UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
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 Number)
65 Grove Street, Watertown, Massachusetts 02172
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 617-926-2500
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
Common Stock, $1 par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES X NO
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will
not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
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State the aggregate market value of the voting and non-voting
common equity held by non-affiliates of the registrant. The
aggregate market value shall be computed by reference to the price
at which the common equity was sold, or the average bid and asked
prices of such common equity, as of a specified date within 60
days prior to the date of filing. The aggregate market value of
the Common Stock of the registrant held by non-affiliates as of
March 20, 1998 was $684,868,264 (15,698,986 shares at $43 5/8 per
share) (includes shares owned by a trust for the indirect benefit
of a non-employee director, and by a trust for the indirect
benefit of a spouse of a non-employee director).
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
Indicate the number of shares outstanding of each of the
registrant's classes of common stock, as of the latest practicable
date. As of March 20, 1998, 16,053,335 shares of Common Stock, $1
par value, were issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the 1997 Annual Report to Stockholders. Parts I, II
(for Item 201
information)
and IV
Portions of the Definitive Proxy Statement for
the Annual Meeting of Stockholders to be held
on May 7, 1998. Part III
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PART I
Item 1. BUSINESS
Ionics, Incorporated ("Ionics," the "Company," or the
"Registrant") is a leading water purification company engaged
worldwide in the supply of water and of water treatment equipment
through the use of proprietary separations technologies and
systems. Ionics' products and services are used by the Company or
its customers to desalt brackish water and seawater, to purify and
supply bottled water, to treat water in the home, to manufacture
and supply water treatment chemicals and ultrapure water, to
process food products, recycle and reclaim process water and
wastewater, and to measure levels of water-borne contaminants and
pollutants. The Company's customers include industrial companies,
consumers, municipalities and utilities.
The Company's business activities are divided into three
segments: Membranes and Related Equipment; Water, Food and
Chemical Supply; and Consumer Products, which in 1997 accounted
for approximately 47%, 32% and 21% of revenues, respectively.
Approximately 41% of the Company's 1997 revenues were derived from
foreign sales or operations. The Company has been pursuing a
strategy of expanding beyond its traditional focus of selling
desalination plants and equipment by also owning and operating its
own equipment to produce and sell water, food and chemicals. In
1997, the Water, Food and Chemical Supply and Consumer Products
business segments accounted for 58% of the Company's earnings
before interest, taxes and minority interest.
Currently, the Company's three business segments encompass
ten business areas or applications described by the Company as its
"Ten-Cylinder EngineSM" strategy. The following description of
the Company's business segments is further divided into a
description of these business areas.
Nearly fifty years ago, the Company pioneered the development
of the ion-exchange membrane and the electrodialysis process.
Since that time, the Company has expanded its separations
technology base to include a number of membrane and non-membrane-
based separations processes which the Company refers to as "The
Ionics ToolboxSM." These separations processes include
electrodialysis reversal (EDR), reverse osmosis (RO),
ultrafiltration (UF), microfiltration (MF), electrodeionization
(EDI), electrolysis, ion exchange, carbon adsorption, and thermal
processes such as evaporation and crystallization, as well as
solvent extraction and recovery processes. The Company believes
that it is the world's leading manufacturer of ion-exchange
membranes and of membrane-based systems for the desalination of
water.
The Company was incorporated in Massachusetts in 1948. The
Company's principal executive offices are located at 65 Grove
Street, Watertown, Massachusetts 02172.
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Financial Information About Business Segments
The information contained in Note 15 of Notes to Consolidated
Financial Statements contained in the Company's Annual Report to
Stockholders for the year ended December 31, 1997 is incorporated
herein by reference.
Membranes and Related Equipment
The Company's Membranes and Related Equipment business
segment, which accounted for approximately 47% of revenues in
1997, is composed primarily of membrane-based and other advanced
technology systems for the municipal and industrial markets, and
is divided into four market areas: desalination and related water
treatment equipment; wastewater treatment equipment; instruments;
and ultrapure water equipment. The Company also fabricates
specially designed products ranging from intricate small parts to
very large multi-ton assemblies for various industrial and
defense-related applications.
1. Desalination and Related Water Treatment Equipment
Opportunities for the sale of desalination and related
water treatment equipment arise from changes in the needs of
people and municipalities, from industrial shifts and growth,
and from environmental concerns. With less than 1% of the
total water on the planet fresh and usable, desalination has
played an important role in creating new water sources.
The Company sells a wide spectrum of products and systems to
serve this market which utilize technologies including
electrodialysis reversal(EDR), ion exchange, electrodeionization,
reverse osmosis, ultrafiltration, ozonation and carbon
adsorption. Depending on the customers' needs, the Company
provides standardized versions of systems utilizing one or more
of the technologies mentioned, or can supply complete turnkey
plants that may include standardized models as well as peripheral
water treatment equipment, complete engineering services, process
and equipment design, project engineering, commissioning,
operator training and field service.
In 1997, the Company introduced the new Ionics 2020TM EDR
system, a third-generation brackish water desalination system
incorporating several new, patented improvements at reduced cost.
2. Wastewater Treatment Equipment
The market for wastewater treatment, recycle and reuse has
shown significant growth as world demand for water of specified
quality continues to increase and as regulations limiting waste
discharges to the environment continue to mount. The wastewater
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market is increasingly driven by the concept of total water
management, which involves the recognition that the water streams
which enter, leave or become part of a process can be managed to
achieve overall economic efficiencies. Ionics services the
wastewater market with brine concentrators and crystallizers,
traditional wastewater treatment equipment, and special
electrodialysis reversal membrane-based concentrators for recycle
and reuse.
The Company designs, engineers and constructs brine
concentrators, evaporators and crystallizers which are used to
clean, recover and recycle wastewater, particularly in zero
liquid discharge industrial uses. Such systems may also
incorporate electrodialysis reversal membrane systems as
preconcentrators. Ionics also holds a license for a patented
solvent extraction technology which separates contaminated
sludges, sediments and soils into oil, water and solids. This
technology has potential use for cleanup of toxic organic
materials at contaminated sites.
Ionics also designs, engineers and constructs customized
systems for industrial wastewater customers which may include
conventional treatment systems as well as advanced separation
technologies such as electrodialysis reversal, reverse osmosis,
electrolysis and microfiltration. Typical industrial customers
are power stations, chemical and petrochemical plants,
metal-working and automobile factories, textile manufacturers and
a variety of other industrial applications. The Company also
provides custom and packaged sewage treatment systems for
municipalities.
3. Instruments
The Company sells instruments to measure water quality for
industrial and government customers. In 1996, the Company
acquired Sievers Instruments, Inc. (Sievers), located in Boulder,
CO. Sievers manufactures, among other instruments, total organic
carbon (TOC) monitors which are sensitive to the parts per
trillion range and are used primarily in ultrapure water
applications in the semiconductor and pharmaceutical industries.
Sievers TOC monitors complement the Company's TOC monitor line
for process water and wastewater applications. The Company's
instrument products, which are used both in the laboratory and
on-line, measure and detect, among other things, total carbon,
TOC, sulfur, nitric oxide, chemical oxygen demand and total
oxygen demand. The Company also sells instruments for the
measurement of dissolved metals and specific chemical analyzers
for ammonia, phosphates, nitrates and chlorine.
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4(a). Ultrapure Water Equipment
Ultrapure water, which has been purified by a series of
processes to the degree that remaining impurities are measured in
parts per billion or trillion, is required for specialized
industrial uses. The demand for technologically advanced
ultrapure water equipment and systems has increased as the
industries which use ultrapure water have become more
knowledgeable about their quality requirements. Ultrapure water
needs are particularly important in the semiconductor,
pharmaceutical, petroleum and power generation industries. The
semiconductor industry in particular has increasingly demanded
higher purity water as the circuits on silicon wafers have become
more densely packed.
The Company supplies sophisticated ultrapure water systems
to the semiconductor, electronics and power industries which
utilize a combination of electrodialysis reversal, ion- exchange,
electrodeionization, reverse osmosis and
ultrafiltration technologies. These systems are either trailer-
mounted or land-based and vary from standardized modules to large
multimillion dollar systems, depending on the customer's
requirements.
Water, Food and Chemical Supply
The Water, Food and Chemical Supply business segment
accounted in 1997 for approximately 32% of the Company's
revenues. The Company's strategy is to sell, where appropriate,
water, food products and chemicals produced by its membrane-based
equipment, rather than selling the equipment itself. The Water,
Food and Chemical Supply business segment can be divided into
four market areas: ultrapure water supply; drinking water
supply; chemical supply; and food processing.
4(b). Ultrapure Water Supply
In industries such as power generation, semiconductors,
pharmaceuticals and biotechnology, ultrapure water is critical to
product quality and yield. Depending on the composition and
quantity of the impurities to be removed or treated, any one of
several membrane separations methods can be utilized to provide
ultrapure water to the customer. Ionics has pioneered in the
application of three membrane technologies (EDR, RO and UF)
combined together in a mobile system called the "triple membrane"
trailer for use in the commercial processing of ultrapure water.
Ionics provides ultrapure water services and the production and
sale of ultrapure water from trailer-mounted units at customer
sites.
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Ionics has also commercially implemented its new
electrodeionization (EDI) technology in the production of
ultrapure water. EDI is a continuous, electrically driven,
membrane-based water purification process which produces
ultrapure water without the use of strong chemical regenerants,
such as sulfuric acid and caustic soda, which are commonly
required. The Company's TMT-II trailers utilize a combination of
EDI, RO and UF technologies and represent what the Company
believes to be the most advanced technology used in the
commercial processing of ultrapure water.
At the end of 1997, Company-owned equipment for the
production of ultrapure water under contract with companies in
various industries had a total capacity of approximately 15,000
gallons per minute.
In January 1996, the Company acquired Apollo Ultrapure Water
Systems, Inc., based near Los Angeles, enabling the Company to
provide additional resources to service the growing Southern
California ultrapure water market.
One of the Company's important ultrapure water service
activities is ion-exchange regeneration services, which are
provided at four U.S. locations. The Company also provides
system sanitization and high-flow deionization services at
customer sites.
5. Drinking Water Supply
Ionics' position as a seller of purified or treated water
has evolved from its traditional role as a supplier of water
treatment equipment. In certain situations, opportunities are
available for the Company to provide a complete service package
involving financing, construction, operation and maintenance of
water treatment facilities.
Ionics, through its wholly owned subsidiary, Ionics Iberica,
S.A., owns and operates a 5.5 million gallon per day capacity
brackish water EDR facility and a 3.6 million gallon per day RO
seawater facility on Grand Canary Island, Spain. Under long-term
contracts, the Company is selling the desalted water from both
facilities to the local water utility for distribution.
The Company's wholly owned subsidiary, Ionics (Bermuda)
Ltd., owns and operates a 600,000 gallon per day EDR brackish
water desalting plant on the island of Bermuda. This plant
supplies fresh water under a long-term contract with Watlington
Waterworks Ltd., a Bermuda corporation partially owned by Ionics.
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Through its Ionics Aqua Design subsidiaries, the Company
owns and operates approximately 35 desalination plants on a
number of Caribbean islands, which provide drinking water to
hotels, resorts and governmental entities. Drinking water on
these islands is usually supplied pursuant to water supply
contracts with terms ranging from five to ten years.
6. Chemical Supply
In the chemical supply area, the Company uses its CloromatR
electrolytic membrane-based technology to produce sodium
hypochlorite and related chlor-alkali chemicals for industrial,
commercial and other non-consumer applications. The Company's
wholly owned Australian subsidiary, Elite Chemicals Pty. Ltd.
(Elite), utilizes Cloromat systems to produce sodium hypochlorite
on-site in Brisbane for the industrial, commercial and janitorial
supply of bleach products, and to supply sodium hypochlorite to
treat the City of Brisbane's drinking water supply under a five-
year contract. Elite has recently expanded its distribution of
bleach products to the Sydney area.
The Company also supplies sodium hypochlorite for industrial
and commercial uses in the northeastern United States from its
manufacturing facility in Ludlow, Massachusetts, which contains a
Cloromat installation.
7. Food Processing
Under an agreement with a major U.S. dairy cooperative, the
Company oversees whey processing activities at two plants owned
by the cooperative, and receives a processing fee based on the
production of demineralized whey for its services. Included in
the equipment being utilized by the Company at these plants are
its ElectromatR electrodialysis systems.
In July 1996, the Company acquired Separation Technology,
Inc. (STI), a supplier of membrane-based purification equipment
and services to the food industry based in St. Paul, MN. Systems
built by STI are used primarily for the concentration,
clarification or fractionation of fluid food products or food
plant effluents.
Consumer Products
The Company's Consumer Products business segment accounted
for approximately 21% of the Company's revenues in 1997. The
Company's consumer products serve the bottled water, home water
purification and consumer bleach product market areas.
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8. Aqua CoolR Pure Bottled Water
Ionics entered the bottled water business in 1984. The
Company's strategy is to utilize its proprietary desalination and
purification technology to produce a brand of drinking water,
named Aqua Cool Pure Bottled Water, which can be reproduced with
uniform consistency and high quality at numerous locations around
the world. Distribution operations have been established to
serve the areas in and around London, Manchester, Birmingham,
Bristol, Leeds, Newcastle and Southampton, England; a number of
metropolitan areas in the eastern, southeastern and central
United States; and, through joint ventures, in Bahrain, Kuwait
and Saudi Arabia. The Company's business focuses on the sale of
Aqua Cool in five-gallon bottles to a variety of commercial and
residential customers.
At the end of 1997, there were a total of 29 Aqua Cool
distribution centers in the United States and overseas, supplied
with Aqua Cool by eight regional water purification and bottling
facilities, supplying a customer base of approximately 120,000.
9. Home Water Purification Systems
Point-of-Use Devices
The Company participates in the "point-of-use" market for
over- and under-the-sink water purifiers through the manufacture
and sale of HYgeneR, a proprietary, EPA-registered, silver-
impregnated activated carbon filtering medium, and through the
sale of reverse osmosis and activated carbon-based filtering
devices. The Company incorporates HYgene, which is designed to
prevent bacterial build-up while providing the capability of
removing undesirable tastes and odors from the water supply, into
its own bacteriostatic water conditioners and also sells HYgene
to manufacturers of household point-of-use water filters.
Point-of-Entry Devices
Ionics' point-of-entry water products include ion-exchange
water conditioners to "soften" hard water, and chemicals and
media for filtration and treatment. The Company sells its
products, under the General Ionics and other brand names, through
both independent distributorships and wholly owned sales and
service dealerships.
10. Bleach-Based Consumer Products
The Company's Elite New England division operates a Cloromat
facility to produce and distribute bleach-based products for the
consumer market, primarily one-gallon bleach products under
private label or under the Company's own "EliteR", "Super
ValueTM" and "UltraPureTM" brands, and methanol-based automobile
windshield wash solution. These operations are conducted in a
129,000 square foot manufacturing facility located in Ludlow,
Massachusetts.
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Raw Materials and Sources of Supply
All raw materials essential to the business of the Company
can normally be obtained from more than one source. In those few
instances where raw materials are being supplied by only one
source, the current supplier has given the Company a lead time
for cancellation, which the Company believes is sufficient to
enable it to obtain other suppliers. In addition, the Company
maintains inventories of single source items which it believes
are adequate under the circumstances.
The Company produces the membranes required for its
equipment and systems that use the ED, EDR, MF, UF and EDI
processes. In 1997, the Company started to produce RO membranes.
Membranes used for the RO process are also purchased from outside
suppliers, and are normally available from multiple sources.
Patents and Trademarks
The Company believes that its products, know-how, servicing
network and marketing skills are more significant to its business
than trademarks or patent protection of its technology.
Nevertheless, the Company has a policy of applying for patents
both in the United States and abroad on inventions made in the
course of its research and development work for which a
commercial use is considered likely. The Company owns numerous
United States and foreign patents and trademarks and has issued
licenses thereunder, and currently has additional pending patent
applications. Of the approximately 100 outstanding U.S. patents
held by the Company, a substantial portion involves membranes,
membrane technology and related separations processes such as
electrodialysis and electrodialysis reversal, reverse osmosis,
ultrafiltration and electrodeionization. The Company does not
believe that any of its individual patents or groups of related
patents, nor any of its trademarks, is of sufficient importance
that its termination or abandonment, or the cancellation of
licenses extending rights thereunder, would have a material
adverse effect on the Company.
Seasonality
The activities of the Company's businesses are not of a
seasonal nature, other than certain activities of the Consumer
Products segment. Bottled water sales and bleach products for
swimming pool use tend to increase during the summer months.
Also, sales levels for automobile windshield wash solution
increase in the winter months.
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Customers
The nature of the Company's business is such that it
frequently has in progress large contracts with one or more
customers for specific projects; however, there is no one
customer whose purchases account for 10% or more of the Company's
consolidated revenues and whose loss would have a material
adverse effect on the Company and its subsidiaries taken as a
whole.
Backlog
The Company's backlog of firm orders was $153,679,000 at
December 31, 1997 and $210,505,000 at December 31, 1996. For
multi-year contracts, the Company includes in reported backlog
the revenues associated with the first five years of the
contract. For multi-year contracts which are not otherwise
included in backlog, the Company includes in backlog up to one
year of revenues. Ionics expects to fill approximately 77% of
its December 31, 1997 backlog during 1998. The Company does not
believe that there are any seasonal aspects to these backlog
figures.
Government Contracts
The Company does not believe that any of its sales under
U.S. Government contracts or subcontracts during 1997 are subject
to renegotiation. The Company has not had adjustments to its
negotiated contract prices, nor are any proceedings pending for
such adjustments.
Research and Development
Since the development of the ion exchange membrane and the
EDR process, Ionics has continued its commitment to research and
development directed toward products for use in water
purification, processing and measurement, and separations
technology. The Company's research and development expenses were
approximately $5,410,000 in 1997, $5,108,000 in 1996, and
$4,180,000 in 1995.
Competition
The Company experiences competition from a variety of
sources with respect to virtually all of its products, systems
and services, although the Company knows of no single entity that
competes with it across the full range of its products and
services. Competition in the markets served by the Company is
based on a number of factors, which may include price,
technology, applications experience, know-how, availability of
financing, reputation, product warranties, reliability, service
and distribution.
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With respect to the Company's Membranes and Related
Equipment business segment, there are a number of companies,
including several sizable chemical companies, that manufacture
membranes, but not equipment. There are numerous smaller
companies, primarily fabricators, that build water treatment and
desalination equipment, but which generally do not have their own
proprietary membrane technology. A limited number of companies
manufacture both membranes and equipment. The Company has
numerous competitors in its conventional water treatment,
instruments and fabricated products business lines.
In 1996, the International Desalination Association released
a report providing data regarding the manufacturers of
desalination equipment. According to the report, which covered
land-based water desalination plants delivered or under
construction as of December 1995, with a capacity to produce 100
cubic meters (approximately 25,000 gallons) or more of fresh
water daily, Ionics ranked first in terms of the cumulative
number of such plants sold, having sold 1,414 plants of such
capacity, more than the next three manufacturers combined. When
compared only to manufacturers of membrane-type desalination
equipment, Ionics ranked first in both number of units sold and
the total capacity of units sold.
With respect to the Water, Food and Chemical Supply business
segment, the Company competes with suppliers of ultrapure water
services on a national and regional basis, and with other
manufacturers of membrane-related equipment. In the chemical
supply activity, the Company competes with manufacturers and
distributors of sodium hypochlorite and water treatment
chemicals.
With respect to the Company's Consumer Products business
segment, there are numerous bottled water companies which compete
with the Company, including several which are much larger than
the Company. Most of the Company's competitors in point-of-entry
and point-of-use products for the home are small assemblers,
serving local or regional markets. However, there are also
several large companies competing nationally in these markets.
In the case of its silver-impregnated activated carbon product
lines, the Company knows of two competitors with which it
competes on a national basis.
The Company competes with many suppliers of bleach and
bleach-based cleaning products and automobile windshield wash for
the consumer market, a number of which are much larger than the
Company.
The Company is unable to state with certainty its relative
market position in all aspects of its business. Many of its
competitors have financial and other resources greater than those
of the Company.
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Environmental Matters
Continued compliance by the Company and its subsidiaries
with federal, state and local provisions regulating the discharge
of materials into the environment or otherwise relating to the
protection of the environment is expected to have no material
effect upon capital expenditures, earnings or the competitive
position of the Company or any of its subsidiaries.
The Company is one of approximately 1,000 potentially
responsible parties (PRPs) at a Superfund site at Solvent
Recovery Services of New England in Southington, Connecticut (the
"SRS Site"). The Company's volumetric ranking in comparison to
the total volume of wastes treated at the SRS Site is
approximately 0.5%. A non-time critical removal action,
consisting of containment, pumping, and treatment of the most
heavily contaminated non-bedrock groundwater, was completed in
1995. The Company's share of combined assessments to date
against all PRPs for non-time critical removal actions and other
work totals approximately $55,000. The ultimate site cleanup
cost is currently not expected to exceed $59 million, of which
the Company's share would not exceed $308,000 including the
amounts already assessed against the Company. While it is too
soon to predict the scope and cost of the final clean-up remedy
that the EPA will select, based on the Company's small volumetric
ranking and the identities of the larger PRPs, which include many
substantial companies, the Company believes that its liability in
this matter will not have a material effect on the Company or its
financial position.
During 1995, the Company acquired certain real property in
Maryland to accommodate expansion of the Elite bleach-based
consumer chemicals business. Prior to its acquisition by the
Company, the property had been determined to have some
contamination of soil and groundwater. In conjunction with the
purchase, the Company worked closely with the Maryland Department
of the Environment and, based upon an environmental study
completed by a third party consultant, reached a preliminary
agreement regarding treatment. Based upon the costs of treatment
identified by the consultant, the Company has provided a
conservative accrual, recorded as part of the cost of the
property. The Company believes that additional liability
associated with treatment of the property, if any, will not have
a material effect on the Company or its financial condition.
The Company has never had a product liability claim grounded
in environmental liability, and believes that the nature of its
products and business makes such a claim unlikely.
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Employees
The Company and its consolidated subsidiaries employ
approximately 2,000 full-time persons, none of whom are
represented by unions except for the employees of the Company's
Australian subsidiary and certain employees of the Company's
Spanish subsidiary. The Company considers its relations with its
employees to be good.
Foreign Operations
The Company's sales to customers in foreign countries
primarily involve desalination systems, water and wastewater
treatment systems, sodium hypochlorite, Cloromat systems,
products and services related to these foregoing systems, and
bottled water. The Company seeks to minimize financial risks
relating to its international operations. Wherever possible, the
Company obtains letters of credit or similar payment assurances
denominated in U.S. dollars. If U.S. dollar payments cannot be
secured, the Company, where appropriate, enters into foreign
currency hedging transactions. The Company also uses foreign
sources for equipment parts and may borrow funds in local
(foreign) currencies to offset the asset risk of foreign currency
devaluation. Net foreign currency transaction gains included in
income before taxes totalled $100,000 in 1997, $548,000 in 1996
and $58,000 in 1995.
Ionics engages in certain foreign operations both directly
and through the following wholly owned subsidiaries: Ionics
(Bermuda) Ltd.; Ionics Iberica, S.A.; Ionics (U.K.) Limited;
Ionics Italba, S.p.A.; Ionics Nederland B.V.; Global Water
Services, S.A.; Elite Chemicals Pty. Ltd.; Eau et Industrie;
Resources Conservation Co. International; Ionics (Korea) Ltd.;
Aqua Design, Inc., subsidiaries and affiliates; Ionics Asia-
Pacific Pte Ltd.; Ionics Watertec Pty. Ltd. and Ionics Foreign
Sales Corporation Limited. In 1997, Ionics acquired a 55%
ownership interest in Enersave Engineering Systems Sdn Bhd, a
Malaysian corporation with subsidiary operations in Indonesia and
China ("Enersave").
The Company engages in various foreign operations through
investments in affiliated companies and joint venture
relationships. The activities include the production, sale and
distribution of bottled water through a 40% owned affiliate in
Bahrain, a 40% owned affiliate in Saudi Arabia, and a 49% owned
affiliate in Kuwait.
In addition, the Company has a 19% ownership interest in
Watlington Waterworks Ltd. in Bermuda. Watlington collects,
treats and distributes water throughout Bermuda for both potable
and non-potable uses. The Company also has a 50% ownership
interest in Yuasa-Ionics Co., Ltd., Tokyo, Japan, which among its
activities serves as a distributor of certain of the Company's
products in Japan; a 49% ownership interest in
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Ionics-Mega s.r.o., a limited liability company of the Czech
Republic established to pursue water treatment opportunities in
that country; and, through Ionics Iberica, S.A., 20% interests in
Aguas Tratadas de Cadereyta, S.A. de C.V. and Aguas Tratadas de
Madero, S.A. de C.V., companies organized to provide water
treatment services in Mexico.
Further geographical and financial information concerning
the Company's foreign operations appears in Notes 1, 5, 8, 9, 13,
14 and 15 to the Company's Consolidated Financial Statements
included as part of the Company's 1997 Annual Report to
Stockholders, which Notes are incorporated herein by reference.
Financial Information About Foreign and
Domestic Operations and Export Sales
The information contained in Note 15 of Notes to
Consolidated Financial Statements contained in the Company's
Annual Report to Stockholders for the year ended December 31,
1997 is incorporated herein by reference.
Item 2. PROPERTIES
The Company owns or leases and occupies various
manufacturing and office facilities in the United States and
abroad. The principal facilities owned by the Company include
two buildings in Watertown, Massachusetts, containing
approximately 250,000 square feet and housing executive offices,
laboratories and manufacturing and assembly operations; a 234,000
square foot facility in Elkton, Maryland which is utilized
primarily for consumer bleach and automobile windshield wash
product distribution; a 129,000 square foot facility in Ludlow,
Massachusetts which is utilized primarily for packaging and
distribution of consumer bleach and windshield wash products; two
buildings in Bridgeville, Pennsylvania containing approximately
77,000 square feet and housing manufacturing operations for home
water treatment equipment and fabricated products; and other
facilities in the U.S. and overseas for various operations
relating to the business of the Company.
The Company makes use primarily of leased facilities for its
Aqua Cool bottled water distribution centers at 29 locations in
the U.S. and overseas. The majority of these facilities contain
less than 10,000 square feet.
The Company considers the business facilities that it
utilizes to be adequate for the uses to which they are being put.
/15
I-13
Item 3. LEGAL PROCEEDINGS
The Company is involved in the normal course of its business
in various litigation matters. Although the Company is unable to
determine at the present time whether it will have any liability
in any of the pending matters, some of which are in the early
stages of pre-trial discovery, the Company believes generally
that it has meritorious defenses and that none of the pending
matters will have an outcome material to the financial condition
or business of the Company.
On September 3, 1997, the Company was served with a third-
party complaint by Sybron Chemicals, Inc. ("Sybron") and a Sybron
employee, Michael Moldofsky ("Moldofsky"), in connection with
litigation pending in the District Court for Dallas County,
Texas, 44th Judicial District, entitled SGS-Thomson
Microelectronics, Inc. v. Sybron Chemicals, Inc. and Michael
Moldofsky. In the pending litigation, the plaintiff, SGS-Thomson
Microelectronics, Inc. ("S-T"), alleges that defendants Sybron
and Moldofsky caused S-T to incur damages of at least $24 million
as a result of allegedly defective ion-exchange resin
manufactured and sold to it by Sybron for use in an S-T ultrapure
water facility serving one of its semiconductor plants. In the
third-party complaint filed against the Company, the defendants
Sybron and Moldofsky allege that in the event they are found
liable to S-T, the Company may be liable to them for all or part
of S-T's alleged damages. The Company installed the resin in
question into deionized water vessels under a $3,500 contract
with S-T. The Company disputes all material allegations made
against it in the third-party complaint and believes that it
properly performed its services for S-T. S-T did not bring suit
against the Company. The Company intends to defend itself
vigorously in this litigation, which is in the early discovery
stages.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders
during the fourth quarter of the fiscal year covered by this
report.
/16
I-14
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
Reference is made to the Company's Annual Report to
Stockholders for the year ended December 31, 1997. The
information set forth on page 35 entitled "Common Stock Price
Range" and on the inside back cover of such Annual Report is
hereby incorporated by reference.
Item 6. SELECTED FINANCIAL DATA
Reference is made to the Company's Annual Report to Stockholders
for the year ended December 31, 1997. The information set forth on
page 35 of such Annual Report entitled "Statement of Operations
Data" and "Balance Sheet Data" is hereby incorporated by reference.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
Reference is made to the Company's Annual Report to Stockholders
for the year ended December 31, 1997. The information set forth on
pages 17 through 19 of such Annual Report entitled "Management's
Discussion and Analysis of Results of Operations and Financial
Condition" is hereby incorporated by reference.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
This item is not yet applicable to the Company.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Reference is made to the Company's Annual Report to Stockholders
for the year ended December 31, 1997. The consolidated balance
sheets of the Registrant as of December 31, 1997 and 1996, the
related consolidated statements of operations, cash flows and
stockholders' equity for the years ended December 31, 1997, 1996 and
1995, and the related notes with the opinion thereon of Coopers &
Lybrand L.L.P., independent accountants, on pages 19 through 34, and
Selected Quarterly Financial Data (unaudited) on page 35, are hereby
incorporated by reference.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
This item is not applicable to the Company.
/17
II-1
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by Item 10 with respect to directors is
hereby incorporated by reference from the Company's definitive proxy
statement for the Annual Meeting of Stockholders to be held May 7,
1998 to be filed with the Securities and Exchange Commission on or
about March 30, 1998.
The information regarding executive officers is as follows:
<TABLE>
<CAPTION>
Age as of Positions
Name March 1, 1998 Presently Held
<S> <C> <C>
Arthur L. Goldstein* 62 President, Chief Executive Officer
and Director since 1971; Chairman
of the Board since 1990
William E. Katz 73 Executive Vice President since 1983;
Director since 1961
Robert J. Halliday 43 Vice President, Finance since
December 1990; Chief Financial
Officer since August 1992
Stephen Korn 52 Vice President, General Counsel
and Clerk since September 1989
Theodore G. Papastavros 64 Vice President since 1975;
Vice President, Strategic Planning
since February 1990; Treasurer from
February 1990 until November 1997
A. Ernest Whiton 36 Vice President and Corporate Controller
since November 14, 1997
___________________
* Member of Executive Committee
</TABLE>
There are no family relationships between any of the
officers or directors. Officers of the Company are elected each
year at the annual meeting of Directors.
Except for Mr. Whiton, all of the above executive officers
have been employed by the Company in various capacities for more
than five years. Prior to joining the Company, Mr. Whiton served
as an audit manager with Price Waterhouse, Boston, Massachusetts.
Item 11. EXECUTIVE COMPENSATION
The information required by Item 11 is hereby incorporated
by reference from the Company's definitive proxy statement for
the Annual Meeting of Stockholders to be held May 7, 1998 to be
filed with the Securities and Exchange Commission on or about
March 30, 1998.
/18
III-1
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The information required by Item 12 is hereby incorporated
by reference from the Company's definitive proxy statement for
the Annual Meeting of Stockholders to be held May 7, 1998 to be
filed with the Securities and Exchange Commission on or about
March 30, 1998.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 13 is hereby incorporated
by reference from the Company's definitive proxy statement for
the Annual Meeting of Stockholders to be held May 7, 1998 to be
filed with the Securities and Exchange Commission on or about
March 30, 1998.
/19
III-2
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K
(a) 1. Financial Statements
See Index to Financial Statements and Financial
Statement Schedules on page IV-7. The Financial
Statement Schedules are filed as part of this Annual
Report on Form 10-K.
2. Financial Statement Schedules
See Index to Financial Statements and Financial
Statement Schedules on page IV-7.
<TABLE>
<CAPTION>
3. Exhibits
Exhibit
No. Description
<S> <C> <C>
3.0 Articles of Organization and By-Laws
3.1 Restated Articles of Organization filed
April 16, 1986.
3.1(a) Amendment to the Restated Articles of
Organization filed June 19, 1987.
3.1(b) Amendment to Restated Articles of *
Organization filed May 13, 1988
(filed as Exhibit 3.1(b) to
Registration Statement No. 33-38290 on
Form S-2 effective January 24, 1991).
3.1(c) Amendment to Restated Articles of *
Organization filed May 8, 1992
(filed as Exhibit 3.1 to Form 10-Q
for quarterly period ending
June 30, 1996).
3.2 By-Laws, as amended through November 14, 1997.
4.0 Instruments defining the rights of security holders,
including indentures
4.1 Renewed Rights Agreement, dated as of *
August 19, 1997 between Registrant and
BankBoston N.A. (filed as Exhibit 1 to
Registrant's Current Report on Form 8-K
dated August 27, 1997).
/20
IV-1
4.2 Form of Common Stock Certificate
10. Material Contracts
10.1 1979 Stock Option Plan, as amended through *
February 22, 1996 (filed as Exhibit 10.1 to
Registrant's Annual Report on Form 10-K for the
year ended December 31, 1995).
10.2 1986 Stock Option Plan for Non-Employee Directors, *
as amended through February 19, 1997 (filed as
Exhibit 10.2 to Registrant's Annual Report on
Form 10-K for the year ended December 31, 1996).
10.3 Amended and Restated Credit Agreement between
Registrant and the First National Bank of Boston
dated as of December 31, 1992.
10.3(1) Amendment Agreement No. 1, dated as of *
December 31, 1995, to Amended and Restated
Credit Agreement between Registrant and The
First National Bank of Boston (filed as Exhibit
10.3(1) to Registrant's Annual Report on Form 10-K
for the year ended December 31, 1995).
10.4 Operating Agreement dated as of September 27,
1989 between Registrant and Aqua Cool
Enterprises, Inc.
10.5 Term Lease Master Agreement dated as of
September 27, 1989 between Registrant and
Aqua Cool Enterprises, Inc.
10.6 Option Agreement dated as of September 27, 1989 *
among Registrant, Aqua Cool Enterprises, Inc.
and the other parties named therein (filed as
Exhibit 10.6 to Registrant's registration
statement on Form S-2, No. 33-38290,
effective January 24, 1991).
10.7 1994 Restricted Stock Plan (filed as Exhibit 10.12 *
to Registrant's Annual Report on Form 10-K dated
March 30, 1995).
10.8 1997 Stock Incentive Plan (filed as Exhibit 10.12 *
to Registrant's Annual Report on Form 10-K dated
December 31, 1996).
10.9 Ionics, Incorporated Supplemental Executive
Retirement Plan effective as of January 1, 1996.
10.10 Form of Employee Retention Agreement dated
February 24, 1998 between the Registrant and
each of its executive officers and certain other
officers of Registrant and its subsidiaries.
/21
IV-2
13. Annual Report to Stockholders of the Registrant for
the year ended December 31, 1997 (only pages 17
through 36 and the inside back cover constitute an
exhibit to this report).
21. Subsidiaries of the Registrant.
23. Consents
23.1 Consent of Coopers & Lybrand L.L.P. to incorporation
by reference of that firm's report dated
February 17, 1998, which is included on page 19 of
the Registrant's Annual Report to Stockholders
for the year ended December 31, 1997.
24. Power of Attorney.
27. Financial Data Schedule. **
27.1 Financial Data Schedule - Restated **
27.2 Financial Data Schedule - Restated **
27.3 Financial Data Schedule - Restated **
27.4 Financial Data Schedule - Restated **
27.5 Financial Data Schedule - Restated **
27.6 Financial Data Schedule - Restated **
27.7 Financial Data Schedule - Restated **
27.8 Financial Data Schedule - Restated **
________________________________
* incorporated herein by reference
** for electronic purposes only
</TABLE>
/22
IV-3
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Registrant during
the last quarter of fiscal 1997.
Undertaking
For purposes of complying with the amendments to the rules
governing Form S-8 effective July 13, 1990 under the
Securities Act of 1933, the undersigned hereby undertakes as
follows, which undertaking shall be incorporated by
reference into Registrant's registration statements on Form
S-8 Nos. 33-14194, 33-5814, 33-2092, 2-72936, 2-82780, 2-
64255, 33-41598, 33-54293, 33-59051, 333-05225, 333-29135,
and 33-54400.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors,
officers and controlling persons of the registrant pursuant
to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for
indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a
director, officer or controlling person of the registrant in
the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in
connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to
a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as
expressed in the Act and will be governed by the final
adjudication of such issue.
/23
IV-4
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of
the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
IONICS, INCORPORATED
(Registrant)
By/s/Arthur L. Goldstein
Arthur L. Goldstein,
Chairman of the Board,
President and Chief
Executive Officer
Date: March 27, 1998
Pursuant to the requirements of the Securities
Exchange Act of 1934, this report has been signed below by
the following persons on behalf of the registrant and in
the capacities and on the dates indicated.
Date: March 27, 1998 By/s/Arthur L. Goldstein
Arthur L. Goldstein,
Chairman of the Board,
President and
Chief Executive Officer
(principal executive
officer) and Director
Date: March 27, 1998 By/s/Robert J. Halliday
Robert J. Halliday,
Vice President, Finance
and Chief Financial
Officer (principal
financial officer)
Date: March 27, 1998 By/s/A. Ernest Whiton
A. Ernest Whiton,
Vice President and
Corporate Controller
(principal accounting
officer)
/24
IV-5
Date: March 27, 1998 By/s/Douglas R. Brown
Douglas R. Brown, Director
Date: March 27, 1998 By/s/William L. Brown
William L. Brown, Director
Date: March 27, 1998 By/s/Arnaud de Vitry d'Avaucourt
Arnaud de Vitry d'Avaucourt,
Director
Date: March 27, 1998 By/s/Kathleen F. Feldstein
Kathleen F. Feldstein,
Director
Date: March 27, 1998 By/s/William E. Katz
William E. Katz, Director
Date: March 27, 1998 By/s/Robert B. Luick
Robert B. Luick, Director
Date: March 27, 1998 By/s/John J. Shields
John J. Shields, Director
Date: March 27, 1998 By/s/Carl S. Sloane
Carl S. Sloane, Director
Date: March 27, 1998 By/s/Daniel I.C. Wang
Daniel I.C. Wang, Director
DATE: March 27, 1998 By/s/Mark S. Wrighton
Mark S. Wrighton, Director
Date: March 27, 1998 By/s/Allen S. Wyett
Allen S. Wyett, Director
/25
IV-6
IONICS, INCORPORATED
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
PAGES
Report of Independent Accountants 19*
Financial Statements:
Consolidated Statements of Operations for the
Years Ended December 31, 1997, 1996 and 1995 20*
Consolidated Balance Sheets as of
December 31, 1997 and 1996 21*
Consolidated Statements of Cash Flows for the
Years Ended December 31, 1997, 1996 and 1995 22*
Consolidated Statements of Stockholders' Equity for
the Years Ended December 31, 1997, 1996 and 1995 23*
Notes to Consolidated Financial Statements 24-34*
Supporting Financial Statement Schedules for the years ended
December 31, 1997, 1996 and 1995:
Schedule II - Valuation and Qualifying Accounts IV-8
Report of Independent Accountants on Financial
Statement Schedule IV-9
__________________
All other schedules are omitted because the amounts are
immaterial, the schedules are not applicable, or the required
information is shown in the financial statements or the notes
thereto.
* Page references are to the Annual Report to Stockholders of
the Company for the year ended December 31, 1997, which pages
are incorporated herein by reference.
/26
IV-7
<TABLE>
<CAPTION>
IONICS, INCORPORATED
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Additions Additions
Balance at Charged to Due to
End of Costs and Acquired Balance at
Description Prior Year Expenses Businesses Deductions(A) End of Year
<S> <C> <C> <C> <C> <C>
Allowance for doubtful
accounts and uncollectible
notes receivable:
Years ended:
December 31, 1997 $2,858,000 $1,408,000 $ 40,000 $2,017,000 $2,289,000
December 31, 1996 $2,410,000 $1,011,000 $ 286,000 $ 849,000 $2,858,000
December 31, 1995 $2,197,000 $ 579,000 $ 21,000 $ 387,000 $2,410,000
(A) Deductions result primarily from the write-off of accounts.
</TABLE>
/27
IV-8
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Ionics, Incorporated:
Our report on the consolidated financial statements of
Ionics, Incorporated as of December 31, 1997 and 1996 and for
each of the three years in the period ended December 31, 1997
has been incorporated by reference in this Form 10-K from page
19 of the 1997 Annual Report to Stockholders of Ionics,
Incorporated. In connection with our audits of such financial
statements, we have also audited the related financial statement
schedule for each of the three years in the period ending
December 31, 1997, listed in the Index on page IV-7 of this Form
10-K.
In our opinion, the financial statement schedule referred
to above, when considered in relation to the basic financial
statements taken as a whole, present fairly, in all material
respects, the information required to be included therein.
/s/COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
February 17, 1998
/28
IV-9
<TABLE>
<CAPTION>
EXHIBIT INDEX
Sequentially
Exhibit Numbered
No. Description Page
<S> <C> <C>
3.0 Articles of Organization and By-Laws
3.1 Restated Articles of Organization filed 32
April 16, 1986.
3.1(a) Amendment to the Restated Articles of 39
Organization filed June 13, 1987.
3.1(b) Amendment to Restated Articles of *
Organization filed May 13, 1988
(filed as Exhibit 3.1(b) to
Registration Statement No. 33-38290 on
Form S-2 effective January 24, 1991).
3.1(c) Amendment to Restated Articles of *
Organization filed May 8, 1992
(filed as Exhibit 3.1 to Form 10-Q
for quarterly period ending
June 30, 1996).
3.2 By-Laws, as amended through 42
November 14, 1997.
