower Representative;

                  (r) to the extent that such  Account,  together with all other
Accounts  owing by such  Account  Debtor  and its  Affiliates  as of any date of
determination exceed 25% of all Eligible Accounts;

                  (s) that is payable in any currency other than Dollars; or

                  (t) that is otherwise  unacceptable to Agent in its reasonable
credit judgment.

         1.8  Eligible  Inventory.  Based  on the  most  recent  Borrowing  Base
Certificate  delivered  by each  Borrower to Agent and on any other  information
available to Agent,  Agent shall in its  reasonable  credit  judgment  determine
which  Inventory of each Borrower shall be "Eligible  Inventory" for purposes of
this Agreement.  In determining whether any particular Inventory of any Borrower
constitutes  Eligible  Inventory,  Agent shall not include any such Inventory to
which any of the exclusionary  criteria set forth below applies.  Agent reserves
the  right,  at any time and from  time to time  after the  Closing  Date in its
reasonable  credit  judgment,  to adjust any such  criteria,  to  establish  new
criteria, to adjust advance rates, to establish Reserves, and to modify Reserves
with respect to Eligible  Inventory,  subject to the  approval of  Supermajority
Revolving Lenders in the event any such adjustments or the establishment of such
new  criteria  or  Reserves  have the effect of making  more  credit  available.
Eligible Inventory shall not include any Inventory of any Borrower that:

                 (a) is not owned by such  Borrower free and clear of all Liens
and rights of any other  Person  (including  the rights of a purchaser  that has
made  progress  payments  and the  rights of a surety  that has issued a bond to
assure such Borrower's  performance with respect to such Inventory),  except the
Liens in favor of  Agent,  on  behalf  of  itself  and  Lenders,  and  Permitted
Encumbrances  in favor of  landlords  and  bailees  to the extent  permitted  in
Section 5.9 (subject to Reserves established by Agent in accordance with Section
5.9);

                 (b) (i) is not  located  on  premises  owned or leased by such
Borrower or stored at a public warehouse, in each case located within the United
States of America and referenced in Disclosure  Schedule (3.2),  (ii) is located
at a public warehouse,  unless (A) the warehouseman has executed a bailee letter
in form and  substance  acceptable  to Agent and (B) Agent  has  determined  the
amount of, and is maintaining, a Reserve against the Borrowing Base with respect
to the Inventory  located at such public  warehouse,  (iii) is located at one of
such Borrower's  owned or leased  locations,  unless either (A) the mortgagee or
landlord,  as  applicable,  has  executed a  mortgagee's  waiver or a landlord's
waiver,  as the case may be, in form and  substance  acceptable  to Agent or (B)
Agent has determined the amount of, and is  maintaining,  a Reserve  against the
Borrowing  Base with  respect to the  Inventory  located at such owned or leased
location,  (iv) is located at any site if the aggregate  book value of Inventory
at any such  location  is less than  $100,000,  or (v) is located at any outside
processing  facility  or is  otherwise  in the  custody  of  third  parties  for
processing  or  manufacture,  including  any  Inventory  that,  upon its sale or
delivery, would constitute an Eligible Unbilled Account, unless, with respect to
such  Inventory that is in the custody of the entity to be created in accordance
with the  transaction  described in Disclosure  Schedule (6.2) for processing at
Itron's facility  located at E. 15913 Euclid Avenue,  Spokane,  Washington,  (A)
such entity shall have executed a bailee letter in form and substance acceptable
to Agent,  (B) such Inventory  shall be segregated  from the other  Inventory of
such entity,  and (C) such Borrower shall have complied with such other criteria
as Agent may  establish  from time to time in its  reasonable  credit  judgment;
provided,  that Inventory that otherwise complies with the criteria set forth in
clauses  (A)  through  (C) of this  clause  (v) shall only  constitute  Eligible
Inventory to the extent that the book value of such Inventory, when added to the
book value of all other Inventory that constitutes  Eligible  Inventory pursuant
to such criteria, does not exceed $10,000,000;

                 (c)      is placed on consignment or is in transit;

                 (d) is covered by a negotiable  document of title, unless such
document has been delivered to Agent with all necessary  endorsements,  free and
clear of all  Liens  except  those in favor of Agent on  behalf  of  itself  and
Lenders;

                 (e) in Agent's reasonable  determination is excess,  obsolete,
unsalable, shopworn, seconds, damaged or unfit for sale;

                 (f)   consists  of  display   items  or  packing  or  shipping
materials,  manufacturing  supplies,  items used for repairs or  maintenance  or
work-in-process Inventory;

                 (g)  consists  of goods that have been  returned by the buyer,
unless such goods are inspected by such Borrower and returned  unopened in their
original packaging;

                 (h)      is not of a type held for sale in the ordinary course
of such Borrower's business;

                 (i) is not subject to a first priority perfected Lien in favor
of Agent, on behalf of itself and Lenders;

                 (j)  does  not  comply  with  any  of the  representations  or
warranties pertaining to Inventory set forth in the Loan Documents;

                 (k) consists of any costs associated with "freight-in" charges;

                 (l)  consists  of  Hazardous  Materials  or goods  that can be
transported or sold only with licenses that are not readily available;

                 (m)  is not covered by casualty insurance acceptable to Agent;

                 (n) is subject to licensing or distribution  agreements unless
Agent has obtained all consents,  approvals and other documents required, in its
sole  discretion,  to provide  Agent with the ability  under such  licensing  or
distribution  agreements and applicable  laws and regulations to sell or dispose
of such Inventory;

                 (o) consists of goods  delivered by such Borrower  pursuant to
the Duquesne Agreement, the Houston Agreement or the Philadelphia Agreement; or

                 (p) is  otherwise  unacceptable  to  Agent  in its  reasonable
credit judgment.

         1.9 Cash Management System. On or prior to the Closing Date,  Borrowers
will establish and will maintain until the Termination Date, the cash management
system described in Annex C (the "Cash Management Systems").

         1.10     Fees.

                  (a) Borrowers shall pay to GE Capital,  individually, the Fees
specified in that certain fee letter of even date herewith,  among Borrowers and
GE Capital (the "GE Capital Fee  Letter"),  at the times  specified  for payment
therein.

                  (b) As  additional  compensation  for the  Revolving  Lenders,
Borrowers  shall pay to Agent,  for the  ratable  benefit  of such  Lenders,  in
arrears,  on the  first  Business  Day of each  month  prior  to the  Commitment
Termination  Date and on the Commitment  Termination  Date, a Fee for Borrowers'
non-use  of  available  funds in an  amount  equal to (i)  three-eighths  of one
percent (0.375%) per annum (calculated on the basis of a 360 day year for actual
days elapsed)  multiplied by (ii) (A) the Aggregate Borrowing Base (as in effect
from time to time)  minus (B) the  average  for the period of the daily  closing
balances of the  aggregate  Revolving  Loan and the Swing Line Loan  outstanding
during the period for which such Fee is due.

                  (c) If Borrowers  prepay the Revolving  Loan and terminate the
Revolving  Loan  Commitment on or prior to the first  anniversary of the Closing
Date,  whether   voluntarily  or  involuntarily  and  whether  before  or  after
acceleration  of the  Obligations,  then Borrowers  shall pay to Agent,  for the
benefit of Lenders as liquidated damages and compensation for the costs of being
prepared to make funds  available  hereunder  an amount equal to (i) one percent
(1%) multiplied by (ii) the Maximum Amount.

                  (d) Borrowers  shall pay to Agent,  for the ratable benefit of
Revolving Lenders, the Letter of Credit Fee as provided in Annex B.

         1.11 Receipt of Payments.  Borrowers shall make each payment under this
Agreement  not later  than 2:00  p.m.  (California  time) on the day when due in
immediately  available funds in Dollars to the Collection Account.  For purposes
of  computing  Fees  or  determining  Borrowing  Availability  or Net  Borrowing
Availability  as of any  date,  all  payments  shall be deemed  received  on the
Business Day of receipt by Agent of immediately  available funds therefor in the
Collection  Account  prior to 11:00 a.m.  (California  time).  For  purposes  of
computing  interest only, all payments shall be deemed received one Business Day
after receipt of immediately  available funds therefor in the Collection Account
prior  to 2:00  p.m.  (California  time).  Payments  received  after  2:00  p.m.
(California  time) on any  Business  Day or on a day that is not a Business  Day
shall be deemed to have been received on the following Business Day.

         1.12     Application and Allocation of Payments.

                  (a) So long as no Event of Default  shall have occurred and be
continuing:  (i)  payments  consisting  of proceeds of Accounts  received in the
ordinary  course of business  shall be applied  first to the Swing Line Loan and
second to the Revolving  Loan;  (ii) voluntary  prepayments  shall be applied as
determined by Borrower  Representative,  subject to the applicable provisions of
Section  1.3;  and  (iii)  mandatory  prepayments  and other  specific  payments
described in Section 1.3 shall be applied as set forth therein. As to each other
payment,  and as to all  payments  made  when an Event  of  Default  shall  have
occurred and be continuing or following the Commitment  Termination  Date,  each
Borrower  hereby  irrevocably  waives the right to direct the application of any
and all payments received from or on behalf of such Borrower,  and each Borrower
hereby irrevocably  agrees that Agent shall have the continuing  exclusive right
to apply any and all such payments against the Obligations of Borrowers as Agent
may  deem  advisable  notwithstanding  any  previous  entry by Agent in the Loan
Account  or  any  other  books  and  records.  In  the  absence  of  a  specific
determination  by Agent  with  respect  thereto,  payments  shall be  applied to
amounts  then due and payable in the  following  order:  (A) to Fees and Agent's
expenses reimbursable hereunder;  (B) to interest on the Swing Line Loan; (C) to
principal  payments on the Swing Line Loan;  (D) to interest on the other Loans,
ratably in proportion to the interest  accrued as to each Loan; (E) to principal
payments on the other Loans and to provide cash  collateral for Letter of Credit
Obligations  in the  manner  described  in Annex B,  ratably  to the  aggregate,
combined  principal balance of the other Loans and outstanding  Letter of Credit
Obligations; and (F) to all other Obligations,  including expenses of Lenders to
the extent reimbursable under Section 11.3.

                  (b) Agent is  authorized  to,  and at its sole  election  may,
charge to the Revolving  Loan balance on behalf of each Borrower and cause to be
paid all  Fees,  expenses,  Charges,  costs  (including  insurance  premiums  in
accordance  with Section  5.4(a)) and interest and  principal to the extent that
such  principal  payment  consists  of a  repayment  of the Swing Line Loan upon
demand by Agent  pursuant to Section  1.1(b)(i)  owing by  Borrowers  under this
Agreement or any of the other Loan Documents if and to the extent Borrowers fail
to pay  promptly any such  amounts as and when due,  even if such charges  would
cause the aggregate  amount of Revolving Credit Advances and Swing Line Advances
outstanding after giving effect to such charges to exceed Borrowing Availability
or would  cause the  balance  of the  Revolving  Loan and the Swing  Loan of any
Borrower to exceed such  Borrower's  separate  Borrowing Base. At Agent's option
and to the extent permitted by law, any charges so made shall constitute part of
the Revolving Loan hereunder.

         1.13 Loan Account and  Accounting.  Agent shall maintain a loan account
(the "Loan Account") on its books to record:  (a) all Revolving Credit Advances;
(b) all  payments  made by  Borrowers;  and (c) all other  debits and credits as
provided in this Agreement  with respect to the Loans or any other  Obligations.
All  entries  in the Loan  Account  shall  be made in  accordance  with  Agent's
customary  accounting  practices as in effect from time to time.  The balance in
the Loan Account,  as recorded on Agent's most recent  printout or other written
statement,  shall, absent manifest error, be presumptive evidence of the amounts
due and owing to Agent and Lenders by each Borrower;  provided, that any failure
to so record or any error in so recording  shall not limit or  otherwise  affect
any  Borrower's  duty to pay the  Obligations.  Agent  shall  render to Borrower
Representative  a monthly  accounting of transactions  with respect to the Loans
setting  forth the  balance  of the Loan  Account  as to each  Borrower  for the
immediately  preceding month. Unless Borrower  Representative  notifies Agent in
writing of any objection to any such  accounting  (specifically  describing  the
basis for such objection), within 60 days after the date thereof, each and every
such  accounting  shall be deemed  final,  binding and  conclusive  on Borrowers
(absent  manifest  error) in all respects as to all matters  reflected  therein.
Only those items  expressly  objected  to in such  notice  shall be deemed to be
disputed by Borrowers.

         1.14     Indemnity.

                  (a) Each Credit Party that is a signatory hereto shall jointly
and  severally  indemnify  and hold  harmless  each of Agent,  Lenders and their
respective  Affiliates,  and each such Person's respective officers,  directors,
employees,   attorneys,   agents  and  representatives  (each,  an  "Indemnified
Person"),  from and against  any and all suits,  actions,  proceedings,  claims,
damages,  losses,  liabilities  and  expenses  (including  attorneys'  fees  and
disbursements  and other  costs of  investigation  or defense,  including  those
incurred upon any appeal) that may be instituted or asserted against or incurred
by any such  Indemnified  Person as the result of credit  having been  extended,
suspended or terminated  under this  Agreement and the other Loan  Documents and
the  administration of such credit, and in connection with or arising out of the
transactions  contemplated  hereunder and thereunder and any actions or failures
to act in connection therewith,  including any and all Environmental Liabilities
and legal costs and  expenses  arising out of or  incurred  in  connection  with
disputes   between  or  among  any   parties  to  any  of  the  Loan   Documents
(collectively,  "Indemnified Liabilities");  provided, that no such Credit Party
shall be liable for any  indemnification  to an Indemnified Person to the extent
that any such suit,  action,  proceeding,  claim,  damage,  loss,  liability  or
expense  results  from  the  gross  negligence  or  willful  misconduct  of such
Indemnified  Person or any  Affiliate  of such  Indemnified  Person,  as finally
determined by a court of competent jurisdiction.  NO INDEMNIFIED PERSON SHALL BE
RESPONSIBLE  OR LIABLE TO ANY OTHER PARTY TO ANY LOAN  DOCUMENT,  ANY SUCCESSOR,
ASSIGNEE OR THIRD PARTY BENEFICIARY OF SUCH PERSON OR ANY OTHER PERSON ASSERTING
CLAIMS  DERIVATIVELY  THROUGH SUCH PARTY, FOR INDIRECT,  PUNITIVE,  EXEMPLARY OR
CONSEQUENTIAL  DAMAGES  THAT MAY BE  ALLEGED AS A RESULT OF CREDIT  HAVING  BEEN
EXTENDED,  SUSPENDED OR TERMINATED UNDER ANY LOAN DOCUMENT OR AS A RESULT OF ANY
OTHER TRANSACTION CONTEMPLATED HEREUNDER OR THEREUNDER.

                  (b) To induce  Lenders to provide the LIBOR Rate option on the
terms  provided  herein,  if: (i) any LIBOR Loans are repaid in whole or in part
prior to the last day of any applicable  LIBOR Period (whether such repayment is
made pursuant to any  provision of this  Agreement or any other Loan Document or
occurs as a result of acceleration,  by operation of law or otherwise); (ii) any
Borrower  shall  default  in  payment  when due of the  principal  amount  of or
interest  on any LIBOR  Loan;  (iii) any  Borrower  shall  default in making any
borrowing of,  conversion  into or  continuation  of LIBOR Loans after  Borrower
Representative has given notice requesting the same in accordance  herewith;  or
(iv) any  Borrower  shall  fail to make any  prepayment  of a LIBOR  Loan  after
Borrower  Representative has given a notice thereof in accordance herewith, then
Borrowers  shall jointly and  severally  indemnify and hold harmless each Lender
from and against all losses,  costs and expenses  resulting from or arising from
any of the foregoing.  Such  indemnification  shall include any loss  (including
loss of margin) or expense arising from the reemployment of funds obtained by it
or from fees payable to terminate  deposits from which such funds were obtained.
For  the  purpose  of  calculating  amounts  payable  to  a  Lender  under  this
subsection,  each Lender  shall be deemed to have  actually  funded its relevant
LIBOR Loan through the purchase of a deposit bearing  interest at the LIBOR Rate
in an  amount  equal to the  amount of that  LIBOR  Loan and  having a  maturity
comparable to the relevant Interest Period;  provided, that each Lender may fund
each of its LIBOR Loans in any manner it sees fit, and the foregoing  assumption
shall be  utilized  only for the  calculation  of  amounts  payable  under  this
subsection.  This covenant  shall survive the  termination of this Agreement and
the payment of the Notes and all other amounts payable hereunder. As promptly as
practicable  under  the  circumstances,   each  Lender  shall  provide  Borrower
Representative  with its written  calculation of all amounts payable pursuant to
this  Section  1.13(b),  and such  calculation  shall be binding on the  parties
hereto unless Borrower  Representative shall object in writing within 30 days of
receipt thereof, specifying the basis for such objection in detail.

         1.15 Access.  Each Credit Party that is a party  hereto  shall,  during
normal business hours, from time to time upon one Business Day's prior notice as
frequently as Agent  determines to be appropriate:  (a) provide Agent and any of
its  officers,  employees  and  agents  access  to its  properties,  facilities,
advisors  and  employees  (including  officers)  of each Credit Party and to the
Collateral;  (b) permit Agent and any of its  officers,  employees and agents to
inspect,  audit and make extracts from any Credit Party's books and records; and
(c) permit  Agent and its  officers,  employees  and agents to inspect,  review,
evaluate and make test  verifications and counts of the Accounts,  Inventory and
other  Collateral  of any Credit  Party.  If a Default or Event of Default shall
have occurred and be continuing or if access is necessary to preserve or protect
the Collateral as determined by Agent, each such Credit Party shall provide such
access to Agent and to each  Lender at all  times and  without  advance  notice.
Furthermore,  so long  as any  Event  of  Default  shall  have  occurred  and be
continuing,  Borrowers  shall  cooperate with Agent and Lenders to provide Agent
and each Lender with access to Borrowers'  suppliers and customers.  Each Credit
Party shall make available to Agent and its counsel, as quickly as is reasonably
possible under the  circumstances,  originals or copies of all books and records
that Agent may reasonably request.  Each Credit Party shall deliver any document
or  instrument  necessary  for Agent,  as it may from time to time  request,  to
obtain records from any service  bureau or other Person that  maintains  records
for such  Credit  Party,  and shall  maintain  duplicate  records or  supporting
documentation on media,  including computer tapes and discs owned by such Credit
Party.  Agent  will give  Lenders  at least ten days'  prior  written  notice of
regularly scheduled audits. Representatives of the Lenders may accompany Agent's
representatives on regularly scheduled audits at no charge to Borrowers.

         1.16     Taxes.

                  (a) Any and all payments by each Borrower hereunder (including
any payments  made  pursuant to Section 12) or under the Notes shall be made, in
accordance with this Section 1.15,  free and clear of and without  deduction for
any and all present or future Taxes. If any Borrower shall be required by law to
deduct any Taxes from or in respect of any sum payable hereunder  (including any
sum  payable  pursuant  to Section  12) or under the Notes,  (i) the sum payable
shall be  increased  as much as shall be  necessary  so that  after  making  all
required deductions  (including deductions applicable to additional sums payable
under this  Section  1.15) Agent or Lenders,  as  applicable,  receive an amount
equal to the sum they would have received had no such deductions been made, (ii)
such Borrower shall make such deductions,  and (iii) such Borrower shall pay the
full amount  deducted to the relevant  taxing or other  authority in  accordance
with  applicable  law.  Within 30 days  after the date of any  payment of Taxes,
Borrower  Representative shall furnish to Agent the original or a certified copy
of a receipt evidencing payment thereof.

                  (b) Each Credit Party that is a signatory hereto shall jointly
and severally  indemnify and, within 30 days of demand  therefor,  pay Agent and
each Lender for the full  amount of Taxes  (including  any Taxes  imposed by any
jurisdiction  on amounts  payable under this Section 1.15) paid by Agent or such
Lender, as appropriate,  in connection with the transactions  contemplated under
the  Loan  Documents  and  any  liability  (including  penalties,  interest  and
expenses) arising  therefrom or with respect thereto,  whether or not such Taxes
were correctly or legally asserted.

                  (c) Each  Lender  organized  under the laws of a  jurisdiction
outside the United States (a "Foreign  Lender") as to which  payments to be made
under  this  Agreement  or  under  the  Notes  are  exempt  from  United  States
withholding  tax under an  applicable  statute  or tax treaty  shall  provide to
Borrower  Representative  and Agent a properly  completed and executed IRS Forms
4224 (or IRS Forms  W-8ECI)  or IRS Forms  1001 (or IRS Forms  W-8BEN)  or other
applicable  form,  certificate  or document  prescribed by the IRS or the United
States  certifying as to such Foreign Lender's  entitlement to such exemption (a
"Certificate  of  Exemption").  Any foreign Person that seeks to become a Lender
under this  Agreement  shall  provide a  Certificate  of  Exemption  to Borrower
Representative and Agent prior to becoming a Lender hereunder. No foreign Person
may become a Lender  hereunder if such Person is unable to deliver a Certificate
of Exemption.

         1.17     Capital Adequacy; Increased Costs; Illegality.

                  (a) If any Lender  shall  have  determined  that the  adoption
after the date hereof of any law, treaty,  governmental (or  quasi-governmental)
rule,  regulation,  guideline  or  order  regarding  capital  adequacy,  reserve
requirements  or similar  requirements  or  compliance  by any  Lender  with any
request or directive regarding capital adequacy, reserve requirements or similar
requirements  (whether or not having the force of law) from any central  bank or
other  Governmental  Authority  increases or would have the effect of increasing
the amount of capital, reserves or other funds required to be maintained by such
Lender and thereby  reducing  the rate of return on such  Lender's  capital as a
consequence of its obligations hereunder, then Borrowers shall from time to time
upon demand by such  Lender  (with a copy of such demand to Agent) pay to Agent,
for the account of such Lender, additional amounts sufficient to compensate such
Lender for such reduction.  A certificate as to the amount of that reduction and
showing  the  basis of the  computation  thereof  submitted  by such  Lender  to
Borrower  Representative and to Agent shall be final,  binding and conclusive on
Borrower (absent manifest error) for all purposes.

                  (b) If, due to either (i) the introduction of or any change in
any law or regulation (or any change in the interpretation  thereof) or (ii) the
compliance  with  any  guideline  or  request  from  any  central  bank or other
Governmental  Authority  (whether or not having the force of law),  in each case
adopted after the Closing  Date,  there shall be any increase in the cost to any
Lender of  agreeing to make or making,  funding or  maintaining  any Loan,  then
Borrowers  shall,  from time to time upon demand by such Lender  (with a copy of
such demand to Agent),  pay to Agent for the  account of such Lender  additional
amounts  sufficient  to  compensate  such  Lender  for such  increased  cost.  A
certificate  as to the amount of such  increased  cost,  submitted  to  Borrower
Representative  and to  Agent  by such  Lender,  shall  be  final,  binding  and
conclusive on Borrowers  (absent  manifest error) for all purposes.  Each Lender
agrees  that,  as  promptly  as  practicable  after  it  becomes  aware  of  any
circumstances  referred to above that would result in any such  increased  cost,
the affected  Lender shall,  to the extent not  inconsistent  with such Lender's
internal policies of general application,  use reasonable  commercial efforts to
minimize  costs and  expenses  incurred  by it and  payable  to it by  Borrowers
pursuant to this Section 1.16(b).

                  (c) Notwithstanding anything to the contrary contained herein,
if the  introduction of or any change in any law or regulation (or any change in
the interpretation thereof) shall make it unlawful, or any central bank or other
Governmental Authority shall assert that it is unlawful, for any Lender to agree
to make or to make or to  continue to fund or  maintain  any LIBOR  Loan,  then,
unless that  Lender is able to make or to  continue to fund or to maintain  such
LIBOR Loan at another branch or office of that Lender without,  in that Lender's
opinion,  adversely  affecting it or its Loans or the income obtained therefrom,
on notice thereof and demand therefor by such Lender to Borrower  Representative
through Agent,  (i) the obligation of such Lender to agree to make or to make or
to  continue to fund or maintain  LIBOR  Loans  shall  terminate,  and (ii) each
Borrower shall  forthwith  prepay in full all  outstanding  LIBOR Loans owing by
such Borrower to such Lender,  together with interest  accrued  thereon,  unless
Borrower  Representative  on behalf of such Borrower,  within five Business Days
after the delivery of such notice and demand, converts all such LIBOR Loans into
Index Rate Loans.

                  (d)  (i)   Within   30  days   after   receipt   by   Borrower
Representative  of  written  notice and  demand  from any  Lender (an  "Affected
Lender") for payment of  additional  amounts or  increased  costs as provided in
Sections  1.15(a),  1.16(a) or  1.16(b),  Borrower  Representative  may,  at its
option,  notify Agent and such  Affected  Lender of its intention to replace the
Affected  Lender.  So long as no Default or Event of Default shall have occurred
and be continuing,  Borrower  Representative,  with the consent of Agent,  which
consent shall not be unreasonably withheld, may obtain, at Borrowers' expense, a
replacement  Lender  ("Replacement  Lender")  for  the  Affected  Lender,  which
Replacement  Lender must be satisfactory  to Agent.  If Borrower  Representative
obtains a Replacement Lender within 90 days following notice of its intention to
do so, the  Affected  Lender must sell and assign its Loans and  Commitments  to
such  Replacement  Lender for an amount  equal to the  principal  balance of all
Loans held by the Affected Lender and all accrued interest and Fees with respect
thereto  through  the date of such sale;  provided,  that  Borrowers  shall have
reimbursed  such Affected  Lender for the additional  amounts or increased costs
that it is entitled  to receive  under this  Agreement  through the date of such
sale and assignment.

                           (ii)   Notwithstanding the foregoing, Borrowers shall
not have the  right  to  obtain a  Replacement  Lender  if the  Affected  Lender
rescinds its demand for  increased  costs or additional  amounts  within 15 days
following its receipt of Borrowers' notice of intention to replace such Affected
Lender. Furthermore, if Borrowers give a notice of intention to replace and fail
to replace such Affected  Lender within 90 days  thereafter,  then Borrowers (A)
shall not be  permitted  to replace  such  Affected  Lender  under this  Section
1.16(d) based on the  increased  costs or  additional  amounts  demanded by such
Affected  Lender in the  written  notice and demand for payment of such costs or
amounts  received by Borrowers from such Affected  Lender and (B) shall promptly
pay all increased costs or additional  amounts  demanded by such Affected Lender
pursuant to Sections  1.15(a),  1.16(a) and 1.16(b);  provided,  that  Borrowers
shall retain the right to replace any Lender that may become an Affected  Lender
based on any  subsequent  written  notice and demand for  payment of  additional
amounts or increased costs not the subject of any prior demand by such Lender.

         1.18  Single  Loan.  All  Loans to each  Borrower  and all of the other
Obligations  of each Borrower  arising  under this  Agreement and the other Loan
Documents  shall  constitute  one general  obligation of that Borrower  secured,
until the Termination Date, by all of the Collateral.

2.       CONDITIONS PRECEDENT

         2.1  Conditions to the Initial  Loans.  No Lender shall be obligated to
make any Loan or incur any Letter of Credit  Obligations on the Closing Date, or
to take,  fulfill,  or perform any other action  hereunder,  until the following
conditions  have been  satisfied  or provided  for in a manner  satisfactory  to
Agent, or waived in writing by Agent and Lenders:

                  (a)  Credit  Agreement;  Loan  Documents.  This  Agreement  or
counterparts hereof shall have been duly executed by and delivered to Borrowers,
each other Credit Party,  Agent and Lenders,  and Agent shall have received such
documents, instruments,  agreements and legal opinions as Agent shall request in
connection  with the  transactions  contemplated by this Agreement and the other
Loan Documents, including all those listed in the Schedule of Documents, each in
form and substance satisfactory to Agent.

                  (b)  Repayment of Prior Lender  Obligations;  Satisfaction  of
Outstanding  L/Cs. (i) Agent shall have received a fully executed  original of a
pay-off letter  satisfactory  to Agent  confirming  that all of the Prior Lender
Obligations  will be repaid in full from the  proceeds of the initial  Revolving
Credit  Advance and all Liens upon any of the  property of  Borrowers  or any of
their  Subsidiaries in favor of Prior Lender shall be terminated by Prior Lender
immediately  upon  such  payment;  and (ii) all  letters  of  credit  issued  or
guaranteed by Prior Lender shall have been cash  collateralized,  supported by a
guaranty of Agent or supported by a Letter of Credit issued pursuant to Annex B,
as mutually agreed upon by Agent, Borrowers and Prior Lender.

                  (c)  Approvals.  Agent shall have  received  (i)  satisfactory
evidence  that the Credit  Parties  have  obtained  all  required  consents  and
approvals of all Persons,  including all requisite Governmental Authorities,  to
the  execution,  delivery and  performance  of this Agreement and the other Loan
Documents and the consummation of the Related Transactions; or (ii) an officer's
certificate in form and substance  satisfactory  to Agent affirming that no such
consents or approvals are required.

                  (d) Opening  Availability.  The Eligible Accounts and Eligible
Inventory supporting the initial Revolving Credit Advance and the initial Letter
of Credit Obligations  incurred and the amount of the Reserves to be established
on the Closing Date shall be  sufficient in value,  as  determined by Agent,  to
provide Borrowers,  collectively, with Net Borrowing Availability,  after giving
effect to the  initial  Revolving  Credit  Advance  made to each  Borrower,  the
incurrence of any initial Letter of Credit  Obligations and the  consummation of
the Related  Transactions (on a pro forma basis,  with trade payables being paid
currently,  and expenses and  liabilities  being paid in the ordinary  course of
business and without acceleration of sales) of at least $9,800,000.

                  (e)  Payment  of  Fees.  Borrowers  shall  have  paid the Fees
required to be paid on the Closing Date in the respective  amounts  specified in
Section 1.9  (including  the Fees  specified in the GE Capital Fee Letter),  and
shall  have  reimbursed  Agent  for all  fees,  costs and  expenses  of  closing
presented as of the Closing Date.

                  (f)  Capital  Structure;   Other  Indebtedness.   The  capital
structure of each Credit Party and the terms and conditions of all  Indebtedness
of each Credit Party shall be acceptable to Agent in its sole discretion.

                  (g) Due Diligence. Agent shall have completed its business and
legal due diligence,  including a roll forward of its previous Collateral audit,
with results satisfactory to Agent.

                  (h)  Consummation  of Related  Transactions.  Agent shall have
received fully executed  copies of each of the Related  Transactions  Documents,
each of which  shall  be in form and  substance  satisfactory  to Agent  and its
counsel. The Related Transactions shall have been consummated in accordance with
the terms of the Related Transactions Documents.

         2.2 Further  Conditions  to Each Loan.  Except as  otherwise  expressly
provided  herein,  no Lender  shall be  obligated  to fund any Loan,  convert or
continue any Loan as a LIBOR Loan or incur any Letter of Credit Obligation,  if,
as of the date thereof:

                  (a)  any  representation  or  warranty  by  any  Credit  Party
contained  herein or in any other Loan Document  shall be untrue or incorrect as
of such  date,  except  to the  extent  that  such  representation  or  warranty
expressly  relates to an earlier date and except for changes  therein  expressly
permitted or expressly  contemplated by this  Agreement;  and Agent or Requisite
Revolving Lenders shall have determined not to make any Loan or incur any Letter
of Credit Obligation so long as such  representation or warranty continues to be
untrue or incorrect;

                  (b) any event or circumstance having a Material Adverse Effect
shall have occurred since the date hereof;

                  (c) any Default or Event of Default shall have occurred and be
continuing or would result after giving effect to any Loan or the  incurrence of
any Letter of Credit Obligations, and Agent or Requisite Revolving Lenders shall
have determined not to make any Loan or incur any Letter of Credit Obligation so
long as such Default or Event of Default is continuing;

                  (d) after giving  effect to any Revolving  Credit  Advance (or
the  incurrence  of any  Letter  of  Credit  Obligations),  (i) the  outstanding
principal amount of the aggregate  Revolving Loan would exceed the lesser of the
Aggregate  Borrowing  Base and the  Maximum  Amount,  in each case less the then
outstanding  principal  amount of the Swing Line Loan,  or (ii) the  outstanding
principal  amount of the Revolving Loan of the applicable  Borrower would exceed
such Borrower's separate Borrowing Base less the outstanding principal amount of
the Swing Line Loan to that Borrower; or

                  (e) after  giving  effect to any Swing Line  Advance,  (i) the
outstanding  principal  amount of the Swing  Line Loan would  exceed  Swing Line
Availability, or (ii) the outstanding principal amount of the Swing Line Loan of
the applicable  Borrower would exceed such  Borrower's  separate  Borrowing Base
less the outstanding principal amount of the Revolving Loan to such Borrower.

The request and  acceptance  by any  Borrower of the  proceeds of any Loan,  the
incurrence of any Letter of Credit Obligations or the conversion or continuation
of any Loan into,  or as, a LIBOR Loan,  as the case may be,  shall be deemed to
constitute,  as of the date of such  request,  acceptance or  incurrence,  (i) a
representation and warranty by Borrowers that the conditions in this Section 2.2
have been satisfied and (ii) a reaffirmation by Borrowers of the  cross-guaranty
provisions  set forth in  Section  12 and of the  granting  and  continuance  of
Agent's  Liens,  on behalf of itself and  Lenders,  pursuant  to the  Collateral
Documents.

3.       REPRESENTATIONS AND WARRANTIES

         To induce  Lenders to make  Revolving  Credit  Advances  and Swing Line
Advances and to incur Letter of Credit Obligations, the Credit Parties executing
this Agreement,  jointly and severally,  make the following  representations and
warranties to Agent and each Lender with respect to all Credit Parties, each and
all of which shall survive the execution and delivery of this Agreement.

         3.1 Corporate Existence; Compliance with Law. Each Credit Party: (a) is
a corporation  duly organized,  validly  existing and in good standing under the
laws of its  jurisdiction  of  incorporation;  (b) is duly  qualified to conduct
business and is in good standing in each other  jurisdiction where its ownership
or lease of property or the conduct of its business requires such qualification,
except  where the  failure to be so  qualified  would not result in  exposure to
losses,  damages or  liabilities  in excess of $250,000;  (c) has the  requisite
corporate  power and authority and the legal right to own,  pledge,  mortgage or
otherwise encumber and operate its properties, to lease the property it operates
under lease and to conduct its  business as now,  heretofore  and proposed to be
conducted; (d) has all licenses,  permits, consents or approvals from or by, and
has made all  filings  with,  and has given all  notices  to,  all  Governmental
Authorities  having  jurisdiction,  to the extent  required for such  ownership,
operation and conduct; (e) is in compliance with its charter and bylaws; and (f)
subject  to  specific   representations   set  forth  herein   regarding  ERISA,
Environmental  Laws,  tax and other laws, is in compliance  with all  applicable
provisions of law,  except where the failure to comply,  individually  or in the
aggregate, could not reasonably be expected to have a Material Adverse Effect.

