FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 1-7211
IONICS, INCORPORATED
(exact name of registrant as specified in its charter)
MASSACHUSETTS 04-2068530
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
65 Grove Street, Watertown, Massachusetts 02472
(Address of principal executive offices)
(Zip Code)
(617) 926-2500
(Registrant's telephone number, including area code)
NONE
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days.
YES X NO
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Outstanding at September 30, 1998
Common Stock, Par Value $1 16,100,480 Shares
/1
IONICS, INCORPORATED
FORM 10-Q FOR
QUARTER ENDED SEPTEMBER 30, 1998
INDEX
Page No.
Part I - Financial Information
Consolidated Statements of Operations 2
Consolidated Balance Sheets 3
Consolidated Statements of Cash Flows 4
Notes to Consolidated Financial Statements 5
Management's Discussion and Analysis of
Results of Operations and Financial Condition 7
Part II - Other Information 12
Signatures 13
Exhibit Index 14
Exhibit 10 Material Contracts
10.1 Ionics, Incorporated 1998
Non-Employee Directors' Fee Plan 15
Exhibit 27 - Financial Data Schedule 19
(for electronic
purposes only)
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<TABLE>
PART I - FINANCIAL INFORMATION
IONICS, INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Amounts in thousands, except per share amounts)
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Net revenue:
Membranes and related equipment $43,608 $39,541 $120,229 $116,828
Water, food and chemical supply 23,368 25,638 67,375 87,353
Consumer products 21,900 19,934 60,513 55,145
88,876 85,113 248,117 259,326
Costs and expenses:
Cost of membranes and related equipment 32,170 27,458 83,806 81,337
Cost of water, food and chemical supply 16,831 18,502 47,850 62,614
Cost of consumer products 11,876 11,086 33,356 30,641
Research and development 1,555 1,403 4,938 3,987
Selling, general and administrative 18,890 16,285 55,044 49,513
81,322 74,734 224,994 228,092
Income from operations 7,554 10,379 23,123 31,234
Interest income 388 361 689 923
Interest expense - (205) (191) (668)
Equity income 168 205 426 506
Income before income taxes and
minority interest 8,110 10,740 24,047 31,995
Provision for income taxes 2,676 3,544 7,794 10,558
Income before minority interest 5,434 7,196 16,253 21,437
Minority interest expense 251 - 442 -
Net income $ 5,183 $ 7,196 $ 15,811 $ 21,437
Basic earnings per share $ .32 $ .45 $ .98 $ 1.35
Diluted earnings per share $ .32 $ .44 $ .97 $ 1.31
Shares used in basic earnings per
share calculations 16,097 15,957 16,066 15,914
Shares used in diluted earnings per
share calculations 16,273 16,393 16,383 16,414
The accompanying notes are an integral part of these financial statements.
</TABLE>
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<TABLE>
IONICS, INCORPORATED
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Amounts in thousands, except share amounts)
<CAPTION>
September 30, December 31,
1998 1997
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 18,110 $ 25,787
Short-term investments 635 107
Notes receivable, current 3,933 3,856
Accounts receivable 108,591 98,275
Receivables from affiliated companies 2,265 2,624
Inventories:
Raw materials 19,922 17,183
Work in process 10,016 8,773
Finished goods 3,830 2,954
33,768 28,910
Other current assets 6,575 6,291
Total current assets 173,877 165,850
Notes receivable, long-term 8,762 8,349
Investments in affiliated companies 6,738 3,983
Property, plant and equipment:
Land 6,979 6,767
Buildings 38,055 34,239
Machinery and equipment 255,074 236,526
Other, including furniture, fixtures and vehicles 45,441 41,397
345,549 318,929
Less accumulated depreciation (156,365) (138,972)
189,184 179,957
Other assets 51,816 48,597
Total assets $430,377 $406,736
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable and current portion
of long-term debt $ 3,365 $ 12,084
Accounts payable 25,641 27,099
Customer deposits 4,165 3,685
Accrued commissions 2,175 2,370
Accrued expenses 32,089 20,172
Taxes on income 1,742 602
Total current liabilities 69,177 66,012
Long-term debt and notes payable 1,532 804
Deferred income taxes 17,652 17,783
Other liabilities 1,383 2,478
Stockholders' equity:
Common stock, par value $1, 55,000,000 authorized shares;
issued: 16,100,480 in 1998 and 16,001,285 in 1997 16,100 16,001
Additional paid-in capital 157,263 154,479
Retained earnings 174,368 158,557
Accumulated other comprehensive income (6,927) (9,126)
Unearned compensation (171) (252)
Total stockholders' equity 340,633 319,659
Total liabilities and stockholders' equity $430,377 $406,736
The accompanying notes are an integral part of these financial statements.