4.0 Instruments defining the rights of security holders,
including indentures
4.1 Renewed Rights Agreement, dated as of *
August 19, 1997 between Registrant and
BankBoston N.A. (filed as Exhibit 1 to
Registrant's Current Report on Form 8-K
dated August 27, 1997).
4.2 Form of Common Stock Certificate 61
10. Material Contracts
10.1 1979 Stock Option Plan, as amended through *
February 22, 1996 (filed as Exhibit 10.1 to
Registrant's Annual Report on Form 10-K for the
year ended December 31, 1995).
10.2 1986 Stock Option Plan for Non-Employee Directors, *
as amended through February 19, 1997 (filed as
Exhibit 10.2 to Registrant's Annual Report on
Form 10-K for the year ended December 31, 1996).
10.3 Amended and Restated Credit Agreement between 64
Registrant and the First National Bank of Boston
dated as of December 31, 1992.
/29
10.3(1) Amendment Agreement No. 1, dated as of *
December 31, 1995, to Amended and Restated
Credit Agreement between Registrant and The
First National Bank of Boston (filed as Exhibit
10.3(1) to Registrant's Annual Report on Form 10-K
for the year ended December 31, 1995).
10.4 Operating Agreement dated as of September 27, 118
1989 between Registrant and Aqua Cool
Enterprises, Inc.
10.5 Term Lease Master Agreement dated as of 140
September 27, 1989 between Registrant and
Aqua Cool Enterprises, Inc.
10.6 Option Agreement dated as of September 27, 1989 *
among Registrant, Aqua Cool Enterprises, Inc.
and the other parties named therein (filed as
Exhibit 10.6 to Registrant's registration
statement on Form S-2, No. 33-38290,
effective January 24, 1991).
10.7 1994 Restricted Stock Plan (filed as Exhibit 10.12 *
to Registrant's Annual Report on Form 10-K dated
March 30, 1995).
10.8 1997 Stock Incentive Plan (filed as Exhibit 10.12 *
to Registrant's Annual Report on Form 10-K dated
December 31, 1996).
10.9 Ionics, Incorporated Supplemental Executive 155
Retirement Plan effective as of January 1, 1996.
10.10 Form of Employee Retention Agreement dated 165
February 24, 1998 between the Registrant and
each of its executive officers and certain other
officers of Registrant and its subsidiaries.
13. Annual Report to Stockholders of the Registrant for 177
the year ended December 31, 1997 (only pages 17
through 36 and the inside back cover constitute an
exhibit to this report).
21. Subsidiaries of the Registrant. 213
23. Consents
23.1 Consent of Coopers & Lybrand L.L.P. to 214
incorporation by reference of that firm's
report dated February 17, 1998, which is
included on page 19 of the Registrant's Annual
Report to Stockholders for the year ended
December 31, 1997.
/30
24. Power of Attorney. 215
27. Financial Data Schedule. **
27.1 Financial Data Schedule - Restated **
27.2 Financial Data Schedule - Restated **
27.3 Financial Data Schedule - Restated **
27.4 Financial Data Schedule - Restated **
27.5 Financial Data Schedule - Restated **
27.6 Financial Data Schedule - Restated **
27.7 Financial Data Schedule - Restated **
27.8 Financial Data Schedule - Restated **
________________________________
* incorporated herein by reference
** for electronic purposes only
</TABLE>
/31
Exhibit 3.1
THE COMMONWEALTH OF MASSACHUSETTS
MICHAEL JOSEPH CONNOLLY
Secretary of State
ONE ASHBURTON PLACE, BOSTON, MASSACHUSETTS 02108
RESTATED ARTICLES OF ORGANIZATION Federal Identification
General Laws, Chapter 156B, Section 72 No. 04-2068530
We, Arthur L. Goldstein President
Robert B. Luick Clerk of
Ionics, Incorporated
_____________________________________________________________
(Name of Corporation)
located at: 65 Grove Street, Watertown, Massachusetts 02172
__________________________________________________
do hereby certify that the following restatement of the articles
or organization of the corporation was duly adopted at a meeting
held on February 27, 1986, by unanimous vote of the Board of
Directors.
1. The name by which the corporation shall be known is: -
Ionics, Incorporated
2. The purpose for which the corporation is formed are as
follows:-
To engage on its own behalf or for others in research, study,
appraisal, development and other activities relating to the
creation design, fabrication, construction, formulation,
operation, use and control of processes, compounds, formulas,
chemicals, pharmaceutical instruments, apparatus, machines
and facilities used or useful in ion exchange chemistry,
chemical, physical, medical, biochemical, bio-physical,
electrical or pharmaceutical activities of other individuals
or of industrial, medical, educational, governmental, or
other plants, laboratories, institutions, authorities,
installations or establishments;
(continued on attached sheets)
Note: If the space provided under any article or item on this
form is insufficient, additions shall be set forth on separate
8 1/2 x 11 sheets of paper leaving a left-hand margin of at least
1 inch for binding. Additions to more than one article may be
continued on a single sheet so long as each article requiring
each such addition is clearly indicated.
/32
Ionics, Incorporated
Item 2, page 1, continued - Page 1
To engage on its own behalf or for others in the business of
creating, designing, manufacturing, producing, constructing,
operating, using, testing, buying, exporting, importing, selling,
leasing, distributing, trading and dealing in and with chemical,
pharmaceutical, electro-chemical, physical, electrophysical,
mechanical, electro-mechanical, and other products, compounds,
pharmaceuticals, apparatus, instruments, machines, equipment,
supplies and materials of all kinds for industrial, medical,
educational, governmental or other customers or users, and
without in any manner limiting the generality of the foregoing;
To acquire by purchase, lease or otherwise and to construct,
hold, improve, operate, lease, mortgage and sell lands,
manufacturing plants, laboratories, workrooms, shops, salesrooms,
warehouses, offices, stores and any other structures in any part
of the United States or elsewhere, and to acquire by purchase or
otherwise, hold, pledge, sell, otherwise dispose of and deal in
and with all kinds of personal property of every nature and
description incidental to the purposes of the corporation;
To acquire all or part of the capital stock, property and assets
of any person, firm, corporation or association carrying on any
business similar or incidental to or capable of being carried on
in connection with any business which this corporation is
authorized to carry on and to assume all the liabilities of such
corporation, person, firm or association, and to take over and
proceed to conduct or liquidate any business or property so
acquired;
To purchase, acquire and hold for investment or otherwise use,
sell, assign, transfer or otherwise dispose of and to guarantee
any shares of stock, bonds, securities or other obligations of
any other corporation, association or agency of this or any other
state, territory or country and to aid in any manner any such
corporation or association or agency of this or any other state,
territory or country and to aid in any manner any such
corporation or association of which shares of stock, bonds or
other obligations are held or in any manner guaranteed by this
corporation, and to do any other act or thing permitted by law
for the preservation, protection, improvement or enhancement of
the value of such shares of stock, bonds, securities or other
obligations, and, while the owner thereof, to exercise all the
rights, powers and privileges of ownership, including the right
to vote thereon;
To acquire by purchase or otherwise, and to hold, sell, transfer,
reissue or cancel the shares of its own capital stock or any
/33
Ionics, Incorporated
Item 2, page 1, continued - Page 2
securities or obligation of the corporation in any manner and to
the extent now or hereafter permitted to corporations organized
under the laws of the Commonwealth of Massachusetts; provided,
that the corporation shall not use its funds or other assets for
the purchase of its own shares of stock when such use would cause
an impairment of the capital of the corporation, and provided
further, that the shares of its own capital stock while owned by
the corporation shall not be voted upon directly or indirectly;
To own, acquire, make, buy, assign or sell inventions, patents,
copyrights, and patent or copyright applications, rights,
privileges, improvements, and formulas, trade secrets,
trademarks, and licenses, and to acquire or grant rights,
privileges and licenses in or to the same;
To borrow money and from time to time to make and issue
promissory notes, bills of exchange, bonds, debentures and
obligations and evidences of indebtedness of all kinds when and
as the same may be convenient for the accomplishment of the
purposes of the corporation or any of them; and if deemed
advisable to secure the same by mortgage or deed of trust or
pledge of any or all of the property or franchises of the
corporation;
To carry on its business in any state or territory of the United
States or in any foreign country or place where the same, in the
discretion of the Board of Directors, seem capable of being
conveniently carried on in connection with any activity of this
corporation or calculated directly or indirectly to enhance the
value of the corporation's property or rights to the extent
permitted or authorized under the laws of such state, territory
or country, and to do any and all things which the corporation is
empowered to do, or any part thereof, as principals, agents,
contractors or otherwise and by or through agents or otherwise
and either alone or in conjunction with others, and generally to
attain and further any of the purposes herein set forth; to make,
guarantee (so far as may be permitted to corporations organized
under the business corporation laws of the Commonwealth of
Massachusetts) and perform any contracts of any kind and
description, and to do any and all other acts and things and
exercise any and all other powers which a copartnership or
natural person could do and exercise and which a corporation
organized under the business corporation laws of the Commonwealth
of Massachusetts is not now or hereafter prohibited from
performing, doing or exercising;
/34
Ionics, Incorporated
Item 2, page 1, continued - Page 3
To do all and everything necessary, suitable or proper for the
accomplishment of any of the purposes, the attainment of any of
the objects or the furtherance of any of the powers hereinbefore
set forth, either alone or in connection with other corporations,
firms or individuals and either as principals, or agents, and to
do every other act or acts, thing or things, incidental or
appurtenant to or growing out of or connected with the aforesaid
objects, purposes or powers or any of them.
These clauses shall be construed as both purposes and powers, and
the foregoing numeration of specific powers shall not be deemed
to limit or restrict in any manner the general powers of the
corporation, and the enjoyment and exercise thereof, as conferred
by the laws of the Commonwealth of Massachusetts upon
corporations organized under the provisions of its General Laws.
/35
3. The total number of shares and the par value, if any, of each
class of stock which the corporation is authorized to issue
is as follows:
<TABLE>
<CAPTION>
WITHOUT PAR VALUE WITH PAR VALUE
CLASS OF STOCK NUMBER OF SHARES NUMBER OF SHARES PAR VALUE
<S> <C> <C> <C>
Preferred
Common 6,000,000 $1 per share
</TABLE>
*4. If more than one class is authorized, a description of each of the
different classes of stock with, if any, the preferences, voting
powers, qualifications, special or relative rights or privileges as to
each class thereof and any series now established:
*5. The restrictions, if any, imposed by the articles of organization upon
the transfer of shares of stock of any class are as follows:
*6. Other lawful provisions, if any, for the conduct and regulation of the
business and affairs of the corporation, for its voluntary dissolution,
or for limiting, defining, or regulating the powers of the corporation,
or of its directors or stockholders, or of any class of stockholders:
-- In addition to the Stockholders, the Board of Directors may make,
amend or repeal the By-Laws in whole or in part, except with respect
to any provisions thereof, which by law, the Articles of Organization
or the By-Laws requires action by the Stockholders.
-- This Corporation may be a partner in any business enterprise which
this Corporation would have power to conduct by itself.
/36
*We further certify that the foregoing restated articles of organization
effect no amendments to the articles of organization of the corporation as
heretofore amended, except amendments to the following articles.........
None
........................................................................
(*If there are no such provisions, state "None".)
Briefly describe amendments in space below:
IN WITNESS WHEREOF AND UNDER THE PENALTIES OF PERJURY, we have hereto
signed our names this 16th day of April in the year 1986.
/s/Arthur L. Goldstein President
/s/Robert B. Luick Clerk
/37
[STAMP] 1986 APR 18
THE COMMONWEALTH OF MASSACHUSETTS
RESTATED ARTICLES OF ORGANIZATION
(General Laws, Chapter 156B, Section 74)
I hereby approve the within articles of organization
and the filing fee in the amount of $150.00 having
been paid, said articles are deemed to have been filed
with me this 16th day of April, 1986.
/s/Michael J. Connolly
MICHAEL JOSEPH CONNOLLY
Secretary of State
TO BE FILLED IN BY CORPORATION
PHOTOCOPY OF RESTATED ARTICLES OF ORGANIZATION TO BE SENT
TO: Robert B. Luick, Esquire
___________________________________________________
SULLIVAN & WORCESTER
___________________________________________________
One Post Office Square
___________________________________________________
Telephone: (617)338-2801
___________________________________________________
Copy Mailed
/38
Exhibit 3.1(a)
THE COMMONWEALTH OF MASSACHUSETTS
Secretary of the Commonwealth
STATE HOUSE, BOSTON, MASS.
02133
ARTICLES OF AMENDMENT
General Laws, Chapter 156B, Section 72 04-2068530
This certificate must be submitted to the Secretary of the
Commonwealth within sixty days after the date of the vote of stockholders
adopting the amendment. The fee for filing this certificate is
prescribed by General Laws, Chapter 156B, Section 114. Make check
payable to the Commonwealth of Massachusetts.
We, Arthur L. Goldstein President
Robert B. Luick Assistant Clerk of
Ionics, Incorporated
_____________________________________________________________
(Name of Corporation)
located at: 65 Grove Street, Watertown, 02172
_____________________________________________________________
do hereby certify that the following amendment to the articles of
organization of the corporation was duly adopted at a meeting held
on May 6, 1987, by vote of:
2,530,225 shares of Common out of 3,696,826 shares outstanding,
(Class of Stock)
shares of out of shares outstanding, and
(Class of Stock)
shares of out of shares outstanding,
(Class of Stock)
CROSS OUT being at least xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
INAPPLI- two-thirds of each class outstanding and entitled to vote
CABLE thereon xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
CLAUSE xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
xxxxxxxx
That paragraph 6 of the Restated Articles of Organization be amended
by adding the following additional sub-paragraph thereto:
"A Director of this Corporation shall have no personal liability
to this Corporation or to its stockholders for monetary damages for
breach of fiduciary duty as a Director, notwithstanding any provision
of law imposing such liability; provided, however, that such provision
shall not eliminate or
(1) For amendments adopted pursuant to Chapter 156B, Section 70.
(2) For amendments adopted pursuant to Chapter 156B, Section 71.
Note: Amendments for which the space provided above is not sufficient
should be set out on continuation sheets to be numbered 2A, 2B etc.
Continuation sheets shall be on 8 1/2" wide x 11" high paper and must have
a left-hand margin 1 inch wide for binding. Only one side should be used.
/39
limit the liability of a Director (i) for any breach of the Director's
duty of loyalty to the Corporation or its stockholders; (ii) for acts or
omissions not in good faith or which involve intentional misconduct or
knowing violations of law; (iii) under sections sixty-one or sixty-two of
Chapter 156B of the General Laws of Massachusetts, or (iv) for any
transaction from which the Director derived an improper personal benefit.
Neither the amendment or repeal of this paragraph, nor the adoption of any
provision of these Restated Articles of Organization inconsistent with
this paragraph, shall eliminate or reduce the effect of this paragraph in
respect of any matter occurring, or any cause of action, suit or claim
that, but for this paragraph, would accrue or arise, prior to such
amendment, repeal, or adoption of an inconsistent provision."
The foregoing amendment will become effective when these articles of
amendment are filed in accordance with Chapter 156B, Section 6 of The
General Laws unless these articles specify, in accordance with the vote
adopting the amendment, a later effective date not more than thirty days
after such filing, in which event the amendment will become effective on
such later date.
IN WITNESS WHEREOF AND UNDER THE PENALTIES OF PERJURY, we have hereto
signed our names this twelfth day of June, in the year 1987.
/s/Arthur L. Goldstein President
__________________________________________________________________
/s/Robert B. Luick Assistant Clerk
__________________________________________________________________
/40
[STAMP] SECRETARY OF
COMMONWEALTH
1987 JUN 13 PM 3:57
CORPORATION DIVISION
THE COMMONWEALTH OF MASSACHUSETTS
ARTICLES OF AMENDMENT
(General Laws, Chapter 156B, Section 72)
I hereby approve the within articles of amendment
and the filing fee in the amount of $75.00 having
been paid, said articles are deemed to have been filed
with me this 19th day of June 1987.
/s/Michael J. Connolly
MICHAEL JOSEPH CONNOLLY
Secretary of the Commonwealth
State House, Boston, Mass.
TO BE FILLED IN BY CORPORATION
PHOTOCOPY OF AMENDMENT TO BE SENT
TO: Robert B. Luick, Esq.
SULLIVAN & WORCESTER
One Post Office Square
Boston, MA 02110
(617)338-2800
/41
Exhibit 3.2
By-Laws
of
Ionics, Incorporated
ARTICLE I
Articles of Organization
The name and purposes of the Corporation shall be as set forth in the
Articles of Organization. These By-Laws, the powers of the Corporation and
of its directors and stockholders, and all matters concerning the conduct
and regulation of the business of the Corporation shall be subject to such
provisions in regard thereto, if any, as are set forth in the Articles of
Organization, and the Articles of Organization as from time to time amended
are hereby made a part of these By-Laws. All references in these By-Laws to
the Articles of Organization shall be construed to mean the Articles of
Organization of the Corporation as from time to time amended.
ARTICLE II
Annual Meeting of Stockholders
There shall be an annual meeting of stockholders within six months
after the end of the fiscal year of the Corporation. The date, hour and
place of the annual meeting of the stockholders shall be fixed by the vote
of the directors, and set forth in the notice thereof. In the event that no
date for the annual meeting is established or said meeting has not been
held on the date so fixed or determined, a special meeting in lieu of the
annual meeting may be held with all of the force and effect of an annual
meeting. Purposes for which an annual meeting is to be held, in addition to
those prescribed by law, by the Articles of Organization and by these
By-Laws, may be specified by the President or by a vote of a majority of
the directors then in office.
If such annual meeting is not held on the date fixed therefor, a
special meeting of the stockholders may be held in place thereof, and any
business transacted or elections held at such special meeting shall have
the same effect as if transacted or held at the annual meeting and, in such
case, all references in these By-Laws, except in this Article II and in
Article IV, to the annual meeting of the stockholders shall be deemed to
refer to such special meeting. Any such special meeting may be described
and referred to simply as the Annual Meeting of the Stockholders and shall
be called, and the purposes thereof shall be specified in the call, as
provided in Article III.
/42
ARTICLE III
Special Meetings of Stockholders
A special meeting of the stockholders may be called at any time by the
President or by a majority of the directors then in office. Application to
an officer of the Corporation or to a court pursuant to Section 34(b) of
the Business Corporation Law requesting the call of a special meeting of
the stockholders may be made only by stockholders who hold 100% in interest
of the capital stock entitled to vote at the meeting. Such call shall state
the time, place and purposes of the meeting.
ARTICLE IV
Place of Stockholders' Meetings
The annual meeting of the stockholders and any special meeting of the
stockholders, by whomever called, shall be held at the principal office of
the Corporation in Massachusetts or elsewhere in the Commonwealth of
Massachusetts, as may be determined by the Board of Directors and stated in
the notice thereof. Any adjourned session of any annual or special meeting
of the stockholders shall be held in the United States at such place as is
designated in the vote of adjournment.
ARTICLE
Notice of Stockholders' Meetings
A written notice of each annual or special meeting of stockholders,
stating the place, the date and hour thereof, and the purpose or purposes
for which the meeting is to be held shall be given at least ten (10) days
before the meeting to each stockholder entitled to vote thereat, and to
each stockholder who, under the Articles of Organization or these By-Laws,
is entitled to such notice, by leaving such notice with him or at his
residence or usual place of business, or by mailing it, postage prepaid,
addressed to such stockholder at his address as it appears in the records
of the Corporation. Such notice shall be given by the Clerk, by an
Assistant Clerk, or by any other officer, or by a person designated either
by the Clerk or by the person or persons calling the Meeting, or by the
Board of Directors. No notice of the time, place or purposes of any annual
or special meeting of the stockholders shall be required to be given to a
stockholder if a written waiver of such notice is executed before or after
the meeting by such stockholder, or his attorney thereunto authorized, and
filed with the records of the meeting.
No business may be transacted at a meeting of the stockholders except
that (a) specified in the notice thereof given by or at the direction of
the Board of Directors and otherwise in compliance with the provisions
hereof, (b) brought before the meeting by or at the direction of the Board
of Directors or the presiding officer or (c) properly brought before the
meeting by or on behalf of any stockholder who shall have been a
stockholder of record at the time of giving of notice by such stockholder
provided for in this paragraph and who shall continue to be entitled at the
/43
time of such meeting to vote thereat and who complies with the notice
procedures set forth in this paragraph with respect to any business sought
to be brought before the meeting by or on behalf of such stockholder other
than the election of directors and with the notice provisions set forth in
Article VIII with respect to the election of directors. In addition to any
other applicable requirements, for business to be properly broughtbefore a
meeting by or on behalf of a stockholder (other than a stockholder proposal
included in the Corporation's proxy statement pursuant to Rule 14a-8 under
the Securities Exchange Act of 1934, as amended (the "Exchange Act")), the
stockholder must have given timely notice thereof in writing to the Clerk
of the Corporation. In order to be timely given, a stockholder's notice
must be delivered to or mailed and received at the principal executive
offices of the Corporation (a) not less than 80 nor more than 120 days
prior to the anniversary date of the immediately preceding annual meeting
of stockholders of the Corporation, or (b) in the case of a special meeting
or in the event that the annual meeting is called for a date (including any
change in a date determined by the Board pursuant to Article II) more than
60 days prior to such anniversary date, notice by the stockholder to be
timely given must be so received not later than the close of business on
the 20th day following the day on which notice of the date of such meeting
was mailed or public disclosure of the date of such meeting was made,
whichever first occurs. Such stockholder's notice to the Clerk shall set
forth as to each matter the stockholder proposes to bring before the
meeting (a) a brief description of the business desired to be brought
before the meeting and the reasons for conducting such business at the
meeting, (b) the name and record address of the stockholder proposing such
business, (c) the class and number of shares of capital stock of the
Corporation held of record, owned beneficially and represented by proxy by
such stockholder as of the record date for the meeting (if such date shall
then have been made publicly available) and as of the date of such notice
by the stockholder, and (d) all other information which would be required
to be included in a proxy statement or other filings required to be filed
with the Securities and Exchange Commission if, with respect to any such
itemof business, such stockholder were a participant in a solicitation
subject to Regulation 14A under the Exchange Act (the "Proxy Rules"). In
the event the proposed business to be brought before the meeting by or on
behalf of a stockholder relates or refers to a proposal or transaction
involving the stockholder or a third party which, if it were to have been
consummated at the time of the meeting, would have required of such
stockholder or third party or any of the affiliates of either of them any
priornotification to, filing with, or any orders or other action by, any
governmental authority, then any such notice to the Clerk shall be
accompanied by appropriate evidence of the making of all such notifications
or filings and the issuance of all such orders and the taking of all such
actions by all such governmental authorities.
Notwithstanding anything in these By-Laws to the contrary, no business
shall be conducted at any meeting except in accordance with the procedures
set forth in this Article V, provided, however, that nothing in this
Article V shall be deemed to preclude discussion by any stockholder of any
business properly brought before such meeting.
/44
The presiding officer of the meeting may, if the facts warrant,
determine and declare to the meeting that business was not properly brought
before the meeting in accordance with the foregoing procedures, and if he
or she should so determine, he or she shall so declare to the meeting and
that business shall be disregarded.
ARTICLE VI
Quorum of Stockholders
At any meeting of the stockholders, a quorum for the election of any
director or officer, or for the consideration of any question, shall
consist of a majority in interest of all stock issued, outstanding and
entitled to vote at such election or upon such question, respectively,
present in person or represented by proxy; except that if two or more
classes of stock are entitled to vote as separate classes upon any
question, then, in the case of each such class, a quorum for the
consideration of such question shall consist of a majority in interest so
present or represented of all stock of that class issued, outstanding and
entitled to vote; and except in any case where a larger quorum is required
by law, by the Articles of Organization or by these By-Laws a quorum shall
consist of the number in interest, so present or represented, as is so
required. Stock owned by the Corporation, if any, shall not be deemed
outstanding for this purpose.
When a quorum is present at any meeting, a plurality of the votes
properly cast for any office shall elect to such office, except where a
larger vote is required by law, by the Articles of Organization or by these
By-Laws, and a majority of the votes properly cast upon any other question
(or if two or more classes of stock are entitled to vote as separate
classes upon such question, then, in the case of each such class, a
majority of the votes of such class properly cast upon the question),
except in any case where a larger vote is required by law, by the Articles
of Organization or by these By-Laws, shall decide the matter.
If a quorum is not present at any meeting, a majority in interest of
the said stockholders present in person or by proxy and entitled to vote
may adjourn such meeting from time to time, without notice other than by
announcement at the meeting, until holders of the amount of stock requisite
to constitute a quorum shall attend. At any such adjourned meeting at which
a quorum shall be present, any business may be transacted which might have
been transacted at the meeting as originally called.
ARTICLE VII
Proxies and Voting
Section 1. Except as may be provided otherwise in the Articles of
Organization with respect to two or more classes or series of stock,
stockholders entitled to vote shall have one vote for each share of stock
entitled to vote owned by them, and a proportionate vote for each
fractional share. No ballot shall be required for any election unless
/45
requested by a stockholder present or represented at the meeting and
entitled to vote in the election. The Corporation shall not, directly or
indirectly, vote upon any share of its own stock.
Stockholders entitled to vote may vote either in person or by proxy in
writing dated not more than six months before the meeting named therein,
which proxies shall be filed with the Clerk at the meeting, or any
adjournment thereof before being voted. Such proxies shall entitle the
holders thereof to vote at any adjournment of such meeting, but shall not
be valid after the final adjournment of such meeting.
Any action required or permitted to be taken by stockholders may be
taken without a meeting if all stockholders entitled to vote on the matter
consent to the action by a writing or writings, filed with the record of
the meetings of stockholders. Such consents shall be treated for all
purposes as a vote at a meeting.
Only persons who are nominated in accordance with the following
procedures shall be eligible for election as directors, except as may be
otherwise provided in the Corporation's Restated Articles of Organization,
as amended. Nominations of persons for election to the Board of Directors
at the annual meeting may be made at the annual meeting of stockholders (a)
by the Board of Directors or at the direction of the Board of Directors by
any nominating committee or person appointed by the Board of Directors or
(b) by any stockholder of record at the time of giving of notice provided
for in this Section 2 and who shall continue to be entitled at the time of
the meeting to vote for the election of directors at the meeting who
complies with the notice procedures set forth in this Section 2 rather than
the notice procedures with respect to other business set forth in Article
V. Nominations by stockholders shall be made only after timely notice by
such stockholder in writing to the Clerk of the Corporation. In order to
be timely given, a stockholder's notice shall be delivered to or mailed and
received at the principal executive offices of the Corporation not less
than 80 nor more than 120 days prior to the anniversary date of the
immediately preceding annual meeting of stockholders of the Corporation;
provided, however, that in the event that the meeting is called for a date,
including any change in a date determined by the Board pursuant to Article
II, more than 60 days prior to such anniversary date, notice by the
stockholder to be timely given must be so received not later than the close
of business on the 20th day following the day on which notice of the date
of the meeting was mailed or public disclosure of the date of the meeting
was made, whichever first occurs. Such stockholder's notice to the Clerk
shall set forth (a) as to each person whom the stockholder proposes to
nominate for election or re-election as a director, (i) the name, age,
business address and residence address of the person, (ii) the principal
occupation or employment of the person, (iii) the class and number of
shares of capital stockof the Corporation, if any, which are beneficially
owned by the person, (iv) any other information regarding the nominee as
would be required to be included in a proxy statement or other filings
required to be filed pursuant to the Proxy Rules, and (v) the consent of
each nominee to serve as a director of the Corporation if so elected; and
/46
(b) as to the stockholder giving the notice, (i) the name and record
address of the stockholder, (ii) the class and number of shares of capital
stock of the Corporation which are beneficially owned by the stockholder as
of the record date for the meeting (if such date shall then have been made
publicly available) and as of the date of such notice, (iii) a
representation that the stockholder intends to appear in person or by proxy
at the meeting to nominate the person or persons specified in the notice,
(iv) a representation that the stockholder (and any party on whose behalf
or in concert with whom such stockholder is acting) is qualified at the
time of giving such notice to have such individual serve as the nominee of
such stockholder (and any party on whose behalf or in concert with whom
such stockholder is acting) if such individual is elected, accompanied by
copies of any notification or filings with, or orders or other actions by,
any governmental authority which are required in order for such stockholder
(and any party on whose behalf such stockholder is acting) to be so
qualified, (v) a description of all arrangements or understandings between
such stockholder and each nominee and any other person or persons (naming
such person or persons) pursuant to which the nomination or nominations are
to be made by such stockholder, and (vi) such other information regarding
such stockholder as would be required to be included in a proxy statement
or other filings required to be filed pursuant to the Proxy Rules. The
Corporation may require any proposed nominee to furnish such other
information as may reasonably be required by the Corporation to determine
the eligibility of such proposed nominee to serve as director. No person
shall be eligible for election as a director unless nominated in accordance
with the procedures set forth herein.
The presiding officer of the meeting may, if the facts warrant,
determine and declare to the meeting that a nomination was not made in
accordance with the foregoing procedures, and if he or she should so
determine, he or she shall so declare to the meeting and the defective
nomination shall be disregarded.
ARTICLE VIII
Board of Directors
A board of not lees than three directors, nor more than fifteen, shall
be elected annually (by ballot if so requested by any stockholder entitled
to vote) at the annual meeting of the stockholders by such stockholders as
have the right to vote at such election. The number of directors for each
corporate year shall be fixed by vote of the directors from time to time.
At any time during any year, the whole number of directors may be
increased or reduced within the aforesaid limits by the stockholders at a
meeting called for the purpose and, in the case of a reduction, the
particular directorships which shall terminate shall be determined by the
stockholders, in each case by vote of a majority of the stock outstanding
and entitled to vote for the election of directors or, in the case of a
reduction which involves the termination of the directorship of an
incumbent director, by such larger vote, if any, as would be required to
remove such incumbent from office.
/47
Each newly created directorship resulting from any increase in the
number of directors may be filled in the manner provided in Article XX.
No director need be a stockholder except as may be otherwise provided
by law, by the Articles of Organization, or these By-Laws. Each director
shall hold office until the next annual meeting of the stockholders and
until his successor is elected and qualified, or until he sooner dies,
resigns or is removed.
ARTICLE IX
Powers of Directors
The business and property of the Corporation shall be managed by, and
be under the control of, the Board of Directors which shall have and may
exercise all the powers of the Corporation except such as are conferred
upon the stockholders or other officers by law, by the Articles of
Organization, or by these By-Laws.
Except as may be otherwise specifically provided by law or by vote of
the stockholders, the Board of Directors is expressly authorized to issue,
from time to time, all or any portion or portions of the capital stock of
the Corporation of any class, which may have been authorized but not issued
or otherwise reserved for issue, to such person or persons and for such
consideration (but not less than the par value thereof in case of stock
having par value), whether cash, tangible or intangible property, good
will, services or expenses, as they may deem best, without first offering
(for subscription or sale) such authorized but unissued stock to any
present or future stockholders of the Corporation, and generally in their
absolute discretion to determine the terms and manner of any disposition of
such authorized but unissued stock.
ARTICLE X
Committees of Directors
The Board of Directors, by vote of a majority of the directors then in
office, may at any time elect from its own number an executive committee
and/or one or more other committees, to consist of not less than two
members, and may from time to time designate or alter, within the limits
permitted by this Article X, the duties and powers of such committees or
change their membership, and may, at any time, abolish such committees or
any of them. The President shall be an ex officio member of the executive
committee, if any.
Any committee shall be vested with such powers of the Board of
Directors as the Board may determine in the vote establishing such
committees or in a subsequent vote of a majority of directors then in
office, provided however, that no such committee shall have any power
prohibited by law, the Articles of Organization, or these By-Laws.
/48
Each member of a committee shall hold office until the first meeting of
the Board of Directors following the next annual meeting of the
stockholders (or until such other time as the Board of Directors may
determine either in the vote establishing the committee or at the election
of such member) and until his successor is elected and qualified, or until
he sooner dies, resigns, is removed, is replaced by change of membership,
or becomes disqualified by ceasing to be a director, or until the committee
is sooner abolished by the Board of Directors.
A majority of the members of any committee then in office, but not less
than two, shall constitute a quorum for the transaction of business, but
any meeting may be adjourned from time to time by a majority of the votes
cast upon the question, whether or not a quorum is present, and the meeting
may be held as adjourned without further notice. Each committee may make
its rules not inconsistent herewith for the holding and conduct of its
meetings, but unless otherwise provided in such rules its meetings shall be
held and conducted in the same manner as nearly as may be, as is provided
in these By-Laws for meetings of the Board of Directors. The Board of
Directors shall have power to rescind any vote or resolution of any
committee provided that no rights of third parties shall be impaired by
such rescission.
Any action required or permitted to be taken at any meeting of a
committee may be taken without a meeting if written consent to the action
in writing by all of the members of the committee is filed with the minutes
of the committee. Such consents shall be treated for all purposes as a vote
at a meeting.
ARTICLE XI
Meetings of the Board of Directors;
Action without a Meeting
Regular meetings of the Board of Directors may be held without call or
notice at such places and at such times as the Board may from time to time
determine, provided, that reasonable notice of such determination and of
any changes therein is given to each member of the Board then in office. A
regular meeting of the Board of Directors for the purpose of electing
officers and agents may be held without call or notice immediately after
and at the same place as the annual meeting of the stockholders and, if
held upon due call or notice, for such other and further purposes as may be
specified in such call or notice.
Special meetings of the Board of Directors may be held at any time and
at any place when called by the President, the Treasurer, or two or more
directors, reasonable notice thereof being given to each director by the
Secretary, or if there be no Secretary, by the Clerk, or in the case of
death, absence, incapacity or refusal of the Secretary (or the Clerk, as
the case may be), by the officer or directors calling the meeting. In any
case, it shall be deemed sufficient notice to a director to send noticeby
mail at least forty-eight hours, or by telegram at least twenty-four hours,
before the meeting, addressed to him at his usual or last known business or
/49
residence address, or to give notice to him in person, either by telephone
or by handing him a written notice at least twenty-four hours before the
meeting.
Notwithstanding the foregoing, notice of a meeting need not be given to
any director if a written waiver of notice, executed by him before or after
the meeting, is filed with the records of the meeting, or to any director
who attends the meeting without protesting prior thereto, or at its
commencement, the lack of notice to him.
Any action required or permitted to be taken at any meeting of the
directors may be taken without a meeting if written consent to the action
in writing by all directors is filed with the minutes of the directors.
Such consents shall be treated for all purposes as a vote at a meeting.
ARTICLE XII
Quorum of Directors
At any meeting of the Board of Directors, a quorum for any election, or
for the consideration of any question, shall consist of a majority of the
directors then in office, but any meeting may be adjourned from time to
time by a majority of the votes cast upon the question, whether or not a
quorum is present, and the meeting may be held as adjourned without further
notice. When a quorum is present at any meeting, the votes of a majority of
the directors present and voting shall be requisite and sufficient for
election to any office, and a majority of the directors present and voting
shall decide any question brought before such meeting except in any case
where a larger vote is required by law, by the Articles of Organization, or
these By-Laws, or where an additional vote of certain directors then in
office is required under the terms of any outstanding securities of this
Corporation or any agreement, law or regulation to which it is subject.
ARTICLE XIII
Officers and Agents
The officers of the Corporation shall be a President, a Treasurer, a
Clerk, and such other officers, which may include a Secretary, a
Controller, one or more Vice Presidents, Assistant Treasurers, Assistant
Clerks or Assistant Controllers, as the Board of Directors may, in its
discretion, appoint. The Corporation may also have such agents, if any, as
the Board of Directors may, in its discretion, appoint. The President need
not be a director. The Clerk shall be a resident of Massachusetts unless
the Corporation has a resident agent appointed for the purpose of serving
process. So far as is permitted by law, any two or more offices may be held
by the same person.
Subject to law, to the Articles of Organization, and to the other
provisions of these By-Laws, each officer shall have, in addition to the
duties and powers herein set forth, such duties and powers as the Board of
Directors may from time to time designate.
/50
The President, Treasurer and the Clerk shall be elected annually by the
Board of Directors at its first meeting following the annual meeting of the
stockholders, by vote of a majority of the full Board of Directors. Such
other offices of the Corporation as may be created in accordance with these
By-Laws may be filled at such meeting by vote of a majority of the
directors then in office.
Each officer shall (subject to Article XIX of these By-Laws) hold
office until the first meeting of the Board of Directors following the next
annual meeting of the stockholders and until his successor is elected or
appointed and qualified, or until he sooner dies, resigns, is removed, or
becomes disqualified. Each agent shall retain his authority at the pleasure
of the Board of Directors.
Any officer, employee, or agent of the Corporation may be required, as
and if determined by the Board of Directors, to give bond for the faithful
performance of his duties.
ARTICLE XIV
President and Vice President
The President shall be the chief executive officer of the Corporation
and shall have general charge and supervision of the business of the
Corporation unless otherwise provided by law, the Articles of Organization,
the By-Laws, or by specific vote of the Board of Directors. The President
shall preside at all meetings of the stockholders and of the Board of
Directors at which he is present except as otherwise voted by the Board of
Directors.
Any Vice President shall have such duties and powers as shall be
designated from time to time by the Board of Directors or by the President,
and in any case, shall be responsible to and shall report to the President.
In the absence or disability of the President, the Vice President or, if
there be more than one, the Vice Presidents in the order of their seniority
or as otherwise designated by the Board of Directors, shall have the powers
and duties of the President.
ARTICLE XV
Treasurer and Assistant Treasurer
The Treasurer shall be the chief financial officer of the Corporation
(unless another officer is so designated by the Board of Directors) and
shall be in charge of its funds and the disbursements thereof, subject to
the President and the Board of Directors, and shall have such duties and
powers as are commonly incident to the office of a corporate treasurer and
such other duties and powers as may be prescribed from time to time by the
Board of Directors or by the President. If no Controller is elected,the
Treasurer shall also have the duties and powers of the Controller as
provided in these By-Laws. The Treasurer shall be responsible to and shall
/51
report to the Board of Directors, but in the ordinary conduct of the
Corporation's business, shall be under the supervision of the President.
Any Assistant Treasurer shall have such duties and powers as shall be
prescribed from time to time by the Board of Directors or by the Treasurer,
and shall be responsible to and shall report to the Treasurer. Unless
otherwise designated by the Board of Directors, the Assistant Treasurer
shall, in the absence or disability of the Treasurer, perform the duties of
and have the powers of the Treasurer.
ARTICLE XVI
Controller and Assistant Controller
If a Controller is elected, he shall be the chief accounting officer of
the Corporation and shall be in charge of its books of account and
accounting records and of its accounting procedures, and shall have such
duties and powers as are commonly incident to the office of a corporate
controller and such other duties and powers as may be prescribed from time
to time by the Board of Directors or by the President. The Controller shall
be responsible to and shall report to the Board of Directors, but, in the
ordinary conduct of the Corporation's business, shall be under the
supervision of the President.
Any Assistant Controller shall have duties and powers as shall be
prescribed from time to time by the Board of Directors or by the
Controller, and shall be responsible to and shall report to the Controller.
ARTICLE XVII
Clerk and Assistant Clerk
The Clerk shall be a resident of the Commonwealth of Massachusetts. He
shall record all proceedings of the stockholders in books to be kept
therefor, and shall have custody of the Corporation's records, documents
and valuable papers. In the absence of the Clerk from any such meeting, the
Secretary, if any, may act as temporary Clerk and shall record the
proceedings thereof in the aforesaid books, or a temporary Clerk may be
chosen by vote of the meeting.
The Clerk shall also keep, or cause to be kept, the stock transfer
records of the Corporation, which shall contain a complete list of the
names and addresses of all stockholders and the amount of stock held by
each.
The Clerk or, in his absence, the Secretary or the Assistant Clerk, if
any, shall have custody of the corporate seal and be responsible for
affixing it to documents as required unless the Board of Directors shall
designate otherwise.
/52
The Clerk shall have such other duties and powers as are commonly
incident to the office of a corporate clerk, and such other duties and
powers as may be prescribed from time to time by the Board of Directors or
the President.
If no Secretary is elected, the Clerk shall also have and perform all
of the duties and powers of the Secretary, and, in his absence from any
such meeting, a temporary Clerk shall be chosen who shall record the
proceedings thereof.
Each Assistant Clerk (who shall each be residents of the Commonwealth
of Massachusetts) shall have such duties and powers as shall from time to
time be designated by the Board of Directors or the Clerk, and shall be
responsible to and shall report to the Clerk. In the absence or disability
of the Clerk, the Assistant Clerk or, if there be more than one, the
Assistant Clerks in order of their seniority or as otherwise designated by
the Clerk, shall have the powers and perform the duties of the Clerk.
ARTICLE XVIII
Secretary
If a Secretary is elected, he shall keep a true record of the
proceedings of all meetings of the Board of Directors and of any meetings
of any committees of the Board, and, in his absence from any such meeting,
a temporary Secretary shall be chosen who shall record the proceedings
thereof. The Secretary shall have such duties and powers as are commonly
incident to the office of a corporate secretary, and such other duties and
powers as may be prescribed from time to time by the Board of Directors or
bythe President.