         3.2 Executive Offices;  Collateral  Locations;  FEIN. As of the Closing
Date, the current location of each Credit Party's chief executive office and the
warehouses and premises within which any Collateral is stored or located are set
forth in  Disclosure  Schedule  (3.2),  and none of such  locations  has changed
within  the 12 months  preceding  the  Closing  Date.  In  addition,  Disclosure
Schedule (3.2) lists the federal employer  identification  number of each Credit
Party.

         3.3  Corporate  Power,  Authorization,   Enforceable  Obligations.  The
execution,  delivery and  performance by each Credit Party of the Loan Documents
to which it is a party and the creation of all Liens  provided for therein:  (a)
are within such Credit Party's corporate power; (b) have been duly authorized by
all necessary or proper corporate and shareholder  action; (c) do not contravene
any provision of such Credit Party's  charter or bylaws;  (d) do not violate any
law  or  regulation,  or any  order  or  decree  of any  court  or  Governmental
Authority;  (e) do not conflict with or result in the breach or termination  of,
constitute  a default  under or  accelerate  or permit the  acceleration  of any
performance  required  by,  any  indenture,  mortgage,  deed  of  trust,  lease,
agreement or other  instrument to which such Credit Party is a party or by which
such  Credit  Party or any of its  property  is bound;  (f) do not result in the
creation or imposition of any Lien upon any of the property of such Credit Party
other than those in favor of Agent, on behalf of itself and Lenders, pursuant to
the Loan  Documents;  and (g) do not  require  the  consent or  approval  of any
Governmental  Authority or any other Person, except those referred to in Section
2.1(c),  all of which will have been duly obtained,  made or complied with prior
to the Closing Date. On or prior to the Closing Date, each of the Loan Documents
shall have been duly executed and delivered by each Credit Party that is a party
thereto and each such Loan  Document  shall then  constitute a legal,  valid and
binding  obligation  of such Credit Party  enforceable  against it in accordance
with its terms.

         3.4 Financial  Statements and Projections.  Except for the Projections,
all  Financial  Statements  concerning  Itron  and  its  Subsidiaries  that  are
referenced below have been prepared in accordance with GAAP consistently applied
throughout the periods  covered  (except as disclosed  therein and except,  with
respect to unaudited  Financial  Statements,  for the absence of  footnotes  and
normal year-end audit  adjustments) and present fairly in all material  respects
the financial  position of the Persons  covered  thereby as at the dates thereof
and the results of their operations and cash flows for the periods then ended.

                  (a) The  following  Financial  Statements  attached  hereto as
Disclosure Schedule (3.4(a)) have been delivered on the date hereof:

                         (i) The audited consolidated balance sheets at December
31, 1997, and December 31, 1998,  and the related  statements of income and cash
flows of Itron and its Subsidiaries  for the Fiscal Years then ended,  certified
by Deloitte & Touche LLP.
                        (ii) The unaudited  balance  sheet(s) at November 30,
1999,  and the  related  statement(s)  of income and cash flows of Itron and its
Subsidiaries for the11 Fiscal Months then ended.

                  (b) Pro Forma.  The Pro Forma delivered on the date hereof and
attached hereto as Disclosure Schedule (3.4(b)) was prepared by Borrowers giving
pro  forma  effect  to the  Related  Transactions,  was  based on the  unaudited
consolidated  balance  sheets of Itron and its  Subsidiaries  dated November 30,
1999,  and was  prepared in  accordance  with GAAP,  with only such  adjustments
thereto as would be required in accordance with GAAP.

                  (c) Projections.  The Projections delivered on the date hereof
and  attached  hereto as  Disclosure  Schedule  (3.4(c))  have been  prepared by
Borrowers  on a  consolidated  basis in light  of the past  operations  of their
businesses,  but including future payments of known contingent liabilities,  and
reflect  projections for the four year period beginning on January 1, 2000, on a
month-by-month  basis for the first year and on a year-by-year basis thereafter.
The Projections are based upon estimates and assumptions stated therein,  all of
which Borrowers believe to be reasonable and fair in light of current conditions
and current  facts known to  Borrowers  and,  as of the  Closing  Date,  reflect
Borrowers'  good  faith  and  reasonable   estimates  of  the  future  financial
performance of Borrowers and of the other information  projected therein for the
period set forth therein.

         3.5 Material Adverse Effect. Between December 31, 1998, and the Closing
Date:  (a)  no  Credit  Party  has  incurred  any  obligations,   contingent  or
noncontingent liabilities,  liabilities for Charges, long-term leases or unusual
forward or  long-term  commitments  that are not  reflected in the Pro Forma and
that, alone or in the aggregate, could reasonably be expected to have a Material
Adverse Effect; (b) no contract, lease or other agreement or instrument has been
entered into by any Credit Party or has become  binding upon any Credit  Party's
assets and no law or regulation  applicable to any Credit Party has been adopted
that has had or could  reasonably be expected to have a Material Adverse Effect;
and (c) no Credit Party is in default and to the best of Borrowers' knowledge no
third party is in default under any material contract,  lease or other agreement
or  instrument  to  which  such  Credit  Party is a party  that  alone or in the
aggregate  could  reasonably  be  expected  to have a Material  Adverse  Effect.
Between  December 31, 1998,  and the Closing  Date,  no event has occurred  that
alone or  together  with other  events  could  reasonably  be expected to have a
Material Adverse Effect other than events disclosed in writing to Agent prior to
the Closing Date and events  reflected  on the  unaudited  Financial  Statements
dated November 30, 1999.

         3.6  Ownership of Property;  Liens.  As of the Closing  Date,  the real
estate ("Real  Estate") listed in Disclosure  Schedule (3.6)  constitutes all of
the real property owned,  leased,  subleased,  or used by any Credit Party. Each
Credit Party owns good and  marketable fee simple title to all of its owned Real
Estate, and valid and marketable  leasehold  interests in all of its leased Real
Estate,  all as described in Disclosure  Schedule (3.6),  and copies of all such
leases or a summary of terms thereof  satisfactory  to Agent have been delivered
to Agent.  Disclosure  Schedule  (3.6)  further  describes  any Real Estate with
respect to which any Credit  Party is a lessor,  sublessor or assignor as of the
Closing  Date.  Each  Credit  Party also has good  title to, or valid  leasehold
interests in, all of its personal  property and assets.  As of the Closing Date,
none of the  properties  and assets of any Credit Party are subject to any Liens
other than  Permitted  Encumbrances,  and there are no facts,  circumstances  or
conditions  known to any Credit  Party  that may result in any Liens  (including
Liens arising under Environmental Laws) other than Permitted Encumbrances. As of
the Closing Date, no portion of any Credit  Party's Real Estate has suffered any
material  damage by fire or other  casualty  loss that has not  heretofore  been
repaired  and restored in all  material  respects to its  original  condition or
otherwise  remedied.  As of the Closing Date, all material  permits  required to
have  been  issued  or  appropriate  to enable  the Real  Estate to be  lawfully
occupied and used for all of the purposes for which it is currently occupied and
used have been lawfully issued and are in full force and effect.

         3.7 Labor  Matters.  As of the  Closing  Date (a) no  strikes  or other
material labor  disputes  against any Credit Party are pending or, to any Credit
Party's knowledge, threatened; (b) hours worked by and payment made to employees
of each Credit  Party  comply with the Fair Labor  Standards  Act and each other
federal,  state,  local or  foreign  law  applicable  to such  matters;  (c) all
payments  due from any Credit Party for  employee  health and welfare  insurance
have been paid or accrued as a liability on the books of such Credit Party;  (d)
except as set forth in Disclosure  Schedule (3.7), no Credit Party is a party to
or  bound  by  any  collective  bargaining   agreement,   management  agreement,
consulting  agreement,  employment  agreement,  bonus plan or agreement or stock
option,  restricted  stock,  stock  appreciation  right  or  any  similar  plan,
agreement  or  arrangement  (and  true and  complete  copies  of any  agreements
described in Disclosure  Schedule (3.7) have been delivered to Agent); (e) there
is no organizing  activity  involving any Credit Party pending or, to any Credit
Party's  knowledge,  threatened  by any labor union or group of  employees;  (f)
there  are no  representation  proceedings  pending  or, to any  Credit  Party's
knowledge,  threatened  with the National Labor  Relations  Board,  and no labor
organization or group of employees of any Credit Party has made a pending demand
for recognition; and (g) except as set forth in Disclosure Schedule (3.7), there
are no  complaints  or charges  against  any  Credit  Party  pending  or, to the
knowledge  of any Credit  Party,  threatened  to be filed with any  Governmental
Authority  or  arbitrator  based on,  arising  out of, in  connection  with,  or
otherwise  relating to the employment or termination of employment by any Credit
Party of any individual.

         3.8  Ventures,  Subsidiaries  and  Affiliates;  Outstanding  Stock  and
Indebtedness.  Except as set forth in Disclosure Schedule (3.8), no Credit Party
has any  Subsidiaries,  is engaged in any joint venture or partnership  with any
other  Person,  or is an  Affiliate of any other  Person.  All of the issued and
outstanding  Stock of each Credit Party is owned by each of the Stockholders and
in the amounts set forth in Disclosure  Schedule (3.8). There are no outstanding
rights to purchase,  options,  warrants or similar rights or agreements pursuant
to which any Credit Party may be required to issue,  sell,  repurchase or redeem
any of its  Stock or  other  equity  securities  or any  Stock  or other  equity
securities of its  Subsidiaries.  All  outstanding  Indebtedness  of each Credit
Party as of the Closing Date is described in Section 6.3  (including  Disclosure
Schedule (6.3)).

         3.9 Government  Regulation.  No Credit Party is an "investment company"
or an "affiliated  person" of, or "promoter" or "principal  underwriter" for, an
"investment company," as such terms are defined in the Investment Company Act of
1940. No Credit Party is subject to regulation  under the Public Utility Holding
Company  Act of 1935,  the  Federal  Power  Act,  or any other  federal or state
statute that restricts or limits its ability to incur Indebtedness or to perform
its obligations hereunder.  The making of the Loans by Lenders to Borrowers, the
incurrence  of the  Letter of Credit  Obligations  on behalf of  Borrowers,  the
application of the proceeds  thereof and repayment  thereof and the consummation
of the Related  Transactions  will not violate any provision of any such statute
or any  rule,  regulation  or  order  issued  by  the  Securities  and  Exchange
Commission.

         3.10  Margin  Regulations.  No  Credit  Party is  engaged,  nor will it
engage,  principally or as one of its important  activities,  in the business of
extending  credit for the  purpose of  "purchasing"  or  "carrying"  any "margin
security" as such terms are defined in Regulation U of the Federal Reserve Board
as now and from time to time hereafter in effect (such securities being referred
to herein as "Margin Stock"). No Credit Party owns any Margin Stock, and none of
the proceeds of the Loans or other  extensions  of credit  under this  Agreement
will be used, directly or indirectly,  for the purpose of purchasing or carrying
any Margin Stock, for the purpose of reducing or retiring any Indebtedness  that
was  originally  incurred to purchase or carry any Margin Stock or for any other
purpose  that might cause any of the Loans or other  extensions  of credit under
this  Agreement  to be  considered  a "purpose  credit"  within  the  meaning of
Regulations T, U or X of the Federal Reserve Board. No Credit Party will take or
permit to be taken any action that might cause any Loan  Document to violate any
regulation of the Federal Reserve Board.

         3.11  Taxes.  All  tax  returns,  reports  and  statements,   including
information returns,  required by any Governmental  Authority to be filed by any
Credit Party have been filed with the appropriate Governmental Authority and all
Charges have been paid prior to the date on which any fine, penalty, interest or
late  charge may be added  thereto  for  nonpayment  thereof  (or any such fine,
penalty,  interest,  late  charge or loss has been paid),  excluding  Charges or
other amounts  being  contested in accordance  with Section  5.2(b).  Proper and
accurate  amounts have been  withheld by each Credit  Party from its  respective
employees  for all  periods in  compliance  in all  material  respects  with all
applicable  federal,  state,  local and foreign laws and such  withholdings have
been timely paid to the respective Governmental Authorities. Disclosure Schedule
(3.11)  sets  forth as of the  Closing  Date those  taxable  years for which any
Credit  Party's tax returns are currently  being audited by the IRS or any other
applicable Governmental Authority, and any assessments or threatened assessments
in connection with such audit,  or otherwise  currently  outstanding.  Except as
described in Disclosure  Schedule (3.11),  no Credit Party has executed or filed
with the IRS or any other Governmental Authority any agreement or other document
extending,  or having the effect of  extending,  the  period for  assessment  or
collection  of any  Charges.  None of the  Credit  Parties  or their  respective
predecessors are liable for any Charges:  (a) under any agreement (including any
tax  sharing  agreements)  or  (b)  to  each  Credit  Party's  knowledge,  as  a
transferee. As of the Closing Date, no Credit Party has agreed or been requested
to make any  adjustment  under  IRC  Section  481(a),  by  reason of a change in
accounting method or otherwise, that would have a Material Adverse Effect.

         3.12     ERISA.

                  (a) Disclosure  Schedule (3.12) lists all Plans and separately
identifies all Pension Plans, including all Title IV Plans, Multiemployer Plans,
ESOPs and Welfare Plans, including all Retiree Welfare Plans. Copies of all such
listed Plans,  together with a copy of the latest IRS/DOL  5500-series  form for
each  such  Plan,  have  been  delivered  to  Agent.   Except  with  respect  to
Multiemployer  Plans,  each  Qualified  Plan has been  determined  by the IRS to
qualify under  Section 401 of the IRC, and the trusts  created  thereunder  have
been determined to be exempt from tax under the provisions of Section 501 of the
IRC, and nothing has occurred that would cause the loss of such qualification or
tax-exempt status. Each Plan is in compliance with the applicable  provisions of
ERISA and the IRC, including the timely filing of all reports required under the
IRC or ERISA.  Neither any Credit  Party nor any ERISA  Affiliate  has failed to
make any contribution or pay any amount due as required by either Section 412 of
the IRC or  Section  302 of ERISA or the  terms of any such  Plan.  Neither  any
Credit Party nor any ERISA Affiliate has engaged in a "prohibited  transaction,"
as defined in Section 4975 of the IRC, in connection  with any Plan,  that would
subject any Credit Party to a material tax on prohibited transactions imposed by
Section 4975 of the IRC.

                  (b) Except as set forth in Disclosure  Schedule (3.12): (i) no
Title IV Plan has any Unfunded Pension  Liability;  (ii) no ERISA Event or event
described  in Section  4062(e)  of ERISA  with  respect to any Title IV Plan has
occurred or is reasonably  expected to occur; (iii) there are no pending,  or to
the  knowledge of any Credit  Party,  threatened  claims  (other than claims for
benefits in the normal  course),  sanctions,  actions or  lawsuits,  asserted or
instituted  against any Plan or any Person as  fiduciary or sponsor of any Plan;
(iv) no Credit Party or ERISA  Affiliate has incurred or  reasonably  expects to
incur any  liability  as a result of a  complete  or partial  withdrawal  from a
Multiemployer  Plan;  (v)  within  the last  five  years no Title IV Plan of any
Credit Party or any ERISA Affiliate (determined at any time within the last five
years) has been terminated,  whether or not in a "standard  termination" as that
term is used in Section  4041(b)(1)  of ERISA,  nor has any Title IV Plan of any
Credit Party or any ERISA Affiliate (determined at any time within the last five
years)  with  Unfunded  Pension  Liabilities  been  transferred  outside  of the
"controlled  group" (within the meaning of Section  4001(a)(14) of ERISA) of any
Credit Party or ERISA  Affiliate  (determined at such time);  (vi) except in the
case of any ESOP,  Stock of all Credit Parties and their ERISA  Affiliates makes
up, in the  aggregate,  no more than 10% of the assets of any Plan,  measured on
the basis of fair market value as of the latest  valuation date of any Plan; and
(vii) no liability  under any Title IV Plan has been satisfied with the purchase
of a contract from an insurance  company that is not rated AAA by the Standard &
Poor's  Corporation  or an equivalent  rating by another  nationally  recognized
rating agency.

         3.13 No Litigation. No action, claim, lawsuit, demand, investigation or
proceeding is now pending or, to the  knowledge of any Credit Party,  threatened
against  any  Credit  Party  before  any  Governmental  Authority  or before any
arbitrator  or  panel  of  arbitrators  (collectively,  "Litigation")  that  (a)
challenges any Credit Party's right or power to enter into or perform any of its
obligations  under the Loan Documents to which it is a party, or the validity or
enforceability of any Loan Document or any action taken thereunder, or (b) has a
reasonable risk of being  determined  adversely to any Credit Party and that, if
so  determined,  could have a Material  Adverse  Effect.  Except as set forth in
Disclosure  Schedule  (3.13),  as of the  Closing  Date  there is no  Litigation
pending or threatened  that seeks damages in excess of $250,000 in the aggregate
or injunctive  relief  against,  or alleges  criminal  misconduct by, any Credit
Party.

         3.14  Brokers.  No  broker or  finder  acting  on behalf of any  Person
brought  about the  obtaining,  making or  closing  of the Loans or the  Related
Transactions, and no Credit Party has any obligation to any Person in respect of
any finder's or brokerage fees in connection therewith.

         3.15 Intellectual  Property.  As of the Closing Date, each Credit Party
owns or has rights to use all  Intellectual  Property  necessary  to continue to
conduct its  business  as now or  heretofore  conducted  by it or proposed to be
conducted by it, and each Patent,  Trademark,  Copyright  and License is listed,
together with application or registration numbers, as applicable,  in Disclosure
Schedule  (3.15).  Each Credit Party  conducts its business and affairs  without
infringement  of or  interference  with any  Intellectual  Property of any other
Person that could  reasonably  be expected  to have a Material  Adverse  Effect.
Except as set forth in Disclosure  Schedule (3.15),  no Credit Party is aware of
any infringement or claim of infringement by others of any of any Credit Party's
Intellectual Property.

         3.16 Full Disclosure.  No information contained in this Agreement,  any
of the other Loan Documents, any Projections, Financial Statements or Collateral
Reports or other  reports from time to time  delivered  hereunder or any written
statement  furnished  by or on behalf of any Credit Party to Agent or any Lender
pursuant  to the terms of this  Agreement  contains  or will  contain any untrue
statement  of a  material  fact or omits or will omit to state a  material  fact
necessary to make the statements  contained  herein or therein not misleading in
light of the  circumstances  under  which they were made.  The Liens  granted to
Agent,  on behalf of itself and Lenders,  pursuant to the  Collateral  Documents
will  at all  times  be  fully  perfected  first  priority  Liens  in and to the
Collateral  described  therein,  subject,  as to  priority,  only  to  Permitted
Encumbrances with respect to the Collateral other than Accounts.

         3.17     Environmental Matters.

                  (a) Except as set forth in Disclosure  Schedule (3.17),  as of
the Closing Date:  (i) the Credit  Parties are and have been in compliance  with
all Environmental  Laws, except for such  noncompliance that would not result in
Environmental  Liabilities  that could reasonably be expected to have a Material
Adverse  Effect;  (ii) the Credit Parties have  obtained,  and are in compliance
with,  all  Environmental   Permits  required  by  Environmental  Laws  for  the
operations of their respective  businesses as presently conducted or as proposed
to be  conducted,  except  where the  failure  to so obtain or comply  with such
Environmental  Permits would not result in Environmental  Liabilities that could
reasonably  be  expected  to  have a  Material  Adverse  Effect,  and  all  such
Environmental  Permits are valid,  uncontested  and in good  standing;  (iii) no
Credit Party is involved in operations or knows of any facts,  circumstances  or
conditions,  including any Releases of Hazardous  Materials,  that are likely to
result  in any  Environmental  Liabilities  of  such  Credit  Party  that  could
reasonably be expected to have a Material  Adverse  Effect,  and no Credit Party
has  permitted  any  current or former  tenant or occupant of the Real Estate to
engage in any such  operations;  (iv) there is no  Litigation  arising  under or
related to any Environmental Laws,  Environmental  Permits or Hazardous Material
that seeks damages, penalties, fines, costs or expenses in excess of $100,000 or
injunctive  relief against,  or that alleges criminal  misconduct by, any Credit
Party;  (v) no notice has been received by any Credit Party  identifying it as a
"potentially  responsible  party"  or  requesting  information  under  CERCLA or
analogous state statutes,  and to the knowledge of the Credit Parties, there are
no facts,  circumstances or conditions that may result in any Credit Party being
identified as a "potentially  responsible party" under CERCLA or analogous state
statutes;  and (vi) the Credit  Parties  have  provided  to Agent  copies of all
existing environmental  reports,  reviews and audits and all written information
pertaining  to  actual  or  potential  Environmental  Liabilities,  in each case
relating to any Credit Party.

                  (b) Each  Credit  Party  hereby  acknowledges  and agrees that
Agent  (i) is not now,  and has not ever  been,  in  control  of any of the Real
Estate  or any  Credit  Party's  affairs,  and (ii)  does not have the  capacity
through the  provisions  of the Loan  Documents or  otherwise  to influence  any
Credit Party's conduct with respect to the ownership, operation or management of
any of its Real Estate or compliance with  Environmental  Laws or  Environmental
Permits.

         3.18 Insurance. Disclosure Schedule (3.18) lists all insurance policies
of any nature  maintained,  as of the Closing Date,  for current  occurrences by
each Credit Party, as well as a summary of the terms of each such policy.

         3.19 Deposit and  Disbursement  Accounts.  Disclosure  Schedule  (3.19)
lists all  banks and other  financial  institutions  at which any  Credit  Party
maintains  deposit or other  accounts  as of the  Closing  Date,  including  any
Disbursement  Accounts, and such Schedule correctly identifies the name, address
and telephone number of each depository,  the name in which the account is held,
a description  of the purpose of the account,  and the complete  account  number
therefor.

         3.20 Government  Contracts.  Except as set forth in Disclosure Schedule
(3.20),  as of the Closing  Date,  no Credit Party is a party to any contract or
agreement with any  Governmental  Authority and no Credit  Party's  Accounts are
subject to the Federal Assignment of Claims Act (31 U.S.C.  Section 3727) or any
similar state or local law.

         3.21 Customer and Trade Relations. As of the Closing Date, there exists
no actual or, to the knowledge of any Credit Party,  threatened  termination  or
cancellation  of, or any  material  adverse  modification  or change in: (a) the
business  relationship  of any  Credit  Party  with  any  customer  or  group of
customers  whose  purchases  during the  preceding  12 months  caused them to be
ranked among the ten largest customers of such Credit Party; or (b) the business
relationship of any Credit Party with any supplier material to its operations.

         3.22  Agreements  and Other  Documents.  As of the Closing  Date,  each
Credit  Party has  provided  to Agent or its  counsel,  on  behalf  of  Lenders,
accurate and complete  copies (or summaries) of all of the following  agreements
or  documents  to which it is  subject,  each of which is listed  in  Disclosure
Schedule (3.22): (a) supply agreements and purchase agreements not terminable by
such Credit Party within 60 days following  written notice issued by such Credit
Party and involving  transactions in excess of $1,000,000 per annum;  (b) leases
of  Equipment  having a  remaining  term of one  year or  longer  and  requiring
aggregate  rental  and other  payments  in excess of  $500,000  per  annum;  (c)
licenses and permits held by the Credit  Parties,  the absence of which could be
reasonably  likely  to have a  Material  Adverse  Effect;  (d)  instruments  and
documents  evidencing  Indebtedness of such Credit Party and any Lien granted by
such Credit Party with  respect  thereto;  and (e)  instruments  and  agreements
evidencing the issuance of any equity securities, warrants, rights or options to
purchase equity securities of such Credit Party.

         3.23  Solvency.  Both before and after giving  effect to: (a) the Loans
and Letter of Credit  Obligations  to be made or incurred on the Closing Date or
such other date as Loans and Letter of Credit  Obligations  requested  hereunder
are  made or  incurred;  (b) the  disbursement  of the  proceeds  of such  Loans
pursuant to the instructions of Borrower Representative; (c) the Refinancing and
the  consummation  of the other  Related  Transactions;  and (d) the payment and
accrual of all transaction  costs in connection with the foregoing,  each Credit
Party is and will be Solvent.

         3.24 Year 2000 Representations.  Each Credit Party has completed a Year
2000  Assessment  and a Year 2000  Corrective  Plan,  copies of which  have been
delivered to Agent,  and each Credit Party  completed  all Year 2000  Corrective
Actions and Year 2000  Implementation  Testing as of  November  15,  1999.  Each
Credit Party has eliminated all Year 2000 Problems,  except where the failure to
correct the same could not  reasonably  be  expected to have a Material  Adverse
Effect, individually or in the aggregate.

         3.25  Subordinated  Debt.  As of the Closing Date,  (a) Borrowers  have
delivered  to Agent a complete  and  correct  copy of each of (i) the  Indenture
between  Itron  and  Chemical   Trust  Company  of   California,   a  California
corporation,  as trustee,  dated as of March 12,  1997,  and (ii) the  Indenture
between Itron and Chase Manhattan Trust Company of California, formerly known as
Chemical  Trust Company of  California,  a California  corporation,  as trustee,
dated as of March 12, 1999 (collectively,  the "Indentures"), and (b) neither of
the Indentures has been amended,  supplemented or otherwise  modified.  Borrower
Representative  has the corporate power and authority to incur the  Indebtedness
evidenced  by  the  Subordinated  Notes.  The  subordination  provisions  of the
Subordinated Notes are enforceable against the holders of the Subordinated Notes
by  Agent  and  Lenders.  All  Obligations,  including  the  Obligations  to pay
principal of and interest on the Loans,  constitute senior Indebtedness entitled
to the benefits of the  subordination  provisions  contained in the Subordinated
Notes.  The  principal  of and  interest  on the  Notes,  all  Letter  of Credit
Obligations and all other  Obligations will constitute  "senior debt" as that or
any  similar  term is or may be  used  in any  other  instrument  evidencing  or
applicable to any other Subordinated Debt. Borrowers  acknowledge that Agent and
each Lender are entering into this  Agreement and are extending the  Commitments
in reliance upon the subordination provisions of the Subordinated Notes and this
Section 3.25.

         3.26 Unbilled  Accounts.  With respect to any Eligible Unbilled Account
of any  Borrower,  (a) such  Borrower  intends for the goods giving rise to such
Unbilled  Account to be installed within 60 days after shipment and accepted and
invoiced  within 75 days after shipment,  and (b) such Unbilled  Account is only
being currently  reported as an Eligible  Unbilled Account if and for so long as
not more  than 60 days have  elapsed  since  the date of  shipment  of the goods
giving rise to such Unbilled Account.

4.       FINANCIAL STATEMENTS AND INFORMATION

         4.1      Reports and Notices.

                  (a) Each Credit Party  executing this Agreement  hereby agrees
that, from and after the Closing Date and until the  Termination  Date, it shall
deliver to Agent or Lenders,  as required,  the Financial  Statements,  notices,
Projections and other information at the times, to the Persons and in the manner
set forth in Annex E.

                  (b) Each Credit Party  executing this Agreement  hereby agrees
that, from and after the Closing Date and until the  Termination  Date, it shall
deliver  to Agent or  Lenders,  as  required,  the  various  Collateral  Reports
(including  Borrowing Base  Certificates  in the form of Exhibit  4.1(b)) at the
times, to the Persons and in the manner set forth in Annex F.

         4.2 Communication  with  Accountants.  Each Credit Party executing this
Agreement  authorizes  Agent and, so long as a Default or Event of Default shall
have occurred and be continuing,  each Lender, to communicate  directly with its
independent  certified public accountants,  including Deloitte & Touche LLP, and
authorizes  and shall instruct  those  accountants  and advisors to disclose and
make  available to Agent and each Lender any and all  Financial  Statements  and
other supporting financial documents,  schedules and information relating to any
Credit Party (including copies of any issued management letters) with respect to
the business, financial condition and other affairs of any Credit Party.

5.       AFFIRMATIVE COVENANTS

         Each Credit Party executing this Credit Agreement jointly and severally
agrees as to all Credit  Parties  that from and after the date  hereof and until
the Termination Date:

         5.1 Maintenance of Existence and Conduct of Business. Each Credit Party
shall:  (a) do or cause to be done all things  necessary to preserve and keep in
full force and effect its corporate existence and its rights and franchises; (b)
continue to conduct its business  substantially as now conducted or as otherwise
permitted hereunder; (c) at all times maintain,  preserve and protect all of its
assets and  properties  used or useful in the conduct of its business,  and keep
the same in good repair,  working order and  condition in all material  respects
(taking into  consideration  ordinary wear and tear) and from time to time make,
or cause to be made,  all necessary or  appropriate  repairs,  replacements  and
improvements  thereto  consistent  with  industry  practices;  and (d)  transact
business  only in such  corporate and trade names as are set forth in Disclosure
Schedule (5.1).

         5.2      Payment of Obligations.

                  (a) Subject to Section 5.2(b), each Credit Party shall pay and
discharge or cause to be paid and discharged promptly all (i) Charges payable by
it,  including  Charges  imposed upon it, its income and profits,  or any of its
property  (real,  personal or mixed) and all Charges with respect to tax, social
security and unemployment  withholding  with respect to its employees,  and (ii)
lawful claims for labor, materials,  supplies and services or otherwise, in each
case before any thereof shall become past due.

                  (b)  Each  Credit  Party  may  in  good  faith   contest,   by
appropriate proceedings,  the validity or amount of any Charges, Taxes or claims
described in Section 5.2(a);  provided, that: (i) at the time of commencement of
any such contest no Event of Default shall have occurred and be continuing; (ii)
adequate  reserves  with respect to such contest are  maintained on the books of
such Credit Party,  in accordance  with GAAP;  (iii) no Lien shall be imposed to
secure  payment of such Charges,  Taxes or claims but that is superior to any of
the Liens securing  payment of the Obligations  (other than a Lien in favor of a
Governmental Authority for which such Governmental Authority has not taken steps
to perfect such Lien that would have  priority if certain steps had been taken),
and such contest is maintained  and  prosecuted  with  diligence and operates to
suspend collection or enforcement of such Charges, Taxes or claims; (iv) none of
the Collateral  could reasonably be expected to be forfeited or lost as a result
of such  contest;  (v) such Credit Party shall  promptly  pay or discharge  such
contested  Charges,  Taxes  or  claims  and all  additional  charges,  interest,
penalties and expenses,  if any, and shall deliver to Agent evidence  acceptable
to Agent of such compliance, payment or discharge, if such contest is terminated
or  discontinued  adversely to such Credit Party or the  conditions set forth in
this Section 5.2(b) are no longer met; and (vi) Agent has not advised  Borrowers
in writing  that Agent  reasonably  believes  that  nonpayment  or  nondischarge
thereof could have or result in a Material Adverse Effect.

         5.3 Books and Records.  Each Credit Party shall keep adequate books and
records  with  respect  to its  business  activities  in which  proper  entries,
reflecting all financial transactions, are made in accordance with GAAP and on a
basis consistent with the Financial  Statements  attached as Disclosure Schedule
(3.4(a)).

         5.4      Insurance; Damage to or Destruction of Collateral.

                  (a) The Credit Parties shall,  at their sole cost and expense,
maintain the policies of insurance  described in Disclosure  Schedule  (3.18) in
form and with insurers  reasonably  acceptable to Agent.  If any Credit Party at
any time or times hereafter shall fail to obtain or maintain any of the policies
of insurance required above, or to pay all premiums relating thereto,  Agent may
at any time or times  thereafter  obtain and maintain such policies of insurance
and pay such premiums and take any other action with respect  thereto that Agent
deems  advisable.  Agent shall have no  obligation  to obtain  insurance for any
Credit  Party or pay any  premiums  therefor.  By doing so,  Agent  shall not be
deemed to have  waived any Default or Event of Default  arising  from any Credit
Party's  failure to maintain such  insurance or pay any premiums  therefor.  All
sums so  disbursed,  including  attorneys'  fees,  court costs and other charges
related  thereto,  shall be payable on demand by Borrowers to Agent and shall be
additional Obligations hereunder secured by the Collateral.

                  (b) Agent  reserves  the right at any time upon any  change in
any  Credit  Party's  risk  profile  (including  any change in the  product  mix
maintained by any Credit Party or any laws affecting the potential  liability of
such Credit  Party) to require  additional  forms and limits of insurance to, in
Agent's opinion,  adequately  protect both Agent's and Lenders' interests in all
or any  portion  of the  Collateral  and to  ensure  that each  Credit  Party is
protected by insurance in amounts and with coverage  customary for its industry.
If  requested by Agent,  each Credit  Party shall  deliver to Agent from time to
time a report of a  reputable  insurance  broker,  satisfactory  to Agent,  with
respect to its insurance policies.