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</TABLE>
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<TABLE>
IONICS, INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
<CAPTION>
Nine Months Ended
September 30,
1998 1997
<S> <C> <C>
Operating activities:
Net income $ 15,811 $ 21,437
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 20,047 20,293
Provision for losses on accounts and notes receivable 919 1,030
Compensation expense on restricted stock awards 81 81
Changes in assets and liabilities:
Notes receivable (71) (2,324)
Accounts receivable (10,889) 185
Inventories (4,949) (2,428)
Other current assets 1 1,994
Investments in affiliates (2,479) (78)
Accounts payable and accrued expenses 8,929 (3,539)
Income taxes 1,551 5,451
Other (3,613) (1,886)
Net cash provided by operating activities 25,338 40,216
Investing activities:
Additions to property, plant and equipment (27,981) (24,713)
Disposals of property, plant and equipment 1,014 775
Acquisitions, net of cash acquired - (9,604)
Purchase of short-term investments (132) -
Net cash used by investing activities (27,099) (33,542)
Financing activities:
Principal payments on current debt (12,988) (8,328)
Proceeds from issuance of current debt 4,505 10,863
Principal payments on long-term debt (5) (28)
Proceeds from issuance of long-term debt 395 -
Proceeds from stock option plans 2,189 2,634
Net cash (used)/provided by financing activities (5,904) 5,141
Effect of exchange rate changes on cash (12) (914)
Net change in cash and cash equivalents (7,677) 10,901
Cash and cash equivalents at beginning of period 25,787 12,269
Cash and cash equivalents at end of period $ 18,110 $ 23,170
The accompanying notes are an integral part of these financial statements.
</TABLE>
/5 -4-
IONICS, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. In the opinion of Ionics, Incorporated (the "Company"), the
accompanying consolidated financial statements contain all
adjustments (consisting of only normal, recurring accruals)
necessary to present fairly the consolidated financial
position of the Company as of September 30, 1998 and December
31, 1997, the consolidated results of its operations for the
three and nine months ended September 30, 1998 and 1997 and
the consolidated cash flows for the nine months then ended.
2. The consolidated results of operations of the Company for the
three and nine months ended September 30, 1998 and 1997 are
not necessarily indicative of the results of operations to be
expected for the full year.
3. Reference is made to the Notes to Consolidated Financial
Statements appearing in the Company's 1997 Annual Report as
filed on Form 10-K with the Securities and Exchange
Commission. There have been no significant changes in the
information reported in those Notes, other than from the
normal business activities of the Company, and there have been
no changes which would, in the opinion of Management, have a
materially adverse effect upon the Company.
4. Certain prior year amounts have been reclassified to conform
to the current year presentation with no impact on net income.
5. Earnings per share (EPS) calculations:
<TABLE>
<CAPTION>
(Amounts in thousands, except per share amounts)
For the three months ended September 30,
1998 1997
Net Per Share Net Per Share
Income Shares Amount Income Shares Amount
<S> <C> <C> <C> <C> <C> <C>
Basic EPS
Income available to
common stockholders $ 5,183 16,097 $ 0.32 $ 7,196 15,957 $ 0.45
Effect of dilutive
stock options - 176 - 436
Diluted EPS $ 5,183 16,273 $ 0.32 $ 7,196 16,393 $ 0.44
</TABLE>
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<TABLE>
<CAPTION>
For the nine months ended September 30,
1998 1997
Net Per Share Net Per Share
Income Shares Amount Income Shares Amount
<S> <C> <C> <C> <C> <C> <C>
Basic EPS
Income available to
common stockholders $ 15,811 16,066 $ 0.98 $ 21,437 15,914 $ 1.35
Effect of dilutive
stock options - 317 - 500
Diluted EPS $ 15,811 16,383 $ 0.97 $ 21,437 16,414 $ 1.31
</TABLE>
6. Comprehensive Income
The Company has adopted the Statement of Financial Accounting
Standards ("FAS") No. 130, "Reporting Comprehensive Income," which
establishes standards for the reporting and display of
comprehensive income and its components in general purpose
financial statements for the year ended December 31, 1998. The
table below sets forth "comprehensive income" as defined by FAS No.