ARTICLE XIX
Resignations and Removals
Any director or officer may resign at any time by delivering his
resignation in writing to the President, the Clerk or the Secretary, or to
a meeting of the Board of Directors. The stockholders may, by vote of a
majority in interest of the stock issued and outstanding and entitled to
vote at an election of directors, remove any director or directors from
office with or without cause provided that the directors of a class elected
by a particular class of stockholders may be removed only by the vote of
the holders of a majority of the shares of such class. The Board of
Directors may, by vote of a majority of the directors then in office,
remove any director from office with cause, or remove any officer from
office, with or without cause. The Board of Directors may, at any time, by
vote of a majority of the directors present and voting, terminate or modify
the authority of any agent. No director or officer resigning and (except
where a right to receive compensation for a definite future period shall
beexpressly provided in a written agreement with the Corporation duly
approved by the Board of Directors) no director or officer removed shall
have any right to any compensation as such director or officer for any
/53
period following his resignation or removal, or any right to damages on
account of such removal, whether his compensation be by the month, or by
the year, or otherwise. Any director or officer may be removed for cause
only after reasonable notice and opportunity to be heard before the body
proposing to remove him.
ARTICLE XX
Vacancies
Any vacancy in the Board of Directors however occurring, including a
vacancy resulting from the enlargement of the Board and any vacancy in any
other office, may be filled by the stockholders or, in the absence of
stockholder action, by a majority of the directors then in office.
If the office of any member of any committee becomes vacant, the Board
of Directors may elect a successor or successors by vote of a majority of
the directors then in office.
Each successor as a director or officer shall hold office for the
unexpired term and until his successor shall be elected, or appointed and
qualified, or until he sooner dies, resigns, is removed or becomes
disqualified.
The Board of Directors shall have and may exercise all its powers,
notwithstanding the existence of one or more vacancies in its number as
fixed by either the stockholders or the directors provided there be at
least two directors in office.
ARTICLE XXI
Capital Stock
The authorized amount of the capital stock and the par value, if any,
of the shares shall be as fixed in the Articles of Organization. At all
times when there are two or more classes of stock, the several classes of
stock shall conform to the description and terms, and have the respective
preferences, voting powers, restrictions and qualifications, set forth in
the Articles of Organization.
ARTICLE XXII
Certificate of Stock
Each stockholder shall be entitled to a certificate of the capital
stock of the Corporation owned by him, in such form as shall, in conformity
to law, be prescribed from time to time by the Board of Directors. Such
certificate shall be signed by the President or a Vice President and by
either the Treasurer or an Assistant Treasurer, and may, but need not be,
sealed with the corporate seal, but when any such certificate is signed by
a transfer agent or by a registrar other than a director, officer, or
/54
employee of the Corporation, the signature of the President or a Vice
President and of the Treasurer or an Assistant Treasurer of the
Corporation, or either or both such signatures and such seal upon such
certificate, may be facsimile. If any officer who has signed, or whose
facsimile signature has been placed on, any such certificate shall have
ceased to be such officer before such certificate is issued, the
certificate may be issued by the Corporation with the same effect as if he
were such officer atthe time of issue.
Every certificate for shares of stock which are subject to any
restriction on transfer pursuant to the Articles of Organization, the
By-Laws, or any agreement to which the Corporation is a party, shall have
the restriction noted conspicuously on the certificate, and shall also set
forth on the face or back either the full text of the restriction or a
statement of the existence of such restriction and a statement that the
Corporation will furnish a copy thereof to the holder of such certificate
upon written request and without charge. Every certificate issued when the
Corporation is authorized to issue more than one class or series of stock
shall set forth on its face or back either the full text of the
preferences, voting powers, qualifications, and special and relative rights
of the shares of each class and series authorized to be issued, or a
statement of the existence of such preferences, powers, qualifications and
rights, and a statement that the Corporation will furnish a copy thereof to
the holder of such certificate upon written request and without charge.
ARTICLE XXIII
Transfer of Shares of Stock
Subject to the restrictions, if any, stated or noted on the stock
certificates, shares of stock may be transferred on the books of the
Corporation only by surrender to the Corporation or its transfer agent, of
the certificate therefor, properly endorsed or accompanied by a written
assignment or power of attorney properly executed, with all requisite stock
transfer stamps affixed, and with such proof of the authenticity and
effectiveness of the signature as the Corporation or its transfer agent
shall reasonably require. Except as may be otherwise required by law, the
Articles of Organization, or these By-Laws, the Corporation shall have the
right to treat the person registered on the stock transfer books as the
owner of any shares of the Corporation's stock as the owner in fact thereof
for all purposes, including the payment of dividends, the right to vote
with respect thereto and otherwise, and accordingly shall not be bound to
recognize any attempted transfer, pledge or other disposition thereof or
any equitable or other claim with respect thereto, whether or not it shall
have actual or other notice thereof, until such shares shall have been
transferred on the Corporation's books in accordance with these By-Laws.
It shall be the duty of each stockholder to notify the Corporation of his
post office address.
/55
ARTICLE XXIV
Transfer Agents and Registrars; Further Regulations
The Board of Directors may appoint one or more banks, trust companies
or corporations doing a corporate trust business, in good standing under
the laws of the United States or any state therein, to act as the
Corporation's transfer agent and/or registrar for shares of the capital
stock, and the Board may make such other and further regulations, not
inconsistent with applicable law, as it may deem expedient concerning the
issue, transfer and registration of capital stock and stock certificates of
the Corporation.
ARTICLE XXV
Loss of Certificates
In the case of the alleged loss, destruction, or wrongful taking of a
certificate of stock, a duplicate certificate may be issued in place
thereof upon receipt by the Corporation of such evidence of loss and such
indemnity bond, with or without surety, as shall be satisfactory to the
President and the Treasurer, or otherwise upon such terms as the Board of
Directors may prescribe consistent with law.
ARTICLE XXVI
Record Date
The directors may fix in advance a time, which shall not be more than
sixty days before the date of any meeting of stockholders or the date for
the payment of any dividend or the making of any distribution to the
stockholders or the last day on which the consent or dissent of
stockholders may be effectively expressed for any purpose, as the record
date for determining the stockholders having the right to notice of, and to
vote at, such meeting and any adjournment thereof, or the right to receive
such dividend or distribution, or the right to give such consent or
dissent, and in such case only stockholders of record on such record date
shall have such right, notwithstanding any transfer of stock on the books
of the Corporation after the record date; or, without fixing such record
date, the directors may, for any of such purposes, close the transfer books
for all or any part of such period, provided that if a dividend is
declared, the stock transfer books shall not be closed and the Corporation
or thetransfer agent, if there be one, shall take a record of all
stockholders entitled to the dividend without actually closing the books
for transfer of the stock.
/56
ARTICLE XXVII
Seal
The seal of the Corporation shall, subject to alteration by the Board
of Directors, consist of a flat-faced circular die with the word
"Massachusetts", together with the name of the Corporation and the year of
incorporation, cut or engraved thereon. An impression of the seal impressed
upon the original copy of these By-Laws shall be deemed conclusively to be
the seal adopted by the Board of Directors.
ARTICLE XXVIII
Execution of Papers
Except as the Board of Directors may generally or in particular cases
otherwise authorize or direct, all deeds, leases, transfers, contracts,
proposals, bonds, notes, checks, drafts and other obligations made,
accepted or endorsed by the Corporation shall be signed or endorsed on
behalf of the Corporation by its President or by one of its Vice Presidents
or by its Treasurer.
ARTICLE XXIX
Fiscal Year
Except as from time to time provided by the Board of Directors, the
fiscal year of the Corporation shall end on December 31 of each year.
ARTICLE XXX
Indemnification of Directors and Officers
Each director and each officer elected by the stockholders (including
persons elected by directors to fill vacancies in the Board of Directors or
in any such offices), and each former director or officer, and the heirs,
executors, administrators and assigns of each of them, shall be indemnified
by the Corporation against all costs and expenses, including fees and
disbursements of counsel and the cost of settlements (other than amounts
paid to the Corporation itself) reasonably incurred by or imposed upon him
in connection with or arising out of any action, suit or proceeding, civil
or criminal, in which he may be involved by reason of his being or having
been an officer or a director of the Corporation, or by reason of any
action alleged to have been taken or omitted by him as a director or an
officer of the Corporation. Such indemnification shall include payment by
the Corporation of expenses incurred in defending a civil or criminal
action or proceeding in advance of the final disposition of such action or
proceeding, upon the Corporation's receipt of the undertaking of the person
indemnified to repay such payment if such person shall be adjudicated not
entitled to such indemnification under this Article XXX.
/57
Officers elected by the Directors but who are not directors and
employees and other agents of the Corporation (including persons who serve
at its request as directors or officers of another organization in which it
owns shares or of which it is a creditor) and each such former officer,
employee and agent, and the heirs, executors, administrators and assigns of
each of them, may be indemnified by the Corporation to whatever extent
authorized by the Board of Directors.
No indemnification shall be provided to any person, or to his heirs,
executor, administrator or assigns, with respect to any matter as to which
he shall have been finally adjudicated in any action, suit or proceeding
not to have acted in good faith in the reasonable belief that his action
was in the best interests of the Corporation.
The foregoing indemnification shall not be exclusive of any other
rights of indemnification for which any such director, officer, employee or
agent may be entitled.
If and as authorized by the Board of Directors the Corporation shall
purchase and maintain insurance on behalf of any person who is a Director,
officer, employee or other agent of the Corporation, or is or was serving
at the request of the Corporation as a Director, officer, employee or other
agent of another organization in which it owns shares or of which it is a
creditor, against any liability incurred by such person in such capacity,
or arising out of his status as such, whether or not the Corporation would
have power to indemnify said person against such liability.
ARTICLE XXXI
Contracts and Dealings with Certain
Other Corporations or Firms
No contract or other transaction between the Corporation and any other
person, firm or corporation shall, in the absence of fraud, in any way be
affected or invalidated, nor shall any director be subject to surcharge
with respect to any such contract or transaction by the fact that such
director, or any firm of which a director is a member, or any corporation
of which any director is a shareholder, officer or director, is a party to,
or may be pecuniarily or otherwise interested in, such contract or
transaction, provided that the fact that he individually, or such firm or
corporation, is so interested shall be disclosed to the Board of Directors
at their meeting at which, or prior to the directors executing their
written consents by which, action to authorize, ratify or approve such
contract or transaction shall be taken. Any director of the Corporation may
vote upon or give his written consent to any contract or other transaction
between the Corporation and any subsidiary or affiliated corporation
without regard to the fact that he is also a director or officer of such
subsidiary or affiliated corporation.
/58
ARTICLE XXXII
Voting Stock in Other Corporations
Unless otherwise ordered by the Board of Directors, the President or,
in case of his absence or failure to act, the Treasurer shall have full
power and authority on behalf of the Corporation to attend and to act and
to vote at any meetings of stockholders of any corporation in which this
Corporation may hold stock, and at any such meeting shall possess and may
exercise any and all rights and powers incident to the ownership of such
stock and which, as the owner thereof, the Corporation might have possessed
and exercised if present. The Board of Directors, by resolution from time
to time, or, in absence thereof, the President, may confer like powers upon
any other person or persons as attorneys and proxies of the Corporation.
ARTICLE XXXIII
Corporate Records
The original or attested copies of the Articles of Organization,
By-Laws, and records of all meetings of the incorporators and stockholders,
and the stock and transfer records, which shall contain the names of all
stockholders and the record address and the amount of stock held by each,
shall be kept in Massachusetts at the principal office of the Corporation
or at an office of its transfer agent or of the Clerk. Said copies and
records need not all be kept in the same office. They shall be available at
all reasonable times to the inspection of any stockholder for any proper
purpose, but not to secure a list of the stockholders for the purpose of
selling said list, or copies thereof, or of using the same for a purpose
other than in the interest of the applicant, as a stockholder, relative to
the affairs of the Corporation.
ARTICLE XXXIV
Amendments
These By-Laws may be altered, amended or repealed, by vote of a
majority of all stock issued, outstanding and entitled to vote at any
annual or special meeting of the stockholders called for the purpose, the
notice of which shall specify the subject matter of the proposed
alteration, amendment or repeal or the articles to be affected thereby; or
without a meeting by unanimous written consent of the holders of all stock
of the Corporation issued, outstanding and entitled to vote. These By-Laws
may also be altered, amended or repealed by vote or action of a majority of
the Directors. Not later than the time of giving notice of the meeting of
stockholders next following the making, amending or repealing by the
Directors of any By-Law, notice thereof stating the substance of such
changes shall be given to all stockholders entitled to vote on amending the
By-Laws. Any By-Law adopted by the Directors may be amended or repealed by
the stockholders.
/59
ARTICLE XXXV
Massachusetts Chapter 110D
Until such time as this Article shall be repealed or the By-Laws shall
be amended to provide otherwise, in each case in accordance with Article
XXXIV of the By-Laws, the provisions of Chapter ll0D of the Massachusetts
General Laws shall not apply to "control share acquisitions" of the
Corporation within the meaning of said Chapter 110D.
/60
<TABLE>
EXHIBIT 4.2
<S> <C> <C> <C>
COMMON STOCK [LOGO] IONICS COMMON STOCK
Par Value $1 ____________________ Par Value $1
Number Per Share IONICS, INCORPORATED Per Share
FBU______ Incorporated under the laws of [Shares]
the Commonwealth of Massachusetts
This certificate (see reverse for certain
is transferable restrictions) CUSIP ___________
in Boston or in See Reverse for
New York City Certain Definitions
THIS CERTIFIES THAT
is the owner of
CERTIFICATE OF STOCK
FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK OF
Ionics, Incorporated, transferable on the books of the Corporation by the
holder hereof, in person or by duly authorized attorney, upon surrender of
this certificate property endorsed or assigned.
This certificate and the shares represented hereby are subject to the laws of
The Commonwealth of Massachusetts and to the Restated Articles of Organization
and By-laws of the Corporation, as from time to time amended.
This certificate is not valid until countersigned and registered by the
Transfer Agent and Registrar.
In Witness Whereof, Ionics, Incorporated has caused this certificate to be
signed by the facsimile signatures of its duly authorized officers and to be
sealed with a facsimile of its corporate seal.
[CORPORATE SEAL] Dated
/s/Theodore G. Papastavros /s/Arthur L. Goldstein
__________________________ ______________________
Treasurer Chairman and Chief
Executive Officer
COUNTERSIGNED AND REGISTERED:
STATE STREET BANK AND TRUST COMPANY
By Transfer Agent
and Registrar
Authorized Signature
</TABLE>
/61
This certificate also evidences and entitles the holder hereof to
certain Rights as set forth in the Renewed Rights Agreement between
Ionics, Incorporated (the "Company") and BankBoston, N.A. (the "Rights
Agent") dated as of August 19, 1997, as the same may be amended, restated,
renewed or extended from time to time (the "Rights Agreement"), the terms
of which are hereby incorporated herein by reference and a copy of which
is on file at the principal offices of the Company. Under certain
circumstances, as set forth in the Rights Agreement, such Rights will be
evidenced by separate certificates and will no longer be evidenced by this
certificate. The Company will mail to the holder of this certificate a
copy of the Rights Agreement, as in effect on the date of mailing, without
charge, promptly after receipt of a written request therefor. Under
certain circumstances set forth in the Rights Agreement, Rights
beneficially owned (as such term is defined in the Rights Agreement) by
any Person who is, was or becomes an Acquiring Person or any Affiliate or
Associate thereof (as such terms are defined in the Rights Agreement),
whether currently held by or on behalf of such Person or by any subsequent
holder, may become null and void. The Rights shall not be exercisable,
and shall be void so long as held, by a holder in any jurisdiction where
the requisite qualification to the issuance to such holder, or the
exercise by such holder, of the Rights in such jurisdiction shall not have
been obtained or be obtainable.
The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in
full according to applicable laws or regulations:
<TABLE>
<S> <C>
TEN COM -- as tenants in common UNIF GIFT MIN ACT -- _________Custodian_________
TEN ENT -- as tenants by the entireties (Cust) (Minor)
JT TEN -- as joint tenants with right under Uniform Gifts to Minors
of survivorship and not as Act____________
tenants in common (State)
Additional abbreviations may also be used though not in the above list.
</TABLE>
/62
For value received_____hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
[ ]___________________________________
________________________________________________________________________
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING POSTAL ZIP CODE OF
ASSIGNEE
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and
appoint_________________________________________________________________
________________________________________________________________________
Attorney to transfer the said stock on the books of the within-named
Corporation with full power of substitution in the premises.
Dated_________________
______________________________
NOTICE: The signature to this assignment must
correspond with the name as written upon the face
of this Certificate, in every particular, without
alteration or enlargement, or any change whatever.
Signature(s) guaranteed:
____________________________________________
The signature(s) should be guaranteed by an
eligible guarantor institution (banks stockbrokers,
savings and loan associations with membership in an
approved signature guarantee medallion program),
pursuant to S.E.C. Rule 17Ad-15.
/63
EXHIBIT 10.3
AMENDED AND RESTATED CREDIT AGREEMENT
among
IONICS, INCORPORATED
and
THE FIRST NATIONAL BANK OF BOSTON,
individually and as Agent
December 31, 1992
/64
TABLE OF CONTENTS
Page
1. THE CREDIT 1
1.1 Commitment to Lend 1
1.2 Notes 1
1.2.1. Selection of Basis for Computing
Interest 3
1.2.2. Interest Periods 4
1.3. Optional Repayment f Loans(s) 4
1.4. Method of Payment 5
1.5. Commitment Fees 6
1.6. Additional Costs and Expenses 6
1.6.1. General 6
1.6.2. Reserve Charge 7
1.6.3. Additional Amounts Payable on
Account of Credit Facilities 8
1.6.4 Bank Certificates 8
1.7. Changes in Circumstances 9
1.8. Standby Letters of Credit 9
2. DEFINITIONS 13
3. REPRESENTATIONS AND WARRANTIES 19
3.1. Corporate Authority 19
3.2. Governmental Approvals 20
3.3. Title to Properties; Absence
of Liens 20
3.4. Financial Statements 20
3.5. Changes 20
3.6. Taxes 20
3.7. Litigation 21
3.8. Environmental Compliance 21
4. CONDITIONS TO LOANS 22
5. COVENANTS 23
5.1. Financial Statements 23
5.2. Taxes 24
5.3. Guaranties 24
5.4. Negative Pledge 24
5.5. Merger and Sale of Assets 25
5.6. Net Worth 26
5.7. Working Capital 26
5.8. Permitted Indebtedness 26
5.9. Sale and Leaseback 27
/65
-2-
Page
5.10 Environmental Matters 27
5.10.1. Indemnification 27
5.10.2. Notice 27
5.10.3. Response Actions 28
6. DEFAULTS 28
7. SETOFFS 29
8. THE AGENT 30
8.1. Authorization 30
8.2. Employees and Agents 31
8.3. No Liability 31
8.4. No Representations 31
8.5. Payments 32
8.6. Holders of Notes 33
8.7. Indemnity 33
8.8. Agent as Bank 33
8.9. Resignation 33
8.10. Notification of Defaults and
Events of Default 34
8.11. Documents 34
9. ASSIGNMENT AND PARTICIPATION 34
9.1. Conditions to Assignment by Banks 34
9.2. Certain Representations and
Warranties; Limitations; Covenants 35
9.3. Register 36
9.4. New Notes 36
9.5. Participations 37
9.6. Disclosure 37
9.7. Miscellaneous Assignment
Provisions 37
9.8. Assignment by the Company 37
10. MISCELLANEOUS 38
10.1. Notices 38
10.2. Term of Agreement 38
10.3. No Waivers 38
10.4. Massachusetts Law 38
10.5. Computation of Interest 38
10.6. Expenses 38
10.7. Environmental Assessments 39
10.8. Consents, Amendments, Waivers,
Etc. 39
10.9. Counterparts 40
/66
-3-
EXHIBITS:
EXHIBIT A - Form of Loan Note
EXHIBIT B - Form of Promissory Note
EXHIBIT C - Form of Assignment and Acceptance
SCHEDULES:
SCHEDULE 3.3 - Title to Properties; Absence of Liens
SCHEDULE 3.8 - Environmental Compliance
/67
AMENDED AND RESTATED CREDIT AGREEMENT
AMENDED AND RESTATED CREDIT AGREEMENT, dated as of
December 31, 1992 by and among IONICS, INCORPORATED (the
Company), a Massachusetts corporation having its principal
place of business at 65 Grove Street, Watertown, Massachusetts
02172, THE FIRST NATIONAL BANK OF BOSTON (FNBB), 100 Federal
Street, Boston, Massachusetts 02110, and such other banks that
are or may become parties to this Agreement from time to time
in accordance with the provisions hereof (FNBB and such other
banks being collectively referred to herein as the Banks and
each a Bank) and THE FIRST NATIONAL BANK OF BOSTON as Agent
for the Banks (the Agent).
WHEREAS, the Company and FNBB are parties to a Credit
Agreement dated as of December 31, 1986 (as amended, the
Original Credit Agreement);
WHEREAS, the Company and FNBB desire to amend the
Original Credit Agreement to (i) extend the maturity of the
Loans and (ii) modify certain covenants and provisions;
NOW THEREFORE, the Company, the Banks and the Agent
hereby agree that the Original Credit Agreement shall be
amended and restated in its entirety as set forth herein and
shall remain in full force and effect only as provided herein.
1. THE CREDIT.
1.1. Commitment to Lend. Subject to the terms and
conditions hereinafter set forth, each of the Banks severally
agrees to lend and relend (a Loan, or, if more than one,
Loans) to the Company from time to time on or before December
31, 1995, in an aggregate principal amount up to but not
exceeding $25,000,000 (the Commitment Amount) at any one time
outstanding (the Commitment). The Loans shall be made
prorata in accordance with each Bank's Commitment
Percentage. For purposes of this section, the Maximum
Drawing Amount of all standby Letters of Credit shall be
treated as a like aggregate principal amount of Loans
outstanding hereunder.
1.2. Notes. The Company shall deliver to each Bank a note
(each a Loan Note) dated the date of delivery thereof,
maturing on December 31, 1995 and in a stated principal amount
equal to such Bank's Commitment. The Loan Notes shall be in
the form of Exhibit A hereto. The date and amount of each
Loan made by each Bank, and the date and amount of each
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payment of principal on such Loan, shall be recorded by each
Bank on the schedule annexed to such Bank's Loan Note, and the
aggregate unpaid principal amount shown on each such schedule
shall be the principal amount owing and unpaid on the and
Loan Notes, but the failure to make any such notation shall
not affect the Company's obligation to repay the Loans. The
Loan Notes shall bear interest from the date thereof,
payable quarterly in arrears on the first day of each January,
April, July and October, such interest to be computed in
accordance with the procedures described in 1.2.1 below, either
(i) at a rate per annum which shall at all times be
equal to the rate of interest as may be published from time to
time by FNBB at its head office as its Base Rate (the
Base Rate); or
(ii) at a rate per annum which shall be one-half
percent per annum above the LIBO Rate; or
(iii)at a rate per annum which shall be a Money Market
Rate determined by FNBB in its absolute discretion and based on
FNBB's cost of funds.
On December 31, 1995, provided no Default shall have occurred
and all interest payable on such date has been paid in full,
new notes (the Amortizing Notes) shall be exchanged for
the Loan Notes. The Amortizing Notes shall be in the form
of Exhibit B hereto, shall be in the principal amount equal to
the aggregate unpaid principal amount of the Loan Notes held
by each Bank on December 31, 1995, shall bear interest payable
at the same intervals as the Loan Notes and shall be payable
in a series of twelve (12) consecutive quarterly installments
of principal beginning on April 1, 1996. The first eight (8)
installments of principal shall each be in an amount equal to
6 1/4% of the original principal amount of the Amortizing
Notes and the final four (4) installments of principal shall
each be in an amount equal to 12 1/2% of the original
principal amount of the Amortizing Notes. The Amortizing
Notes shall bear interest on the unpaid principal balance from
time to time outstanding, computed daily from the date
thereof, with interest computed, in accordance with the
procedures described in 1.2.1 below, either:
(i) at a rate per annum which shall at all times be
one quarter (1/4%) above the rate of interest as may be
published from time to time by FNBB at its head office as its
Base Rate; or
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(ii) at a rate per annum which for all Interest
Periods ending on or before December 31, 1996 shall be one-
half percent (1/2%) per annum above the LIBO Rate for
each such Interest Period and which for all Interest
Periods thereafter shall be three-fourths percent (3/4%) per
annum above the LIBO Rate for each such Interest Period.
The Loan Notes and the Amortizing Notes are herein
collectively called the Notes.
1.2.1. Selection of Basis for Computing Interest.
(a) Not less than three (3) nor more than five (5)
Business Days prior to a possible Rate-Fixing Date, the
Company shall ask the Agent to quote the LIBO Rate and/or the
Money Market Rate which will be effective as of such Rate-
Fixing Date for one or more possible Interest Periods. The
Agent will provide to the Company the requested quotation(s)
not later than 11 A.M. Boston time on the second (2nd)
Business Day preceding such Rate-Fixing Date and, within two
(2) hours of its receipt of such quotation, the Company shall,
by notice in writing (or by telephone and promptly confirmed
in writing) delivered to the Agent, select
(1) one of the following bases for computing
interest on the aggregate amount outstanding on any Note as of
such Rate-Fixing Date:
(A) the Base Rate basis for computing such
interest on all or a specified portion of such aggregate
amount; or
(B) the Money Market Rate basis for computing
such interest on all or a specified portion of such aggregate
amount (which portion shall be in a minimum amount of
$1,000,000 and even multiples of $100,000); or
(C) the LIBO Rate basis for computing interest on
all or a specified portion of such aggregate amount (which
portion shall be in a minimum amount of $500,000 and even
multiples of $250,000);
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(2) an Interest Period.
(b) If on any Rate-Fixing Date, the Agent
shall determine in its sole discretion reasonably exercised
that it is unable to quote the LIBO Rate by reason of
circumstances or events in the London inter-bank foreign
currency deposits market generally affecting similar banks,
the Agent shall promptly notify the Company and the
Banks of such determination. Upon receipt of such
notification, any LIBO Rate selection for interest
calculations with respect to such Interest Period pursuant to
1.2.1(a) hereof shall be deemed ineffective and the Base Rate
basis for interest calculations shall apply to such selection.
1.2.2. Interest Periods. As to the Base Rate basis
for computing interest, an Interest Period may be
either indefinite (subject to change to a different Interest
Period for the LIBO Rate basis or Money Market Rate
basis of calculating interest, by notice from the Company as
provided in 1.2.1 hereof) or definite. As to the LIBO Rate
basis, an Interest Period shall be a definite period of one
(1), two (2), three (3) or six (6) months. As to the Money
Market Rate basis for computing interest, an Interest Period
shall be a definite period of seven (7), thirty (30), ninety
(90) or one hundred eighty (180) days. No Interest Period
relating to the Loan Notes shall expire later than December
31, 1995; and no Interest Period relating to the Amortizing
Notes shall expire later than December 31, 1998. A Rate-Fixing
Date for any Note shall automatically occur on the first
Business Day following the end of the preceding Interest
Period. In the event the Company fails on a timely basis to
select a basis for interest calculations hereunder, the Base
Rate basis for interest calculations shall apply
thereafter, using an indefinite Interest Period (subject to
change as aforesaid).
1.3. Optional Repayment of Loan(s). The Company
shall have the right, at its election, to repay the Loan(s) in
whole at any time, or in part from time to time. Any such
repayment of any portions of any Loan(s) subject to the Base
Rate basis of interest calculation, shall be without penalty
or premium but with accrued interest on the date of such
repayment on the amount repaid. If the Company shall
voluntarily repay any Eurodollar Loan(s) and if any such
repayment occurs during any Interest Period during which the
LIBO Rate is greater than the LIBO Rate which would have been
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quoted (on the amount to be repaid and for the remaining
portion of such Interest Period) by the Agent to the Company had
the date of such repayment been a Rate Fixing Date, the
Company shall pay at the date of repayment, in addition to
principal and interest, the LIBO Prepayment Charge. If the
Company shall voluntarily repay any Money Market Loan(s) and if
any such repayment occurs during any Interest Period during
which the Money Market Rate applicable to such Loan is
greater than the Money Market Rate which would have been quoted
(on the amount to be repaid and for the remaining portion
of such Interest Period) by the Agent to the Company had the
date of such repayment been a Rate Fixing Date, the
Company shall pay at the date of repayment, in addition to
principal and interest, the Money Market Prepayment Charge.
The Company shall give the Agent at least five (5) Business
Days' written notice of any proposed repayment pursuant to this
1.3, specifying the proposed date of repayment, the amount then
to be repaid and the principal amount to be repaid on the
Note(s) held by the Banks. Each partial repayment of Loan(s)
subject to the Base Rate basis of interest calculation shall be
in an aggregate principal amount of $50,000 or multiples
thereof. Each partial repayment of Eurodollar Loan(s) shall
be in an aggregate principal amount of $250,000, or multiples
thereof. Each partial repayment of Money Market Loan(s) shall
be in a minimum aggregate principal amount of $1,000,000 or
multiples of $100,000 thereof. Amounts of principal repaid and
applied to the Loan Notes may be reborrowed so long as
credit remains available under the Commitment and subject
to the conditions specified in 4. Amounts of principal
repaid and applied to the Amortizing Notes may not be
reborrowed. Prepayments of principal on the Amortizing Notes
will be applied to installments of principal due in the inverse
order of maturity. Each partial prepayment shall be allocated
among the Banks, in proportion, as nearly as practicable, to
the respective unpaid principal amount of each Bank's Note,
with adjustments to the extent practicable to equalize any
prior repayments not exactly in proportion.
1.4. Method of Payment. All payments and
prepayments of principal and all payments of interest and
commitment fees shall be made by the Company to the Agent for
the accounts of the Banks in immediately available funds.
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1.5. Commitment Fees. The Company agrees to pay
the Agent for the accounts of the Banks in accordance with
their respective Commitment Percentages quarterly in
arrears, commencing with January 1, 1993 so long as the
Commitments of the Banks are outstanding, a commitment fee at
the rate of 1/8 of 1% per annum on the daily average amount
by which the Commitment Amount minus the Maximum Drawing
Amount of all outstanding Letters of Credit exceeds the
outstanding principal amount of Loans. All commitment fees
provided for in the Original Credit Agreement shall continue
to accrue at the applicable rates thereof set forth in the
Original Credit Agreement (rather than the applicable rates
thereof set forth in this 1.5) until the Closing Date; and,
on and as of the Closing Date, the applicable rate set forth in
this 1.5 shall become effective with respect to such
amounts accruing thereafter.
1.6. Additional Costs and Expenses:
1.6.1. General. Anything in this Agreement
to the contrary notwithstanding, if any present or future
applicable law or regulation or interpretation thereof
shall be applicable to the Eurodollar Loans or to any of the
Banks or the Agent, or this Agreement, as a result of such
Eurodollar Loans and shall
(a) subject any Bank or the Agent to any tax,
levy, impost, duty, charge, fee, deduction or withholding
of any nature with respect to this Agreement or the
Eurodollar Loans; or
(b) materially change the basis of taxation
(other than any change in the statutory rate of domestic
or foreign tax on net income) of payments to any Bank of the
principal or the interest on any Eurodollar Loans or any
other amounts payable hereunder; or
(c) impose or increase or render applicable
any special deposit or reserve or similar
requirements (whether or not having the force of law)
against assets held by or deposits in or for the account
of, or loans by an office of any Bank, other than the reserve
charges payable pursuant to 1.6.2; or
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(d) impose on any Bank or the Agent any other
condition or requirement with respect to this Agreement
or the Eurodollar Loans, and the result of any of the foregoing
is
(i) to increase the cost to any Bank of
making, funding or maintaining its Eurodollar Loans in an
amount considered material by such Bank, or
(ii) to reduce the amount of principal,
interest or other amounts payable hereunder, or
(iii) to require such Bank or the Agent to
make any payment with respect to, or to forego payments of,
any interest or other sum payable hereunder, the amount of
which payment or foregone interest or other sum is calculated
by reference to the gross amount of any sum receivable or
deemed received by such Bank or the Agent from the Company
hereunder, then, and in each such case, the Company will,
upon demand made by the Agent (at the request of any Bank) at
any time and from time to time and as often as the occasion
therefor may arise, pay to the Agent (for the benefit of
the affected Banks) such reasonable additional amounts
as will be sufficient to compensate such Banks for such
additional cost, reduction, payment or foregone interest or
other sums. The Agent will use its best efforts (x) to notify
the Company of the possible imposition of any additional charge
under this 1.6.1, and (y) to minimize the amount of any such
additional cost, reduction, payment, foregone interest or
other sum, including but not limited to using an alternate
offshore funding source.
1.6.2. Reserve Charge. For each day any Eurodollar
Loan is outstanding, the Company shall pay to the Agent for
the accounts of the Banks an amount equal to the Reserve
Charge. Reserve Charges shall be paid on each interest
payment date in accordance with a bank certificate submitted
to the Company, as provided in 1.6.4 hereof. In the event
that the Board of Governors of the Federal Reserve System
establishes regulations which require the payment of interest
by Federal Reserve Banks on reserves maintained under said
Regulation D (or any successor or similar regulation relating
to such reserve requirements) against said "Eurocurrency
liabilities", and any Bank receives any such payment of
interest, then to the extent practicable, such Bank shall make
an appropriate reduction in the Reserve Charge to reflect the
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amount of interest received by such Bank and determined by
such Bank to be properly allocable to the portion of the
reserve with respect to which the Reserve Charge relates.
1.6.3. Additional Amounts Payable on Account of
Credit Facilities. If any change in law or any governmental
rule, regulation, policy, guideline or directive (whether or
not having the force of law) or the interpretation thereof
affects the amount of capital required or expected to be
maintained by any Bank or the Agent or any corporation
controlling such Bank or the Agent and such Bank or the Agent
determines that the amount of capital required is increased by
or based upon the existence of the credit facilities
established hereunder or any loans made pursuant hereto or
upon agreements or loans of the type contemplated hereby, then
the Agent (at the request of any Bank) may notify the Company
of such fact. To the extent that such increased capital
requirements are not reflected in the Base Rate, the Company
and such Bank or (as the case may be) the Agent shall
thereafter attempt to negotiate an adjustment to the fees
payable hereunder which will adequately compensate such Bank or
the Agent in light of these circumstances. If the Company and
such Bank or the Agent are unable to agree to such
adjustment within thirty days of the day on which the Company
receives such notice, then commencing on the date of such
notice (but no earlier than the effective date of any such
change), the fees payable hereunder shall increase by an
amount which will, in such Bank's or the Agent's
reasonable determination, provide adequate compensation.
1.6.4. Bank Certificates. A certificate signed by
an officer of each affected Bank, setting forth any
additional amount required to be paid by the Company
under 1.6.1, 1.6.2, or 1.6.3 hereof and the computations made
by such Bank to determine such additional amount, shall be
submitted by the Banks to the Company in connection with
each demand made by the Banks upon the Company and each such
certificate shall, save for obvious error, constitute
conclusive evidence of the additional amount required to be paid
by the Company to the Banks upon each such demand pursuant to
1.6.1, 1.6.2, or 1.6.3 hereof. A claim by the Agent or the
Banks for all or any part of any additional amount required to
be paid by the Company under 1.6.1, 1.6.2, or 1.6.3 hereof may
be made before and/or after the end of the Interest Period
to which such claim relates or during which such claim has
arisen and before and/or after any repayment or prepayment, to
which such claim relates, for any amount owed hereunder.
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1.7. Changes in Circumstances. If at any time,
(a) any Bank shall reasonably determine that (i)
it is not practicable for such Bank to obtain United
States Dollar deposits in the London inter-bank foreign
currency deposits market in the principal amount of any Loan
amounts selected to be subject to the LIBO Rate basis of
interest calculation and for periods equal to any Interest
Period; or (ii) the LIBO Rate does not or will not accurately
reflect the cost to such Bank of obtaining or maintaining any
Eurodollar Loan during any Interest Period despite the
Company's compliance with its obligations under 1.6 hereof; or
(b) after using its best efforts to use
an alternate offshore funding source, any Bank shall
reasonably determine that any present or future applicable law
has made or will make it unlawful for such Bank to make or
maintain any Eurodollar Loans or to comply with any of
such Bank's obligations in respect of any Eurodollar Loans;
then such Bank shall promptly give notice of such
determination to the Company. Upon notification pursuant to
paragraph (a) hereof, the obligation of such Bank to make
Eurodollar Loans shall be suspended until such Bank determines
that the circumstances described in such paragraph have ceased
to exist, and the interest on such Bank's outstanding
Eurodollar Loans shall be calculated with respect to the Base
Rate basis in accordance with 1.2.1 hereof. Upon
notification pursuant to paragraph (b) hereof, the obligation
of such Bank to make Eurodollar Loans shall be suspended until
such Bank determines that the circumstances described in such
paragraph have ceased to exist, and the interest on such
Bank's outstanding Eurodollar Loans shall be calculated with
respect to the Base Rate basis in accordance with 1.2.1
hereof.
1.8. Standby Letters of Credit. (a) The Letter
of Credit Bank may, in each case at the Letter of Credit
Bank's absolute discretion and upon such terms and conditions
as the Letter of Credit Bank and the Company may agree, from
time to time issue for the account of the Company, standby
Letters of Credit (Letters of Credit) in form and content
acceptable to the Letter of Credit Bank and the Company,
provided however, that at no time shall the sum of the
aggregate principal amount of all Loans outstanding plus the
aggregate Maximum Drawing Amount of the standby Letters of
Credit exceed the Commitment Amount.
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(b) The Company shall, on the date of issuance
or any extension or renewal of any Letter of Credit and at such
other time or times as such charges are customarily made by
the Letter of Credit Bank, pay a fee to the Letter of Credit
Bank in an amount specified by the Letter of Credit Bank at
such time.
(c) (i) The obligations of the Company to
repay the Letter of Credit Bank as provided hereunder in
respect of drawings under any Letters of Credit shall rank
pari passu with the obligations of the Company to repay the
Loans, and shall be absolute and unconditional under any
and all circumstances. Without limiting the generality
of the foregoing, the Company's obligation to repay the
Company's obligation in respect of drawing under the Letters of
Credit shall not be subject to any defense based on the
non-application or misapplication by the beneficiary of
the proceeds of any such payment or the legality,
validity, regularity or enforceability of the Letter of Credit
or any renewal or extension thereof or any other document
whatsoever. The Letter of Credit Bank may accept or
pay any draft presented to it under any Letter of Credit, or
any renewal or extension thereof, regardless of when drawn
or made and whether or not negotiated, if such draft,
accompanying certificate or documents (as applicable) and any
transmittal advice are presented on or before the expiry
date of the Letter of Credit, or the renewal or extension
thereof then in effect. Furthermore, neither the Letter of
Credit Bank nor any of its correspondents shall be
responsible, as to any document presented under a Letter of
Credit, or any renewal or extension thereof, for the
validity or sufficiency of any signature or endorsement, for
delay in giving any notice or failure of any instrument to
bear adequate reference to the Letter of Credit or to any
renewal or extension thereof, or failure of documents not
required by the terms of the Letter of Credit to accompany any
instrument at negotiation, or for failure of any person to
note the amount of any draft on the reverse of the Letter of
Credit or on any renewal or extension thereof, so long as such
failure does not result in a payment in excess of the then
remaining Maximum Drawing Amount of such Letter of Credit, or
to forward documents in any manner required by the Letters
of Credit.
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(ii) Any action, inaction or omission on the part of
the Letter of Credit Bank or any of its correspondents, under
or in connection with any Letter of Credit or renewal
or extension thereof or the related instruments, documents
or property, if in good faith and in conformity with such
laws, regulations or customs as the Letter of Credit Bank or
any of its correspondents may deem to be applicable, shall be
binding upon the Company and shall not place the Letter of
Credit Bank or any of its correspondents under any
liability to the Company, in the absence of gross
negligence or willful misconduct by the Letter of Credit Bank
or its correspondents. The Letter of Credit Bank's rights,
powers, privileges and immunities specified in or arising under
this Agreement are in addition to any heretofore or at any time
hereafter otherwise created or arising, whether by statute
or rule of law or contract. All Letters of Credit issued
hereunder will, except to the extent that the Letter of Credit
Bank may agree to effect payment of Letters of Credit within
a reasonable period of time after resumption of business if
the Letter of Credit Bank's business is interrupted as
described in Article 19 of the Uniform Customs and Practice for
Documentary Credits (as further described below), and except
to the extent otherwise expressly provided hereunder, be
governed by the Uniform Customs and Practice for Documentary
Credits (1983 Revision), International Chamber of Commerce,
Publication No. 400, and any subsequent revisions thereof.
(d) The Company agrees that if any change in any
law, executive order or regulation, or any directive of
any administrative or governmental authority (whether or
not having the force of law) or in the interpretation thereof
by any court or administrative or governmental authority
charged with the administration thereof, shall either:
(i) impose, modify or deem applicable any
reserve, special deposit or similar requirements against
letters of credit heretofore or hereafter issued by the Letter
of Credit Bank; or
(ii)impose on the Letter of Credit Bank any
other condition or requirements relating to any such Letters of
Credit;
and the result of any event referred to in clause (i) or (ii)
above shall be to increase the cost to, or decrease the rate
of return of, the Letter of Credit Bank in respect of issuing
or maintaining any Letter of Credit issued for the account of
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the Company hereunder (which increase in cost or decrease in
rate of return shall be the result of the Letter of Credit
Bank's reasonable allocation among its letter of credit
customers, of the aggregate of such cost increases resulting
from such events), then, upon demand by the Letter of Credit
Bank and delivery to the Company of a certificate of an
officer of the Letter of Credit Bank explaining such change in
law, executive order, regulation, directive, or interpretation
thereof, its impact on the Letter of Credit Bank, and the basis
for determining such increased costs or decreased return
and their allocation, the Company shall immediately pay to
the Letter of Credit Bank, from time to time as specified by
the Letter of Credit Bank, such amounts as shall be sufficient
to compensate the Letter of Credit Bank for such increased cost
or decreased return. The Letter of Credit Bank's
determination of costs incurred under clause (i) or (ii) above,
and the allocation, if any, of such costs among the Company and
other letter of credit customers of the Letter of Credit Bank,
if done in good faith and made on an equitable basis, shall be
presumptively correct in the absence of evidence to the
contrary.