                  (c) Each  Credit  Party  shall  deliver to Agent,  in form and
substance satisfactory to Agent, endorsements to (i) all "All Risk" and business
interruption  insurance  naming Agent, on behalf of itself and Lenders,  as loss
payee, and (ii) all general liability and other liability policies naming Agent,
on behalf of itself and  Lenders,  as  additional  insured.  Each  Credit  Party
irrevocably makes,  constitutes and appoints Agent (and all officers,  employees
or agents  designated  by  Agent),  so long as any Event of  Default  shall have
occurred  and  be  continuing  or  the  anticipated  insurance  proceeds  exceed
$1,000,000,  as such Credit  Party's true and lawful agent and  attorney-in-fact
for the purpose of making,  settling and adjusting  claims under such "All Risk"
policies of  insurance,  endorsing the name of such Credit Party on any check or
other item of payment for the proceeds of such "All Risk"  policies of insurance
and for making all  determinations and decisions with respect to such "All Risk"
policies of insurance. Agent shall have no duty to exercise any rights or powers
granted  to  it   pursuant   to  the   foregoing   power-of-attorney.   Borrower
Representative  shall promptly notify Agent of any loss,  damage, or destruction
to the  Collateral in the amount of $100,000 or more,  whether or not covered by
insurance.  After deducting from such proceeds the reasonable expenses,  if any,
incurred  by Agent in the  collection  or  handling  thereof,  Agent may, at its
option,  (A) permit or require such Credit Party to use such money,  or any part
thereof, to replace, repair, restore or rebuild the Collateral in a diligent and
expeditious  manner with  materials and  workmanship of  substantially  the same
quality as  existed  before the loss,  damage or  destruction  or (B) apply such
proceeds to the reduction of the  Obligations in accordance with Section 1.3(d);
(provided, that in the case of insurance proceeds pertaining to any Credit Party
other than  Borrowers,  such  insurance  proceeds  shall be applied to the Loans
owing by  Borrowers),  or permit or require each Credit Party to use such money,
or any part thereof, to replace,  repair, restore or rebuild the Collateral in a
diligent and expeditious  manner with materials and workmanship of substantially
the  same  quality  as  existed   before  the  loss,   damage  or   destruction.
Notwithstanding  the  foregoing,  if the casualty  giving rise to such insurance
proceeds could not reasonably be expected to have a Material  Adverse Effect and
such insurance  proceeds do not exceed $1,000,000 in the aggregate,  Agent shall
permit the applicable  Credit Party to replace,  restore,  repair or rebuild the
property;  provided,  that if such  Credit  Party  shall not have  completed  or
entered into  binding  agreements  to complete  such  replacement,  restoration,
repair or  rebuilding  within  180 days of such  casualty,  Agent may apply such
insurance  proceeds to the Obligations in accordance  with Section  1.3(d).  All
insurance  proceeds  that are to be made  available  to any Borrower to replace,
repair,  restore or rebuild the  Collateral  shall be applied by Agent to reduce
the outstanding  principal balance of the Revolving Loan of such Borrower (which
application  shall not result in a permanent  reduction  of the  Revolving  Loan
Commitment) and upon such  application,  Agent shall establish a Reserve against
the separate  Borrowing Base of the affected  Borrower in an amount equal to the
amount of such proceeds so applied. All insurance proceeds made available to any
Credit  Party  that is not a Borrower  to  replace,  repair,  restore or rebuild
Collateral  shall be deposited in a cash collateral  account.  Thereafter,  such
funds shall be made  available to such Credit Party to provide funds to replace,
repair,   restore  or  rebuild  the   Collateral   as  follows:   (C)   Borrower
Representative  shall request a Revolving  Credit Advance be made to such Credit
Party in the amount requested to be released;  (D) so long as the conditions set
forth in Section 2.2 have been met,  Revolving Lenders shall make such Revolving
Credit Advance;  and (E) the Reserve  established with respect to such insurance
proceeds shall be reduced by the amount of such Revolving Credit Advance. To the
extent not used to  replace,  repair,  restore or rebuild the  Collateral,  such
insurance proceeds shall be applied in accordance with Section 1.3(d).

         5.5  Compliance  with Laws.  Each Credit  Party  shall  comply with all
federal,  state,  local  and  foreign  laws and  regulations  applicable  to it,
including  those  relating  to FCC,  licensing,  ERISA  and  labor  matters  and
Environmental  Laws and  Environmental  Permits,  except to the extent  that the
failure to comply,  individually  or in the  aggregate,  could not reasonably be
expected to have a Material Adverse Effect.

         5.6 Supplemental  Disclosure.  From time to time as may be requested by
Agent (which request will not be made more frequently than once each year absent
the occurrence and continuance of a Default or an Event of Default),  the Credit
Parties shall supplement each Disclosure  Schedule hereto, or any representation
herein or in any other Loan  Document,  with  respect  to any  matter  hereafter
arising that, if existing or occurring at the date of this Agreement, would have
been required to be set forth or described in such Disclosure  Schedule or as an
exception to such representation or that is necessary to correct any information
in such Disclosure  Schedule or representation that has been rendered inaccurate
thereby (and, in the case of any  supplements to any Disclosure  Schedule,  such
Disclosure  Schedule  shall be  appropriately  marked to show the  changes  made
therein);  provided, that (a) no such supplement to any such Disclosure Schedule
or  representation  shall be or be  deemed a waiver of any  Default  or Event of
Default resulting from the matters disclosed therein,  except as consented to by
Agent and Requisite Revolving Lenders in writing, and (b) no supplement shall be
required as to representations  and warranties that relate solely to the Closing
Date.

         5.7 Intellectual Property. Each Credit Party shall conduct its business
and  affairs  without  infringement  of or  interference  with any  Intellectual
Property of any other Person, except to the extent the failure to so conduct its
business,  individually or in the aggregate, could not reasonably be expected to
have a Material Adverse Effect.

         5.8 Environmental Matters. Each Credit Party shall and shall cause each
Person within its control to: (a) conduct its  operations  and keep and maintain
its Real Estate in  compliance  with all  Environmental  Laws and  Environmental
Permits other than noncompliance that could not reasonably be expected to have a
Material Adverse Effect; (b) implement any and all  investigation,  remediation,
removal and response  actions that are  reasonably  appropriate  or necessary to
comply with  Environmental  Laws and  Environmental  Permits  pertaining  to the
presence,  generation,  treatment,  storage,  use,  disposal,  transportation or
Release of any Hazardous  Material on, at, in, under,  above,  to, from or about
any of its Real Estate,  except where the failure to do so could not  reasonably
be expected to have a Material  Adverse Effect;  (c) notify Agent promptly after
such Credit  Party  becomes  aware of any  violation  of  Environmental  Laws or
Environmental Permits or any Release on, at, in, under, above, to, from or about
any Real Estate that is reasonably likely to result in Environmental Liabilities
in excess of $100,000;  and (d)  promptly  forward to Agent a copy of any order,
notice,  request for information or any communication or report received by such
Credit  Party in  connection  with any such  violation  or  Release or any other
matter relating to any  Environmental  Laws or Environmental  Permits that could
reasonably  be  expected  to result in  Environmental  Liabilities  in excess of
$100,000, in each case whether or not the Environmental Protection Agency or any
Governmental Authority has taken or threatened any action in connection with any
such violation,  Release or other matter.  If Agent at any time has a reasonable
basis to believe  that there may be a  violation  of any  Environmental  Laws or
Environmental Permits by any Credit Party or any Environmental Liability arising
thereunder,  or a Release of Hazardous  Materials on, at, in, under,  above, to,
from or about any of its Real Estate,  that, in each case,  could  reasonably be
expected to have a Material Adverse Effect,  then each Credit Party shall,  upon
Agent's written request (i) cause the performance of such  environmental  audits
including  subsurface sampling of soil and groundwater,  and preparation of such
environmental  reports,  in each case at Borrowers'  expense,  as Agent may from
time to time  reasonably  request,  all of which shall be conducted by reputable
environmental  consulting firms  reasonably  acceptable to Agent and shall be in
form and substance reasonably  acceptable to Agent, and (ii) permit Agent or its
representatives  to have access to all Real Estate for the purpose of conducting
such  environmental  audits and testing as Agent deems  reasonably  appropriate,
including subsurface sampling of soil and groundwater. Borrowers shall reimburse
Agent  for the  reasonable  costs of such  audits  and  tests  and the same will
constitute a part of the Obligations secured hereunder.

         5.9 Landlords'  Agreements,  Mortgagee  Agreements and Bailee  Letters.
Each Credit Party shall use reasonable efforts to obtain a landlord's agreement,
mortgagee  agreement or bailee letter,  as  applicable,  from the lessor of each
leased  property,  mortgagee  of owned  property or bailee  with  respect to any
warehouse,  processor or converter  facility or other location where  Collateral
having an aggregate book value in excess of $100,000 is stored or located, which
agreement  or letter  shall  contain a waiver or  subordination  of all Liens or
claims that the landlord,  mortgagee or bailee may assert against the Collateral
at that location,  and shall  otherwise be reasonably  satisfactory  in form and
substance to Agent.  With respect to such locations or warehouse space leased or
owned as of the Closing  Date, if Agent has not received a landlord or mortgagee
agreement  or bailee  letter as of the Closing  Date,  any  Borrower's  Eligible
Inventory at that location  shall, in Agent's  discretion,  be excluded from the
Borrowing  Base or be subject to such Reserves as may be established by Agent in
its  reasonable  credit  judgment.  After the Closing  Date, no real property or
warehouse  space that is not set forth in  Disclosure  Schedule  (3.2)  shall be
leased,  acquired  or used by any Credit  Party and no  Inventory  of any Credit
Party  shall  be  shipped  to  a  processor  or  converter  under   arrangements
established  after the Closing  Date,  in each case  without  the prior  written
consent of Agent  (which  consent  will not be  unreasonably  withheld,  but, in
Agent's  discretion,  may be  conditioned  upon the exclusion from the Borrowing
Base of Eligible  Inventory at that  location or the  establishment  of Reserves
acceptable  to Agent) or unless and until a  satisfactory  landlord or mortgagee
agreement or bailee letter, as appropriate,  shall first have been obtained with
respect to such  location;  provided,  that no such agreement or letter shall be
necessary if the aggregate  book value at such  location is less than  $100,000.
Each Credit Party shall timely and fully pay and perform its  obligations  under
all leases and other  agreements  with respect to each leased location or public
warehouse  where assets having an aggregate book value in excess of $100,000 are
or may be located.

         5.10 Further  Assurances.  Each Credit Party  executing  this Agreement
agrees that it shall and shall cause each other  Credit Party to, at such Credit
Party's expense and upon request of Agent, duly execute and deliver, or cause to
be duly executed and  delivered,  to Agent such further  instruments  and do and
cause  to be  done  such  further  acts as may be  necessary  or  proper  in the
reasonable  opinion of Agent to carry out more  effectively  the  provisions and
purposes of this Agreement or any other Loan Document.

6.       NEGATIVE COVENANTS

         Each Credit Party executing this Agreement jointly and severally agrees
as to all Credit  Parties that,  without the prior written  consent of Agent and
the  Requisite  Revolving  Lenders,  from and  after the date  hereof  until the
Termination Date:

         6.1  Mergers,  Subsidiaries,  Etc. No Credit  Party  shall  directly or
indirectly, by operation of law or otherwise, take any of the following actions:

                  (a)  form  or  acquire  any  Subsidiary  (other  than  the SCE
Subsidiary);  provided, that Itron may form one or more SPV Subsidiaries so long
as any such SPV Subsidiary  either (1) will not receive the proceeds of any Loan
(except  as  otherwise  permitted  in clause (e) of  Section  6.2),  or (2) will
receive  the  proceeds of any Loan and is not  financed by a third party  lender
(i.e.,  with  funds  other  than  the  Obligations)  and  satisfies  each of the
following terms and conditions:

                           (i)  Agent  shall  receive  at least  30 days'  prior
         written notice of the proposed  creation of such SPV Subsidiary,  which
         notice shall include a reasonably detailed description of the types and
         locations  of  assets  to be held by such SPV  Subsidiary  and the book
         value of the assets at each such location;

                           (ii)  such SPV  Subsidiary  shall  only  hold  assets
         located in the United  States or Canada  (other than the  provinces  of
         Quebec and Newfoundland and the Northwest Territories) and comprising a
         business,  or those  assets of a  business,  of the type  engaged in by
         Borrowers as of the Closing Date,  and which business would not subject
         Agent  or  any  Lender  to  regulatory  or  third  party  approvals  in
         connection  with the  exercise  of its rights and  remedies  under this
         Agreement or any other Loan Documents  other than approvals  applicable
         to the exercise of such rights and  remedies  with respect to Borrowers
         prior to the creation of such SPV Subsidiary;

                           (iii) except as  otherwise  permitted in this Section
         6, no  additional  Indebtedness,  Guaranteed  Indebtedness,  contingent
         obligations  or  other  liabilities  shall  be  incurred,   assumed  or
         otherwise be reflected on a  consolidated  balance sheet of Itron after
         giving effect to the creation of such SPV Subsidiary,  except (A) Loans
         made hereunder and (B) ordinary course trade payables, accrued expenses
         and unsecured Indebtedness of such SPV Subsidiary; and

                           (iv) upon the creation of such SPV  Subsidiary,  such
         SPV  Subsidiary  shall  become a "Borrower"  hereunder  and a "Grantor"
         under the Security  Agreement,  Agent will be granted a first  priority
         perfected  Lien  (subject to Permitted  Encumbrances)  in all assets of
         such SPV Subsidiary  except to the extent  prohibited by applicable law
         and  regulations,  and such SPV Subsidiary and the other Credit Parties
         shall have executed such  documents and taken such other actions as may
         be required by Agent in connection therewith; or

                  (b) merge with, consolidate with, acquire all or substantially
all of the assets or capital Stock of, or otherwise combine with or acquire, any
Person, except that (i) any Borrower may merge with another Borrower;  provided,
that Borrower Representative is the survivor of any such merger to which it is a
party,  (ii) any  Subsidiary  of a Credit  Party may be merged  into such Credit
Party so long as such Credit Party is the  survivor,  and (iii) any Credit Party
(other than a Borrower)  may be merged with  another  Credit Party (other than a
Borrower).

         6.2  Investments;  Loans and  Advances.  Except as otherwise  expressly
permitted  by this  Section 6, no Credit Party shall make or permit to exist any
investment in, or make, accrue or permit to exist loans or advances of money to,
any  Person,  through  the  direct or  indirect  lending  of money,  holding  of
securities or otherwise,  except that: (a) Credit  Parties may hold  investments
comprised  of notes  payable,  or stock or other  securities  issued by  Account
Debtors to any Credit Party  pursuant to negotiated  agreements  with respect to
settlement of such Account Debtor's Accounts in the ordinary course of business,
so long as the aggregate  amount of such  Accounts so settled by Credit  Parties
does not exceed  $100,000 in any Fiscal Year; (b) each Credit Party may maintain
its  existing  investments  in its  Subsidiaries  as of the  Closing  Date;  (c)
Borrowers  may  make  investments  not to  exceed  $1,000,000  in the  aggregate
outstanding  at any time in joint  ventures  with the prior  written  consent of
Agent and  Requisite  Revolving  Lenders;  (d)  Itron may make the  contemplated
investments and loans described in Disclosure Schedule (6.2); (e) Itron may fund
that portion of expenditures  incurred by an SPV Subsidiary,  in connection with
Outsourcing  Contracts,  that are not funded by a third party lender (i.e., with
funds other than the Obligations)  and are otherwise  permitted under paragraphs
(a) and (d) of Annex G; (f) Itron may make loans or otherwise advance funds to a
Subsidiary  that is not  domiciled in the United  States of America and is not a
Credit  Party that are not related to an  Outsourcing  Contract  and are used by
such Subsidiary (i) for working capital  purposes or (ii) in the ordinary course
of such  Subsidiary's  business in an amount not to exceed (A) $1,500,000 in any
Fiscal  Year  and (B)  $3,000,000  in the  aggregate  outstanding  at any  time;
provided, that, for purposes of this Section 6.2(f), (I) any non-cash repayments
of loans by such  Subsidiary  to Itron shall not be applied as a credit  against
the outstanding  amount of such loans or other advances and (II) if the proceeds
of such loans or  advances  are to be used for Capital  Expenditures,  then such
Capital Expenditures are permitted under paragraph (a) of Annex G; (g) Itron may
make loans or otherwise  advance funds to a Subsidiary  that is not domiciled in
the United  States of America and is not a Credit  Party that are not related to
an Outsourcing  Contract and are used by such  Subsidiary in connection with the
restructuring, closing, consolidation and reorganization activities described in
Disclosure Schedule (B); in an amount not to exceed (i) $4,500,000 in the Fiscal
Year ending  December 31, 2000,  and (ii)  $5,000,000 in the aggregate  over the
term of this Agreement; and (h) so long as Agent has not delivered an Activation
Notice, Credit Parties may make investments, subject to Control Letters in favor
of Agent for the benefit of Lenders or otherwise subject to a perfected security
interest in favor of Agent for the benefit of Lenders,  in (i) marketable direct
obligations issued or unconditionally guaranteed by the United States of America
or any agency  thereof  maturing  within  one year from the date of  acquisition
thereof,  (ii) commercial  paper maturing no more than one year from the date of
creation thereof and currently having the highest rating  obtainable from either
Standard  &  Poor's  Corporation  or  Moody's  Investors  Service,  Inc.,  (iii)
certificates of deposit maturing no more than one year from the date of creation
thereof  issued by commercial  banks  incorporated  under the laws of the United
States of America,  each having combined capital,  surplus and undivided profits
of not less  than  $300,000,000  and  having a senior  secured  rating of "A" or
better by a nationally  recognized  rating agency (an "A Rated Bank"),  and (iv)
time  deposits  maturing no more than 30 days from the date of creation  thereof
with A Rated Banks.

         6.3      Indebtedness.

                  (a) No Credit Party shall create,  incur,  assume or permit to
exist any Indebtedness, except (without duplication) (i) Indebtedness secured by
purchase money security  interests and Capital Leases permitted in clause (l) of
the  definition  of  Permitted  Encumbrances,  (ii)  the  Loans  and  the  other
Obligations, (iii) deferred taxes, (iv) unfunded pension fund and other employee
benefit plan  obligations  and  liabilities  to the extent they are permitted to
remain unfunded under applicable law, (v) existing and contemplated Indebtedness
described in Disclosure Schedule (6.3) and refinancings thereof or amendments or
modifications  thereto that do not have the effect of  increasing  the principal
amount  thereof or changing the  amortization  thereof (other than to extend the
same) and that are otherwise on terms and  conditions  no less  favorable to any
Credit Party,  Agent or any Lender, as reasonably  determined by Agent, than the
terms  of  the  Indebtedness  being  refinanced,   amended  or  modified,   (vi)
Subordinated  Debt,  (vii)  Indebtedness  that is without recourse to any Credit
Party, (viii) unsecured Indebtedness that supports the obligations of any Credit
Party with  respect to  Outsourcing  Contracts  or Turnkey  Contracts,  and (ix)
Indebtedness  consisting of intercompany loans and advances made by any Borrower
to any Credit Party;  provided,  that: (A) such Credit Party shall have executed
and   delivered  to  such   Borrower,   on  the  Closing  Date,  a  demand  note
("Intercompany  Note") to evidence any such intercompany  Indebtedness  owing at
any time by such Credit Party to such Borrower which  Intercompany Note shall be
in form and substance  satisfactory  to Agent and shall be pledged and delivered
to Agent pursuant to the applicable Security Agreement as additional  collateral
security  for  the   Obligations;   (B)  each  Credit  Party  shall  record  all
intercompany  transactions  on its  books  and  records  in a manner  reasonably
satisfactory  to Agent;  (C) the obligations of each Credit Party under any such
Intercompany Note shall be subordinated to the Obligations hereunder in a manner
satisfactory to Agent; (D) at the time any such  intercompany loan or advance is
made by any Borrower to any Credit Party and after giving effect  thereto,  such
Borrower shall be Solvent; (E) no Default or Event of Default would occur and be
continuing after giving effect to any such proposed  intercompany  loan; and (F)
in the case of any intercompany Indebtedness,  the Borrower advancing such funds
shall have Net Borrowing  Availability  under its separate Borrowing Base of not
less than $1,000,000 after giving effect to such intercompany loan.

                  (b) No Credit Party shall, directly or indirectly, voluntarily
purchase,  redeem, defease or prepay any principal of, premium, if any, interest
or other  amount  payable in respect of any  Indebtedness,  other than:  (i) the
Obligations;  (ii) Indebtedness secured by a Permitted  Encumbrance if the asset
securing such Indebtedness has been sold or otherwise  disposed of in accordance
with Sections 6.8(b) or (c); and (iii) Subordinated Debt to the extent permitted
by Section 6.14.

         6.4      Employee Loans and Affiliate Transactions.

                  (a) Except as otherwise  expressly permitted in this Section 6
with  respect to  Affiliates,  no Credit Party shall enter into or be a party to
any transaction  with any other Credit Party or any Affiliate  thereof except in
the  ordinary  course of and  pursuant to the  reasonable  requirements  of such
Credit  Party's  business  and upon fair and  reasonable  terms that are no less
favorable  to such Credit  Party than would be obtained  in a  comparable  arm's
length  transaction  with a  Person  not an  Affiliate  of  such  Credit  Party;
provided,  that each sale of Inventory by any Borrower to an SPV Subsidiary that
is not a  Borrower,  which  sale is in  excess  of  $250,000,  shall be on terms
requiring  payment  in  cash  not  later  than 60 days  after  shipment  of such
Inventory.   In  addition,   if  any  such  transaction  or  series  of  related
transactions  involves  payments in excess of $200,000 in the  aggregate  (other
than transactions relating to sales of Inventory to, or Accounts owing from, (i)
Centra Gas,  (ii) Avista  Corporation,  (iii)  Houston  Industries,  Inc.,  (iv)
Reliant  Resources  Corporation or (v) Arkla Finance Corp.),  the terms of these
transactions  must be  disclosed  in  advance  to Agent  and  Lenders.  All such
transactions existing as of the date hereof are described in Disclosure Schedule
(6.4(a)).

                  (b) No Credit  Party shall enter into any lending or borrowing
transaction  with  any  employees  of any  Credit  Party,  except  loans  to its
respective employees on an arm's length basis in the ordinary course of business
consistent with past practices for travel expenses, relocation costs and similar
purposes and stock option  financing up to a maximum of $100,000 to any employee
and up to a maximum of $250,000 in the aggregate at any one time outstanding.

         6.5 Capital Structure and Business.  No Credit Party shall (a) make any
changes in any of its business objectives,  purposes or operations that could in
any  way  adversely  affect  the  repayment  of the  Loans  or any of the  other
Obligations or could have or result in a Material Adverse Effect,  (b) except as
otherwise  permitted in Section 6.1, Section 6.14(f) or Section 6.14(g),  change
its capital  structure with respect to Stock (including  securities  convertible
into Stock) as described in Disclosure  Schedule  (3.8) by means of the issuance
of any shares of Stock,  warrants or other securities  convertible into Stock or
any revision of the terms of its outstanding Stock; provided, that Itron may (i)
make a Qualified  Public  Offering  of its common  Stock so long as no Change of
Control occurs after giving effect thereto or (ii) grant options or issue shares
of Stock (A) in connection  with the employee stock  ownership plan described in
Disclosure  Schedule (3.8) or (B) otherwise to its  employees,  or (c) amend its
charter or bylaws in a manner that would  adversely  affect  Agent or Lenders or
such Credit  Party's duty or ability to repay the  Obligations.  No Credit Party
shall  engage  in any  business  other  than the types of  businesses  currently
engaged in by it.

         6.6  Guaranteed  Indebtedness.  No Credit  Party shall  create,  incur,
assume or permit to exist any Guaranteed  Indebtedness except (a) by endorsement
of  instruments  or items of payment for  deposit to the general  account of any
Credit Party,  (b) for Guaranteed  Indebtedness  incurred for the benefit of any
other Credit  Party if the primary  obligation  is  expressly  permitted by this
Agreement and (c) for  Guaranteed  Indebtedness  that is unsecured for which the
primary  obligor is an SPV  Subsidiary  in  connection  with third party  lender
financing (i.e., with funds other than the Obligations).

         6.7 Liens.  No Credit Party shall  create,  incur,  assume or permit to
exist any Lien on or with respect to its Accounts or any of its other properties
or assets  (whether  now owned or  hereafter  acquired)  except for (a) Liens in
existence on the date hereof and  summarized  in Disclosure  Schedule  (6.7) and
other  Permitted  Encumbrances,  (b) Liens granted in connection  with any third
party lender  financing of the Duquesne  Project,  which Liens shall be on terms
reasonably  acceptable  to Agent,  and (c) Liens granted on the capital Stock of
any SPV  Subsidiary  that is not a Borrower in  connection  with any third party
financing of such SPV  Subsidiary.  In addition,  no Credit Party shall become a
party to any agreement,  note,  indenture or instrument or take any other action
that would  prohibit  the creation of a Lien on any of its  properties  or other
assets  in favor of  Agent,  on behalf of  itself  and  Lenders,  as  additional
collateral for the Obligations,  except (i) operating leases,  Capital Leases or
Licenses that prohibit Liens upon the assets that are subject thereto,  (ii) any
agreement,  note,  indenture or instrument  granted in connection with any third
party lender financing of the Duquesne Project, which agreement, note, indenture
or instrument shall be on terms reasonably  acceptable to Agent, and (iii) Liens
granted on the  capital  Stock of any SPV  Subsidiary  that is not a Borrower in
connection with any third party financing of such SPV Subsidiary.

         6.8 Sale of Stock and Assets.  Except as otherwise permitted in Section
6.14(f),  Section 6.14(g) or Section 6.19, no Credit Party shall sell, transfer,
convey,  assign,  contribute  or otherwise  dispose of any of its  properties or
other  assets,  including  its capital  Stock or the capital Stock of any of its
Subsidiaries  (whether  in a public  or a  private  offering  or  otherwise  but
subject,  in the case of Itron,  to the provisions of Section  6.5(b)) or any of
its Accounts, other than:

                  (a)  the sale of Inventory in the ordinary course of business;

                  (b) the sale,  transfer,  conveyance or other disposition by a
Credit Party of Equipment, Fixtures or Real Estate that is obsolete or no longer
used or useful in such Credit Party's  business and having a value not exceeding
$100,000 in any single  transaction  or $500,000 in the  aggregate in any Fiscal
Year;

                  (c) other  Equipment and Fixtures having a value not exceeding
$100,000 in any single  transaction  or $500,000 in the  aggregate in any Fiscal
Year;

                  (d) the contemplated transaction described in Disclosure
Schedule (6.2);

                  (e) the sale, transfer, conveyance,  assignment,  contribution
or  other  disposition  of any of  its  properties  or  other  assets  to an SPV
Subsidiary that is a Borrower; and

                  (f) the sale, transfer, conveyance,  assignment,  contribution
or other  disposition  of the  properties  or other  assets  (in  each  case,  a
"Permitted  Transfer") by Itron to an SPV  Subsidiary  that is not a Borrower in
connection  with the closing of a financing by a third party lender (i.e.,  with
funds  other  than  the  Obligations)  of such SPV  Subsidiary  upon  terms  and
conditions satisfactory to Agent in its reasonable credit judgment, and provided
that each of the following conditions are satisfied:

                           (i)  Agent  shall  receive  at least  30 days'  prior
         written notice of such Permitted Transfer and related financing,  which
         notice shall include a reasonably detailed  description of the purposes
         of such Permitted Transfer;

                           (ii) the proceeds of such third party financing shall
         be (A) paid to a Borrower  in cash,  (B) equal to or  greater  than the
         book value of the portion of the  transferred  assets  that  constitute
         Eligible  Accounts  and  Eligible  Inventory  and are  included  in the
         calculation  of such  Borrower's  Borrowing  Base at such time, and (C)
         applied to the Loans in the manner set forth in Section 1.11;

                           (iii) the  amount  equal to (A) the book value of the
         transferred  assets (excluding the short-term and long-term portions of
         the Contracts Receivable  transferred by Itron to such SPV Subsidiary),
         minus (B) the proceeds of such  financing,  is an amount  that,  at the
         time of such transfer,  is otherwise permitted under paragraphs (a) and
         (d) of Annex G;

                           (iv)   concurrently   with  delivery  of  the  notice
         referred  to in clause (i) above,  Borrowers  shall have  delivered  to
         Agent,  in form and substance  satisfactory  to Agent,  (A) a pro forma
         consolidated  and   consolidating   balance  sheet  of  Itron  and  its
         Subsidiaries  (the  "Subsidiary Pro Forma"),  based on recent financial
         data, which shall fairly represent the assets,  liabilities,  financial
         condition and results of operations  of Itron and its  Subsidiaries  in
         accordance with GAAP consistently applied, but taking into account such
         Permitted  Transfer,  the  funding of the third  party  finance and all
         Loans in  connection  therewith,  and such  Subsidiary  Pro Forma shall
         reflect that,  on a pro forma basis,  (I) such SPV  Subsidiary  will be
         able to perform all of its obligations to third parties,  (II) no Event
         of Default would result after giving effect to such Permitted Transfer,
         and (III)  Borrowers  would have been in compliance  with the financial
         covenants set forth in Annex G for the four quarter period reflected in
         the Compliance Certificate most recently delivered to Agent pursuant to
         Annex E prior to the creation of such Permitted  Transfer (after giving
         effect to such transfer and all Loans funded in connection therewith as
         if made on the first day of such period),  and (B) the certification of
         the Chief Financial Officer of Itron that (1) such Subsidiary Pro Forma
         fairly  represents  the  information  described  in clause (A) above in
         accordance with GAAP, and (2) any other information  presented is true,
         correct and  complete in all  material  respects  and that there was no
         Event of Default  in  existence  as of such time or that  would  result
         after giving effect to such Permitted Transfer; and

                           (v) at the time of such Permitted  Transfer and after
         giving  effect  thereto,  no  Default  or Event of  Default  shall have
         occurred and be continuing.

With respect to any disposition of assets or other properties permitted pursuant
to clauses (b) and (c) above, Agent agrees on reasonable prior written notice to
release  its Lien on such  assets or other  properties  in order to  permit  the
applicable Credit Party to effect such disposition and shall execute and deliver
to Borrowers, at Borrowers' expense,  appropriate UCC termination statements and
other releases as reasonably requested by Borrowers in connection therewith.

         6.9 ERISA.  No Credit Party  shall,  or shall cause or permit any ERISA
Affiliate  to,  cause or  permit  to occur an event  that  could  result  in the
imposition  of a Lien under  Section  412 of the IRC or  Section  302 or 4068 of
ERISA.

         6.10 Financial Covenants.  Borrowers shall not breach or fail to comply
with  any of the  financial  covenants  set  forth  in  Annex G (the  "Financial
Covenants").

         6.11  Hazardous  Materials.  No Credit  Party  shall  cause or permit a
Release of any Hazardous  Material on, at, in, under,  above,  to, from or about
any of the Real Estate where such Release  would (a) violate in any respect,  or
form the basis for any Environmental  Liabilities  under, any Environmental Laws
or  Environmental  Permits  or (b)  otherwise  adversely  impact  the  value  or
marketability  of any of the Real  Estate or any of the  Collateral,  other than
such  violations  or impacts  that could not  reasonably  be  expected to have a
Material Adverse Effect.

         6.12  Sale-Leasebacks.  Except in  connection  with  sales  and  leases
expressly  permitted  under this  Section 6, no Credit Party shall engage in any
sale-leaseback,  synthetic  lease or similar  transaction  involving  any of its
assets;  provided,  that Itron shall be permitted to enter into a sale-leaseback
transaction  with respect to its facility  located at 2818 North  Sullivan Road,
Spokane,  Washington,  so long as the terms of such transaction are disclosed in
advance to, and are  consented to by (which  consent shall not  unreasonably  be
withheld by), Agent.

         6.13  Cancellation  of  Indebtedness.  No Credit Party shall cancel any
claim or debt owing to it, except for reasonable  consideration negotiated on an
arm's length basis and in the ordinary  course of its business  consistent  with
past practices.

         6.14     Restricted Payments.  No Credit Party shall make any
Restricted Payment, except, without duplication, any of the following:

                  (a)      intercompany loans and advances between Borrowers to
the extent permitted by Section 6.3;

                  (b)      dividends and distributions by Subsidiaries of any 
Borrower paid to such Borrower;

                  (c)      employee loans permitted under Section 6.4(b);

                  (d)      scheduled payments of interest with respect to the
 Subordinated Debt;

                  (e) redemption, purchase, retirement, defeasance, sinking fund
or similar payments made to holders of Itron's  Subordinated Debt or redemption,
purchase,  repurchase or retirement payments to holders of Itron's common Stock,
which  payments to such holders of  Subordinated  Debt or common Stock shall not
exceed in the aggregate (i) $10,000,000  during the period from the Closing Date
through and including the Commitment Termination Date and (ii) $7,000,000 during
any  immediately  trailing  12-month  period,  measured  as of any  date for the
12-month period then ended;

                  (f) the repurchase of Itron's  Subordinated  Debt in an amount
not to exceed  the net cash  proceeds  received  by Itron from the  issuance  of
additional  Subordinated  Debt or common Stock by Itron, in each case so long as
such issuance would not result in a Default or Event of Default; and

                  (g) the repurchase of Itron's  Subordinated  Debt in an amount
not to exceed 30% of the net cash  proceeds  received by Itron from (i) Duquesne
Light Company upon the  consummation  of the  restructure  and  reallocation  of
payments owing to Itron by Duquesne Light Company under the Duquesne  Agreement,
or (ii) a third party lender (i.e.,  with funds other than the Obligations) that
finances  the  Duquesne   Project  in  accordance   with  terms  and  conditions
satisfactory to Agent in its reasonable credit judgment,

provided,  that (i) no Default or Event of Default  shall have  occurred  and be
continuing  or would  result  after  giving  effect to any  payment  pursuant to
clauses (d),  (e), (f) or (g) above,  (ii) the aggregate  amount of  redemption,
purchase,  repurchase or retirement  payments to holders of Itron's common Stock
under  clause (e) above shall not exceed  $5,000,000  during the period from the
Closing Date through and including the  Commitment  Termination  Date, and (iii)
with respect to any payment pursuant to clauses (e), (f) or (g) above, Borrowers
collectively  shall have Net Borrowing  Availability of not less than $5,000,000
after giving effect  (including  pro forma effect during the 90-day period prior
to such  payment)  to any such  payment at all times  during the period from the
date that is 90 days prior to any such  payment and through  and  including  the
date that is 90 days after such payment.

         6.15 Change of Corporate  Name or Location;  Change of Fiscal Year.  No
Credit  Party  shall (a)  change  its  corporate  name or (b)  change  its chief
executive office,  principal place of business,  corporate offices or warehouses
or  locations  at which  Collateral  is held or stored,  or the  location of its
records concerning the Collateral,  in each case without at least 30 days' prior
written  notice to Agent  and  after  Agent's  written  acknowledgment  that any
reasonable  action  requested  by Agent in  connection  therewith,  including to
continue the perfection of any Liens in favor of Agent, on behalf of Lenders, in
any  Collateral,  has been  completed or taken,  and provided  that any such new
location shall be in the continental United States of America.  Without limiting
the generality of the foregoing, no Credit Party shall change its name, identity
or  corporate  structure  in  any  manner  that  might  make  any  financing  or
continuation  statement filed in connection herewith seriously misleading within
the  meaning  of  Section  9402(7)  of the  Code or any  other  then  applicable
provision of the Code except upon prior written  notice to Agent and Lenders and
after Agent's written  acknowledgment  that any reasonable  action  requested by
Agent in connection therewith, including to continue the perfection of any Liens
in favor of Agent, on behalf of Lenders,  in any Collateral,  has been completed
or taken. No Credit Party shall change its Fiscal Year.

         6.16 No Impairment  of  Intercompany  Transfers.  No Credit Party shall
directly or indirectly enter into or become bound by any agreement,  instrument,
indenture  or other  obligation  (other than this  Agreement  and the other Loan
Documents) that could directly or indirectly  restrict,  prohibit or require the
consent of any Person with respect to the payment of dividends or  distributions
or the making or repayment of intercompany loans by a Subsidiary of any Borrower
to any Borrower or between Borrowers.

         6.17 No Speculative  Transactions.  No Credit Party shall engage in any
transaction   involving   commodity   options,   futures  contracts  or  similar
transactions,  except  solely to hedge  against  fluctuations  in the  prices of
commodities  owned or  purchased  by it and the  values  of  foreign  currencies
receivable or payable by it and interest swaps, caps or collars.