130 for the three month periods and nine month periods ended
September 30, 1998 and 1997.
<TABLE>
<CAPTION>
(Amounts in thousands)
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Net income $ 5,183 $ 7,196 $15,811 $21,437
Other comprehensive income,
net of tax:
Translation adjustments 2,682 (723) 2,199 (3,636)
Comprehensive income $ 7,865 $ 6,473 $18,010 $17,801
</TABLE>
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/7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Results of Operations
Comparison of the Three and Nine Months Ended September 30, 1998 with
the Three and Nine Months Ended September 30, 1997
Revenues for the third quarter of 1998 increased 4.4% to $88.9 million
from $85.1 million during the third quarter of 1997. Revenues for the
nine-month period decreased 4.3% to $248.1 million from $259.3 million
in the comparable period in 1997. Revenues increased in both the
Membranes and Related Equipment and the Consumer Products segments for
the three-month and nine-month periods. Within the Water, Food and
Chemical Supply segment, revenues were lower for both the three- and
nine-month periods. The largest increase in revenues during the third
quarter occurred in the Membranes and Related Equipment segment while
the largest increase during the nine-month period was in the Consumer
Products segment.
Within the Membranes and Related Equipment segment, revenues grew
during the third quarter due primarily to increased sales of
wastewater treatment equipment and increased sales of instrumentation.
During the nine-month period, the growth in revenues reflected: the
acquisition of a majority interest in Enersave Engineering Systems Sdn
Bhd, a Malaysian corporation, which occurred in September 1997;
increased sales of instrumentation to the pharmaceutical industry; and
increased sales of wastewater treatment systems. The increases in the
third quarter and the nine-month period were partially offset by a
decrease in revenues from the sale of water desalting equipment. The
Company continues to experience increased competitive pressure within
the Membranes and Related Equipment segment, primarily for ultrapure
water equipment.
Revenues from the Water, Food and Chemical Supply segment decreased in
both periods primarily due to a reduction in revenue from the
ultrapure water supply area. In addition, decreased revenues were
experienced during both periods in the chemical supply and food
processing businesses. Revenues from municipal water supply decreased
for the nine-month period reflecting the buy-out in the second quarter
of 1997 by the City of Santa Barbara of the desalination plant that
had been owned and operated by the Company.
Consumer Products revenues increased in both the third quarter and the
nine-month period due to higher revenues from bottled water sales.
These increases resulted from continued growth in the customer base in
both the United States and the United Kingdom. The increases also
reflect an overall average price increase.
Cost of sales as a percentage of revenues for the third quarter was
68.5% in 1998 and 67.0% in 1997. For the nine-month period, cost of
sales as a percentage of revenues was 66.5% in 1998 and 67.3% in 1997.
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In the Membranes and Related Equipment segment, cost of sales as a
percentage of revenues increased during the third quarter reflecting
the continued competitive environment in the microelectronics industry
for ultrapure water capital equipment and a change in the mix of
revenues from the sale of wastewater treatment systems.
Within the Water, Food and Chemical Supply segment, cost of sales
decreased as a percentage of revenues during the third quarter and the
nine-month period, reflecting an improvement in the mix of chemical
supply contracts.
Cost of sales as a percentage of revenues decreased in the Consumer
Products segment for both the three-month and nine-month periods
reflecting an overall improvement in prices in the home water
business.
Operating expenses as a percentage of revenues increased during the
third quarter to 23.0% in 1998 from 20.8% in 1997. For the nine-month
period, operating expenses as a percentage of revenues increased to
24.2% in 1998 from 20.6% in 1997. The increase during both periods
primarily reflected the decrease in ultrapure water supply, chemical
supply and food processing revenues, noted above, which typically
carry disproportionately lower selling expenses as a percentage of
such revenues than do revenues from other businesses. Additionally,
in both periods, the Company experienced revenue growth, as noted
above, in the bottled water business which typically carries
disproportionately higher selling costs as a percentage of revenues
than do other businesses. Operating expenses also increased due to
expanded marketing initiatives, as well as the Company's continued
commitment to investment in its research and development programs.
