<PAGE> 1
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
FILED BY THE REGISTRANT [X] FILED BY A PARTY OTHER THAN THE REGISTRANT [ ]
- --------------------------------------------------------------------------------
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
Ionics, Incorporated
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if Other Than Registrant)
PAYMENT OF FILING FEE (CHECK THE APPROPRIATE BOX):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (set forth the amount on which the filing fee
is calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
- --------------------------------------------------------------------------------
<PAGE> 2
[IONICS, INCORPORATED LOGO]
IONICS, INCORPORATED
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
MAY 8, 1997
To the Stockholders of
Ionics, Incorporated:
Notice is hereby given that the Annual Meeting of Stockholders of Ionics,
Incorporated (the "Corporation" or the "Company") will be held in the auditorium
of The First National Bank of Boston Building, 100 Federal Street, Boston,
Massachusetts, on Thursday, May 8, 1997 at 2:00 P.M. for the following purposes:
1. To elect four Class II Directors of the Corporation, each to serve
for a three-year term or until a successor is elected or qualified.
2. To approve and adopt the Ionics, Incorporated 1997 Stock Incentive
Plan.
3. To approve an amendment to the 1986 Stock Option Plan for
Non-Employee Directors to provide for limited transferability of
options granted under such plan.
4. To ratify the selection of Coopers & Lybrand L.L.P. as independent
auditors for the fiscal year ending December 31, 1997.
5. To consider and act upon such other matters as may properly come
before the meeting.
The Board of Directors has fixed the close of business on March 21, 1997 as
the record date for determination of the stockholders entitled to notice of and
to vote at the meeting. Any stockholder attending the meeting may vote in person
even if such stockholder has returned a proxy.
By Order of the Board of Directors
STEPHEN KORN, CLERK
Ionics, Incorporated
65 Grove Street
Watertown, Massachusetts 02172
March 28, 1997
WHETHER OR NOT YOU EXPECT TO BE AT THE MEETING, WILL YOU PLEASE MARK, SIGN,
DATE AND RETURN YOUR PROXY IN THE ENVELOPE ENCLOSED HEREWITH.
<PAGE> 3
IONICS, INCORPORATED
65 GROVE STREET
WATERTOWN, MASSACHUSETTS 02172
------------------------
PROXY STATEMENT
------------------------
MARCH 28, 1997
The Notice of the 1997 Annual Meeting of Stockholders of Ionics,
Incorporated (the "Company" or "Corporation") is set forth on the preceding page
and there is enclosed with this Proxy Statement a form of Proxy solicited by the
Board of Directors of the Corporation. This Proxy Statement is furnished in
connection with the solicitation of Proxies by the Board of Directors of the
Corporation for use at the Annual Meeting of Stockholders to be held on
Thursday, May 8, 1997 (the "Annual Meeting") at 2:00 P.M., local time, in the
auditorium at The First National Bank of Boston, 100 Federal Street, Boston,
Massachusetts, and any adjournments thereof. The cost of this solicitation will
be borne by the Corporation. In addition to solicitation by mail, certain of the
officers and employees of the Corporation also may solicit Proxies personally or
by telephone or telegram. This Proxy Statement is being first sent to
stockholders on or about March 31, 1997. A copy of the Annual Report to
Stockholders for the fiscal year ended December 31, 1996 (including audited
financial statements of the Corporation) also accompanies this Proxy Statement.
Only stockholders of record as of the close of business on March 21, 1997
("Record Date") are entitled to notice of and to vote at the Annual Meeting
and/or any adjournment thereof. The outstanding stock of the Corporation on the
Record Date entitled to vote consisted of 15,913,621 shares of Common Stock, $1
per share par value ("Common Stock"). The holders of the outstanding shares of
Common Stock are entitled to one vote per share. Stockholders may vote in person
or by proxy. Execution of a Proxy will not affect a stockholder's right to
attend the meeting and vote in person. All shares represented by valid Proxies
received by the Clerk of the Corporation prior to the meeting will be voted as
specified in the Proxy: if no specification is made and if discretionary
authority is conferred by the stockholder, the shares will be voted FOR the
election of each of the Board's nominees to the Board of Directors in proposal
1; FOR the approval and adoption of the Ionics, Incorporated 1997 Stock
Incentive Plan in proposal 2; FOR the approval of the amendment to the 1986
Stock Option Plan for Non-Employee Directors in proposal 3; and FOR the
ratification of the selection of an auditor in proposal 4. A stockholder giving
a Proxy has the power to revoke it at any time prior to its exercise by
delivering to the Clerk of the Corporation a written revocation or a duly
executed Proxy bearing a later date, or by attendance at the meeting and voting
such shares in person.
Votes cast by proxy or in person at the Annual Meeting will be tabulated by
the election inspectors appointed for the meeting and will determine whether or
not a quorum is present. The election inspectors will treat abstentions and
broker "non-votes" as shares that are present and entitled to vote for purposes
of determining the presence of a quorum. Abstentions, but not "non-votes," are
counted for purposes of determining the number of shares voting on a particular
matter submitted to the stockholders for a vote. Neither abstentions nor
"non-votes" are treated as having been voted for purposes of determining the
approval of any such matter. A "non-vote" occurs when a nominee holding shares
for a beneficial owner votes on one proposal, but does not vote on another
proposal because, in respect of such other proposal, the nominee does not have
discretionary voting power and has not received instructions from the beneficial
owner.
1
<PAGE> 4
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
<TABLE>
The following table lists as of the Record Date the number of shares of the
Corporation's Common Stock beneficially owned by stockholders known by the
Corporation to own more than five percent of such Common Stock outstanding at
such date:
<CAPTION>
NAME AND ADDRESS OF AMOUNT AND NATURE OF PERCENT OF
BENEFICIAL OWNER BENEFICIAL OWNERSHIP CLASS
------------------- -------------------- ----------
<S> <C> <C>
Denver Investment Advisors LLC 1,097,400(1) 6.9%
1225 17th Street, 26th Floor
Denver, Colorado 80202
Pilgrim Baxter & Associates, Ltd. 1,094,000(2) 6.9%
11255 Drummers Lane, Suite 300
Wayne, PA 19087
<FN>
- ---------------
(1) Includes sole voting power as to 720,000 shares and sole dispositive power
as to all 1,097,400 shares. Denver Investment Advisors LLC has no shared
voting power as to any of these shares.
(2) Includes shared voting power and sole dispositive power as to all 1,094,000
shares. Pilgrim Baxter & Associates, Ltd. has no sole voting power as to any
of these shares.
</TABLE>
<TABLE>
The following table sets forth as of the Record Date the number of shares
of Common Stock of the Corporation beneficially owned by each of the directors
(including nominees), each of the current executive officers named in the
Summary Compensation Table on page 17 of this Proxy Statement, and all directors
(including nominees) and executive officers of the Company as a group (14
persons). Unless otherwise indicated, the named person possesses sole voting and
dispositive power with respect to the shares.
<CAPTION>
AMOUNT AND NATURE OF PERCENT OF
NAME OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP CLASS
------------------------ -------------------- ----------
<S> <C> <C>
Douglas R. Brown................................................. 2,000(1) *
William L. Brown................................................. 11,000(2) *
Arnaud de Vitry d'Avaucourt...................................... 27,500(3) *
Arthur L. Goldstein.............................................. 636,467(4)+ 3.9%
William E. Katz.................................................. 250,404(5)+ 1.6%
Robert B. Luick.................................................. 13,900(6) *
Carl S. Sloane................................................... 3,500(7) *
John J. Shields.................................................. 6,180(8) *
Daniel I.C. Wang................................................. 0 --
Mark S. Wrighton................................................. 5,100(9) *
Allen S. Wyett................................................... 11,150(10) *
Robert J. Halliday............................................... 88,822(11)+ *
Stephen Korn..................................................... 81,581(12)+ *
Theodore G. Papastavros.......................................... 151,449(13)+ *
All directors and executive officers as a group (14 persons)..... 1,289,053(14) 7.7%
<FN>
- ---------------
* Less than 1%
</TABLE>
2
<PAGE> 5
+ If certain of the options owned by these executive officers are exercised,
certain of the shares would be subject to repurchase in varying amounts if
the individual's employment with the Company were to be terminated, or if
the individual attempted to sell the shares, before specified dates.
(1) Includes 2,000 shares subject to options, as to which Mr. Douglas R. Brown
has the right to acquire beneficial ownership.
(2) Includes 9,000 shares subject to options, as to which Mr. William L. Brown
has the right to acquire beneficial ownership.
(3) Includes 5,500 shares subject to options, as to which Mr. de Vitry
d'Avaucourt has the right to acquire beneficial ownership. Another 12,000
shares, as to which Mr. de Vitry d'Avaucourt shares dispositive power, are
held by a financial institution in a fiduciary capacity for the benefit of
Mr. de Vitry d'Avaucourt's wife. Such number excludes 341,926 shares held
in a trust of which Mr. de Vitry d'Avaucourt's wife is the principal
beneficial owner, and also excludes an additional 524,000 shares held in a
separate trust, of which Mr. de Vitry d'Avaucourt is the principal indirect
beneficiary. Mr. de Vitry d'Avaucourt disclaims beneficial ownership of
such 865,926 shares.
(4) Includes 424,000 shares subject to options, as to which Mr. Goldstein has
the right to acquire beneficial ownership. Includes beneficial ownership of
11,506 shares held in the Ionics Section 401(k) Plan for the account of Mr.
Goldstein. Does not include 6,800 shares held by members of Mr. Goldstein's
immediate family, as to which Mr. Goldstein disclaims beneficial ownership.
(5) Includes 145,000 shares subject to options, as to which Mr. Katz has the
right to acquire beneficial ownership. Does not include 8,400 shares held
by members of Mr. Katz's immediate family, as to which Mr. Katz disclaims
beneficial ownership.
(6) Includes 5,500 shares subject to options, as to which Mr. Luick has the
right to acquire beneficial ownership. Includes 200 shares held by a member
of Mr. Luick's immediate family, as to which Mr. Luick disclaims beneficial
ownership. Does not include 200 shares held by other members of Mr. Luick's
immediate family, as to which Mr. Luick disclaims beneficial ownership.
(7) Includes 3,000 shares subject to options, as to which Mr. Sloane has the
right to acquire beneficial ownership.
(8) Includes 5,500 shares subject to options, as to which Mr. Shields has the
right to acquire beneficial ownership.
(9) Includes 5,000 shares subject to options, as to which Mr. Wrighton has the
right to acquire beneficial ownership.
(10) Includes 9,000 shares subject to options, as to which Mr. Wyett has the
right to acquire beneficial ownership. Does not include 1,000 shares held
by a member of Mr. Wyett's immediate family, as to which Mr. Wyett
disclaims beneficial ownership.
(11) Includes 87,000 shares subject to options, as to which Mr. Halliday has the
right to acquire beneficial ownership. Includes beneficial ownership of 599
shares in the Ionics Section 401(k) Plan for the account of Mr. Halliday.
(12) Includes 80,000 shares subject to options, as to which Mr. Korn has the
right to acquire beneficial ownership. Includes beneficial ownership of 358
shares in the Ionics Section 401(k) Plan for the account of Mr. Korn.
3
<PAGE> 6
(13) Includes 101,500 shares subject to options, as to which Mr. Papastavros has
the right to acquire beneficial ownership. Includes beneficial ownership of
1,189 shares in the Ionics Section 401(k) Plan for the account of Mr.
Papastavros.
(14) Assumes exercise of options held by the group for all 882,000 shares and
that such shares are outstanding.
The information provided in the above footnotes concerning beneficial
ownership in the Ionics 401(k) Plan is derived from a Plan statement as of
December 31, 1996.
EXPLANATION OF AGENDA FOR THE MEETING
PROPOSAL 1. ELECTION OF DIRECTORS.
The Corporation has a Board of Directors currently consisting of three
Class I Directors, three Class II Directors and four Class III Directors. Kachig
Kachadurian, who served as a director of the Corporation since 1986, resigned as
a Class II Director on September 27, 1996. Samuel A. Goldblith, who served as a
director of the Corporation since 1980, resigned as a Class I Director on March
5, 1997. The Class I, Class II and Class III Directors currently in office will
serve until the annual meeting of stockholders to be held in 1999, 1997 and
1998, respectively, and until their respective successors are duly elected and
qualified (or until the director's earlier resignation or removal). At each
annual meeting of stockholders, directors are elected for a full term of three
years to succeed those whose terms are expiring.
It is the intention of the persons authorized by the enclosed Proxy, which
is solicited by the Board of Directors, to nominate and elect the persons named
in the table below as Class II Directors. Messrs. De Vitry d'Avaucourt, Katz and
Wrighton currently serve as Class II Directors. The Board of Directors has
proposed the nomination of Daniel I.C. Wang for election at the 1997 Annual
Meeting as a Class II Director. To be elected, each nominee must receive the
affirmative vote of a plurality of the issued and outstanding shares of the
Common Stock represented in person or by Proxy at the Annual Meeting and
entitled to vote. The following table shows, for each nominee, his principal
occupation since January 1, 1992 and present positions with the Corporation,
period of past service as a Director, age on March 1, 1997, and directorships of
other public companies (i.e., companies subject to the reporting requirements of
the Securities Exchange Act of 1934 or registered as investment companies under
the Investment Company Act of 1940):
4
<PAGE> 7
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
(SINCE JANUARY 1, 1992),
PRESENT POSITIONS WITH PERIOD
THE CORPORATION OF PAST
AND DIRECTORSHIPS SERVICE AS A
NAME AND AGE OF OTHER PUBLIC COMPANIES DIRECTOR
------------ ------------------------- ------------
<S> <C> <C>
Directors whose Terms Expire in 1997 (Class II Directors)
Arnaud de Vitry d'Avaucourt Engineering consultant; Director, 1964 to date
(70)* Digital Equipment Corporation
(computer systems)
William E. Katz Executive Vice President of the 1961 to date
(72) Company
Daniel I.C. Wang Institute Professor and Director (Dr. Wang is a nominee
(61) of Biotechnology Process for election for the
Engineering Center, Massachusetts first time at the Annual
Institute of Technology; Director, Meeting)
PerSeptive Biosystems, Inc.
(biotechnology products and
services)
Mark S. Wrighton Chancellor and Professor, November 1993 to date
(47)# Washington University, St. Louis,
Missouri (since July 1995);
previously Professor of Chemistry,
Massachusetts Institute of
Technology; Director, Helix
Technology Corporation (cryogenic
and vacuum technology products),
OIS Optical Imaging Systems, Inc.