         6.18 Changes Relating to Subordinated Debt and Other  Indebtedness.  No
Credit  Party shall change or amend the terms of any  Subordinated  Debt (or any
indenture or agreement in connection  therewith) if the effect of such amendment
is to: (a) increase the interest rate on such Subordinated  Debt; (b) change the
dates upon which payments of principal or interest are due on such  Subordinated
Debt other than to extend such dates; (c) change any default or event of default
other than to delete or make less restrictive any default provision therein,  or
add any  covenant  with  respect  to such  Subordinated  Debt;  (d)  change  the
redemption or  prepayment  provisions  of such  Subordinated  Debt other than to
extend the dates  therefor  or to reduce  the  premiums  payable  in  connection
therewith;  (e) grant any  security  or  collateral  to secure  payment  of such
Subordinated  Debt;  or (f)  change or amend any  other  term if such  change or
amendment  would  materially  increase  the  obligations  of such  Credit  Party
thereunder  or  confer  additional   material  rights  on  the  holder  of  such
Subordinated Debt in a manner adverse to any Credit Party,  Agent or any Lender.
No Credit Party shall change or amend the terms of any  documents,  agreement or
instrument  relating to Indebtedness of such Credit Party secured by a Permitted
Encumbrance if the effect of such change or amendment is to grant any additional
collateral to secure payment of such Indebtedness or if such change or amendment
would  materially  increase the  obligations of such Credit Party  thereunder or
confer  additional  material rights on the applicable  secured party in a manner
adverse to any Credit Party, Agent or any Lender.

         6.19 SCE  Project.  Itron shall not  finance the SCE Project  through a
third party lender (i.e., with funds other than the Obligations) unless (a) as a
result of such  financing,  the SCE  Equipment  and  certain  other  assets with
respect  thereto are  transferred  to the SCE  Subsidiary and none of the assets
(other  than the capital  Stock of the SCE  Subsidiary)  of any  Borrower or any
other Credit  Party shall  become  subject to any Lien in favor of a third party
lender,  and (b) the  proceeds of such  financing  shall be (i) paid to Itron in
cash at  closing,  (ii)  equal to or  greater  than the gross  book value of the
portion  of the  transferred  assets  that  constituted  Eligible  Accounts  and
Eligible Inventory and were included in the calculation of the Borrowing Base at
such  time,  and (iii)  applied  to the Loans in the manner set forth in Section
1.11; provided, that such transfer shall only be permitted so long as the amount
equal to (A) the book value of the transferred assets, minus (B) the proceeds of
such  financing,  is an amount that, at the time of such transfer,  is otherwise
permitted under  paragraphs (a) and (d) of Annex G. Upon the consummation of any
such financing,  the receipt by Itron of the proceeds thereof and application of
such proceeds to the Loans in the manner set forth in Section 1.11,  Agent will,
on reasonable prior written notice,  release its Lien on the SCE Equipment,  the
SCE  Agreement  and the  Accounts  arising  under the SCE  Agreement in order to
permit Itron to effect such  transaction and shall execute and deliver to Itron,
at Itron's expense, appropriate UCC termination statements and other releases as
reasonably requested by Itron in connection therewith.

         6.20 Bank Accounts. No Credit Party shall alter or otherwise modify the
zero balance account  designation of any  Disbursement  Account  identified as a
"ZBA" account in Disclosure Schedule 3.19.

7.       TERM

         7.1 Termination.  The financing arrangements  contemplated hereby shall
be in effect until the Commitment  Termination Date, and the Loans and all other
Obligations shall be automatically due and payable in full on such date.

         7.2 Survival of Obligations Upon Termination of Financing Arrangements.
Except as otherwise expressly provided in the Loan Documents,  no termination or
cancellation  (regardless  of cause or procedure)  of any financing  arrangement
under this Agreement shall in any way affect or impair the  obligations,  duties
and  liabilities  of the  Credit  Parties  or the  rights of Agent  and  Lenders
relating to any unpaid portion of the Loans or any other Obligations, due or not
due,  liquidated,  contingent  or  unliquidated,  or any  transaction  or  event
occurring  prior  to  such  termination,   or  any  transaction  or  event,  the
performance of which is required after the Commitment  Termination  Date. Except
as  otherwise  expressly  provided  herein or in any other  Loan  Document,  all
undertakings,  agreements,  covenants,  warranties  and  representations  of  or
binding upon the Credit Parties, and all rights of Agent and each Lender, all as
contained in the Loan Documents, shall not terminate or expire, but rather shall
survive any such  termination or  cancellation  and shall continue in full force
and effect until the Termination Date; provided,  that the provisions of Section
11, the payment  obligations  under Sections 1.15 and 1.16, and the  indemnities
contained in the Loan Documents shall survive the Termination Date.

8.       EVENTS OF DEFAULT; RIGHTS AND REMEDIES

         8.1  Events  of  Default.  The  occurrence  of any  one or  more of the
following events  (regardless of the reason therefor) shall constitute an "Event
of Default" hereunder:

                  (a)  Any  Borrower  (i)  shall  fail to make  any  payment  of
principal  of, or interest  on, or Fees owing in respect of, the Loans or any of
the  other  Obligations  when  due and  payable,  or (ii)  shall  fail to pay or
reimburse Agent or Lenders for any expense  reimbursable  hereunder or under any
other Loan Document  within ten days following  Agent's  written demand for such
reimbursement or payment of expenses.

                  (b) Any Credit Party shall fail or neglect to perform, keep or
observe any of the  provisions  of Sections  1.4,  1.8,  5.4 or 6, or any of the
provisions set forth in Annexes C or G, respectively.

                  (c) Any  Borrower  shall fail or neglect to  perform,  keep or
observe  any of the  provisions  of  Section  4 or any  provisions  set forth in
Annexes E or F,  respectively,  and the same shall remain  unremedied  for three
Business Days or more.

                  (d) Any Credit Party shall fail or neglect to perform, keep or
observe  any other  provision  of this  Agreement  or of any of the  other  Loan
Documents  (other than any provision  embodied in or covered by any other clause
of this Section 8.1) and the same shall  remain  unremedied  for 20 days or more
following  the earlier of (i) receipt by such Credit Party of written  notice of
such failure and (ii) such Credit Party's knowledge of such failure.

                  (e) A  default  or  breach  shall  occur  under  (i) any other
agreement,  document or  instrument to which any Credit Party is a party that is
not cured  within any  applicable  grace  period  therefor,  and such default or
breach (A)  involves  the failure to make any payment when due in respect of any
Indebtedness  (other  than the  Obligations)  of any  Credit  Party in excess of
$250,000  in the  aggregate,  or (B)  causes,  or  permits  any  holder  of such
Indebtedness or a trustee to cause,  Indebtedness or a portion thereof in excess
of $250,000 in the aggregate to become due prior to its stated maturity or prior
to its regularly scheduled dates of payment,  regardless of whether such default
is waived, or such right is exercised, by such holder or trustee, or (ii) any of
the  Subordinated  Debt Documents that is not cured within any applicable  grace
period therefor.

                  (f)  Any   information   contained  in  any   Borrowing   Base
Certificate  (excluding immaterial clerical errors) shall be untrue or incorrect
in any respect, or any representation or warranty herein or in any Loan Document
or in any written statement,  report,  financial statement or certificate (other
than a Borrowing Base  Certificate)  made or delivered to Agent or any Lender by
any Credit Party is untrue or  incorrect in any material  respect as of the date
when made or deemed made.

                  (g) Assets of any Credit  Party  with a fair  market  value of
$100,000 or more shall be attached,  seized,  levied upon or subjected to a writ
or distress  warrant,  or come within the  possession of any receiver,  trustee,
custodian  or assignee for the benefit of creditors of any Credit Party and such
condition continues for 30 days or more.

                  (h) A case or proceeding shall have been commenced against any
Credit Party seeking a decree or order in respect of such Credit Party (i) under
the Bankruptcy Code or any other applicable federal, state or foreign bankruptcy
or other  similar  law,  (ii)  appointing  a  custodian,  receiver,  liquidator,
assignee, trustee or sequestrator (or similar official) for such Credit Party or
for any substantial  part of such Credit Party's  assets,  or (iii) ordering the
winding-up or liquidation of the affairs of such Credit Party,  and such case or
proceeding shall remain  undismissed or unstayed for 60 days or more or a decree
or order granting the relief sought in such case or proceeding  shall be entered
by a court of competent jurisdiction over such case or proceeding.

                  (i) Any Credit Party shall (i) file a petition  seeking relief
under the  Bankruptcy  Code or any other  applicable  federal,  state or foreign
bankruptcy  or other similar law, (ii) consent to or fail to contest in a timely
and appropriate  manner the institution of proceedings  thereunder or the filing
of any such petition or the appointment of or taking  possession by a custodian,
receiver,  liquidator,  assignee,  trustee or sequestrator (or similar official)
for such Credit Party or for any substantial part of such Credit Party's assets,
(iii) make an assignment  for the benefit of creditors,  (iv) take any corporate
action in  furtherance  of any of the  foregoing,  or (v) admit in  writing  its
inability  to, or shall be  generally  unable  to,  pay its debts as such  debts
become due.

                  (j) A final  judgment or judgments for the payment of money in
excess of  $250,000 in any one case or  $500,000  in the  aggregate  at any time
outstanding  shall be rendered  against any Credit Party and the same shall not,
within 30 days  after the entry  thereof,  have  been  discharged  or  execution
thereof stayed or bonded pending appeal, or shall not have been discharged prior
to the expiration of any such stay.

                  (k) Any material  provision of any Loan Document shall for any
reason cease to be valid,  binding and  enforceable in accordance with its terms
(or any Credit Party shall challenge the  enforceability of any Loan Document or
shall assert in writing,  or engage in any action or inaction  based on any such
assertion,  that any provision of any of the Loan  Documents has ceased to be or
otherwise is not valid,  binding and  enforceable in accordance with its terms),
or any Lien  created  under  any Loan  Document  shall  cease to be a valid  and
perfected first priority Lien (except as otherwise  permitted herein or therein)
in any of the Collateral purported to be covered thereby.

                  (l) Any Change of Control shall occur.

                  (m) (i) Any material damage to, or loss, theft, or destruction
of, any  Collateral,  whether or not insured or  insurable,  or (ii) any strike,
lockout, labor dispute,  embargo,  condemnation,  act of God or public enemy, or
other  casualty  or  similar  event,  as a  result  of  which  revenue-producing
activities  cease or are  substantially  curtailed  at any facility of Borrowers
generating more than 20% of Borrowers' consolidated revenues for the Fiscal Year
preceding such event and such  cessation or curtailment  continues for more than
20 days.

                  (n) Any  default or breach by Itron that could  reasonably  be
expected to have a Material  Adverse Effect shall occur and be continuing  under
the Duquesne  Agreement,  or the Duquesne  Agreement shall be terminated  (other
than a termination for convenience by Duquesne Light Company under any provision
of the Duquesne  Agreement  giving Duquesne Light Company the right to terminate
upon the payment from Duquesne Light Company to Itron of the  applicable  amount
set forth in Disclosure Schedule (C)) for any reason.

         8.2      Remedies.

                  (a) If any Default or Event of Default shall have occurred and
be  continuing,  then Agent may (and at the  written  request  of the  Requisite
Revolving  Lenders,  shall),  without  notice,  (i) suspend this  facility  with
respect to  further  Advances  or the  incurrence  of  further  Letter of Credit
Obligations, whereupon any further Advances and the incurrence of further Letter
of Credit  Obligations  shall be made or extended in Agent's sole discretion (or
in the sole discretion of the Requisite  Revolving  Lenders,  if such suspension
occurred  at their  direction)  so long as such  Default  or Event of Default is
continuing, and (ii) except as otherwise expressly provided herein, increase the
rate of  interest  applicable  to the Loans and the Letter of Credit Fees to the
Default Rate.

                  (b) If  any  Event  of  Default  shall  have  occurred  and be
continuing,  Agent may (and at the written  request of the  Requisite  Revolving
Lenders  shall),  without  notice:  (i) terminate  this facility with respect to
further  Revolving Credit Advances or the incurrence of further Letter of Credit
Obligations;  (ii) declare all or any portion of the Obligations,  including all
or any portion of any Loan,  to be forthwith  due and payable,  and require that
the Letter of Credit Obligations be cash  collateralized as provided in Annex B,
all without presentment,  demand,  protest or further notice of any kind, all of
which are expressly  waived by Borrowers  and each other Credit Party;  or (iii)
exercise any rights and remedies  provided to Agent under the Loan  Documents or
at law or in equity,  including all remedies provided under the Code;  provided,
that upon the  occurrence of an Event of Default  specified in Sections  8.1(g),
(h) or (i), all of the  Obligations,  including  the aggregate  Revolving  Loan,
shall become immediately due and payable without  declaration,  notice or demand
by any Person.

         8.3 Waivers by Credit Parties. Except as otherwise provided for in this
Agreement or by applicable law, each Credit Party waives (including for purposes
of Section 12): (a)  presentment,  demand and protest and notice of presentment,
dishonor,  notice of  intent to  accelerate,  notice of  acceleration,  protest,
default,  nonpayment,  maturity, release, compromise,  settlement,  extension or
renewal of any or all commercial paper,  accounts,  contract rights,  documents,
instruments, chattel paper and guaranties at any time held by Agent on which any
Credit Party may in any way be liable, and hereby ratifies and confirms whatever
Agent may do in this  regard,  (b) all rights to notice  and a hearing  prior to
Agent's taking possession or control of, or Agent's replevy,  attachment or levy
upon, the Collateral or any bond or security that might be required by any court
prior to allowing Agent to exercise any of its remedies,  and (c) the benefit of
all valuation, appraisal, marshalling and exemption laws.

9.       ASSIGNMENT AND PARTICIPATIONS; APPOINTMENT OF AGENT

         9.1      Assignment and Participations.

                  (a)  The  Credit  Parties  signatory  hereto  consent  to  any
Lender's  assignment of, or sale of participations in, at any time or times, the
Loan Documents,  Loans, Letter of Credit Obligations or any Commitment or of any
portion  thereof or interest  therein,  including  any Lender's  rights,  title,
interests, remedies, powers or duties thereunder, whether evidenced by a writing
or not.  Any  assignment  by a Lender  shall:  (i)  require  the  consent of (A)
Borrower  Representative (so long as no Default or Event of Default has occurred
and is continuing), which consent shall not be unreasonably withheld or delayed,
and (B) Agent  (which  shall not be  unreasonably  withheld or delayed)  and the
execution of an assignment agreement (an "Assignment  Agreement")  substantially
in the  from  attached  hereto  as  Exhibit  9.1(a)  and  otherwise  in form and
substance  satisfactory to, and  acknowledged by, Agent;  (ii) be conditioned on
such assignee Lender  representing to the assigning  Lender and Agent that it is
purchasing  the applicable  Loans to be assigned to it for its own account,  for
investment purposes and not with a view to the distribution thereof;  (iii) if a
partial  assignment,  be in an amount at least equal to  $5,000,000  and,  after
giving effect to any such partial  assignment,  the assigning  Lender shall have
retained Commitments in an amount at least equal to $5,000,000; and (iv) include
a payment to Agent of an assignment fee of $3,500.  In the case of an assignment
by a Lender under this Section  9.1, the assignee  shall have,  to the extent of
such assignment,  the same rights, benefits and obligations of all other Lenders
hereunder.  The assigning Lender shall be relieved of its obligations  hereunder
with respect to its  Commitments or assigned  portion thereof from and after the
date of such assignment.  Each Borrower hereby  acknowledges and agrees that any
permitted  assignment shall give rise to a direct obligation of Borrowers to the
assignee  and that the  assignee  shall be  considered  to be a "Lender." In all
instances,  each Lender's liability to make Loans hereunder shall be several and
not joint and shall be limited to such Lender's Pro Rata Share of the applicable
Commitment.  In the event Agent or any Lender so assigns or otherwise  transfers
all or any part of a Note,  Agent or any such Lender  shall so notify  Borrowers
and Borrowers shall, upon the request of Agent or such Lender, execute new Notes
in  exchange  for  the  Notes  being  assigned.  Notwithstanding  the  foregoing
provisions of this Section  9.1(a),  any Lender may at any time pledge or assign
all or any portion of such  Lender's  rights under this  Agreement and the other
Loan  Documents  to a Federal  Reserve  Bank;  provided,  that no such pledge or
assignment shall release such Lender from such Lender's obligations hereunder or
under any other Loan Document.

                  (b) Any  participation  by a Lender  of all or any part of its
Commitments  shall be in an amount at least  equal to  $5,000,000,  and with the
understanding  that  all  amounts  payable  by  Borrowers   hereunder  shall  be
determined  as if that  Lender  had not sold  such  participation,  and that the
holder of any such participation shall not be entitled to require such Lender to
take or omit to take any action hereunder except actions directly  affecting (i)
any reduction in the principal  amount of, or interest rate or Fees payable with
respect to, any Loan in which such holder  participates,  (ii) any  extension of
the scheduled  amortization  of the  principal  amount of any Loan in which such
holder participates or the final maturity date thereof, and (iii) any release of
all or  substantially  all of the Collateral  (other than in accordance with the
terms of this Agreement,  the Collateral Documents or the other Loan Documents).
Solely  for  purposes  of  Sections  1.13,  1.15,  1.16 and 9.8,  each  Borrower
acknowledges  and  agrees  that a  participation  shall  give  rise to a  direct
obligation  of  Borrowers  to the  participant  and  the  participant  shall  be
considered to be a "Lender."  Except as set forth in the  preceding  sentence no
Borrower or Credit Party shall have any  obligation or duty to any  participant.
Neither  Agent nor any Lender  (other than the Lender  selling a  participation)
shall have any duty to any  participant and may continue to deal solely with the
Lender selling a participation as if no such sale had occurred.

                  (c) Except as  expressly  provided  in this  Section  9.1,  no
Lender shall, as between Borrowers and that Lender, or Agent and that Lender, be
relieved  of  any  of  its  obligations  hereunder  as a  result  of  any  sale,
assignment,  transfer or negotiation of, or granting of participation in, all or
any part of the Loans, the Notes or other Obligations owed to such Lender.

                  (d) Each Credit Party  executing this  Agreement  shall assist
any Lender  permitted to sell assignments or  participations  under this Section
9.1 as reasonably  required to enable the assigning or selling  Lender to effect
any such  permitted  assignment  or  participation,  including the execution and
delivery of any and all agreements, notes and other documents and instruments as
shall be requested and, if requested by Agent,  the preparation of informational
materials for, and the  participation of management in meetings with,  potential
assignees or  participants.  Each Credit Party  executing this  Agreement  shall
certify the  correctness,  completeness  and accuracy of all descriptions of the
Credit Parties and their respective  affairs  contained in any selling materials
provided by them and all other information provided by them and included in such
materials,  except that any  Projections  delivered by  Borrowers  shall only be
certified by Borrowers as having been prepared by Borrowers in  compliance  with
the representations contained in Section 3.4(c).

                  (e)  Any  Lender  may  furnish  any   information   concerning
Borrowers in the  possession  of such Lender from time to time to assignees  and
participants (including prospective assignees and participants);  provided, that
such  Lender  shall  obtain  from  assignees  or  participants   confidentiality
covenants substantially equivalent to those contained in Section 11.8.

                  (f) So long as no Event of Default  shall have occurred and be
continuing,  no Lender shall assign or sell participations in any portion of its
Loans or Commitments to a potential  Lender or participant if, as of the date of
the proposed  assignment or sale, the assignee  Lender or  participant  would be
subject to capital  adequacy  or similar  requirements  under  Section  1.16(a),
increased  costs under Section  1.16(b),  an inability to fund LIBOR Loans under
Section 1.16(c), or withholding taxes in accordance with Section 1.16(d).

         9.2      Appointment of Agent.

                  (a) GE  Capital  is hereby  appointed  to act on behalf of all
Lenders  as Agent  under  this  Agreement  and the  other  Loan  Documents.  The
provisions  of this  Section 9.2 are solely for the benefit of Agent and Lenders
and no Credit  Party nor any other Person shall have any rights as a third party
beneficiary  of any of the  provisions  hereof.  In performing its functions and
duties under this Agreement and the other Loan Documents, Agent shall act solely
as an agent of  Lenders  and does not  assume  and  shall  not be deemed to have
assumed any obligation toward or relationship of agency or trust with or for any
Credit Party or any other Person. Agent shall have no duties or responsibilities
except  for those  expressly  set  forth in this  Agreement  and the other  Loan
Documents.  The duties of Agent shall be mechanical and administrative in nature
and Agent shall not have, or be deemed to have, by reason of this Agreement, any
other Loan  Document or  otherwise a  fiduciary  relationship  in respect of any
Lender.  Neither  Agent nor any of its  Affiliates  nor any of their  respective
officers, directors, employees, agents or representatives shall be liable to any
Lender for any action  taken or omitted to be taken by it hereunder or under any
other Loan Document, or in connection herewith or therewith,  except for damages
solely  caused by its or their own gross  negligence  or willful  misconduct  as
finally determined by a court of competent jurisdiction.

                  (b)  If  Agent  shall  request   instructions  from  Requisite
Lenders,  Requisite  Revolving Lenders,  Supermajority  Revolving Lenders or all
affected Lenders with respect to any act or action (including failure to act) in
connection  with this Agreement or any other Loan Document,  then Agent shall be
entitled to refrain  from such act or taking such action  unless and until Agent
shall have received  instructions from Requisite  Lenders,  Requisite  Revolving
Lenders,  Supermajority  Revolving Lenders or all affected Lenders,  as the case
may be,  and  Agent  shall  not incur  liability  to any  Person by reason of so
refraining.  Agent shall be fully  justified  in failing or refusing to take any
action  hereunder or under any other Loan Document (i) if such action would,  in
the  reasonable  opinion  of  Agent,  be  contrary  to law or the  terms of this
Agreement  or any  other  Loan  Document,  (ii) if  such  action  would,  in the
reasonable opinion of Agent, expose Agent to Environmental  Liabilities or (iii)
if Agent shall not first be indemnified to its reasonable  satisfaction  against
any and all liability and expense that may be incurred by it by reason of taking
or continuing to take any such action. Without limiting the foregoing, no Lender
shall  have any right of action  whatsoever  against  Agent as a result of Agent
acting or refraining  from acting  hereunder or under any other Loan Document in
accordance with the instructions of Requisite  Revolving Lenders,  Supermajority
Revolving Lenders or all affected Lenders, as applicable.

         9.3 Agent's Reliance,  Etc. Neither Agent nor any of its Affiliates nor
any of their respective directors, officers, agents or employees shall be liable
for any action taken or omitted to be taken by it or them under or in connection
with this  Agreement or the other Loan  Documents,  except for damages caused by
its or their own gross negligence or willful misconduct as finally determined by
a court of  competent  jurisdiction.  Without  limiting  the  generality  of the
foregoing,  Agent:  (a) may treat the  payee of any Note as the  holder  thereof
until Agent receives written notice of the assignment or transfer thereof signed
by such payee and in form  satisfactory  to Agent;  (b) may  consult  with legal
counsel,  independent  public  accountants and other experts  selected by it and
shall not be liable  for any  action  taken or omitted to be taken by it in good
faith in accordance with the advice of such counsel, accountants or experts; (c)
makes no  warranty  or  representation  to Agent or any  Lender and shall not be
responsible to any Lender for any statements, warranties or representations made
in or in connection with this Agreement or the other Loan  Documents;  (d) shall
not have any duty to ascertain or to inquire as to the performance or observance
of any of the terms, covenants or conditions of this Agreement or the other Loan
Documents  on  the  part  of any  Credit  Party  or to  inspect  the  Collateral
(including  the  books  and  records)  of any  Credit  Party;  (e)  shall not be
responsible   to  any  Lender  for  the  due  execution,   legality,   validity,
enforceability, genuineness, sufficiency or value of this Agreement or the other
Loan Documents or any other instrument or document  furnished pursuant hereto or
thereto;  and (f) shall incur no liability under or in respect of this Agreement
or the other Loan Documents by acting upon any notice,  consent,  certificate or
other instrument or writing (which may be by telecopy, telegram, cable or telex)
believed by it to be genuine and signed or sent by the proper party or parties.

         9.4  GE  Capital  and  Affiliates.  With  respect  to  its  Commitments
hereunder, GE Capital shall have the same rights and powers under this Agreement
and the other Loan  Documents  as any other  Lender and may exercise the same as
though it were not Agent;  and the term  "Lender"  or  "Lenders"  shall,  unless
otherwise expressly indicated, include GE Capital in its individual capacity. GE
Capital and its Affiliates may lend money to, invest in, and generally engage in
any kind of business  with,  any Credit Party,  any of their  Affiliates and any
Person who may do business  with or own  securities  of any Credit  Party or any
such  Affiliate,  all as if GE Capital  were not Agent and  without  any duty to
account  therefor to Lenders.  GE Capital and its Affiliates may accept fees and
other  consideration  from any Credit Party for services in connection with this
Agreement or otherwise  without having to account for the same to Lenders.  Each
Lender  acknowledges the potential  conflict of interest between GE Capital as a
Lender holding disproportionate interests in the Loans, and GE Capital as Agent.

         9.5 Lender  Credit  Decision.  Each  Lender  acknowledges  that it has,
independently  and without  reliance upon Agent or any other Lender and based on
the Financial  Statements referred to in Section 3.4(a) and such other documents
and information as it has deemed appropriate,  made its own credit and financial
analysis  of the  Credit  Parties  and its  own  decision  to  enter  into  this
Agreement. Each Lender also acknowledges that it will, independently and without
reliance  upon  Agent  or any  other  Lender  and  based on such  documents  and
information as it shall deem  appropriate at the time,  continue to make its own
credit  decisions  in taking or not taking  action  under this  Agreement.  Each
Lender acknowledges the potential conflict of interest of each other Lender as a
result of Lenders holding disproportionate interests in the Loans, and expressly
consents to, and waives any claim based upon, such conflict of interest.

         9.6  Indemnification.  Lenders agree to indemnify  Agent (to the extent
not  reimbursed  by Borrowers  and without  limiting the  obligations  of Credit
Parties hereunder),  ratably according to their respective Pro Rata Shares, from
and against any and all liabilities,  obligations,  losses, damages,  penalties,
actions,  judgments,  suits,  costs,  expenses or  disbursements  of any kind or
nature whatsoever that may be imposed on, incurred by, or asserted against Agent
in any way  relating  to or  arising  out of this  Agreement  or any other  Loan
Document  or any  action  taken or  omitted  to be taken by Agent in  connection
therewith;  provided,  that no Lender  shall be liable  for any  portion of such
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements  resulting solely from Agent's gross negligence
or wilful misconduct as finally determined by a court of competent jurisdiction.
Without  limiting the foregoing,  each Lender agrees to reimburse Agent promptly
upon  demand for its  ratable  share of any  out-of-pocket  expenses  (including
counsel fees) incurred by Agent in connection with the  preparation,  execution,
delivery,  administration,   modification,  amendment  or  enforcement  (whether
through  negotiations,  legal  proceedings  or otherwise) of, or legal advice in
respect of rights or responsibilities  under, this Agreement and each other Loan
Document, to the extent that Agent is not reimbursed for such expenses by Credit
Parties.

         9.7  Successor  Agent.  Agent may resign at any time by giving not less
than  30  days'  prior   written   notice   thereof  to  Lenders  and   Borrower
Representative. Upon any such resignation, the Requisite Revolving Lenders shall
have the right to appoint a successor  Agent.  If no successor  Agent shall have
been so appointed by the  Requisite  Revolving  Lenders and shall have  accepted
such  appointment  within 30 days after the resigning  Agent's  giving notice of
resignation,  then the  resigning  Agent may,  on behalf of  Lenders,  appoint a
successor  Agent,  which shall be a Lender if a Lender is willing to accept such
appointment, or otherwise shall be a commercial bank or financial institution or
a subsidiary of a commercial  bank or financial  institution if such  commercial
bank or financial  institution is organized  under the laws of the United States
of America or of any State thereof and has a combined  capital and surplus of at
least  $300,000,000.  If no successor  Agent has been appointed  pursuant to the
foregoing  within 30 days after the date such notice of resignation was given by
the resigning Agent,  such resignation  shall become effective and the Requisite
Revolving  Lenders shall  thereafter  perform all the duties of Agent  hereunder
until such time, if any, as the Requisite  Revolving Lenders appoint a successor
Agent as provided above.  Any successor  Agent appointed by Requisite  Revolving
Lenders  hereunder shall be subject to the approval of Borrower  Representative,
such approval not to be unreasonably  withheld or delayed;  provided,  that such
approval  shall not be required  if a Default or an Event of Default  shall have
occurred and be  continuing.  Upon the  acceptance of any  appointment  as Agent
hereunder by a successor Agent, such successor Agent shall succeed to and become
vested  with all the  rights,  powers,  privileges  and duties of the  resigning
Agent.  Upon the earlier of the acceptance of any appointment as Agent hereunder
by a successor Agent or the effective date of the resigning Agent's resignation,
the resigning Agent shall be discharged  from its duties and  obligations  under
this Agreement and the other Loan Documents, except that any indemnity rights or
other  rights  in  favor of such  resigning  Agent  shall  continue.  After  any
resigning Agent's resignation hereunder,  the provisions of this Section 9 shall
inure to its benefit as to any actions  taken or omitted to be taken by it while
it was acting as Agent under this Agreement and the other Loan Documents.

         9.8 Setoff and  Sharing of  Payments.  In addition to any rights now or
hereafter  granted under applicable law and not by way of limitation of any such
rights, and subject to the provisions of Section 9.9(f), upon the occurrence and
during the  continuance of any Event of Default,  each Lender and each holder of
any Note is hereby  authorized at any time or from time to time,  without notice
to any  Credit  Party or to any  other  Person,  any such  notice  being  hereby
expressly waived, to offset and to appropriate and to apply any and all balances
held by it at any of its offices for the account of any Credit Party (regardless
of  whether  such  balances  are then due to such  Credit  Party)  and any other
properties  or assets at any time held or owing by that Lender or that holder to
or for the credit or for the account of Credit Parties against and on account of
any of the  Obligations  that are not paid when due. Any Lender or holder of any
Note exercising a right to offset or otherwise  receiving any payment on account
of the  Obligations  in excess of its Pro Rata Share thereof shall  purchase for
cash (and the other Lenders or holders shall sell) such  participations  in each
such other  Lender's or holder's Pro Rata Share of the  Obligations  as would be
necessary  to cause  such  Lender  to share the  amount  so offset or  otherwise
received  with each other Lender or holder in accordance  with their  respective
Pro Rata Shares.  Each  Lender's  obligation  under this Section 9.8 shall be in
addition to and not in limitation of its obligations to purchase a participation
in an amount  equal to its Pro Rata Share of the Swing Line Loans under  Section
1.1. Each Credit Party agrees,  to the fullest extent permitted by law, that (a)
any Lender or holder may exercise its right to offset with respect to amounts in
excess of its Pro Rata Share of the Obligations and may sell  participations  in
such  amounts  so offset to other  Lenders  and  holders  and (b) any  Lender or
holders so  purchasing a  participation  in the Loans made or other  Obligations
held by other  Lenders or holders may  exercise  all rights of setoff,  bankers'
lien, counterclaim or similar rights with respect to such participation as fully
as if such  Lender  or  holder  were a direct  holder of the Loans and the other
Obligations in the amount of such participation.  Notwithstanding the foregoing,
if all or any  portion of the setoff  amount or payment  otherwise  received  is
thereafter recovered from the Lender that has exercised the right of setoff, the
purchase of  participations  by that Lender shall be rescinded  and the purchase
price restored without interest.

         9.9     Advances; Non-Funding Lenders; Information; Actions in Concert.

                  (a)      Advances; Payments.

                           (i)     Revolving Lenders shall refund or participate
in the Swing  Line Loan in  accordance  with  clauses  (iii) and (iv) of Section
1.1(b).  If the Swing Line Lender declines to make a Swing Line Loan or if Swing
Line  Availability is zero, Agent shall notify Revolving  Lenders promptly after
receipt of a Notice of Revolving  Credit  Advance and in any event prior to 1:00
p.m. (California time) on the date such Notice of Revolving Advance is received,
by telecopy,  telephone or other similar form of  transmission.  Each  Revolving
Lender shall make the amount of such  Lender's Pro Rata Share of each  Revolving
Credit Advance  available to Agent in same day funds by wire transfer to Agent's
account as set forth in Annex H not later than 12:00 noon  (California  time) on
the requested  funding  date,  in the case of an Index Rate Loan,  and not later
than 10:00 a.m. (California time) on the required funding date, in the case of a
LIBOR Loan.  After  receipt of such wire  transfers  (or,  in the  Agent's  sole
discretion, before receipt of such wire transfers), subject to the terms hereof,
Agent  shall  make  the  requested  Revolving  Credit  Advance  to the  Borrower
designated by Borrower Representative in the Notice of Revolving Credit Advance.
All payments by each Revolving Lender shall be made without setoff, counterclaim
or deduction of any kind.

                           (ii) On the second Business Day of each calendar week
or more frequently as aggregate  cumulative payments in excess of $5,000,000 are
received  with respect to the Loans  (other than the Swing Line Loan)  (each,  a
"Settlement  Date"),  Agent shall advise each Lender by telephone or telecopy of
the amount of such Lender's Pro Rata Share of principal,  interest and Fees paid
for the benefit of Lenders with respect to each applicable  Loan.  Provided that
each Lender has made all  payments  required to be made by it and has  purchased
all  participations  required to be purchased by it under this Agreement and the
other Loan Documents as of such Settlement  Date, Agent shall pay to each Lender
such Lender's Pro Rata Share of  principal,  interest and Fees paid by Borrowers
since the previous  Settlement  Date for the benefit of such Lender on the Loans
held by it.  Such  payments  shall  be made by wire  transfer  to such  Lender's
account (as  specified  by such Lender in Annex H or the  applicable  Assignment
Agreement) not later than 1:00 p.m.  (California  time) on the next Business Day
following each Settlement Date.

                  (b) Availability of Lender's Pro Rata Share.  Agent may assume
that each Revolving Lender will make its Pro Rata Share of each Revolving Credit
Advance  available to Agent on each funding date. If such Pro Rata Share is not,
in fact, paid to Agent by such Revolving Lender when due, Agent will be entitled
to recover  such amount on demand from such  Revolving  Lender  without  setoff,
counterclaim or deduction of any kind. If any Revolving  Lender fails to pay the
amount of its Pro Rata Share forthwith upon Agent's demand, Agent shall promptly
notify Borrower Representative and Borrowers shall immediately repay such amount
to Agent.  Nothing in this Section  9.9(b) or elsewhere in this Agreement or the
other Loan Documents shall be deemed to require Agent to advance funds on behalf
of any Revolving  Lender or to relieve any Revolving  Lender from its obligation
to fulfill its  Commitments  hereunder or to prejudice any rights that Borrowers
may have  against  any  Revolving  Lender  as a result  of any  default  by such
Revolving  Lender  hereunder.  To the extent  that Agent  advances  funds to any
Borrower on behalf of any Revolving Lender and is not reimbursed therefor on the
same  Business  Day as such  Revolving  Credit  Advance is made,  Agent shall be
entitled to retain for its account all interest accrued on such Revolving Credit
Advance until reimbursed by the applicable Revolving Lender.