Interest expense decreased during both the third quarter and the nine-
month period due to lower average borrowings and interest rates.
Financial Condition
Working capital increased $4.9 million during the first nine months of
1998, and the current ratio of 2.5 at September 30, 1998 was
approximately the same at December 31, 1997. Cash provided from net
income and depreciation totaled $35.9 million during the first nine
months of 1998, while the primary uses of cash were for additions to
property, plant and equipment and principal payments on current debt.
Significant capital expenditures were incurred to support growth in
bottled water operations and own and operate facilities.
At September 30, 1998, the Company had $18.1 million in cash and cash
equivalents, a decrease of $7.7 million from December 31, 1997. Notes
payable and long-term debt decreased $8 million during the same
period. The Company believes that its cash, cash from operations,
lines of credit and foreign exchange facilities are adequate to meet
its currently anticipated needs.
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Year 2000 Readiness Disclosure and Related Information
Many currently installed computer systems and software products are
coded to accept only two digit entries in the date code field and
cannot distinguish 21st century dates from 20th century dates. Many
companies' software and computer systems may need to be upgraded or
replaced in order to distinguish 21st century dates from 20th century
dates (so-called "Year 2000 (Y2K) Compliance or Compliant").
The Company's State of Readiness
The Company has commenced a process to assess Y2K Compliance of its
systems, including its information technology (IT) systems,
manufacturing systems, products and facilities. The Company's process
involves the following three phases:
Phase One - Inventory and Planning
The Company completed this phase in July 1998. In this phase, the
Company inventoried all hardware and software that potentially is
susceptible to Y2K problems, prepared plans for assessing compliance
and completing remediation, and prepared vendor compliance letters.
Phase Two - Assessment
In this phase, the Company is assessing which of its systems and
products are Y2K Compliant, obtaining compliance statements from
hardware and software vendors, supply manufacturers and service
trading partners, and planning for remediation of non-compliant
systems. The Company expects to complete this phase in December 1998.
Phase Three - Remediation and Testing
In this phase, the Company will deploy plans for elimination, upgrade,
replacement or modification of non-compliant systems and products and
test compliance. The Company has scheduled completion of this phase
for mid-1999.
The Company's core operating (IT and manufacturing) system for its
Watertown-based operations is not yet Y2K Compliant. The Company is
currently pursuing a remediation plan for this system, has made
significant progress, and expects to have it completed by mid-1999.
The Company's bottled water accounting system in the United States is
not yet Y2K Compliant. The Company has purchased a new integrated
distribution and accounting system, which management believes will
significantly enhance its bottled water operations. This new system
is Y2K Compliant and implementation is scheduled for completion by
mid-1999. Individual bottled water business locations are running
this new system as it is implemented, which the Company believes may
reduce the risks associated with potential Y2K non-Compliance should
implementation not be fully completed by the end of 1999.
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/10
The Company's other IT systems are not uniform across all operations
and locations. The systems for all non-Watertown-based operations
have been reviewed. The Company is currently implementing new Y2K
Compliant IT systems at two major locations in the U.S. Completion of
implementation of these systems is expected by mid-1999. The Company
has either completed remediation or implemented new IT systems which
are Y2K Compliant at its other significant non-Watertown-based
operations.
Remediation or replacement of IT systems at other locations is under
way and expected to be completed by mid-1999. The Company believes
that failure of these systems to become Y2K Compliant would be
unlikely to have a material impact on the Company due to the
relatively small size of these operations and the opportunity to
perform relevant tasks manually.
The Company's assessment plan includes assessment of Y2K Compliance of
non-information technology (non-IT) components including the Company's
membrane-related equipment, own and operate equipment, other products,
manufacturing equipment and facilities. Substantial progress has been
made in these areas and completion of such assessment is expected in
December 1998.
The Company has begun to receive compliance statements from vendors of
both IT and non-IT systems and is revising its vendors' status on an
on-going basis based upon information it is receiving. The Company is
working with its most important vendors to resolve remediation and
compliance problems as they are identified.
Costs to Address Y2K Issues
The Company's assessment and remediation of Y2K Compliance issues is
anticipated to cost approximately $1.5 million, excluding the cost of
new systems implementation. Expenses to date of approximately
$600,000 are consistent with such expectations. The Company does not
currently expect that actual Y2K expenses finally incurred will
materially exceed its estimate.