(active matrix liquid crystal
display products), and Cabot
Corporation (specialty chemicals
manufacturing and energy products)
<FN>
- ---------------
* Member of Audit Committee
# Member of Compensation Committee
</TABLE>
5
<PAGE> 8
<TABLE>
The following table contains similar information about the Class I and
Class III Directors of the Company, whose terms of office do not expire at the
Annual Meeting and who consequently are not nominees for election in 1997:
<CAPTION>
PRINCIPAL OCCUPATION
(SINCE JANUARY 1, 1992),
PRESENT POSITIONS WITH PERIOD
THE CORPORATION OF PAST
AND DIRECTORSHIPS SERVICE AS A
NAME AND AGE OF OTHER PUBLIC COMPANIES DIRECTOR
------------ ------------------------- ------------
<S> <C> <C>
Directors whose Terms Expire in 1998 (Class III Directors)
William L. Brown Retired Chairman of the Board, The May 1991 to date
(75)* First National Bank of Boston;
Director, Stone and Webster,
Incorporated (professional
engineering, construction and
consulting services); Standex
International Corporation
(diversified manufacturing and
marketing); G.C. Companies, Inc.
(motion picture distribution);
North American Mortgage Company;
Trustee, Bradley Real Estate Trust
Robert B. Luick Of Counsel, Sullivan & Worcester, 1948 to 1968; 1971 to
(85) Attorneys (since 1992); prior to date
1992, partner, Sullivan &
Worcester; Assistant Clerk of the
Corporation (since prior to 1990)
John J. Shields President and Chief Executive 1988 to date
(57)#+ Officer, King's Point Holdings
Incorporated (diversified business
information, technology
instrumentation and cranberry
cultivation); President and Chief
Executive Officer, Computervision
Corporation (January 1991 - April
1993); Director, Centennial
Technologies, Inc. (manufacturer
and marketer of PC cards for
microelectronics applications)
Allen S. Wyett President, Wyett Consulting Group, February 1992 to date
(63)# Inc. (since 1990)
<FN>
- ---------------
* Member of Audit Committee
# Member of Compensation Committee
+ Member of Executive Committee
</TABLE>
6
<PAGE> 9
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
(SINCE JANUARY 1, 1992),
PRESENT POSITIONS WITH PERIOD
THE CORPORATION OF PAST
AND DIRECTORSHIPS SERVICE AS A
NAME AND AGE OF OTHER PUBLIC COMPANIES DIRECTOR
------------ ------------------------- ------------
<S> <C> <C>
Directors whose Terms Expire in 1999 (Class I Directors)
Douglas R. Brown President and Chief Executive Since 1996
(42)* Officer, Advent International
Corp. (registered investment
advisor) (since January 1,
1996);Chief Investment Officer,
Advent International Corp. (1995);
Chief Executive Officer, Advent
International plc (1990-1994);
Director, Advent International
Corp. and Aspen Technology Corp.
(computer software)
Arthur L. Goldstein President and Chief Executive 1971 to date
(61)+ Officer of the Company (since
prior to 1991); Chairman of the
Board of the Company since May
1990; Director, Cabot Corporation
(specialty chemicals manufacturing
and energy products); and State
Street Boston Corporation (bank
holding company) and State Street
Bank and Trust Company
Carl S. Sloane Professor of Business February 1995 to date
(60)+# Administration, Harvard Graduate
School of Business Administration
(since September 1991); Director,
Sapient Corporation (information
technology applications and
solutions); and Rayonier, Inc.
(specialty pulps, timber and wood
products)
<FN>
- ---------------
* Member of Audit Committee
+ Member of Executive Committee
# Member of Compensation Committee
</TABLE>
Mr. Luick is of counsel to the law firm of Sullivan & Worcester, which
provides legal services to the Corporation from time to time.
In addition to the Executive Committee of the Board of Directors, which did
not meet during the year, the Corporation has an Audit Committee, of which Mr.
de Vitry d'Avaucourt is Chairman, and a Compensation Committee, of which Mr.
Wyett is Chairman. There is no nominating committee of the Board. The Audit
Committee meets with management and with the Corporation's independent auditors
at least once a year to review financial results and procedures, internal
financial controls, audit plans and recommendations. The Compensation Committee
reviews and establishes the remuneration to be paid to the executive officers of
the Corporation, reviews the remuneration to be paid other officers, and acts as
the administrator of the Corporation's stock option and restricted stock plans.
7
<PAGE> 10
During 1996, the Board of Directors held five meetings. The Audit Committee
met twice and the Compensation Committee met two times. Except for Mr. Lawrence
E. Fouraker, who served as a Class I Director until the 1996 Annual Meeting,
each director attended 75% or more of the aggregate of (i) the total number of
meetings of the Board and (ii) the total number of meetings held by all
committees of the Board on which such director served.
If, at the time of the Annual Meeting, any of the above-named nominees are
unable to serve, a circumstance which is not anticipated, and if the enclosed
Proxy confers discretionary authority, the persons named in the Proxy will
either vote for such substitute nominees as may be designated by the Board of
Directors or will vote for a reduction in the number of directors, as determined
by the Board.
PROPOSAL 2. APPROVAL AND ADOPTION OF IONICS, INCORPORATED 1997 STOCK INCENTIVE
PLAN
At a February 19, 1997 meeting, the Board of Directors unanimously adopted
resolutions declaring the advisability of adopting the Ionics, Incorporated 1997
Stock Incentive Plan ("1997 Plan"), in the form attached to this Proxy Statement
as Exhibit A, and recommended that the 1997 Plan be submitted to the
stockholders for their approval at the Annual Meeting.
The Board of Directors believes that the grant of stock options, restricted
stock and other forms of stock incentive awards to key employees of, and
consultants to, the Company and its subsidiaries is an important factor in the
Company's ability to attract and retain effective and capable employees and
consultants, who contribute to the growth and success of the Company. The
Company has used its existing stock compensation plans, the 1979 Stock Option
Plan ("1979 Plan") and the 1994 Restricted Stock Plan ("1994 Plan"), as an
important component of the compensation package that it offers to officers and
other key employees. As of March 1, 1997, approximately 300 employees of the
Company held stock options exercisable for 1,954,108 shares of Common Stock at
an average exercise price per share of $29.18, and 13 employees and a former
employee of the Company held a total of 19,822 shares issued under the 1994
Plan.
After reviewing the terms of the 1979 Plan, the Board of Directors
determined that it would promote the interests of the Company and its
stockholders to adopt the 1997 Plan, which includes a number of features that
are not available under the 1979 Plan, to replace the 1979 Plan. The 1994 Plan,
under which only restricted stock grants can be made, will remain in place. The
principal differences between the proposed 1997 Plan and the 1979 Plan are as
follows:
- Under the 1997 Plan, incentive stock options, non-qualified stock
options and long-term performance awards may be awarded
(collectively, "Award" or "Awards"). Under the 1979 Plan, only
non-qualified stock options and performance awards may now be
granted (no performance awards have been granted under the 1979
Plan).
- Under the 1997 Plan, Awards (other than incentive stock options) may
be made to consultants as well as to key employees. The 1979 Plan is
available only to key employees.
- The 1997 Plan contains an automatic addition provision under which a
number of shares equal to two percent (2%) of the Company's
outstanding stock will be added to the 1997 Plan at the end of each
of the first four fiscal years of the Company following adoption of
the Plan. The 1979 Plan does not have this feature.
- Under the 1997 Plan, stock options will be structured to "vest" over
time, rather than, as in the 1979 Plan, issued as immediately
exercisable subject to Company buy-back rights that lapse over time.
8
<PAGE> 11
- Under the 1997 Plan, non-qualified stock options may be transferable
to immediate family members of the participant, trusts for the
benefit of such immediate family members and partnerships in which
such immediate family members are the only partners. Under the 1979
Plan, options are not transferable.
- Under the 1997 Plan, withholding taxes may be paid in stock as well
as cash. Under the 1979 Plan, withholding taxes are payable only in
cash.
- A participant whose employment with the Company is terminated
because of death or disability, or for any other reason in the
Compensation Committee's sole discretion, will have 90 days under
the 1997 Plan, rather than 30 days under the 1979 Plan, from the
last date of employment to exercise outstanding options that are
then exercisable.
If the 1997 Plan is approved by the stockholders at the Annual Meeting, no
further options will be granted under the 1979 Plan, but shares that would have
been available for granting under the 1979 Plan will become available for
granting under the 1997 Plan. As of February 28, 1997, there were 151,969 shares
available for grant under the 1979 Plan, and 1,954,108 outstanding options
currently exercisable. The 1979 Plan will continue in effect following approval
of the 1997 Plan only for the purpose of administering the non-qualified stock
options now outstanding under that plan. A total of 750,000 shares of Common
Stock will be initially available for grants under the 1997 Plan, which number
includes any shares remaining available for granting under the 1979 Plan on the
effective date of the 1997 Plan.
A SUMMARY OF THE PRINCIPAL FEATURES OF THE 1997 PLAN IS PROVIDED BELOW, BUT
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF THE 1997 PLAN,
WHICH IS ANNEXED TO THIS PROXY STATEMENT AS EXHIBIT A.
Summary of 1997 Plan.
Administration. The 1997 Plan will be administered by the Compensation
Committee of the Board of Directors ("Committee"), which currently consists of
four non-employee Directors. Subject to its terms, the Committee has full
authority to administer the 1997 Plan, including with respect to selection of
key employees and consultants who are to receive Awards, the specific form of
any Award, and the specific terms and conditions of each Award. No Awards have
been granted to date under the Plan, nor will any Awards be made unless and
until stockholder approval is obtained at the Annual Meeting. The Company has
not as of the date hereof determined who will receive Awards that will be
authorized for issuance under the 1997 Plan if the proposal is approved.
Shares Available For Award. In approving the 1997 Plan, stockholders will
approve a total of 750,000 shares to be initially available for Awards under the
1997 Plan. Included in this number are such number of shares of Common Stock,
previously approved by the stockholders for awards, that remain available for
new grants under the 1979 Plan on the effective date of the 1997 Plan. On
February 28, 1997, 151,969 shares were available for new grants under the 1979
Plan.
The 1997 Plan will thereafter be augmented on January 1, 1998 and each of
the next three successive years by a number of shares equal to two percent (2%)
of the Company's outstanding stock on the preceding December 31st.
General Provisions. The 1997 Plan contains provisions to prevent dilution
in case of stock dividends, stock splits and changes in the Company's capital
structure. The 1997 Plan may be terminated or amended at any time by the Board
of Directors, except that the Board of Directors does not have the power to
revoke or alter the terms of any valid Award previously granted pursuant to the
1997 Plan that would impair the rights of any participant without the
participant's consent, to reprice outstanding stock options, or without the
approval
9
<PAGE> 12
of the stockholders, to (i) increase the number of shares of Common Stock to be
reserved for issuance and sale pursuant to Awards under the 1997 Plan, or (ii)
change the description of individuals to whom Awards may be granted pursuant to
the 1997 Plan.
As indicated in the Compensation Committee Report on Executive
Compensation, Section 162(m) of the Internal Revenue Code of 1986, as amended
(the "Code") denies the Corporation a deduction for federal income tax purposes
for compensation paid to certain executive officers in excess of $1 million per
year. Excluded from this $1 million limitation is qualified performance-based
compensation within the meaning of the Section 162(m) Regulations. The
Corporation believes that, if the 1997 Plan is approved by the stockholders of
the Company at the Annual Meeting, stock-based compensation payable under the
1997 Plan will be excluded from the $1 million limitation.
Nature of Awards. Under the 1997 Plan, the Committee may grant
non-qualified stock options, incentive stock options and long-term performance
awards. Historically, the Committee has awarded only stock options under the
1979 Plan and has no present intention of making other types of Awards, but
desires the flexibility of being able to do so.
Stock Options
Under the 1997 Plan, stock options may be granted by the Committee until
the tenth anniversary of the adoption of the 1997 Plan. Options may extend for a
period of up to 10 years from the date of grant, with the actual term to be
established by the Committee at the time of grant. Unless otherwise provided by
the Committee, stock option grants will not be exercisable for at least six
months following grant, and it is currently intended that the options will
become exercisable in installments. The Committee will have the discretion to
grant either incentive stock options (ISOs) or non-qualified stock options
(NQOs) under the 1997 Plan. No more than 750,000 shares may be issued pursuant
to the exercise of ISOs granted under the 1997 Plan. Both ISOs and NQOs must
have an exercise price not less than fair market value (generally, the closing
price of the Company's Common Stock as reported on the New York Stock Exchange
on the date of grant). The Committee has the discretion in the event the
employment of an option holder is terminated to take such action in respect of
the option as the Committee may deem appropriate, including accelerating the
time that must pass before options may be exercised, and (except with respect to
ISOs) extending the time following termination of employment during which the
option holder is entitled to exercise the option, provided that in no event may
any option be exercised after the expiration of its term. Options will be non-
transferable and non-assignable except by inheritance, except that, with the
approval of the Committee, NQOs may be transferred by option holders to
immediate family members, trusts established for their benefit or partnerships
in which such immediate family members are the only partners. Under the 1997
Plan, no participant can receive an Award in any 12-month period that would
result in the issuance to that individual of more than 200,000 shares of Common
Stock.
The purchase price for shares of Common Stock upon the exercise of options
generally may be paid either in cash, by delivering to the Company such number
of shares of Common Stock owned by the option holder that, together with any
cash tendered, will equal in value the full purchase price, or by other
"cashless" exercise methods specified in the 1997 Plan. Permitting
stock-for-stock payments or other cashless exercises allows option holders to
acquire shares of Common Stock without incurring the costs that may arise when
the exercise price must be paid in cash.
Long-Term Performance Awards
The Committee may grant Long-Term Performance Awards (Performance Awards)
under the 1997 Plan. No more than 150,000 shares of Common Stock may be issued
in connection with Performance Awards granted under the 1997 Plan. The Committee
will have the discretion to consider the nature, length and
10
<PAGE> 13
starting date of the performance period for a particular Performance Award,
which shall be at least one year. A participant may be awarded cash or Common
Stock, or both, upon attainment of Performance Award goals.
Certain Federal Income Tax Information
THE FOLLOWING DISCUSSION OF UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
OF THE ISSUANCE AND EXERCISE OF OPTIONS AND OTHER AWARDS GRANTED UNDER THE 1979
PLAN AND THE 1997 PLAN, IF IMPLEMENTED, AND CERTAIN OTHER RIGHTS GRANTED UNDER
THE 1997 PLAN, IF IMPLEMENTED, IS BASED UPON THE PROVISIONS OF THE CODE AS IN
EFFECT ON THE DATE OF THIS PROXY STATEMENT, CURRENT REGULATIONS, AND EXISTING
ADMINISTRATIVE RULINGS OF THE INTERNAL REVENUE SERVICE. IT IS NOT INTENDED TO BE
A COMPLETE DISCUSSION OF ALL OF THE FEDERAL INCOME TAX CONSEQUENCES OF THESE
PLANS OR OF THE REQUIREMENTS THAT MUST BE MET IN ORDER TO QUALIFY FOR THE
DESCRIBED TAX TREATMENT. IN ADDITION THERE MAY BE FOREIGN, STATE OR LOCAL TAX
CONSEQUENCES THAT ARE NOT DISCUSSED HEREIN.