                  (c)      Return of Payments.

                           (i)    If Agent pays an amount to a Lender under this
Agreement in the belief or expectation  that a related  payment has been or will
be received by Agent from Borrowers and such related  payment is not received by
Agent,  then Agent will be entitled  to recover  such amount from such Lender on
demand without setoff, counterclaim or deduction of any kind.

                           (ii) If Agent  determines at any time that any amount
received by Agent under this  Agreement must be returned to any Borrower or paid
to  any  other  Person  pursuant  to any  insolvency  law  or  otherwise,  then,
notwithstanding  any other term or condition of this Agreement or any other Loan
Document,  Agent will not be required to distribute  any portion  thereof to any
Lender.  In  addition,  each Lender will repay to Agent on demand any portion of
such amount that Agent has distributed to such Lender, together with interest at
such rate,  if any, as Agent is  required  to pay to any  Borrower or such other
Person without setoff, counterclaim or deduction of any kind.

                  (d) Non-Funding  Lenders.  The failure of any Revolving Lender
(such Revolving  Lender,  a "Non-Funding  Lender") to make any Revolving  Credit
Advance or to purchase  any  participation  in any Swing Line Loan to be made or
purchased  by it on the date  specified  therefor  shall not  relieve  any other
Revolving  Lender (each such other Revolving  Lender,  an "Other Lender") of its
obligations to make such Revolving Credit Advance or purchase such participation
on such date,  but neither any Other Lender nor Agent shall be  responsible  for
the  failure of any  Non-Funding  Lender to make an  Advance  to be made,  or to
purchase a participation  to be purchased,  by such Non-Funding  Lender,  and no
Non-Funding  Lender shall have any  obligation  to Agent or any Other Lender for
the  failure by such  Non-Funding  Lender.  Notwithstanding  anything  set forth
herein to the  contrary,  a  Non-Funding  Lender  shall  not have any  voting or
consent  rights  under or with  respect to any Loan  Document  or  constitute  a
"Lender"  or a  "Revolving  Lender"  (or  be  included  in  the  calculation  of
"Requisite  Revolving Lenders" or "Supermajority  Revolving Lenders"  hereunder)
for any voting or consent rights under or with respect to any Loan Document.

                  (e)  Dissemination of Information.  Agent shall use reasonable
efforts  to  provide  Lenders  with any  notice of  Default  or Event of Default
received by Agent from, or delivered by Agent to, any Credit Party,  with notice
of any Event of Default of which Agent has actually become aware and with notice
of any action  taken by Agent  following  any Event of Default;  provided,  that
Agent shall not be liable to any Lender for any failure to do so,  except to the
extent that such failure is attributable  solely to Agent's gross  negligence or
willful misconduct as finally  determined by a court of competent  jurisdiction.
Lenders acknowledge that Borrowers are required to provide Financial  Statements
and Collateral  Reports to Lenders in accordance with Annexes E and F hereto and
agree that Agent shall have no duty to provide the same to Lenders.

                  (f) Actions in  Concert.  Anything  in this  Agreement  to the
contrary notwithstanding,  each Lender hereby agrees with each other Lender that
no Lender shall take any action to protect or enforce its rights  arising out of
this Agreement or the Notes (including  exercising any rights of setoff) without
first  obtaining  the prior  written  consent  of Agent or  Requisite  Revolving
Lenders,  it being the  intent of  Lenders  that any such  action to  protect or
enforce  rights under this Agreement and the Notes shall be taken in concert and
at the direction or with the consent of Agent.

10.      SUCCESSORS AND ASSIGNS

         This  Agreement  and the other Loan  Documents  shall be binding on and
shall  inure to the  benefit of each  Credit  Party,  Agent,  Lenders  and their
respective successors and assigns (including, in the case of any Credit Party, a
debtor-in-possession  on  behalf of such  Credit  Party),  except  as  otherwise
provided herein or therein. No Credit Party may assign, transfer, hypothecate or
otherwise convey its rights, benefits,  obligations or duties hereunder or under
any of the other Loan  Documents  without the prior express  written  consent of
Agent  and  Requisite  Lenders.   Any  such  purported   assignment,   transfer,
hypothecation  or other conveyance by any Credit Party without the prior express
written  consent of Agent and  Requisite  Lenders  shall be void.  The terms and
provisions of this Agreement are for the purpose of defining the relative rights
and  obligations  of each Credit  Party,  Agent and Lenders  with respect to the
transactions   contemplated  hereby  and  no  Person  shall  be  a  third  party
beneficiary  of any of the terms and  provisions of this Agreement or any of the
other Loan Documents.

11.      MISCELLANEOUS

         11.1 Complete Agreement;  Modification of Agreement. The Loan Documents
constitute  the  complete  agreement  between  the parties  with  respect to the
subject matter thereof and may not be modified, altered or amended except as set
forth in Section 11.2.  Any letter of interest,  commitment  letter,  fee letter
(other than the GE Capital Fee Letter) or confidentiality  agreement between any
Credit  Party and Agent or any  Lender  or any of their  respective  Affiliates,
predating  this Agreement and relating to a financing of  substantially  similar
form, purpose or effect shall be superseded by this Agreement.

         11.2 Amendments and Waivers. (a) Except for actions expressly permitted
to be taken by Agent, no amendment,  modification,  termination or waiver of any
provision of this Agreement, any of the Notes or any other Loan Document, or any
consent to any  departure by any Credit Party  therefrom,  shall in any event be
effective unless the same shall be in writing and signed by Agent and Borrowers,
and by  Requisite  Revolving  Lenders,  Supermajority  Revolving  Lenders or all
affected  Lenders,  as  applicable.  Except as set forth in clauses  (b) and (c)
below, all such amendments, modifications, terminations or waivers requiring the
consent of any Lenders shall require the written consent of Requisite  Revolving
Lenders.

                  (b) No amendment,  modification,  termination  or waiver of or
consent  with respect to any  provision of this  Agreement  that  increases  the
percentage  advance  rates set forth in the  definition  of the Itron  Borrowing
Base, the UTS Borrowing Base or any other  component of the Aggregate  Borrowing
Base, or that makes less restrictive the nondiscretionary criteria for exclusion
from Eligible Accounts and Eligible Inventory set forth in Sections 1.6 and 1.7,
shall be  effective  unless the same  shall be in  writing  and signed by Agent,
Supermajority  Revolving  Lenders and  Borrowers.  No  amendment,  modification,
termination  or waiver of or  consent  with  respect  to any  provision  of this
Agreement  that waives  compliance  with the  conditions  precedent set forth in
Section 2.2 to the making of any Loan or the  incurrence of any Letter of Credit
Obligations shall be effective unless the same shall be in writing and signed by
Agent,  Requisite  Revolving  Lenders and  Borrowers.  Notwithstanding  anything
contained in this  Agreement to the contrary,  no waiver or consent with respect
to any Default (if in connection therewith Agent or Requisite Revolving Lenders,
as the case may be, have  exercised  its or their right to suspend the making or
incurrence of further Revolving Credit Advances or Letter of Credit  Obligations
pursuant  to  Section  8.2(a)) or any Event of Default  shall be  effective  for
purposes of the conditions precedent to the making of Loans or the incurrence of
Letter of Credit  Obligations  set forth in Section 2.2 unless the same shall be
in writing and signed by Agent, Requisite Revolving Lenders and Borrowers.

                  (c) No amendment,  modification,  termination or waiver shall,
unless in writing and signed by Agent and each Lender directly affected thereby:
(i) increase the principal amount of any Lender's Commitment (which action shall
be deemed to directly affect all Lenders); (ii) reduce the principal of, rate of
interest  on or Fees  payable  with  respect  to any Loan or  Letter  of  Credit
Obligations of any affected Lender;  (iii) extend any scheduled  payment date or
final maturity date of the principal  amount of any Loan of any affected Lender;
(iv) waive,  forgive,  defer, extend or postpone any payment of interest or Fees
as to any affected  Lender;  (v) release any  Guaranty  or,  except as otherwise
permitted herein or in the other Loan Documents, permit any Credit Party to sell
or otherwise dispose of any Collateral with a value exceeding  $5,000,000 in the
aggregate  (which action shall be deemed to directly  affect all Lenders);  (vi)
change the percentage of the  Commitments or of the aggregate  unpaid  principal
amount of the Loans that shall be  required  for  Lenders or any of them to take
any  action  hereunder;  and  (vii)  amend or  waive  this  Section  11.2 or the
definitions of the terms "Requisite  Lenders,"  "Requisite Revolving Lenders" or
"Supermajority  Revolving  Lenders"  insofar  as  such  definitions  affect  the
substance  of  this  Section  11.2.  Furthermore,  no  amendment,  modification,
termination  or waiver  affecting  the  rights or  duties  of Agent  under  this
Agreement or any other Loan  Document  shall be effective  unless in writing and
signed by Agent,  in  addition  to  Lenders  required  hereinabove  to take such
action. Each amendment,  modification,  termination or waiver shall be effective
only in the  specific  instance  and for the  specific  purpose for which it was
given. No amendment,  modification,  termination or waiver shall be required for
Agent to take additional Collateral pursuant to any Loan Document. No amendment,
modification,  termination  or  waiver  of any  provision  of any Note  shall be
effective without the written  concurrence of the holder of such Note. No notice
to or demand on any Credit Party in any case shall  entitle such Credit Party or
any other  Credit  Party to any other or further  notice or demand in similar or
other circumstances. Any amendment, modification, termination, waiver or consent
effected in accordance  with this Section 11.2 shall be binding upon each holder
of the Notes at the time outstanding and each future holder of the Notes.

                  (d)  If,   in   connection   with  any   proposed   amendment,
modification, waiver or termination (a "Proposed Change"):

                           (i)  requiring  the consent of all affected  Lenders,
                  the consent of  Supermajority  Revolving  Lenders is obtained,
                  but the consent of other  Lenders whose consent is required is
                  not obtained (any such Lender whose consent is not obtained as
                  described  in this  clause (i) and in  clauses  (ii) and (iii)
                  below being referred to as a "Non-Consenting Lender"),

                           (ii) requiring the consent of Supermajority Revolving
                  Lenders,   the  consent  of  Requisite  Revolving  Lenders  is
                  obtained,  but the consent of Supermajority  Revolving Lenders
                  is not obtained,

                           (iii)  requiring  the consent of Requisite  Revolving
                  Lenders,  the consent of Revolving Lenders holding 51% or more
                  of the aggregate  Revolving Loan Commitments is obtained,  but
                  the consent of Requisite Revolving Lenders is not obtained,

then,  so  long  as  Agent  is  not  a   Non-Consenting   Lender,   at  Borrower
Representative's  request,  Agent or a Person acceptable to Agent shall have the
right with  Agent's  consent and in Agent's sole  discretion  (but shall have no
obligation)   to   purchase   from  such   Non-Consenting   Lenders,   and  such
Non-Consenting  Lenders agree that they shall,  upon Agent's  request,  sell and
assign to Agent or such Person,  all of the  Commitments of such  Non-Consenting
Lenders for an amount equal to the  principal  balance of all Loans held by such
Non-Consenting  Lenders and all accrued  interest and Fees with respect  thereto
through the date of sale,  such purchase and sale to be consummated  pursuant to
an executed Assignment Agreement.

                  (e) Upon indefeasible  payment in full in cash and performance
of all of the Obligations (other than indemnification  Obligations under Section
1.13),  termination of the Commitments and a release of all claims against Agent
and Lenders, and so long as no suits, actions, proceedings or claims are pending
or threatened  against any Indemnified  Person asserting any damages,  losses or
liabilities that are Indemnified  Liabilities,  Agent shall deliver to Borrowers
termination  statements,  mortgage  releases  and other  documents  necessary or
appropriate to evidence the  termination  of the Liens  securing  payment of the
Obligations.

         11.3  Fees  and  Expenses.  Borrowers  shall  reimburse  Agent  for all
out-of-pocket   expenses   incurred  in  connection  with  the  negotiation  and
preparation of the Loan Documents (including the reasonable fees and expenses of
all of its special loan counsel, advisors,  consultants and auditors retained in
connection  with the Loan Documents and the Related  Transactions  and advice in
connection  therewith).  Borrowers  shall  reimburse Agent (and, with respect to
clauses (c), (d) and (e) below,  all Lenders) for all fees,  costs and expenses,
including the fees,  costs and expenses of counsel or other advisors  (including
environmental and management consultants and appraisers) for advice, assistance,
or other representation in connection with:

                  (a) the forwarding to Borrowers or any other Person on behalf 
of Borrowers by Agent of the proceeds of the Loans;

                  (b) any  amendment,  modification  or waiver of,  consent with
respect to, or termination of, any of the Loan Documents or Related Transactions
Documents  or advice in  connection  with the  administration  of the Loans made
pursuant hereto or its rights hereunder or thereunder;

                  (c) any  litigation,  contest,  dispute,  suit,  proceeding or
action  (whether  instituted  by Agent,  any Lender,  any  Borrower or any other
Person, and whether as a party, witness or otherwise) in any way relating to the
Collateral,  any of the Loan Documents or any other  agreement to be executed or
delivered  in  connection  herewith  or  therewith,  including  any  litigation,
contest,  dispute,  suit, case,  proceeding or action,  and any appeal or review
thereof,  in  connection  with a case  commenced by or against any or all of the
Borrowers  or any other  Person that may be  obligated to Agent by virtue of the
Loan  Documents,   including  any  such  litigation,   contest,  dispute,  suit,
proceeding or action arising in connection with any work-out or restructuring of
the Loans during the pendency of one or more Events of Default;  provided,  that
in the case of  reimbursement  of counsel  for Lenders  other than  Agent,  such
reimbursement shall be limited to one counsel for all such Lenders;

                  (d) any attempt to enforce any  remedies of Agent  against any
or all of the Credit  Parties or any other Person that may be obligated to Agent
or any Lender by virtue of any of the Loan Documents, including any such attempt
to enforce any such remedies in the course of any work-out or  restructuring  of
the Loans during the pendency of one or more Events of Default;  provided,  that
in the case of  reimbursement  of counsel  for Lenders  other than  Agent,  such
reimbursement shall be limited to one counsel for all such Lenders;

                  (e) any work-out or restructuring of the Loans during the 
pendency of one or more Events of Default; and

                  (f)  efforts  to (i)  monitor  the  Loans or any of the  other
Obligations, (ii) evaluate, observe or assess any of the Credit Parties or their
respective  affairs,  and (iii) verify,  protect,  evaluate,  assess,  appraise,
collect, sell, liquidate or otherwise dispose of any of the Collateral;

including  all  reasonable   attorneys'  and  other   professional  and  service
providers'  fees arising from such services,  including those in connection with
any  appellate  proceedings,  and all  expenses,  costs,  charges and other fees
incurred by such counsel and others in connection with or relating to any of the
events or actions described in this Section 11.3, all of which shall be payable,
on demand,  by  Borrowers  to Agent.  Without  limiting  the  generality  of the
foregoing,  such expenses,  costs, charges and fees may include: fees, costs and
expenses of accountants, environmental advisors, appraisers, investment bankers,
management  and other  consultants  and  paralegals;  court costs and  expenses;
photocopying and duplication expenses;  court reporter fees, costs and expenses;
long  distance  telephone  charges;  air express  charges;  telegram or telecopy
charges; secretarial overtime charges; and expenses for travel, lodging and food
paid or  incurred  in  connection  with the  performance  of such legal or other
advisory services.

         11.4 No Waiver.  Agent's or any Lender's failure, at any time or times,
to require  strict  performance  by the Credit  Parties of any provision of this
Agreement  or any other Loan  Document  shall not waive,  affect or diminish any
right of  Agent or such  Lender  thereafter  to  demand  strict  compliance  and
performance  herewith  or  therewith.  Any  suspension  or waiver of an Event of
Default  shall not suspend,  waive or affect any other Event of Default  whether
the same is prior or  subsequent  thereto and whether the same or of a different
type.  Subject to the  provisions  of Section  11.2,  none of the  undertakings,
agreements,  warranties,  covenants  and  representations  of any  Credit  Party
contained in this Agreement or any of the other Loan Documents and no Default or
Event of Default by any Credit  Party shall be deemed to have been  suspended or
waived  by Agent or any  Lender,  unless  such  waiver  or  suspension  is by an
instrument in writing  signed by an officer of or other  authorized  employee of
Agent and the applicable required Lenders,  and directed to Borrowers specifying
such suspension or waiver.

         11.5  Remedies.  Agent's and Lenders'  rights and  remedies  under this
Agreement shall be cumulative and  nonexclusive of any other rights and remedies
that Agent or any Lender may have under any other agreement, including the other
Loan  Documents,  by operation of law or otherwise.  Recourse to the  Collateral
shall not be required.

         11.6 Severability.  Wherever possible, each provision of this Agreement
and the other  Loan  Documents  shall be  interpreted  in such a manner as to be
effective and valid under applicable law, but if any provision of this Agreement
or any other Loan Document  shall be  prohibited by or invalid under  applicable
law, such provision shall be ineffective  only to the extent of such prohibition
or  invalidity  without  invalidating  the  remainder  of such  provision or the
remaining provisions of this Agreement or such other Loan Document.

         11.7 Conflict of Terms.  Except as otherwise provided in this Agreement
or any of the other Loan  Documents  by  specific  reference  to the  applicable
provisions of this Agreement, if any provision contained in this Agreement is in
conflict  with,  or  inconsistent  with,  any provision in any of the other Loan
Documents, the provision contained in this Agreement shall govern and control.

         11.8  Confidentiality.  Agent and each Lender agree to use commercially
reasonable  efforts  (equivalent  to the efforts Agent or such Lender applies to
maintaining the confidentiality of its own confidential information) to maintain
as  confidential  all  confidential  information  provided to them by the Credit
Parties  and  designated  as  confidential  for a period of two years  following
receipt thereof,  except that Agent and any Lender may disclose such information
(a) to  Persons  employed  or  engaged  by Agent or such  Lender in  evaluating,
approving,  structuring or administering  the Loans and the Commitments;  (b) to
any bona fide assignee or participant or potential  assignee or participant that
has agreed to comply with the  covenant  contained in this Section 11.8 (and any
such bona fide assignee or participant or potential  assignee or participant may
disclose such information to Persons employed or engaged by them as described in
clause (a) above); (c) as required or requested by any Governmental Authority or
reasonably believed by Agent or such Lender to be compelled by any court decree,
subpoena or legal or administrative  order or process; (d) as, in the opinion of
Agent's or such Lender's counsel, is required by law; (e) in connection with the
exercise of any right or remedy under the Loan  Documents or in connection  with
any  Litigation to which Agent or such Lender is a party;  or (f) that ceases to
be confidential through no fault of Agent or any Lender.

         11.9 GOVERNING LAW.  EXCEPT AS OTHERWISE  EXPRESSLY  PROVIDED IN ANY OF
THE LOAN  DOCUMENTS,  IN ALL RESPECTS,  INCLUDING  ALL MATTERS OF  CONSTRUCTION,
VALIDITY  AND  PERFORMANCE,  THE LOAN  DOCUMENTS  AND THE  OBLIGATIONS  SHALL BE
GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF
THE STATE OF CALIFORNIA APPLICABLE TO CONTRACTS MADE AND PERFORMED IN THAT STATE
(WITHOUT  REGARD TO THE CONFLICT OF LAW  PROVISIONS  THEREOF) AND ANY APPLICABLE
LAWS OF THE UNITED  STATES OF AMERICA.  EACH CREDIT  PARTY  HEREBY  CONSENTS AND
AGREES THAT THE STATE OR FEDERAL COURTS LOCATED IN SAN FRANCISCO COUNTY, CITY OF
SAN  FRANCISCO,  CALIFORNIA  SHALL  HAVE  EXCLUSIVE  JURISDICTION  TO  HEAR  AND
DETERMINE ANY CLAIMS OR DISPUTES  BETWEEN THE CREDIT PARTIES,  AGENT AND LENDERS
PERTAINING TO THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS OR TO ANY MATTER
ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS;
PROVIDED,  THAT  AGENT,  LENDERS  AND THE CREDIT  PARTIES  ACKNOWLEDGE  THAT ANY
APPEALS FROM THOSE COURTS MAY HAVE TO BE HEARD BY A COURT LOCATED OUTSIDE OF SAN
FRANCISCO COUNTY,  CITY OF SAN FRANCISCO,  CALIFORNIA;  PROVIDED  FURTHER,  THAT
NOTHING IN THIS  AGREEMENT  SHALL BE DEEMED OR OPERATE  TO  PRECLUDE  AGENT FROM
BRINGING SUIT OR TAKING OTHER LEGAL ACTION IN ANY OTHER  JURISDICTION TO REALIZE
ON THE  COLLATERAL OR ANY OTHER  SECURITY FOR THE  OBLIGATIONS,  OR TO ENFORCE A
JUDGMENT  OR OTHER COURT ORDER IN FAVOR OF AGENT.  EACH CREDIT  PARTY  EXPRESSLY
SUBMITS  AND  CONSENTS  IN  ADVANCE TO SUCH  JURISDICTION  IN ANY ACTION OR SUIT
COMMENCED IN ANY SUCH COURT,  AND EACH CREDIT PARTY HEREBY  WAIVES ANY OBJECTION
THAT SUCH  CREDIT  PARTY MAY HAVE  BASED  UPON  LACK OF  PERSONAL  JURISDICTION,
IMPROPER VENUE OR FORUM NON  CONVENIENS  AND HEREBY  CONSENTS TO THE GRANTING OF
SUCH LEGAL OR  EQUITABLE  RELIEF AS IS DEEMED  APPROPRIATE  BY SUCH COURT.  EACH
CREDIT PARTY HEREBY WAIVES PERSONAL SERVICE OF THE SUMMONS,  COMPLAINT AND OTHER
PROCESS  ISSUED  IN ANY SUCH  ACTION OR SUIT AND  AGREES  THAT  SERVICE  OF SUCH
SUMMONS, COMPLAINT AND OTHER PROCESS MAY BE MADE BY REGISTERED OR CERTIFIED MAIL
ADDRESSED  TO SUCH  CREDIT  PARTY AT THE  ADDRESS  SET  FORTH IN ANNEX I OF THIS
AGREEMENT AND THAT SERVICE SO MADE SHALL BE DEEMED COMPLETED UPON THE EARLIER OF
SUCH CREDIT PARTY'S  ACTUAL  RECEIPT  THEREOF OR THREE DAYS AFTER DEPOSIT IN THE
UNITED STATES MAILS, PROPER POSTAGE PREPAID.

         11.10  Notices.  Except as otherwise  provided  herein,  whenever it is
provided herein that any notice, demand, request, consent, approval, declaration
or  other  communication  shall or may be  given  to or  served  upon any of the
parties by any other parties,  or whenever any of the parties desires to give or
serve upon any other parties any  communication  with respect to this Agreement,
each such notice,  demand,  request,  consent,  approval,  declaration  or other
communication  shall be in  writing  and shall be  deemed  to have been  validly
served,  given or  delivered:  (a) upon the earlier of actual  receipt and three
Business Days after  deposit in the United States Mail,  registered or certified
mail,  return  receipt  requested,   with  proper  postage  prepaid;   (b)  upon
transmission,  when sent by telecopy  or other  similar  facsimile  transmission
(with such  telecopy or  facsimile  promptly  confirmed by delivery of a copy by
personal  delivery or United  States Mail as otherwise  provided in this Section
11.10);  (c) one Business Day after deposit with a reputable  overnight  courier
with all charges prepaid; or (d) when delivered, if hand-delivered by messenger,
all of which  shall be  addressed  to the party to be  notified  and sent to the
address or facsimile  number  indicated in Annex I or to such other  address (or
facsimile number) as may be substituted by notice given as herein provided.  The
giving of any notice  required  hereunder  may be waived in writing by the party
entitled to receive such notice.  Failure or delay in  delivering  copies of any
notice, demand, request, consent,  approval,  declaration or other communication
to any Person (other than Borrower  Representative or Agent) designated in Annex
I to receive copies shall in no way adversely  affect the  effectiveness of such
notice, demand, request, consent, approval, declaration or other communication.

         11.11  Section  Titles.  The  Section  titles  and  Table  of  Contents
contained  in this  Agreement  are and shall be without  substantive  meaning or
content of any kind  whatsoever and are not a part of the agreement  between the
parties hereto.

         11.12  Counterparts.  This  Agreement  may be executed in any number of
separate   counterparts,   each  of  which  shall  collectively  and  separately
constitute one agreement.

         11.13 WAIVER OF JURY TRIAL. BECAUSE DISPUTES ARISING IN CONNECTION WITH
COMPLEX FINANCIAL  TRANSACTIONS ARE MOST QUICKLY AND ECONOMICALLY RESOLVED BY AN
EXPERIENCED AND EXPERT PERSON AND THE PARTIES WISH APPLICABLE  STATE AND FEDERAL
LAWS TO APPLY (RATHER THAN  ARBITRATION  RULES),  THE PARTIES  DESIRE THAT THEIR
DISPUTES BE RESOLVED BY A JUDGE APPLYING SUCH  APPLICABLE  LAWS.  THEREFORE,  TO
ACHIEVE  THE BEST  COMBINATION  OF THE  BENEFITS OF THE  JUDICIAL  SYSTEM AND OF
ARBITRATION,  THE PARTIES HERETO WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION,
SUIT,  OR  PROCEEDING  BROUGHT TO  RESOLVE  ANY  DISPUTE,  WHETHER  SOUNDING  IN
CONTRACT,  TORT OR OTHERWISE,  AMONG AGENT, LENDERS AND ANY CREDIT PARTY ARISING
OUT  OF,  CONNECTED  WITH,   RELATED  TO,  OR  INCIDENTAL  TO  THE  RELATIONSHIP
ESTABLISHED  AMONG THEM IN  CONNECTION  WITH THIS  AGREEMENT OR ANY OF THE OTHER
LOAN DOCUMENTS OR THE TRANSACTIONS RELATED THERETO.

         11.14 Press Releases. Each Credit Party executing this Agreement agrees
that neither it nor its  Affiliates  will in the future issue any press releases
or other public  disclosure (other than required filings with the Securities and
Exchange Commission) using the name of GE Capital or its affiliates or referring
to  this  Agreement,  the  other  Loan  Documents  or the  Related  Transactions
Documents  without at least two  Business  Days' prior  notice to GE Capital and
without the prior written  consent of GE Capital  unless (and only to the extent
that) such Credit Party or Affiliate is required to do so under law and then, in
any event,  such Credit Party or Affiliate  will consult with GE Capital  before
issuing  such press  release or other  public  disclosure  (other than  required
filings with the Securities and Exchange Commission). Each Credit Party consents
to the publication by Agent or any Lender of a tombstone or similar  advertising
material relating to the financing transactions  contemplated by this Agreement;
provided,  that  Agent or such  Lender  provides  a draft of such  tombstone  or
material to Borrower  Representative  for review and comment before  publication
thereof.

         11.15  Reinstatement.  This  Agreement  shall  remain in full force and
effect and continue to be  effective  should any petition be filed by or against
any Borrower  for  liquidation  or  reorganization,  should any Borrower  become
insolvent or make an assignment  for the benefit of any creditor or creditors or
should a receiver or trustee be appointed for all or any significant part of any
Borrower's  assets,  and shall continue to be effective or to be reinstated,  as
the case may be, if at any time payment and performance of the  Obligations,  or
any part  thereof,  is,  pursuant to  applicable  law,  rescinded  or reduced in
amount,  or must  otherwise  be  restored  or  returned  by any  obligee  of the
Obligations,  whether as a "voidable  preference,"  "fraudulent  conveyance," or
otherwise,  all as though such payment or performance  had not been made. In the
event that any payment, or any part thereof, is rescinded,  reduced, restored or
returned,  the  Obligations  shall be reinstated and deemed reduced only by such
amount paid and not so rescinded, reduced, restored or returned.

         11.16 Advice of Counsel.  Each of the parties  represents to each other
party  hereto  that it has  discussed  this  Agreement  and,  specifically,  the
provisions of Sections 11.9 and 11.13, with its counsel.

         11.17 No Strict  Construction.  The parties  hereto  have  participated
jointly in the  negotiation  and  drafting  of this  Agreement.  In the event an
ambiguity or question of intent or interpretation  arises,  this Agreement shall
be construed as if drafted  jointly by the parties  hereto and no presumption or
burden of proof shall arise favoring or  disfavoring  any party by virtue of the
authorship of any provisions of this Agreement.

         11.18 WASHINGTON STATUTE OF FRAUDS. ORAL AGREEMENTS OR ORAL COMMITMENTS
TO LOAN MONEY,  EXTEND CREDIT, OR TO FORBEAR FROM ENFORCING  REPAYMENT OF A DEBT
ARE NOT ENFORCEABLE UNDER WASHINGTON LAW.

12.      CROSS-GUARANTY

         12.1 Cross-Guaranty.  Each Borrower hereby agrees that such Borrower is
jointly and  severally  liable for, and hereby  absolutely  and  unconditionally
guarantees to Agent and Lenders and their respective successors and assigns, the
full and  prompt  payment  (whether  at  stated  maturity,  by  acceleration  or
otherwise) and performance of, all Obligations  owed or hereafter owing to Agent
and Lenders by each other  Borrower.  Each  Borrower  agrees  that its  guaranty
obligation hereunder is a continuing guaranty of payment and performance and not
of collection,  and that its obligations under this Section 12 shall be absolute
and unconditional, irrespective of, and unaffected by,

                  (a) the genuineness,  validity, regularity,  enforceability or
any future  amendment of, or change in, this Agreement,  any other Loan Document
or any other  agreement,  document or instrument to which any Borrower is or may
become a party (except to the extent  expressly set forth in any such  amendment
or change);

                  (b) the  absence  of any  action  to  enforce  this  Agreement
(including  this Section 12) or any other Loan Document or the waiver or consent
by Agent and Lenders with respect to any of the provisions thereof;

                  (c) the  existence,  value or  condition  of,  or  failure  to
perfect its Lien against, any security for the Obligations or any action, or the
absence of any action,  by Agent and Lenders in respect  thereof  (including the
release of any such security);

                  (d)      the insolvency of any Credit Party; or

                  (e) any other  action or  circumstances  that might  otherwise
constitute a legal or equitable discharge or defense of a surety or guarantor,

it being  agreed by each  Borrower  that its  obligations  under this Section 12
shall not be  discharged  until the payment  and  performance,  in full,  of the
Obligations has occurred.  Each Borrower shall be regarded,  and shall be in the
same position,  as principal  debtor with respect to the Obligations  guaranteed
hereunder.

         12.2 Waivers by Borrowers. Each Borrower expressly waives all rights it
may have now or in the future under any statute,  or at common law, or at law or
in equity,  or  otherwise,  to compel Agent or Lenders to marshall  assets or to
proceed in respect of the  Obligations  guaranteed  hereunder  against any other
Credit  Party,  any other  party or against  any  security  for the  payment and
performance of the Obligations before proceeding  against,  or as a condition to
proceeding against, such Borrower.  It is agreed among each Borrower,  Agent and
Lenders  that  the  foregoing  waivers  are of the  essence  of the  transaction
contemplated  by this  Agreement and the other Loan  Documents and that, but for
the  provisions  of this Section 12 and such  waivers,  Agent and Lenders  would
decline to enter into this Agreement.

         12.3 Benefit of Guaranty.  Each Borrower  agrees that the provisions of
this  Section 12 are for the benefit of Agent and  Lenders and their  respective
successors,  transferees,  endorsees and permitted  assigns,  and nothing herein
contained shall impair, as between any other Borrower and Agent or Lenders,  the
obligations of such other Borrower under the Loan Documents.

         12.4 Subordination of Subrogation, Etc. Notwithstanding anything to the
contrary  in this  Agreement  or in any other Loan  Document,  and except as set
forth  in  Section  12.7,  each  Borrower   hereby   expressly  and  irrevocably
subordinates  to  payment  of the  Obligations  any and all  rights at law or in
equity to subrogation, reimbursement, exoneration, contribution, indemnification
or set off  and  any  and all  defenses  available  to a  surety,  guarantor  or
accommodation  co-obligor until the Obligations are indefeasibly paid in full in
cash. Each Borrower  acknowledges and agrees that this subordination is intended
to  benefit  Agent and  Lenders  and shall not limit or  otherwise  affect  such
Borrower's  liability  hereunder or the  enforceability  of this Section 12, and
that Agent,  Lenders and their  respective  successors  and assigns are intended
third  party  beneficiaries  of the  waivers  and  agreements  set forth in this
Section 12.4.

         12.5 Election of Remedies. If Agent or any Lender may, under applicable
law,  proceed to realize its  benefits  under any of the Loan  Documents  giving
Agent or such Lender a Lien upon any  Collateral,  whether owned by any Borrower
or by any other Person,  either by judicial  foreclosure or by non-judicial sale
or enforcement,  Agent or any Lender may, at its sole option, determine which of
its  remedies or rights it may pursue  without  affecting  any of its rights and
remedies  under this  Section  12. If, in the  exercise of any of its rights and
remedies,  Agent or any Lender  shall  forfeit  any of its  rights or  remedies,
including its right to enter a deficiency  judgment  against any Borrower or any
other Person,  whether because of any applicable laws pertaining to "election of
remedies" or the like,  each Borrower hereby consents to such action by Agent or
such Lender and waives any claim based upon such action,  even if such action by
Agent or such  Lender  shall  result in a full or partial  loss of any rights of
subrogation  that each Borrower might  otherwise have had but for such action by
Agent or such  Lender.  Any  election of remedies  that results in the denial or
impairment  of the right of Agent or any  Lender to seek a  deficiency  judgment
against any Borrower shall not impair any other Borrower's obligation to pay the
full amount of the  Obligations.  In the event Agent or any Lender  shall bid at
any foreclosure or trustee's sale or at any private sale permitted by law or the
Loan Documents,  Agent or such Lender may bid all or less than the amount of the
Obligations  and the amount of such bid need not be paid by Agent or such Lender
but shall be credited against the Obligations.  The amount of the successful bid
at any such sale,  whether  Agent,  Lender or any other party is the  successful
bidder,  shall  be  conclusively  deemed  to be the  fair  market  value  of the
Collateral and the difference  between such bid amount and the remaining balance
of  the  Obligations  shall  be  conclusively  deemed  to be the  amount  of the
Obligations  guaranteed under this Section 12,  notwithstanding that any present
or future law or court  decision or ruling may have the effect of  reducing  the
amount of any deficiency  claim to which Agent or any Lender might  otherwise be
entitled but for such bidding at any such sale.