(e) Each Bank (other than the Letter of Credit Bank)
and the Company hereby acknowledge that each Letter of
Credit issued by the Letter of Credit Bank pursuant to this
Agreement is issued by the Letter of Credit Bank on behalf of
all of the Banks. Each Bank (other than FNBB) absolutely,
unconditionally and irrevocably agrees to reimburse the Letter
of Credit Bank in an amount equal to such Bank's Commitment
Percentage of each drawing under any Letter of Credit made in
accordance with this 1.8 and to be responsible for its
Commitment Percentage of all liabilities incurred by
the Letter of Credit Bank in respect of each Letter of
Credit opened or extended by the Letter of Credit Bank
for the account of the Company pursuant to this Agreement.
The obligations of the Banks hereunder are several and the
failure of any Bank to fulfill its obligations shall not result
in any Bank becoming obligated to advance more than its
Commitment Percentage of Loans hereunder.
(f) Each Bank shall, and hereby absolutely,
unconditionally and irrevocably agrees, to contemporaneously
provide to the Letter of Credit Bank, in funds immediately
available to the Letter of Credit Bank, such Bank's
Commitment Percentage of the funds necessary to pay each
draft drawn under a Letter of Credit.
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(g) Each Bank agrees with the Letter of Credit Bank
and the other Banks (other than the Letter of Credit Bank)
that its obligations to provide to the Letter of Credit Bank
its Commitment Percentage of the amount of any draft drawn
under any Letter of Credit shall be absolute, irrevocable
and unconditional and further agrees that such obligations
shall not be affected in any way by any intervening
circumstances occurring before or after the making of such
payment by the Letter of Credit Bank pursuant to any Letter
of Credit, including without limitation:
(i) any modification or amendment of, or
any consent, waiver, release or forbearance with respect to
any of the terms of this Agreement or any other
instrument or document referred to herein;
(ii)any other act or omission to act of any kind
by the Letter of Credit Bank;
(iii)the existence of any Default or Event of
Default;
(iv)any change of any kind whatsoever in
the financial position or creditworthiness of the Company or
any other Person.
2. DEFINITIONS. The following terms shall have
the meanings respectively assigned to them in this 2.
Agent. The First National Bank of Boston acting as
agent for the Banks.
Amortizing Notes. See 1.2.
Assignment and Acceptance. See 9.
Banks. See preamble.
Base Rate. See 1.2.
Business Day. Any day on which banks in
Boston, Massachusetts are required to be open for the
transaction of normal banking business and, in addition, in
connection with any transaction relating to the LIBO Rate, any
day on which banks in London, England are also open for the
transaction of normal banking business.
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Closing Date. The first date on which all of
the conditions set forth in 4 have been satisfied.
Commitment. With respect to each Bank, the amount
equal to such Bank's Commitment Percentage of the Commitment
Amount.
Commitment Amount. See 1.1.
Commitment Percentage. With respect to each Bank,
the percentage set forth beside its name below as such
Bank's percentage of the aggregate Commitments of all of the
Banks:
Bank Percentage
____ __________
FNBB 100%
Company. See preamble.
Consolidated. As applied to any term used in
this agreement, the relevant figures for the Company
and its Consolidated Subsidiaries on a basis determined in
accordance with generally accepted accounting principles after
eliminating all intercompany items and minority interests.
Consolidated Subsidiary. Any present or
future corporation or other entity (other than Yuasa-Ionics
Co., Ltd., a corporation organized under the laws of Japan)
more than fifty percent (50%) of the shares of stock or
other interests each (however designated) having ordinary
voting power for the election of a majority of the members of
the board of directors or other governing body of such
corporation or other interests (other than stock having such
power only by reason of the happening of a contingency) shall at
the time be owned by the Company or by one or more subsidiaries
or by the Company and one or more subsidiaries.
Unconsolidated subsidiary means a subsidiary which is not
consolidated for financial reporting purposes.
Current Assets, Current Liabilities and Working
Capital. Respectively, the Current Assets, Current
Liabilities and Working Capital of the Company and
its Consolidated Subsidiaries, determined in accordance with
generally accepted accounting principles.
Default. Any event described in 6 hereof.
Delinquent Bank. See 8.5(c).
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Eligible Assignee. Any commercial bank or other
financial institution, including without limitation, any
insurance company, savings bank or savings and loan association.
Environmental Laws. Any judgment, decree, order,
law, license, rule or regulation pertaining to
environmental matters, including without limitation, those
arising under the Resource Conservation and Recovery Act,
the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended ("CERCLA"), the Superfund
Amendments and Reauthorization Act of 1986, the Federal Clean
Water Act, the Federal Clean Air Act, the Toxic Substances
Control Act or any other federal, state or local statute,
regulation, ordinance, order, or decree, or common law,
whether in existence now or hereafter enacted, and as such may
be amended from time to time, relating to health, safety or
the environment.
Equity Distribution. The payment of cash dividends
on any class of capital stock and any other distribution
or payment on account of or in redemption, retirement or
purchase of such capital stock; provided, however, that
the term "Equity Distribution" does not include the issuance,
delivery or distribution by a corporation of shares of its
common stock pro rata to its existing stockholders nor does
the term include the sale or exchange by the Company of
shares of its common stock made in return for cash or other
assets, tangible or intangible.
Eurodollar Loan(s). That portion of any Loans made
hereunder, the interest rate on which is calculated by
reference to the LIBO Rate in accordance with 1.2.1 hereof.
Event of Default. See 6.
FNBB. The First National Bank of Boston in its
individual capacity.
Hazardous Materials. Any hazardous waste, as defined
by 42 U.S.C. 6903(5), any hazardous substances, as defined by 42
U.S.C. 9601(14), any pollutant or contaminant, as defined by 42
U.S.C. 9601(33), and any toxic substance, hazardous
materials, oil, or other chemicals or substances regulated by
any Environmental Laws.
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Indebtedness. All obligations, contingent or
otherwise, which in accordance with generally accepted
accounting principles should be reflected in the obligor's
balance sheet as liabilities and all guarantees, endorsements
and other contingent obligations, direct or indirect, in
respect of Indebtedness of others whether or not reflected
in said balance sheet (other than guarantees and endorsements
made in connection with items deposited for collection in the
ordinary course of business, and other than federal, state and
foreign income taxes, the payment of which has been
deferred in accordance with generally accepted accounting
principles).
Interest Period. The period during which the basis
for computing interest, selected pursuant to 1.2.1 hereof, is
to remain in effect, which, as to the LIBO Rate basis, shall be
a period of one (1), two (2), three (3), or six (6) months, and
which as to the Money Market Rate basis, shall be a period of
seven (7), thirty (30), ninety (90) or one hundred eighty
(180) days.
Letter of Credit. See 1.8(a).
Letter of Credit Bank. FNBB.
Loan Documents. This Agreement, the Notes, any
Letters of Credit and any other documents and instruments
executed and delivered in connection with this Agreement.
Loan Notes. See 1.2.
Loans. See 1.1.
LIBO Prepayment Charge. An amount equal to the
product of (i) the difference between (A) the LIBO Rate in
effect during an Interest Period during which all or any
portion of any Note shall be prepaid voluntarily and (B) the
LIBO Rate which would have been quoted (on the amount so prepaid
and for the remaining portion of such Interest Period) by the
Agent to the Company had the date of such prepayment been a
Rate-Fixing Date, times (ii) the amount so prepaid, times (iii)
a fraction the numerator of which is the number of days in the
remaining portion of such Interest Period and the denominator
of which is three hundred and sixty (360).
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LIBO Rate. The annual rate of interest
determined by each Bank at or about 11:00 A.M., London Time,
on the Rate-Fixing Day prior to the first day of any Interest
Period, as being the rate of interest at which deposits of
United States Dollars could be obtained by such Bank in the
London inter-bank foreign currency deposits market, at
the time of determination and in accordance with the usual
practice in such market, for delivery on the first day of
such Interest Period and for the number of days comprised
therein, in amounts equal (as nearly as may be) to the
portion of the unpaid principal of the Eurodollar Loan(s) to
be outstanding on the first day of such Interest Period.
Majority Banks. As of any date, the Banks holding
at least fifty-one percent (51%) of the outstanding
principal amount of the Notes on such date; and if no such
principal is outstanding, the Banks whose aggregate Commitments
constitute at least fifty-one percent (51%) of the Commitment
Amount.
Maximum Drawing Amount. With respect to any Letter
of Credit, the maximum amount which the beneficiary may
draw under such Letter of Credit, as such amount may be
reduced from time to time pursuant to the terms of such
Letter of Credit.
Money Market Loan(s). That portion of any Loans
made hereunder, the interest rate on which is calculated
by reference to the Money Market Rate in accordance with 1.2.1
hereof.
Money Market Prepayment Charge. An amount equal to
the product of (i) the difference between (A) the Money
Market Rate in effect during an Interest Period during which
all or any portion of any Note shall be prepaid voluntarily and
(B) the Money Market Rate which would have been quoted (on
the amount so prepaid and for the remaining portion of
such Interest Period) by the Agent to the Company had the date
of such prepayment been a Rate-Fixing Date, times (ii) the
amount so prepaid, times, (iii) a fraction the numerator of
which is the number of days in the remaining portion of such
Interest Period and the denominator of which is three hundred
and sixty (360).
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Net Income. For any period, the consolidated after
tax net income or net loss the Company and its
Consolidated Subsidiaries as determined in accordance with
generally accepted accounting principles applied on a basis
consistent with the financial statements referred to in 3.4
(except for changes concurred with by the Company's
independent public accountants) minus (a) the aggregate of any
extraordinary or non-recurring credits included in such
determination plus (b) any extraordinary or non-recurring
charges and (c) the aggregate of all debits made to retained
earnings during the period other than dividends,
distributions and transfers to capital accounts (including
currency translation adjustments).
Notes. The Loan Notes and the Amortizing Notes.
Obligations. All indebtedness, obligations and
liabilities of the Company to any of the Banks and the Agent,
individually or collectively, existing on the date of this
Agreement or arising thereafter, direct or indirect, joint or
several, absolute or contingent, matured or unmatured,
liquidated or unliquidated, secured or unsecured, arising by
contract, operation of law or otherwise, arising or incurred
under this Agreement or any of the other Loan Documents or in
respect of any of the Loans or any of the Notes, Letters of
Credit or other instruments at any time evidencing any
thereof.
Original Credit Agreement. See preamble.
Person. Any individual, corporation, partnership,
trust, unincorporated association, business or other legal
entity, and any government or any governmental agency or
political subdivision thereof.
Property. All properties owned or operated by
the Company.
Rate-Fixing Date. Any Business Day on which the
Company is permitted or required to select the basis for
interest calculations under any Note.
Register. See 9.3.
Release. As specified in the Comprehensive
Environmental Response, Compensation and Liability Act of
1980, 42 U.S.C. 9601 et seq. ("CERCLA") and the term
"Disposal" (or "Disposed") shall have the meaning specified
in the Resource Conservation and Recovery Act of 1976, 42
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U.S.C. 6901 et seq. ("RCRA") and regulations
promulgated thereunder; provided, that in the event either
CERCLA or RCRA is amended so as to broaden the meaning of any
term defined thereby, such broader meaning shall apply as of
the effective date of such amendment and provided further, to
the extent that the laws of a state wherein the property lies
establishes a meaning for "Release" or "Disposal" which
is broader than specified in either CERCLA or RCRA, such broader
meaning shall apply.
Reserve Charge. An amount equal to the product of
(i) the outstanding principal amount of the Eurodollar
Loans hereunder times (ii) the remainder of (a) the LIBO
Rate, expressed as a decimal, divided by the remainder of one
minus the Reserve Rate, minus (b) the LIBO Rate; times (iii)
the fraction, the numerator of which shall be one and
the denominator of which shall be three hundred and sixty (360).
Reserve Rate. For purposes relating to the
computation of the Reserve Charge, the rate, expressed as a
decimal at which any Bank would be required to maintain
reserves under Regulation D of the Board of Governors of the
Federal Reserve System (or any subsequent or similar
regulation relating to such reserve requirements) against
"Eurocurrency liabilities" (as such term is defined in
Regulation D) if such liabilities were outstanding.
Tangible Net Worth. The aggregate book value of
the consolidated assets of the Company and its
Consolidated Subsidiaries (after deduction therefrom of all
applicable reserves and allowances) minus the sum of (a) the
consolidated liabilities of the Company and its Consolidated
Subsidiaries and (b) the net book value of the Company's
investments in and loans, advances and extensions of credit
to Unconsolidated Subsidiaries, goodwill, patents,
franchises, trademarks and trade names, research and
development expenses and similar intangibles, all
determined in accordance with generally accepted accounting
principles consistent with those followed in the preparation of
the financial statements referred to in 3.4, (except for changes
concurred with by the Company's independent public
accountants).
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Working Capital. An amount equal to total current
assets less total current liabilities. For purposes of
this Agreement, "current liabilities" will not include
outstanding Loans under this Agreement.
All terms of an accounting character not
specifically defined herein shall have the meanings assigned
thereto by generally accepted accounting principles.
3. REPRESENTATIONS AND WARRANTIES. The Company
represents and warrants to the Banks and the Agent that:
3.1. Corporate Authority. The Company
and each Consolidated Subsidiary (i) is a corporation duly
organized, existing and in good standing under the laws of the
state or foreign country of its incorporation, (ii) has all
requisite corporate power to own its property and conduct its
business as now conducted and as presently contemplated and
(iii) is in good standing as a foreign corporation and is duly
authorized to do business in each jurisdiction where the
nature of its properties or its business requires such
qualification and where the failure to so qualify would,
individually or in the aggregate, have a material adverse
effect on the business, financial condition or results of
operations of the Company and its Consolidated Subsidiaries
taken as a whole. The execution, delivery and performance
of this Agreement and the transactions contemplated hereby
are within the corporate authority of the Company, have
been authorized by proper corporate proceedings and will not
contravene any provision of law, its articles of organization
or by-laws or any other agreement, instrument or
undertaking binding upon the Company or any Consolidated
Subsidiary.
3.2. Governmental Approvals. The execution,
delivery and performance of this Agreement by the Company
and the transactions between the parties hereto contemplated
hereby do not require any approval or consent of, or filing
with, any governmental agency or authority, except such, if
any, as may be required by the Banks.
3.3. Title to Properties; Absence of Liens.
The Company and each Consolidated Subsidiary has good and
valid title to all properties, assets and rights of every name
and nature now purported to be owned by it and, except as
listed and described on Schedule 3.3 attached hereto, all of
said properties, assets and rights are free from all
defects, liens, charges and encumbrances whatsoever, except
those of a nature permitted by 5.4.
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3.4. Financial Statements. The Company has
furnished to the Agent a balance sheet as at December 31,
1991 and related statements of income and cash flow of the
Company for the fiscal year then ended, each certified by
Coopers & Lybrand. The balance sheet and statements of income
and cash flow so furnished (i) have been prepared in
conformity with generally accepted accounting principles
applied on a consistent basis throughout the periods
specified and (ii) present fairly the financial position of
the Company as at the dates thereof.
3.5. Changes. Since the date of the
financial statements described in 3.4, there has been no
material change in the assets, liabilities, financial
condition or business of the Company or any Consolidated
Subsidiary other than changes in the ordinary course of
business, the effect of which has not been in any case, or
in the aggregate, materially adverse. Since the dates of
the financial statements described in 3.4 the Company has
neither authorized, agreed to make nor made any Equity
Distribution.
3.6. Taxes. The Company and each Consolidated
Subsidiary has filed all federal and state tax
returns required to be filed and all taxes, assessments and
other governmental charges due upon any of such companies have
been fully paid and no extensions of time of payment have
been requested. Each of the Company and its
Consolidated Subsidiaries has paid or recorded on its
books reserves adequate for the payment of all federal and
state income tax liabilities.
3.7. Litigation. There is no litigation
pending, or, to the knowledge of its officers, threatened
against the Company or any Consolidated Subsidiary which will
substantially adversely affect the ability of the Company to
perform its obligations hereunder.
3.8. Environmental Compliance. The Company has
taken all necessary steps to investigate the past and present
condition and usage of the Property and the operations
conducted thereon and, based upon such diligent investigation,
has determined that:
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(a) none of the Company, its
Consolidated Subsidiaries or any operator of the Property or any
operations thereon is in violation, or alleged violation,
of any Environmental Law, which violation would have a
material adverse effect on the environment or the business,
assets or financial condition of the Company or any of its
Consolidated Subsidiaries;
(b) except as set forth on Schedule 3.8
attached hereto, neither the Company nor any of its
Consolidated Subsidiaries has received notice from any
third party including, without limitation: any federal, state
or local governmental authority, (i) that any one of them
has been identified by the United States Environmental
Protection Agency ("EPA) as a potentially responsible party
under CERCLA with respect to a site listed on the National
Priorities List, 40 C.F.R. Part 300 Appendix B (1986); (ii) that
any Hazardous Materials which any one of them has generated,
transported or disposed of has been found at any site at
which a federal, state or local agency or other third party
has conducted or has ordered that the Company or any of
its Consolidated Subsidiaries conduct a remedial
investigation, removal or other response action pursuant to
any Environmental Law; or (iii) that it is or shall be a
named party to any claim, action, cause of action, complaint,
or legal or administrative proceeding (in each case, contingent
or otherwise) arising out of any third party's incurrence of
costs, expenses, losses or damages of any kind whatsoever in
connection with the release of Hazardous Materials;
(c) except for violations with potential
liability of less than $1,000,000 and except as set forth on
Schedule 3.8 attached hereto: (i) no portion of the Property
has been used for the handling, processing, storage or
disposal of Hazardous Materials except in accordance with
applicable Environmental Laws; and no underground tank
or other underground storage receptacle for Hazardous
Materials is located on any portion of the Property; (ii) in
the course of any activities conducted by the Company, its
Consolidated Subsidiaries or operators of its properties,
no Hazardous Materials have been generated or are being
used on the Property except in accordance with applicable
Environmental Laws; (iii) there have been no releases (i.e.
any past or present releasing, spilling, leaking, pumping,
pouring, emitting, emptying, discharging, injecting,
escaping, disposing or dumping) or threatened releases of
Hazardous Materials on, upon, into or from the properties of the
/89
Company or its Consolidated Subsidiaries, which releases would
have a material adverse effect on the value of any of the
Property or adjacent properties or the environment; (iv) to
the best of the Company's knowledge, there have been no releases
on, upon, from or into any real property in the vicinity of any
of the Property which, through soil or groundwater
contamination, may have come to be located on, and which
would have a material adverse effect on the value of, the
Property; and (v) in addition, any Hazardous Materials that
have been generated on any of the Property have been
transported offsite only by carriers having an identification
number issued by the EPA, treated or disposed of only by
treatment or disposal facilities maintaining valid
permits as required under applicable Environmental Laws,
which transporters and facilities have been and are, to the
best of the Company's knowledge, operating in compliance
with such permits and applicable Environmental Laws; and
(d) none of the Property is or shall be subject to
any applicable environmental clean-up responsibility law or
environmental restrictive transfer law or regulation, by
virtue of the transactions set forth herein and contemplated
hereby.
4. CONDITIONS TO LOANS. The obligation of the Banks
to effect the amendment and restatement of the Original
Credit Agreement and to make Loans hereunder is conditioned upon
4.1. in the case of all borrowings:
(a) receipt by the Agent of at least
three (3) Business Days' prior written notice from the
Company of the proposed date and amount of the borrowing; and
(b) the fact that at the completion
of the borrowing, no Default specified in 6 and no event which,
with the giving of notice or lapse of time or both, would become
a Default will have occurred and be continuing; and delivery to
the Agent of the certificate to that effect signed by an
authorized officer of the Company.
4.2. in the case of the effectiveness of the
amendment and restatement of the Original Credit Agreement and
the first borrowing thereafter, (a) receipt by the Agent of an
opinion addressed to FNBB individually and as Agent of Stephen
Korn, general counsel for the Company, in form, scope and
substance satisfactory to the Agent, as to (i) the matters
referred to in 3.1 and 3.2, (ii) the validity and
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enforceability of the Company's obligations hereunder and under
the Notes except as limited by bankruptcy, insolvency,
reorganization, moratorium or other laws relating to or
affecting generally the enforcement of creditors' rights, and
(iii) such other matters as the Banks or the Agent may
reasonably request; and (b) the Company shall have paid all
commitment fees under the Original Credit Agreement accrued to
the Closing Date.
5. COVENANTS. During the term of this Agreement
unless compliance shall have been waived in writing by the
Banks, the Company agrees that:
5.1. Financial Statements. It will furnish
to the Agent:
(a) within 90 days after the end of each
fiscal year the Consolidated balance sheet of the Company as
at the end of, and the related Consolidated statements of income
and cash flow for such year certified by independent
certified public accountants of nationally recognized standing;
(b) within 45 days after the end of each of
the first three fiscal quarters of each fiscal year of
the Company, the Consolidated balance sheet as at the end of,
and the related Consolidated statements of income and cash
flow, in each case in the form required under 5.1(a), for
such three month period in each case certified by the
principal financial officer of the Company, subject, however,
to year-end audit adjustment; and
(c) from time to time such other financial data
and information as any Bank or the Agent may reasonably request.
The financial statements referred to above in
this 5.1 shall be prepared in accordance with generally
accepted accounting principles, such principles to be
consistent with those followed in the preparation of the
financial statements referred to in 3.4, except as otherwise
concurred with by the Company's independent public accountants.
5.2. Taxes. It will pay or cause to be paid all
taxes, assessments or governmental charges on or against it or
any of its Consolidated Subsidiaries or its or their properties
prior to the time when they become delinquent; provided that
this covenant shall not apply to any tax, assessment or
charge which is being in good faith contested and with
respect to which adequate reserves have been established and
are being maintained.
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5.3. Guaranties. It will not and will not
permit any of its Consolidated Subsidiaries to endorse,
guarantee or become surety for the obligations of any
person, firm or corporation except that (i) the Company may
guarantee without limitation the obligations of any of
its Consolidated Subsidiaries; (ii) the Company and its
Consolidated Subsidiaries may guarantee the obligations of any
person, firm or corporation, but the aggregate dollar
amount of all obligations guaranteed under the permissive
grant of this clause (ii) shall not exceed at any one time
outstanding U.S. $2,000,000; (iii) the Company and
its Consolidated Subsidiaries may guarantee the
obligations of any firm or corporation in which the Company has
an ownership interest; and (iv) the Company and its
Consolidated Subsidiaries may endorse checks for collection
or deposit in the ordinary course of business.
5.4. Negative Pledge. It will not create or
suffer to be created or permit to exist any mortgage,
pledge, lien, security interest or other encumbrance upon
any of its properties or assets or upon the property or
assets of any of its Consolidated Subsidiaries except (i)
liens for taxes or assessments not yet due or whose validity or
amount is being contested in good faith by appropriate
proceedings (unless and until foreclosure, distraint, sale or
any similar proceeding shall have been instituted) and
adequate reserves shall have been established and maintained in
accordance with generally accepted accounting principles,
(ii) real estate mortgages securing indebtedness which is or
was undertaken to purchase the mortgaged real estate and
covering only the real estate so purchased, (iii) security
interests securing indebtedness arising out of the
acquisition of personal property by the Company or a
Consolidated Subsidiary for use in its business or
indebtedness arising out of the acquisition of real
and personal property by the Company in connection with
Industrial Revenue Bonds of the Company purchased by FNBB,
provided that the aggregate principal amount of indebtedness
secured by each security interest may not exceed the
purchase price of the property so acquired, (iv) other
liens and encumbrances incidental to the conduct of its
business or the ownership of its assets which were not
incurred in connection with the borrowing of money or the
obtaining of advances or credit, and which do not in the
aggregate materially detract from the value of its assets
or materially impair the use thereof in the operation of its
business, (v) notes receivable arising from the financing
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of water softener sales, which may be pledged as collateral,
(vi) security interests or mortgages securing indebtedness
which is undertaken in connection with project financings,
provided that the aggregate principal amount of
indebtedness secured by such security interests
or mortgages shall not exceed $20,000,000 at any one
time outstanding, (vii) security interests or mortgages on
the property or assets of any entity acquired by the
Company, provided that the aggregate principal amount of
indebtedness secured by such security interests or mortgages
shall not exceed $5,000,000 at any one time outstanding,
and (viii) renewals, extensions or replacements of any of
the debts underlying said liens or encumbrances referred to in
clauses (ii), (iii), and (iv) above, secured by such
liens or encumbrances at the time of the renewal,
extension or replacement and applying only to the same
property or assets theretofore subject to such liens or
encumbrances.
5.5. Merger and Sale of Assets. It will not,
and will not permit any Consolidated Subsidiary to consolidate
or merge with or into any other corporation and will not sell,
lease, transfer or otherwise dispose of more than ten percent
of its assets other than in the ordinary course of
business; provided, that (i) a Consolidated Subsidiary, or
any other corporation organized under the laws of any state
of the United States of America, may be merged into or
consolidated with the Company, or another Consolidated
Subsidiary if the Company or such Consolidated Subsidiary
shall be the continuing or surviving corporation; (ii) any
corporation (other than the Company) organized under the laws of
any state of the United States of America may be merged
into or consolidated with any Consolidated Subsidiary if
such Consolidated Subsidiary shall be the continuing or
surviving corporation or such other corporation shall
immediately become a Consolidated Subsidiary; (iii) any
Consolidated Subsidiary may sell, lease, transfer or otherwise
dispose of its assets to the Company; and (iv) no
merger, consolidation, sale, lease, transfer or other
disposition shall be permitted under (i), (ii) or (iii)
above unless immediately after giving effect thereto, the
Company shall be in compliance with all other requirements in
this Agreement.
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5.6. Net Worth. The Company will not permit
Consolidated Tangible Net Worth to be less than (i)
$150,000,000 plus seventy percent (70%) of the
aggregate annual increases in Consolidated Tangible Net Worth
from that existing on June 30, 1992 or (ii) 66 2/3% of
Consolidated Indebtedness, whichever of (i) or (ii) is the
greater.
5.7. Working Capital. The Company will not
permit Consolidated Working Capital to be less than $30,000,000.
5.8. Permitted Indebtedness. The Company will
not nor will it permit any Consolidated Subsidiary to, create,
assume or have outstanding Indebtedness owed by it for money
borrowed other than the following:
(a) Indebtedness arising from the
Company's financing of consumer credit sales of its water
softeners and related products not exceeding in the aggregate
at any one time outstanding, the lesser of $12,000,000 or
seventy-five percent (75%) of the total unpaid amount due on
customers' notes given in such sales transactions;
(b) Indebtedness arising in
connection with Industrial Revenue Bonds of the Company
purchased by FNBB;
(c) Purchase money Indebtedness arising
from the acquisition of real or personal property for use
in the business of the Company or of any Consolidated
Subsidiary;
(d) Indebtedness arising from the
Company's financing (whether by sale or by lease) of its water
coolers;
(e) Indebtedness of the Company or any
of its Consolidated Subsidiaries other than that referred
to in clauses (a), (b), (c) and (d) above, owed to a
bank, corporation, firm or other person not exceeding in
the aggregate amount at any one time outstanding the principal
sum of $45,000,000; and
(f) Indebtedness owed to the Banks
under this Agreement and the Notes.
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5.9. Sale and Leaseback. The Company will
not, nor will it permit any Consolidated Subsidiary to,
sell or transfer any of its properties with the intention of
taking back a lease of any such property, without the prior
approval of the Banks, such approval not to be unreasonably
withheld. Notwithstanding the foregoing, the Company shall
not be required to obtain the prior approval of the Banks if
the net book value of all property to be sold or transferred
does not exceed $1,000,000 in aggregate amount in any fiscal
year.
5.10. Environmental Matters.
5.10.1. Indemnification. The Company
covenants and agrees that it will indemnify and hold the Banks
harmless from and against any and all claims, expense,
damage, loss or liability incurred by the Agent or any of the
Banks (including all costs of legal representation incurred by
the Agent or any of the Banks) resulting from (a) any Release
or threatened Release of Hazardous Materials on the
Property, (b) any violation of any Environmental Laws with
respect to conditions at the Property or the operations
conducted thereon, or (c) the investigation or remediation of
offsite locations at which the Company or its predecessors are
alleged to have directly or indirectly Disposed of Hazardous
Materials to the extent that such liability arises from such
Disposal by the Company, except any of the foregoing which
result from the gross negligence or willful misconduct of the
indemnified party. It is expressly acknowledged by the Company
that this covenant of indemnification shall survive the
payment of the Loans and shall inure to the benefit of the
Agent, the Banks, and their successors and assigns.
5.10.2. Notice. The Company covenants and
agrees promptly to provide the Agent with written notice: (a)
upon the Company's obtaining knowledge of any violation of
any Environmental Law regarding the Property or the
Company's operations which violation could have a material
adverse effect on the Property or on the Company's
operations; (b) upon the Company's obtaining knowledge of any
potential or known Release, or threat of Release, of any
Hazardous Materials at, from, or into the Property which it
reports in writing or is reportable by it in writing to any
governmental authority or which could materially affect the
value of the Property; (c) upon the Company's receipt of any
notice of violation of any Environmental Laws or of any
Release or threatened Release of Hazardous Materials,
/95
including a notice or claim of liability or potential
responsibility from any third party (including without
limitation any federal, state or local governmental
officials) and including notice of any formal inquiry,
proceeding, demand, investigation or other action with
regard to (A) the Company's or any person's operation of
the Property, (B) contamination on, from or into the Property,
or (C) investigation or remediation of offsite locations at
which the Company or its predecessors are alleged to have
directly or indirectly Disposed of Hazardous Materials; or
(d) upon the Company's obtaining knowledge that any expense or
loss has been incurred by such governmental authority in
connection with the assessment, containment, removal or
remediation of any Hazardous Materials with respect to which the
Company may be liable or for which a lien may be imposed on the
Property.
5.10.3. Response Actions. The Company
covenants and agrees that if any Release or Disposal of
Hazardous Materials shall occur or shall have occurred on
the Property, the Company will cause the prompt containment
and removal of such Hazardous Materials and remediation of
the Property as necessary to comply with all Environmental
Laws or to preserve the value of the Property. All such
response actions shall commence within 90 days of providing
notice to the Agent of such Release or Disposal pursuant to
5.10.2 hereof.
6. DEFAULTS. If any of the following events
shall occur:
6.1. if the Company shall fail to pay any
installment of principal or interest of any Note in any case on
or before the tenth day following the due date thereof;
6.2. if the Company shall fail to perform any
covenant contained in 5.3, 5.4, 5.5, 5.8, 5.9 or 5.10 hereof;
6.3. if the Company shall fail to perform any
covenant contained in 5.6 or 5.7 for 30 days after the
commencement date of its failure to perform;
6.4. if the Company shall fail to perform any
term, covenant or agreement herein contained (other than
those specified in 6.1, 6.2 or 6.3 above) for 30 days
after written notice of default has been given to the Company by
the Agent;
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6.5. if any representation or warranty of the
Company in 3 hereof or in any certificate delivered hereunder
shall prove to have been false in any material respect upon the
date when made;
6.6. if the Company or any Consolidated
Subsidiary shall fail to pay at maturity, or within any
applicable period of grace, any obligation for borrowed monies
or advances, or fail to observe or perform any term,
covenant or agreement contained in any agreement by which it is
bound, evidencing or securing borrowed monies or advances, for
such period of time as would, or would have permitted
(assuming the giving of appropriate notice if required) the
holder or holders thereof or of any obligations issued
thereunder to accelerate the maturity thereof, unless the
same shall have been waived; or
6.7. if the Company or any Consolidated
Subsidiary shall admit in writing of its inability to pay its
debts; or suffer a receiver or trustee for all or substantially
all of its property to be appointed and, if appointed
without its consent, not to be discharged within 60 days;
or suffer proceedings under any law relating to bankruptcy,
insolvency or the reorganization or relief of debtors to be
instituted by or against it and, if contested by it, not to be
dismissed or stayed within 60 days; or suffer any judgment in
excess of $1,000,000 to be entered against it, or any writ of
attachment or execution or any similar process to be issued
or levied against a substantial part of its property, which
judgment, writ or process is not discharged, released, stayed,
bonded, or vacated within 60 days after its entry, issue or
levy;
then, and in every such event described above in 6 (Events
of Default, or, if the giving of notice or the lapse of time
or both is required, then, prior to such notice or lapse of
time, Defaults), if such Default continues, the Agent may, and
upon the request of the Majority Banks shall, by notice in
writing to the Company, terminate the Commitment of the
Banks and declare all amounts owing with respect to the Notes
held by the Banks to be, and they shall thereupon forthwith
become, due and payable without presentment, demand, protest or
other notice of any kind, all of which are hereby expressly
waived by the Company; provided that in the event of any
Event of Default specified in 6.7, all such amounts shall
become immediately due and payable automatically and without
any requirement of notice from the Agent or any Bank.
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7. SETOFF.
Any deposits or other sums at any time credited by or
due from any of the Banks to the Company and any securities
or other property of the Company in the possession of any of
the Banks may at all times be held and treated as
collateral security for the payment of the Notes and any and
all other liabilities, direct or indirect, absolute or
contingent, due or to become due, now existing or hereafter
arising, of the Company to any of the Banks. Regardless of
the adequacy of any collateral, any deposits or other sums
credited by or due from any of the Banks to the Company may be
applied to or set off against such liabilities at any time.
Each of the Banks agrees with each other Bank that (a) if an
amount to be set off is to be applied to Indebtedness of the
Company to such Bank, other than Indebtedness evidenced by
the Notes held by such Bank, such amount shall be applied
ratably to such other Indebtedness and to the Indebtedness
evidenced by all such Notes held by such Bank, and (b) if
such Bank shall receive from the Company, whether by
voluntary payment, exercise of the right of setoff,
counterclaim, cross action, enforcement of the claim
evidenced by the Notes held by such Bank by proceedings
against the Company at law or in equity or by proof
thereof in bankruptcy, reorganization, liquidation,
receivership or similar proceedings, or otherwise, and
shall retain and apply to the payment of the Note or Notes
held by such Bank any amount in excess of its ratable portion
of the payments received by all of the Banks with respect
to the Notes held by all of the Banks, such Bank will make
such disposition and arrangements with the other Banks with
respect to such excess, either by way of distribution, pro
tanto assignment of claims, subrogation or otherwise as shall
result in each Bank receiving in respect of the Notes held by
it, its proportionate payment as contemplated by this
Agreement; provided that if all or any part of such excess
payment is thereafter recovered from such Bank, such
disposition and arrangements shall be rescinded and the amount
restored to the extent of such recovery, but without interest.
8. THE AGENT.
8.1. Authorization. The Agent is authorized
to take such action on behalf of each of the Banks and to
exercise all such powers as are hereunder and under any of the
other Loan Documents and any related documents delegated to
the Agent, together with such powers as are reasonably
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incident thereto, provided that no duties or
responsibilities not expressly assumed herein or therein
shall be implied to have been assumed by the Agent. The
relationship between the Agent and the Banks is and shall be
that of agent and principal only, and nothing contained in
this Agreement or any of the other Loan Documents shall be
construed to constitute the Agent as a trustee for any Bank.
8.2. Employees and Agents. The Agent may
exercise its powers and execute its duties by or through
employees or agents and shall be entitled to take, and to
rely on, advice of counsel concerning all matters pertaining to
its rights and duties under this Agreement and the other Loan
Documents. The Agent may utilize the services of such Persons
as the Agent in its sole discretion may reasonably
determine, and all reasonable fees and expenses of any such
Persons shall be paid by the Company.
8.3. No Liability. Neither the Agent nor any
of its shareholders, directors, officers or employees nor any
other Person assisting them in their duties nor any agent
or employee thereof, shall be liable for any waiver, consent
or approval given or any action taken, or omitted to be taken,
in good faith by it or them hereunder or under any of the
other Loan Documents, or in connection herewith or therewith,
or be responsible for the consequences of any oversight or error
of judgment whatsoever, except that the Agent or such
other Person, as the case may be, may be liable for losses due
to its willful misconduct or gross negligence.
8.4. No Representations. The Agent shall
not be responsible for the execution or validity or
enforceability of this Agreement, the Notes, any of the other
Loan Documents or any instrument at anytime constituting,
or intended to constitute, collateral security for the
Notes, or for the value of any such collateral security or
for the validity, enforceability or collectibility of any
such amounts owing with respect to the Notes, or for any
recitals or statements, warranties or representations made
herein or in any of the other Loan Documents or in any
certificate or instrument hereafter furnished to it by or on
behalf of the Company, or be bound to ascertain or inquire
as to the performance or observance of any of the terms,
conditions, covenants or agreements herein or in any
instrument at any time constituting, or intended to
constitute, collateral security for the Notes. The Agent
shall not be bound to ascertain whether any notice, consent,
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waiver or request delivered to it by the Company or any holder
of any of the Notes shall have been duly authorized or is
true, accurate and complete. The Agent has not made nor does it
now make any representations or warranties, express or
implied, nor does it assume any liability to the Banks,
with respect to the credit worthiness or financial conditions
of the Company or any of its Subsidiaries. Each Bank
acknowledges that it has, independently and without
reliance upon the Agent or any other Bank, and based upon such
information and documents as it has deemed appropriate, made
its own credit analysis and decision to enter into this
Agreement.
8.5. Payments.
(a) A payment by the Company to the Agent
hereunder or any of the other Loan Documents for the account of
any Bank shall constitute a payment to such Bank. The Agent
agrees promptly to distribute to each Bank such Bank's pro rata
share of payments received by the Agent for the account of the
Banks except as otherwise expressly provided herein or in any of
the other Loan Documents.
(b) If in the opinion of the Agent the
distribution of any amount received by it in such capacity
hereunder, under the Notes or under any of the other Loan
Documents might involve it in liability, it may refrain
from making distribution until its right to make
distribution shall have been adjudicated by a court of
competent jurisdiction. If a court of competent jurisdiction
shall adjudge that any amount received and distributed by the
Agent is to be repaid, each Person to whom any such
distribution shall have been made shall either repay to the
Agent its proportionate share of the amount so adjudged to be
repaid or shall pay over the same in such manner and to such
Persons as shall be determined by such court.
(c) Notwithstanding anything to the
contrary contained in this Agreement or any of the other
Loan Documents, any Bank that fails (i) to make available to
the Agent its pro rata share of any Loan or (ii) to comply
with the provisions of 7 with respect to making dispositions
and arrangements with the other Banks, where such Bank's share
of any payment received, whether by setoff or otherwise, is
in excess of its pro rata share of such payments due and
to payable to all of the Banks, in each case as, when and to
the full extent required by the provisions of this
Agreement, shall be deemed delinquent (a Delinquent Bank) and
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shall be deemed a Delinquent Bank until such time as such
delinquency is satisfied. A Delinquent Bank shall be deemed
to have assigned any and all payments due to it from the
Company, whether on account of outstanding Loans, interest,
fees or otherwise, to the remaining nondelinquent
Banks for application to, and reduction of, their respective
pro rata shares of all outstanding Loans. The Delinquent
Bank hereby authorizes the Agent to distribute such
payments to the nondelinquent Banks in proportion to their
respective pro rata shares of all outstanding Loans. A
Delinquent Bank shall be deemed to have satisfied in full a
delinquency when and if, as a result of application of the
assigned payments to all outstanding Loans of the
nondelinquent Banks, the Banks' respective pro rata shares
of all outstanding Loans have returned to those in
effect immediately prior to such delinquency and without
giving effect to the nonpayment causing such delinquency.
8.6. Holders of Notes. The Agent may deem and
treat the payee of any Note as the absolute owner thereof for
all purposes hereof until it shall have been furnished in
writing with a different name by such payee or by a subsequent
holder.
8.7. Indemnity. The Banks ratably agree
hereby to indemnify and hold harmless the Agent from and against
any and all claims, actions and suits (whether groundless
or otherwise), losses, damages, costs, expenses (including
any expenses for which the Agent has not been reimbursed by
the Company as required by 10.6), and liabilities of every
nature and character arising out of or related to this
Agreement, the Notes, or any of the other Loan Documents or the
transactions contemplated or evidenced hereby or thereby, or
the Agent's actions taken hereunder or thereunder, except to
the extent that any of the same shall be directly caused by the
Agent's willful misconduct or gross negligence.
8.8. Agent as Bank. In its individual
capacity, FNBB shall have the same obligations and the same
rights, powers and privileges in respect to its Commitment and
the Loans made by it, and as the holder of any of the Notes, as
it would have were it not also the Agent.
8.9. Resignation. The Agent may resign atany
time by giving sixty (60) days' prior written notice thereof
to the Banks and the Company. Upon any such
resignation, the Majority Banks shall have the right to
appoint a successor Agent. Unless a Default or Event of
Default shall have occurred and be continuing, such
successor Agent shall be reasonably acceptable to the
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Company. If no successor Agent shall have been so appointed by
the Majority Banks and shall have accepted such appointment
within thirty (30) days after the retiring Agent's giving of
notice of resignation, then the retiring Agent may, on
behalf of the Banks, appoint a successor Agent, which
shall be a financial institution having a rating of not less
than A or its equivalent by Standard & Poor's Corporation.