A. Incentive Stock Options (ISOs). The following general rules are
applicable under current United States federal income tax law to ISOs granted
under the 1997 Plan, if implemented:
1. In general, an optionee will not recognize any income upon the
grant of an ISO or upon the issuance of shares to him or her upon the
exercise of an ISO, and the Company will not be entitled to a federal
income tax deduction upon either the grant or the exercise of an ISO.
2. If shares acquired upon exercise of an ISO are not disposed of
within (i) two years from the date the ISO was granted or (ii) one year
after the date the shares are issued to the optionee pursuant to the ISO
exercise (the "Holding Periods"), the difference between the amount
realized on any subsequent disposition of the shares and the exercise price
will generally be treated as capital gain or loss to the optionee.
3. If shares acquired upon exercise of an ISO are disposed of and the
optionee does not satisfy the Holding Period (a "Disqualifying
Disposition"), then in most cases the lesser of (i) any excess of the fair
market value of the shares at the time of exercise of the ISO over the
exercise price or (ii) the actual gain on disposition, will be taxed to the
optionee as ordinary income in the year of such disposition.
4. In any year that an optionee recognizes ordinary income on a
Disqualifying Disposition of shares acquired upon exercise of an ISO, the
Company generally will be entitled to a corresponding federal income tax
deduction.
5. The difference between the amount realized by an optionee as the
result of a Disqualifying Disposition and the sum of (i) the exercise price
and (ii) the amount of ordinary income recognized under the above rules
generally will be treated as capital gain or loss.
6. Capital gain or loss recognized by an optionee on a disposition of
shares will be long-term capital gain or loss if the optionee's holding
period for the shares exceeds one year.
7. An optionee may be entitled to exercise an ISO by delivering
shares of the Company's Common Stock to the Company in payment of the
exercise price, if the optionee's ISO agreement so provides. If an optionee
exercises an ISO in such fashion, special rules apply.
8. In addition to the tax consequences described above, the exercise
of an ISO may result in an "alternative minimum tax." The alternative
minimum tax rate (the maximum rate is 28%) will be applied against a
taxable base which is equal to "alternative minimum taxable income,"
reduced by a statutory exemption. In general, the amount by which the value
of the shares received upon exercise of the ISO exceeds the exercise price
is included in the optionee's alternative minimum taxable income. A
taxpayer is required to pay the higher of his regular tax liability or the
alternative minimum tax. A
11
<PAGE> 14
taxpayer who pays alternative minimum tax attributable to the exercise of
an ISO may be entitled to a tax credit against his or her regular tax
liability in later years.
9. Special rules apply if the shares acquired upon the exercise of an
ISO are subject to vesting, or are subject to certain restrictions on
resale under federal securities laws applicable to directors, officers or
10% stockholders.
B. Non-Qualified Stock Options (NQOs). The following general rules are
applicable under current federal income tax law to options granted under the
1979 Plan and the 1997 Plan, if implemented, which do not qualify as ISOs:
1. In general, an optionee will not recognize any income upon the
grant of an NQO, and the Company will not be entitled to a federal income
tax deduction upon such grant.
2. An optionee generally will recognize ordinary income at the time
of exercise of the NQO in an amount equal to the excess, if any, of the
fair market value of the shares on the date of exercise over the exercise
price. The Company may be required to withhold income tax on this amount.
3. When an optionee sells the shares acquired upon the exercise of a
NQO, he or she generally will recognize capital gain or loss in an amount
equal to the difference between the amount realized upon the sale of the
shares and the optionee's basis in the shares (generally, the exercise
price plus the amount taxed to the optionee as ordinary income). If the
optionee's holding period for the shares exceeds one year, such gain or
loss will be long-term capital gain or loss.
4. When an optionee recognizes ordinary income attributable to a NQO,
the Company generally will be entitled to a corresponding federal income
tax deduction.
5. An optionee may be entitled to exercise an NQO by delivering
shares of the Company's Common Stock to the Company in payment of the
exercise price. If an optionee exercises an NQO in such fashion, special
rules apply.
6. Special rules apply if the shares acquired upon the exercise of an
NQO are subject to vesting, or are subject to certain restrictions on
resale under federal securities laws applicable to directors, officers or
10% stockholders.
C. Long-Term Performance Awards (Performance Awards). The following
general rules are applicable under current federal income tax law to Performance
Awards under the 1997 Plan, if implemented:
Recipients of Performance Awards under the 1997 Plan will not recognize
ordinary income at any time prior to the achievement of the performance goals.
At such time, the holder will recognize ordinary income in an amount equal to
the fair market value of the Performance Award on the date the goal is achieved
less any purchase price paid, and the Company generally will be entitled to a
corresponding federal income tax deduction.
Effect on 1997 Plan of Change in Control of the Company.
In the event of a Change in Control of the Company (defined below), the
Committee may accelerate the vesting of outstanding stock options, and cause
outstanding Performance Awards to be paid out in cash, based on prorated target
results for the performance periods in question.
A Change in Control is defined as the acquisition by any individual, entity
or group, of beneficial ownership of 20% or more of either the outstanding
Common Stock or combined voting power of all voting securities of the Company;
continuing directors constituting less than a majority of the Board; a business
combination in which stockholders of the Company prior to the business
combination do not own beneficially
12
<PAGE> 15
more than 60% of the then outstanding shares of common stock and the combined
voting power of the entity resulting from the business combination; or a
complete dissolution, liquidation or sale of substantially all the assets of the
Company other than to an entity of which former stockholders of the Company own
more than 60% of the outstanding voting stock and the combined voting power of
such entity.
Vote Required.
The approval of the adoption of the 1997 Plan requires the affirmative vote
of a majority of the shares represented at the Annual Meeting and entitled to
vote.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR APPROVING AND ADOPTING
THE IONICS, INCORPORATED 1997 STOCK INCENTIVE PLAN.
PROPOSAL 3. AMENDMENT TO 1986 STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS TO
PROVIDE FOR LIMITED TRANSFERABILITY OF OPTIONS
The Company's 1986 Stock Option Plan for Non-Employee Directors ("1986
Plan") was adopted by the Board of Directors of the Company and approved by the
Company's stockholders in May 1986. Under the 1986 Plan, which is administered
by the Company's Board of Directors, each person who is not an employee of the
Company or any of its subsidiaries, and who is elected a director of the
Company, is entitled to receive an option for 2,000 shares of Common Stock upon
his initial election, and an option to acquire 2,000 additional shares upon
completion of each successive year in office as a director. The Company
currently has eight non-employee directors eligible to participate in the 1986
Plan.
The 1986 Plan currently provides that options granted under it may not be
transferred, other than by will or the laws of descent and distribution. At its
February 19, 1997 meeting, the Board of Directors approved an amendment to the
1986 Plan, subject to the approval of the stockholders at the Annual Meeting, to
permit options issued under the 1986 Plan to be transferred by the option holder
to his immediate family members (i.e., spouse, children or grandchildren),
trusts for the exclusive benefit of such immediate family members or a
partnership in which such immediate family members are the only partners,
provided that no subsequent transfers may be made, except by will or pursuant to
the laws of descent and distribution.
Until August 15, 1996, the Securities Exchange Act of 1934 effectively
precluded the issuance of transferable options to directors. The Board of
Directors noted that a number of corporations now permit stock options issued to
directors to be transferred to immediate family members. Such a provision may
give a tax benefit to option holders who make gifts of their stock options to
immediate family members at a time near the grant date by removing a potential
high-growth asset from the option holder's estate, generally free of gift tax,
while providing heirs with the potential for greater accumulated wealth.
The terms of the 1986 Plan require stockholder approval for any amendment
of the 1986 Plan which materially increases the benefits accruing to
participants under the 1986 Plan, and the Board of Directors has therefore
submitted the proposed amendment to the stockholders for their approval.
Description of 1986 Plan
The principal features of the 1986 Plan are summarized below. The summary
is qualified by reference to the actual provisions of the 1986 Plan, a copy of
which is available to any stockholder upon written request to the Company.
Administration. The 1986 Plan is administered by the Company's Board
of Directors. The Board of Directors, subject to the provisions of the 1986
Plan, has the power to construe the Plan and the
13
<PAGE> 16
respective stock option agreements, to determine all questions thereunder
and to adopt and amend such rules and regulations for the administration of
the 1986 Plan as it may deem desirable.
Shares Subject to the Plan. The 1986 Plan currently authorizes the
grant of options to purchase 200,000 shares of Common Stock of the Company.
At March 1, 1997, 98,500 shares remained available for new grants under the
1986 Plan.
Option Price. The exercise price per share of options granted under
the 1986 Plan is 100% of the fair market value of the Company's Common
Stock on the date the option is granted.
Period of Option. Options granted under the 1986 Plan shall expire on
the date which is ten (10) years after the date of grant of the option.
Vesting of Shares and Transferability of Options. Options granted
under the 1986 Plan shall not be exercisable for a period of six months
after their date of grant. Generally, options are immediately exercisable
in full after such six-month period, but only during "window" periods
beginning on the third business day following the date on which the Company
releases for publication its quarterly or annual financial results, and
ending on the twelfth business day following such date.
The Board of Directors, in its sole discretion, may provide for
transferability of particular options under the 1986 Plan if the proposed
amendment to provide for limited transferability of options under the 1986
Plan is approved by the stockholders. In all other cases, options under the
1986 Plan will not be transferable other than by will or the laws of
descent and distribution.
Effect of Termination as a Director or of Death of a Director. In the
event an optionee ceases to be a member of the Board for any reason other
than death, any then unexercised portion of options granted to such
optionee shall, to the extent not then vested, immediately terminate and
become void; any portion of an option which is then vested but has not been
exercised at the time the optionee so ceases to be a member of the Board
may be exercised, to the extent it is then vested, by the optionee within
30 days of the date the optionee ceased to be a member of the Board; and
all options shall terminate after such 30 days have expired.
In the event an optionee ceases to be a member of the Board by reason
of his or her death or dies within the 30-day period described in the
immediately preceding paragraph, any option granted to such optionee shall
be immediately and automatically accelerated and become fully vested and
all unexercised options shall be exercisable by the optionee's estate,
personal representative, heir or legatee within 90 days after his or her
death.
Exercise of Options. An option granted under the 1986 Plan, to the
extent then exercisable, may be exercised in whole or in part by giving
written notice to the Company stating the number of shares with respect to
which the option is being exercised, which generally shall not be less than
200 shares, accompanied by payment in full for such shares. Payment may be
(a) in United States dollars in cash or by check, or (b) in whole or in
part in shares of the Common Stock of the Company already owned by the
person or persons exercising the option or shares subject to the option
being exercised (subject to such restrictions and guidelines as the Board
may adopt from time to time), valued at the last sale price for the Common
Stock on the New York Stock Exchange as reported on the date of delivery of
the shares in exercise of the option.
Adjustments Upon Changes in Capitalization and Other Events. If the
shares of Common Stock shall be subdivided or combined into a greater or
smaller number of shares or changed into or exchanged for a different
number or kind of shares in the event of a reorganization,
recapitalization, merger, consolidation, any other change in the corporate
structure or shares of the Company, including stock
14
<PAGE> 17
splits and stock dividends, corresponding adjustments (as determined by the
Board of Directors to be appropriate) in the number and kind of shares as
to which outstanding options and options to be issued in the future under
the 1986 Plan shall be exercisable, and in the option price of outstanding
options under the 1986 Plan necessary to maintain the proportionate
interest of the optionee and preserve, without exceeding, the value of such
options, shall be made. If the Company is to be consolidated with or
acquired by another entity in a merger, sale of all or substantially all of
the Company's assets or otherwise, each option granted under the 1986 Plan
which is outstanding but unvested as of the effective date of such event
shall become exercisable in full as of the effective date of such event.
Termination and Amendment of Plan. Unless sooner terminated, the 1986
Plan will terminate at the close of business on May 7, 2002. The Board may
at any time terminate the 1986 Plan or make such modification or amendment
thereof as it deems advisable; provided, however, that the Board may not,
without approval by the affirmative vote of the holders of a majority of
the shares of Common Stock present in person or by proxy and entitled to
vote at a meeting, (i) materially increase the benefits accruing to
participants under the 1986 Plan, (ii) materially increase the maximum
number of shares for which options may be granted under the 1986 Plan, or
(iii) materially modify the requirements as to eligibility to participate
in the 1986 Plan; and provided further that the provisions of the 1986 Plan
specified in Rule 16b-3(c)(2)(ii)(A) (or any successor or amended provision
thereof) under the Securities Exchange Act of 1934 (including without
limitation, provisions as to eligibility, amount, price and timing of
awards) may not be amended more than once every six months, other than to
comport with changes in the Internal Revenue Code, the Employee Retirement
Income Security Act, or the rules thereunder. Termination or any
modification or amendment of the 1986 Plan shall not, without consent of a
participant, affect his or her rights under an option previously granted to
him or her.
Federal Income Tax Consequences. Options granted under the 1986 Plan
are intended to be non-qualified options for federal income tax purposes. A
director will not recognize any taxable income upon the grant of an option
under the 1986 Plan, but will generally recognize ordinary compensation
income at the time of exercise of the option in an amount equal to the
excess, if any, of the fair market value of the shares on the date of
exercise over the exercise price. Upon the exercise of an option, the
Company may require the optionee to pay withholding taxes in respect of
amounts considered to be compensation includible in the optionee's gross
income. In some circumstances, however, a director may acquire Common Stock
subject to special rules under Section 83 of the Code because of certain
securities laws restrictions on resale.
Generally, upon any grant or exercise of an option in which a director
does not recognize compensation income, no tax deduction will be allowed to
the Company. When a director recognizes compensation income as a result of
the exercise of an option under the 1986 Plan, the Company generally will
be entitled to a corresponding deduction for income tax purposes.
15
<PAGE> 18
Outstanding Options Under 1986 Plan
<TABLE>
The following table sets forth as of the Record Date, options granted in
the aggregate under the 1986 Plan to each non-employee director:
<CAPTION>
NO. OF
OPTIONS
NAME GRANTED(1)
---- ----------
<S> <C>
Douglas R. Brown.......................................... 2,000
William L. Brown.......................................... 9,000
Arnaud de Vitry d'Avaucourt............................... 15,500
Robert B. Luick........................................... 15,500
John J. Shields........................................... 13,500
Carl S. Sloane............................................ 3,000
Mark S. Wrighton.......................................... 5,000
Allen S. Wyett............................................ 9,000
<FN>
- ---------------
(1) Several directors have exercised options granted under the 1986 Plan. See
the notes to the beneficial ownership table on page 2 for current option
holdings.
</TABLE>
Vote Required
The approval of the amendment to the 1986 Stock Option Plan for
Non-Employee Directors requires the affirmative vote of a majority of the shares
represented at the Annual Meeting and entitled to vote.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR APPROVING THE PROPOSED
AMENDMENT TO THE 1986 STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS.