         12.6 Limitation.  Notwithstanding any provision herein contained to the
contrary, each Borrower's liability under this Section 12 (which liability is in
any event in  addition to amounts for which such  Borrower is  primarily  liable
under  Section  1) shall be limited to an amount not to exceed as of any date of
determination the greater of:

                  (a) the net amount of all Loans advanced to any other Borrower
under this Agreement and then re-loaned or otherwise  transferred to, or for the
benefit of, such Borrower; and

                  (b) the amount that could be claimed by Agent and Lenders from
such Borrower  under this Section 12 without  rendering  such claim  voidable or
avoidable  under Section 548 of Chapter 11 of the  Bankruptcy  Code or under any
applicable state Uniform Fraudulent Transfer Act, Uniform Fraudulent  Conveyance
Act or similar  statute or common law after  taking  into  account,  among other
things,  such Borrower's  right of contribution  and  indemnification  from each
other Borrower under Section 12.7.

         12.7     Contribution with Respect to Guaranty Obligations.

                  (a) To the extent that any Borrower shall make a payment under
this Section 12 of all or any of the Obligations  (other than Loans made to that
Borrower for which it is primarily liable) (a "Guarantor  Payment") that, taking
into account all other Guarantor  Payments then previously or concurrently  made
by any other  Borrower,  exceeds the amount that such Borrower  would  otherwise
have paid if each Borrower had paid the aggregate  Obligations satisfied by such
Guarantor Payment in the same proportion that such Borrower's "Allocable Amount"
(as defined below) (as determined  immediately prior to such Guarantor  Payment)
bore to the aggregate  Allocable  Amounts of each of the Borrowers as determined
immediately  prior to the  making of such  Guarantor  Payment,  then,  following
indefeasible  payment in full in cash of the  Obligations and termination of the
Commitments,  such  Borrower  shall be  entitled  to  receive  contribution  and
indemnification payments from, and be reimbursed by, each other Borrower for the
amount of such excess, pro rata based upon their respective Allocable Amounts in
effect immediately prior to such Guarantor Payment.

                  (b) As of any date of determination, the "Allocable Amount" of
any Borrower  shall be equal to the maximum  amount of the claim that could then
be recovered  from such Borrower  under this Section 12 without  rendering  such
claim  voidable or avoidable  under Section 548 of Chapter 11 of the  Bankruptcy
Code or under any  applicable  state Uniform  Fraudulent  Transfer Act,  Uniform
Fraudulent Conveyance Act or similar statute or common law.

                  (c) This Section 12.7 is intended  only to define the relative
rights of Borrowers and nothing set forth in this Section 12.7 is intended to or
shall impair the  obligations of Borrowers,  jointly and  severally,  to pay any
amounts as and when the same shall become due and payable in accordance with the
terms of this  Agreement,  including  Section  12.1.  Nothing  contained in this
Section  12.7 shall limit the  liability  of any  Borrower to pay the Loans made
directly or indirectly to that Borrower and accrued interest,  Fees and expenses
with respect thereto for which such Borrower shall be primarily liable.

                  (d)  The  parties  hereto   acknowledge  that  the  rights  of
contribution  and  indemnification  hereunder  shall  constitute  assets  of the
Borrower to which such contribution and indemnification is owing.

                  (e) The rights of the  indemnifying  Borrowers  against  other
Credit  Parties under this Section 12.7 shall be  exercisable  upon the full and
indefeasible payment of the Obligations and the termination of the Commitments.

         12.8  Liability  Cumulative.  The  liability  of  Borrowers  under this
Section 12 is in addition to and shall be  cumulative  with all  liabilities  of
each  Borrower  to Agent and  Lenders  under this  Agreement  and the other Loan
Documents to which such Borrower is a party or in respect of any  Obligations or
obligation of the other  Borrower,  without any limitation as to amount,  unless
the  instrument  or  agreement  evidencing  or  creating  such  other  liability
specifically provides to the contrary.



<PAGE>


IN WITNESS WHEREOF, this Agreement has been duly executed as of the date first 
written above.

                           ITRON, INC., as a Borrower

                                 By:   /s/ David G. Remington          
                                 Name:     David G. Remington      
                                 Title:    VP & CFO           

                           UTILITY TRANSLATION SYSTEMS, INC., as a Borrower

                                 By:   /s/ David G. Remington                
                                 Name:     David G. Remington    
                                 Title:    VP & CFO           

                           GENERAL ELECTRIC CAPITAL CORPORATION, as Agent and a
                           Lender

                                 By:    /s/ Mark Mascia                  
                                 Name:      Mark Mascia  
                                 Duly Authorized Signatory
Revolving Loan
Commitment (including
a Swing Line Commitment
of $3,500,000):

$35,000,000



<PAGE>


                  The following  Persons are  signatories  to this  Agreement in
their capacity as Credit Parties and not as Borrowers.

"Credit Parties"





ITRON FINANCE, INC.

By: /s/ David G. Remington                                        
Name:   David G. Remington                                    
Title:  VP & CFO                                    





ITRON INTERNATIONAL, INC.

By: /s/ David G. Remington                                        
Name:   David G. Remington                                    
Title:  VP & CFO                                            
                                  
                                      




<PAGE>

                                CREDIT AGREEMENT
                               ANNEX A (Recitals)
                                       to
                                CREDIT AGREEMENT


                                   DEFINITIONS

                  Capitalized  terms  used  in the  Loan  Documents  shall  have
(unless  otherwise  provided  elsewhere  in the Loan  Documents)  the  following
respective  meanings,  and  all  references  in  the  following  definitions  to
Sections,  Exhibits,  Schedules or Annexes  shall refer to  Sections,  Exhibits,
Schedules or Annexes of the Agreement:

                  "Account   Debtor"  shall  mean  any  Person  who  may  become
obligated  to any other  Person  under,  with  respect  to, or on account of, an
Account.

                  "Accounting Changes" shall have the meaning assigned to it in
 Annex G.

                  "Accounts"  shall mean all "accounts," as such term is defined
in the Code,  now owned or hereafter  acquired by any Person,  including (a) all
accounts  receivable,   other  receivables,   book  debts  and  other  forms  of
obligations  (other  than  forms of  obligations  evidenced  by  Chattel  Paper,
Documents  or  Instruments),  whether  arising  out of  goods  sold or  services
rendered by it or from any other  transaction  (including  any such  obligations
that may be  characterized  as an account or contract right under the Code), (b)
all of such Person's rights in, to and under all purchase orders or receipts for
goods or services,  (c) all of such Person's rights to any goods  represented by
any of the foregoing (including unpaid sellers' rights of rescission,  replevin,
reclamation  and  stoppage  in transit  and  rights to  returned,  reclaimed  or
repossessed goods), (d) all monies due or to become due to such Person under all
purchase  orders  and  contracts  for the sale of goods  or the  performance  of
services  or both by such  Person or in  connection  with any other  transaction
(whether or not yet earned by performance on the part of such Person), including
the right to receive the proceeds of said purchase orders and contracts, and (e)
all  collateral  security and  guaranties  of any kind given by any other Person
with respect to any of the foregoing.

                  "Activation Event" and "Activation Notice" shall have the
meanings assigned to them in Annex C.

                  "Advance" shall mean any Revolving Credit Advance or Swing 
Line Advance, as the context may require.

                  "Affiliate"  shall mean, with respect to any Person,  (a) each
Person that, directly or indirectly, owns or controls, whether beneficially,  or
as a trustee,  guardian or other  fiduciary,  five  percent  (5%) or more of the
Stock having  ordinary voting power in the election of directors of such Person,
(b) each Person that controls,  is controlled by or is under common control with
such Person, (c) each of such Person's officers,  directors, joint venturers and
partners or (d) in the case of Borrowers,  the immediate family members, spouses
and lineal  descendants of individuals  who are Affiliates of any Borrower.  For
the  purposes  of  this  definition,  "control"  of  a  Person  shall  mean  the
possession,  directly  or  indirectly,  of the  power to  direct  or  cause  the
direction of its management or policies, whether through the ownership of voting
securities, by contract or otherwise;  provided, that the term "Affiliate" shall
specifically exclude Agent and each Lender.

                  "Agent"  shall mean GE Capital,  in its  capacity as Agent for
Lenders, or its successor appointed pursuant to Section 9.7.

                  "Aggregate  Borrowing  Base"  shall  mean,  as of any  date of
determination,  an amount equal to the sum of the Itron  Borrowing  Base and the
UTS Borrowing Base.

                  "Agreement"  shall  mean the  Credit  Agreement  by and  among
Borrowers,  the other Credit Parties party thereto,  GE Capital,  as Agent and a
Lender,  and the other Lenders from time to time party thereto,  as the same may
be amended,  supplemented,  restated or otherwise  modified from time to time in
accordance with the terms thereof.

                  "Appendices" shall have the meaning assigned to it in the 
recitals to the Agreement.

                  "Applicable Margins" shall mean, collectively, the Applicable
Revolver Index Margin and the Applicable Revolver LIBOR Margin.

                  "Applicable  Revolver  Index  Margin" shall mean the per annum
interest  rate margin from time to time in effect and payable in addition to the
Index Rate  applicable  to the  Revolving  Loan,  as  determined by reference to
Section 1.5(a).

                  "Applicable  Revolver  LIBOR  Margin" shall mean the per annum
interest  rate from time to time in effect and  payable in addition to the LIBOR
Rate  applicable  to the  Revolving  Loan, as determined by reference to Section
1.5(a).

                  "Assignment Agreement" shall have the meaning assigned to it 
in Section 9.1(a).

                  "Authorized  Representative" shall mean a person designated by
Borrower  Representative in the most recent Notice of Authorized  Representative
received by Agent.

                  "Bankruptcy Code" shall mean the provisions of title 11 of the
United States Code, 11 U.S.C. ss.ss. 101 et seq.

                  "Borrower"  shall mean each of Itron,  UTS or any other Person
that becomes a  "Borrower"  in  accordance  with  Section  6.1(a)(2)(iv)  of the
Agreement.

                  "Borrower Accounts" shall have the meaning assigned to it in
Annex C.

                  "Borrower Representative" shall mean Itron, in its capacity as
Borrower  Representative  pursuant to the provisions of Section  1.1(c),  acting
through an Authorized Representative.

                  "Borrowers"  shall mean Itron,  UTS and any other  Person that
becomes a "Borrower" in accordance with Section 6.1(a)(2)(iv) of the Agreement.

                  "Borrowing Availability" shall have the meaning assigned to it
in Section 1.1(a)(i).

                  "Borrowing  Base" shall mean, as the context may require,  the
Itron Borrowing Base or the UTS Borrowing Base.

                  "Borrowing  Base  Certificate"  shall mean a certificate to be
executed and  delivered  from time to time by each Borrower in the form attached
to the Agreement as Exhibit 4.1(b).

                  "Business  Day" shall mean any day that is not a  Saturday,  a
Sunday or a day on which  banks are  required or  permitted  to be closed in the
States of  California or New York and in reference to LIBOR Loans shall mean any
such day that is also a LIBOR Business Day.

                  "Capital Expenditures" shall mean, with respect to any Person,
all  expenditures (by the expenditure of cash or the incurrence of Indebtedness)
by such Person during any measuring  period for any fixed assets or improvements
or for replacements,  substitutions or additions thereto that have a useful life
of more than one year and that are required to be capitalized under GAAP.

                  "Capital  Lease" shall mean,  with respect to any Person,  any
lease of any property (whether real, personal or mixed) by such Person as lessee
that, in accordance with GAAP,  would be required to be classified and accounted
for as a capital lease on a balance sheet of such Person.

                  "Capital  Lease  Obligation"  shall mean,  with respect to any
Capital  Lease  of any  Person,  the  amount  of the  obligation  of the  lessee
thereunder  that,  in accordance  with GAAP,  would appear on a balance sheet of
such lessee in respect of such Capital Lease.

                  "Cash Collateral Account" shall have the meaning assigned to
it in Annex B.

                  "Cash Equivalents" shall have the meaning assigned to it in 
Annex B.

                  "Cash Management System" shall have the meaning assigned to it
in Section 1.8.

                  "Change of Control"  shall mean the  occurrence  of any of the
following without the prior written consent of Agent and Lenders: (a) any Person
or group of Persons  (within the meaning of the  Securities  Exchange Act) shall
have acquired beneficial ownership (within the meaning of Rule 13d-3 promulgated
by the Securities and Exchange  Commission under the Securities Exchange Act) of
20% or more of the  issued  and  outstanding  shares of  capital  Stock of Itron
having the right to vote for the election of  directors of Itron under  ordinary
circumstances;  (b)  during  any  period  of  12  consecutive  calendar  months,
individuals  who at the  beginning  of such  period  constituted  the  board  of
directors of Itron  (together with any new directors whose election by the board
of directors of Itron or whose  nomination for election by the  Stockholders  of
Itron was approved by a vote of at least  two-thirds of the directors then still
in office who either were  directors  at the  beginning  of such period or whose
election or nomination for election were  previously so approved)  cease for any
reason other than death or  disability to constitute a majority of the directors
then in office;  or (c) Itron shall cease to own and control all of the economic
and voting rights  associated with all of the outstanding  capital Stock of each
of the Credit Parties.

                  "Charges"  shall  mean  all  federal,   state,  county,  city,
municipal,  local,  foreign or other governmental taxes (including taxes owed to
the PBGC at the time due and  payable),  levies,  assessments,  charges,  liens,
claims  or  encumbrances  upon  or  relating  to (a)  the  Collateral,  (b)  the
Obligations, (c) the employees, payroll, income or gross receipts of any Person,
(d) any Person's  ownership or use of any properties or other assets, or (e) any
other aspect of any Person's business.

                  "Chattel  Paper" shall mean any "chattel  paper," as such term
is defined in the Code, now owned or hereafter acquired by any Person,  wherever
located.

                  "Closing Date" shall mean January 18, 2000.

                  "Code" shall mean the Uniform Commercial Code as the same may,
from  time to time,  be  enacted  and in  effect  in the  State  of  California;
provided,  that in the event that, by reason of mandatory provisions of law, any
or all of the  attachment,  perfection  or priority of, or remedies with respect
to,  Agent's or any Lender's  Lien on any  Collateral is governed by the Uniform
Commercial Code as enacted and in effect in a jurisdiction  other than the State
of California, the term "Code" shall mean the Uniform Commercial Code as enacted
and in effect in such other  jurisdiction  solely for purposes of the provisions
thereof  relating to such attachment,  perfection,  priority or remedies and for
purposes of definitions related to such provisions.

                  "Collateral"  shall mean the property  covered by the Security
Agreement and the other  Collateral  Documents and any other  property,  real or
personal,  tangible or intangible,  now existing or hereafter acquired, that may
at any time be or become  subject  to a  security  interest  or Lien in favor of
Agent, on behalf of itself and Lenders, to secure the Obligations.

                  "Collateral Documents" shall mean the Security Agreement,  the
Guaranties,  and all similar agreements entered into guaranteeing payment of, or
granting a Lien upon property as security for payment of, the Obligations.

                  "Collateral Reports" shall mean the reports with respect to 
the Collateral referred to in Annex F.

                  "Collection Account" shall mean that certain account of Agent,
account  number  502-328-54 in the name of Agent at Bankers Trust Company in New
York,  New York, ABA No. 021 001 033, or such other account as may be designated
in writing by Agent as the "Collection Account."

                  "Commitment  Termination  Date" shall mean the earliest of (a)
January 18, 2004, (b) the date of  termination  of Lenders'  obligations to make
Revolving  Credit  Advances and to incur Letter of Credit  Obligations or permit
existing Loans to remain  outstanding  pursuant to Section  8.2(b),  and (c) the
date  of  indefeasible  prepayment  in  full  by  Borrowers  of the  Loans,  the
cancellation and return (or stand-by  guarantee) of all Letters of Credit or the
cash  collateralization of all Letter of Credit Obligations pursuant to Annex B,
and the permanent  reduction of the Revolving Loan Commitment and the Swing Line
Commitment to zero dollars ($0), in each case in accordance  with the provisions
of Section 1.3(a).

                  "Commitments"  shall mean (a) as to any Lender,  the aggregate
of such Lender's Revolving Loan Commitment  (including  without  duplication the
Swing Line Lender's Swing Line Commitment) as set forth on the signature page to
the Agreement or in the most recent Assignment Agreement executed by such Lender
and  (b)  as to all  Lenders,  the  aggregate  of all  Lenders'  Revolving  Loan
Commitments  (including  without  duplication the Swing Line Lender's Swing Line
Commitment),  which  aggregate  commitment  shall be  $35,000,000 on the Closing
Date, as such amount may be adjusted, if at all, from time to time in accordance
with the Agreement.

                  "Compliance Certificate" shall have the meaning assigned to it
in Annex E.

                  "Contract Receivable" shall have the meaning assigned to it in
accordance  with the  cost-to-cost  percentage of completion  long term contract
method of accounting.

                  "Contracts"  shall  mean  all  contracts,   undertakings,   or
agreements  (other  than  rights  evidenced  by  Chattel  Paper,   Documents  or
Instruments)  in or under which such Person may now or hereafter have any right,
title or interest,  including any agreement  relating to the terms of payment or
the terms of performance of any Account.

                  "Control Letter" shall mean a letter  agreement  between Agent
and (a) the issuer of  uncertificated  securities with respect to uncertificated
securities in the name of any Credit Party, (b) a securities  intermediary  with
respect  to  securities,  whether  certificated  or  uncertificated,  securities
entitlements and other financial assets held in a securities account in the name
of any Credit Party,  (c) a futures  commission  merchant or clearing house with
respect to commodity accounts and commodity  contracts held by any Credit Party,
whereby,  among other things,  the issuer,  securities  intermediary  or futures
commission  merchant,  as  applicable,  disclaims  any security  interest in the
applicable financial assets, acknowledges the Lien of Agent, on behalf of itself
and Lenders,  on such financial assets, and agrees to follow the instructions or
entitlement  orders of Agent  without  further  consent by the  affected  Credit
Party.

                  "Copyright License" shall mean any and all rights now owned or
hereafter  acquired by any Person under any written agreement granting any right
to use any Copyright or Copyright registration.

                  "Copyrights"  shall  mean all of the  following  now  owned or
existing or hereafter adopted or acquired by any Person:  (a) all copyrights and
General  Intangibles of like nature (whether  registered or  unregistered),  all
registrations  and  recordings  thereof,  and  all  applications  in  connection
therewith,  including all  registrations,  recordings  and  applications  in the
United States  Copyright Office or in any similar office or agency of the United
States or territory thereof,  or any other country or any political  subdivision
thereof, and (b) all extensions or renewals thereof.

                  "Credit  Parties"  shall  mean  Borrowers  and  each of  their
respective  domestic  Subsidiaries  other than (a) SPV Subsidiaries  that do not
receive the proceeds of any Loan (except as otherwise permitted in clause (e) of
Section 6.2) and are financed by a third party  lender  (i.e.,  with funds other
than the Obligations) and (b) Existing SPV Subsidiaries.

                  "Default"  shall mean any event that, with the passage of time
or notice or both, would, unless cured or waived, become an Event of Default.

                  "Default Rate" shall have the meaning assigned to it in 
Section 1.5(d).

                  "Disbursement Account" shall have the meaning assigned to it 
in Annex C.

                  "Disclosure  Schedules"  shall mean the Schedules  prepared by
Borrowers and  denominated  as Disclosure  Schedules  (1.4) through (6.7) in the
Index to the Agreement.

                  "Documents"  shall  mean  any  "documents,"  as  such  term is
defined in the Code,  now owned or  hereafter  acquired by any Person,  wherever
located.

                  "Dollars" or "$"  shall mean lawful currency of the United 
States of America.

                  "Duquesne  Agreement"  shall  mean that  certain  Amended  and
Restated Utility  Automated Meter Data Acquisition  Equipment Lease and Services
Agreement,  dated as of January  15,  1996,  between  Itron and  Duquesne  Light
Company,  as the  same  may be  amended,  supplemented,  restated  or  otherwise
modified from time to time.

                  "Duquesne  Project"  shall  mean  the  provision  by  Itron of
automated meter data  acquisition  equipment and related  services in accordance
with the terms of the Duquesne Agreement.

                  "EBITDA" shall mean, with respect to any Person for any fiscal
period,  without duplication,  an amount equal to (a) consolidated net income of
such Person,  plus (b) Interest Expense,  plus (c) Taxes, plus (d) to the extent
deducted in determining such net income, depreciation,  amortization and similar
non-cash  charges,  plus (e) to the  extent  deducted  in  determining  such net
income,  extraordinary losses, minus (f) to the extent recognized in determining
such net  income,  extraordinary  gains,  in each case of such  Person  for such
period.

                  "Eligible Accounts" shall have the meaning assigned to it in 
Section 1.6.

                  "Eligible Inventory" shall have the meaning assigned to it in
 Section 1.7.

                  "Eligible  Unbilled  Account"  shall mean an Unbilled  Account
that (a)  complies  with all of the  criteria  in the  definition  of  "Eligible
Accounts" and (b) as to which each of the  representations  and warranties  with
respect to Eligible Unbilled Accounts in the Loan Documents is true, except that
such Account does not comply with (i) clause (b) of the  definition of "Eligible
Accounts"  because (A)  Inventory has been shipped by any Borrower to an Account
Debtor's  location to generate  any such  Account but has not been  installed or
accepted or (B) related  installation  services  have not been  provided by such
Borrower,  (ii) clause (e) of the definition of "Eligible  Accounts"  because an
invoice  has not been sent to the  applicable  Account  Debtor and (iii)  clause
(l)(i) of the  definition  of "Eligible  Accounts"  because there is no original
invoice date for such Account;  provided, that (1) no obligation of Philadelphia
Municipal Authority,  the City of Houston,  Texas, a municipal  corporation,  or
Duquesne Light Company shall constitute an Eligible Unbilled Account and (2) the
amount of such Eligible  Unbilled  Account shall  exclude  Retention  Amounts in
connection therewith.

                  "Environmental Laws" shall mean all applicable federal, state,
local and foreign  laws,  statutes,  ordinances,  codes,  rules,  standards  and
regulations,  now or  hereafter  in  effect,  and  any  applicable  judicial  or
administrative  interpretation  thereof,  including any  applicable  judicial or
administrative  order, consent decree, order or judgment,  imposing liability or
standards of conduct for or relating to the  regulation  and protection of human
health,  safety,  the environment and natural resources  (including ambient air,
surface  water,  groundwater,  wetlands,  land  surface  or  subsurface  strata,
wildlife,  aquatic  species  and  vegetation).  Environmental  Laws  include the
Comprehensive  Environmental Response,  Compensation,  and Liability Act of 1980
(42  U.S.C.   ss.ss.   9601  et  seq.)  ("CERCLA");   the  Hazardous   Materials
Transportation  Authorization  Act of 1994 (49 U.S.C.  ss.ss. 5101 et seq.); the
Federal  Insecticide,  Fungicide,  and Rodenticide Act (7 U.S.C.  ss.ss.  136 et
seq.); the Solid Waste Disposal Act (42 U.S.C.  ss.ss.  6901 et seq.); the Toxic
Substance  Control Act (15 U.S.C.  ss.ss.  2601 et seq.);  the Clean Air Act (42
U.S.C.  ss.ss. 7401 et seq.); the Federal Water Pollution Control Act (33 U.S.C.
ss.ss. 1251 et seq.); the Occupational  Safety and Health Act (29 U.S.C.  ss.ss.
651 et seq.); and the Safe Drinking Water Act (42 U.S.C. ss.ss. 300(f) et seq.),
and any and all regulations  promulgated  thereunder,  and all analogous  state,
local and foreign  counterparts  or  equivalents  and any  transfer of ownership
notification or approval statutes.

                  "Environmental  Liabilities"  shall mean,  with respect to any
Person, all liabilities, obligations,  responsibilities,  response, remedial and
removal  costs,  investigation  and  feasibility  study  costs,  capital  costs,
operation and maintenance costs,  losses,  damages,  punitive damages,  property
damages, natural resource damages,  consequential damages, treble damages, costs
and expenses (including all fees, disbursements and expenses of counsel, experts
and consultants),  fines, penalties, sanctions and interest incurred as a result
of or related to any claim, suit, action, investigation, proceeding or demand by
any Person, whether based in contract, tort, implied or express warranty, strict
liability,  criminal or civil statute or common law, including any arising under
or related to any Environmental  Laws,  Environmental  Permits, or in connection
with any Release or  threatened  Release or  presence  of a  Hazardous  Material
whether  on,  at, in,  under,  from or about or in the  vicinity  of any real or
personal property.

                  "Environmental  Permits"  shall  mean all  permits,  licenses,
authorizations,   certificates,   approvals,   registrations  or  other  written
documents required by any Governmental Authority under any Environmental Laws.

                  "Equipment"  shall  mean  all  "equipment,"  as  such  term is
defined in the Code,  now owned or  hereafter  acquired by any Person,  wherever
located,  including  all  such  Person's  machinery  and  equipment,   including
processing  equipment,  conveyors,  machine tools,  data processing and computer
equipment  with  software  and  peripheral   equipment,   and  all  engineering,
processing and manufacturing equipment, office machinery,  furniture,  materials
handling  equipment,  tools,  attachments,  accessories,  automotive  equipment,
trailers, trucks, forklifts,  molds, dies, stamps, motor vehicles, rolling stock
and other  equipment  of every kind and nature,  trade  fixtures  and  fixtures,
together with all additions and accessions thereto,  replacements  therefor, all
parts therefor, all substitutes for any of the foregoing, fuel therefor, and all
manuals, drawings, instructions, warranties and rights with respect thereto, and
all products and proceeds thereof and condemnation awards and insurance proceeds
with respect thereto.

                  "ERISA" shall mean the Employee Retirement Income Security Act
of 1974, and any regulations promulgated thereunder.

                  "ERISA  Affiliate"  shall  mean,  with  respect  to any Credit
Party, any trade or business (whether or not incorporated)  that,  together with
such  Credit  Party,  are  treated as a single  employer  within the  meaning of
Sections 414(b), (c), (m) or (o) of the IRC.

                  "ERISA Event" shall mean,  with respect to any Credit Party or
any ERISA  Affiliate,  (a) any event  described in Section 4043(c) of ERISA with
respect to a Title IV Plan;  (b) the  withdrawal  of any  Credit  Party or ERISA
Affiliate  from a Title IV Plan  subject to Section  4063 of ERISA during a plan
year in which it was a "substantial  employer," as defined in Section 4001(a)(2)
of ERISA;  (c) the  complete or partial  withdrawal  of any Credit  Party or any
ERISA  Affiliate  from any  Multiemployer  Plan;  (d) the  filing of a notice of
intent to terminate a Title IV Plan or the  treatment  of a plan  amendment as a
termination  under Section 4041 of ERISA;  (e) the institution of proceedings to
terminate a Title IV Plan or Multiemployer  Plan by the PBGC; (f) the failure by
any Credit Party or ERISA Affiliate to make when due required contributions to a
Multiemployer Plan or Title IV Plan unless such failure is cured within 30 days;
(g) any other event or condition that might reasonably be expected to constitute
grounds under Section 4042 of ERISA for the  termination  of, or the appointment
of a trustee to administer,  any Title IV Plan or Multiemployer  Plan or for the
imposition  of  liability  under  Section  4069 or  4212(c)  of  ERISA;  (h) the
termination  of a  Multiemployer  Plan  under  Section  4041A  of  ERISA  or the
reorganization  or  insolvency  of a  Multiemployer  Plan under  Section 4241 of
ERISA; or (i) the loss of a Qualified Plan's qualification or tax exempt status.

                  "ESOP" shall mean a Plan that is intended to satisfy the 
requirements of Section 4975(e)(7)of the IRC.

                  "Event of Default" shall have the meaning assigned to it in
 Section 8.1.

                  "Existing SPV Subsidiaries" shall mean Itron Connecticut 
Finance, Inc.

                  "Fair Labor Standards Act" shall mean the provisions of the
Fair Labor Standards Act, 29 U.S.C. ss.ss. 201 et seq.

                  "FCC" shall mean the Federal Communications Commission.

                  "FCC  License"  shall  mean any and all  rights  now  owned or
hereafter acquired by any Person under any agreement with the FCC.

                  "Federal  Funds Rate" shall mean, for any day, a floating rate
equal  to  the  weighted  average  of  the  rates  on  overnight  Federal  funds
transactions among members of the Federal Reserve System, as determined by Agent
in its  sole  discretion,  which  determination  shall  be  final,  binding  and
conclusive (absent manifest error).

                  "Federal Reserve Board" shall mean the Board of Governors of
the Federal Reserve System.

                  "Fees"  shall  mean any and all fees  payable  to Agent or any
Lender pursuant to the Agreement or any of the other Loan Documents.

                  "Financial Covenants" shall have the meaning assigned to it in
Section 6.10.

                  "Financial  Statements"  shall  mean  the  income  statements,
statements of cash flows and balance sheets of Borrowers delivered in accordance
with Section 3.4 and Annex E.

                  "Fiscal Month" shall mean any of the monthly accounting 
periods of Borrowers.

                  "Fiscal  Quarter"  shall mean any of the quarterly  accounting
periods of Borrowers, ending on March 31, June 30, September 30, and December 31
of each year.

                  "Fiscal Year" shall mean any of the annual accounting  periods
of Borrowers ending on December 31 of each year.

                  "Fixed Charge  Coverage Ratio" shall mean, with respect to any
Person for any fiscal  period,  the ratio of (a) (i) EBITDA  minus (ii)  Capital
Expenditures  paid by  such  Person  during  such  period  (other  than  Capital
Expenditures  financed  by a third  party  lender not a party to the  Agreement)
minus (iii) income Taxes (including state income Taxes) paid in cash during such
period, to (b) Fixed Charges;  provided, that, for purposes of clause (a)(ii) of
this definition,  in no event shall Capital  Expenditures  include  expenditures
made to repair,  modify or replace  any fixed  asset or  improvement  damaged or
destroyed  by or as a  result  of any  insurable  event to the  extent  that the
aggregate amount of all such  expenditures does not exceed the amount of the net
insurance  proceeds payable to Borrowers and their  Subsidiaries with respect to
such insurable event.

                  "Fixed Charges" shall mean, with respect to any Person for any
fiscal period,  (a) the aggregate of all Interest Expense paid or accrued during
such  period,   plus  (b)  scheduled  payments  of  principal  with  respect  to
Indebtedness during such period.

                  "Fixtures"  shall mean all "fixtures," as such term is defined
in the Code, now owned or hereafter acquired by any Person, wherever located.

                  "Funded Debt" shall mean, with respect to any Person,  without
duplication,  all  Indebtedness  of such Person for borrowed money  evidenced by
notes, bonds,  debentures or similar evidences of Indebtedness that by its terms
matures  more than one year from,  or is directly  or  indirectly  renewable  or
extendible at such Person's option under a revolving credit or similar agreement
obligating the lender or lenders to extend credit over a period of more than one
year from the date of creation thereof, and specifically including Capital Lease
Obligations,   current  maturities  of  long-term  debt,  revolving  credit  and
short-term debt extendible beyond one year at the option of the debtor, and also
including, in the case of Borrowers, the Obligations.

                  "GAAP" shall mean generally accepted accounting  principles in
the  United  States of America as in effect on the  Closing  Date,  consistently
applied as such term is further defined in Annex G to the Agreement.

                  "GE Capital" shall mean General Electric Capital Corporation,
a New York corporation.

                  "GE Capital Fee Letter" shall mean that certain letter of even
date herewith  between GE Capital and Borrowers  with respect to certain Fees to
be paid from time to time by Borrowers to GE Capital.

                  "General Intangibles" shall mean all "general intangibles," as
such term is defined in the Code, now owned or hereafter acquired by any Person,
including  all right,  title and interest  that such Person may now or hereafter
have in or under any Contracts, Licenses, Copyrights, Trademarks and Patents and
all  applications  therefor  and  reissues,   extensions  or  renewals  thereof,
interests  in  partnerships,  joint  ventures and other  business  associations,
permits,  inventions  (whether  or  not  patented  or  patentable),   knowledge,
know-how, software, data bases, data, skill, expertise,  experience,  processes,
models,  drawings,  materials  and  records,  Goodwill  (including  the goodwill
associated with any Trademark or Trademark License), all rights and claims in or
under  insurance  policies  (including  insurance  for  fire,  damage,  loss and
casualty, whether covering personal property, real property,  tangible rights or
intangible  rights,  all  liability,  life,  key man and  business  interruption
insurance,   and  all  unearned   premiums),   uncertificated  and  certificated
securities,  choses in action, deposit, checking and other bank accounts, rights
to  receive  tax  refunds  and  other  payments,  rights to  receive  dividends,
distributions, cash, instruments and other property in respect of or in exchange
for pledged shares or other equity  interests,  rights of  indemnification,  all
books and records,  correspondence,  credit  files,  invoices and other  papers,
including all tapes, cards,  computer runs and other papers and documents in the
possession or under the control of such Person or any computer bureau or service
company from time to time acting for such Person.

                  "Goods"  shall mean any "goods" as such term is defined in the
Code, now owned or hereafter acquired by any Person.

                  "Goodwill" shall mean all goodwill, trade secrets, proprietary
or  confidential  information,  technical  information,   procedures,  formulae,
quality control  standards,  designs,  operating and training manuals,  customer
lists and  distribution  agreements  now or  hereafter  owned or acquired by any
Person.

                  "Governmental  Authority" shall mean any nation or government,
any state or other political subdivision thereof, and any agency,  department or
other  entity  exercising  executive,   legislative,   judicial,  regulatory  or
administrative functions of or pertaining to government.

                  "Guaranteed  Indebtedness"  shall mean, as to any Person,  any
obligation of such Person  guaranteeing any indebtedness,  lease,  dividend,  or
other  obligation  ("primary  obligation")  of any other  Person  (the  "primary
obligor") in any manner,  including any obligation or arrangement of such Person
to (a) purchase or repurchase any such primary obligation, (b) advance or supply
funds (i) for the purchase or payment of any such primary  obligation or (ii) to
maintain  working  capital or equity capital of the primary obligor or otherwise
to maintain  the net worth or solvency or any  balance  sheet  condition  of the
primary obligor, (c) purchase property, securities or services primarily for the
purpose of assuring the owner of any such primary  obligation  of the ability of
the primary obligor to make payment of such primary obligation, or (d) indemnify
the owner of such primary obligation against loss in respect thereof. The amount
of any Guaranteed Indebtedness at any time shall be deemed to be an amount equal
to the  lesser at such  time of (x) the  stated  or  determinable  amount of the
primary obligation in respect of which such Guaranteed  Indebtedness is incurred
and (y) the maximum  amount for which such Person may be liable  pursuant to the
terms of the instrument embodying such Guaranteed Indebtedness or, if not stated
or determinable,  the maximum reasonably  anticipated  liability  (assuming full
performance) in respect thereof.