Upon the acceptance of any appointment as Agent hereunder by a
successor Agent, such successor Agent shall thereupon succeed
to and become vested with all the rights, powers,
privileges and duties of the retiring Agent, and the retiring
Agent shall be discharged from its duties and obligations
hereunder. After any retiring Agent's resignation, the
provisions of this Agreement and the other Loan Documents
shall continue in effect for its benefit in respect of any
actions taken or omitted to be taken by it while it was
acting as Agent.
8.10. Notification of Defaults and Events of
Default. Each Bank hereby agrees that, upon learning of the
existence of a Default or an Event of Default, it shall promptly
notify the Agent thereof. The Agent hereby agrees that upon
receipt of any notice under this 8.10 it shall promptly
notify the other Banks of the existence of such Default or
Event of Default.
8.11. Documents. The Agent will forward to each
Bank, promptly after the Agent's receipt thereof, a copy of
each document furnished to the Agent for such Bank hereunder.
9. ASSIGNMENT AND PARTICIPATION.
9.1. Conditions to Assignment by Banks.
Except as provided herein, each Bank may assign to one or more
Eligible Assignees all or a portion of its interests,
rights and obligations under this Agreement (including all or
a portion of its Commitment Percentage and Commitment and
the same portion of the Loans at the time owing to it) and
the Notes held by it; provided that (a) each of the Agent
and the Company shall have given its prior written consent
to such assignment, which consent, in the case of the
Company, will not be unreasonably withheld, (b) each such
assignment shall be of a constant, and not a varying,
percentage of all the assigning Bank's rights and
obligations under this Agreement, (c) each assignment shall be
in an amount that is a whole multiple of $5,000,000, and (d)
the parties to such assignment shall execute and deliver to the
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Agent, for recording in the Register (as hereinafter
defined), an Assignment and Acceptance, substantially in the
form of Exhibit C hereto (an Assignment and Acceptance),
together with any Notes subject to such assignment. Upon
such execution, delivery, acceptance and recording, from and
after the effective date specified in each Assignment and
Acceptance, which effective date shall be at least five (5)
Business Days after the execution thereof, (i) the assignee
thereunder shall be a party hereto and, to the extent
provided in such Assignment and Acceptance, have the rights and
obligations of a Bank hereunder, and (ii) the assigning Bank
shall, to the extent provided in such assignment and
upon payment to the Agent of the registration fee referred to in
9.3, be released from its obligations under this Agreement.
9.2. Certain Representations and Warranties;
Limitations; Covenants. By executing and delivering
an Assignment and Acceptance, the parties to the
assignment thereunder confirm to and agree with each other and
the other parties hereto as follows: (a) other than the
representation and warranty that it is the legal and
beneficial owner of the interest being assigned thereby free
and clear of any adverse claim, the assigning Bank makes no
representation or warranty and assumes no responsibility with
respect to any statements, warranties or representations made
in or in connection with this Agreement or the execution,
legality, validity, enforceability, genuineness, sufficiency
or value of this Agreement, the other Loan Documents or any
other instrument or document furnished pursuant hereto; (b)
the assigning Bank makes no representation or warranty and
assumes no responsibility with respect to the financial
condition of the Company and its Consolidated Subsidiaries or
any other Person primarily or secondarily liable in respect
of any of the Obligations, or the performance or observance by
the Company and its Consolidated Subsidiaries or any other
Person primarily or secondarily liable in respect of any
of the Obligations of any of their obligations under this
Agreement or any of the other Loan Documents or any other
instrument or document furnished pursuant hereto or
thereto; (c) such assignee confirms that it has received a
copy of this Agreement, together with copies of the most
recent financial statements referred to in 5.1 and such other
documents and information as it has deemed appropriate to
make its own credit analysis and decision to enter into such
Assignment and Acceptance; (d) such assignee will,
independently and without reliance upon the assigning Bank, the
Agent or any other Bank and based on such documents and
information as it shall deem appropriate at the time,
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continue to make its own credit decisions in taking or not
taking action under this Agreement; (e) such assignee
represents and warrants that it is an Eligible Assignee; (f)
such assignee appoints and authorizes the Agent to take such
action as agent on its behalf and to exercise such powers
under this Agreement and the other Loan Documents as are
delegated to the Agent by the terms hereof or thereof,
together with such powers as are reasonably incidental
thereto; (g) such assignee agrees that it will perform in
accordance with their terms all of the obligations that by
the terms of this Agreement are required to be performed
by it as a Bank; and (h) such assignee represents and
warrants that it is legally authorized to enter into such
Assignment and Acceptance.
9.3. Register. The Agent shall maintain a copy of
each Assignment and Acceptance delivered to it and a register
or similar list (the Register) for the recordation of the
names and addresses of the Banks and the Commitment Percentage
of, and principal amount of the Revolving Credit Loans owing
to, the Banks from time to time. The entries in the
Register shall be conclusive, in the absence of manifest error,
and the Company, the Agent and the Banks may treat each Person
whose name is recorded in the Register as a Bank hereunder for
all purposes of this Agreement. The Register shall be
available for inspection by the Company and the Banks at any
reasonable time and from time to time upon reasonable prior
notice. Upon each such recordation, the assigning Bank agrees
to pay to the Agent a registration fee in the sum of $2,000.
9.4. New Notes. Upon its receipt of an Assignment
and Acceptance executed by the parties to such assignment,
together with each Note subject to such assignment, the Agent
shall (a) record the information contained therein in
the Register, and (b) give prompt notice thereof to the
Company and the Banks (other than the assigning Bank). Within
five (5) Business Days after receipt of such notice, the
Company, at its own expense, shall execute and deliver to the
Agent, in exchange for each surrendered Note, a new Note to the
order of such Eligible Assignee in an amount equal to the
amount assumed by such Eligible Assignee pursuant to such
Assignment and Acceptance and, if the assigning Bank has
retained some portion of its obligations hereunder, a new Note
to the order of the assigning Bank in an amount equal to
the amount retained by it hereunder. Such new Notes shall
provide that they are replacements for the surrendered Notes,
shall be in an aggregate principal amount equal to the aggregate
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principal amount of the surrendered Notes, shall be dated the
effective date of such Assignment and Acceptance and shall
otherwise be in substantially the form of the assigned Notes.
Within five (5) days of issuance of any new Notes pursuant to
this 9.4, the Company shall deliver an opinion of counsel,
addressed to the Banks and the Agent, relating to the due
authorization, execution and delivery of such new Notes and
the legality, validity and binding effect thereof, in form
and substance satisfactory to the Banks. The surrendered
Notes shall be cancelled and returned to the Company.
9.5. Participations. Each Bank may sell
participations to one or more banks or other entities in all or
a portion of such Bank's rights and obligations under this
Agreement and the other Loan Documents; provided that (a)
each such participation shall be in an amount of not
less than $5,000,000, (b) any such sale or participation
shall not affect the rights and duties of the selling Bank
hereunder to the Company and (c) the only rights granted to the
participant pursuant to such participation arrangements with
respect to waivers, amendments or modifications of the Loan
Documents shall be the rights to approve waivers,
amendments or modifications that would reduce the principal
of or the interest rate on any Loans, extend the term or
increase the amount of the Commitment of such Bank as it
relates to such participant, reduce the amount of any commitment
fees to which such participant is entitled or extend any
regularly scheduled payment date for principal or interest.
9.6. Disclosure. The Company agrees that any
Bank may disclose information obtained by such Bank pursuant
to this Agreement to assignees or participants and potential
assignees or participants hereunder; provided that such
assignees or participants or potential assignees or
participants shall agree (a) to treat in confidence such
information, (b) not to disclose such information to a third
party and (c) not to make use of such information for purposes
of transactions unrelated to such contemplated assignment or
participation.
9.7. Miscellaneous Assignment Provisions. If
any assignee Bank is not incorporated under the laws of the
United States of America or any state thereof, it shall, prior
to the date on which any interest or fees are payable
hereunder or under any of the other Loan Documents for its
account, deliver to the Company and the Agent certification as
to its exemption from deduction or withholding of any United
States federal income taxes. Anything contained in this 9 to
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the contrary notwithstanding, any Bank may at any time pledge
all or any portion of its interest and rights under this
Agreement (including all or any portion of its Notes) to any
of the twelve Federal Reserve Banks organized under 4 of the
Federal Reserve Act, 12 U.S.C. 341. No such pledge or
the enforcement thereof shall release the pledgor Bank from
its obligations hereunder or under any of the other
Loan Documents.
9.8. Assignment by the Company. The Company
shall not assign or transfer any of its rights or obligations
under any of the Loan Documents without the prior written
consent of each of the Banks.
10. MISCELLANEOUS.
10.1. Notices. All written notices hereunder
to any party hereto shall be deemed to have been given when
properly deposited in the mails or delivered to the telegraph
company addressed to such party at its address given above or
at any other address specified in writing to the person giving
such notice. All written notices shall be sent prepaid
by certified mail, return receipt required, or by
telegraph. Notwithstanding the foregoing, the written notice
called for in 1.2.1 hereof is effective only upon receipt by
the Agent.
10.2. Term of Agreement. This Agreement shall
continue in force and effect so long as any Commitment, or any
Note or any obligation of the Company for any interest or
other amounts owing hereunder shall be outstanding.
10.3. No Waivers. No failure or delay by any
of the Banks in exercising any right, power, or privilege
hereunder shall operate as a waiver thereof; nor shall any
single or partial exercise thereof preclude any other or
further exercise thereof or the exercise of any other right,
power or privilege.
10.4. Massachusetts Law. This Agreement and
each Note shall be deemed to be a contract made under seal and
shall be construed in accordance with and governed by the laws
of the Commonwealth of Massachusetts.
10.5. Computation of Interest. Interest
shall be computed on the basis of a year of 360 days and paid
for the actual number of days for which due. If the due date
for any payment of principal is extended by operation of law,
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interest shall be payable for such extended time. If any
payment required by this Agreement becomes due on a day on
which the Agent is required or permitted by law to remain
closed, such payments may be made on the next succeeding day
on which the Agent is open, and such extension shall be
included in computing interest in connection with such payment.
10.6. Expenses. The Company will pay all
reasonable out-of-pocket expenses incurred by the Agent
(including reasonable fees and disbursements of Messrs. Bingham,
Dana & Gould, counsel for the Agent) in connection with
(i) the preparation, review and execution of this Agreement
and all other documents contemplated herein and (ii)
the administration of the loan program contemplated herein.
The Company will pay all reasonable out-of-pocket
expenses incurred by any Bank or the Agent in connection
with the enforcement of any of the provisions hereof.
10.7. Environmental Assessments. After
reasonable notice by the Banks, whether or not an Event of
Default shall have occurred, the Banks may, from time to
time, in their discretion for the purpose of assessing and
ensuring the value of the Property, obtain one or more
environmental assessments or audits of the Property prepared by
a hydrogeologist, an independent engineer or other qualified
consultant or expert approved by the Banks to evaluate or
confirm (i) whether any Hazardous Materials are present in the
soil or water at the Property and (ii) whether the use
and operation of the Property complies with all Environmental
Laws. Environmental assessments may include without
limitation detailed visual inspections of the Property
including, without limitation, any and all storage areas,
storage tanks, drains, dry wells and leaching areas, and the
taking of soil samples, surface water samples and ground
water samples, as well as such other investigations or
analyses as the Banks deem appropriate. If any Event of
Default shall have occurred and be continuing at the time such
assessments or audits are commenced, such environmental
assessments or audits shall be at the sole cost and expense of
the Company, if no Event of Default shall have occurred and be
continuing at such time, such assessments or audits shall be
at the Banks' expense.
10.8. Consents, Amendments, Waivers, Etc.
Except as otherwise expressly provided in this Agreement, any
consent or approval required or permitted by this Agreement to
be given by one or more or all of the Banks may be given, and
any term of this Agreement or of any other instrument related
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hereto or mentioned herein may be amended, and the
performance or observance by the Company of any terms of this
Agreement or such other instrument or the continuance of any
Default or Event of Default may be waived (either generally
or in a particular instance and either retroactively or
prospectively) with, but only with, the written consent of
the Company and the written consent of the Majority Banks.
Notwithstanding the foregoing, (i) no amendment, waiver or
consent shall, unless in writing and signed by all of the Banks,
reduce the principal of or interest rate on any Loans, extend
the term or increase the amount of the Commitment of any Bank,
reduce the amount of any commitment fees, extend any regularly
scheduled payment date for principal or interest, or change
the definition of Majority Banks; and (ii) 8 may not be
amended without the written consent of the Agent. No waiver
shall extend to or affect any obligation not expressly
waived or impair any right consequent thereon. No course of
dealing or delay or omission on the part of any Bank in
exercising any right shall operate as a waiver thereof or
otherwise be prejudicial thereto. No notice to or demand upon
the Company shall entitle the Company to other or further notice
or demand in similar or other circumstances.
10.9. Counterparts. This Agreement may be signed
in any number of counterparts with the same effect as if
the signatures hereto and thereto were upon the same
instrument. Complete sets of counterparts shall be lodged with
the Company and the Banks.
IONICS, INCORPORATED
By: /s/Arthur L. Goldstein
Title: Chairman and Chief
Executive Officer
THE FIRST NATIONAL BANK OF BOSTON,
individually and as Agent
By: /s/H.J. Petrillo
Title: Vice President
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EXHIBIT A
FORM OF LOAN NOTE
$25,000,000 Boston, Massachusetts
For value received, Ionics, Incorporated (the "Maker"), a
Massachusetts corporation, promises to pay to the order of The
First National Bank of Boston (the "Bank") at its head office,
the principal sum of Twenty Five Million Dollars ($25,000,000),
or if less than such principal amount, the aggregate unpaid
principal amount of all Loans made by the Bank to the Maker
pursuant to the Credit Agreement described below, as shown on
the Schedule attached to and made part of this Note, on December
31, 1995 and to pay interest on the unpaid balance hereof at
said office on the first day of each January, April, July and
October from the date hereof until maturity at a rate computed
in accordance with, and to pay such other charges, if any, as
may be required pursuant to, the provisions of the Credit
Agreement described below, as shown on the Schedule attached to
and made pat of this Note, on December 31, 1995 and to pay
interest on the unpaid balance hereof at said office on the
first day of each January, April, July and October from the date
hereof until maturity at a rate computed in accordance with, and
to pay such other charges, if any, as may be required pursuant
to, the provisions of the Credit Agreement described below.
Overdue principal and interest shall bear interest at a
rate which at all times shall be one percent (1%) above the rate
of interest hereon in effect from time to time compounded
monthly and payable on demand.
This note is the Loan Note issued under and is subject to
the Amended and Restated Credit Agreement dated as of December
31, 1992 ( as amended from time to time, the "Credit Agreement")
among the Maker, the Bank, such other lending institutions as
may become parties thereto from time to time, and The First
National Bank of Boston as Agent, and all capitalized terms used
herein which are not otherwise defined herein have the meanings
assigned to them by the Credit Agreement. Reference is made to
the Credit Agreement for rights as to the prepayment hereof, the
acceleration of the maturity hereof, and the selection of
interest charges payable hereunder.
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Every maker, endorser and guarantor of this Note or of the
obligation represented hereby waives presentment, demand,
notice, protest and all other demands and notices in connection
with the delivery, acceptance, performance, default or
enforcement of this Note, assents to any extension or
postponement of the time of payment of any other indulgence, to
any substitution, exchange or release of collateral and to the
addition or release of any other party or person primarily or
secondarily liable.
IONICS, INCORPORATED
Dated:_______________ By:_________________________
Title
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EXHIBIT B
FORM OF
PROMISSORY NOTE
$______________ Boston, Massachusetts
FOR VALUE RECEIVED, Ionics, Incorporated (the "Maker"), a
Massachusetts corporation, hereby promises to pay to the order
of The First National Bank of Boston (the "Bank"), at its head
office, the principal amount of $__________ in a series of 12
consecutive quarterly installments commencing April 1, 1996, the
first eight (8) of which shall be in the amount of $____________
each and the final four (4) installments of which shall be in
the amount of $___________ each. The Maker agrees to pay
interest from the date hereof on the principal balance from tie
to time outstanding, quarterly in arrears commencing April 1,
1996 and at maturity, at a rate computed in accordance with, and
to pay such other charges, if any, as may be required pursuant
to the provisions of the Credit Agreement described below.
Overdue principal and interest shall bear interest at a
rate which at all times shall be one and one-half percent (1
1/2%) above the rate of interest hereon in effect from time to
time. overdue interest is compounded monthly and overdue
principal and interest are both payable on demand.
This Note is the Amortizing Note issued under a certain
Amended and Restated Credit Agreement dated as of December 31,
1992 (as amended from time to time, the "Credit Agreement")
among the Maker, the Bank, such other lending institutions as
may be come parties thereto from time to time, and The First
National Bank of Boston as Agent, and all capitalized terms used
herein which are not otherwise defined herein have the meanings
assigned to them by the Credit Agreement. Reference is made to
the Credit Agreement for rights as to the prepayment hereof, the
acceleration of the maturity hereof and the selection of
interest charges payable hereunder.
Every maker, endorser and guarantor of this Note or the
obligation represented hereby waives presentment, demand,
notice, protest and all other demands and notices in connection
with the delivery, acceptance, performance, default or
enforcement of this Note, assents to any extension or
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postponement of the time of payment or any other indulgence, to
any substitution, exchange or release of collateral and to the
addition or release of any other party or person primarily or
secondarily liable.
IONICS, INCORPORATED
Dated:______________ By:__________________________
Title:
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EXHIBIT C
FORM OF ASSIGNMENT AND ACCEPTANCE
Dated ____________
Reference is made to the Amended and Restated Credit
Agreement, dated as of December 31, 1992 (as amended and in
effect from time to time, the "Credit Agreement"), among Ionics,
Incorporated (the "Company"), certain lending institutions which
are or may become parties thereto (the "Banks"), and The First
National Bank of Boston, as agent (in such capacity, the
"Agent"), for itself and the Banks. Capitalized terms used
herein and not otherwise defined shall have the meanings
assigned to such terms in the Credit Agreement.
__________________________ (the "Assignor") and
_____________________ ( the "Assignee") agree as follows:
1. The Assignor hereby sells and assigns to the Assignee,
and the Assignee hereby purchases and assumes from the Assignor,
a ____% interest in and to all the Assignor's rights and
obligations under the Credit Agreement relating to the Loans as
of the Effective Date (as hereinafter defined).
2. The Assignor (i) represents that as of the date hereof,
its Commitment Percentage without giving effect to assignments
thereof which have not yet become effective) is ____%, and the
aggregate outstanding balance of its Loans (unreduced by any
assignments thereof which have not yet become effective ) is
$____________; (ii) makes no representation or warranty and
assumes no responsibility with respect to any statements,
warranties or representations made in or in connection with the
Credit Agreement or the execution, legality, validity,
enforceability, genuineness, sufficiency, or value of the Credit
Agreement or any other instrument or document furnished pursuant
thereto, other than that it is the legal and beneficial owner of
the interest being assigned by it hereunder and that such
interest is free and clear of any adverse claim; (iii) makes no
representation or warranty and assumes no responsibility with
respect to the financial condition of the Company, its
Consolidated subsidiaries or any other Person primarily or
secondarily liable in respect of any of the Obligations, or the
performance or observance by the Company and its Consolidated
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Subsidiaries or any other Person primarily or secondarily liable
in respect of any of the Obligations of any of their obligations
under the Credit Agreement or any other instrument or document
delivered or executed pursuant thereto; and (iv) attaches the
Notes delivered to it under the Credit Agreement and requests
that the Company exchange such Notes for a new Note or Notes
payable to each of the Assignor and the Assignee as follows:
Notes Payable to Amount of
the Order of: Note
[Name of Assignor] [Note ($____)]
[Name of Assignee] [Note ($----)]
3. The Assignee (i) represents and warrants that it is
legally authorized to enter into this Assignment and Acceptance;
(ii) confirms that it has received a copy of the Credit
Agreement and the other Loan Documents, together with copies of
the most recent financial statements delivered pursuant to
Section 5.1 thereof and such other documents and information as
it has deemed appropriate to make its own credit analysis and
decision to enter into this Assignment and Acceptance; (iii)
agrees that it will, independently and without reliance upon the
Assignor, any other Bank or the Agent and based on such
documents and information as it shall deem appropriate at the
time, continue to make its own credit decisions in taking or not
taking action under the Credit Agreement; (iv) represents and
warrants that it is an Eligible Assignee; (v) appoints and
authorizes the Agent to take such action as agent on its behalf
and to exercise such powers under the Credit Agreement and the
other Loan Documents as are delegated to the Agent by the terms
thereof, together with such powers as are reasonably incidental
thereto; and (vi) agrees that it will perform in accordance with
their terms all the obligations which by the terms of the Credit
Agreement are required to be performed by it as a Bank.
4. The effective date for this Assignment and Acceptance
shall be [at least five days after execution and delivery of
this certificate] (the "Effective Date"). Following the
execution of this Assignment and Acceptance, it will be
delivered to the Agent for acceptance and recording in the
register by the Agent.
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5. Upon such acceptance and recording, from and after the
Effective Date, (i) the Assignee shall be a party to the Credit
Agreement and, to the extent provided in this Assignment and
Acceptance, have the rights and obligations of a Bank
thereunder, and (ii) the Assignor shall, with respect to that
portion of its interest under the Credit Agreement assigned
hereunder, relinquish its rights and be released from all of its
obligations under the Credit Agreement.
6. Upon such acceptance and recording, from and after the
Effective Date, the Agent shall make all payments in respect of
the interest assigned hereby (including payments of principal,
interest, fees and other amounts) to the Assignee. the Assignor
and Assignee shall make all appropriate adjustments in payments
for periods prior to the Effective Date by the Agent or with
respect to the making of this assignment directly between
themselves.
7. THIS ASSIGNMENT AND ACCEPTANCE IS INTENDED TO TAKE
EFFECT AS A SEALED INSTRUMENT TO BE GOVERNED BY, AND CONSTRUED
IN ACCORDANCE WITH, THE LAWS OF THE COMMONWEALTH OF
MASSACHUSETTS.
IN WITNESS WHEREOF, intending to be legally bound, each of
the undersigned has caused this Assignment and acceptance to be
executed on its behalf by its officer thereunto duly authorized,
as of the date first above written.
[NAME OF ASSIGNOR]
By: _________________________
Title:________________________
[NAME OF ASSIGNEE]
By: _________________________
Title:________________________
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SCHEDULE 3.3
<TABLE>
<CAPTION>
IONICS, INCORPORATED
SCHEDULE OF PROPERTIES SECURED BY MORTGAGES AS OF 12/31/92.
LOAN AMOUNT
SECURITY MORTGAGEE (AT 9/30/92) MATURITY
<S> <C> <C> <C>
1. PROPERTY LOCATED TOWN OF WATERTOWN $ 420,000 07/01/94
65 GROVE STREET &
58 IRVING STREET
WATERTOWN, MA
2. PROPERTY LOCATED SECURITY PACIFIC $ 199,880 12/31/92
4101 EASTWOOD STREET
PHOENIX, AZ
3. LAND LOCATED LANDS ADMIN. $ 143,866 12/31/05
1873 LYTTON ROAD COMMISSION
LYTTON, BRISBANE
QUEENSLAND, AUSTRALIA
</TABLE>
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SCHEDULE 3.8
IONICS, INCORPORATED
Paragraph (b): The Company has been notified by the United States
Environmental Protection Agency that it has been
identified as a potentially responsible party under
CERCLA with respect to the following sites listed on the
National Priorities List:
1. Union Chemical site, Union, Maine
2. Silresim site, Lowell, Massachusetts
3. Solvents Recovery Service of New England
site, Southington, Connecticut
Paragraph (c): The following are the underground storage tanks that are
located on the Company's property or operated by the
Company.
1. Four tanks, Watertown, Massachusetts
2. One tank, Phoenix, Arizona
3. One tank, Springfield, Massachusetts
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Exhibit 10.4
OPERATING AGREEMENT
THIS OPERATING AGREEMENT made as of September 27, 1989, between Aqua Cool
Enterprises Inc., a Massachusetts corporation ("ACE"), and Ionics,
Incorporated, a Massachusetts corporation ("Ionics").
WITNESSETH:
WHEREAS, ACE intends to engage in the business of marketing and selling
bottled water in the eastern portion of the United States; and
WHEREAS, Ionics is presently engaged in the business of producing,
distributing and selling bottled water, owns water purification technology,
equipment and know-how to produce bottled water and has personnel experienced
in the ownership and operation of a bottled water business; and
WHEREAS, ACE has requested Ionics to provide certain equipment, supplies
and material and to render services in connection with the ownership, operation
and expansion of a bottled water business, and Ionics is willing to do so on
the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises, the mutual covenants and
agreements herein contained and other valuable consideration, the receipt and
adequacy whereof are hereby acknowledged, ACE and Ionics, intending to be
legally bound, do hereby covenant and agree as follows:
SECTION 1. DUTIES AND SERVICES OF IONICS. ACE hereby engages Ionics as its
agent to render services and perform duties in connection with the operation of
a bottled water business (the "Subject Business"), as hereinafter set forth,
and Ionics hereby accepts such engagement. Ionics shall in connection with the
ownership and operation by ACE of the Subject Business provide and be
responsible for, directly or through Ionics' officers and employees assigned
from time to time to ACE:
(a) The hiring, assignment or furnishing and supervision of all personnel
necessary to maintain and operate the Subject Business;
(b) The collection of all revenues, fees, charges and other compensation
due to ACE in connection with the ownership and operation of the Subject
Business;
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(c) The maintenance of the Subject Business according to all standards
reasonably acceptable to ACE, including providing for normal repairs,
replacements and maintenance;
(d) The use of its reasonable business efforts to keep the operation of
the Subject Business in compliance in all respects with all material applicable
rules, regulations and orders of any federal, state, county or municipal
authority having jurisdiction over the Subject Business;
(e) The disbursement of all sums payable by ACE as operating or capital
expenses, including Ionics' compensation hereunder;
(f) The marketing, sales promotion and advertising in connection with the
ownership and operation of the Subject Business;
(g) The maintenance of a comprehensive system of office records and books
of account in conformity with generally accepted accounting principles and
other record keeping practices customary in the bottled water business, and the
preparation of all tax and other reports, returns and statements required to be
prepared or filed by ACE;
(h) The making of recommendations to ACE with respect to all major policy
decisions concerning the operation of the Subject Business, including but not
limited to financial planning, expansion of the Subject Business, capital
projects and additions, establishment of lease rates and other prices,
advertising and promotional campaigns, representation before governmental and
regulatory authorities and applications for new and amendment and renewal of
operating licenses and permits;
(i) All relations between ACE and all banks and other financial
institutions or others which have loaned money to or extended credit to ACE;
(j) The maintenance of (or the otherwise having available to it)
facilities and staff, including managerial, administrative and technical
personnel, reasonably necessary and adequate in all material respects to
perform promptly and properly its obligations hereunder;
(k) The use of its reasonable business efforts to cause ACE to be in
compliance in all material respects with all contracts, leases and other
agreements to which it is a party or by which its assets are bound and which
are material to ACE, either individually or collectively;
(1) The carrying by ACE, to the extent funds are available therefor, and
in amounts determined by ACE, of such casualty and other liability insurance as
may be reasonable and similar to that of comparable companies similarly
situated;
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(m) The establishment, maintenance and operation of distribution centers,
including warehousing, distribution and related facilities and services;
(n) The preparation of such financial, operating and other reports and
budgets as ACE may reasonably request or as may be necessary in connection with
the operation of the Subject Business; and
(o) All other services reasonably necessary for the ownership and
operation of the Subject Business.
Notwithstanding the foregoing, Ionics' managerial and supervisory
authority shall be subject to the ultimate responsibility of ACE as owner and
operator of the Subject Business. Ionics shall have the authority to and will
use its reasonable business efforts to operate the Subject Business
substantially in accordance with the operating budget and capital budget, as,
from time to time, furnished to Ionics by ACE. Without limiting the generality
of the foregoing, Ionics will not knowingly cause any expenditure or commitment
to be made on behalf of ACE which would cause any material deviation from any
such operating budget or capital budget unless, in its reasonable business
judgment, the failure to make such expenditure or commitment might be expected
to have a material adverse effect on the business, operations, financial
condition, results of operation or prospects of the Subject Business.
In addition to and not in limitation of the foregoing, subject to all of
the other terms and conditions of this Agreement, including without limitation
Section 3, Ionics agrees to provide (or cause to be provided) and sell to ACE,
and ACE agrees to accept and purchase from Ionics:
(a) Equipment, supplies and materials (including but not limited to
Aqua Cool water, bottles, coolers, labels, cups, motor vehicles, promotional
materials and stationery) in quantities requested by ACE and at prices
determined from time to time in accordance with the provisions of Section 3(d);
and
(b) Purchase money financing (either directly or from third parties
of recognized standing) for the purchase of coolers in an amount equal to one
hundred percent (100%) of the purchase price of the coolers up to an aggregate
principal amount of $6,250,000 outstanding at any time pursuant to
substantially the terms and conditions (including without limitation those
providing for interest at 14% per annum and five-year straight-line
amortization of principal) of the purchase money note attached hereto as
Exhibit A and/or, at the election of Ionics, lease financing (either directly
or from third parties of recognized standing) for the coolers pursuant to
substantially the terms and conditions (including without limitation those
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providing for an effective interest rate of 14% per annum and five-year,
straight-line amortization) of the equipment lease attached hereto as Exhibit
B; provided, however, that notwithstanding the foregoing, Ionics shall have the
right, in its sole discretion, upon the occurrence and continuance of any event
which, with notice, or the passage of time, or both, would give Ionics the
right to terminate this Agreement pursuant to the provisions of Section 4, to
cease providing (or causing to be provided) any such purchase money financing
or leasing accommodation.
Ionics covenants and agrees with ACE as follows:
(a) Ionics will provide, from time to time, annual and quarterly
projections of amounts estimated to be payable by ACE to Ionics pursuant to the
provisions of this Agreement, such projections to be furnished on a timely
basis in order to enable ACE to furnish the projections required to be
delivered by it pursuant to the terms of the Loan Agreement;
(b) Ionics will treat as confidential and protect in the same manner
as it protects its own comparable information all information with respect to
the Subject Business which is of a confidential nature;
(c) Subject to the receipt of a confidentiality agreement in form,
scope and substance reasonably satisfactory to Ionics, Ionics will permit ACE
(or, at ACE's option, outside accountants, appraisers or examiners retained by
ACE), from time to time during normal business hours, upon reasonable prior
notice, at ACE's expense, to examine, inspect, audit and copy or make extracts
from all property and all books and records of Ionics relating to the Subject
Business and the performance of Ionics' obligations under this Agreement,
including, without limitation, relating to the computation of the amounts
payable by ACE to Ionics pursuant to the provisions of this Agreement;
(d) Upon termination of this Agreement, Ionics will deliver to ACE
copies of such financial and other records and information (including without
limitation computer software programs, source codes and similar information)
pertaining to the Subject Business as ACE may reasonably request, it being
understood that Ionics shall be entitled to retain copies of all such records
and other information and that such delivery may be conditioned on ACE
furnishing to Ionics a confidentiality agreement in form, scope and substance
reasonably satisfactory to Ionics; and
(e) Ionics will use its reasonable business efforts to comply in all
material respects with all applicable laws, ordinances, rules, regulations and
orders of any federal, state, county or municipal authority having jurisdiction
of its activities in providing the services and supplying the equipment,
supplies and materials to be furnished and supplied pursuant to the terms of
this Agreement.
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SECTION 2. NATURE OF IONICS' SERVICES. All actions taken by Ionics
pursuant to the provisions of Section 1 shall be taken as agent of ACE and all
obligations or expenses incurred thereunder shall be for the account, on behalf
of and at the expense of ACE. Any payments to be made by Ionics hereunder shall
be made from such sums as are available in the operating account of ACE or as
may be provided by ACE. Ionics shall not be obligated to make any advance to or
for the account of ACE or to pay any sum, except from funds held or provided as
aforesaid.
Notwithstanding any of the provisions of this Agreement to the contrary,
(a) Ionics shall not be in default under this Agreement if its failure to
perform as hereunder required shall be due to ACE's failure to advance funds in
sufficient amounts for Ionics to comply with the terms hereof as provided in
Section 1; and (b) the performance of each and all of Ionics' duties hereunder
which requires the expenditure of money shall be performed only to the extent
of revenues received by Ionics from the operation of the Subject Business or
from ACE made available to Ionics for that purpose.
SECTION 3. COMPENSATION OF IONICS. As compensation for its services and
furnishing certain equipment, supplies and materials hereunder, ACE will pay to
Ionics, at the times and in the manner set forth below, the following fees and
reimbursements:
(a) payable to Ionics monthly at or after the time of incurrence,
reimbursement for all Reimbursable Expenses (as defined and described in
Exhibit C hereto) incurred during the term of this Agreement;
(b) payable on the tenth day of the first month of each calendar
quarter in arrears, an amount equal to 5.0% of the gross revenues (before
deductions of any costs or expenses, but excluding customer deposits, if any,
and revenues derived from the sale of any assets other than assets sold or
leased in the ordinary course of business) from the ownership and operation of
the Subject Business accrued for the prior calendar quarter;
(c) $50,000 payable upon the start-up (as demonstrated by receipt of
revenues of not less than $1,000) of each of approximately eight (8)
distribution centers; and
(d) payable to Ionics monthly (except as otherwise provided in
Section 1 with respect to coolers) at or after the time of delivery, for
equipment, material and supplies an amount equal to Ionics' "fully allocated
cost" of such equipment, material and supplies plus ten percent (10%). For
purposes of this paragraph (d), the term "fully allocated costs" shall mean,
with respect to bottled water, the amount established, from time to time, by
Ionics as the average fully allocated cost of all Aqua Cool bottling plants of
Ionics in the United States, regardless of the actual costs of the particular
plant or plants which may be
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supplying bottled water to ACE. Attached hereto as Exhibit D are copies of
computer printouts illustrating the computation of "fully allocated costs" of
bottled water and coolers (which coolers may be leased pursuant to the
equipment lease attached hereto as Exhibit B) to be provided by Ionics to ACE.
Notwithstanding the foregoing, ACE and Ionics agree that Ionics shall have the
right, from time to time, to change the method or methods by which "fully
allocated costs" are calculated with respect to bottled water or coolers (or
any other item of material or supplies) to be provided by Ionics to ACE so long
as such method is (a) applied uniformly by Ionics to all aspects of its bottled
water business, (b) conforms with generally accepted accounting principles, and
(c) not objected to in writing by ACE within thirty (30) days of being advised
of such change as being unreasonable. As indicated on Exhibit D, "fully
allocated costs" are determined initially based on "standard costs" with an
annual adjustment based on variances and actual costs. Accordingly, Ionics and
ACE agree that promptly upon the determination of the actual amount of "fully
allocated costs," ACE shall pay to Ionics, or Ionics shall issue a credit to
ACE for, as the case may be, the amount due pursuant to such determination. In
the event of any disagreement as to the amount of any "fully allocated costs,"
or the reasonableness of any method for computing such costs hereafter adopted
by Ionics, the determination of the independent public accountants of Ionics
shall be binding and conclusive on ACE and Ionics, unless, within fifteen (15)
days of receipt of such determination, ACE shall have notified Ionics in
writing that it objects to such determination. In the event of any such
objection, ACE shall, at its expense, appoint a firm of independent public
accountants to review such determination and in the event such firm is unable
to agree with the Accountants, the two accountants shall appoint a third firm
of independent public accountants (the cost of which shall be borne equally by
Ionics and ACE) whose determination shall be binding and conclusive on Ionics
and ACE.
Amounts not paid to Ionics within ninety (90) days of when due and payable
shall bear interest at the rate of fourteen percent (14%) per annum until paid.
SECTION 4. TERM OF THE AGREEMENT. The term of this Agreement shall
commence as of the date hereof and terminate upon the earliest to occur of any
of the following:
(a) Upon the consent in writing of the parties; or
(b) By ACE, in its sole discretion, (i) upon the continuance of any
material default by Ionics hereunder for more than thirty (30) days after
written notice, except that if such default is not one of a repeated nature and
if Ionics promptly commences and diligently prosecutes the cure of such default
to completion, and such cure is not reasonably achievable within such thirty
(30) day period, such thirty (30) day period shall be extended to the period of
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time reasonably required to complete such cure (such period in no event,
however, to exceed an additional ninety (90) days) or (ii) upon the occurrence
of any Event of Bankruptcy (as hereinafter defined) with respect to Ionics; or
(c) By Ionics, in its sole discretion, (i) upon the continuance of
any material default by ACE hereunder, including, without limitation, failure
(except to the extent prevented by the terms of the Intercreditor and
Subordination Agreement, of even date, among ACE, Ionics and Westinghouse
Credit Corporation ["WCC"]) to make the payments required by the provisions of
Section 3 for more than thirty (30) days after written notice to ACE (with a
copy to WCC), or any repeated failure to make such payments without any such
notice, or for more than forty-five (45) days after written notice to ACE (with
a copy to WCC) in the case of any other such default, except that if such
default is not of a repeated nature and if ACE promptly commences and
diligently prosecutes the cure of such default to completion, and such cure is
not reasonably achievable within such forty-five (45) day period, such forty-
five (45) day period shall be extended to the period of time reasonably
required to complete such cure (such period in no event, however, to exceed an
additional ninety (90) days) or (ii) upon the occurrence of any Event of
Bankruptcy with respect to ACE; or
(d) Upon the sale, exchange or other disposition or destruction by
fire or other casualty or taking by eminent domain of all or substantially all
of the assets of the Subject Business, except as otherwise provided in Section
5; or
(e) Upon the liquidation of the assets of or the dissolution of ACE,
except as otherwise provided in-Section 5; or
(f) In any event, at 12:00 midnight on December 31, 1999.
Any termination by ACE or Ionics pursuant to paragraphs (b) and (c),
respectively, shall be effected by written notice to the other at any time
during the continuance of the event giving rise to the right of termination.
"Event of Bankruptcy" shall mean, with respect to Ionics or ACE, any of
the events or occurrences set forth in paragraphs (f), (g), (h), (i), (j), (k)
or (o) of Section 8.1 of the Loan Agreement.
Loan Agreement shall mean the Loan Agreement dated as of September 27,
1989, between ACE and WCC, as from time to time amended with the prior written
consent of Ionics. ACE agrees that it will not amend, modify or change, or
consent to any amendment to, modification of, or change of, the Loan Agreement
or any of the other Loan Documents (as defined in the Loan Agreement) which
would adversely affect Ionics or the ability of ACE to make all of the
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payments and to perform all of its obligations under this Agreement without the
prior written consent of Ionics.
SECTION 5. TRANSFER OF THE SUBJECT BUSINESS. Notwithstanding anything to
the contrary contained herein, if (a) all or substantially all of the assets of
ACE should be transferred to any other corporation or entity and (b) such
corporation or other entity is controlled by or under the common control of the
current stockholders of ACE, this Agreement shall continue in full force and
effect and be binding upon any such transferee. In any such event, this
Agreement shall also continue to be binding upon Ionics.
SECTION 6. RIGHTS ON TERMINATION. In the event of a termination of this
Agreement as specified in Section 4, ACE shall remain liable for any fees and
expense reimbursement accrued or otherwise due and owing under Section 3 on
such date of termination.
SECTION 7. REPRESENTATIONS; LIABILITY AND INDEMNIFICATION. Each of the
parties represents and warrants to the other party that:
(a) This Agreement has been duly and validly executed and delivered
by it and constitutes its legal, valid and binding obligation, enforceable
against it in accordance with its terms, except as (i) the enforceability
thereof may be affected by bankruptcy, insolvency, reorganization, marshalling,
moratorium and other similar laws of general application affecting the rights
and remedies of creditors and secured parties and the obligations of debtors,
and (ii) the availability of equitable remedies may be limited by equitable
principles of general applicability.
(b) Neither the execution and delivery of this Agreement or any other
agreement or document to be executed and delivered pursuant hereto, nor
compliance with the terms, conditions and provisions hereof, by it:
(i) will conflict with, or result in a breach or violation of,
or constitute a default under, any of the terms, conditions or provisions of
any law, or of any rule, regulation, order, writ, injunction or decree of any
court or government, domestic or foreign, or any commission, bureau or
administrative agency thereof, on is part, or
(ii) will conflict with, or result in breach or violation of or
constitute a default in the performance, observance or fulfillment of any
obligation, covenant or condition contained in, or constitute, or but for any
requirement of giving of notice or passage of time or both would constitute, an
event of default by it under, any obligation, covenant or condition contained
in the charter or by-laws of such party or any evidence of
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indebtedness or any agreement or instrument under or pursuant to which any
evidence of indebtedness has been issued, or any other agreement or instrument
to which it is a party or by which it or any of its properties are bound (each
such evidence of indebtedness, agreement or instrument being hereinafter
sometimes called a "Contractual Obligation"), or constitute, or but for any
requirement of giving of notice or passage of time or both would constitute, an
event of default by him under, any Contractual Obligation.
(c) It is a corporation duly organized and validly existing under the laws
of its jurisdiction of incorporation as set forth at the beginning of this
Agreement with all requisite power and authority, corporate and other, to
execute and deliver and perform its obligations under this Agreement.
ACE shall bear any and all losses resulting from the ownership and
operation of the Subject Business, and Ionics shall not, under any
circumstances, be held liable therefor, or for any mistakes or errors in
judgment or for any act or omission believed by it in good faith to be within
the scope of its authority hereunder, whether or not such act or omission is
ineffective or in any way fails to achieve the purposes of this Agreement,
except that Ionics is not exculpated hereby to the extent Ionics would be
liable for fraud, willful misconduct or gross negligence in the performance of
its obligations and duties hereunder as hereinafter in this Section provided.