PROPOSAL 4. SELECTION OF AN AUDITOR
The Board of Directors proposes that the firm of Coopers & Lybrand L.L.P.,
independent certified public accountants, be appointed to serve as auditors for
the fiscal year ending December 31, 1997. The ratification of this selection is
not required under the laws of Massachusetts, where the Company is incorporated,
but the Board of Directors of the Corporation believes it is sound policy and in
the best interests of the stockholders to do so. In the event a majority of the
votes cast are against the selection of Coopers & Lybrand L.L.P., the Board will
consider the vote and the reasons therefor in future recommendations on the
selection of an auditor for the Corporation.
A representative of Coopers & Lybrand L.L.P. is expected to be present at
the Annual Meeting with the opportunity to make a statement if desired, and is
expected to be available to respond to appropriate questions from stockholders
who are present at the meeting.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE RATIFICATION OF
THIS SELECTION.
16
<PAGE> 19
EXECUTIVE COMPENSATION AND OTHER INFORMATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
<TABLE>
The following table provides summary information concerning the annual and
long-term compensation paid to or earned by the Company's Chief Executive
Officer and each of the four other most highly compensated executive officers of
the Company during the fiscal years ended December 31, 1996, 1995 and 1994 (the
"Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<CAPTION>
LONG-TERM COMPENSATION
AWARDS
---------------------------
RESTRICTED SECURITIES ALL OTHER
ANNUAL COMPENSATION STOCK UNDERLYING COMPENSATION(3)
NAME AND ---------------------- AWARDS OPTIONS/SARS ---------------
PRINCIPAL POSITION YEAR SALARY($) BONUS($) ($)(1) (#)(2) ($)
------------------ ---- --------- -------- ---------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
Arthur L. Goldstein........ 1996 450,000 250,000 0 150,000 4,500
Chairman of the Board, 1995 376,250 224,800 0 0 4,500
President and Chief 1994 296,250 80,000 133,307 100,000 3,000
Executive Officer
William E. Katz............ 1996 210,000 136,400 0 40,000 0
Executive 1995 206,750 120,720 0 0 0
Vice President 1994 199,250 63,000 43,654 30,000 0
Theodore G. Papastavros.... 1996 158,000 76,250 0 40,000 4,500
Vice President, 1995 152,000 70,250 0 0 4,560
Strategic Planning 1994 143,000 25,000 41,638 20,000 941
and Treasurer
Robert J. Halliday......... 1996 158,000 76,250 0 40,000 2,370
Vice President, 1995 149,000 70,250 0 0 2,310
Finance and Chief 1994 132,500 20,000 33,327 20,000 2,310
Financial Officer
Stephen Korn............... 1996 158,000 76,250 0 40,000 1,900
Vice President, General 1995 152,000 70,250 0 0 1,848
Counsel and Clerk 1994 143,000 20,000 33,327 20,000 469
<FN>
- ---------------
(1) Awards under the Corporation's 1994 Restricted Stock Plan, approved by the
Stockholders at the 1995 Annual Meeting, issued in May 1995 for fiscal 1994.
Represents award of 4,892 shares to Mr. Goldstein, 1,602 shares to Mr. Katz,
1,528 shares to Mr. Papastavros, 1,223 shares to Mr. Halliday, and 1,223
shares to Mr. Korn, and constitutes the total restricted stock holdings of
such persons. The year-end value of such holdings (based on the closing
price of the Company's Common Stock as reported on the New York Stock
Exchange on December 31, 1996) was $234,816, $76,896, $73,344, $58,704 and
$58,704, respectively. Shares vest in 20% annual increments over the five
successive 12-month periods following the date of the restricted stock
award. During the period that the share restrictions apply, each recipient
has the rights of a stockholder of the Company generally, including the
right to receive any dividends distributed.
(2) See "Stock Option Grants" and Note 1 to table included under "Stock Option
Exercises."
(3) Company matching contributions to officers' accounts in Ionics Section
401(k) Plan, available to all employees after an eligibility period.
Employees may elect to contribute to the Plan from 1% to 12% of the amount
that they would otherwise receive as cash compensation, and the contributed
amounts, subject to certain limitations, are not subject to current federal
income taxes. Amounts contributed to the
</TABLE>
17
<PAGE> 20
Plan are invested at the direction of the employee in shares of the
Company's Common Stock or in shares of one or more of four mutual funds. The
Company contributes to the Plan, for the individual accounts of the
participants in the Plan, an amount equal to 50% of the amount each
participant has elected to invest, up to 6% of compensation, in Common Stock
of the Company. Matching amounts are invested entirely in the Company's
Common Stock. The contributions by the Company for any one calendar year
cannot exceed an aggregate maximum amount fixed from time to time by the
Board of Directors.
STOCK OPTION GRANTS
<TABLE>
The following table provides information concerning the grant of stock
options (also reported in the Summary Compensation Table) under the Company's
1979 Stock Option Plan during the fiscal year ended December 31, 1996, to the
Named Executive Officers. No stock appreciation rights ("SARs") were granted
during fiscal 1996.
OPTION GRANTS IN 1996(1)
<CAPTION>
POTENTIAL
REALIZABLE VALUE
AT ASSUMED
ANNUAL RATES
NUMBER OF PERCENTAGE OF OF STOCK PRICE
SECURITIES UNDERLYING TOTAL OPTIONS APPRECIATION FOR
OPTIONS GRANTED(1) GRANTED TO EXERCISE OPTION TERM(2)
(SHARES OF EMPLOYEES PRICE EXPIRATION -------------------
NAME COMMON STOCK) IN FISCAL 1996 ($/SHARE) DATE 5%($) 10%($)
---- --------------------- -------------- --------- ---------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Arthur L. Goldstein.......... 150,000 20.6% 43 1/8 9/9/2006 4,068,138 10,309,505
William E. Katz.............. 40,000 5.5% 43 1/8 9/9/2006 1,084,836 2,749,201
Theodore G. Papastavros...... 40,000 5.5% 43 1/8 9/9/2006 1,084,836 2,749,201
Robert J. Halliday........... 40,000 5.5% 43 1/8 9/9/2006 1,084,836 2,749,201
Stephen Korn................. 40,000 5.5% 43 1/8 9/9/2006 1,084,836 2,749,201
<FN>
- ---------------
(1) All options were granted under the Company's 1979 Stock Option Plan, and
each option is exercisable for one share of Common Stock, which may be
purchased upon exercise with either cash or Common Stock. The options have a
duration of ten years and one day, and are immediately exercisable, subject
to the Company's right to repurchase a decreasing proportion of any shares
purchased upon exercise during the first five years from the date of grant
in the event the employee leaves the Company or desires to sell the shares.
Such repurchase rights in the Company terminate in the event of a merger,
consolidation or sale of all the assets by the Company, or in the event
another entity, person or group acquires 30% or more of the outstanding
voting shares of the Company. Options may not be transferred by an option
holder (other than by the laws of descent or distribution), may be exercised
only while the holder is an employee of the Company or a subsidiary, or
within 30 days after termination of employment, or by the holder's estate
for a period of 90 days after his death.
(2) Amounts represent hypothetical gains that could be achieved for the
respective options if exercised at the end of the option term. These gains
are based on assumed rates of stock appreciation of 5% and 10% compounded
annually from the date the respective options were granted to their
expiration date and are not intended to forecast possible future
appreciation, if any, in the price of the Common Stock. The gains shown are
net of the option exercise price, but do not include deductions for taxes or
other expenses associated with the exercise of the options or the sale of
the underlying shares. The actual gains, if any, on the stock option
exercises will depend on the future performance of the Common Stock, the
option holder's continued employment through the period that repurchase
rights lapse and the date on which the options are exercised.
</TABLE>
18
<PAGE> 21
STOCK OPTION EXERCISES
<TABLE>
The following table provides information, with respect to the Named
Executive Officers listed in the Summary Compensation Table, concerning the
exercise of options during, and holdings of unexercised options at the end of,
fiscal year 1996.
AGGREGATED OPTION EXERCISES IN FISCAL 1996
AND FISCAL YEAR-END OPTION VALUES(1)
<CAPTION>
(III)
NUMBER OF (IV)
SECURITIES VALUE OF
(I) UNDERLYING UNEXERCISED
SHARES (II) UNEXERCISED IN-THE-MONEY
ACQUIRED ON VALUE OPTIONS OPTION AT
EXERCISE REALIZED(2) AT FISCAL FISCAL YEAR-END(2)
NAME (#) ($) YEAR-END ($)
---- ----------- ----------- ----------- ------------------
<S> <C> <C> <C> <C>
Arthur L. Goldstein......... 28,000 1,256,500 424,000 8,117,000
William E. Katz............. 28,126 997,442 145,000 2,971,875
Theodore G. Papastavros..... 8,000 345,000 101,500 1,894,938
Robert J. Halliday.......... 2,000 65,165 87,000 1,425,500
Stephen Korn................ 1,800 67,463 80,000 1,223,250
<FN>
- ---------------
(1) All options were granted under the Company's 1979 Stock Option Plan and are
currently exercisable, subject to certain repurchase rights in the Company.
See Note (1) to preceding table. The Company has not granted SARs.
(2) Calculated as the difference between the closing price of the Company's
Common Stock, as reported on the date of option exercise (or the sales price
on such date if the individual sold on the exercise date) and the exercise
price of the option(s) (Column II), and as the difference between the
closing price of the Company's Common Stock, as reported on December 31,
1996 ($48.00 per share), and the exercise price of the option(s) (Column IV).
</TABLE>
PENSION PLAN
Employees of the Company and its domestic divisions and subsidiaries
(except for employees of the Fabricated Products Group, based in Bridgeville,
Pennsylvania, who participate in a defined contribution pension plan) may at
their election participate in the Company's defined benefit retirement plan
("Retirement Plan") after attaining age 21 and completing one year of service.
No benefits vest under the Retirement Plan until an employee has five years of
participation, at which time the employee becomes 100% vested. An employee must
contribute at least 1% of base salary in order to accrue benefits under the
Retirement Plan. The benefits payable upon retirement vary with the years of
service and level of compensation while participating in the Retirement Plan.
Upon retirement, participants also receive the total of their own contributions
to the Retirement Plan plus the earnings thereon. The following table shows the
estimated annual Company-provided pension benefits payable to an executive
officer or other participant at normal retirement age (age 65) in the Retirement
Plan.
19
<PAGE> 22
<TABLE>
PENSION PLAN TABLE
(ESTIMATED ANNUAL BENEFITS
FOR YEARS OF CREDITED SERVICE
INDICATED (1))
<CAPTION>
BASE SALARY AT
RETIREMENT DATE 5 10 15 20 25 30 35 40
--------------- - -- -- -- -- -- -- --
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 50,000.................. $ 2,841 $ 5,097 $ 7,182 $ 9,266 $11,351 $13,435 $15,520 $17,604
75,000.................. 4,262 7,696 10,946 14,196 17,447 20,697 23,948 27,198
100,000................. 5,682 10,294 14,710 19,127 23,543 27,959 32,376 36,792
125,000................. 7,103 12,892 18,474 24,057 29,639 35,221 40,804 46,386
150,000................. 8,524 15,490 22,239 28,987 35,735 42,483 49,232 55,980
175,000................. 9,314 17,444 25,358 33,272 41,187 49,101 57,015 64,929
200,000................. 9,841 18,647 27,693 36,774 45,854 54,934 64,014 73,094
225,000................. 10,368 20,287 28,344 36,906 46,034 55,161 64,289 73,416
250,000................. 10,895 21,927 30,907 39,795 48,683 57,571 66,459 75,347
275,000................. 11,401 23,546 33,448 43,250 53,051 62,853 72,655 82,457
300,000................. 11,434 24,145 34,970 45,685 56,400 67,115 77,831 88,546
325,000................. 11,434 24,228 35,975 47,604 59,233 70,861 82,490 94,119
350,000................. 11,434 24,228 36,480 48,733 60,985 73,238 85,490 97,743
375,000................. 11,434 24,228 36,480 48,733 60,985 73,238 85,490 97,743
400,000................. 11,434 24,228 36,480 48,733 60,985 73,238 85,490 97,743
<FN>
- ---------------
(1) Effective January 1, 1994, under Internal Revenue Code Section 401(a)(17),
no more than $150,000 of cash compensation may be taken into account in
calculating benefits under the Retirement Plan (effective January 1, 1997,
this number was adjusted to $160,000).
</TABLE>
Under the terms of the Retirement Plan, only the amount shown as "Salary"
in the Summary Compensation Table is covered under "Base Salary" above. The
fixed monthly retirement benefit of an officer retiring at normal retirement age
(assuming payment is made on a life annuity basis) is determined by the
following formula: (i) for years prior to January 1, 1989 -- one half of one
percent of the first $550 of base monthly salary as of January 1, 1990, plus one
and one-quarter percent (1.25%) of the balance of base monthly salary as of that
date, that sum being multiplied by the number of prior years of service; plus
(ii) for calendar year 1989, one and one-quarter percent (1.25%) of base monthly
salary as of January 1, 1990; plus (iii) for each year after December 31,
1989 -- one and one-quarter percent (1.25%) of base monthly salary as of January
1st of that year. Fixed retirement benefits are not subject to deduction for
Social Security benefits or other benefits received by officers.
Executive officers named in the Summary Compensation Table have been
credited with the following years of service, and would receive the following
estimated annual benefit at normal retirement age (65): Mr. Goldstein, 36.6
years, $85,447; Mr. Katz, 47.4 years, $53,600; Mr. Papastavros, 40.2 years,
$61,111; Mr. Halliday 6.1 years, $50,892; and Mr. Korn, 7.3 years, $37,846.
In 1996, the Company's Board of Directors adopted a Supplemental Executive
Retirement Plan for officers and key employees of the Company ("SERP"). The
purpose of the SERP is to permit officers and other key employees whose Base
Salary exceeds the maximum pay upon which retirement benefits may be accrued in
any year to accrue retirement benefits on Base Salary in excess of that amount,
equivalent to the benefits that would have been accrued under the Retirement
Plan if Base Salary levels over that amount could be taken into account in
calculating benefits under that Plan. The SERP is administered by the
Compensation Committee of the Board of Directors.
20
<PAGE> 23
STOCK PLANS
The Corporation currently has three stock ownership plans: the 1979 Stock
Option Plan; the 1994 Restricted Stock Plan; and the 1986 Stock Option Plan for
Non-Employee Directors. The 1986 Stock Option Plan for Non-Employee Directors is
the subject of Proposal 3. Please see Proposal No. 3 for a further discussion of
the 1986 Stock Option Plan for Non-Employee Directors and options granted
thereunder.