Risk of the Company's Y2K Issues
If the Company fails to achieve Y2K Compliance in all its systems, the
Company could lose the ability to process certain of its customers'
orders, manufacture products or provide services to customers until
compliance is achieved or a means to work around the failure is
implemented. However, most of the Company's businesses process a
small number of relatively large transactions, mitigating the short-
term dependence on information systems. Also, because the Company's
systems are not uniform across the Company, it is anticipated that any
failure would not be system-wide. Furthermore, a failure to fill an
order may not necessarily result in complete loss of the order. Some
orders could be filled through alternative methods within a relatively
short period. Nevertheless, any disruption in order fulfillment,
manufacturing or the provision of services to customers could result
in some loss of revenue or claims against the Company. Moreover, there
is uncertainty as to whether the Company may experience any disruption
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in these areas as a result of uncertainty concerning the Y2K readiness
of third-party vendors. If disruption in any of these areas resulting
from Y2K non-Compliance is greater than anticipated, the loss of
revenue could be material.
Contingency Plans
The Company plans to complete contingency plans by mid-1999 to deal
with possible failures in systems which it determines may not achieve
Y2K Compliance on a timely basis.
Forward-Looking Information
The Company's future results of operations and certain statements
contained in this Report on Form 10-Q, including without limitation in
this "Management's Discussion and Analysis of Results of Operations
and Financial Condition," constitute forward-looking statements. Such
statements are based on management's current views and assumptions and
involve risks, uncertainties and other factors that could cause actual
results to differ materially from management's current expectations.
Among these factors are business conditions and the general economy;
competitive factors, such as acceptance of new products and price
pressures; risk of nonpayment of accounts receivable; risks associated
with foreign operations; the ability of the Company to achieve Y2K
Compliance in accordance with its current program including the
ability of the Company to ascertain and plan for compliance issues of
third-party vendors; regulations and laws affecting business in each
of the Company's markets; and other risks and uncertainties described
from time to time in the Company's filings with the Securities and
Exchange Commission.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Attorney General of the Commonwealth of Massachusetts is
conducting an investigation into certain former operations of a
division of the Company during portions of the years 1991 through
1995. The Company is cooperating with this investigation of
possible violations of environmental statutes and regulations
that relate to one facility that ceased operations in 1995. The
Company cannot predict the outcome of this matter, but it may
result in administrative, civil or criminal charges and/or
monetary payments.
Item 5. Other Information
The Company's 1999 Annual Meeting is presently expected to be
held on May 6, 1999. Proposals of stockholders intended to be
presented at the 1999 Annual Meeting must be received no later
than November 30, 1998 for inclusion in the Company's Proxy
Statement and Proxy for the 1999 Annual Meeting.
Under the Company's By-Laws, notice of a stockholder proposal for
action at the 1999 Annual Meeting for which inclusion in the
Company's Proxy Statement will not be sought must be given to the
Clerk of the Company no earlier than January 7, 1999 and no later
than February 16, 1999. Notice of a stockholder proposal for
nomination to the Board of Directors to be voted upon at the 1999
Annual Meeting must also be received by the Clerk of the Company
no earlier than January 7, 1999 and no later than February 16,
1999. Articles V and VII of the Company's By-Laws contain
certain requirements for the content of such notices.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 10 Material Contracts
10.1 Ionics, Incorporated 1998 Non-Employee
Directors' Fee Plan.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended
September 30, 1998.
All other items reportable under Part II have been omitted as
inapplicable or because the answer is negative, or because the
information was previously reported to the Securities and
Exchange Commission.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
IONICS, INCORPORATED
Date: November 14, 1998 By: /s/Arthur L. Goldstein
Arthur L. Goldstein
Chairman and Chief Executive Officer
(duly authorized officer)
Date: November 14, 1998 By: /s/Robert J. Halliday
Robert J. Halliday
Vice President, Finance
(chief financial officer)
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EXHIBIT INDEX
Sequentially
Numbered
Exhibit Page
10 Material Contracts
10.1 Ionics, Incorporated 1998 Non-Employee
Directors' Fee Plan 16
27 Financial Data Schedule 20
(for electronic
purposes only)
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Exhibit 10.1
IONICS, INCORPORATED
1998 NON-EMPLOYEE DIRECTORS' FEE PLAN
1. PURPOSE. The Ionics, Incorporated 1998 Non-Employee
Directors' Fee Plan (the "Fee Plan") is intended to promote the
long-term interests of Ionics, Incorporated (the "Corporation")
by increasing the share ownership of members of the Board of
Directors of the Corporation who are not employees of the
Corporation or its subsidiaries, thereby aligning their
interests more closely with those of the shareholders of the
Corporation, and to attract and retain highly qualified and
capable non-employee Directors.