Ionics shall not be held to have incurred any liability to ACE or to any third
party by virtue of any action taken in good faith by it in discharge of its
obligations and duties hereunder, and ACE agrees to indemnify Ionics and hold
Ionics harmless with respect to any and all claims that may be made against it
in respect thereof, except with respect to any claims resulting from the fraud,
willful misconduct or gross negligence of Ionics in the performance of its
obligations and duties hereunder. Ionics agrees to indemnify ACE and hold ACE
harmless with respect to any and all claims that may be made against it
resulting from the fraud, willful misconduct or gross negligence of Ionics in
the performance of its obligations and duties hereunder.
The doing of any act or the failure to do any act by Ionics, the effect of
which may cause loss or damage to ACE, if done pursuant to advice of legal
counsel selected with reasonable care, shall be presumed not to constitute
willful misconduct, fraud or gross negligence on the part of Ionics, unless
such advice was induced by Ionics' willful misconduct, fraud or gross
negligence. For purposes of this section, the term Ionics includes the
principals, officers, agents, directors and employees of Ionics, but nothing in
this section imposes any liability by contract or otherwise on such principals,
agents, officers, directors and employees.
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SECTION 8. OTHER BUSINESSES; RELATIONSHIP. ACE recognizes that Ionics is
presently engaged in the bottled water business in certain portions of the
Designated Territory, and that Ionics and its affiliates are or may become
associated in some manner (as manager, owner, partner or otherwise) with other
businesses and entities, any or all of which may be engaged in a business that
is the same as or similar to the business of ACE, and it is agreed that, except
as hereinafter in this Section 8 specifically set forth, Ionics and its
affiliates may engage in all such other business ventures, and any other
business of any other nature or description, independently or with others,
without regard to whether such business shall be competitive with the business
of ACE or any of its affiliates. Neither ACE nor any of its affiliates shall
have any right in and to any such independent ventures or the income or profits
derived therefrom as a result of entering into this Agreement, and neither
Ionics nor any of its affiliates shall have any obligation to present any such
independent venture or the opportunity to participate in any such independent
venture to ACE or any of its affiliates. Ionics may enter into agreements with
any of its affiliates for the provision of property, goods or services to ACE,
provided that the price and terms for such property, goods or services are no
less favorable to ACE than the price and terms for property, goods or services
reasonably available from unaffiliated persons.
Notwithstanding the provisions of the foregoing paragraph, Ionics agrees
that neither it nor any of its subsidiaries, affiliates or licenses shall,
directly or indirectly, (a) subsequent to the date hereof and prior to the
earlier to occur of (i) January 1, 1996 and (ii) the use of or commitment to
use substantially all of the proceeds of the sale of the 20% Senior Notes due
1996 of ACE and the Preferred Stock of ACE to WCC pursuant to the Loan
Agreement and the Preferred Stock Purchase Agreement, respectively, each dated
as of the date hereof, open any additional distribution centers (other than
those presently existing [or expansions thereof]) for bottled water in any of
the jurisdictions included within the Designated Territory; or (b) subsequent
to the expiration of the proscription provided by the preceding clause (a),
open any distribution center for bottled water, or otherwise market, distribute
or sell, directly or indirectly, bottled water to customers, within twenty five
(25) miles of any then existing distribution center of ACE within the
Designated Territory. For purposes of this Agreement, the term "Designated
Territory" shall mean the following jurisdictions: Connecticut, Delaware, the
District of Columbia, Maryland, Massachusetts, New Jersey, New York, North
Carolina, Pennsylvania, Rhode Island and Virginia.
SECTION 9. SPECIFIC PERFORMANCE; OTHER REMEDIES. The parties recognize
that their rights under this Agreement are unique and, accordingly, the parties
shall, in addition to such other remedies as may be available to any of them at
law or in equity, have the right to enforce their rights hereunder by actions
for injunctive relief and specific performance to the extent permitted
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by law. Anything in this Agreement to the contrary notwithstanding, upon any
termination of this Agreement each party shall be entitled to actual damages
only (which, in the case of ACE, shall include damages to WCC) and in no event
to consequential or punitive damages, measured by loss of anticipated profits
or otherwise.
SECTION 10. EXPENSES. Each party shall pay its own expenses incident to
the performance or enforcement of this Agreement, including all fees and
expenses of its counsel for all activities of such counsel undertaken pursuant
to this Agreement, except as otherwise provided in Section 3.
SECTION 11. NOTICES, ETC. All notices and other communications hereunder
shall be in writing and shall be (i) mailed by first class or express mail,
postage prepaid, (ii) sent by telex, telegram, telecopy or other similar form
of rapid transmission, confirmed by mailing (by first class or express mail,
postage prepaid) written confirmation at substantially the same time as such
rapid transmission, or (iii) personally delivered to an officer of the
receiving party. All such notices and other communications shall be mailed,
sent or delivered,
(a) If to ACE, 65 Grove Street, Boston, MA 02109, Attn: President, with
copies to Messrs. Sullivan & Worcester, One Post Office Square, Boston, MA
02109, Attn: Norman A. Bikales, Esq., or to such other person(s) or address(es)
as ACE may have furnished in writing to Ionics;
(b) If to Ionics, at 65 Grove Street, Watertown, MA 02172, Attn: Chief
Executive Officer, with copies to Messrs. Sullivan & Worcester, One Post Office
Square, Boston, MA 02109, Attn: Norman A. Bikales, Esq., or to such other
person(s) or address(es) as Ionics may have furnished in writing to ACE; and
(c) If to WCC, at One Oxford Center, Fourteenth Floor, 301 Grant Street,
Pittsburgh, PA 15219, Attn: First Westinghouse Capital Corporation, with copies
to Eckert Seamans Cherin & Mellott, 600 Grant Street, Pittsburgh, PA 15219,
Attn: C. Kent May, Esq., or to such other person(s) or address(es) as WCC may
have furnished in writing to ACE and Ionics.
Any notice so addressed and mailed shall be deemed to be given when so
mailed. Any notice so sent by rapid transmission shall be deemed to be given
when receipt of such transmission is acknowledged, and any communication so
delivered in person shall be deemed to be given when receipted for by, or
actually received by, an authorized officer of the party to whom it is given.
SECTION 12. ENTIRE AGREEMENT. The parties hereto agree that this
Agreement, including the Exhibits hereto, constitutes the entire agreement
between the parties with respect to the subject matter hereof and supersedes
all prior agreements and understandings between them as to such subject matter;
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and there are no restrictions, agreements, arrangements, oral or written,
between the parties relating to the subject matter hereof which are not fully
expressed or referred to herein.
SECTION 13. WAIVERS AND FURTHER AGREEMENTS. Any waiver of any terms or
conditions of this Agreement shall not operate as a waiver of any other breach
of such terms or conditions or any other term or condition, nor shall any
failure to enforce any provision hereof operate as a waiver of such provision
or of any other provision hereof; provided, however, that no such waiver unless
it by its own terms explicitly provides as to the contrary, shall be construed
to effect a continuing waiver of the provision being waived, and no such waiver
in any instance shall constitute a waiver in any other instance or for any
other purpose or impair the right of the party against whom such waiver is
claimed in all other instances or for all other purposes to require full
compliance with such provision. Each of the parties hereto agrees to execute
all such further instruments and documents and to take all such further action
as the other party may reasonably require in order to effectuate the terms and
purposes of this Agreement.
SECTION 14. AMENDMENTS. This Agreement may not be amended nor shall any
waiver, change, modification, consent or discharge be effected except by an
instrument in writing executed by or on behalf of the party or parties against
whom enforcement of any amendment, waiver, change, modification, consent or
discharge is sought and shall, in any event, be subject to the provisions of
the Loan Agreement, including, to the extent therein required, the consent of
WCC.
SECTION 15. ASSIGNMENT; SUCCESSORS AND ASSIGNS. This Agreement shall,
except as hereinafter or as in Section 5 provided, not be assignable by either
party without the written consent of the other; provided, however, that this
Agreement may be assigned by Ionics to any subsidiary or affiliate of Ionics
(which has available to it substantially the same personnel and facilities as
are available to Ionics), and shall be binding upon and shall inure to the
benefit of the parties hereto and their respective successors in interest and
permitted assigns, including without limitation any successor to Ionics
pursuant to merger, consolidation or sale or other transfer of all or
substantially all of its assets and business.
SECTION 16. NO PARTNERSHIP. Nothing contained in this Agreement is
intended to create, nor shall any provision hereof be or be construed so as to
create, a partnership, joint venture, co-venture, or joint undertaking by and
among Ionics and ACE, it being the express intention of the parties hereto that
the relationship created hereby shall be that of separate and independent
contractors acting at all times in their sole and individual capacities.
SECTION 17. SEVERABILITY. If any provision of this Agreement shall be held
or deemed to be, or shall in fact be, invalid, inoperative or unenforceable
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as applied to any particular case in any jurisdiction or jurisdictions, or in
all jurisdictions or in all cases, because of the conflicting of any provision
with any constitution or statute or rule of public policy or for any other
reason, such circumstance shall not have the effect of rendering the provision
or provisions in question invalid, inoperative or unenforceable in any other
jurisdiction or in any other case or circumstance or of rendering any other
provision or provisions herein contained invalid, inoperative or unenforceable
to the extent that such other provisions are not themselves actually in
conflict with such constitution, statute or rule of public policy, but this
Agreement shall be reformed and construed in any such jurisdiction or case as
if such invalid, inoperative or unenforceable provision had never been
contained herein and such provision reformed so that it would be valid,
operative and enforceable to the maximum extent permitted in such jurisdiction
or in such case, except when such construction could operate as an undue
hardship on either party, or constitute a substantial deviation from the
general intent and purpose of such party as reflected in this Agreement.
SECTION 18. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument, and in pleading or
proving any provision of this Agreement, it shall not be necessary to produce
more than one of such counterparts.
SECTION 19. SECTION HEADINGS. The headings contained in this Agreement are
for reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement.
SECTION 20. GENDER. Whenever used herein the singular number shall include
the plural, the plural shall include the singular, and the use of any gender
shall include all genders.
SECTION 21. GOVERNING LAW. This Agreement shall be governed by and
construed and enforced in accordance with the laws (other than the law
governing conflicts of interest) of The Commonwealth of Massachusetts.
SECTION 22. CONSENT TO JURISDICTION AND SERVICE. To the extent permitted
by applicable law, each party hereby absolutely and irrevocably consents and
submits to the jurisdiction of the courts of The Commonwealth of Massachusetts
and of any Federal Court located in the said Commonwealth in connection with
any actions or proceedings brought against any party arising out of or relating
to this Agreement and hereby irrevocably agrees that all claims in respect of
any such action or proceeding may be heard and determined in any such court.
Each party hereby waives and agrees not to assert in any such action or
proceeding, in each case, to the fullest extent permitted by applicable law,
any claim that (a) such party is not personally subject to the jurisdiction of
any such court, (b) such party is immune from any legal process
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(whether through service or notice, attachment prior to judgment, attachment in
aid of execution, execution or otherwise) with respect to it or its property,
(c) any such suit, action or proceeding is brought in an inconvenient forum,
(d) the venue of any such suit, action or proceeding is improper, or (e) this
Agreement may not be enforced in or by any such court. In any such action or
proceeding, each party hereby absolutely and irrevocably waives personal
service of any summons, complaint, declaration or other process and hereby
absolutely and irrevocably agrees that the service thereof may be made by
certified or registered first-class mail directed to such party at its address
in accordance with Section 11. Anything hereinbefore to the contrary
notwithstanding, any party may sue any other party in the courts of any
country, State of the United States or place where such party or any of the
property or assets of such party may be found or in any other appropriate
jurisdiction.
IN WITNESS HEREOF, the parties have executed or caused to be executed
this Agreement as of the date first above written.
AQUA COOL ENTERPRISES INC.
By: /s/ K. Kachadurian
-----------------------------
Name: K. Kachadurian
Title: President
IONICS, INCORPORATED
By: /s/ Arthur L. Goldstein
----------------------------
Name: Arthur L. Goldstein
Title: President and Chief Executive Officer
/131
EXHIBIT C
REIMBURSABLE EXPENSES
The following is an itemization of the expenses for which ACE will
reimburse Ionics. In all categories, the expenses must be attributable to the
ownership or operation of the Subject Business.
A. Salaries, Benefits and Taxes.
One hundred percent (100%) (in the case of 1. and 2. below) and an
allocated share (in the case of 3. and 4. below) of the salaries,
wages and benefits and the associated employer's portion of FICA and
employment taxes for the following personnel:
1. Those working full-time for or assigned to any distribution
center of ACE;
2. Those working full-time for or assigned to the principal
executive office or any other office of ACE (including any
portion of any Ionics office assigned to such personnel);
3. Those working for the bottled water business of Ionics (other
than those referred to in 1. and 2. above); and
4. Those working for the general administrative staff of Ionics
(other than Arthur L. Goldstein, Kachig Kachadurian and Theodore
G. Papastavros [or their respective successors]).
B. Third Party Fees, Costs and Expenses
One hundred percent (100%) (in the case of 1. and 2. below) and an
allocated share (in the case of 3. and 4. below) of the fees, costs
and other expenses payable to third parties for the following types
of products or services: (i) legal, accounting, engineering,
consulting and other professionals, (ii) travel and entertainment,
(iii) advertising, promotion, marketing and similar services or
products, (iv) insurance, (v) rent and lease of real and personal
property, (vi) utilities and similar services (electric, gas,
telephone, telex, facsimiles, water [other than bottled water
purchased from Ionics], etc.), (vii) computer (hardware and
software), and (viii) taxes of every nature:
1. Those furnished or provided directly to, or payable as a result
of the business or operations of, any distribution center of
ACE;
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2. Those furnished or provided directly to, or payable as a result
of the business or operations of, the principal executive office
or any other office of ACE;
3. Those furnished or provided to the bottled water business of
Ionics (other than those referred to in 1. and 2. above); and
4. Those furnished or provided to Ionics generally.
C. Ionics Administrative Charge
ACE shall reimburse Ionics for an allocated share of the general
administrative fees, costs and expenses of Ionics (including without
limitation those of a nature described in B. above to the extent
furnished or provided by Ionics rather than third parties) which are
attributable to the Subject Business, the bottled water business
generally or the business and operations of Ionics generally other
than (i) those of a nature included (or excluded) in A. above and
(ii) those which form a part of "fully allocated costs" as provided
in Section 3(d). (By way of illustration only, for example, (a) if
personnel assigned to ACE shall be located at any office of Ionics,
ACE shall reimburse Ionics for an allocated share of rent, utilities,
and similar costs, the actual telephone charges (to the extent
determinable), (b) if Ionics' personnel design a brochure for the
bottled water business, ACE shall bear an allocated portion thereof,
and (c) if Ionics shall revise one of its employee benefit plans
(which covers, among others, personnel assigned to ACE, ACE shall
bear an allocated portion thereof.)
D. Determination of Allocated Share
For purposes of determining ACE's allocated share of a particular
item, only operations of Ionics in the United States shall be taken
into account and Ionics shall apply such method or methods,
consistent with generally accepted accounting principles and applied
consistently for all aspects of Ionics' businesses conducted in the
United States, as it may reasonably determine from time to time. (By
way of illustration only, for example, in the case of personnel, to
the extent readily determinable, it may be on the basis of actual
time expended. In the event ACE shall, within thirty (30) days of
being requested to reimburse Ionics for its allocated share of any
fees, costs or expenses, object to the basis of such allocation as
being unreasonable, the matter shall be referred to the independent
accountants of Ionics whose determination shall be
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conclusive on ACE and Ionics, unless, within fifteen (15) days of
receipt of such determination, ACE shall have notified Ionics in
writing that it objects to such determination. In the event of any
such objection, ACE shall, at its expense, appoint a firm of
independent public accountants to review such determination and in
the event such firm is unable to agree with the Accountants, the two
accountants shall appoint a third firm of independent public
accountants (the cost of which shall be borne equally by Ionics and
ACE) whose determination shall be binding and conclusive on Ionics
and ACE.
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COOLER MANUFACTURING
EXAMPLE OF FULLY ALLOCATED COST CALCULATION FOR 1990
<TABLE>
<CAPTION>
<S> <C>
TOTAL PRODUCTION: Cold Units 7,500
Hot & Cold Units 7,500
------
Total 15,000
</TABLE>
<TABLE>
<CAPTION>
Direct Materials Cold, $ Hot & Cold, $
- ---------------- ------- -------------
<S> <C> <C>
Compressor & Condenser 38 38
Cold Tank Assembly 35 35
Hot Tank Assembly -- 33
Thermostats, Switches 4 8
Sheet Metal 18 18
Molded Plastic Parts 11 11
Miscellaneous Parts 13 15
Packing 3 3
--- ---
Total 122 161
</TABLE>
<TABLE>
<CAPTION>
Direct Labor
- ------------
<S> <C> <C>
(Assembly, Testing, etc) 26 35
Total Direct Costs $ 148 $ 196
- ------------------ ----- -----
</TABLE>
/135
<TABLE>
<CAPTION>
Allocated Costs
- ---------------
General & Administration
<S> <C>
Personnel 70,000
Depreciation 25,000
Rent & Utilities 40,000
Miscellaneous 15,000
-------
Total Costs for Allocation 150,000
Allocation per unit $150,000 / 15,000 = $10.00
</TABLE>
<TABLE>
<CAPTION>
Cost Summary Cold Hot & Cold
- ------------ ---- ----------
<S> <C> <C>
Total Direct Costs 148 196
Allocated Costs 10 10
------- -------
Total $ 158 $ 206
10% Fee 15.8 20.6
------- -------
173.80 226.60
Total
- -----
Weighted Avg. Cost $200.20
Approximate Average Cost $200.00
- ------------------------
</TABLE>
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EXHIBIT D
BOTTLING FACILITIES
EXAMPLE OF FULLY ALLOCATED COST CALCULATION FOR 1990
<TABLE>
<CAPTION>
<S> <C>
Production Volume: Five Gallon: 715,000
One Gallon: 2,800,000
</TABLE>
<TABLE>
<CAPTION>
Variable Costs Unit $ Qty $
- -------------- ------ --- ---
<S> <C> <C> <C>
Five Gallon 0.45 715,000 357,500
One Gallon 0.27 2,800,000 700,000
</TABLE>
<TABLE>
<CAPTION>
Bottling Facility Expenses Both Facilities
- ------------------------------------------
<S> <C>
Labor 440,000
Depreciation 150,000
Consumables 50,000
Raw Water 34,000
Utilities 44,000
Rent 116,000
Containerization 40,000
Repair & Maintenance 10,000
Insurance 16,000
Interest on investment 150,000
Other Expenses 10,000
Expenses
- --------
Selling 120,000
General & Administrative 120,000
----------
Total Costs for Allocation $1,300,000
- --------------------------
</TABLE>
/137
<TABLE>
<CAPTION>
Allocated Costs
- ---------------
<S> <C> <C>
Five Gallon $1,300,000 x 0.55* / 715,000 = 1.00
Variable Cost 0.45
-----
@ 10% fee 1.45
0.145
------
Total Five Gallon Cost $1.595
- ---------------------- ------
One Gallon $1,300,000 X 0.45* / 2,800,000 = 0.21
Variable Cost 0.27
-----
0.48
@ 10% fee 0.048
Total One Gallon Cost $ 0.53
- --------------------- ------
<FN>
*Allocation factor based on summary of facility costs
</TABLE>
/138
EXHIBIT D
BOTTLING FACILITIES
CALCULATION OF VARIABLE COSTS FOR 1990
<TABLE>
<CAPTION>
FIVE GALLON VARIABLE COSTS $
- -------------------------- -----
<S> <C>
Cap 0.045
Freight (Average cost to Spokes) 0.405
------
$0.45
ONE GALLON VARIABLE COSTS
- -------------------------
Bottle 0.136
Cap 0.017
Labels (Front & Back) 0.017
Box 0.10
------
$0.27
</TABLE>
/139
Exhibit 10.5
IONICS, INCORPORATED
65 Grove Street
Watertown, MA 02172
TERM LEASE MASTER AGREEMENT
Name and Address of Lessee
Aqua Cool Enterprises Inc. ("ACE")
65 Grove Street
Watertown, MA 02172
The Lessor pursuant to this Term Lease Master Agreement ("Agreement") will
be Ionics, Incorporated, a Massachusetts corporation ("Ionics"), or a
subsidiary or affiliate thereof. The subject matter of the lease shall be water
coolers and/or feature additions or accessories marketed by Ionics and shall be
referred to as the Equipment. Any lease transaction requested by Lessee and
accepted by Lessor shall be specified in a Term Lease Supplement
("Supplement"). A Supplement shall refer to and incorporate by reference this
Agreement and, when signed by the parties, shall constitute the lease ("Lease")
for the Equipment specified therein. Additional terms and conditions pertaining
to a Lease may be specified in a Supplement.
1. AGREEMENT TERM. This Agreement shall be effective when signed by both
parties and may be terminated by Lessor upon not less than three (3) months
written notice to Lessee (with a copy to Westinghouse Credit Corporation
(WCC)). However, each Lease then in effect shall survive any termination of
this Agreement and the purchase option set forth in Paragraph 10 shall continue
to apply, in accordance with its terms, to Equipment subject to each such
Lease.
2. CHANGES. Lessor may, with the prior written consent of Lessee (which
consent shall not be unreasonably withheld, delayed or conditioned), change the
terms and conditions of this Agreement.
3. SELECTION AND USE OF EQUIPMENT. Lessee agrees that it shall be
responsible for the selection, use of, and results obtained from, the
Equipment.
4. LEASE NOT CANCELLABLE; LESSEE'S OBLIGATIONS ABSOLUTE. Lessee's
obligation to pay shall, subject to the provisions of the Intercreditor and
Subordination Agreement, of even date, among ACE, Ionics and WCC (the
"Subordination Agreement") be absolute and unconditional and shall not be
subject to any delay,
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reduction, setoff, defense, counterclaim or recoupment for any reason
whatsoever, including any failure of the Equipment.
5. WARRANTIES. Lessor warrants that neither Lessor nor anyone acting or
claiming through Lessor, by assignment or otherwise, will interfere with
Lessee's quiet enjoyment of the use of the Equipment so long as no event of
default shall have occurred and be continuing. Lessor warrants the Equipment
will, at the time of delivery, be free from defects in material or of
workmanship. EXCEPT FOR LESSOR'S WARRANTIES AS AFORESAID, LESSOR MAKES NO
WARRANTY, EXPRESS OR IMPLIED, AS TO ANY MATTER WHATSOEVER, INCLUDING, BUT NOT
LIMITED TO, THE IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE. IN NO EVENT SHALL LESSOR HAVE ANY LIABILITY FOR, NOR SHALL
LESSEE HAVE ANY REMEDY AGAINST LESSOR FOR, CONSEQUENTIAL DAMAGES, ANY LOSS OF
PROFITS OR SAVINGS, LOSS OF USE, OR ANY OTHER COMMERCIAL LOSS.
6. DELIVERY AND INSTALLATION. Lessee shall arrange with Lessor for the
delivery of the Equipment at the Equipment Location [or such other place as
Lessee shall have notified Lessor of in writing not later than sixty (60)
business days prior to delivery]. Lessee shall pay any delivery and
installation charges. Lessor shall not be liable to Lessee for any delay in, or
failure of, delivery of the Equipment. Lessee shall examine the Equipment
promptly upon delivery or, if later, installation. If the Equipment is not in
good condition or the Equipment does not correspond to Lessor's specifications,
Lessee shall promptly give Lessor written notice and shall provide Lessor
reasonable assistance to cure the defect or discrepancy.
7. RENT COMMENCEMENT DATE. The Rent Commencement Date shall be the date
specified in the Supplement. Lessee shall be notified of the Rent Commencement
Date and the serial numbers of the Equipment.
8. LEASE TERM. The Lease shall be effective when signed by both parties.
The initial Term of the Lease shall expire at the end of the number of Payment
Periods, specified as "Term" in the Supplement, after the Rent Commencement
Date. However, obligations under the Lease shall continue until they have been
performed in full.
9. RENT. During the initial Term, Lessee shall pay Lessor, for each
Payment Period, Rent as set forth in or determined pursuant to the Supplement.
Lessee's obligation to pay shall begin on the Rent Commencement Date. Rent will
be invoiced in advance as of the first day of each calendar quarter and will be
due on the fifteenth (15th) day of such calendar quarter. When the Rent
Commencement Date is not on the first day of a calendar quarter and/or when the
initial Term does not expire on the last day of a calendar quarter, the
applicable Rent will be prorated on the basis of thirty (30) day months.
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10. PURCHASE OF EQUIPMENT. If Lessee is not then in default under the
Lease, Lessee may, upon three (3) months' prior written notice to Lessor,
purchase any/or all of the Equipment upon the earlier to occur of (a) the
exercise of the Sell Option unless Ionics has exercised the Buy Option (each as
hereinafter defined) or (b) expiration of the Term of the Lease. The purchase
price shall be an amount equal to the fair market value of the Equipment at the
time of purchase, as determined in good faith by agreement of Lessor and Lessee
or, in the absence of such agreement, by appraisal in accordance with the
commercial rules and regulations of the Boston chapter of the American
Arbitration Association (the cost of which shall be borne equally by Lessor and
Lessee). Payment for the Equipment shall be in the form of (i) a Subordinated
Term Note substantially in the form of Exhibit A hereto in the case of clause
(a) above (the term of which shall be the remaining average Term of the Lease
with respect to the Equipment being purchased) and (ii) cash in the case of
clause (b) above. The terms "Buy Option" and "Sell Option" shall have the
respective meanings assigned thereto in the Option Agreement, dated as of the
date hereof, among Lessor, Lessee, the stockholders of Lessee and WCC.
If Lessee purchases any Equipment, Lessee shall, on or before the date of
purchase, pay to Lessor the purchase price, any applicable taxes, all Rent due
through the day preceding the date of purchase and any other amounts due.
Lessor shall, on the date of purchase, transfer to Lessee by bill of sale,
without recourse or warranty of any kind, express or implied, all of Lessor's
right, title and interest in and to such Equipment on an "As Is, Where Is"
basis except that Lessor shall warrant title free and clear of all liens and
encumbrances.
11. OPTIONAL EXTENSION. If Lessee has not elected to purchase, and as long
as Lessee is not in default under the Lease, the Lease will be extended unless
Lessee notifies Lessor in writing, not less than three months prior to Lease
expiration, that Lessee does not want the extension. The extension will be
under the same terms and conditions then in effect, including Rent, and will
continue until the earlier of termination by either party upon three (3)
months'
prior written notice.
12. INSPECTION; MARKING; FINANCING STATEMENT. Upon request, Lessee shall
make the Equipment and its maintenance records available for inspection by
Lessor during Lessee's normal business hours. Lessee shall affix to the
Equipment any labels indicating ownership supplied by Lessor. Lessee shall
execute and deliver to Lessor for filing any Uniform Commercial Code financing
statements or similar documents Lessor may reasonably request.
13. MAINTENANCE. Lessee, at its expense, shall keep the Equipment in a
suitable environment and in good condition and working order, ordinary wear and
tear excepted.
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14. ALTERATIONS; MODIFICATIONS; PARTS. Lessee may alter or modify the
Equipment only with the express prior written approval of Lessor. Any
alteration is, at Lessor's request, to be removed and the Equipment restored to
its normal, unaltered condition at Lessee's expense prior to its return to
Lessor. Restoration will include replacement of any parts removed in connection
with the installation of an alteration. Any part installed in connection with
warranty or maintenance service shall be the property of Lessor.
15. RETURN OF EQUIPMENT. Upon expiration or termination of the Lease for
any item of Equipment, other than pursuant to an exercise of the purchase
option set forth in Paragraph 10, or upon demand by Lessor pursuant to
Paragraph 25, Lessee shall promptly return the Equipment, freight prepaid, to a
location in the Designated Territory (as defined in Operating Agreement of even
date between ACE and Ionics) specified by Lessor. Except for Casualty Loss,
Lessee shall pay any costs and expenses incurred by Lessor to inspect and
qualify the Equipment for Lessor's maintenance agreement service. Any parts
removed in connection therewith shall become Lessor's property.
16. CASUALTY INSURANCE; LOSS OR DAMAGE. Lessor will maintain, at its own
expense, insurance covering loss of or damage to the Equipment. If any item of
Equipment shall be lost, stolen, destroyed or irreparably damaged for any cause
whatsoever (Casualty Loss) or shall be otherwise damaged, on or after the Date
of Installation, Lessee shall promptly inform Lessor. If Lessor determines that
the item can be economically repaired, Lessee shall place the item in good
condition and working order and Lessor will reimburse Lessee the reasonable
cost of such repair, less the deductible. If not so repairable, Lessee shall
pay Lessor the greater of (a) the Remaining Rental Payments (as defined in the
Supplement) or (b) the fair market value of the Equipment immediately prior to
the Casualty Loss. Upon Lessor's receipt of payment the Lease for that item
shall terminate.
17. TAXES. Lessee shall promptly reimburse Lessor for, or shall pay
directly if so requested by Lessor, in addition to Rent, all taxes, charges,
and fees imposed or levied by any governmental body or agency upon or in
connection with the purchase, ownership, leasing, possession, use or relocation
of the Equipment or otherwise in connection with the transactions contemplated
by the Lease, excluding, however, all taxes on or measured by the net income of
Lessor. Upon request, Lessee will provide proof of payment.
The Lease is entered into on the basis that under the Internal Revenue
Code of 1986, as amended (the "Code"), Lessor shall be entitled to (a) maximum
Modified Accelerated Cost Recovery System ("MACRS") deductions for seven-year
property, and (b) deductions for interest expense incurred to finance
construction of the Equipment. Lessee represents, warrants and covenants that
at all times during the term of the Lease: (a) no item of Equipment will
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constitute "public utility property" as defined in the Code; (b) Lessee will
not make any election under the Code; or take any action, or fail to take any
action, if such election, action or failure to act would cause any item of
Equipment to cease to be eligible for any MACRS deductions or interest
deductions; and (c) Lessee will keep and make available to Lessor the records
required to establish the matters referred to in this paragraph.
If, as a result of any act, failure to act, misrepresentation, inaccuracy,
or breach of any warranty or covenant, or default under the Lease, by Lessee,
an affiliate of Lessee, or any person who shall obtain the use or possession of
any item of Equipment through Lessee, Lessor shall lose the right to claim or
shall suffer any disallowance or recapture of all or any portion of any MACRS
deductions or interest deductions ("Tax Loss") with respect to any item of
Equipment, then, promptly upon written notice to Lessee that a Tax Loss has
occurred, Lessee shall reimburse Lessor the amount determined below.
The reimbursement shall be an amount that, in the reasonable opinion of
Lessor, shall make Lessor's after-tax rate of return and cash flows ("Financial
Returns"), over the term of the Lease for such item of Equipment, equal to the
expected Financial Returns that would have been otherwise available. The
reimbursement shall take into account the effects of any interest, penalties
and additions to tax required to be paid by Lessor as a result of such Tax Loss
and all taxes required to be paid by Lessor as a result of any payments
pursuant to this Paragraph.
All the rights and privileges of Lessor arising from this Paragraph shall
survive the expiration or termination of the Lease.
18. LESSOR'S PAYMENT. If Lessee fails to perform its obligations under
Paragraph 16, 17 or 19 or to discharge any encumbrances created by Lessee,
Lessor shall have the right to substitute performance, in which case, Lessee
shall pay Lessor the cost thereof.
19. GENERAL INDEMNITY. This Lease is a net lease. Therefore, Lessee shall
indemnify Lessor against, and hold Lessor harmless from, any and all claims,
actions, damages, obligations, liabilities and liens; and all costs and
expenses, including legal fees, incurred by Lessor in connection therewith,
arising out of the Lease including, without limitation, the purchase,
ownership, lease, possession, maintenance, condition, use or return of the
Equipment; or arising by operation of law; excluding, however, any of the
foregoing which result from the gross negligence or willful misconduct of
Lessor. Lessee agrees that upon written notice by Lessor of the assertion of
any claim, action, damage, obligation, liability or lien, Lessee shall assume
full responsibility for the defense thereof. Any payment pursuant to this
paragraph shall be of such amount as shall be necessary so that, after payment
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of any taxes required to be paid thereon by Lessor, including taxes on a
measured by the net income of Lessor, the balance will equal the amount due
hereunder. Lessee's obligations under this paragraph shall not constitute a
guarantee of the residual value or useful life of any item of Equipment or a
guarantee of any debt of Lessor. The provisions of this paragraph with regard
to matters arising during the Lease shall survive the expiration or termination
of the Lease.
20. LIABILITY INSURANCE. Lessee shall obtain and maintain comprehensive
general liability insurance, in an amount of $1,000,000 or more for each
occurrence, with an insurer having a "Best's Policyholders" rating of B+ or
better. The policy shall name Lessor as an additional insured as Lessor's
interests may appear and shall contain a clause requiring the insurer to give
Lessor at least one month's prior written notice of the cancellation, or any
alteration in the terms, of the policy. Lessee shall furnish to Lessor, upon
request, evidence that such insurance coverage is in effect.
21. SUBLEASE AND RELOCATION OF EQUIPMENT; ASSIGNMENT BY LESSEE. Lessee
may, in the ordinary course of business, sublet the Equipment or relocate it
from the Equipment Location. No sublease or relocation shall relieve Lessee of
its obligations under the Lease. In no event shall Lessee remove the Equipment
from the continental United States. Lessee shall not assign, transfer or
otherwise dispose of the Lease or Equipment, or any interest therein, or create
or suffer any levy, lien or encumbrance thereof except those created by Lessor.
22. ASSIGNMENT BY LESSOR. Lessee acknowledges and understands that the
terms and conditions of the Lease have been fixed to enable Lessor to sell and
assign its interest or grant a security interest or interests in the Lease and
the Equipment individually or together, in whole or in part, for the purpose of
securing loans to Lessor or otherwise. If Lessee is given written notice of any
assignment, it shall promptly acknowledge receipt thereof in writing. Each such
assignee shall have all of the rights of Lessor under the Lease. Lessee shall
not assert against any such assignee any setoff, defense or counterclaim that
Lessee may have against Lessor or any other person. Lessor shall not be
relieved of its obligations hereunder as a result of any such assignment unless
Lessee expressly consents thereto.
23. DELINQUENT PAYMENTS. If any amount to be paid to Lessor is not paid on
or before ninety (90) days of its due date, Lessee shall pay Lessor on demand
interest at the rate of 14% per annum until the date paid or, if less, the
maximum allowed by law.
24. DEFAULT; NO WAIVER. Lessee shall be in default under the Lease upon
the occurrence of any of the following events (except to the extent prevented
by the terms of the Subordination Agreement): (a) Lessee fails to pay when due
any amount required to be paid by Lessee under the Lease and such failure shall
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continue for a period of thirty (30) days after written notice (with a copy to
WCC) to Lessee, or any repeated failure to make such payments without any such
notice; (b) Lessee fails to perform in any material respect any other material
provisions under time Lease or violates in any material respect any of the
material covenants or representations made by Lessee in the Lease, or Lessee
fails to perform in any material respect any of its material obligations under
any other Lease entered into pursuant to this Agreement, and such failure or
breach shall continue unremedied for a period of more than forty-five (45) days
after written notice to Lessee (with a copy to WCC) in the case of any other
such default, except that if such default is not of a repeated nature and if
Lessee promptly commences and diligently prosecutes the cure of such default to
completion, and such cure is not reasonably achievable within such forty-five
(45) day period, such forty-five (45) day period shall be extended to the
period of time reasonably required to complete such cure (such period in no
event, however, to exceed an additional ninety (90) days); (c) Lessee makes an
assignment for the benefit of creditors, whether voluntary or involuntary, or
consents to the appointment of a trustee or receiver, or if either shall be
appointed for Lessee or for a substantial part of its property without its
consent; (d) any petition or proceeding is filed by or against Lessee under any
Federal or State bankruptcy or insolvency code or similar law; (e) if
applicable, Lessee makes a bulk transfer subject to the provisions of the
Uniform Commercial Code; or (f) Lessor has terminated the Operating Agreement
of even date between ACE and Ionics.
Any failure of Lessor to require strict performance by Lessee or any
waiver by Lessor to require strict performance by Lessee or any waiver by
Lessor of any provision in the Lease shall not be construed as a consent or
waiver of any other breach of the same or of any other provision.
25. REMEDIES. If Lessee is in default under the Lease, Lessor shall have
the right, in its sole discretion, to exercise any one or more of the following
remedies in order to protect its interests, reasonably expected profits and
economic benefits. Lessor may (a) declare any Lease entered into pursuant to
this Agreement to be in default; (b) terminate in whole or in part any Lease;
(c) recover from Lessee any and all amounts then due; (d) take possession of
any or all items of Equipment, wherever located, without demand or notice,
without any court order or other process of law; and (e) demand that Lessee
return any or all such items of Equipment to Lessor in accordance with
Paragraph 15 and, for each day that Lessee shall fail to return any item of
Equipment, Lessor may demand an amount equal to the Rent, prorated on the basis
of a thirty (30) day month, in effect immediately prior to such default. Lessor
may pursue any other remedy available at law or in equity, including, but not
limited to, seeking damages, specific performance and an injunction.
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No right or remedy is exclusive of any other provided herein or permitted
by law or equity. All such rights and remedies shall be cumulative and may be
enforced concurrently or individually from time to time.
26. LESSOR'S EXPENSE. Lessee shall pay Lessor on demand all reasonable
costs and expenses, including legal and collection fees, incurred by Lessor in
enforcing the terms, conditions or provisions of the Lease or in protecting
Lessor's rights and interests in the Lease and the Equipment.
27. OWNERSHIP; PERSONAL PROPERTY. The Equipment under Lease is and shall
be the property of Lessor. Lessee shall have no right, title or interest
therein except as set forth in the Lease. The Equipment is, and shall at all
times be and remain, personal property and shall not become a fixture or
realty.
28. NOTICES; ADMINISTRATION. Service of all notices under the Lease shall
be sufficient if delivered personally or mailed to Lessee at its address
specified in the Supplement or to Ionics as Lessor at the address set forth
above. Notice by mail shall be effective when deposited in the United States
mail, duly addressed and with postage prepaid. Notices, consents and approvals
from or by Lessor shall be given by Lessor and all payments shall be made to
Lessor until Lessor shall notify Lessee otherwise.
29. APPLICABLE LAW; SEVERABILITY. The Lease shall be governed by the laws
(other than those governing conflict of laws matters) of The Commonwealth of
Massachusetts. If any provision shall be held to be invalid or unenforceable,
the validity and enforceability of the remaining provisions shall not in any
way be affected or impaired.
LESSEE ACKNOWLEDGES THAT LESSEE HAS READ THIS AGREEMENT AND ITS
SUPPLEMENT, UNDERSTANDS THEM, AND AGREES TO BE BOUND BY THEIR TERMS AND
CONDITIONS. FURTHER, LESSEE AGREES THAT THIS AGREEMENT AND ITS SUPPLEMENT ARE
THE COMPLETE AND EXCLUSIVE STATEMENT OF THE AGREEMENT BETWEEN THE PARTIES,
SUPERSEDING ALL PROPOSALS OR PRIOR AGREEMENTS, ORAL OR WRITTEN, AND ALL OTHER
COMMUNICATIONS BETWEEN THE PARTIES RELATING TO THE SUBJECT MATTER HEREOF.
IN WITNESS WHEREOF, Lessor and Lessee have caused this Agreement to be
executed as of September 27, 1989.
AQUA COOL ENTERPRISES INC.
By /s/ K. Kachadurian
------------------------
Name: K. Kachadurian
Title: President
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IONICS, INCORPORATED
By /s/ Arthur L. Goldstein
------------------------
Name: Arthur L. Goldstein
Title: President and CEO
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EXHIBIT A
SUBORDINATED TERM NOTE
$_________________ , 1989
FOR VALUE RECEIVED, Aqua Cool Enterprises Inc., a Massachusetts corporation
(hereinafter called "ACE"), by this promissory note (hereinafter called "this
Note"), promises unconditionally to pay to the order of _______, a __________
corporation (hereinafter called "Lender"), on or before _______, 1994, the
principal sum of __________ UNITED STATES DOLLARS ($______ U.S.), or so much
thereof as may from time to time remain unpaid hereunder, and to pay interest
on the principal sum remaining unpaid hereunder and, to the extent legally
enforceable, on any overdue interest from time to time from the date hereof
until said principal sum shall have been paid in full, all at the rates and in
the manner hereinafter set forth. Interest shall be calculated on the basis of
actual calculated days elapsed and a 360-day year.
1. PAYMENT OF THE NOTE.
On the first day of each calendar quarter in each year commencing _____,
ACE will pay Lender, the sum of _____ Dollars ($_____). Subject to the
Subordination Agreement (as hereinafter defined), ACE may, at its option, at
any time or from time to time prepay all or any part of this Note, without
premium but together with interest on the principal amount so prepaid accrued
to the date of prepayment; any such prepayment shall not relieve ACE of its
obligations to make the payments required by the first sentence of this
paragraph.
Interest shall be computed and shall accrue at an annual rate of fourteen
percent (14%) or, in the case of any overdue principal or, to the extent
legally enforceable, interest, at the annual rate of sixteen percent (16%).