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS ON EXECUTIVE
COMPENSATION
The Board of Directors appoints each year from among its members a
Compensation Committee (the "Committee"). The Committee, which currently
consists of four non-employee directors, is responsible for reviewing and
establishing the compensation of the executive officers of the Company, and for
authorizing grants under the Company's 1979 Stock Option Plan and 1994
Restricted Stock Plan. If the proposed 1997 Stock Incentive Plan is approved by
the stockholders at the Annual Meeting (Proposal 2), the Committee will perform
similar functions under that plan. The Committee has furnished this report
concerning compensation of executive officers for the fiscal year ended December
31, 1996.
The compensation program for executive officers involves consideration of
cash compensation, the granting of options to acquire the Company's Common
Stock, and the granting of restricted stock under the 1994 Restricted Stock
Plan.
Cash Compensation
Cash compensation of executive officers is structured to include base
salary and, based on the achievement of performance objectives, a cash bonus.
The Company determines base salary levels of executive officers by comparison to
other companies engaged in its industry, represented by those in the "peer
group" Index set forth in this Proxy Statement, or in similar industries,
subject to an evaluation of comparative overall performance of the companies.
The policy of the Company is to pay cash bonuses based on the achievement
of specified corporate, business unit and individual performance objectives. The
cash bonuses listed in the Summary Compensation Table earned by executive
officers, as well as by other senior officers, were earned under the Company's
Managerial Bonus Program. The Managerial Bonus Program considers both
quantitative and qualitative performance. Quantitative performance focuses on
two measurements: earnings before interest and taxes (EBIT) achieved by the
business unit(s) for which the executive officer has major responsibility or
involvement, and EBIT return on the average capital employed by such business
unit(s) during the year. Qualitative performance focuses primarily on the degree
to which the officer has participated in and contributed to the achievement of
specified individual, divisional, departmental or corporate non-financial
objectives.
The Committee, after consideration of management's recommendations, may
elect to utilize restricted stock in lieu of a portion of any cash award that
might be payable under the Managerial Bonus Program. The Committee may also make
discretionary restricted stock awards. In 1995, a portion of the awards due
under the Company's Managerial Bonus Program for 1994 was filled by restricted
stock grants.
Budgeted amounts for EBIT and EBIT return on average capital employed are
established for each business unit, and for the Company as a whole, early in
each fiscal year. At the same time, a corresponding cash bonus target is
established for each executive officer based on the budgets of the business
unit(s) for which the officer has major managerial responsibility or
involvement. The cash bonus actually awarded, determined early in the next
fiscal year by the Committee, depends on the extent to which the actual
performance of the business unit(s) for which the officer has responsibility or
involvement meets or exceeds the budgeted amounts, and on the degree of success
in achieving the qualitative objectives.
21
<PAGE> 24
The Committee may make discretionary bonus awards in appropriate
circumstances wherein an executive officer might merit a bonus based on other
considerations.
The 1996 base salary of Mr. Goldstein, the Company's Chief Executive
Officer, was established by the Committee in August 1995. In considering Mr.
Goldstein's base salary, which was established at $450,000, the Committee
compared it to that paid by peer companies and companies in similar industries.
In doing so, the Committee reviewed on a comparative basis a) the Company's
multi-year record of continuous improvement in financial results including
record revenues, net income, earnings per share and year-ending backlog; b)
improvement in return on equity; c) improvement in stockholder value; and d) Mr.
Goldstein's leadership in the development of the Company's business and new
products.
Based on the Company's record performance in 1996, and in consideration of
such performance in the context of the Company's Managerial Bonus Program
discussed above, the Committee approved bonuses as provided for under the
program to Mr. Goldstein and other executive officers and key employees on
February 19, 1997. Under the terms of the program, Mr. Goldstein was entitled to
a bonus of $250,000.
Stock Options
The Committee believes that stock options are an appropriate mechanism to
provide senior management with a long-term incentive to strive for the continued
growth and success of the Company. The Company's stock option policy,
established by the Committee, is to recognize employee leadership and
significant contribution to the Corporation, regardless of the employee's level.
The Committee also believes that ownership of the Company's stock by management
promotes the enhancement of stockholder value by creating a greater community of
interest between stockholders and management. Subject to the approval of the
stockholders of the 1997 Stock Incentive Plan (Proposal 2), future grants of
stock options will be made under that plan. The size of stock option grants made
by the Committee is based on evaluation of a recipient's performance, salary
level and number of options held as a result of prior grants. On September 9,
1996, the Committee awarded Mr. Goldstein a stock option grant of 150,000
shares, based on a qualitative assessment of his performance since the last
stock option grant to him in 1994, including such factors as growth in the
Company's revenues and profitability, success in negotiating and completing a
number of strategic acquisitions, and enhancement of stockholder value. During
the fiscal year ended December 31, 1996, options to purchase an aggregate of
160,000 shares of Common Stock were granted to the other executive officers of
the Corporation.
Compliance with Internal Revenue Code Section 162(m)
Section 162(m) of the Internal Revenue Code, enacted in 1993, generally
disallows a tax deduction to a public company for compensation in excess of $1
million paid to the company's chief executive officer and four other most highly
compensated executive officers. Certain types of performance-based compensation,
such as that available under the Company's 1979 Stock Option Plan (and, if
adopted, under the 1997 Stock Incentive Plan), will not be subject to the
deduction limit if certain requirements set forth in Section 162(m) are met. The
Company believes that its compensation awards to executive officers during
fiscal year 1996 under the 1979 Stock Option Plan comply with the requirements
of Section 162(m).
Respectfully submitted by the
Compensation Committee
Allen S. Wyett, Chairman
John J. Shields
Carl S. Sloane
Mark S. Wrighton
22
<PAGE> 25
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No member of the Compensation Committee is a former or current officer or
employee of the Company or any of its subsidiaries. To the Company's knowledge,
there were no relationships involving members of the Committee or other
directors of the Company requiring disclosure in this Proxy Statement.
STOCK PERFORMANCE GRAPH
The Securities and Exchange Commission (the "Commission") requires that the
Company include in this Proxy Statement a line-graph presentation comparing
cumulative, five-year return to the Company's stockholders (based on
appreciation of the market price of the Company's Common Stock) on an indexed
basis with (i) a broad equity market index and (ii) an appropriate published
industry or line-of-business index, or peer group index constructed by the
Company. The following presentation compares the Company's Common Stock price in
the five year period from December 31, 1991 to December 31, 1996, to the S&P 500
Stock Index and to a "peer group" index over the same period. The "peer group"
index consists of the common stock of Calgon Carbon Corporation, Osmonics, Inc.,
Pall Corporation and United States Filter Corporation. These corporations are
involved in various aspects of the water treatment or liquids separations
businesses. The presentation assumes that the value of an investment in each of
the Company's Common Stock, the S&P 500 Index, and the peer group index was $100
on December 31, 1991, and that any cash dividends paid by any constituent
company (none have been paid by the Company) were reinvested in the same
security.
<TABLE>
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN AMONG
IONICS, INCORPORATED, S&P 500 INDEX AND "PEER GROUP" INDEX OF COMPARABLE
COMPANIES
<CAPTION>
MEASUREMENT PERIOD
(FISCAL YEAR COVERED) IONICS, INC. S&P 500 PEER GROUP
<S> <C> <C> <C>
1991 100.00 100.00 100.00
1992 107.61 150.83 97.10
1993 118.41 110.28 87.03
1994 120.01 139.44 86.15
1995 164.95 193.33 124.83
1996 202.73 213.33 138.64
</TABLE>
23
<PAGE> 26
DIRECTOR COMPENSATION
Each Director who is not an employee of the Company receives an annual
retainer of $10,000, plus a fee of $1,000 for each regular board meeting
attended. In addition, non-employee Directors also receive a fee of $500 (except
for the Chairman, who receives a fee of $1,000) for each meeting of a Committee
of the Board they attend, if held on the same day as a Board meeting, or $1,000
per meeting if held on a day on which the Board does not meet.
Under the Company's 1986 Stock Option Plan for Non-Employee Directors
("1986 Plan"), each person who is not an employee of the Company or any of its
subsidiaries and who is elected a Director of the Company is entitled to receive
an option for 2,000 shares of Common Stock upon his initial election, and an
option to acquire 2,000 additional shares upon completion of each of his next
successive years in office. Options granted under the 1986 Plan have an exercise
price equal to the market price on the date of grant, do not become exercisable
until the expiration of six months from the date of grant, and thereafter may be
exercised only during certain "window" periods. Options granted under the 1986
Plan expire ten years after the date of grant, and terminate 30 days after the
holder ceases to be a Director, or 90 days following a Director's death.
STOCKHOLDER PROPOSALS
The Corporation's 1998 Annual Meeting is presently expected to be held on
May 7, 1998. Proposals of stockholders intended to be presented at the 1998
Annual Meeting must be received no later than November 30, 1997, for inclusion
in the Corporation's Proxy Statement and proxy for that meeting, except that if
the date of the 1998 Annual Meeting is changed by more than 30 calendar days
from the presently expected date, the Corporation must receive such proposal
within a reasonable time before the Board of Directors makes its proxy
solicitation.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the
Corporation's directors, executive officers and holders of more than 10% of the
Corporation's Common Stock (collectively, "Reporting Persons") to file with the
Commission initial reports of ownership and reports of changes in ownership of
Common Stock of the Corporation. Such persons are required by regulations of the
Commission to furnish the Corporation with copies of all such filings. Based on
its review of the copies of such filings received by it with respect to the
fiscal year ended December 31, 1996 and written representations from certain
Reporting Persons, the Corporation believes that all Reporting Persons complied
with all Section 16(a) filing requirements in the fiscal year ended December 31,
1996.
OTHER MATTERS
As of this time, the Board of Directors knows of no other matters to be
brought before the meeting. However, if other matters properly come before the
meeting or any adjournment thereof, and if discretionary authority to vote with
respect thereto has been conferred by the enclosed Proxy, the persons named in
the Proxy will vote the Proxy in accordance with their best judgment as to such
matters.
24
<PAGE> 27
EXPENSES AND SOLICITATION
The cost of solicitation of proxies will be borne by the Corporation. In
addition to soliciting stockholders by mail, certain of the Corporation's
directors, officers and employees, without additional remuneration, may solicit
proxies in person or by telephone or telegraph. Brokers and other custodians,
nominees and fiduciaries will be requested to forward proxy-soliciting material
to the owners of stock held in their names, and the Corporation will reimburse
such brokers and other custodians, nominees and fiduciaries for their reasonable
out-of-pocket costs. Solicitation by directors, officers and employees of the
Corporation may also be made of some stockholders in person or by mail,
telephone or telegraph following the original solicitation. The Corporation may,
if appropriate, retain an independent proxy solicitation firm to assist in
soliciting proxies. If the Corporation does so, it will pay such firm's
customary fees and expenses.
By Order of the Board of Directors
STEPHEN KORN, Clerk
Watertown, Massachusetts
March 28, 1997
25
<PAGE> 28
Exhibit A
IONICS, INCORPORATED
1997 STOCK INCENTIVE PLAN
1. PURPOSE. The purpose of this Plan is to enable officers and other key
employees of, and consultants to, Ionics, Incorporated (the "Company") and any
present or future parent or subsidiary of the Company (collectively, "Related
Corporations") to (i) own shares of Stock in the Company, (ii) participate in
the shareholder value which has been created, (iii) have a mutuality of interest
with other shareholders and (iv) enable the Company to attract, retain and
motivate key employees and consultants of particular merit. As used herein, the
terms "parent" and "subsidiary" mean "parent corporation" and "subsidiary
corporation," respectively, as those terms are defined in Section 424 of the
Code.
2. DEFINITIONS. For the purposes of the Plan, the following terms shall
have the meanings set forth below:
(a) Award means the grant or sale pursuant to the Plan of any Stock
Options and Long-Term Performance Awards.
(b) Board means the Board of Directors of the Company.
(c) Code means the Internal Revenue Code of 1986, as amended from time
to time, or any statute successor thereto, and any regulations issued from
time to time thereunder.
(d) Company means Ionics, Incorporated, a corporation organized under
the laws of the Commonwealth of Massachusetts (or any successor
corporation).
(e) Disability means "permanent and total disability" as defined under
Section 22(e)(3) of the Code or any successor statute.
(f) Effective Date means the date that the Plan is approved by both
the Board of Directors of the Company and the stockholders of the Company,
and if not approved on the same day, the date of the last approval.
(g) Fair Market Value means, as of any given date, the last reported
sales price of the Stock as reported in The Wall Street Journal for such
date, or if no such sale is reported on the last preceding trade date to
the sales date, or if the Stock is not publicly traded on or as of such
date, the fair market value of the Stock as determined by the Committee in
good faith based on the available facts and circumstances at the time.
(i) Incentive Stock Option means any Stock Option intended to be and
designated as an "Incentive Stock Option" within the meaning of Section 422
of the Code.
(j) Long-Term Performance Award means an Award made pursuant to
Section 7 below that is payable in cash and/or Stock in accordance with the
terms of the grant, based on Company, business unit and/or individual
performance over a period of at least one year.
(k) Non-Qualified Stock Option means any Stock Option that is not an
Incentive Stock Option.
(l) Participant means an employee or consultant to whom an Award is
granted pursuant to the Plan.
(m) Plan means the Ionics, Incorporated 1997 Stock Incentive Plan, as
set forth herein and as it may be amended from time to time.
A-1
<PAGE> 29
(n) Retirement means a termination of employment, for reasons other
than death, which satisfies the requirements for normal, early, late or
disability retirement in accordance with the Ionics, Incorporated
Retirement Plan or any successor plan.
(o) Stock means the common stock, $1.00 par value per share, of the
Company.
(p) Stock Option or Option means any option to purchase shares of
Stock granted pursuant to Section 6 below.
In addition the term Change in Control shall have meaning set forth in
Section 8.2.
3. ADMINISTRATION
(a) Board or Committee Administration. The Plan shall be administered by
the Board or, subject to paragraph 3(d) (relating to compliance with Section
162(m) of the Code), by a committee appointed by the Board (the "Committee"),
which shall initially be the Compensation Committee of the Board. Hereinafter,
all references in this Plan to the "Committee" shall mean the Board if no
Committee has been appointed. Subject to ratification of the grant or
authorization of each Award by the Board (if so required by applicable state
law), and subject to the terms of the Plan, the Committee shall have the
authority to (i) determine to whom (from among the class of employees eligible
under Section 5 to receive Incentive Stock Options) Incentive Stock Options
shall be granted, and to whom (from among the class of individuals and entities
eligible under Section 5 to receive Non-Qualified Stock Options and Long-Term
Performance Awards) Non-Qualified Stock Options and Long-Term Performance Awards
may be granted, (ii) determine the time or times at which Awards shall be
granted; (iii) determine the purchase price of shares subject to each Option,
which prices shall not be less than the minimum price specified in Section
6.2(a); (iv) determine whether each Option granted shall be an Incentive Stock
Option or a Non-Qualified Stock Option; (v) determine (subject to Sections
6.2(b) and 6.2(c)) the time or times when each Option shall become exercisable
and the duration of the exercise period; (vi) extend the period during which
outstanding Options may be exercised; (vii) determine whether restrictions such
as repurchase options are to be imposed on shares subject to Awards and the
nature of such restrictions, if any; and (viii) interpret the Plan and prescribe
and rescind rules and regulations relating to it. If the Committee determines to
issue a Non-Qualified Stock Option, it shall take whatever actions it deems
necessary, under Section 422 of the Code and the regulations promulgated
thereunder, to ensure that such Non-Qualified Stock Option is not treated as an
Incentive Stock Option. The interpretation and construction by the Committee of
any provisions of the Plan or of any Award granted under it shall be final
unless otherwise determined by the Board. The Committee may from time to time
adopt such rules and regulations for carrying out the Plan as it may deem
advisable. No member of the Board or the Committee shall be liable for any
action or determination made in good faith with respect to the Plan or any Award
granted under it.