                  "Guaranties" shall mean, collectively, the Subsidiary Guaranty
and any other  guaranty  executed by any Guarantor in favor of Agent and Lenders
in respect of the Obligations.

                  "Guarantors" shall mean each Subsidiary of each Borrower,  and
each other Person,  if any, that executes a guaranty or other similar  agreement
in favor of Agent for itself and the benefit of Agent and Lenders in  connection
with  the  transactions  contemplated  by  the  Agreement  and  the  other  Loan
Documents.

                  "Hazardous  Material"  shall mean any  substance,  material or
waste that is  regulated  by, or forms the basis of  liability  now or hereafter
under, any Environmental  Laws,  including any material or substance that is (a)
defined as a "solid waste," "hazardous waste," "hazardous  material," "hazardous
substance,"   "extremely   hazardous  waste,"   "restricted   hazardous  waste,"
"pollutant,"  "contaminant,"  "hazardous  constituent,"  "special waste," "toxic
substance" or other similar term or phrase under any Environmental  Laws, or (b)
petroleum  or any  fraction or  by-product  thereof,  asbestos,  polychlorinated
biphenyls (PCB's), or any radioactive substance.

                  "Houston  Agreement"  shall  mean that  certain  Contract  for
Automated Meter Reading System dated August 19, 1998, between Itron and the City
of  Houston,  Texas,  a  municipal  corporation,  as the  same  may be  amended,
supplemented, restated or otherwise modified from time to time.

                  "Indebtedness" shall mean, with respect to any Person, without
duplication,  (a) all  indebtedness of such Person for borrowed money or for the
deferred  purchase price of property  payment for that is deferred six months or
more,  but excluding  obligations  to trade  creditors  incurred in the ordinary
course of  business  that are not overdue by more than six months  unless  being
contested  in good  faith,  (b) all  reimbursement  and other  obligations  with
respect to letters of credit,  bankers' acceptances and surety bonds, whether or
not matured,  (c) all  obligations  evidenced  by notes,  bonds,  debentures  or
similar  instruments,   (d)  all  indebtedness  created  or  arising  under  any
conditional  sale or other title  retention  agreement  with respect to property
acquired by such Person  (even  though the rights and  remedies of the seller or
lender under such agreement in the event of default are limited to  repossession
or  sale  of  such  property),  (e)  all  Capital  Lease  Obligations,  (f)  all
obligations  of such Person under  commodity  purchase or option  agreements  or
other commodity price hedging  arrangements,  in each case whether contingent or
matured, (g) all obligations of such Person under any foreign exchange contract,
currency swap  agreement,  interest rate swap, cap or collar  agreement or other
similar  agreement  or  arrangement  designed  to alter the risks of that Person
arising from  fluctuations  in currency  values or interest  rates, in each case
whether contingent or matured, (h) all Indebtedness referred to above secured by
(or for which the holder of such Indebtedness has an existing right,  contingent
or  otherwise,  to be secured by) any Lien upon or in  property or other  assets
(including  accounts and contract rights) owned by such Person, even though such
Person has not assumed or become  liable for the  payment of such  Indebtedness,
and (i) the Obligations, if any, with respect to which such Person is liable.

                  "Indemnified Liabilities" shall have the meaning assigned to 
it in Section 1.13.

                  "Indentures" shall have the meaning assigned to it in Section
3.25.

                  "Index Rate" shall mean, for any day, a floating rate equal to
the higher of (a) the rate publicly  quoted from time to time by The Wall Street
Journal  as the  "base  rate on  corporate  loans at  large  U.S.  money  center
commercial  banks" (or, if The Wall Street Journal ceases quoting a base rate of
the type  described,  the highest per annum rate of  interest  published  by the
Federal Reserve Board in Federal Reserve statistical release H.15 (519) entitled
"Selected  Interest Rates" as the Bank prime loan rate or its  equivalent),  and
(b) the Federal  Funds Rate plus 50 basis  points per annum.  Each change in any
interest rate provided for in the Agreement based upon the Index Rate shall take
effect at the time of such change in the Index Rate.

                  "Index  Rate Loan"  shall mean a Loan or any  portion  thereof
bearing interest by reference to the Index Rate.

                  "Instruments"  shall  mean any  "instrument,"  as such term is
defined in the Code,  now owned or  hereafter  acquired by any Person,  wherever
located, including all certificated securities, all certificates of deposit, and
all notes and other  evidences  of  indebtedness,  other than  instruments  that
constitute, or are a part of a group of writings that constitute, Chattel Paper.

                  "Intellectual  Property"  shall  mean  any and  all  Licenses,
Patents, Copyrights, Trademarks and the Goodwill associated with the foregoing.

                  "Intercompany Note" shall have the meaning assigned to it in
Section 6.3.

                  "Interest  Expense" shall mean, with respect to any Person for
any fiscal period,  interest  expense  (whether cash or non-cash) of such Person
determined in accordance  with GAAP for the relevant  period ended on such date,
including interest expense with respect to any Funded Debt of such Person.

                  "Interest  Payment  Date"  shall mean (a) as to any Index Rate
Loan,  the  first  Business  Day of each  month  to  occur  while  such  Loan is
outstanding,  and (b) as to any LIBOR Loan, the last day of the applicable LIBOR
Period provided,  that, in addition to the foregoing,  each of (x) the date upon
which all of the  Commitments  have been terminated and the Loans have been paid
in full  and (y) the  Commitment  Termination  Date  shall  be  deemed  to be an
"Interest Payment Date" with respect to any interest that has then accrued under
the Agreement.

                  "Inventory"  shall mean,  with respect to any Person,  (a) any
"inventory,"  as such term is  defined in the Code,  of such  Person and (b) any
Equipment of such Person that was previously in the form of "inventory," as such
term is defined in the Code,  of such Person,  including  electronic or handheld
meter reading systems and components thereof and automatic meter reading systems
and components  thereof, in each case whether now owned or hereafter acquired by
any Person, wherever located, including inventory,  merchandise, goods and other
personal property that are held by or on behalf of such Person for sale or lease
or are  furnished  or are to be furnished  under a contract of service,  or that
constitute raw materials,  work in process,  finished goods,  returned goods, or
materials or supplies of any kind,  nature or description used or consumed or to
be used or consumed in such Person's business or in the processing,  production,
packaging,  promotion,  delivery  or  shipping  of  the  same,  including  other
supplies.

                  "Investment Property" shall mean all "investment property," as
such term is defined in Section 9115 of the Code in those jurisdictions in which
such definition has been adopted, now owned or hereafter acquired by any Person,
wherever  located,  including  (a)  all  securities,   whether  certificated  or
uncertificated,   including  stocks,  bonds,   interests  in  limited  liability
companies,  partnership  interests,  treasuries,  certificates  of deposit,  and
mutual fund shares,  (b) all securities  entitlements of such Person,  including
the rights of such Person to any  securities  account and the  financial  assets
held by a securities intermediary in such securities account and any free credit
balance or other money owing by any securities intermediary with respect to such
account, (c) all securities accounts of such Person, (d) all commodity contracts
held by such Person, and (e) all commodity accounts held by such Person.

                  "IRC"  shall mean the  Internal  Revenue  Code of 1986 and any
regulations promulgated thereunder.

                  "IRS" shall mean the Internal Revenue Service.

                  "Itron" shall mean Itron, Inc., a Washington corporation.

                  "Itron   Borrowing  Base"  shall  mean,  as  of  any  date  of
determination  by Agent,  from time to time,  an amount equal to the sum at such
time of:

                  (a)      up to 85% of Itron's Eligible Accounts, less any
         Reserves established by Agent at such time;

                  (b) up to 50% of Itron's Eligible Unbilled Accounts,  less any
         Reserves established by Agent at such time; and

                  (c) the lesser of (i) $15,000,000,  and (ii) the sum of (A) up
         to 50% of Itron's  Eligible  Inventory  consisting  of  finished  goods
         valued at the lower of cost (determined on a first-in, first-out basis)
         or  market,  and (B) up to 25% of the book  value of  Itron's  Eligible
         Inventory  other  than  finished  goods  valued  at the  lower  of cost
         (determined  on a first-in,  first-out  basis) or market,  in each case
         less any Reserves established by Agent at such time.

                  "L/C Issuer" shall have the meaning assigned to it in Annex B.

                  "L/C Sublimit" shall have the meaning assigned to it in 
Annex B.

                  "Lenders"  shall mean GE Capital,  the other  Lenders named on
the  signature  pages of the  Agreement  and, if any such Lender shall decide to
assign  all or any  portion of the  Obligations,  such term  shall  include  any
permitted assignee of such Lender.

                  "Letter of Credit Fee" shall have the meaning assigned to it
in Annex B.

                  "Letter  of Credit  Obligations"  shall  mean all  outstanding
obligations   incurred   by  Agent  and  Lenders  at  the  request  of  Borrower
Representative,  whether direct or indirect, contingent or otherwise, due or not
due, in connection with the issuance of a reimbursement agreement or guaranty by
Agent with respect to any Letter of Credit.  The amount of such Letter of Credit
Obligations  shall  equal the  maximum  amount  that may be  payable by Agent or
Lenders thereupon or pursuant thereto.

                  "Letters of Credit" shall mean  commercial or standby  letters
of credit issued for the account of any Borrower by any L/C Issuer, and bankers'
acceptances  issued by any  Borrower,  for which Agent and Lenders have incurred
Letter of Credit Obligations.

                  "LIBOR  Business Day" shall mean a Business Day on which banks
in the City of London are  generally  open for  interbank  or  foreign  exchange
transactions.

                  "LIBOR Loan" shall mean a Loan or any portion  thereof bearing
interest by reference to the LIBOR Rate.

                  "LIBOR  Period"  shall mean,  with  respect to any LIBOR Loan,
each  period   commencing   on  a  LIBOR   Business  Day  selected  by  Borrower
Representative  pursuant to the  Agreement  and ending one,  two or three months
thereafter, as selected by Borrower Representative's irrevocable notice to Agent
as set forth in Section 1.5(e);  provided, that the foregoing provision relating
to LIBOR Periods is subject to the following:

                  (a) if any LIBOR Period would  otherwise  end on a day that is
         not a LIBOR  Business  Day,  such LIBOR Period shall be extended to the
         next succeeding  LIBOR Business Day unless the result of such extension
         would be to carry such LIBOR  Period  into  another  calendar  month in
         which event such LIBOR  Period shall end on the  immediately  preceding
         LIBOR Business Day;

                  (b) any LIBOR Period that would  otherwise  extend  beyond the
         Commitment  Termination Date shall end two LIBOR Business Days prior to
         such date;

                  (c) any LIBOR  Period that  begins on the last LIBOR  Business
         Day of a calendar  month (or on a day for which there is no numerically
         corresponding  day in the  calendar  month  at the  end of  such  LIBOR
         Period) shall end on the last LIBOR Business Day of a calendar month;

                  (d) Borrower  Representative  shall select LIBOR Periods so as
         not to require a payment or prepayment of any LIBOR Loan during a LIBOR
         Period for such Loan; and

                  (e) Borrower Representative shall select LIBOR Periods so that
         there shall be no more than five  separate  LIBOR Loans in existence at
         any one time.

                  "LIBOR Rate" shall mean for each LIBOR Period, a rate of 
interest determined by Agent equal to:

                  (a) the offered rate for deposits in United States Dollars for
         the applicable  LIBOR Period that appears on Dow Jones Telerate  Market
         Service  Page 3750 as of 11:00 a.m.  (London  time) on the second  full
         LIBOR  Business  Day  preceding  the  first day of such  LIBOR  Period;
         divided by

                  (b) a number  equal to 1.0 minus the  aggregate  (but  without
         duplication) of the rates (expressed as a decimal  fraction) of reserve
         requirements in effect on the day that is two LIBOR Business Days prior
         to the beginning of such LIBOR Period (including  basic,  supplemental,
         marginal and emergency  reserves  under any  regulations of the Federal
         Reserve Board or other Governmental  Authority having jurisdiction with
         respect  thereto,  as  now  and  from  time  to  time  in  effect)  for
         Eurocurrency   funding   (currently   referred   to  as   "Eurocurrency
         Liabilities"  in  Regulation D of the Federal  Reserve  Board) that are
         required  to be  maintained  by a member  bank of the  Federal  Reserve
         System.

If such  interest  rates shall  cease to be  available  from Dow Jones  Telerate
Market Service, the LIBOR Rate shall be determined from such financial reporting
service  or other  information  as shall be  mutually  acceptable  to Agent  and
Borrower Representative.

                  "License"  shall mean any Copyright  License,  Patent License,
Trademark License,  FCC License or other license of rights or interests now held
or hereafter acquired by any Person.

                  "Lien"  shall  mean any  mortgage  or deed of  trust,  pledge,
hypothecation,  assignment,  deposit arrangement,  lien, charge, claim, security
interest,  easement or  encumbrance,  or preference,  priority or other security
agreement  or  preferential   arrangement  of  any  kind  or  nature  whatsoever
(including any lease or title  retention  agreement,  any financing lease having
substantially  the same economic effect as any of the foregoing,  and the filing
of, or agreement to give, any financing statement perfecting a security interest
under the Code or comparable law of any jurisdiction).

                  "Litigation" shall have the meaning assigned to it in Section
3.13.

                  "Loan Account" shall have the meaning assigned to it in
Section 1.12.

                  "Loan  Documents"  shall mean the  Agreement,  the Notes,  the
Collateral  Documents  and all  other  agreements,  instruments,  documents  and
certificates  identified in the Schedule of Documents executed and delivered to,
or in favor of, Agent or any Lender and including all other  pledges,  powers of
attorney,  consents,  assignments,  contracts,  notices,  and all other  written
matter  whether now or hereafter  executed by or on behalf of any Credit  Party,
and  delivered to Agent or any Lender in  connection  with the  Agreement or the
transactions  contemplated  thereby. Any reference in the Agreement or any other
Loan  Document to a Loan  Document  shall  include all  appendices,  exhibits or
schedules  thereto,  and all  amendments,  restatements,  supplements  or  other
modifications thereto, and shall refer to such Agreement or Loan Document as the
same may be in effect at any and all times such reference becomes operative.

                  "Loans" shall mean the Revolving Loan and the Swing Line Loan.

                  "Lock Boxes" shall have the meaning assigned to it in Annex C.

                  "Margin Stock" shall have the meaning assigned to it in
Section 3.10.

                  "Material Adverse Effect" shall mean a material adverse effect
on (a) the  business,  assets,  operations,  prospects  or  financial  or  other
condition of (i) Itron or (ii)  Borrowers  taken as a whole,  (b) any Borrower's
ability  to pay any of the Loans and other  Obligations  made  directly  to such
Borrower in  accordance  with the terms of the  Agreement,  (c) the  Guarantors'
ability,  taken  as a whole,  to pay  their  respective  obligations  under  the
Guaranties,  (d) the  Collateral  or  Agent's  Liens,  on behalf  of itself  and
Lenders,  on the Collateral or the priority of such Liens, or (e) Agent's or any
Lender's  rights and remedies under the Agreement and the other Loan  Documents.
Without  limiting the generality of the foregoing,  any event or occurrence that
results or could  reasonably  be expected to result in costs or  liabilities  in
excess of the lesser of $1,000,000 and 10% of Borrowing  Availability  as of any
date of determination shall be deemed to constitute a Material Adverse Effect.

                  "Maximum  Amount"  shall mean,  at the time any  determination
thereof  is to be made,  the  amount at such time  equal to the  Revolving  Loan
Commitment of all Lenders.

                  "Maximum Lawful Rate" shall have the meaning assigned to it in
Section 1.5(f).

                  "Multiemployer  Plan"  shall  mean a  "multiemployer  plan" as
defined in Section  4001(a)(3) of ERISA,  and to which any Credit Party or ERISA
Affiliate  is making,  is obligated  to make,  or has made or been  obligated to
make, contributions on behalf of participants who are or were employed by any of
them.

                  "Net  Borrowing  Availability"  shall  mean as of any  date of
determination (a) as to all Borrowers,  the lesser of (i) the Maximum Amount and
(ii) the  Aggregate  Borrowing  Base, in each case less the sum of the aggregate
Revolving Loan and Swing Line Loan then outstanding,  or (b) as to an individual
Borrower,  the lesser of (i) the Maximum  Amount  less the sum of the  Revolving
Loan and Swing Line Loan  outstanding to all Borrowers and (ii) such  Borrower's
separate  Borrowing Base, less the sum of the Revolving Loan and Swing Line Loan
outstanding to such Borrower.

                  "Notes" shall mean, collectively, the Revolving Notes and the 
Swing Line Notes.

                  "Notice of  Authorized  Representative"  shall mean the notice
given from time to time by Borrower Representative to Agent substantially in the
form of Exhibit  1.1(c) which notice  designates  by name one or more persons as
Authorized Representatives of Borrower Representative.

                  "Notice of Conversion/Continuation" shall have the meaning
assigned to it in Section 1.5(e).

                  "Notice of Revolving Credit Advance" shall have the meaning
assigned to it in Section 1.1(a).

                  "Obligations"   shall   mean  all  loans,   advances,   debts,
liabilities and obligations for the performance of covenants, tasks or duties or
for  payment  of  monetary  amounts  (whether  or not such  performance  is then
required or contingent, or such amounts are liquidated or determinable) owing by
any Credit Party to Agent or any Lender,  and all covenants and duties regarding
such amounts, of any kind or nature, present or future, whether or not evidenced
by any note,  agreement or other instrument,  arising under the Agreement or any
of the  other  Loan  Documents.  This  term  includes  all  principal,  interest
(including  all interest  that  accrues  after the  commencement  of any case or
proceeding by or against any Credit Party in bankruptcy,  whether or not allowed
in such case or proceeding),  Fees, Charges,  expenses,  attorneys' fees and any
other sum chargeable to any Credit Party under the Agreement or any of the other
Loan Documents.

                  "Outsourcing  Contracts"  shall mean a contract or arrangement
pursuant to which one or more Credit  Parties  installs,  operates or  maintains
meter reading  systems to provide meter  information  for billing and management
purposes in return for a scheduled amount over a period of time, either directly
or through a joint venture with a utility or other industry participant.

                  "Overadvance" shall have the meaning assigned to it in Section
1.1(a)(iii).

                  "Patent License" shall mean rights under any written agreement
now owned or hereafter acquired by any Person granting any right with respect to
any invention on which a Patent is in existence.

                  "Patents"  shall mean all of the following in which any Person
now holds or hereafter  acquires  any  interest:  (a) all letters  patent of the
United States or of any other country, all registrations and recordings thereof,
and all  applications  for letters  patent of the United  States or of any other
country,  including  registrations,  recordings and  applications  in the United
States  Patent and  Trademark  Office or in any similar  office or agency of the
United  States  or any  territory  thereof,  or any other  country,  and (b) all
reissues,   continuations,   continuations-in-part,   divisions,  or  extensions
thereof.

                  "PBGC" shall mean the Pension Benefit Guaranty Corporation.

                  "Pension Plan" shall mean a Plan described in Section 3(2) of 
ERISA.

                  "Permitted    Encumbrances"    shall   mean   the    following
encumbrances:  (a) Liens for taxes or assessments or other governmental  Charges
not yet due and payable;  (b) pledges or deposits of money securing  obligations
under workmen's compensation,  unemployment insurance, social security or public
liability laws or similar legislation; (c) pledges or deposits of money securing
bids,  tenders,  contracts  (other than  contracts  for the payment of money) or
leases  to which any  Credit  Party is a party as  lessee  made in the  ordinary
course of business;  (d) deposits of money securing statutory obligations of any
Credit Party; (e) inchoate and unperfected workers', mechanics' or similar liens
arising in the ordinary course of business, so long as such Liens attach only to
Equipment, Fixtures or Real Estate; (f) carriers', warehousemen's, suppliers' or
other similar  possessory  liens arising in the ordinary  course of business and
securing  liabilities  in an  outstanding  aggregate  amount  not in  excess  of
$100,000  at any time,  so long as such  Liens  attach  only to  Inventory;  (g)
deposits securing, or in lieu of, surety, appeal or customs bonds in proceedings
to which any Credit Party is a party;  (h) any  attachment  or judgment lien not
constituting an Event of Default under Section 8.1(j); (i) zoning  restrictions,
easements,  licenses,  or other  restrictions  on the use of any Real  Estate or
other minor irregularities in title (including leasehold title) thereto, so long
as the same do not materially  impair the use, value, or  marketability  of such
Real Estate;  (j) Liens  existing on the Closing  Date and listed in  Disclosure
Schedule (6.7);  (k) presently  existing or hereafter  created Liens in favor of
Agent,  on behalf  of  Lenders;  (l) Liens  created  after the  Closing  Date by
conditional sale or other title retention agreements  (including Capital Leases)
or in connection with purchase money  Indebtedness with respect to Equipment and
Fixtures  acquired  by any  Credit  Party in the  ordinary  course of  business,
involving the incurrence of an aggregate  amount of purchase money  Indebtedness
and Capital Lease Obligations of not more than $1,250,000 outstanding at any one
time for all such  Liens  (provided  that such Liens  attach  only to the assets
subject to such purchase money debt and such  Indebtedness is incurred within 20
days  following  such purchase and does not exceed 100% of the purchase price of
the subject  assets);  and (m) other Liens securing  Indebtedness  not exceeding
$100,000 in the aggregate at any time outstanding,  so long as such Liens do not
attach to any Accounts or Inventory.

                  "Permitted Subsidiary" shall have the meaning assigned to it
in Section 6.1(a)(ii).

                  "Permitted Transfer" shall have the meaning assigned to it in
Section 6.8(f).

                  "Person"  shall  mean  any  individual,  sole  proprietorship,
partnership,  joint venture, trust,  unincorporated  organization,  association,
corporation, limited liability company, institution, public benefit corporation,
other entity or government (whether federal,  state,  county,  city,  municipal,
local, foreign, or otherwise,  including any instrumentality,  division, agency,
body or department thereof).

                  "Philadelphia  Agreement"  shall mean that  certain  Automatic
Meter Reading System Service Contract, dated as of July 10, 1997, by and between
Itron and the  Philadelphia  Municipal  Authority,  as amended  by that  certain
Amendment I to Automatic  Meter  Reading  System  Service  Contract  dated as of
August 14, 1998, as the same may be amended, supplemented, restated or otherwise
modified from time to time.

                  "Plan" shall mean, at any time, an "employee benefit plan," as
defined in Section 3(3) of ERISA,  that any Credit Party or any ERISA  Affiliate
maintains,  contributes  to or has an  obligation  to contribute to on behalf of
participants who are or were employed by any Credit Party.

                  "Prior  Lender" shall mean Bank of America  National Trust and
Savings  Association,  as agent for itself,  U.S. Bank National  Association and
each other lender party to the Prior Lender Agreement.

                  "Prior  Lender   Agreement"   shall  mean  that  certain  Loan
Agreement dated as of September 30, 1998, by and among Itron,  as borrower,  the
lenders  party  thereto,   and  Bank  of  America  National  Trust  and  Savings
Association, as agent, as the same may have been amended, restated, supplemented
or otherwise modified from time to time.

                  "Prior  Lender  Obligations"  shall  mean all  obligations  of
Borrowers to Prior Lender pursuant to the Prior Lender Agreement,  and all other
agreements,  instruments or documents executed and delivered to, or in favor of,
Prior Lender in connection therewith or the transactions contemplated thereby.

                  "Proceeds"  shall mean  "proceeds," as such term is defined in
the  Code,  including  (a) any and all  proceeds  of any  insurance,  indemnity,
warranty or guaranty payable to any Person from time to time with respect to any
of the Collateral, (b) any and all payments (in any form whatsoever) made or due
and payable to any Person from time to time in connection with any  requisition,
confiscation,  condemnation,  seizure  or  forfeiture  of all or any part of the
Collateral  by any  Governmental  Authority (or any Person acting under color of
governmental  authority),  (c) any claim of any Person against third parties (i)
for past,  present or future  infringement of any Patent or Patent  License,  or
(ii) for past,  present or future  infringement  or dilution  of any  Copyright,
Copyright License, Trademark or Trademark License, or for injury to the Goodwill
associated  with any Trademark or Trademark  License,  (d) any recoveries by any
Person  against  third  parties  with  respect  to  any  litigation  or  dispute
concerning any of the Collateral, and (e) any and all other amounts from time to
time paid or payable under or in  connection  with any of the  Collateral,  upon
disposition or otherwise.

                  "Pro  Forma"  shall mean the  unaudited  consolidated  balance
sheet of Itron and its  Subsidiaries  as of November 30, 1999,  after giving pro
forma effect to the Related Transactions.

                  "Projections"  shall mean Borrowers'  forecasted:  (a) balance
sheets;  (b)  profit  and loss  statements;  (c) cash flow  statements;  and (d)
capitalization   statements,   all  prepared  on  a  Subsidiary-bySubsidiary  or
division-by-division  basis,  if applicable,  and otherwise  consistent with the
historical  Financial  Statements of the  Borrowers,  together with  appropriate
supporting details and a statement of underlying assumptions.

                  "Pro Rata  Share"  shall  mean,  with  respect to all  matters
relating to any Lender,  with  respect to the  Revolving  Loan or the Swing Line
Loan,  the  percentage  obtained by dividing (a) the Revolving  Loan  Commitment
(including  the Swing Line  Commitment  as a subset of the Swing  Line  Lender's
Revolving Loan  Commitment)  of such Lender by (b) the aggregate  Revolving Loan
Commitments of all Lenders,  including the Swing Line Commitment of all Lenders,
as any such  percentages  may be adjusted by assignments  permitted  pursuant to
Section 9.1.

                  "Qualified Plan" shall mean a Pension Plan that is intended to
be tax-qualified under Section 401(a) of the IRC.

                  "Qualified  Public  Offering"  shall mean a firm  underwritten
secondary  public  offering of common stock  registered  on form S-1, S-2 or S-3
under the Securities  Act by a nationally  recognized  investment  banking firm,
resulting  in net  proceeds  to the  issuer of at least  $10,000,000,  and after
giving  effect to which the issuer shall be qualified  for listing on the NASDAQ
National Market, the American Stock Exchange or the New York Stock Exchange.

                  "Real Estate" shall have the meaning assigned to it in Section
 3.6.

                  "Refinancing" shall mean the repayment in full by Borrowers of
the Prior Lender Obligations on the Closing Date.

                  "Refunded Swing Line Loan" shall have the meaning assigned to 
it in Section 1.1(b)(iii).

                  "Related  Transactions" shall mean the initial borrowing under
the Revolving  Loan on the Closing  Date,  the  Refinancing,  the payment of all
fees,  costs and expenses  associated  with all of the foregoing,  the merger of
Itron Minnesota, Inc., a Minnesota corporation, and Itron Manufacturing, Inc., a
Washington corporation,  into Itron and the execution and delivery of all of the
Related Transactions Documents.

                  "Related   Transactions   Documents"   shall   mean  the  Loan
Documents,  the Plan and Agreement of Merger  between  Itron,  Itron  Minnesota,
Inc.,  a Minnesota  corporation,  and Itron  Manufacturing,  Inc.,  a Washington
corporation,  and all other  documents  executed in connection  with the Related
Transactions.

                  "Release" shall mean any release,  threatened release,  spill,
emission,  leaking, pumping,  pouring,  emitting,  emptying,  escape, injection,
deposit,  disposal,  discharge,  dispersal,  dumping,  leaching or  migration of
Hazardous Material in the indoor or outdoor environment,  including the movement
of Hazardous Material through or in the air, soil,  surface water,  ground water
or property.

                  "Requisite  Revolving  Lenders"  shall mean Lenders having (a)
more than  sixty-six  and  two-thirds  percent (66 2/3%) of the  Revolving  Loan
Commitments of all Lenders,  or (b) if the Revolving Loan  Commitments have been
terminated,  more  than  sixty-six  and  two-thirds  percent  (66  2/3%)  of the
aggregate  outstanding  amount of the  Revolving  Loan (with the Swing Line Loan
being  attributed  to  the  Lender  making  such  Loan)  and  Letter  of  Credit
Obligations.

                  "Reserves"  shall mean,  with respect to the Borrowing Base of
any  Borrower,  (a)  reserves  established  by Agent  from time to time  against
Eligible Inventory pursuant to Section 5.9, (b) reserves established pursuant to
Section  5.4(c),  and (c) such  other  reserves  against  Eligible  Accounts  or
Eligible  Inventory of any  Borrower  that Agent may, in its  reasonable  credit
judgment,  establish from time to time.  Without  limiting the generality of the
foregoing,  Reserves  established  to ensure the  payment  of  accrued  Interest
Expenses or Indebtedness shall be deemed to be a reasonable  exercise of Agent's
credit judgment.

                  "Restricted  Payment" shall mean,  with respect to any Person:
(a)  the  declaration  or  payment  of any  dividend  or the  incurrence  of any
liability to make any other payment or distribution of cash or other property or
assets in  respect of such  Person's  Stock;  (b) any  payment on account of the
purchase,  redemption,  defeasance,  sinking  fund or other  retirement  of such
Person's  Stock or any other payment or  distribution  made in respect  thereof,
either  directly or  indirectly;  (c) any payment or prepayment of principal of,
premium,  if any, or interest,  fees or other charges on or with respect to, and
any  redemption,  purchase,  retirement,  defeasance,  sinking  fund or  similar
payment and any claim for rescission with respect to, any  Subordinated  Debt of
such Person; (d) any payment made to redeem, purchase,  repurchase or retire, or
to obtain the surrender of, any outstanding warrants, options or other rights to
acquire Stock of such Person now or hereafter outstanding;  (e) any payment of a
claim for the  rescission  of the purchase or sale of, or for  material  damages
arising from the purchase or sale of, any shares of such Person's  Stock or of a
claim for  reimbursement,  indemnification  or  contribution  arising  out of or
related to any such claim for  damages or  rescission;  (f) any  payment,  loan,
contribution, or other transfer of funds or other property to any Stockholder of
such  Person  other  than  payment of  compensation  in the  ordinary  course of
business to Stockholders  who are employees of such Person;  and (g) any payment
of  management  fees (or other fees of a similar  nature) by such  Person to any
Stockholder of such Person or its Affiliates.

                  "Restructuring  Charges" shall mean, to the extent  recognized
in determining Net Income,  cash  restructuring  charges or other  extraordinary
cash  expenditures  incurred or accrued by Itron or any of its  Subsidiaries  in
connection with the  restructuring,  closing,  consolidation and  reorganization
activities described in Disclosure Schedule (A).

                  "Retention  Amount"  shall mean,  with respect to any Unbilled
Account,  the amount  retained  or held back by the  Account  Debtor  subject to
satisfaction  of any  condition,  milestone  or other  requirement  (other  than
installation or acceptance of the underlying goods or completion of services).

                  "Retiree Welfare Plan" shall mean, at any time, a Welfare Plan
that provides for  continuing  coverage or benefits for any  participant  or any
beneficiary of a participant after such participant's termination of employment,
other than  continuation  coverage provided pursuant to Section 4980B of the IRC
and  at  the  sole  expense  of  the  participant  or  the  beneficiary  of  the
participant.

                  "Revolving Credit Advance" shall have the meaning assigned to
it in Section 1.1(a)(i).

                  "Revolving   Lenders"   shall   mean,   as  of  any   date  of
determination, Lenders having a Revolving Loan Commitment.

                  "Revolving Loan" shall mean as the context may require, at any
time, (a) the aggregate amount of Revolving  Credit Advances  outstanding to any
Borrower or to all Borrowers plus (b) the aggregate Letter of Credit Obligations
incurred on behalf of any Borrower or all Borrowers.

                  "Revolving Loan  Commitment"  shall mean (a) as to any Lender,
the  aggregate  commitment  of such  Lender to make  Revolving  Credit  Advances
(including  without  duplication  Swing Line Advances) or incur Letter of Credit
Obligations  as set forth in the signature  page to the Agreement or in the most
recent Assignment  Agreement  executed by such Lender and (b) as to all Lenders,
the  aggregate  commitment  of all  Lenders to make  Revolving  Credit  Advances
(including  without  duplication  Swing Line Advances) or incur Letter of Credit
Obligations,  which aggregate  commitment  shall be Thirty-Five  Million Dollars
($35,000,000)  on the Closing Date,  as such amount may be adjusted,  if at all,
from time to time in accordance with the Agreement.

                  "Revolving Note" shall have the meaning assigned to it in
Section 1.1(a)(ii).

                  "SCE" shall mean Southern California Edison Company.

                  "SCE  Agreement"   shall  mean  that  certain   Agreement  for
Automated Meter Reading  Services,  dated as of May 28, 1999,  between Itron and
SCE, as the same may be amended,  supplemented,  restated or otherwise  modified
from time to time.

                  "SCE  Equipment"  shall mean all  "Equipment"  as such term is
defined in the SCE Agreement as of the Closing Date.

                  "SCE  Project"  shall mean the  provision  by Itron of utility
meter reading services in accordance with the terms of the SCE Agreement.

                  "SCE Subsidiary" shall mean a wholly-owned Subsidiary of Itron
that will be a special  purpose  vehicle for the sole purpose of performing  the
SCE Project.

                  "Schedule of Documents" shall mean the schedule, including all
appendices,  exhibits  or  schedules  thereto,  listing  certain  documents  and
information  to be delivered in connection  with the  Agreement,  the other Loan
Documents and the  transactions  contemplated  thereunder,  substantially in the
form attached hereto as Annex D.

                  "Securities Act" shall mean the provisions of the Securities
Act of 1933, 15 U.S.C. Sections 77a et seq.

                  "Securities  Exchange  Act" shall mean the  provisions  of the
Securities Exchange Act of 1934, 15 U.S.C. Sections 78a et seq.

                  "Security Agreement" shall mean the Security Agreement of even
date herewith  entered into by and among Agent, on behalf of itself and Lenders,
and each Credit Party signatory thereto.

                  "Solvent"  shall  mean,  with  respect  to  any  Person  on  a
particular  date,  that on such date (a) the fair value of the  property of such
Person is greater than the total  amount of  liabilities,  including  contingent
liabilities, of such Person; (b) the present fair salable value of the assets of
such  Person  is not less  than the  amount  that  will be  required  to pay the
probable  liability  of such  Person on its debts as they  become  absolute  and
matured;  (c) such Person does not intend to, and does not believe that it will,
incur debts or liabilities beyond such Person's ability to pay as such debts and
liabilities  mature;  and (d)  such  Person  is not  engaged  in a  business  or
transaction,  and is not about to engage in a business or transaction, for which
such Person's  property would  constitute an  unreasonably  small  capital.  The
amount of contingent  liabilities  (such as  litigation,  guaranties and pension
plan  liabilities) at any time shall be computed as the amount that, in light of
all the facts and circumstances existing at the time, represents the amount that
can be reasonably be expected to become an actual or matured liability.