All payments of principal, interest and other amounts payable on or in
respect of this Note or the indebtedness evidenced hereby shall be made by wire
transfer in immediately available funds to such account or accounts in the
United States as Lender shall have specified in writing to ACE or, in the event
it shall have failed to specify any such account, by check mailed to the
address referred to in Section 8 of this Note or such other address as Lender
may have specified in writing to ACE.
All payments received in respect of the indebtedness evidenced by this
Note shall be applied first to interest hereon
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accrued to the date of payment, then to the payment of other amounts (except
principal) at the time due and unpaid hereunder, and finally to the unpaid
principal hereof.
If any payment on this Note becomes due and payable on a day other than a
day (a "business day") on which banks are open for the transaction of normal
banking business in Boston, Massachusetts, the maturity thereof shall be
extended to the next succeeding business day and, with respect to any payment
of principal, interest thereof shall be payable at the then applicable rate
during such extension.
Should the indebtedness evidenced by this Note or any part thereof be
collected by action at law, or in bankruptcy, receivership or other court
proceedings, or should this Note be placed in the hands of attorneys for
collection after default, ACE agrees to pay, upon demand by Lender, in addition
to principal and interest and other sums, if any, due and payable hereon, court
costs and reasonable attorneys' fees and other reasonable collection charges
unless prohibited by law.
2. EVENT OF DEFAULT.
Upon the happening and continuance of an Event of Default, as hereinafter
defined, Lender may declare the entire unpaid principal amount hereof, together
with the interest accrued hereon, due and payable immediately. Lender's failure
to exercise such option shall not constitute a waiver of the right to exercise
the same at any other time.
The term "Event of Default" shall mean one or more of the following events
of default:
(a) ACE (i) fails to pay any principal when due and payable, or (ii)
fails to pay any interest under this Note or any other obligation to Lender
within five (5) business days after the date on which the same shall be due and
payable;
(b) an Event of Default (as defined in the Loan Agreement, dated as
of September , 1989, between ACE and Westinghouse Credit Corporation) shall
have occurred (whether or not waived);
(c) ACE fails to perform, keep, or observe any other term,
provision, condition or covenant contained in this Note or any other agreement
with Lender which is required to be performed, kept, or observed by ACE and
such failure (provided it is curable) is not cured to Lender's reasonable
satisfaction within ten (10) business days after ACE becomes aware of such
failure; or, if the default cannot reasonably be remedied within such period,
if ACE fails to commence to remedy the same within ten (10) business days and
vigorously thereafter to carry the same to completion within thirty (30)
additional business days after becoming aware of such failure; provided,
however, that if the default is such that a delay in the exercise of a remedy
would in Lender's reasonable
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judgment cause material harm to Lender, upon written notice from Lender, ACE
shall not be entitled to any period of grace.
3. SUBORDINATION OF THE NOTE.
This Note is subordinated to certain indebtedness of ACE pursuant to the
terms and conditions of an Intercreditor and Subordination Agreement (the
"Subordination Agreement"), dated as of September __, 1989, among ACE, Lender
and Westinghouse Credit Corporation.
4. COVENANTS.
Until the obligations of ACE hereunder have been discharged in full, ACE
covenants and agrees that, unless Lender shall otherwise consent in writing:
(a) It shall promptly give notice to Lender (i) of any default under the
Loan Agreement referred to in the Subordination Agreement (the "Loan
Agreement") or any other credit or loan agreement on account of which any debt
to which this Note is subordinated may be declared forthwith due and payable,
or of any default in the payment of any of the debt to which this Note is
subordinated; and (ii) of any litigation or any administrative proceeding to
which it may hereafter become a party which, in the opinion of counsel for ACE,
may involve any material risk of any material judgment or liability not fully
covered by insurance or which may otherwise result in any material adverse
change in the business or assets or in the condition, financial or other, or
results of operation of ACE;
(b) It shall promptly provide to Lender (i) copies of the regularly
prepared annual and quarterly financial statements of ACE which annual
financial statements shall contain a certificate of independent public
accountants, and (ii) copies of any notices or documents required to be
delivered pursuant to the terms and conditions of the Loan Agreement;
(c) It shall at all times keep proper books of record and account in which
full, true and correct entries shall be made of its transactions in accordance
with generally accepted accounting principles; and it shall set aside on its
books from its earnings for each fiscal year all such proper reserves,
including reserves for depreciation, depletion, obsolescence and amortization
of its properties during such fiscal year, as shall be required in accordance
with generally accepted accounting principles in connection with its business;
and it shall permit access to Lender and its agents to the books and records of
ACE during normal business hours, subject to normal confidentiality
requirements;
(d) It shall pay and discharge promptly as they become due and payable all
taxes, assessments and other governmental charges or levies imposed upon it or
its income or upon any of its property, real, personal or mixed, or upon any
part thereof, as
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well as all claims of any kind (including claims for labor, materials and
supplies) which, if unpaid, might by law become a lien or charge upon its
property; provided, however, that it shall not be required to pay any such tax,
assessment, charge, levy or claim if the amount, applicability or validity
thereof shall currently be contested in good faith by appropriate proceedings
or other appropriate actions promptly initiated and diligently conducted and if
it shall have set aside on its books such reserves, if any, with respect
thereto as are required by generally accepted accounting principles;
(e) It shall do or cause to be done all things necessary to preserve and
keep in full force and effect its corporate existence; provided, however, that
nothing in this subdivision (e) shall prevent a consolidation, combination or
merger of ACE with any other Person;
(f) It shall maintain and keep its properties in good repair, working
order and condition, and from time to time make all needful and proper repairs,
renewals and replacements, as in its judgment may be necessary so that the
business carried on in connection therewith may be properly and advantageously
conducted at all times; provided, however, that, nothing in this subdivision
(f) shall prevent ACE from selling, abandoning or otherwise disposing of any
property which is not material to the business or the property of ACE
(including any lease of property) if in its judgment the same is no longer
useful in the business of ACE;
(g) It shall comply in all material respects with all applicable statutes,
rules, regulations and orders of, and all applicable restrictions imposed by,
all governmental authorities in respect of the conduct of its business and the
ownership of its property (including, without limitation, applicable statutes,
rules, regulations, orders and restrictions relating to environmental, safety
and other similar standards or controls);
(h) It shall maintain with financially sound and reputable insurers,
insurance with respect to the properties and business of ACE against loss or
damage of the kinds customarily insured against by owners of established
reputation engaged in the same or similar business and similarly situated, in
such amounts and by such methods as shall be customary for such owners and
deemed adequate by ACE; and
(i) It shall comply in all material respects with all of the covenants and
provisions of the Loan Agreement and not amend, modify, change or terminate the
Loan Agreement or any of the other Loan documents referred to therein in any
manner which would adversely affect Ionics or the ability of ACE to make timely
payments of this Note or to perform any of its other obligations hereunder.
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5. REMEDIES.
No right, power or remedy conferred hereby upon Lender shall be exclusive,
and each such right, power or remedy shall be cumulative and in addition to
every other right, power or remedy, whether conferred hereby or now or
hereafter available at law or in equity or by statute or otherwise.
6. NO IMPLIED WAIVERS.
No course of dealing between Lender and ACE and no delay in exercising any
right, power or remedy conferred hereby or now or hereafter existing at law or
in equity or by statute or otherwise, shall operate as a waiver of or otherwise
prejudice any such right, power or remedy.
7. REGISTERED OWNER.
ACE and all other persons may treat the registered holder hereof as the
owner hereof for the purpose of receiving payment of the principal of and
interest on this Note and for all other purposes, unless it has received
written notice to the contrary. ACE will maintain a register for the recording
of the registered holders hereof.
8. NOTICE.
All notice, requests, demands and other communications hereunder shall be
in writing and shall be deemed to have been duly given if delivered or three
(3) days after mailing if mailed, postage prepaid, certified or registered
mail, return receipt requested as follows: (a) if to ACE at 65 Grove Street,
Watertown, Massachusetts 02172, with a copy to Sullivan & Worcester, One Post
Office Square, Boston, Massachusetts 02109, Attn: Norman A. Bikales, Esq., and
(b) if to Lender at its address as shown on the register maintained by ACE
pursuant to Section 7, and/or to such other persons and address(es) as ACE or
Lender shall have specified in writing to the other.
9. INTEREST.
All agreements between ACE and Lender contained herein are hereby
expressly limited so that in no contingency or event whatsoever whether by
reason of acceleration of maturity of this Note, or otherwise, shall the amount
paid or agreed to be paid to Lender for the use, forbearance or detention of
the principal amount evidenced by this Note exceed the maximum permissible
under applicable law the benefit of which may be asserted by ACE as a defense,
and if, from any circumstances whatsoever, fulfillment of any provision of this
Note at the time performance of such provision shall be due, shall involve
transcending the limit of validity prescribed by law, or if from any
circumstances Lender should ever receive as interest under this Note such an
excessive amount, then, ipso facto, the amount which would be excessive
interest shall be applied to the reduction of the principal balance as
evidenced by this Note and not to the payment of interest. This
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provision shall control every other provision of all agreements between ACE and
Lender.
10. MISCELLANEOUS.
ACE hereby waives presentment for payment, demand, protest and notice of
dishonor. This Note shall be binding upon ACE's successors and assigns and upon
any affiliate of ACE which assumes its obligations hereunder. This Note and the
rights of Lender and of ACE hereunder shall be interpreted, governed,
construed, applied and enforced in accordance with the laws (other than those
governing conflict of law questions) of The Commonwealth of Massachusetts or
the United States of America, as applicable, regardless of: (i) where any such
instrument is executed or delivered; or (ii) where any payment or other
performance required by any such instrument is made or required to be made; or
(iii) where any breach of any provision of any such instrument occurs, or any
cause of action otherwise accrues; or (iv) where any action or other proceeding
is instituted or pending; or (v) the nationality, citizenship, domicile,
principal place of business, or jurisdiction or organization or domestication
of ACE or Lender; or (vi) whether the laws of the forum jurisdiction otherwise
would apply the laws of a jurisdiction other than The Commonwealth of
Massachusetts or the United States of America, as applicable; or (vii) any
combination of the foregoing.
As used herein, (a) the term "Lender" shall mean, in addition to the
initial payee hereof, each person from time to time who is an endorsee of this
Note or the bearer, if this Note is at the time payable to bearer, and the term
"ACE" shall mean, in addition to the initial obligor hereon, each person from
time to time who is a maker, surety, guarantor and endorser hereof.
WITNESS the execution hereof under seal as of the day and date above first
written.
AQUA COOL ENTERPRISES INC.
BY:_______________________
Name:
Title:
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Exhibit 10.9
IONICS, INCORPORATED
Employee Retention Agreement
February 24, 1998
Dear ____________:
Ionics, Incorporated (the "Company") recognizes that, as is the case with
many publicly held corporations, the possibility of a change in control may
exist and that such possibility, and the uncertainty and questions which it
may raise among key personnel, may result in the departure or distraction
of key personnel to the detriment of the Company, its stockholders and its
customers.
The Board of Directors of the Company (the "Board") has determined that
appropriate steps should be taken to reinforce and encourage the continued
attention and dedication of the Company's key personnel, including
yourself, to their assigned duties without distraction in the face of
potentially disturbing circumstances arising from the possibility of a
change in control of the Company.
In order to induce you to remain in its employ, the Company agrees that you
shall receive the severance benefits set forth in this letter agreement
(the "Agreement") in the event your employment with the Company is
terminated under the circumstances described below subsequent to a "Change
in Control" of the Company (as defined below).
1. Certain Definitions.
As used herein, the following terms shall have the following respective
meanings:
(a) A "Change in Control" shall occur or be deemed to have occurred
only if any of the following events occur: (i) any "person," as such term
is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), (other than the Company, any trustee or
other fiduciary holding securities under an employee benefit plan of the
Company, or any corporation owned directly or indirectly by the
stockholders of the Company in substantially the same proportion as their
ownership of stock of the Company) is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Company representing 30% or more of the combined voting
power of the Company's then outstanding securities; (ii) individuals who,
as of the date hereof, constitute the Board (as of the date hereof, the
"Incumbent Board") cease for any reason to constitute at least a majority
of the Board, provided that any person becoming a director subsequent to
the date hereof whose election, or nomination for election by the Company's
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stockholders, was approved by a vote of at least a majority of the
directors then comprising the Incumbent Board (other than an election or
nomination of an individual whose initial assumption of office is in
connection with an actual or threatened election contest relating to the
election of the directors of the Company, as such terms are used in Rule
14a-11 of Regulation 14A under the Exchange Act) shall be, for purposes of
this Agreement, considered as though such person were a member of the
Incumbent Board; or (iii) the stockholders of the Company approve a merger
or consolidation of the Company with any other corporation, other than (A)
a merger or consolidation which would result in the voting securities of
the Company outstanding immediately prior thereto continuing to represent
(either by remaining outstanding or by being converted into voting
securities of the surviving entity) more than 70% of the combined voting
power of the voting securities of the Company or such surviving entity
outstanding immediately after such merger or consolidation, or (B) a merger
or consolidation effected to implement a recapitalization of the Company
(or similar transaction) in which no "person" (as hereinabove defined)
acquires more than 30% of the combined voting power of the Company's then
outstanding securities; or (iv) the stockholders of the Company approve a
plan of complete liquidation of the Company or an agreement for the sale or
disposition by the Company of all or substantially all of the Company's
assets.
(b) A "Potential Change in Control" shall be deemed to have occurred
if:
(A) the Company enters in an agreement, the consummation of which
would result in the occurrence of a Change in Control of the Company,
(B) any person (including the Company) publicly announces an
intention to take or to consider taking actions which if consummated would
constitute a Change in Control of the Company; or
(C) the Board of Directors of the Company adopts a resolution to
the effect that, for purposes of this Agreement, a Potential Change in
Control of the Company has occurred.
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2. Terms of Agreement.
The term of this Agreement (the "Term") shall commence as of February
24, 1998 and shall continue in effect through December 31, 1999; provided,
however, that commencing on January 1, 2000 and each January 1 thereafter,
the Term shall be automatically extended for one additional year unless,
not later than September 30 of the preceding calendar year, the Company
shall have given you written notice that the Term will not be extended; and
provided further that, if a Change in Control of the Company shall have
occurred during the original or extended Term, this Agreement shall
continue in effect for a period of not less than 24 months beyond the month
in which such Change in Control occurred.
3. Change in Control; Potential Change in Control.
(a) No benefits shall be payable under this Agreement unless there has
been a Change in Control of the Company during the Term.
(b) You agree that, notwithstanding any provision to the contrary in
this Agreement, in the event of a Potential Change in Control of the
Company, you will not voluntarily resign as an employee of the Company
until the earliest of (A) a date which is six (6) months after the
occurrence of such Potential Change in Control of the Company, or (B) the
termination by you of your employment by reason of Disability as defined in
Section 4(b)(i) or for Good Reason as defined in Section 4(b)(iii).
4. Employment Status; Termination Following Change in Control.
(a) You acknowledge that this Agreement does not constitute a contract
of employment or impose on the Company any obligation to retain you as an
employee and, except as set forth in Section 3(b), this Agreement does not
prevent you from terminating your employment at any time. If your
employment with the Company terminates for any reason and subsequently a
Change in Control shall have occurred, you shall not be entitled to any
benefits hereunder. Any termination of your employment by the Company or
by you following a Change in Control of the Company during the Term shall
be communicated by written notice of termination ("Notice of Termination")
to the other party hereto in accordance with Section 7. The "Date of
Termination" shall mean the effective date of such termination as specified
in the Notice of Termination (provided that no such Notice of Termination
shall specify an effective date more than 180 days after the date of such
Notice of Termination).
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(b) Notwithstanding anything to the contrary herein, you shall be
entitled to the benefits provided in Section 5 only if a Change in Control
shall have occurred during the Term and your employment with the Company is
subsequently terminated or terminates within 24 months after such Change in
Control, unless such termination is (A) because of your death, (B) by the
Company for Disability (as defined in Section 4(b)(i)) or Cause (as defined
in Section 4(b)(ii)), or (C) by you other than for Good Reason (as defined
in Section 4(b)(iii)).
(i) Disability. If, as a result of incapacity due to physical or
mental illness, you shall have been absent from the full-time performance
of your duties with the Company for six (6) consecutive months and, within
thirty (30) days after written Notice of Termination is given to you, you
shall not have returned to the full-time performance of your duties, your
employment may be terminated for "Disability." Any termination for
Disability under this Agreement shall not affect any rights you may
otherwise have under the Company's Long-Term Disability Plan.
(ii) Cause. Termination by the Company of your employment for
"Cause" shall mean termination (A) upon your willful and continued failure
to substantially perform your duties with the Company (other than any such
failure resulting from your incapacity due to physical or mental illness or
any such actual or anticipated failure after the issuance of a Notice of
Termination by your for Good Reason as defined in Section 4(b)(iii)),
provided that a written demand for substantial performance has been
delivered to you by the Company specifically identifying the manner in
which the Company believes that you have not substantially performed your
duties and you have not cured such failure within 30 days after such
demand, or (B) by reason of your willful engaging in conduct which is
demonstrably and materially injurious to the Company. For purposes of this
subsection, no act or failure to act on your part shall be deemed
"willfull" unless done or omitted to be done by you not in good faith and
without reasonable belief that your action or omission was in the best
interest of the Company.
(iii) Good Reason. For purposes of this Agreement, "Good Reason"
shall mean, without your written consent, the occurrence after a Change in
Control of the Company of any of the following circumstances unless, in the
case of paragraphs (A), (C), (D), (F) or (G), such circumstances are fully
corrected prior to the Date of Termination (as defined in Section 4(a))
specified in the Notice of Termination (as defined in Section 4(a)) given
in respect thereof.
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(A) any significant diminution in your position, duties,
responsibilities, power, title or office as in effect immediately prior to
a Change in Control;
(B) any reduction in your annual base salary as in effect on the
date hereof or as the same may be increased from time to time;
(C) the failure of the Company to continue in effect any material
compensation or benefit plan in which you participate in immediately prior
to the Change in Control, unless an equitable arrangement (embodied in an
ongoing substitute or alternative plan) has been made with respect to such
plan, or the failure by the Company to continue your participation therein
(or in such substitute or alternative plan) on a basis not materially less
favorable, both in terms of the amount of benefits provided and the level
of your participation relative to other participants, as existed at the
time of the Change in Control, or the failure by the Company to award cash
bonuses to its executives in amounts substantially consistent with past
practice in light of the Company's financial performance;
(D) the failure by the Company to continue to provide you with
benefits substantially similar to those enjoyed by you under any of the
Company's life insurance, medical, accident, or disability plans in which
you were participating at the time of the Change in Control, the taking of
any action by the Company which would directly or indirectly materially
reduce any of such benefits, or the failure by the Company to provide you
with the number of paid vacation days to which you are entitled on the
basis of years of service with the Company in accordance with the Company's
normal vacation policy in effect at the time of the Change in Control;
(E) any requirement by the Company or of any person in control of
the Company that the location at which you perform your principal duties
for the Company be changed to a new location outside a radius of 50 miles
from your principal residence at the time of the Change in Control;
(F) the failure of the Company to obtain a satisfactory agreement
from any successor to assume and agree to perform the Agreement, as
contemplated in Section 6; or
(G) any purported termination of your employment which is not
effected pursuant to a Notice of Termination satisfying the requirements of
Section 7, which purported termination shall not be effective for purposes
of this Agreement.
/159
5. Compensation Upon Termination. Following a Change in Control of the
Company, you shall be entitled to the following benefits during a period of
Disability, or upon termination of your employment, as the case may be,
provided that such period or termination occurs during the Term:
(a) During any period that you fail to perform your full-time duties
with the Company as a result of incapacity due to physical or mental
illness, you shall continue to receive base salary and all other earned
compensation at the rate in effect at the commencement of any such period
(offset by all compensation payable to you under the Company's disability
plan or program or other similar plan during such period) until your
employment is terminated pursuant to Section 4(b)(i) hereof. Thereafter,
or in the event your employment is terminated by reason of death, your
benefits shall be determined under the Company's long-term disability,
retirement, insurance and other compensation programs then in effect in
accordance with the terms of such programs.
(b) If your employment shall be terminated by the Company for Cause or
by you other than for Good Reason following a Change in Control, the
Company shall pay you your full base salary and all other compensation
through the Date of Termination at the rate in effect at the time the
Notice of Termination is given, plus all other amounts to which you are
entitled under any compensation plan of the Company at the time such
payments are due, and the Company shall have no further obligations to you
under this Agreement.
(c) If your employment with the Company is terminated by the Company
(other than for Cause, Disability or your death) or by you for Good Reason
within 24 months after a Change in Control, then you shall be entitled to
the benefits below:
(i) the Company shall pay to you (A) your full base salary and
all other compensation through the Date of Termination at the rate in
effect at the time the Notice of Termination is given, no later than the
fifth full day Following the Date of Termination, plus all other amounts to
which you are entitled under any compensation plan of the Company at the
time such payments are due;
(ii) in lieu of any further salary payments for periods
subsequent to the Date of Termination, the Company will pay as severance
pay to you, at the time specified in Subsection (e) below, a lump sum
severance payment (together with the payments provided in paragraph (iv)
below, the "Severance Payments") in an amount equal to the sum of (A) 200%
(299% for the Chairman and Chief Executive Officer) of the average of your
annual base salary in effect on the Date of Termination and during each of
the two preceding calendar years, plus (B) 200% (299% for the Chairman and
Chief Executive Officer) of the average of the aggregate cash bonuses paid
or awarded to you in respect of the last three calendar years, up to and
including the calendar year for which your cash bonus was most recently
determined;
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(iii) the Company shall pay to you all legal fees and expenses
incurred by you as a result of such termination (including all such fees
and expenses, if any, incurred in contesting or disputing any such
termination or in seeking to obtain or enforce any right or benefit
provided by this Agreement); and
(iv) for a twenty-four (24) month period after such termination,
the Company, at its expense and without contribution required from you,
shall arrange to provide you with life, disability, dental and group health
insurance benefits substantially similar to those which you were receiving
immediately prior to the Notice of Termination. Notwithstanding the
foregoing, the Company shall not provide any benefit otherwise receivable
by you pursuant to this paragraph (iv) if an equivalent benefit is actually
received by you during the twenty-four (24) month period following your
termination, and any such benefit actually received by you shall be
reported to the Company.
(d) All payments to be made to you under this Agreement will be
subject to required withholding of applicable federal, state and local
income and employment taxes. Notwithstanding anything in this Agreement to
the contrary, if any of the payments provided for in this Agreement,
together with any other payments which you have the right to receive from
the Company or any corporation which is a member of an "affiliated group"
(as defined in Section 1504 (a) of the Internal Revenue Code of 1986 (the
"Code") without regard to Section 1504(b) of the Code) of which the Company
is a member, would constitute a "parachute payment" (as defined in Section
28OG(b)(2) of the Code), the payments pursuant to this Agreement shall be
reduced (reducing first the payments under Section 5(c)(ii)) to the
largest amount as will result in no portion of such payments being subject
to the excise tax imposed by Section 4999 of the Code; provided, however,
that the determination as to whether any reduction in the payments under
this Agreement pursuant to this proviso is necessary shall be made by you
in good faith, and such determination shall be conclusive and binding on
the Company with respect to its treatment of the payment for tax reporting
purposes.
/161
(e) The payments provided for in Subsections 5(b) and (c) shall
be made not later than the fifth day following the Date of Termination;
provided, however that, if the amounts of such payments cannot be finally
determined on or before such day, the Company shall pay to you on such day
an estimate, as determined in good faith by the Company, of the minimum
amount of such payments and shall pay the remainder of such payments
(together with interest at the rate provided in Section 1274(b)(2)(B) of
the Code) as soon as the amount thereof can be determined but in no event
later than the thirtieth day after the Date of Termination. In the event
that the amount of the estimated payments exceeds the amount subsequently
determined to have been due, such excess shall constitute a loan by the
Company to you, payable on the fifth day after demand by the Company
(together with interest at the rate provided in Section 1274(b)(2)(B) of
the Code).
(f) Except as provided in the second sentence of Subsection
5(c)(iv) hereof, you shall not be required to mitigate the amount of any
payment provided for in this Section 5 by seeking other employment or
otherwise, nor shall the amount of any payment or benefit provided for in
this Section 5 be reduced by any compensation earned by you as a result of
employment by another employer, by retirement benefits or by offset against
any amount claimed to be owed by you to the Company or otherwise.
6. Successors; Binding Agreement.
(a) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business or assets of the Company expressly to
assume and agree to perform this Agreement to the same extent that the
Company would be required to perform it if no such succession had taken
place. Failure of the Company to obtain an assumption of this Agreement
prior to the effectiveness of any succession shall be a breach of this
Agreement and shall entitle you to compensation from the Company in the
same amount and on the same terms as you would be entitled hereunder if you
had terminated your employment for Good Reason immediately after a Change
in Control of the Company, except that for purposes of implementing the
foregoing, the date on which any such succession becomes effective shall be
deemed the Date of Termination. As used in this Agreement, "Company" shall
mean the Company as defined above and any successor to its business or
assets as aforesaid which assumes and agrees to perform this Agreement by
operation of law, or otherwise.
/162
(b) This Agreement shall inure to the benefit of and be
enforceable by your personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If
you should die while any amount would still be payable to you hereunder if
you had continued to live, all such amounts, unless otherwise provided
herein, shall be paid in accordance with the terms of this Agreement to
your devisee, legatee or other designee or if there is no such designee, to
your estate.
7. Notice. For the purposes of this Agreement, notices and all other
communications provided for in this Agreement shall be in writing and shall
be duly given when delivered or when mailed by United States registered or
certified mail, return receipt requested, postage prepaid, addressed to the
Chief Executive Officer of the Company, at 65 Grove Street, Watertown,
Massachusetts 02172, and to you at the address shown above or to such
other address as either the Company or you may have furnished to the other
in writing in accordance herewith, except that notice of change of address
shall be effective only upon receipt.
8. Miscellaneous.
(a) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
(b) The validity, interpretation, construction and performance of
this Agreement shall be governed by the laws of the Commonwealth of
Massachusetts.
(c) No waiver by you at any time of any breach of, or compliance
with, any provision of this Agreement to be performed by the Company shall
be deemed a waiver of that or any other provision at any subsequent time.
(d) This Agreement may be executed in several counterparts, each
of which shall be deemed to be an original but all of which together will
constitute one and the same instrument.
(e) Any payments provided for hereunder shall be paid net of any
applicable withholding required under federal, state or local law.
(f) This Agreement sets forth the entire agreement of the parties
hereto in respect of the subject matter contained herein and supersedes all
prior agreements, promises, covenants, arrangements, communications,
representations or warranties, whether oral or written, by any officer,
employee or representative of any party hereto; and any prior agreement of
the parties hereto in respect of the subject matter contained herein is
hereby terminated and canceled.
/163
If this letter sets forth our agreement on the subject matter hereof,
kindly sign and return to the Company the enclosed copy of this letter,
which will then constitute our agreement on this subject.
Sincerely,
IONICS, INCORPORATED
By:__________________________
Agreed to this ___ day of ___________, 1998
____________________________________
(Signature)
____________________________________
Print Name
Address:_____________________________
____________________________________
/164
Exhibit 10.10
IONICS, INCORPORATED
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
/165
IONICS, INCORPORATED
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
TABLE OF CONTENTS
ARTICLE I PURPOSE 1
ARTICLE 2 DEFINITIONS 2
2.1 Account 2
2.2 Actuary 2
2.3 Additional Annuity Benefit 2
2.4 Beneficiary 3
2.5 Benefit 3
2.6 Board 3
2.7 Cause 3
2.8 Change of Control 4
2.9 Code 4
2.10 Committee 5
2.11 Company 5
2.12 compensation 5
2.13 Employment Termination 5
2.14 ERISA 5
2.15 Executive 5
2.16 Interest Rate 6
2.17 Participant 6
2.18 Pension Plan 6
2.19 Pension Plan Amount 6
2.20 Plan 6
2.21 Plan Year 6
2.22 Tax-Qualified Limits 7
2.23 Trust 7
2.24 Trustee 7
ARTICLE 3 PARTICIPATION AND BENEFITS 7
3.1 Participation 7
3.2 Accounts 7
3.3 Benefit at Termination of Employment 8
3.4 Death Benefit 9
3.5 Forfeiture of Benefit 11
3.6 Minors and Incompetents 11
3.7 Source of Payment of Benefits 11
ARTICLE 4 THE TRUST 12
4.1 Establishment of Trust 12
ARTICLE 5 ADMINISTRATION
5.1 Procedure 12
5.2 Cooperation with Actuary 12
5.3 Duties 13
5.4 Indemnification 14
5.5 Mutual Exclusion of Responsibility 14
5.6 Claims Procedure 14
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ARTICLE 6 AMENDMENT AND TERMINATION 16
6.1 Amendment 16
6.2 Termination 16
ARTICLE 7 MISCELLANEOUS 17
7.1 Nonassignability of Benefits 17
7.2 Tax Withholding 17
7.3 Rights of Participants and others 17
7.4 Release by Participants, Etc 18
7.5 Construction 18
7.6 Notices 18
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IONICS, INCORPORATED
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
Ionics, Incorporated, a Massachusetts corporation (the "Company"),
hereby adopts the Ionics, Incorporated Supplemental Executive
Retirement Plan as set forth below, effective as of January 1, 1996.
ARTICLE I
Purpose
The purpose of the Plan is to provide specified retirement
benefits to the select group of officers and key employees
participating in the Plan, in addition to the benefits to which they
are entitled under the Pension Plan. The Company intends that for
purposes of Title I of ERISA, the Plan constitute an unfunded
arrangement maintained for the purpose of providing deferred
compensation for a select group of management or highly compensated
employees. If the Committee determines that any Participant, with
respect to any period, is not a member of such a select group for
purposes of ERISA, the Committee may, after notice to such person,
terminate such person's participation in the Plan, and cause such
person's Account to be paid to him as soon as practicable or to be
transferred to a trust for his sole benefit, which trust is not
subject to title I of ERISA.
ARTICLE 2
Definitions
2.1 "Account" means a bookkeeping account maintained for a
Participant, to which amounts are credited and charged as described in
Section 3.2.
2.2 "Actuary" means the enrolled actuary selected from time to
time by the Committee.
2.3 "Additional Annuity Benefit" means the excess, as of the
end of a Plan Year, of (a) a Participant's projected annuity benefit
at his Normal Retirement Date, calculated under the normal retirement
benefit formula in the Pension Plan but taking into account his
Compensation without reference to the Tax Qualified Limits, over (b)
his projected annuity benefit at his Normal Retirement Date as
calculated for purposes of the Pension Plan; provided, however, that
if the Pension Plan is amended after the date hereof to "update" again
the Base Monthly Salary (as defined in the Pension Plan) which is
employed to calculate such annuity benefit, the Board may in its
discretion specify that such amendment is to be disregarded under this
clause (b), is to be modified as the Board may specify, or is to be
implemented in accordance with an effective date or a schedule
specified by the Board for purposes of this Plan.
2.4 "Beneficiary" means the person(s) or entity(ies)
identified with respect to a Participant pursuant to Section 3.4.
/168
2.5 "Benefit" means the amount that a Participant is entitled
to be paid under the Plan upon the termination of his employment.
2.6 "Board" means the Board of Directors of the Company.
2.7 "Cause" means any of the following: (a) the willful and
continued failure (other than by reason of incapacity due to physical
or mental illness) of a Participant to perform satisfactorily the
duties consistent with his title and position reasonably required of
him by the Board or supervising management after a written demand for
substantial performance is delivered to the Participant by the Board
or supervising management, which demand specifically identifies the
manner in which the Board or supervising management believes the
Participant has not satisfactorily performed his duties; (b) the
commission by a Participant of a felony, or the perpetration by a
Participant of a dishonest act or common law fraud against the
Company; (c) the use by a Participant of confidential information
available to him by reason of his employment, for any purpose other
than the sole interest of the Company or its client; or (d) any other
willful act or omission which is injurious to the financial condition
or business reputation of the Company; provided, however, that no act
or failure to act shall be deemed "willful" unless done, or omitted to
be done, not in good faith and without reasonable belief that the act
or omission was in the best interest of the Company.
2.8 "Change of Control" means the purchase or other
acquisition by any person, entity or group of persons, within the
meaning of Section 13(d) or 14(d) of the Securities Exchange Act of
1934 (the "Act"), or any comparable successor provisions, of
beneficial ownership (within the meaning of Rule 13d-3 promulgated
under the Act) of 30 percent or more of either the outstanding shares
of common stock or the combined voting power of the Company's then
outstanding voting securities entitled to vote generally, or the
approval by the stockholders of the Company of a reorganization,
merger or consolidation, in each case, with respect to which persons
who were stockholders of the Company immediately prior to such
reorganization, merger or consolidation do not, immediately
thereafter, own more than 50 percent of the combined voting power
entitled to vote generally in the election of directors of the
reorganized, merged or consolidated company's then outstanding
securities, or a liquidation or dissolution of the Company or the sale
of all or substantially all of the Company's assets.
2.9 "Code" means the Internal Revenue Code of 1986, as amended
from time to time.
2.10 "Committee" means the Compensation Committee of the Board
or such other committee consisting of two or more individuals (who
may, but need not be, officers or directors of the Company) which is
appointed by the Board to administer this Plan.
2.11 "Company" means Ionics, Incorporated and any successor to
all or a major portion of its property or business.
/169
2.12 "Compensation" means the Compensation of a Participant
for a calendar year as defined in Article 2 of the Pension Plan.
2.13 "Employment Termination" means a Participant's termination
of employment by the Company within 24 months following a Change of
Control or the Participant's Retirement (as defined in Section 2 of
the Pension Plan) provided, however, that a Participant's Employment
Termination will be deemed to have occurred in any event upon the
later to occur of his 65th birthday and his termination of employment
by the Company.
2.14 "ERISA" means the Employee Retirement Income Security Act
of 1974, as amended.
2.15 "Executive" means any officer or key employee of the
Company whose Compensation exceeds the limit in effect pursuant to
Section 401(a)(17) of the Code with respect to any Plan Year.
2.16 "Interest Rate" means an annual rate of interest specified
for a Plan Year by the Committee, in consultation with the Actuary.
2.17 "Participant" means an Executive who has commenced
participation in the Plan and whose Benefit has not been paid in full.
2.18 "Pension Plan" means the Ionics, Incorporated Retirement
Plan as it may be amended from time to time.
2.19 "Pension Plan Amount" means the excess of (a) the present
value required to be invested on the last day of the Plan Year in
order to produce a future value on a Participant's 65th birthday equal
to his Additional Annuity Benefit, assuming an interest rate equal to
the Interest Rate for the Plan Year for which the Pension Plan Amount
is being determined and otherwise using the actuarial assumptions
which are then employed for purposes of the Pension Plan, over (b) the
balance of the Participant's Account as of the end of the Plan Year
(disregarding the Pension Plan Amount for that Plan Year).
2.20 "Plan" means the plan embodied in this instrument, as from
time to time amended.
2.21 "Plan Year" means the calendar year.
2.22 "Tax-Qualified Limits" means the dollar amount in effect
from time to time pursuant to Section 401(a)(17) of the Code and the
limitations on benefits in effect from time to time under Section 415
of the Code.
2.23 "Trust" means-the trust fund established pursuant to the
Plan.
2.24 "Trustee" means the trustee named in the agreement
establishing the Trust and such successor and/or additional trustees
as may be named pursuant to the terms of the agreement establishing
the Trust.
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ARTICLE 3
Participation and Benefits
3.1 Participation. Each Executive employed by the Company on
the last day of the initial Plan Year (1996) shall become a
Participant in the Plan as of the effective date hereof, or as of the
first date of such later Plan Year in which he becomes an Executive.
3.2 Accounts. The Committee or its delegate shall maintain on
the books of the Company and in the Trust an Account for each
Participant, and shall credit to each Account as of the last day of
each Plan Year the Pension Plan Amount, as calculated by the Committee
or its delegate, in consultation with the Actuary. The balance of the
Account shall be reduced by the amount of any Benefit paid to or in
respect of a Participant. The Company will pay an amount to the Trust
with reasonable promptness after the Pension Plan Amount for any Plan
Year has been determined so that the Trust is caused to hold assets
equal in value to the sum of each Participant's Account. The Company
shall direct the Trustee to invest the Account as the Company shall
determine.
3.3 Benefit at Termination of Employment. A Benefit shall be
payable to a Participant by reason of his Employment Termination in
the amount credited to the vested portion of his Account at the time
of payment. A Participant's Account shall vest to the extent his
benefit under the Pension Plan is vested. The balance of his Account
shall be credited with interest at the short-term "applicable federal
rate" under Section 1274(d) of the Code from the last day of the Plan
Year for which he last accrues Benefit Service under the Pension Plan
until such Account has been completely paid. Subject to Sections 3.4
and 3.5, a Participant's Benefit shall be paid in one of the following
forms, according to the Participant's written election:
(a) a single sum paid within 90 days after the end of the
Plan Year following the Participant's Employment Termination;
(b) a series of two substantially equal annual
installments beginning within 90 days after the date of the
Participant's Employment Termination;
(c) a series of five substantially equal annual
installments beginning within 90 days after the date of the
Participant's Employment Termination; or
(d) a series of ten substantially equal annual
installments beginning within 90 days after the date of the
Participant's Employment Termination. A Participant's election
pursuant to this Section 3.3 must be delivered to the Committee or its
delegate no later than 30 days after he becomes a Participant, and may
be changed only at such time and in such manner as the Committee may
permit. If a Participant fails to deliver an election within that 30-
day period, his Benefit shall be paid in a single sum no later than 90
days after the end of the Plan Year following his Employment
Termination.
/171
A series of installments shall be considered substantially equal
if the amount distributed in each Plan Year equals (a) the balance of
the Participant's Account as of the last day of the Plan Year most
recently ended before the date of payment, divided by (b) the number
of installments remaining to be paid. Payments made after the initial
installment shall be-made an or about the anniversary date of the
initial installment.
3.4 Death Benefit. A death benefit shall be payable to the
Beneficiary of a Participant who dies while employed by the Company,
or who dies after his employment by the company has terminated but
before the Benefit to which he is entitled has been paid. The amount
of the death benefit shall be equal to the balance of the deceased
Participant's Account as of the date of his death. A Participant may
designate one or more persons or entities to receive death benefits
under the Plan by completing and delivering to the Committee or its
delegate during his lifetime a written designation in the form
prescribed by the Committee or its delegate. A Participant may change
or revoke any such designation, without the knowledge or consent of
any party, by completing and delivering to the Committee or its
delegate another such form. In every case, the form most recently
dated and delivered to the Committee or its delegate before the date
of a Participant's death shall cancel and supersede any such form
dated earlier. Payment of any benefit due under the Plan with respect
to a Participant who fails to designate a Beneficiary, or whose
designated Beneficiary is no longer living at the Participant's death,
will be made to the Participant's surviving spouse; or if he is not
survived by his spouse, to his children by right of representation; or
if he is survived by neither spouse nor children, to his parents; or
if he is survived by none of the foregoing, to his estate.
The death benefit shall be paid in a single sum as soon as
practicable after the Participant's death. Payment with respect to a
Beneficiary who survives the Participant but dies before payment of
the Benefit under this Section 3.4 has been made will be made to the
Beneficiary's estate.
3.5 Forfeiture of Benefit. Notwithstanding any other provision
of the Plan, neither a Participant nor any Beneficiary of a
Participant shall receive any Benefit under the Plan if the
Participant is dismissed from employment with the Company for Cause.
3.6 Minors and Incompetents. In the event that any Benefit
becomes payable to a minor or to a person under legal disability, or
to a person not judicially declared incompetent but whom the Committee
or its delegate considers unable properly to administer the Benefit by
reason of physical or mental disability, then the Benefit shall be
paid out in such of the following ways as the Committee or its
delegate deems best, and the Committee and the Company shall incur no
liability therefor: (a) directly to such person; (b) to the legally
appointed guardian or conservator of such person; or (c) to some
relative or friend for the care and support of such person.
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3.7 Source of Payment of Benefits. The Benefit provided under
the Plan with respect to a Participant shall be payable from the Trust
or from the general assets of the Company. If the Trust does not have
sufficient assets to pay any amount owed under the Plan with respect
to a Participant, the Company shall make such Payment. At no time
shall a Participant or Beneficiary have, by reason of the Plan, any
right, title, or interest superior to that of a general unsecured
creditor of the Company, in or to any asset or assets or of the
Company.
-12-
ARTICLE 4
The Trust
4.1 Establishment of Trust. The Company shall establish the
Trust with the Trustee, pursuant to such terms and conditions as are
set forth in the Trust agreement to be entered into between the
Company and the Trustee. The Trust is intended to be treated as a
"grantor" trust under the Code, and the establishment of the Trust is
not intended to cause any Participant to realize current income on
amounts contributed thereto, and the Trust shall be so interpreted.
ARTICLE 5
Administration
5.1 Procedure. The Committee will be the administrator of the
Plan. The Committee may take any decision or action in connection
with the Plan by a majority of its members. Decisions in connection
with the Plan may be made and evidenced by a written document signed
by a majority of the Committee's members, without a formal meeting of
the Committee. The Committee may delegate to one or more officers of
the Company any duty as to which the Plan specifically permits such
delegation, but no duty of the committee may be delegated to an
Executive who is or has been a Participant.
5.2 Cooperation with Actuary. The Committee or its delegate
shall provide to the Actuary such information as to Participants'
compensation, accrued benefits under the Pension Plan, length of
service, age and other information that the Actuary may request in
connection with the calculation of the Pension Plan Amount.