(b) Committee Actions. The Committee may select one of its members as its
chairman, and shall hold meetings at such time and places as it may determine. A
majority of the Committee shall constitute a quorum and acts of a majority of
the members of the Committee at a meeting at which a quorum is present, or acts
reduced to or approved in writing by all the members of the Committee (if
consistent with applicable state law), shall be the valid acts of the Committee.
From time to time the Board may increase the size of the Committee and appoint
additional members thereof, remove members (with or without cause) and appoint
new members in substitution therefor, fill vacancies however caused, or remove
all members of the Committee and thereafter directly administer the Plan.
(c) Grant of Awards to Board Members. Awards may be granted to members of
the Board who are otherwise eligible to receive Awards under the Plan. All
grants of Awards to members of the Board shall in all respects be made in
accordance with the provisions of this Plan applicable to other eligible
persons. Members
A-2
<PAGE> 30
of the Board who either (i) are eligible to receive grants of Awards pursuant to
the Plan or (ii) have been granted Awards may vote on any matters affecting the
administration of the Plan or the grant of any Awards pursuant to the Plan,
except that no such member shall act upon the granting to himself or herself of
Awards, but any such member may be counted in determining the existence of a
quorum at any meeting of the Board during which action is taken with respect to
the granting to such member of Awards.
(d) Performance-Based Compensation. The Board, in its discretion, may take
such action as may be necessary to ensure that Stock Options granted under the
Plan qualify as "qualified performance-based compensation" within the meaning of
Section 162(m) of the Code and applicable regulations promulgated thereunder
("Performance-Based Compensation"). Such action may include, in the Board's
discretion, some or all of the following: (i) if the Board determines that Stock
Options granted under the Plan generally shall constitute Performance-Based
Compensation, the Plan shall be administered, to the extent required for such
Stock Options to constitute Performance-Based Compensation, by a Committee
consisting solely of two or more "outside directors" (as defined in applicable
regulations promulgated under Section 162(m) of the Code); and (ii) Stock
Options and Stock Grants granted under the Plan may be subject to such other
terms and conditions as are necessary for compensation recognized in connection
with the exercise or disposition of such Stock Option or the disposition of
Stock acquired pursuant to such Stock Option to constitute Performance-Based
Compensation.
4. SHARES OF STOCK SUBJECT TO THE PLAN.
(a) Stock. The Stock subject to Awards shall be authorized but unissued
shares of Stock or shares of Stock reacquired by the Company in any manner.
Subject to adjustment as provided in subsection (c) of this Section 4, the
aggregate number of shares of Stock that may be issued pursuant to the Plan
shall be (i) 750,000 (which number includes the aggregate number of shares with
respect to which no options have been granted under the 1979 Stock Option Plan
on the Effective Date), plus (ii) such number of shares as to which options
granted under the 1979 Stock Option Plan terminate or expire without being fully
exercised, plus (iii) effective as of January 1, 1998 and each of the three
successive years thereafter, a number of shares of Stock equal to two percent
(2%) of the total number of shares of Stock issued and outstanding as of the
close of business on December 31 of the preceding year. Subject to adjustment as
provided in subsection (c) of this Section 4, no more than an aggregate of
750,000 shares of Stock may be issued pursuant to the exercise of Incentive
Stock Options granted under the Plan (including shares issued pursuant to the
exercise of Incentive Stock Options granted under the Plan that are the subject
of disqualifying dispositions within the meaning of Sections 421, 422 and 424 of
the Code and the regulations thereunder); and no more than an aggregate of
150,000 shares of Stock may be issued in connection with Long-Term Performance
Awards granted under the Plan. If any Award granted under the Plan shall expire
or terminate for any reason without having been exercised in full or shall cease
for any reason to be exercisable in whole or in part, the unpurchased shares
subject to such Award shall again be available for grants of Awards under the
Plan.
No employee of the Company or any Related Corporation may be granted
Options (or any other Award) to acquire, in the aggregate, more than 200,000
shares of Stock during any 12-month period under the Plan. If any Option granted
under the Plan shall expire or terminate for any reason without having been
exercised in full or shall cease for any reason to be exercisable in whole or in
part, the unpurchased shares subject to such Option shall be included in the
determination of the aggregate number of shares of Stock deemed to have been
granted to such employee under the Plan.
(b) Computation of Available Shares. For the purpose of computing the
total number of shares of Stock available for Plan purposes at any time during
which the Plan is in effect, there shall be debited against the total number of
shares determined to be available pursuant to paragraphs (a) and (c) of this
Section 4 the maximum number of shares of Stock subject to issuance upon
exercise of Options or upon settlement of other
A-3
<PAGE> 31
Awards theretofore made under the Plan. In addition, however, shares related to
the unexercised or undistributed portion of any terminated, expired or forfeited
Award for which no material benefit was received by a Participant (e.g.
dividends, but not including voting rights), or to the portion of any Award
settled in cash, shall be recredited to the number remaining upon such
termination, expiration or forfeiture and thereafter again be available for
distribution in connection with future Awards under the Plan.
(c) Other Adjustment. In the event of any merger, reorganization,
consolidation, recapitalization, Stock dividend, or other change in corporate
structure affecting the Stock, such substitution or adjustment shall be made in
the aggregate number of shares reserved for issuance under the Plan, and in the
number and option price of shares subject to outstanding Options and other
Stock-based Awards granted under the Plan, as may be determined to be
appropriate by the Committee in its sole discretion provided that the number of
shares subject to any Award shall always be a whole number.
5. ELIGIBILITY. Incentive Stock Options may be granted only to employees
of the Company and any Related Corporation. Officers and other key employees of
or consultants to the Company, who are responsible for or contribute to, as
determined by the Committee in its sole discretion, the management, growth
and/or profitability of the business of the Company and/or any Related
Corporation are eligible for Awards under the Plan.
6. STOCK OPTIONS.
6.1 Provision for Grant. Stock Options may be granted alone, in addition
to or in tandem with other Awards under the Plan. Any Stock Option granted under
the Plan shall be in such form as the Committee may from time to time approve.
The Committee shall have the authority to grant any optionee who is an employee
of the Company, or of any Related Corporation, Incentive Stock Options,
Non-Qualified Stock Options, or both types of Stock Options. To the extent that
any Stock Option does not qualify as an Incentive Stock Option, it shall
constitute a separate Non-Qualified Stock Option. In the case of any other
person eligible for an Award under the Plan, any Stock Option granted under the
Plan shall be a Non-Qualified Stock Option.
Anything in the Plan to the contrary notwithstanding, no term of this Plan
relating to Incentive Stock Options shall be interpreted, amended or altered,
nor shall any discretion or authority granted under the Plan be so exercised, so
as to disqualify the Plan under Section 422 of the Code, or, without the consent
of the optionee(s) affected, to disqualify any Incentive Stock Option under such
Section 422.
6.2 Terms and Conditions. Options granted under the Plan shall be subject
to the following terms and conditions and shall contain such additional terms
and conditions, not inconsistent with the terms of the Plan, as the Committee
shall deem appropriate:
(a) Option Price. The option price per share of Stock purchasable
under a Stock Option shall be determined by the Committee at the time of
grant but shall be not less than 100% of the Fair Market Value of the Stock
at the time of grant. However, any Incentive Stock Option granted to any
optionee who, at the time the option is granted, owns more than 10% of the
voting power of all classes of stock of the Company or of a parent or
subsidiary corporation (in each case as defined in Section 424 of the Code)
shall have an exercise price no less than 110% of Fair Market Value per
share on date of the grant.
(b) Option Term. The term of each Stock Option shall be fixed by the
Committee, but no Stock Option shall be exercisable more than ten years
after the date on which the Option is granted. However, any Incentive Stock
Option granted to any optionee who, at the time the Option is granted, owns
more than 10% of the voting power of all classes of stock of the Company or
of a parent or subsidiary
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<PAGE> 32
corporation (in each case as defined in Section 424 of the Code) may not
have a term of more than five years. No Stock Option may be exercised by
any person after expiration of the term of the Option.
(c) Exercisability. Stock Options shall be exercisable at such time
or times and subject to such terms and conditions as shall be determined by
the Committee at or after grant, provided, however, that, except as
provided in Sections 6.2(f), 6.2(g) and 8, unless otherwise determined by
the Committee at or after grant, no Stock Option shall be exercisable
during the six months following the date of the granting of the Option. If
the Committee provides, in its discretion, that any Stock Option is
exercisable only in installments, the Committee may waive such installment
exercise provisions at any time at or after grant in whole or in part,
based on such factors as the Committee shall determine, in its sole
discretion.
(d) Method of Exercise. Subject to whatever installment exercise
provisions apply pursuant to Section 6.2(c), Stock Options may be exercised
in whole or in part at any time and from time to time during the option
period, by giving written notice of exercise to the Company specifying the
number of shares to be purchased. Such notice shall be accompanied by
payment in full of the purchase price, either by certified or bank check,
or such other instrument as the Committee may accept. As determined by the
Committee, in its sole discretion, payment in full or in part may also be
made in the form of unrestricted Stock already owned by the optionee
(based, in each case, on the Fair Market Value of the Stock on the date the
option is exercised, as determined by the Committee); provided, however,
that, in the case of an Incentive Stock Option, the right to make a payment
in the form of already owned shares may be authorized only at the time the
Option is granted.
If payment of the Option exercise price of a Stock Option is made in
whole or in part in the form of unrestricted Stock already owned by the
Participant, the Company may require that the Stock has been owned by the
Participant for a specified minimum period of time, for the purpose of
avoiding any charge to the Company's earnings, limiting the pyramiding of
Stock Option exercises, or such other purposes as the Company deems
appropriate.
No shares of Stock shall be issued until full payment therefor has
been made. An optionee shall generally have the rights to dividends or
other rights of a shareholder with respect to shares subject to the Option
when the optionee has given written notice of exercise, has paid in full
for such shares, and, if requested, has given the representation described
in Section 11.1.
(e) Transferability. No Stock Option shall be transferable by the
optionee otherwise than by will or by the laws of descent and distribution,
and all Stock Options shall be exercisable, during the optionee's lifetime,
only by the optionee, provided, however, the Committee may grant
Non-Qualified Stock Options that are transferable, without payment of
consideration, to immediate family members of the optionee or to trusts for
such family members, or to partnerships in which such immediate family
members are the only parties, subject to such limits as the Committee may
establish, and the transferee shall remain subject to all of the terms and
conditions applicable to such Non-Qualified Stock Options prior to such
transfer.
(f) Termination by Reason of Death. If an optionee's employment by or
association with the Company or any Related Corporation terminates by
reason of death, any Stock Option held by such optionee may thereafter be
exercised, to the extent then exercisable at the time of death, or on such
accelerated basis as the Committee may determine at or after grant, by the
legal representative of the estate or by the legatee of the optionee under
the will of the optionee, for a period of 90 days (or such shorter period
as the Committee may specify at grant) from the date of such death or until
the expiration of the stated term of such Stock Option, whichever period is
the shorter.
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<PAGE> 33
(g) Termination by Reason of Disability or Retirement. If an
optionee's employment by or association with the Company or any Related
Corporation terminates by reason of Disability or Retirement, any Stock
Option held by such optionee may thereafter be exercised by the optionee,
to the extent it was exercisable at the time of termination, or on such
accelerated basis as the Committee may determine at or after grant, for a
period of 90 days (or such shorter period as the Committee may specify at
grant) from the date of such termination of employment or until the
expiration of the stated term of such Stock Option, whichever period is the
shorter; provided, however, that, if the optionee dies within such 90-day
period (or such shorter period as the Committee shall specify at grant),
any unexercised Stock Option held by such optionee shall thereafter be
exercisable to the extent to which it was exercisable at the time of death
for a period of 90 days from the date of such death or until the expiration
of the stated term of such Stock Option, whichever period is the shorter.
(h) Other Termination. Unless otherwise determined by the Committee
at grant, if an optionee's employment by or association with the Company or
any Related Corporation terminates for any reason other than death,
Disability or Retirement, the Stock Option shall thereupon terminate,
except that in the Committee's sole discretion, based upon such factors as
the Committee may deem appropriate, the Committee may specify that such
Stock Option may be exercised, to the extent exercisable at termination, or
on such accelerated basis as the Committee may determine at or after grant,
for a period of 90 days (or such shorter period as the Committee shall
specify at grant) from the date of such termination or until the expiration
of the stated term of such Stock Option, whichever period is shorter.
(i) Incentive Stock Option Limitations. To the extent required for
"incentive stock option" status under Section 422 of the Code, the
aggregate Fair Market Value (determined as of the time of grant) of the
Stock with respect to which Incentive Stock Options granted are exercisable
for the first time by the optionee during any calendar year under the Plan
and/or any other stock option plan of the Company and any parent or
subsidiary corporation (within the meaning of Section 424 of the Code)
shall not exceed $100,000. The Company intends to designate any Options
granted in excess of the $100,000 limitation as Non-Qualified Stock
Options, and the Company shall issue certificates to the optionee with
respect to the Options that are Non-Qualified Options and Options that are
Incentive Stock Options.
(j) Cashless Exercise; Satisfaction of Tax Withholdings. To the
extent permitted under applicable laws and regulations, at the request of a
Participant, the Company agrees to cooperate in a "cashless exercise" of an
Option. The cashless exercise shall be effected by the Participant
delivering to a registered securities broker acceptable to the Company
instructions to sell a sufficient number of shares of Stock for which such
Option is then exercisable to cover the costs and expenses associated with
such exercise and sale. Under any Option, the Committee may permit a
Participant to pay any applicable withholding taxes by delivering a
sufficient number of previously owned shares of Common Stock to the Company
to satisfy such taxes.