                  "SPV Subsidiary" shall mean an Existing SPV Subsidiary and any
other wholly-owned Subsidiary of Itron that is a special purpose vehicle created
for the sole purpose of performing one or more Outsourcing Contracts.

                  "Stock" shall mean all shares, options,  warrants,  general or
limited   partnership   interests  or  other  equivalents   (regardless  of  how
designated)  of or in a corporation,  partnership  or equivalent  entity whether
voting  or  nonvoting,  including  common  stock,  preferred  stock or any other
"equity  security"  (as such term is defined in Rule 3a11-1 of the General Rules
and Regulations  promulgated by the Securities and Exchange Commission under the
Securities Exchange Act).

                  "Stockholder"  shall mean,  with  respect to any Person,  each
holder of Stock of such Person.

                  "Subordinated  Debt"  shall  mean  the  Indebtedness  of Itron
evidenced by the  Subordinated  Notes and any other  Indebtedness  of any Credit
Party subordinated to the Obligations in a manner and form satisfactory to Agent
and Lenders in their sole discretion,  as to right and time of payment and as to
any other rights and remedies thereunder.

                  "Subordinated  Debt  Documents"  shall  mean the  Subordinated
Notes and all other agreements, instruments, documents and certificates executed
in connection therewith.

                  "Subordinated  Notes"  shall  mean (a)  those  certain  6 3/4%
Subordinated Notes due 2004 issued by Itron, together with the Indenture between
Itron and Chemical Trust Company of  California,  a California  corporation,  as
trustee,  dated as of March 12, 1997, and (b) those certain 6 3/4%  Subordinated
Notes due 2004 issued by Itron,  together with the  Indenture  between Itron and
Chase  Manhattan  Trust Company of California,  formerly known as Chemical Trust
Company of California,  a California corporation,  as trustee, dated as of March
12, 1999.

                  "Subsidiary"  shall mean, with respect to any Person,  (a) any
corporation  of which an  aggregate  of more than 50% of the  outstanding  Stock
having  ordinary  voting  power to elect a majority of the board of directors of
such corporation (irrespective of whether, at the time, Stock of any other class
or classes of such  corporation  shall have or might have voting power by reason
of the happening of any  contingency)  is at the time,  directly or  indirectly,
owned legally or beneficially by such Person or one or more Subsidiaries of such
Person,  or with  respect  to which  any such  Person  has the  right to vote or
designate the vote of more than 50% of such Stock  whether by proxy,  agreement,
operation of law or  otherwise,  and (b) any  partnership  or limited  liability
company in which such Person or one or more  Subsidiaries  of such Person  shall
have an interest  (whether in the form of voting or  participation in profits or
capital  contribution) of more than 50% or of which any such Person is a general
partner or may exercise  the powers of a general  partner;  provided,  that each
reference to a "Subsidiary"  of Itron in this  Agreement  shall not include Star
Data Services, LLC or Kommco.

                  "Subsidiary  Guaranty"  shall mean the Subsidiary  Guaranty of
even date  herewith  executed by each  Subsidiary  of each  Borrower in favor of
Agent, on behalf of itself and Lenders.

                  "Supermajority  Revolving  Lenders"  shall mean Lenders having
(a) 80% or more of the Revolving Loan Commitments of all Lenders,  or (b) if the
Revolving Loan Commitments  have been  terminated,  80% or more of the aggregate
outstanding  amount  of the  Revolving  Loan  (with the  Swing  Line Loan  being
attributed to the Lender making such Loan) and Letter of Credit Obligations.

                  "Swing Line Advance" shall have the meaning assigned to it in 
Section 1.1(b)(i).

                  "Swing Line Availability" shall have the meaning assigned to
it in Section 1.1(b)(i).

                  "Swing  Line  Commitment"  shall  mean,  as to the Swing  Line
Lender,  the  commitment of the Swing Line Lender to make Swing Line Advances as
set forth on the signature page to the Agreement, which commitment constitutes a
subfacility of the Revolving Loan Commitment of the Swing Line Lender.

                  "Swing Line Lender" shall mean GE Capital.

                  "Swing Line Loan" shall mean,  as the context may require,  at
any  time,  the  aggregate  amount of Swing  Line  Advances  outstanding  to any
Borrower or to all Borrowers.

                  "Swing  Line  Loan  Participation  Certificate"  shall  mean a
certificate delivered pursuant to Section 1.1(b)(iv).

                  "Swing Line Note" shall have the meaning assigned to it in
Section 1.1(b)(ii).

                  "Taxes" shall mean taxes, levies, imposts, deductions, Charges
or  withholdings,  and all  liabilities  with respect  thereto,  excluding taxes
imposed on or measured by the income of Agent or a Lender.

                  "Termination  Date" shall mean the date on which (a) the Loans
have been  indefeasibly  repaid in full,  (b) all  other  Obligations  under the
Agreement and the other Loan Documents have been  completely  discharged  (other
than  Obligations  that expressly  survive the Termination  Date), (c) Letter of
Credit   Obligations  have  been  terminated,   replaced,   guaranteed  or  cash
collateralized  in accordance with Annex B, and (d) none of Borrowers shall have
any further right to borrow any monies under the Agreement.

                  "Third  Party  Interactives"  shall mean all Persons with whom
any  Credit  Party  exchanges  data  electronically  in the  ordinary  course of
business, including customers,  suppliers, third party vendors,  subcontractors,
processors-converters, shippers and warehousemen.

                  "Title  IV Plan"  shall  mean a  Pension  Plan  (other  than a
Multiemployer  Plan)  that is  covered  by Title IV of ERISA and that any Credit
Party or ERISA  Affiliate  maintains,  contributes  to or has an  obligation  to
contribute to on behalf of participants who are or were employed by any of them.

                  "Total  Capital  Expenditures"  shall  mean  the  sum  of  the
following  amounts  (without  duplication):  (a)  Capital  Expenditures  made by
Borrowers and their Subsidiaries other than expenditures made in connection with
the Outsourcing Contracts of Borrowers and their Subsidiaries;  (b) expenditures
made in  connection  with the  Outsourcing  Contracts  of  Borrowers  and  their
Subsidiaries  (including capital expenditures and labor and installation costs),
to the extent that all or a portion of such  expenditures  are not financed by a
third  party  lender  (other than  Loans);  and (c) cash  payments or  like-kind
exchanges  made by  Borrowers  and their  Subsidiaries  in  connection  with the
financing of Outsourcing  Contracts or similar  Indebtedness  (other than Loans)
incurred  by any  Borrower  or its  Subsidiaries  that is  permitted  under this
Agreement.

                  "Trademark  License"  shall  mean  rights  under  any  written
agreement  now owned or hereafter  acquired by any Person  granting any right to
use any Trademark.

                  "Trademarks"  shall  mean all of the  following  now  owned or
existing or  hereafter  adopted or acquired by any Person:  (a) all  trademarks,
trade names,  corporate  names,  business  names,  trade styles,  service marks,
logos, other source or business  identifiers,  prints and labels on which any of
the foregoing have appeared or appear,  designs and general  intangibles of like
nature (whether  registered or  unregistered),  all registrations and recordings
thereof, and all applications in connection therewith,  including registrations,
recordings and  applications in the United States Patent and Trademark Office or
in any similar  office or agency of the United  States,  any state or  territory
thereof,  or any other country or any  political  subdivision  thereof;  (b) all
extensions  or  renewals  thereof;  and  (c)  all  goodwill  associated  with or
symbolized by any of the foregoing.

                  "Turnkey  Contracts" shall mean contracts between or among one
or more Credit Parties and their  Subsidiaries on the one hand and third parties
on the other hand for the purchase of meter reading  systems,  pursuant to which
such Credit Parties and their  Subsidiaries  remain responsible for installation
of such systems,  and the third party's  obligation to pay and responsibility to
operate systems occurs upon installation or acceptance of the system.

                  "Unbilled Accounts" shall mean an Account (a) arising from the
shipment of goods that have not been  installed  or accepted or from the related
installation  services  and (b) for  which an  invoice  has not been sent to the
applicable Account Debtor.

                  "Unfunded  Pension  Liability"  shall mean,  at any time,  the
aggregate  amount,  if any,  of the sum of (a) the  amount by which the  present
value of all accrued  benefits  under each Title IV Plan exceeds the fair market
value  of all  assets  of such  Title  IV Plan  allocable  to such  benefits  in
accordance  with  Title  IV of  ERISA,  all  determined  as of the  most  recent
valuation date for each such Title IV Plan using the actuarial  assumptions  for
funding  purposes  in effect  under such Title IV Plan,  and (b) for a period of
five years  following  a  transaction  that might  reasonably  be expected to be
covered by Section 4069 of ERISA, the liabilities  (whether or not accrued) that
could be avoided by any Credit Party or any ERISA  Affiliate as a result of such
transaction.

                  "UTS" shall mean Utility Translation Systems, Inc., a North 
Carolina corporation.

                  "UTS   Borrowing   Base"  shall  mean,   as  of  any  date  of
determination by Agent, from time to time, an amount equal to up to 85% of UTS's
Eligible Accounts, less any Reserves established by Agent at such time.

                  "Welfare Plan" shall mean a Plan described in Section 3(1) of
ERISA.

                  "Year  2000  Assessment"  shall mean a  comprehensive  written
assessment  of the nature and extent of each Credit  Party's Year 2000  Problems
and Year 2000  Date-Sensitive  Systems/Components,  including Year 2000 Problems
regarding data exchanges with Third Party Interactives.

                  "Year 2000  Corrective  Actions" shall mean, as to each Credit
Party,  all actions  necessary to eliminate  such Person's  Year 2000  Problems,
including computer code enhancements and revisions, upgrades and replacements of
Year  2000   Date-Sensitive   Systems/Components,   and   coordination  of  such
enhancements,   revisions,   upgrades   and   replacements   with  Third   Party
Interactives.

                  "Year 2000  Corrective  Plan" shall mean, with respect to each
Credit Party, a comprehensive plan to eliminate all of its Year 2000 Problems on
or before  December  31,  1999,  including  (a) computer  code  enhancements  or
revisions,   (b)   upgrades  or   replacements   of  Year  2000   Date-Sensitive
Systems/Components,  (c) test and validation  procedures,  (d) an implementation
time line and budget,  and (e)  designation  of specific  employees  who will be
responsible for planning, coordinating and implementing each phase or subpart of
the Year 2000 Corrective Plan.

                  "Year 2000 Date-Sensitive  System/Component" shall mean, as to
any Person, any system software,  network software,  applications software, data
base,  computer  file,  embedded  microchip,  firmware or hardware that accepts,
creates,  manipulates,   sorts,  sequences,   calculates,  compares  or  outputs
calendar-related  data  accurately;  such systems and  components  shall include
mainframe computers, file server/client systems, computer workstations, routers,
hubs,  other  network-related  hardware,  and other  computer-related  software,
firmware or hardware and information processing and delivery systems of any kind
and  telecommunications  systems and other communications  processors,  security
systems, alarms, elevators and HVAC systems.

                  "Year 2000  Implementation  Testing"  shall  mean,  as to each
Credit Party,  (a) the performance of test and validation  procedures  regarding
Year 2000 Corrective  Actions on a unit basis and on a systemwide basis, (b) the
performance of test and validation procedures regarding data exchanges among the
Credit Parties' Year 2000 Date-Sensitive  Systems/Components  and data exchanges
with  Third  Party  Interactives,  and  (c) the  design  and  implementation  of
additional  Year  2000  Corrective   Actions,   the  need  for  which  has  been
demonstrated by test and validation procedures.

                  "Year 2000 Problems"  shall mean,  with respect to each Credit
Party,  limitations on the capacity or readiness of any such Credit Party's Year
2000 Date-Sensitive Systems/Components to accurately accept, create, manipulate,
sort,  sequence,  calculate,  compare or output calendar date  information  with
respect to calendar year 1999 or any  subsequent  calendar year  beginning on or
after January 1, 2000 (including leap year computations), including exchanges of
information  among  Year 2000  Date-Sensitive  Systems/Components  of the Credit
Parties and  exchanges  of  information  among the Credit  Parties and Year 2000
Date-Sensitive  Systems/Components of Third Party Interactives and functionality
of peripheral interfaces, firmware and embedded microchips.

                  Rules of construction with respect to accounting terms used in
the Agreement or any of the other Loan Documents  shall be as set forth in Annex
G. All other  undefined  terms  contained  in any of the Loan  Documents  shall,
unless the context  indicates  otherwise,  have the meanings provided for by the
Code as in effect in the State of  California to the extent the same are used or
defined therein. Unless otherwise specified,  references in the Agreement or any
of the  Appendices  to a section,  subsection  or clause refer to such  section,
subsection or clause as contained in the Agreement. The words "herein," "hereof"
and  "hereunder"  and other words of similar  import refer to the Agreement as a
whole, including all Annexes,  Exhibits and Schedules, as the same may from time
to  time  be  amended,  restated,  modified  or  supplemented,  and  not  to any
particular section,  subsection or clause contained in the Agreement or any such
Annex, Exhibit or Schedule.

                  Wherever  from the context it appears  appropriate,  each term
stated in either the  singular  or plural  shall  include the  singular  and the
plural,  and pronouns  stated in the masculine,  feminine or neuter gender shall
include the  masculine,  feminine  and neuter  genders.  The words  "including,"
"includes"  and "include"  shall be deemed to be followed by the words  "without
limitation"; the word "or" is not exclusive; references to Persons include their
respective  successors  and  assigns  (to the  extent  and  only  to the  extent
permitted  by the  Loan  Documents)  or,  in the case of  governmental  Persons,
Persons succeeding to the relevant functions of such Persons; and all references
to statutes and related regulations shall include any amendments of the same and
any  successor  statutes and  regulations.  Whenever  any  provision in any Loan
Document  refers to the knowledge (or an analogous  phrase) of any Credit Party,
such words are intended to signify  that such Credit Party has actual  knowledge
or awareness of a particular  fact or circumstance or that such Credit Party, if
it had exercised  reasonable  diligence,  would have known or been aware of such
fact or circumstance.





<PAGE>
                                 CREDIT AGREEMENT
                             ANNEX G (Section 6.10)
                                       to
                                CREDIT AGREEMENT


                               FINANCIAL COVENANTS

                  Borrowers  shall not breach or fail to comply  with any of the
following financial  covenants,  each of which shall be calculated in accordance
with GAAP consistently applied:



                  (a) Maximum  Total Capital  Expenditures.  Borrowers and their
Subsidiaries on a consolidated  basis shall not make Total Capital  Expenditures
during any Fiscal Year that exceed $15,000,000 in the aggregate;  provided, that
in no event shall "Total  Capital  Expenditures"  include  expenditures  made to
repair, modify or replace any fixed asset or improvement damaged or destroyed by
or as a result of any insurable event to the extent that the aggregate amount of
all such expenditures  does not exceed the amount of the net insurance  proceeds
payable to  Borrowers  and their  Subsidiaries  with  respect to such  insurable
event.

                  (b) Minimum Fixed Charge Coverage  Ratio.  Borrowers and their
Subsidiaries  on a  consolidated  basis  shall  have,  at the end of each Fiscal
Quarter  set forth  below,  a Fixed  Charge  Coverage  Ratio for the  respective
periods set forth below of not less than the following:

            Period                                                Ratio

     1/1/00 through 3/31/00                                        1.0
     1/1/00 through 6/30/00                                        1.5
     1/1/00 through 9/30/00                                        1.5
     1/1/00 through 12/31/00                                       1.5
     at the end of each Fiscal Quarter thereafter
     for the 12-month period then ended                            1.5

                  (c) Minimum  EBITDA.  Borrowers  and their  Subsidiaries  on a
consolidated  basis  shall  have,  at the end of each  Fiscal  Quarter set forth
below,  EBITDA for the  respective  periods set forth below of not less than the
following:

           Period                                            EBITDA

    10/1/99 through 12/31/99                              $(16,500,000)
     1/1/00 through 3/31/00                               $  3,500,000 
     1/1/00 through 6/30/00                               $ 11,000,000
     1/1/00 through 9/30/00                               $ 17,000,000 
     1/1/00 through 12/31/00                              $ 25,000,000 
     at the end of each Fiscal Quarter thereafter
     or the 12-month period then ended                    $ 25,000,000

                  (d) Maximum Outsourcing Expenditures.  Expenditures made as of
any date in  connection  with the  Outsourcing  Contracts of Borrowers and their
Subsidiaries  (including capital expenditures and labor and installation costs),
to the extent  that as of such date all or a portion of such  expenditures  have
not been  financed by a third  party  lender  (other than any Loans),  shall not
exceed $40,000,000 in the aggregate.


                  (e) Restructuring Charges. Borrowers and their Subsidiaries on
a consolidated  basis shall not have  Restructuring  Charges for the period from
October 1, 1999 through December 31, 1999 in excess of $13,500,000.

                  Unless otherwise  specifically provided herein, any accounting
term used in the Agreement shall have the meaning customarily given such term in
accordance with GAAP, and all financial computations hereunder shall be computed
in accordance with GAAP consistently applied. That certain items or computations
are explicitly  modified by the phrase "in accordance with GAAP" shall in no way
be construed to limit the  foregoing.  If any  "Accounting  Changes" (as defined
below)  occur and such  changes  result in a change  in the  calculation  of the
financial covenants,  standards or terms used in the Agreement or any other Loan
Document, then Borrowers,  Agent and Lenders agree to enter into negotiations in
order to amend such provisions of the Agreement so as to equitably  reflect such
Accounting  Changes with the desired  result that the  criteria  for  evaluating
Borrowers' and their  Subsidiaries'  financial condition shall be the same after
such  Accounting  Changes  as if such  Accounting  Changes  had not  been  made;
provided,  that the  agreement  of Requisite  Revolving  Lenders to any required
amendments  of  such  provisions  shall  be  sufficient  to  bind  all  Lenders.
"Accounting Changes" means (i) changes in accounting  principles required by the
promulgation of any rule, regulation,  pronouncement or opinion by the Financial
Accounting  Standards  Board  of the  American  Institute  of  Certified  Public
Accountants  (or any  successor  thereto or any agency with similar  functions),
(ii) changes in accounting  principles  concurred in by any Borrower's certified
public accountants,  (iii) purchase accounting adjustments under A.P.B. 16 or 17
and EITF 88-16,  and the  application of the accounting  principles set forth in
FASB 109,  including  the  establishment  of reserves  pursuant  thereto and any
subsequent  reversal  (in  whole  or in  part)  of such  reserves,  and (iv) the
reversal  of  any  reserves  established  as a  result  of  purchase  accounting
adjustments. All such adjustments resulting from expenditures made subsequent to
the Closing Date (including  capitalization  of costs and expenses or payment of
pre-Closing  Date  liabilities)  shall be treated as  expenses in the period the
expenditures  are made and deducted as part of the calculation of EBITDA in such
period.  If Agent,  Borrowers  and  Requisite  Revolving  Lenders agree upon the
required  amendments,  then after appropriate  amendments have been executed and
the underlying Accounting Change with respect thereto has been implemented,  any
reference  to GAAP  contained  in the  Agreement  or in any other Loan  Document
shall, only to the extent of such Accounting Change,  refer to GAAP consistently
applied after giving effect to the  implementation of such Accounting Change. If
Agent,  Borrowers and Requisite Revolving Lenders cannot agree upon the required
amendments within 30 days following the date of implementation of any Accounting
Change,  then  all  Financial  Statements  delivered  and  all  calculations  of
financial  covenants  and  other  standards  and  terms in  accordance  with the
Agreement  and the other Loan  Documents  shall be prepared,  delivered and made
without regard to the underlying Accounting Change.





                  FIRST AMENDMENT TO CREDIT AGREEMENT

                  THIS FIRST  AMENDMENT  TO CREDIT  AGREEMENT  ("Amendment")  is
entered  into as of February 28,  2000,  by and among ITRON,  INC., a Washington
corporation,  ("Itron"), and UTILITY TRANSLATION SYSTEMS, INC., a North Carolina
corporation  ("UTS"),  (Itron and UTS are  sometimes  collectively  referred  to
herein as the  "Borrowers" and  individually as a "Borrower");  the other Credit
Parties  signatory  hereto;  the lenders  signatory hereto (each  individually a
"Lender"  and  collectively   the  "Lenders");   and  GENERAL  ELECTRIC  CAPITAL
CORPORATION,  a New York corporation (in its individual capacity, "GE Capital"),
for  itself,  as a Lender,  and as  administrative  agent for  Lenders  (in such
capacity, "Agent").

                                    RECITALS

                  A.  Borrowers,  the other  Credit  Parties  signatory  hereto,
Lenders,  and Agent have entered into that certain Credit  Agreement dated as of
January 18, 2000 (the "Credit  Agreement"),  pursuant to which Agent and Lenders
are providing  financial  accommodations to or for the benefit of Borrowers upon
the terms and conditions  contained  therein.  Unless otherwise  defined herein,
capitalized  terms or matters of construction  defined or established in Annex A
to the  Credit  Agreement  shall be applied  herein as  defined  or  established

therein.

                  B.  Borrowers  have  requested  that  Agent and  Lenders  make
certain amendments to the Credit Agreement, and Agent and Lenders are willing to
do so subject to the terms and conditions of this Amendment.

                                    AGREEMENT

                  NOW, THEREFORE,  in consideration of the continued performance
by  Borrowers  and each other  Credit  Party of their  respective  promises  and
obligations  under the Credit  Agreement and the other Loan  Documents,  and for
other good and valuable consideration,  the receipt and sufficiency of which are
hereby  acknowledged,  Borrowers,  the other Credit  Parties  signatory  hereto,
Lenders, and Agent hereby agree as follows:

                  1.  Ratification  and  Incorporation  of Credit  Agreement and
other Loan Documents.  Except as expressly  modified under this  Amendment,  (a)
each of each Borrower and each other Credit Party hereby acknowledges, confirms,
and  ratifies  all of the terms and  conditions  set forth in,  and all of their
respective obligations under, the Credit Agreement and the other Loan Documents,
including the provisions of Section 12 of the Credit  Agreement,  and (b) all of
the terms and  conditions  set forth in the Credit  Agreement and the other Loan
Documents  are  incorporated  herein by this  reference  as if set forth in full
herein.

                  2.       Amendments to Credit Agreement

                           a.       Paragraph (a) of Annex B of the Credit 
Agreement is hereby amended by deleting the reference to "Ten Million Dollars 
($10,000,000)" and replacing it with "Fifteen Million Dollars ($15,000,000)."

                           b.       Paragraph (c) of Annex G of the Credit 
Agreement is hereby amended by deleting the reference to "$(16,500,000)" and 
replacing it with "($71,000,000)."

                           C.      Paragraph (e) of Annex G of the Credit 
Agreement is hereby amended by deleting the reference to $13,500,000," and 
replacing it with "$13,750,000."

                  3. Consent. Notwithstanding any contrary term or provision set
forth in the Credit  Agreement or the other Loan  Documents,  including  Section
6.13 of the Credit Agreement,  Agent and Lenders hereby consent,  subject to the
terms  and  conditions  set  forth  below,  to  the  cancellation  by  Itron  of
Indebtedness  owing to it by Star  Data  Services  in an  amount  not to  exceed
$1,260,000 in connection with the transaction  identified in Disclosure Schedule
(6.2).

                  4. Extension of Deadline for Certain Open Items. At Borrowers'
request,  Agent  agrees to extend the date for  delivery of the  following  open
items under and as defined in that  certain open items  letter  agreement  dated
January 18, 2000 (the "Open Items Letter"), as follows:

                           a.       Paragraph 1 of the Open Items Letter is 
amended to provide that on or before  March 31,  2000,  Borrowers  shall deliver
 or cause to be  delivered to Agent:


                  (i)      with respect to UTS, a tax good standing certificate
                           for the State of Washington;

                  (ii)     with   respect   to  Itron,   a  tax  good   standing
                           certificate for the District of Columbia; and

                  (iii)    with respect to Itron  Finance,  a tax good  standing
                           certificate for the State of Washington.

                           b.       Paragraph 2 of the Open Items Letter is 
amended to provide that on or before March 31, 2000,  Borrowers shall deliver or
cause to be delivered,  a copy of Itron's and UTS'  secretary's  certificate  to
Wells Fargo Bank,  N.A., that attaches a duly authorized and adopted  resolution
by the Board of Directors of such Borrower in form and substance satisfactory to
Wells  Fargo  Bank,  N.A.,  regarding  the  Lockbox  Account  Agreement  of such
Borrower.

If  Borrowers  are  unable to deliver or cause the  delivery  by the  applicable
period for delivery  therefor,  then such failure  shall  constitute an Event of
Default under the Credit Agreement.

                  5.  Conditions to  Effectiveness.  The  effectiveness  of this
Amendment is subject to satisfaction of each of the following conditions:

                           a.       receipt by Agent of copies of this Amendment
duly  executed  by  each  Borrower,   each  other  Credit  Party,   and  Lenders
constituting Requisite Lenders; and

                           b.       the absence of any Defaults or Events of 
Default as of the date hereof.

                  6. Entire Agreement. This Amendment,  together with the Credit
Agreement  and the other Loan  Documents,  is the entire  agreement  between the
parties  hereto  with  respect  to the  subject  matter  hereof  This  Amendment
supersedes  all  prior  and  contemporaneous  oral and  written  agreements  and
discussions with respect to the subject matter hereof.

                  7.  Representations and Warranties.  Each of each Borrower and
each other Credit Party hereby represents and warrants that the  representations
and  warranties  contained in the Credit  Agreement were true and correct in all
material  respects  when made and,  except to the extent  that (a) a  particular
representation  or warranty by its terms  expressly  applies  only to an earlier
date or (b) Borrowers or any other Credit Party,  as applicable,  has previously
advised Agent in writing as contemplated  under the Credit  Agreement,  are true
and correct in all material respects as of the date hereof.

                  8.  Guarantor  Consents.  By  signing  this  Amendment,   each
Guarantor hereby (a) ratifies and reaffirms,  as of the date hereof,  all of the
provisions of that certain Continuing  Guaranty dated as of January 18, 2000, in
favor of Agent,  (b) acknowledges  receipt of a copy of this Amendment,  and (c)
consents to all of the provisions of this Amendment.




                  9.       Miscellaneous.

                           a.       Counterparts. This Amendment may be executed
in identical counterpart copies, each of which shall be an original,  but all of
which  shall  constitute  one and the same  agreement.  Delivery  of an executed
counterpart  of a signature  page to this  Amendment by  facsimile  transmission
shall be effective as delivery of a manually executed counterpart thereof.

                           b.       Headings. Section headings used herein are
for convenience of reference  only, are not part of this Amendment,  and are not
to be taken into consideration in interpreting this Amendment.

                           C.       Recitals. The recitals set forth at the 
beginning  of this  Amendment  are  true and  correct,  and  such  recitals  are
incorporated into and are a part of this Amendment.

                           d.       Governing Law. This Amendment shall be 
governed by, and  construed  and enforced in  accordance  with,  the laws of the
State of California  applicable  to contracts  made and performed in such state,
without regard to the principles thereof regarding conflict of laws.

                           e.       STATUTE OF FRAUDS. ORAL AGREEMENTS OR ORAL 
COMMITMENTS TO LOAN MONEY, EXTEND CREDIT, OR TO FORBEAR FROM ENFORCING REPAYMENT
OF A DEBT ARE NOT ENFORCEABLE UNDER WASHINGTON LAW.

                           f.       Effect. Upon the effectiveness of this 
Amendment,  from and  after  the  date  hereof,  each  reference  in the  Credit
Agreement to "this  Agreement,"  "hereunder,"  "hereof," or words of like import
shall mean and be a reference to the Credit Agreement as amended hereby and each
reference  in the other Loan  Documents to the Credit  Agreement,  "thereunder,"
"thereof,"  or words of like import  shall mean and be a reference to the Credit
Agreement as amended hereby.

                           g.       No Novation. Except as expressly provided in
Sections  2,  3  and  4  of  this  Amendment,   the  execution,   delivery,  and
effectiveness of this Amendment shall not (i) limit, impair, constitute a waiver
of, or otherwise affect any right, power, or remedy of Agent or any Lender under
the Credit Agreement or any other Loan Document, (ii) constitute a waiver of any
provision  in the Credit  Agreement  or in any of the other Loan  Documents,  or
(iii) alter, modify,  amend, or in any way affect any of the terms,  conditions,
obligations,  covenants,  or agreements contained in the Credit Agreement or any
other Loan Document,  all of which are ratified and affirmed in all respects and
shall continue in full force and effect.

                           h.       Conflict of Terms. In the event of any 
inconsistency  between the provisions of this Amendment and any provision of the
Credit  Agreement,  the terms and provisions of this Amendment  shall govern and
control.

                  [Remainder of Page Intentionally Left Blank]












        IN WITNESS WHEREOF, this Amendment has been duly executed as of the date
first written above.

                                    ITRON, INC. as a Borrower and a Credit Party


                                    By:  /s/ David G. Remington            
                                    Name:    David G. Remington           
                                    Title:   Vice President & CEO         

                                    UTILITY TRANSLATION SYSTEMS, INC., as a
                                    Borrower and a Credit Party


                                    By:   /s/ David G. Remington            
                                    Name:     David G. Remington              
                                    Title:    Vice President & CEO       

                                    ITRON INTERNATIONAL, INC., as a Guarantor 
                                    and a Credit Party


                                    By:   /s/ David G. Remington            
                                    Name:     David G. Remington        
                                    Title:    Treasurer                   

                                    ITRON FINANCE, INC., as a Guarantor and a
                                    Credit Party


                                    By:   /s/ David G. Remington        
                                    Name:     David G. Remington         
                                    Title:    Vice President & CEO       

                                    GENERAL ELECTRIC CAPITAL CORPORATION, 
                                    as Agent and a Lender


                                    By:   /s/ Mark Mascia                    
                                              Mark Mascia
                                              Duly Authorized Signatory
  


Itron, Inc.                                                        
Statement of Computation of Ratios

<TABLE>
<CAPTION>
                                                                                           Year Ended December 31,
                                                       --------------------------------------------------------------------
                                                       ------------  ------------  ------------- ------------  ------------
                                                              1995          1996           1997         1998          1999
                                                       ------------  ------------  ------------- ------------  ------------
<S>                                                    <C>           <C>           <C>           <C>           <C>               
Earnings:
      Pre-tax income (loss)                                 16,401       (2,134)          1,635     (10,045)     (100,266)

Fixed charges:
      Converible debt amortization                                                          357          426           311
      Interest capitalized                                                   533            994          260
      Interest expense, gross                                  252           923          3,834        6,557         6,405
                                                       ------------  ------------  ------------- ------------  ------------

a) Fixed charges                                               252         1,456          5,185        7,243         6,716
                                                       ------------  ------------  ------------- ------------  ------------

b) Earnings for ratio                                       16,653         (678)          6,820      (2,802)      (93,550)

Ratios:
      Ratio of earnings to fixed charges (b/a)             66.0833           n/a         1.3153          n/a           n/a

</TABLE>








                   ITRON SUBSIDIARIES AND AFFILIATED COMPANIES

Domestic Subsidiaries:                    International Subsidiaries:

Itron, Inc.                               Itron Canada, Ltd.   (Canada)
Corporate Headquarters                    160 Wilkinson Rd., #22
2818 N. Sullivan Rd.                      Brampton, ON.  L6T 4Z4
Spokane, WA. 99216-1897
P.O. Box 15288 Spokane, WA. 99215-5288    Itron S.A.   (France)
                                          Immeuble Merblanc
Utility Translation Systems, Inc.         1, rue du Port au Prince
200 UTS Centre                            38200 Vienne, France
5909 Falls of the Neuse Road
Raleigh, North Carolina, 27609            Itron Ltd.   (England)
                                          Kilnbrook House
Genesis Services Pittsburgh, Inc.         Rose Kiln Lane
N 2818 Sullivan Rd                        Reading, Berkshire RG2 0BY
Spokane, WA  99216                        United Kingdom

Genesis Services Portland, Inc            Itron Australisia Pty Ltd. (Australia)
N 2818 Sullivan Rd                        BHP Building
Spokane, WA  99216                        Level 6, 55 Sussex Street

Itron International, Inc
N 2818 Sullivan Rd
Spokane, WA  99216

Itron Finance, Inc.
N 2818 Sullivan Rd
Spokane, WA  99216

Itron Connecticut Finance, Inc
N 2818 Sullivan Rd
Spokane, WA  99216

   




 


Independent Auditors' Consent

     We consent to the incorporation by reference in Registration Statement
Nos. 333-28933, 333-63147, 333-04685, 333-86581 and 333-81925 of Itron, Inc. and
subsidiaries  on form S-8 of our report dated March 28, 2000,  appearing in this
Annual Report on Form 10-K of Itron,  Inc. and  subsidiaries  for the year ended
December 31, 1999.

/s/ Deloitte & Touche LLP

    Deloitte & Touche LLP
    Seattle, Washington
    March 28, 2000








<TABLE> <S> <C>



<ARTICLE>                     5

       
<S>                                              <C>
<PERIOD-TYPE>                                  12-MOS
<FISCAL-YEAR-END>                              DEC-31-1999
<PERIOD-END>                                   DEC-31-1999
<CASH>                                         1,538
<SECURITIES>                                   0
<RECEIVABLES>                                  47,872
<ALLOWANCES>                                   (1,311)
<INVENTORY>                                    15,300
<CURRENT-ASSETS>                               108,084
<PP&E>                                         106,655
<DEPRECIATION>                                 (66,077)
<TOTAL-ASSETS>                                 192,079
<CURRENT-LIABILITIES>                          63,824
<BONDS>                                        0
<PREFERRED-MANDATORY>                          0
<PREFERRED>                                    0
<COMMON>                                       106,031
<OTHER-SE>                                     (58,506)
<TOTAL-LIABILITY-AND-EQUITY>                   192,079
<SALES>                                        193,412
<TOTAL-REVENUES>                               193,412
<CGS>                                          200,104
<TOTAL-COSTS>                                  200,104
<OTHER-EXPENSES>                               86,713
<LOSS-PROVISION>                               0
<INTEREST-EXPENSE>                             (6,861)
<INCOME-PRETAX>                                (100,266)
<INCOME-TAX>                                   28,010
<INCOME-CONTINUING>                            (72,256)
<DISCONTINUED>                                 0
<EXTRAORDINARY>                                3,660
<CHANGES>                                      0
<NET-INCOME>                                   (68,596)
<EPS-BASIC>                                  (4.62)
<EPS-DILUTED>                                  (4.62)
        



</TABLE>