2. DEFINITIONS.
(a) "Board" means the Board of Directors of the Corporation.
(b) "Board Year" means the period commencing on the date of
the Corporation's annual meeting of stockholders and ending on
the date preceding the next following annual meeting of
stockholders.
(c) "Committee" means the Compensation Committee of the Board
of Directors of the Corporation or any committee performing
similar functions.
(d) "Common Stock" means the common stock, par value $1.00
per share, of the Corporation.
(e) "Corporation" means Ionics, Incorporated, a
Massachusetts corporation.
(f) "Director" means a member of the Board who is not an
employee of the Corporation or any of its subsidiaries.
(g) "Exchange Act" means the Securities Exchange Act of 1934,
as amended.
(h) "Fair Market Value" means as of any given date, the last
reported sales price of the Common Stock as reported in The Wall
Street Journal for such date, or if no such sale is reported on
such date, then the last reported sales price on the last
preceding trade date to the sales date; or, if no such sale is
reported on the last preceding trade date to the sales date, or
if the Common Stock is not publicly traded as of such date, the
fair market value of the Common Stock as determined by the
Committee in good faith based on the available facts and
circumstances at the time.
(i) "Fees" means the annual retainer scheduled to be paid to
a Director for the Board Year, but excluding meeting fees paid
for attendance at meetings of the Board or of any committee of
the Board.
/16
(j) "Grants" means issuances of Common Stock hereunder
pursuant to a Share Election by a Director.
(k) "Restricted Stock" means shares of Common Stock that have
not been registered under the Securities Act of 1933, as amended.
(l) (l) "Rule 16b-3" shall have the meaning set forth in
Section 8 hereof.
(m) "Share Election" shall have the meaning set forth in
Section 5(a) hereof.
3. ADMINISTRATION OF THE FEE PLAN.
(a) ADMINISTRATION BY THE COMMITTEE. The Fee Plan shall be
administered by the Committee.
(b) AUTHORITY OF THE COMMITTEE. The Committee shall adopt
such rules as it may deem appropriate in order to carry out the
purpose of the Fee Plan. All questions of interpretation,
administration, and application of the Fee Plan shall be
determined by a majority of the members of the Committee then in
office, except that the Committee may authorize any one or more
of its members, or any officer of the Corporation, to execute and
deliver documents on behalf of the Committee. The determination
of such majority shall be final and binding in all matters
relating to the Fee Plan.
4. STOCK RESERVED FOR THE FEE PLAN. The number of shares of
Common Stock authorized for issuance under the Fee Plan is
100,000, subject to adjustment pursuant to Section 6 hereof.
Shares of Common Stock delivered hereunder may be either
authorized but unissued shares or previously issued shares
reacquired and held by the Corporation.
5. FORM AND TIME OF FEE PAYMENTS.
(a) Election. Each Director shall be paid his or her Fee
(payable in two equal installments) at the time of the first and
third regular meetings of the Board during a Board Year either in
cash or in Common Stock of the Corporation. Each Director shall
provide a written notice to the Clerk of the Corporation at least
thirty (30) days prior to the commencement of each Board Year
indicating that such Director elects to be paid his or her Fee
for the upcoming Board Year in cash or in Common Stock (the
"Share Election"). In the event a Director fails to submit such
notice, the Fee will be paid to such individual in cash. The
election made by a Director pursuant hereto will apply to the Fee
for the entire Board Year covered by such election. If the Fee
Plan becomes effective other than at the beginning of a Plan Year
and the second installment of Fees has not yet been made, then
the election to be made for such year shall cover only the second
installment of the Fee.
/17
(b) Valuation. For a Fee payable in Common Stock, the number
of shares of Common Stock to be delivered to a Director shall be
calculated based upon the Fair Market Value of the Common Stock
on the trading date next preceding the date of the Board meeting
at which payment will be made. Such calculation will be rounded
to the nearest whole number.