7. LONG-TERM PERFORMANCE AWARDS
7.1 Provision for Grant. Long-Term Performance Awards may be awarded
either alone or in addition to other Awards granted under the Plan. The
Committee shall determine the nature, length and starting date of the
performance period (the "Performance Period") for each Long-Term Performance
Award, which subject to Section 8 below shall be a period of at least one year,
and shall determine the performance objectives to be used in valuing Long-Term
Performance Awards and determining the extent to which such Long-Term
Performance Awards have been earned. Performance objectives may vary from
Participant to Participant and between groups of Participants and shall be based
upon such Company, business unit and/or individual performance factors and
criteria as the Committee may deem appropriate, including, but not limited to,
earnings per share or return on equity. Performance Periods may overlap and
Participants may
A-6
<PAGE> 34
participate simultaneously with respect to Long-Term Performance Awards that are
subject to different Performance Periods and/or different performance factors
and criteria.
7.2 Periodical Determination of Performance. At the beginning of each
Performance Period, the Committee shall determine for each Long-Term Performance
Award subject to such Performance Period the range of dollar values or number of
shares of Stock to be awarded to the Participant at the end of the Performance
Period if and to the extent that the relevant measure(s) of performance for such
Long-Term Performance Award is (are) met. Such dollar values or number of shares
of Stock may be fixed or may vary in accordance with such performance and/or
other criteria as may be specified by the Committee, in its sole discretion.
7.3 Adjustment of Awards. In the event of special or unusual events or
circumstances affecting the application of one or more performance objectives to
a Long-Term Performance Award, the Committee may revise the performance
objectives and/or underlying factors and criteria applicable to the Long-Term
Performance Awards affected, to the extent deemed appropriate by the Committee,
in its sole discretion, to avoid unintended windfalls or hardship.
7.4 Termination of Employment. Subject to Section 8 below and unless
otherwise provided in the applicable Award agreement(s), if a Participant
terminates employment or other association with the Company or any Related
Corporation during a Performance Period because of death, Disability or
Retirement, such Participant shall be entitled to a payment with respect to each
outstanding Long-Term Performance Award at the end of the applicable Performance
Period (i) based, to the extent relevant under the terms of the award, upon the
Participant's performance for the portion of such Performance Period ending on
the date of termination and the performance of the applicable business unit(s)
for the entire Performance Period, and (ii) prorated, where deemed appropriate
by the Committee, for the portion of the Performance Period during which the
Participant was employed by or associated with the Company and any Related
Corporation, all as determined by the Committee, in its sole discretion.
However, the Committee may provide for an earlier payment in settlement of such
award in such amount and under such terms and conditions as the Committee deems
appropriate.
Subject to Section 8 below, if a Participant terminates employment by or
association with the Company and any Related Corporation during a Performance
Period for any other reason, then such Participant shall not be entitled to any
payment with respect to Long-Term Performance Awards subject to such Performance
Period, unless the Committee shall otherwise determine, in its sole discretion.
7.5 Form of Payment. The earned portion of a Long-Term Performance Award
may be paid currently or on a deferred basis with such interest or earnings
equivalent as may be determined by the Committee, in its sole discretion.
Payment shall be made in the form of cash or whole shares of Stock, either in a
lump sum payment or in annual installments commencing as soon as practicable
after the end of the relevant Performance Period, all as the Committee shall
determine at or after grant.
8. CHANGE IN CONTROL PROVISIONS.
8.1 Consequences of Event. In the event of a Change in Control, in
addition to the adjustment provided for in Section 4(c), the Committee may in
its discretion determine whether, with respect to all Stock Options granted and
Awards made before the Change in Control, the following acceleration and
valuation provisions shall apply:
(a) Any Stock Options awarded under the Plan not previously
exercisable shall thereupon become fully exercisable.
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<PAGE> 35
(b) Any outstanding Long-Term Performance Awards shall be paid out in
cash within thirty days following the Change in Control based on prorated
target results for the Performance Periods in question.
In case of any reorganization, merger or consolidation of the Company into
or with another company or in the case of any sale or conveyance to another
company or entity of the property of the Company as a whole or substantially as
a whole, each Stock Option shall be automatically converted into a stock option
or other award which covers shares of stock or other securities equivalent in
kind and value to the shares or other securities the optionee or holder would
have held if the Stock Option or other Award had been exercised or received in
full prior to such reorganization, merger, consolidation, sale or conveyance and
no disposition thereof had subsequently been made, and the option price under
each Stock Option shall be proportionately adjusted.
8.2 Change in Control. For purposes of this Plan, a "Change in Control"
means the happening of any of the following:
(a) The acquisition, other than from the Company, by any individual,
entity or group (within the meaning of Section 12(d)(3) or 14(d)(2) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act")) of
beneficial ownership (within the meaning of Rule 13d-3 promulgated under
the Exchange Act) of 20% or more of either (i) the then outstanding shares
of common stock of the Company (the "Outstanding Company Common Stock") or
(ii) the combined voting power of the then outstanding voting securities of
the Company entitled to vote generally in the election of directors (the
"Company Voting Securities"); provided, however, that any acquisition by
(x) any noncorporate shareholder of the Company as of the effective date of
the initial registration of an offering of Stock under the Securities Act
of 1933, (y) the Company or any of its subsidiaries, or any employee
benefit plan (or related trust) sponsored or maintained by the Company or
any of its subsidiaries, or (z) any corporation with respect to which,
following such acquisition, more than 60% of, respectively, the then
outstanding shares of common stock of such corporation and 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 of
the individuals and entities who were the beneficial owners, respectively,
of the Outstanding Company Common Stock and Company Voting Securities
immediately prior to such acquisition in substantially the same proportion
as their ownership, immediately prior to such acquisition, of the
Outstanding Company Common Stock and Company Voting Securities, as the case
may be, shall not constitute a Change in Control of the Company; or
(b) Continuing Directors constitute less than a majority of the Board,
where a Continuing Director is (i) each person who was a director of the
Company on January 2, 1997, and (ii) each person who subsequently becomes a
director of the Company and whose election or nomination was approved by a
vote of at least a majority of the Continuing Directors in office at the
time of the election or nomination unless that person became a director in
connection with an actual or threatened election contest; or
(c) Approval by the shareholders of the Company of a reorganization,
merger or consolidation (a "Business Combination"), in each case, with
respect to which all or substantially all of the individuals and entities
who were the respective beneficial owners of the Outstanding Company Common
Stock and Company Voting Securities immediately prior to such Business
Combination do not own beneficially, directly or indirectly, more than 60%
of, respectively, the then outstanding shares of common stock and the
combined voting power of the then outstanding voting securities entitled to
vote generally in the election of directors, as the case may be, of the
corporation resulting from such Business Combination in substantially the
same proportion as their ownership immediately prior to such Business
Combination of the Outstanding Company Common Stock and Company Voting
Securities, as the case may be; or
(d) a complete liquidation or dissolution of the Company or a sale or
other disposition of all or substantially all of the assets of the Company
other than to a corporation with respect to which, following
A-8
<PAGE> 36
such sale or disposition, more than 60% of, respectively, the then
outstanding shares of common stock and the combined voting power of the
then outstanding voting securities entitled to vote generally in the
election of directors is then owned beneficially, directly or indirectly,
by all or substantially all of the individuals and entities who were the
beneficial owners, respectively, of the Outstanding Company Common Stock
and Company Voting Securities immediately prior to such sale or disposition
in substantially the same proportion as their ownership of the Outstanding
Company Common Stock and Company Voting Securities, as the case may be,
immediately prior to such sale or disposition.
9. AMENDMENT AND TERMINATION. The Board may terminate or amend the Plan
at any time and from time to time; provided, however, that the Board may not,
without approval of the shareholders of the Company, increase the maximum number
of shares of Stock issuable under the Plan or change the description of the
individuals eligible to receive Awards. No termination of or amendment to the
Plan may adversely affect the rights of a Participant with respect to any Award
theretofore granted under the Plan without such Participant's consent.
The Committee may amend the terms of any Award theretofore granted,
prospectively or retroactively, but, subject to Section 4 above, no such
amendment shall (i) decrease the exercise price of an outstanding Stock Option,
or (ii) effect the simultaneous cancellation of an outstanding Stock Option and
new grant of a replacement Stock Option, or (iii) without the Participant's
consent, impair the rights of any Participant.
10. UNFUNDED STATUS OF PLAN. The Plan is intended to constitute an
"unfunded" plan for incentive and deferred compensation. With respect to any
payments not yet made to a Participant by the Company, nothing contained herein
shall give any such Participant any rights that are greater than those of any
other general creditor of the Company. In its sole discretion, the Committee may
authorize the creation of trusts or other arrangements to meet the obligations
created under the Plan to deliver Stock or payments in lieu of or with respect
to Awards hereunder; provided, however, unless the Committee otherwise
determines with the consent of the affected Participant, the existence of such
trusts or other arrangements shall be consistent with the "unfunded" status of
the Plan.
11. GENERAL PROVISIONS.
11.1 Investment Representation. The Committee may require each person
acquiring shares pursuant to an Award under the Plan to represent to and agree
with the Company in writing that the Participant is acquiring the shares for
investment without a view to distribution thereof. The certificates for such
shares may include any legend which the Committee deems appropriate to reflect
any restrictions on transfer. All certificates for shares of Stock or other
securities delivered under the Plan shall be subject to such stock-transfer
orders and other restrictions as the Committee may deem advisable under the
rules, regulations, and other requirements of any stock exchange upon which the
Stock is then listed, and any applicable Federal or state securities law, and
the Committee may cause a legend or legends to be put on any such certificates
to make appropriate reference to such restrictions.
11.2 Adoption of Other Plans. Nothing contained in this Plan shall
prevent the Board of Directors from adopting other or additional compensation
arrangements, subject to stockholder approval if such approval is required; and
such arrangements may be either generally applicable or applicable only in
specific cases.
11.3 No Employment Rights. Neither the establishment or continuation of
the Plan, nor the grant of any Award hereunder, shall confer upon any employee
or consultant of the Company or any Related Corporation any right to continued
employment or association with the Company and any Related Corporation, nor
shall it interfere in any way with the right of the Company and any Related
Corporation to terminate the employment or association of any of its employees
or consultants at any time.
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<PAGE> 37
11.4 Participant Not to Compete. In consideration of the Company's grant
of an Award, a Participant shall agree in the agreement setting forth the terms
of such Award that during the period of his employment by or other service with
the Company or any Related Corporation, and for a period of at least two (2)
years after the date such employment or service terminates, he will not without
the consent of the Board accept or perform work for any entity whose business is
competitive with the business carried on by the Company and any Related
Corporation, or engage in activities which are significantly competitive with
the business of the Company and any Related Corporation. In the event a
Participant breaches such agreement, the Participant shall forfeit all rights to
any unexercised Options or unearned Awards held as of the date of such breach.
11.5 Tax Withholding. No later than the date as of which an amount first
becomes includible in the gross income of the Participant for Federal income tax
purposes with respect to any Award, the Participant shall pay to the Company, or
make arrangements satisfactory to the Committee regarding the payment of, any
Federal, state, or local taxes of any kind required by law to be withheld with
respect to such amount. Unless otherwise determined by the Committee, the
minimum required withholding obligations may be settled with Stock. The
obligations of the Company under the Plan shall be conditional on such payment
or arrangements and the Company shall, to the extent permitted by law, have the
right to deduct any such taxes from any payment of any kind otherwise due to the
Participant.
11.6 Payments on Death. The Committee shall establish such procedures as
it deems appropriate for a Participant to designate a beneficiary to whom any
amounts payable in the event of the Participant's death are to be paid.
11.7 GOVERNING LAW. The Plan and all Awards and actions taken thereunder
shall be governed by and construed in accordance with the laws of the
Commonwealth of Massachusetts, without regard to the conflict of laws principles
thereof.
12. Term of Plan. The Plan shall become effective upon the approval of
the Plan by the shareholders of the Company. No Award shall be granted pursuant
to the Plan on or after the tenth anniversary of the Plan's approval by
shareholders, but Awards theretofore granted may extend beyond that date.
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<PAGE> 38
IONICS, INCORPORATED
1986 STOCK OPTION PLAN
----------------------
FOR NON-EMPLOYEE DIRECTORS
--------------------------
(As amended through February 19, 1997)
--------------------------------------
1. Purpose of Plan.
---------------
This 1986 Stock Option Plan for Non-Employee Directors (hereinafter called
the "Plan") of Ionics, Incorporated (hereinafter called the "Company") is
intended to advance the interests of the Company by providing a means of
attracting capable and qualified persons to serve as independent Directors, and
encouraging such persons to continue to serve as Directors, through ownership of
Common Stock of the Company.
2. Definitions.
-----------
2.1 "Optionee" shall mean a person to whom a stock option has been granted
under the Plan.
2.2 "Subsidiary" shall mean a corporation, partnership or other entity
whose controlling stock or other ownership interest is owned directly or
indirectly by the Company.
3. Effective Date.
--------------
The Plan will become effective immediately upon its adoption by the Board
of Directors of the Company, subject, however, to approval by the holders of a
majority of the outstanding shares of its capital stock having voting rights and
present at the meeting when the matter is acted upon.
4. Stock Subject to the Plan.
-------------------------
Subject to adjustment as provided hereinbelow, the total number of shares
of Common Stock, one dollar ($1.00) per share par value (hereinafter "Common
Stock"), of the Company for which
<PAGE> 39
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options may be granted pursuant to the Plan (hereinafter called the "Options"
and each singly an "Option") shall not exceed 200,000 shares in the aggregate.
Such shares may either be authorized and unissued shares of Common Stock or
issued shares of Common Stock which have been reacquired by the Company and held
as treasury shares. In the event that any Options granted under the Plan shall
be surrendered to the Company or shall terminate, lapse or expire for any reason
without having been exercised in full, the shares not purchased under such
Options shall be available again for the purpose of issuance pursuant to the
Plan.
Each eligible Director shall be granted an Option to acquire 2,000 shares
of Common Stock as provided in Section 6, subject to adjustment as provided
hereinbelow, for each year of service as a Director of the Company.
In the event that the outstanding shares of the Common Stock of the Company
are hereafter increased or decreased or changed into or exchanged for a
different number or kind of shares, or other securities of the Company or of
another corporation, by reason of reorganization, merger, consolidation,
recapitalization, reclassification, stock split-up, combination of shares, or
dividends payable in stock, corresponding adjustments (as determined by the
Board of Directors in their sole discretion to be appropriate) shall be made in
the number and kind of shares as to which outstanding Options (or portions
thereof then unexercised) and Options to be issued in the future pursuant to the
terms of this Plan shall be exercisable, such that the proportionate interest of
each Optionee shall be maintained as before the occurrence of such event. Such
adjustments in outstanding Options shall be made without change in the aggregate
total option price of Option then outstanding and unexercised, but with a
corresponding adjustment in the option price per share.
<PAGE> 40
-3-
5. Administration of the Plan.
--------------------------
The Plan shall be administered by the Board of Directors of the Company or
such committee composed of its Directors as may be delegated this duty and
function by resolution of the Board of Directors (said Board or said Committee,
as the case may be, being hereinafter referred to as the "Administrators"). A
majority of the Administrators acting upon a particular matter shall have no
personal interest in the Option or matter with which they are concerned.