(c) Formula Plan. Nothing contained in this Section 5 shall
be interpreted in such a manner so as to disqualify the Fee Plan
from treatment as a "formula plan" under Rule 16b-3.
(d) Limitation. No Director may receive shares of Common
Stock as payment of Fees under this Agreement if such Director
has already acquired shares of Common Stock pursuant to Share
Elections under this Fee Plan which total one percent (1%) of the
issued and outstanding Common Stock as of the date this Fee Plan
is adopted.
6. EFFECT OF CERTAIN CHANGES IN CAPITALIZATION. In the event of
any stock split, stock dividend, recapitalization,
reorganization, merger, consolidation, combination, exchange of
shares, liquidation, spin-off or other similar change in
capitalization, or any distribution to holders of Common Stock
other than a cash dividend, the maximum number or class of shares
available under this Fee Plan, the number or class of shares of
Common Stock to be delivered hereunder and each Director's share
account shall be proportionately adjusted by the Committee.
7. TERM OF FEE PLAN. This Fee Plan shall become effective as of
the date of approval of the Fee Plan by the Board, and shall
remain in effect until terminated by the Board or until no
further shares of Common Stock are available for issuance
hereunder.
8. AMENDMENT; TERMINATION. The Board of the Corporation may at
any time and from time to time alter, amend, suspend, or
terminate this Fee Plan in whole or in part, subject to any
requirement of shareholder approval required by applicable law,
rule or regulation, including Rule 16b-3 of the Exchange Act, as
amended from time to time ("Rule 16b-3"); and provided, further,
that the provisions of Section 5(a) hereof shall not be amended
more than once every six months, other than to comply with
changes in the Internal Revenue Code of 1986, as amended, the
Employee Retirement Income Security Act of 1974, as amended, or
the rules thereunder. Notwithstanding the foregoing, no
amendment shall affect adversely any of the rights of any
Director, without such Director's consent, under any election
theretofore in effect under this Fee Plan.
/18
9. GENERAL RESTRICTIONS.
(a) INVESTMENT REPRESENTATIONS. The shares of Common Stock
issued under the plan will be Restricted Stock. The Corporation
may require any Director to whom Common Stock is transferred, as
a condition of receiving such Common Stock, to give written
assurances in substance and form satisfactory to the Corporation
and its counsel to the effect that such person is acquiring the
Common Stock for his or her own account for investment and not
with any present intention of selling or otherwise distributing
the same, and to such other effects as the Corporation deems
necessary or appropriate in order to comply with Federal and
applicable state securities laws.
(b) COMPLIANCE WITH SECURITIES LAWS. Each Grant shall be
subject to the requirement that, if at any time counsel to the
Corporation shall determine that the listing, registration, or
qualification of the shares subject to such Grant upon any
securities exchange or under any state or federal law, or the
consent or approval of any governmental or regulatory body, is
necessary as a condition of, or in connection with, the issuance
of shares of Common Stock thereunder, such grant may not be
accepted or exercised in whole or in part unless such listing,
registration, qualification, consent or approval shall have been
effected or obtained on conditions acceptable to the Committee.
Nothing herein shall be deemed to require the Corporation to
apply for or to obtain such listing, registration or
qualification.
10. WITHHOLDING. The Corporation may defer making payments under
this Fee Plan until satisfactory arrangements have been made for
the payment of any federal, state or local income taxes required
to be withheld with respect to such payment or delivery.
11. GOVERNING LAW. This Fee Plan and all rights hereunder shall
be construed in accordance with and governed by the laws of the
Commonwealth of Massachusetts.
12. FEE PLAN INTERPRETATION. This Fee Plan is intended to comply
with Rule 16b-3 to the extent applicable to this Fee Plan, and
shall be construed to so comply.
13. HEADINGS. The headings of sections and subsections herein are
included solely for convenience of reference and shall not affect
the meaning of any of the provisions of this Fee Plan.
/19
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<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 18,110
<SECURITIES> 635
<RECEIVABLES> 115,160
<ALLOWANCES> (2,636)
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<PP&E> 345,549
<DEPRECIATION> (156,365)
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0
0
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<SALES> 248,117
<TOTAL-REVENUES> 248,117
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</TABLE>