Subject to the express provisions of the Plan, the Administrators may (1)
construe the respective stock option agreements and the Plan, prescribe, amend,
and rescind rules and regulations relating to the Plan and make all other
determinations necessary or advisable for administering the Plan, and (2)
correct any defect or supply any omission or reconcile any inconsistency in the
Plan or in any stock option agreement in the manner and to the extent they shall
deem expedient to carry it into effect and (3) constitute and appoint a person
or persons selected by them to execute and deliver in the name and on behalf of
the Administrators all such agreements, instruments and other documents.
6. Eligibility; Grant of Options.
-----------------------------
Only persons who hold office as Directors of the Company and who are not
otherwise employees of the Company or of any of its Subsidiaries may be granted
an Option under this Plan. Each Director of the Company who is not otherwise an
employee of the Company or any Subsidiary shall be granted an Option to acquire
2,000 shares under the Plan with respect to his election to office, and to each
year that he continues to serve as a Director of the Company. Each such Director
shall be entitled to receive an Option to acquire 2,000 shares under the Plan
immediately
<PAGE> 41
-4-
after the annual meeting of the stockholders at which he is first elected, and
an additional Option to acquire 2,000 shares immediately upon completion of each
next successive year in office. A Director who assumes office at a time other
than an annual meeting of stockholders shall be entitled to receive his initial
Option to acquire 2,000 shares under the Plan immediately after the annual
meeting of stockholders next following his assumption of office. For purposes of
the Plan, a Director shall be considered to have completed a "year in office" on
the date of each annual meeting of stockholders while he continues in office;
provided, however, that if the interval between any two such annual meetings is
greater than 395 days, a Director shall be considered to have completed a "year
in office" for purposes of the Plan on the 395th day after the preceding year's
annual meeting of stockholders, rather than on the date of the second of the two
such annual meetings.
7. The Option Price.
----------------
The price payable upon exercise of an Option granted hereunder shall be the
fair market value at the date of grant of the shares covered by the Option. For
purposes of the Plan, if the Common Stock of the Company is listed for trading
on the New York Stock Exchange (or any other registered stock exchange), the
fair market value of the shares shall be equal to the last sale price for the
Common Stock on such exchange on the trading day next preceding the date of
grant of an Option.
The Option exercise price shall be paid (1) in cash, (2) in shares of the
Common Stock of the Company already owned by the person exercising the Option,
or (3) in any combination of cash and of such shares. In the event that such
shares are delivered to pay for all or a portion of the Option exercise price,
they shall be valued at the last sale price for the Common Stock on the New York
Stock Exchange (or other registered stock exchange)
<PAGE> 42
-5-
as reported on the date of delivery of the shares in exercise of the Option, and
any shares delivered in payment of the Option exercise price shall be free and
clear from all restrictions on transfer, claims or purchase rights, except as
the Administrators may affirmatively allow.
8. Nontransferability of Options.
-----------------------------
Except as otherwise provided in this Section, no Option granted under the
Plan shall be encumbered, assigned or otherwise transferred, otherwise than by
will or the laws of descent and distribution, and an Option may be exercised
during the lifetime of an Optionee only by him. The Administrators may, in their
discretion, authorize all or a portion of the Options granted or to be granted
to an Optionee to be on terms which permit transfer by such Optionee to (i) the
spouse, children or grandchildren of the Optionee ("Immediate Family Members"),
(ii) a trust or trusts for the exclusive benefit of such Immediate Family
Members, or (iii) a partnership in which such Immediate Family Members are the
only partners, provided that (x) the stock option agreement pursuant to which
such Options are granted must be approved by the Committee, and must expressly
provide for transferability in as manner consistent with this Section, and (y)
subsequent transfers of transferred Options shall be prohibited otherwise than
by will or the laws of descent and distribution.
Following transfer, any such Options shall continue to be subject to the
same terms and conditions as were applicable immediately prior to transfer,
provided that for purposes of Section 2.1 hereof, the term "Optionee" shall be
deemed to refer to the transferee. The provisions regarding duration of Options
in Section 9 hereof shall continue to apply with respect to the original
Optionee as to all Options granted to such Optionee, whether or not transferred
pursuant to this Section.
<PAGE> 43
-6-
9. Duration of Options.
-------------------
Each Option shall expire not more than ten (10) years from its date of
grant, but shall be subject to earlier termination:
(a) in the event that the Optionee ceases to be a Director of the Company,
an Option may thereafter be exercised by him only to the extent that
under Section 10, the right to exercise the Option has accrued and is
in effect, and only within the period of thirty (30) days after the
Optionee ceases to be a Director; or
(b) in the event that the Optionee dies while holding office as a Director
or within the 30-day period described in paragraph (a), an Option
granted to him may thereafter be exercised by his estate or by any
person or persons who acquired the right to exercise the Option by
bequest or by inheritance or by reason of the death of the Optionee,
to the extent of the full number of shares covered by the Option,
regardless of whether the Optionee at the time of this death was
entitled to exercise the Option in full, but only within the period of
ninety (90) days after his death.
10. Time and Manner of Exercise.
---------------------------
Options granted under the Plan shall not be exercisable for a period of six
(6) months after their date of grant, but shall be immediately exercisable in
full thereafter; provided, however, that (i) options may be exercised only
during the periods beginning on the third business day following the date on
which the Company releases for publication its annual or quarterly financial
reports and ending on the twelfth business day following such date and (ii) no
Option shall be exercisable after ten (10) years from the date on which it was
granted.
To the extent that the right to exercise an Option has accrued and is in
effect, the Option may be exercised in full at one time or in part from time to
time by giving written notice, signed by the person or persons exercising the
Option, to the Company, stating the number of shares with respect to which the
<PAGE> 44
-7-
Option is being exercised, and accompanied by payment in full for such shares in
accordance with Section 7. There shall be no such exercise at any one time as to
fewer than two hundred (200) shares or all of the remaining shares then
purchaseable by the person or persons exercising the Option, if fewer than two
hundred (200) shares. Upon such exercise, delivery of a certificate for paid-up
non-assessable shares shall be made at the principal Massachusetts office of the
Company to the person or persons exercising the Option at such time, during
ordinary business hours, after fifteen (15) days but not more than thirty (30)
days from the date of receipt of the notice by the Company, as shall be
designated in such notice, or at such time, place or manner as may be agreed
upon by the Company and the person or persons exercising the Option.
Notwithstanding the foregoing, the Company may delay issuance of shares pursuant
to an Option until the person exercising the Option has complied with all of the
terms and conditions of the Plan and the applicable stock option agreement.
11. Stock Option Agreement Required.
-------------------------------
Each Option granted under the Plan shall be evidenced by a written option
agreement (the "Agreement") between the Company and the Optionee, in such form
as the Administrators shall determine, which Agreements may but need not be
identical, and which shall (i) comply with and be subject to the terms and
conditions of the Plan and (ii) provide that the Optionee agrees to continue to
serve as a Director of the Company during the term for which he was elected, and
that during such term he will not, without the written consent of the Company,
directly or indirectly, accept employment from, or engage in any work or
activities as an employee, officer, director, agent, consultant, partner,
proprietor or principal stockholder for any other corporation, person or entity
having business substantially competitive to the business in which the Company
or its Subsidiaries are then engaged. Any Agreement may contain such other
terms, provisions and conditions not inconsistent with the Plan as may be
determined by the Administrators. No Option shall be granted within the meaning
of the Plan, and no purported grant of any Option shall be effective, until such
an Agreement shall have been duly executed on behalf of the Company and the
Director to whom the Option is to be granted.
<PAGE> 45
-8-
12. Purchase for Investment; Rights of Holder of Subsequent Registration.
--------------------------------------------------------------------
Unless the shares to be issued upon exercise of an Option have been
effectively registered under the Securities Act of 1933 as now in force or
hereafter amended, the Company shall be under no obligation to issue any shares
covered by any Option unless the person who exercises such Option, in whole or
in part, shall give a written representation and undertaking to the Company
which is satisfactory in form and scope to counsel to the Company and upon
which, in the opinion of such counsel, the Company may reasonably rely, that he
is acquiring the shares issued to him pursuant to such exercise of the Option
for his own account as an investment and not with a view to, or for sale in
connection with, the distribution of any such shares, and that he will make no
transfer of the same except in compliance with any rules and regulations in
force at the time of such transfer under the Securities Act of 1933, or any
other applicable law, and that if shares are issued without such registration, a
legend to this effect may be endorsed upon the securities so issued. In the
event that the Company shall, nevertheless, deem it necessary or desirable to
register under the Securities Act of 1933 or other applicable statutes any
shares with respect to which an Option shall have been exercised, or to qualify
any such shares for exemption from the Securities Act of 1933 or other
applicable statutes, then the Company shall take such action at its own expense
and may require reasonable indemnity to the Company and its officers and
Directors from such holder against all losses, claims, damages and liabilities
arising from such use of the information so furnished and caused by any untrue
statement of any material fact therein, or caused by omission to state a
material fact required to be stated therein or necessary to make the statement
therein not misleading in light of the circumstances under which they were made.
13. Listing of Option Stock.
-----------------------
So long as the Common Stock of the Company is listed on the New York Stock
Exchange or any other stock exchange, the Company shall take necessary steps so
that the shares to be issued upon exercise of an Option are listed by such
exchange, or will be so listed, upon notice of issuance.
<PAGE> 46
-9-
14. Effect of Option.
----------------
The grant of an Option shall not entitle the Optionee to have or claim any
rights of a stockholder of the Company, whether as to dividends, voting rights
or otherwise. Neither the grant of an Option nor the making of any Agreement
under the Plan shall confirm upon the Optionee any right with respect to
continuation of his Directorship, nor shall it affect or restrict the right of
the Company or any assuming or succeeding Company to terminate such Directorship
at any time.
15. Termination, Suspension, Amendment or Modification of the Plan.
--------------------------------------------------------------
Unless sooner terminated as hereinafter provided, the Plan will terminate
at the close of business on May 7, 2002.
The Board may at any time terminate or suspend the Plan or make such
modification or amendment thereof as it deems advisable, PROVIDED, however, that
the Board may not, without approval by the affirmative vote of the holders of a
majority of the securities of the Company present, or represented, and entitled
to vote at a meeting duly held in accordance with the applicable laws of the
Commonwealth of Massachusetts, (i) materially increase the benefits accruing to
participants under the Plan; (ii) materially increase the number of shares for
which Options may be granted under the Plan; or (iii) materially modify the
requirements as to eligibility for participation in the Plan. In no event,
however, may any provision of this Plan specified in Rule 16b-3(c)(2)(ii)(A) (or
any successor or amended provision thereof) of the Securities Exchange Act of
1934 (including without limitation, provisions as to eligibility and who may
participate in the Plan, the amount and price of shares for which Options may be
granted or the timing of awards), be amended more than once every six months,
other than to comport with changes in the Internal Revenue Code, the Employee
Retirement Income Security Act, or the rules thereunder. Termination or any
modification or amendment of the Plan shall not, without consent of a
participant, affect his rights under an Option previously granted to him.
<PAGE> 47
-10-
16. Merger, Consolidation or Sale of the Entire Business of the Company.
-------------------------------------------------------------------
If before the expiration of the Plan, the Company shall merge with,
consolidate in or with, or sell all or substantially all of its assets and
business to another corporation or entity (other than a company or entity which
continues under the control of the same persons who were the stockholders or
owners of the Company immediately prior to the event), all Options then
outstanding shall become subject to exercise in full as of the effective date of
said transaction.
17. Compliance with Applicable Laws and Regulations.
-----------------------------------------------
Upon exercise of any Option granted hereunder, the person exercising the
Option shall file any and all reports required of him under the Securities
Exchange Act of 1934, as amended, or otherwise.
<PAGE> 48
IONICS, INCORPORATED
65 GROVE STREET, WATERTOWN, MASSACHUSETTS 02172
PROXY FOR ANNUAL MEETING TO BE HELD MAY 8, 1997
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints ARTHUR L. GOLDSTEIN and STEPHEN KORN, and each
of them, as Proxies of the undersigned, each with full power to appoint his
substitute, and hereby authorizes both of them, or any one if only one be
present, to represent and to vote, as designated below, all the shares of the
Common Stock of Ionics, Incorporated held of record by the undersigned or with
respect to which the undersigned is entitled to vote or act, at the Annual
Meeting of Stockholders to be held on May 8, 1997, or at any adjournment
thereof.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR PROPOSALS 1, 2, 3 AND 4, WITH DISCRETIONARY AUTHORITY TO VOTE UPON
SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE THE MEETING.
IF YOU WISH TO VOTE IN ACCORDANCE WITH THE BOARD OF DIRECTORS' RECOMMENDATION,
JUST SIGN AND DATE ON THE REVERSE SIDE. YOU NEED NOT MARK ANY BOXES.
-----------------------------------------------------------------------
PLEASE VOTE, DATE AND SIGN ON REVERSE AND RETURN PROMPTLY IN THE
ENCLOSED ENVELOPE.
-----------------------------------------------------------------------
Please sign exactly as your name(s) appear(s) on the books of the Corporation.
Joint owners should each sign personally. Trustees and other fiduciaries
should indicate the capacity in which they sign, and where more than one name
appears, a majority must sign. If a corporation, this signature should be that
of an authorized officer who should state his or her title.
HAS YOUR ADDRESS CHANGED? DO YOU HAVE ANY COMMENTS?
__________________________________ _____________________________________
__________________________________ _____________________________________
__________________________________ _____________________________________
<PAGE> 49
<TABLE>
<S> <C>
[X] PLEASE MARK VOTES
AS IN THIS EXAMPLE
1. Election of all four Class II Directors listed below.
____________________________ With- For All
AMAUD DE VITRY D'AVAUCOURT For hold Except
IONICS, INCORPORATED WILLIAM E. KATZ [ ] [ ] [ ]
____________________________ DANIEL I.C. WANG
MARK S. WRIGHTON
NOTE: If you do not wish your shares voted "For" a particular nominee,
mark the "For All Except" box and strike a line through the nominee's(s)
name(s). Your shares will be voted for the remaining nominee(s).
RECORD DATE SHARES:
401(k) PLAN SHARES: FOR AGAINST ABSTAIN
2. Proposal to approve and adopt 1997 Stock [ ] [ ] [ ]
Incentive Plan.
3. Proposal to approve amendment to 1986 Stock [ ] [ ] [ ]
Option Plan for Non-Employee Directors to
provide limited transferability of options.
4. Proposal to ratify the selection of Coopers & [ ] [ ] [ ]
Lybrand L.L.P. as auditors for fiscal year
ended December 31, 1997.
5. To consider and act upon such other matters as may properly come
before the meeting.
----------------
Please be sure to sign and date this Proxy. Date
- ------------------------------------------------------
- ---Stockholder sign here--- Co-owner sign here -------
DETACH CARD DETACH CARD
</TABLE>