5.3 Duties. In addition to the powers and duties specified
elsewhere in the Plan, the Committee shall:
(a) determine all matters relating to the eligibility of
persons to become Participants in the Plan;
(b) determine whether or not any employee of the Company
has become a Participant in the Plan;
/173
(c) determine whether and when the employment of any
Participant has been terminated and, to the extent material to a
determination of a benefit hereunder, the cause of such termination;
and
(d) decide all questions which may arise from time to time
with respect to the rights under the Plan of employees of the Company,
Participants, and any other persons who claim to be entitled to
benefits under the Plan.
The Committee shall have exclusive discretionary authority to
construe and interpret the Plan document; provided, however, that in
exercising its powers and duties the Committee shall treat alike
Participants and Beneficiaries in like circumstances.
5.4 Indemnification. The Company agrees to indemnify and save
harmless each member of the Committee and any delegate of the
committee against any and all liability occasioned by or arising out
of any action with respect to the Plan taken, suffered or omitted in
good faith by him.
5.5 Mutual Exclusion of Responsibility. Neither the Trustee
nor the Company shall be obliged to inquire into or be responsible for
any act or failure to act, or the authority therefor, on the part of
the other.
5.6 Claims Procedure. A Participant or other person who
asserts a right to any benefit under the Plan which he has not
received must file a written claim with the Administrator. If the
Administrator wholly or partially denies the claim, it shall within 90
days of receipt of the claim provide a written notice of denial to the
claimant, setting forth:
(a) specific reasons for the denial of the claim,
(b) specific reference to pertinent provisions of the Plan
on which the denial is based,
(c) a description of any additional material or
information necessary to perfect the claim and an explanation of why
such material or information is necessary, and
(d) an explanation of the Plan's claims review procedure.
A claimant whose application for benefits is denied, or who has
received neither an affirmative reply nor a notice of denial within 90
days after filing his claim, may request a full and fair review of the
decision denying the claim. The request must be made in writing to
the Administrator within 60 days after receipt of the notice of denial
(or, if no notice of denial is issued, within 60 days after the
expiration of 90 days from the filing of the claim). In connection
with the review, the claimant or his authorized representative may:
(a) request a hearing by the Administrator upon written
application to the Administrator,
/174
(b) review pertinent documents in the possession of the
Administrator, and
(c) submit issues and comments in writing to the Administrator
to review.
A decision on review by the Administrator shall be made
promptly, and not later than 60 days after the receipt by the
Administrator of a request for review, unless special circumstances
(such as a need to hold a hearing) require an extension of time for
processing, in which case the claimant will be so notified of the
extension and a decision shall be rendered as soon as possible, and
not later than 120 days after the receipt of the request for review.
The decision shall be in writing and shall include specific reasons
for the decision written in a manner calculated to be understood by
the claimant, and specific reference to the pertinent provisions of
the Plan on which-the decision is based. The decision of the
Administrator shall be final and binding upon all parties.
ARTICLE 6
Amendment and Termination
6.1 Amendment. The Company shall have the right, at any time
and from time to time, to modify or amend the Plan by an instrument in
writing, executed by a duly authorized officer of the Company and
delivered to the Committee; provided, however, that no amendment shall
reduce the balance of a Participant's Account without his written
consent.
6.2 Termination. Although the Company expects to continue the
Plan indefinitely, it expressly reserves the right to terminate it in
whole or in part at any time by an instrument in writing delivered to
the Committee, effective on the date specified in such instrument.
Upon termination of the Plan, the Committee may in its discretion
permit each Participant who is then employed with the Company (or if
the Plan is partially terminated, each Participant affected by the
termination) to receive a Benefit equal to the balance of his Account
as of the date of such termination or partial termination, payable as
if the Participant had then terminated his employment. To the extent
a Participant does not receive his Benefit upon termination of the
Plan, his Account shall continue to be maintained in accordance with
Section 3.2, and shall be payable in accordance with Section 3.3,
notwithstanding that thereafter there will be no Pension Plan Amount
added to the Account.
ARTICLE 7
Miscellaneous
7.1 Nonassignability of Benefits. No right or claim to any
benefit hereunder will be assignable by any Participant or
Beneficiary, nor subject to garnishment, attachment, execution or levy
of any kind. Any attempt to assign, transfer, pledge, encumber,
commute or anticipate payment of benefits hereunder will be void.
/175
7.2 Tax Withholding. All payments under this Plan shall be
subject to such tax withholding as may be required by law.
7.3 Rights of Participants and Others. Except as expressly
set forth herein, nothing contained in the Plan shall be deemed to
give any Participant the right to be retained in the employ of the
Company, or to confer upon or create in any Participant or other
person any rights of any name or nature, legal or equitable. Neither
anything contained herein nor any action taken by the Company
hereunder shall in any way prevent it from terminating the employment
of any Participant at any time, or subject it to any liability for
such termination, nor shall it be deemed to give the Company the right
to require the Participant to remain in its service or to interfere
with the Participant's right to terminate his service at any time.
7.4 Release by Participants, Etc. Except to the extent that
it relieves the Company or the Committee from responsibility or
liability for any responsibility, obligation or duty owing to the Plan
or to any Participant or Beneficiary, any payment made in accordance
with the provisions of the Plan to any person entitled to a Benefit
shall to the extent thereof be in full satisfaction of all claims
against the Company and the Committee, either of which may require as
a condition precedent to such payment that the recipient execute a
receipt and release therefor in such form as shall be determined by
the Company or the Committee, as the case may be.
7.5 Construction. The Plan shall be construed, and the rights
and liabilities of all persons hereunder shall be determined, in
accordance with the laws of the Commonwealth of Massachusetts, to the
extent that they are not preempted by ERISA. Masculine pronouns shall
include both masculine and feminine genders, and singular words shall
include the plural, wherever the context permits.
7.6 Notices. Any notice under the Plan will be deemed to have
been properly delivered if it is in writing and is delivered in hand
or sent by registered mail, postage prepaid, to the party addressed as
follows, unless another address has been substituted by notice so
given:
To a Participant: To his address as set forth in the payroll
records of the Company.
To the Committee: Care of the Company, at its address as shown
directly below.
To the Company: Ionics, Incorporated
65 Grove Street
Watertown, MA 02172
Attention: Stephen Korn, Esq.
IN WITNESS WHEREOF, the Company has caused this document to be
executed this day of 1996.
Ionics, Incorporated
By:
Attest:
/176
EXHIBIT 13
IONICS, INCORPORATED
ANNUAL REPORT TO STOCKHOLDERS OF
IONICS, INCORPORATED FOR THE
FISCAL YEAR ENDED DECEMBER 31, 1997
(Only pages 17 through 36 and the inside back cover
constitute an Exhibit to Form 10-K)
/177
Management's Discussion and Analysis
of Results of Operations and Financial Condition
Results of Operations
The financial performance of the Company reflected an 8% growth in
revenues and a 7% improvement in net income in 1997. The net income
growth included increases in earnings before interest, taxes and
minority interest of 23% and 36% in the Membranes and Related Equipment
and Consumer Products segments, respectively. The improvement in the
Membranes and Related Equipment segment reflected the acquisition of a
majority interest in Enersave Engineering Systems Sdn Bhd, a Malaysian
corporation (Enersave), improvement in the water desalting and related
equipment business and increased sales of instrumentation. The
improvement in the Consumer Products segment reflected growth in the
bottled water business. Earnings before interest, taxes and minority
interest decreased 9% in the Water, Food and Chemical Supply segment due
primarily to decreases in the municipal water and food processing
businesses.
Total revenues were $352.5 million in 1997, compared with $326.7
million in 1996. Revenues were higher in all three business segments,
with the largest growth occurring in Membranes and Related Equipment.
Membranes and Related Equipment revenues in 1997 grew due to
increased sales of water desalting and related equipment and the
acquisition of a majority interest in Enersave. Growth also resulted
from additional sales of instrumentation, primarily to the
pharmaceutical market, but was partially offset by a reduction in
revenues from the sale of wastewater systems.
Growth in the Water, Food and Chemical Supply segment reflected an
increase in the ultrapure water supply business, partially offset by
decreased sales of municipal water. The decrease in municipal water was
primarily a result of the City of Santa Barbara's buy-out of the
desalination plant constructed and maintained by the Company.
Consumer Products revenues increased during the year primarily
reflecting higher revenues from bottled water sales. This increase
resulted from growth in the customer base, an increase in consumption by
the existing customer base, particularly in the United Kingdom which
experienced a relatively warm summer and price increases.
Total revenues were $326.7 million in 1996, compared with $257.3
million in 1995. Revenues were higher in all three business segments,
with the largest growth occurring in Water, Food and Chemical Supply.
Membranes and Related Equipment revenues in 1996 grew due to
continuing strength in the sale of ultrapure water systems to the
semiconductor market. Growth also resulted from additional sales of
instrumentation to the pharmaceutical and semiconductor markets, but was
partially offset by a reduction in revenues from the sale of wastewater
systems, particularly related to zero liquid discharge applications.
/178
Growth in the Water, Food and Chemical Supply segment was primarily
due to increased revenues related to ownership and operation of
ultrapure water systems. This growth included revenues from the
acquisitions of Ahlfinger Water Company in November 1995 and Apollo
Ultrapure Water Systems, Inc. in January 1996. Revenue growth also
occurred in the municipal water supply and food processing businesses
due primarily to the acquisitions of Aqua Design, Inc. in January 1996
and Separation Technology, Inc. (STI) in July 1996.
Consumer Products revenues increased through the sale of higher
volumes of bottled water by existing Aqua Cool locations and through new
distribution facilities near Cleveland, Ohio and Providence, Rhode
Island. Revenues also increased in the consumer chemicals business due
to increased sales of automobile windshield wash solution and bleach
products. Home water product sales also increased in 1996.
Cost of sales as a percentage of revenues was 67.2%, 67.3% and
67.2% in 1997, 1996 and 1995, respectively.
Cost of sales as a percentage of revenues decreased during 1997 for
the Membranes and Related Equipment segment and Consumer Products
segment, and increased for the Water, Food and Chemical Supply segment.
The decrease in the Membranes and Related Equipment segment primarily
reflected an improvement in the mix between sales of instrumentation and
ultrapure water equipment. The increase in cost of sales as a
percentage of revenues in the Water, Food and Chemical Supply segment
primarily reflected a change in the mix of ultrapure water supply
contracts. The Consumer Products segment decrease reflected modest
bottled water price increases and the improved absorption of fixed
overhead costs resulting from continued expansion of the bottled water
customer base.
Cost of sales as a percentage of revenues declined during 1996 for
the Membranes and Related Equipment segment and Consumer Products
segment, and increased for the Water, Food and Chemical Supply segment.
The decrease in the Membranes and Related Equipment segment reflected an
improvement in the mix of wastewater treatment contracts and
instrumentation sales, partially offset by a change in the mix of
ultrapure water equipment contracts. The Consumer Products segment
decrease resulted primarily from the achievement of certain product cost
reductions and an improvement in product mix.
In the Water, Food and Chemical Supply segment, cost of sales
increased as a percentage of revenues during 1996. This increase
reflected the acquisition of STI, whose manufacturing costs did not
reflect the synergies believed available through continued integration
with the other businesses in this segment. This increase also reflected
increased competitive pressure within the industrial bleach market in
the United Kingdom.
Operating expenses as a percentage of revenues of 21% in 1997
remained substantially consistent with both 1996 and 1995.
/179
Interest income in 1997 was $1.2 million compared to $1.4 million
in 1996 and $1.2 million in 1995. Interest expense in 1997 was $0.9
million compared to $0.9 million in 1996 and $0.2 million in 1995.
The Company's effective tax rate was 33.0% in 1997, 33.0% in 1996
and 33.5% in 1995. In 1997, continued improvement in the mix of
earnings and tax rates among the different tax jurisdictions in which
the Company operates was partially offset by the loss of benefit from
tax-exempt interest income and a smaller benefit from the Company's
foreign sales corporation. The decrease in the effective tax rate for
1996 was due primarily to an improvement in the mix of earnings and
effective tax rates among the different tax jurisdictions in which the
Company operates. This was partially offset by a decrease in the
benefit from tax-exempt interest income, a higher state tax rate
resulting from a change in the composition of domestic income by state
and a proportionately smaller benefit from the Company's foreign sales
corporation.
Net income increased 6.9% to $28.3 million in 1997 compared to $26.5
million in 1996. Net income in 1996 was 26.1% higher than 1995 net
income of $21.0 million.
Legal Proceedings
The Company is involved in the normal course of its business in various
litigation matters. Although the Company is unable to determine at the
present time whether it will have any liability in any of these pending
matters, some of which are in the early stages of pre-trial discovery,
the Company believes generally that it has meritorious defenses and that
none of the pending matters will have an outcome material to the
financial condition or business of the Company.
Financial Condition
At December 31, 1997, the Company had total assets of $406.7 million
compared to total assets of $378.6 million at December 31, 1996 and
$322.0 million at December 31, 1995. The increase in 1997 reflected an
increase in total cash and cash equivalents and in other assets,
primarily reflecting goodwill arising from the acquisitions of a
majority interest in Enersave and the business of Watertec Engineering
Pty. Ltd. and related companies in Australia (Watertec). The major
component of the increase in 1996 resulted from expenditures for
property, plant and equipment related to the Company's
bottled water operations, bleach production and distribution facilities,
trailers and other "own and operate" facilities. In addition, during
both 1997 and 1996, accounts receivable increased, reflecting higher
revenues from capital equipment projects.
/180
Working capital in 1997 increased by $23.6 million and the Company's
current ratio increased to 2.5 from 2.1 in 1996. Capital expenditures
totaled $33.5 million, $46.9 million, and $50.9 million in 1997, 1996
and 1995, respectively. In addition, the Company spent approximately
$11.0 million to acquire Watertec and a majority interest in Enersave.
Funds for these expenditures were provided in each year through cash
from operations, proceeds from stock option exercises and the issuance
of current debt. In 1997, funds were also provided through the sale of
certain fixed assets, including bleach manufacturing equipment in the
United Kingdom.
Net cash provided by operating activities increased by $6.3 million
in 1997, due primarily to higher net income and depreciation, a smaller
increase in accounts receivable and inventories, and a smaller decrease
in accounts payable and accrued expenses. Net cash provided by operating
activities increased by $10.4 million in 1996, with higher net income,
depreciation, and income taxes partially offset by a decrease in
accounts payable and accrued expenses. Net cash used for investing
activities decreased by $11.6 million in 1997 after having increased by
$2.1 million in 1996 from 1995. In 1997, net cash provided by financing
activities decreased by $6.0 million primarily due to a reduction in
cash obtained from short-term borrowings after remaining substantially
consistent in 1996 with 1995.
Significant expenditures in 1998 are anticipated to include the
expansion of bottled water operations, own and operate facilities and
other manufacturing facilities and related equipment.
The Company maintains several lines of credit, including domestic
lines totaling $35 million, which are available to meet working capital
needs. In addition, the Company has several facilities to accommodate
its foreign trade and exchange requirements. The Company believes that
its cash of $25.8 million at the beginning of 1998, cash from
operations, lines of credit and foreign exchange facilities are adequate
to meet its currently anticipated needs.
Inflationary increases in material and labor costs remained moderate
during the last three years. The Company has worked to offset such
cost increases by redesigning its equipment to reduce costs. To the
extent permitted by the competitive environment, the Company has raised
prices where appropriate.
Management has developed a program to prepare the Company's computer
systems and applications for the Year 2000. The Company expects to
incur internal staff costs as well as consulting and other expenses
related to infrastructure and facilities enhancements necessary to
prepare its systems for the Year 2000. The Company has conducted a
preliminary assessment of Year 2000-related issues. Based upon the
results to date, the Company presently believes that, through
replacement or modifications to existing software, hardware and its
facilities, matters relating to the Year 2000 problem will not pose
significant operational problems for the Company and will not have a
material effect on the business or financial condition of the Company.
/181
Forward-Looking Information
The Company's future results of operations, as well as statements
contained in this Management's Discussion and Analysis which are
forward-looking statements, depend upon a number of 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; and regulations and laws affecting
business in each of the Company's markets.
/182
Report of Independent Accountants
To the Board of Directors and Stockholders of Ionics, Incorporated:
We have audited the accompanying consolidated balance sheets of
Ionics, Incorporated at December 31, 1997 and 1996 and the related
consolidated statements of operations, stockholders' equity, and cash flows
for each of the three years in the period ended December 31, 1997. These
financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position of
Ionics, Incorporated as of December 31, 1997 and 1996, and the results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1997, in conformity with generally accepted accounting
principles.
/s/COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
February 17, 1998
/183
<TABLE>
<CAPTION>
Consolidated Statements of Operations
For the years ended December 31
Amounts in Thousands, Except Per Share Amounts 1997 1996 1995
<S> <C> <C> <C>
Net revenue:
Membranes and related equipment $166,397 $151,030 $135,484
Water, food and chemical supply 113,026 109,488 66,510
Consumer products 73,046 66,144 55,299
352,469 326,662 257,293
Costs and expenses:
Cost of membranes and related equipment 115,305 107,181 97,048
Cost of water, food and chemical supply 80,205 74,711 43,867
Cost of consumer products 41,510 37,956 32,085
Research and development 5,410 5,108 4,180
Selling, general and administrative 67,593 63,118 50,123
310,023 288,074 227,303
Income from operations 42,446 38,588 29,990
Interest income 1,197 1,396 1,214
Interest expense (947) (869) (237)
Equity income 526 441 642
Income before income taxes and minority interest 43,222 39,556 31,609
Provision for income taxes 14,280 13,053 10,584
Income before minority interest 28,942 26,503 21,025
Minority interest expense 613 - -
Net income $ 28,329 $ 26,503 $ 21,025
Earnings per basic share $ 1.78 $ 1.71 $ 1.45
Earnings per diluted share $ 1.73 $ 1.65 $ 1.39
Shares used in basic earnings per
share calculations 15,936 15,542 14,545
Shares used in diluted earnings per share
calculations 16,409 16,106 15,085
The accompanying notes are an integral part of these financial statements.
</TABLE>
/184
-8-
<TABLE>
<CAPTION>
Consolidated Balance Sheets
December 31
Dollars in Thousands, Except Share Amounts 1997 1996
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 25,787 $ 12,269
Short-term investments 107 -
Notes receivable, current 3,856 3,496
Accounts receivable 98,275 91,392
Receivables from affiliated companies 2,624 2,999
Inventories 28,910 26,000
Other current assets 6,291 8,266
Total current assets 165,850 144,422
Notes receivable, long-term 8,349 7,737
Investments in affiliated companies 3,983 2,908
Property, plant and equipment, net 179,957 185,817
Other assets 48,597 37,705
Total assets $406,736 $378,589
Liabilities and Stockholders' Equity
Current liabilities:
Notes payable and current portion of long-term debt $ 12,084 $ 11,513
Accounts payable 27,099 28,988
Other current liabilities 26,227 27,672
Taxes on income 602 -
Total current liabilities 66,012 68,173
Long-term debt and notes payable 804 2,132
Deferred income taxes 17,783 14,422
Other liabilities 2,478 1,645
Commitments - -
Stockholders' equity:
Common stock, par value $1, authorized shares: 30,000,000
in 1997 and 1996; issued and outstanding: 16,001,285 in
1997 and 15,823,205 in 1996 16,001 15,823
Additional paid-in capital 154,479 149,337
Retained earnings 158,557 130,228
Cumulative translation adjustments (9,126) (2,811)
Unearned compensation (252) (360)
Total stockholders' equity 319,659 292,217
Total liabilities and stockholders' equity $406,736 $378,589
The accompanying notes are an integral part of these financial statements.
</TABLE>
/185
-9-
<TABLE>
<CAPTION>
Consolidated Statements of Cash Flows
For the years ended December 31
Dollars in Thousands 1997 1996 1995
<S> <C> <C> <C>
Operating activities:
Net income $ 28,329 $ 26,503 $ 21,025
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 27,047 26,162 20,717
Provision for losses on accounts and notes receivable 1,408 1,011 579
Deferred income tax provision 5,571 4,085 4,263
Compensation expense on restricted stock awards 108 108 72
Changes in assets and liabilities, net of effects
of businesses acquired:
Notes receivable (2,264) (1,557) (1,636)
Accounts receivable (7,865) (10,863) (14,474)
Inventories (2,395) (3,259) (300)
Other current assets 2,594 449 (1,425)
Investments in affiliates (1,106) 758 545
Accounts payable and accrued expenses (5,219) (7,011) (290)
Income taxes 2,470 4,678 1,816
Other (988) 296 28
Net cash provided by operating activities 47,690 41,360 30,920
Investing activities:
Additions to property, plant and equipment (33,510) (46,890) (50,942)
Disposals of property, plant and equipment 10,114 887 1,377
Sale and maturity of short-term investments - - 8,617
Purchase of long-term investments - - (3,000)
Acquisitions, net of cash acquired (11,016) - -
Net cash used by investing activities (34,412) (46,003) (43,948)
Financing activities:
Principal payments on current debt (17,077) (22,259) (11,524)
Proceeds from issuance of current debt 14,937 27,149 15,533
Principal payments on long-term debt (31) (3,236) -
Proceeds from issuance of long-term debt 363 - -
Proceeds from stock option plans 3,188 5,731 3,529
Net cash provided by financing activities 1,380 7,385 7,538
Effect of exchange rate changes on cash (1,140) 48 3
Net change in cash and cash equivalents 13,518 2,790 (5,487)
Cash and cash equivalents at end of prior year 12,269 9,479 14,966
Cash and cash equivalents at end of current year $ 25,787 $ 12,269 $ 9,479
The accompanying notes are an integral part of these financial statements.
</TABLE>
/186
-10-
<TABLE>
<CAPTION>
Consolidated Statements of Stockholders' Equity
Common Stock Additional Cumulative Total
Par Paid-in Retained Translation Unearned Stockholders'
Dollars in Thousands Shares Value Capital Earnings Adjustments Compensation Equity
<S> <C> <C> <C> <C> <C> <C> <C>
Balance December 31, 1994 13,989,896 $13,990 $125,529 $84,027 $(4,936) $ - $218,610
Restatement for pooling 447,258 447 1,151 (257) - - 1,341
Balance January 1, 1995 14,437,154 14,437 126,680 83,770 (4,936) - 219,951
Stock options exercised 199,575 199 3,330 - - - 3,529
Tax benefit of stock option activity - - 1,309 - - - 1,309
Translation adjustments, net
of income taxes of $180 - - - - 1,265 - 1,265
Issuance for acquisition 144,679 145 5,748 - - - 5,893
Shares issued under restricted stock plan 19,822 20 520 - - (540) -
Amortization of unearned compensation - - - - - 72 72
Net income - - - 21,025 - - 21,025
Balance December 31, 1995 14,801,230 14,801 137,587 104,795 (3,671) (468) 253,044
Restatement for poolings 554,544 555 (460) (1,070) - - (975)
Balance January 1, 1996 15,355,774 15,356 137,127 103,725 (3,671) (468) 252,069
Stock options exercised 406,956 407 5,324 - - - 5,731
Tax benefit of stock option activity - - 4,390 - - - 4,390
Translation adjustments, net
of income taxes of $(93) - - - - 860 - 860
Issuance for acquisitions 60,475 60 2,496 - - - 2,556
Amortization of unearned compensation - - - - - 108 108
Net income - - - 26,503 - - 26,503
Balance December 31, 1996 15,823,205 15,823 149,337 130,228 (2,811) (360) 292,217
Stock options exercised 163,214 163 3,025 - - - 3,188
Tax benefit of stock option activity - - 1,421 - - - 1,421
Translation adjustments, net
of income taxes of $2,690 - - - - (6,315) - (6,315)
Other activity 14,866 15 696 - - - 711
Amortization of unearned compensation - - - - - 108 108
Net income - - - 28,329 - - 28,329
Balance December 31, 1997 16,001,285 $16,001 $154,479 $158,557 $(9,126) $(252) $319,659
The accompanying notes are an integral part of these financial statements.
</TABLE>
/187
-11-
Notes to Consolidated Financial Statements
Note 1. Significant Accounting Policies
Nature of Operations
The Company is involved worldwide in the manufacture and sale of
membranes and related equipment for the purification, concentration,
treatment and analysis of water and wastewater, in the supply of
purified water, food and chemical products, and in the sale of bottled
water and home water purifiers. Principal markets include the United
States and Europe as well as other international markets.
Basis of Presentation
Certain prior year amounts have been restated to conform to the
current year presentation with no impact on net income. Consolidated
results have been restated to include the pooling of Sievers
Instruments, Inc. in 1996 (Note 14).
Principles of Consolidation
The consolidated financial statements include the accounts of the
Company, its wholly and majority owned subsidiaries and Aqua Cool
Enterprises, Inc., a controlled affiliate. All significant
intercompany accounts and transactions have been eliminated.
Investments in affiliated companies, representing non-majority
ownership interests, are accounted for under the equity method.
Revenue Recognition
Product revenues are recorded upon shipment, and service revenues are
recorded as the services are performed. Interest revenues on consumer
water equipment loans are recognized over the life of the loans.
Interest earned on customer notes receivable, totaling $1,380,000,
$1,181,000 and $1,076,000 in 1997, 1996 and 1995, respectively, is
included in revenues.
Most equipment leases to customers are accounted for as operating
leases wherein rental revenues are recognized over the life of the
lease and the cost of the equipment is depreciated over its useful
life. Some leases are accounted for as sales-type leases wherein the
present value of the lease revenues and costs are recognized at the
time of shipment of the product.
Revenues from large contracts are recognized using the percentage
completion method of accounting in the proportion that costs incurred
bear to total estimated costs at completion. Losses, if any, are
provided for in the period in which the loss is determined.
Cash Equivalents
Short-term investments with a maturity of 90 days or less from the
date of acquisition are classified as cash equivalents.
/188
-12-
Investments
Management determines the appropriate classification of its investment
in debt securities at the time of purchase. Debt securities which the
Company has the ability and positive intent to hold to maturity are
classified accordingly and carried at cost. All other investments are
classified as available for sale and carried at fair value with
unrealized gains and losses, net of tax, reported in a separate
component of stockholders' equity. The Company is not involved in
activities classified as the trading of investments.
Notes Receivable
Notes receivable have been reported at their estimated realizable
value. The allowance for uncollectible notes receivable totaled
$462,000 and $591,000 at December 31, 1997 and 1996, respectively.
Inventories
Inventories are carried at the lower of cost or market, principally on
the first-in, first-out basis. The Company had no deferred production
costs which exceeded the aggregate estimated cost of long-term sales
contracts.
Property, Plant and Equipment
Property, plant and equipment is recorded at cost. When an asset is
retired or sold, any resulting gain or loss is included in the results
of operations. Interest capitalized as property, plant and equipment
amounted to $238,000, $1,169,000 and $268,000 in 1997, 1996 and 1995,
respectively. In general, depreciation is computed on a straight-line
basis over the expected lives of the assets, as follows:
Classification Depreciation Lives
Buildings and improvements 10 - 40 years
Machinery and equipment,
including supply equipment 3 - 25 years
Other 3 - 12 years
In certain situations the units of production method is
utilized in order to achieve a more appropriate matching of revenues
and expenses.
The Company's policy is to depreciate processing plants,
other than leased equipment, over the shorter of their useful lives or
the term of the corresponding supply contracts.
Long-Lived Assets
Impairment losses resulting from an excess of carrying value of long-
term assets over their fair values are recognized as such losses are
identified.
Goodwill
Goodwill is included in other assets and represents the unamortized
difference between acquisition cost and the fair value of net assets
acquired in the purchase of various entities. Goodwill is amortized on
a straight-line basis over its estimated useful life but not in excess
/189
-13-
of 40 years. The Company continually evaluates the realizability of
goodwill based upon expectations of non-discounted cash flows and
operating income for each subsidiary having a material goodwill
balance.
Foreign Exchange
Assets and liabilities of foreign affiliates and subsidiaries are
translated at year-end exchange rates, and the related statements of
operations are translated at average exchange rates during the year.
Translation gains and losses are accumulated net of income tax as a
separate component of stockholders' equity.
Some transactions of the Company and its subsidiaries are made in
currencies different from their own. Gains and losses from these
transactions are included in income as they occur. Net foreign
currency transaction gains included in income before income taxes and
minority interest totaled $100,000, $548,000 and $58,000 for 1997,
1996 and 1995, respectively.
Income Taxes
Income tax expense is based on pretax financial accounting income.
Deferred tax assets and liabilities are recognized for the expected
tax consequences of temporary differences between the tax basis of
assets and liabilities and their reported amounts using enacted rates
in effect for the year in which the differences are expected to
reverse.
Earnings Per Share
Basic earnings per share is computed based on the weighted-average
number of shares outstanding after giving retroactive effect to a 2-
for-1 stock split in 1995 for all periods presented. Diluted earnings
per share is computed based on the weighted-average number of common
shares outstanding while giving effect to all potentially dilutive
common shares that were outstanding during the period.
Use of Estimates
The preparation of financial statements, in conformity with generally
accepted accounting principles, requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
Comprehensive Income
In 1997, the Financial Accounting Standards Board (FASB) released
Statement of Financial Accounting Standards (FAS) No. 130, "Reporting
Comprehensive Income." FAS 130 establishes standards for reporting
and display of comprehensive income and its components (revenues,
expenses, gains, and losses) in a full set of general-purpose
financial statements. FAS 130 is effective for fiscal years beginning
after December 15, 1997. The Company intends to adopt this Statement
for interim periods beginning in the first quarter of 1998. This
Statement is a disclosure-only statement.
/190
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<TABLE>
<CAPTION>
Note 2. Consolidated Balance Sheet Details
Dollars in Thousands 1997 1996
<S> <C> <C>
Raw materials $ 17,183 $ 15,028
Work in process 8,773 8,120
Finished goods 2,954 2,852
Inventories $ 28,910 $ 26,000
Land $ 6,767 $ 3,602
Buildings 34,239 33,157
Machinery and equipment 236,526 233,077
Other, including furniture,
fixtures and vehicles 41,397 36,834
318,929 306,670
Accumulated depreciation (138,972) (120,853)
Property, plant and
equipment, net $179,957 $185,817
Goodwill $ 46,565 $ 35,067
Accumulated amortization (5,136) (3,922)
Other 7,168 6,560
Other assets $ 48,597 $ 37,705
Customer deposits $ 3,685 $ 7,147
Accrued commissions 2,370 2,402
Accrued expenses 20,172 18,123
Other current liabilities $ 26,227 $ 27,672
</TABLE>
<TABLE>
<CAPTION>
Note 3. Supplemental Schedule of Cash and Non-Cash Flow Information
Dollars in Thousands 1997 1996 1995
<S> <C> <C> <C>
Cash payments for interest and income taxes:
Interest $ 634 $ 1,338 $ 360
Taxes $ 2,860 $ 4,264 $7,150
Restricted stock compensation
credited to paid-in capital $ - $ - $ (540)
Liabilities assumed in conjunction with acquisitions:
Fair value of assets
purchased $19,352 $ 8,452 $6,196
Book value of
assets pooled - 8,592 2,632
Retained deficit pooled - 1,070 257
Net cash received (paid) (11,016) 89 207
Value of common
stock issued - (2,530) (7,491)
Liabilities assumed $ 8,336 $15,673 $1,801
</TABLE>
/191
-15-
<TABLE>
<CAPTION>
Note 4. Accounts Receivable
Dollars in Thousands 1997 1996
<S> <C> <C>
Billed receivables $69,157 $68,775
Unbilled receivables 30,945 24,884
Allowance for doubtful accounts (1,827) (2,267)
Accounts receivable $98,275 $91,392
</TABLE>
Unbilled receivables represent the excess of revenues recognized on
percentage completion contracts over amounts billed. These amounts
will become billable as the Company achieves contractual milestones.
Substantially all of the unbilled amounts at December 31, 1997 are
expected to be billed during 1998.
Billed receivables include retainage amounts of $4,233,000 and
$4,378,000 at December 31, 1997 and 1996, respectively. Substantially
all retainage amounts are collectible within one year.
Note 5. Investments in Affiliated Companies
The Company's investments in the following foreign affiliates are
accounted for under the equity method. The principal business
activities of these foreign affiliates involve the production, sale
and distribution of bottled and treated water and the sale of
equipment and replacement parts.
Ownership
Affiliate Percentage
Aqua Cool Kuwait - Kuwait 49%
Aqua Cool Saudi Arabia - Saudi Arabia 40%
Ionics-Mega s.r.o. - Czech Republic 49%
Jalal-Ionics, Ltd. - Bahrain 40%
Yuasa-Ionics Co., Ltd. - Japan 50%
Aguas Tratadas de
Cadereyta S.A. de C.V. - Mexico 20%
Aqua Design Ltd. - Cayman Islands 39%
Aguas Tratadas de Madero, S.A. de C.V. - Mexico 20%
Zhanjiang RO Co., Ltd. - China 28%
The Company's percentage ownership interest in a foreign affiliate
may vary from its interest in the earnings of such affiliate.
/192
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Activity in investments in affiliated companies:
<TABLE>
<CAPTION>
Dollars in Thousands 1997 1996 1995
<S> <C> <C> <C>
Investments at end
of prior year $2,908 $4,874 $5,419
Equity in earnings 526 441 642
Distributions received (575) (1,254) (1,187)
Cumulative translation
adjustments (7) - -
Reclassification of Watlington
Waterworks, Ltd. to other
assets resulting from
ownership dilution - (1,208) -
Other investments 1,131 55 -
Investments at end of
current year $3,983 $2,908 $4,874
</TABLE>
At December 31, 1997, the Company's equity in the total assets and
in the total liabilities of its foreign affiliates was $5,255,000 and
$1,272,000, respectively. The Company's equity in the 1997 total
revenues of these affiliates was $5,340,000.
Note 6. Contingent Liabilities
The Company is involved in the normal course of its business in
various litigation matters, some of which are in the early stages of
pre-trial discovery. The Company believes generally that it has
meritorious defenses and that none of the pending matters will have an
outcome material to the financial condition or business of the
Company.
The Company was notified in 1992 that it is a potentially
responsible party (PRP) at a Superfund site, Solvent Recovery Services
of New England in Southington, Connecticut (the "SRS Site"). Ionics'
share of assessments to date for site work totals approximately
$55,000. The ultimate site clean-up cost is currently not expected to
exceed $59 million, of which the Company's share would not exceed
$308,000 including the amounts already assessed against the Company.
While it is too soon to predict the scope and cost of the final remedy
that the EPA will select, based upon the large number of PRPs
identified, the Company's small volumetric ranking (approximately
0.5%) and the identities of the larger PRPs, the Company believes that
its liability in this matter will not have a material effect on the
Company or its financial position.
/193
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<TABLE>
<CAPTION>
Note 7. Long-Term Debt and Notes Payable
Dollars in Thousands 1997 1996
<S> <C> <C>
Borrowings outstanding $12,888 $13,645
Less installments due within one year 12,084 11,513
Long-term debt and notes payable $ 804 $ 2,132
</TABLE>
Maturities of borrowings outstanding for the five years ending
December 31, 1998 through 2002 are approximately $12,084,000,
$157,000, $115,000, $93,000 and $74,000, respectively.
The Company has domestic credit arrangements with various banks
under which it can borrow up to an aggregate of approximately $35
million, at the prime rate (8.5% at December 31, 1997), the money
market rate (7.5% at December 31, 1997) or the London Interbank
Offered Rate plus 1/2% (6.72% at December 31, 1997), at the Company's
option. The Company had no outstanding borrowings against these lines
of credit at December 31, 1997.
Included in the credit lines is a $25 million credit line
with a commercial bank which includes a commitment fee of 1/8 of 1%
per annum on the unused average daily amount.
The Company utilizes short-term bank loans to finance working
capital requirements for certain business units. The Company's various
loan and note agreements contain certain financial covenants typical
to such agreements relating to working capital and to consolidated
tangible net worth. The weighted-average interest rate on these
borrowings at December 31, 1997 and 1996 was approximately 8%.
Note 8. Income Taxes
<TABLE>
<CAPTION>
The components of domestic and foreign income before income taxes and
minority interest were as follows:
Dollars in Thousands 1997 1996 1995
<S> <C> <C> <C>
U.S. $27,450 $29,017 $22,838
Non-U.S. 15,772 10,539 8,771
Income before
income taxes and minority interest $43,222 $39,556 $31,609
</TABLE>
/194
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<TABLE>
<CAPTION>
The provision for income taxes consisted of the following:
Dollars in Thousands 1997 1996 1995
<S> <C> <C> <C>
Federal $ 5,891 $ 7,919 $ 5,407
Foreign 2,276 793 437
State 542 256 477
Current provision 8,709 8,968 6,321
Federal 3,599 1,671 3,164
Foreign 996 1,047 569
State 976 1,367 530
Deferred provision 5,571 4,085 4,263
Provision for
income taxes $14,280 $13,053 $10,584
</TABLE>
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax
purposes. At December 31, 1997 the tax effects of the temporary
differences were:
<TABLE>
<CAPTION>
Deferred Deferred Tax
Dollars in Thousands Tax Assets Liabilities
<S> <C> <C>
Depreciation $ - $10,616
Goodwill amortization - 519
Inventory valuation 1,584 -
Bad debt reserves 297 -
Accrued commissions 464 -
Profit on sales to foreign subsidiaries 870 -
Insurance accruals 609 -
U.S. tax on unrepatriated earnings - 6,295
Pensions - 386
Alternative minimum tax 1,081 -
Foreign withholding taxes on
undistributed earnings - 2,068
Foreign deferred liabilities, net - 3,186
Tax effect of current translation loss 3,723 -
Net operating loss carryforwards 5,385 -
Miscellaneous 1,251 1,635
15,264 24,705
Valuation allowance for
deferred tax assets (1,800) -
Deferred income taxes $13,464 $24,705
</TABLE>
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<TABLE>
<CAPTION>
The United States statutory corporate tax rate is reconciled to the
Company's effective tax rate as follows:
1997 1996 1995
<S> <C> <C> <C>
U.S. Federal statutory rate 35.0% 35.0% 35.0%
Foreign Sales Corporation (1.5) (1.6) (2.1)
Tax-exempt interest income - (.5) (1.2)
State income taxes, net of
federal tax benefit 2.3 2.7 1.9
Foreign income taxed at
different rates (3.3) (2.0) -
Other, net .5 (.6) (.1)
Effective tax rate 33.0% 33.0% 33.5%
</TABLE>
At December 31, 1997, the Company had unused tax loss carryforward
benefits of $5,385,000 (expiring in fiscal years 2004 to 2009).
Because certain provisions of the tax law may limit the utilization of
these benefits, the Company has established $1,800,000 as a valuation
allowance at December 31, 1997 and 1996. The remaining unreserved
portion is considered to be realizable. $3,585,000 of the net unused
tax loss carryforward benefit has been included in other assets at
December 31, 1997.
The Company has elected not to provide tax on certain
undistributed earnings of its foreign subsidiaries which it considers
to be permanently reinvested. The cumulative amount of such unprovided
taxes was approximately $2,843,000, $1,538,000 and $682,000 as of
December 31, 1997, 1996 and 1995, respectively.
Note 9. Stockholders' Equity
During 1996, the Company issued 1,062,277 shares (including shares for
Sievers Instruments, Inc.) in conjunction with acquisition-related
activity (Note 14).
The Company adopted the disclosure-only provision of
Statement of Financial Accounting Standards (FAS) No. 123 "Accounting
for Stock-Based Compensation" in 1996. The fair value of each option
grant is estimated on the date of grant using the Black-Scholes
option-pricing model with the following assumptions used for grants in
1997, 1996 and 1995: expected volatility of 23.4% in 1997, 23.1% in
1996 and 23.1% in 1995; weighted-average risk-free interest rates of
6.33%, 6.69% and 6.57% in 1997, 1996 and 1995, respectively; and
expected lives of five years. No dividends are assumed. The
weighted-average fair value of options granted during 1997, 1996 and
1995 was $15.88, $15.17 and $10.02, respectively.
At December 31, 1997, the Company had four stock-based
compensation plans which are described below. The Company applies
/196
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Accounting Principles Board Opinion 25 in accounting for its plans.
Accordingly, any difference between the option price and the fair
market value of the stock at the date of grant is charged to
operations over the expected period of benefit to the Company. Had
compensation cost for the Company's plans been determined based on the
fair value of the options at the grant dates for awards under those
plans consistent with the method of FAS 123, the Company's net income
and earnings per share would have been adjusted. On a pro forma basis,
net income as reported for 1997 of $28.3 million would have been $26.7
million, 1996 net income of $26.5 million would have been $25.9
million and 1995 net income of $21.0 million would have been
unchanged. Diluted earnings per share as reported for 1997 of $1.73
would have been $1.63, 1996 diluted earnings per share of $1.65 would
have been $1.61 and 1995 diluted earnings per share of $1.39 would
have been unchanged. Basic earnings per share as reported for 1997 of
$1.78 would have been $1.67, 1996 basic earnings per share of $1.71
would have been $1.66 and 1995 basic earnings per share of $1.45 would
have been $1.44. The effects of applying FAS 123 in this pro forma
disclosure are not indicative of future awards, which are anticipated.
FAS 123 does not apply to awards prior to 1995.
Under its 1979 Stock Option Plan (the "1979 Plan"), options
were granted to officers and other key employees of the Company (only
as non-qualified options since February 1989). Although the 1979 Plan
provided that options were exercisable at a price of not less than
$1.00 per share, it has been the general policy of the Compensation
Committee of the Board of Directors, which administers the 1979 Plan,
to issue non-qualified options with an exercise price equal to the
fair market value of the stock. The options are immediately
exercisable, are subject to repurchase rights that lapse over a five-
year period, and have a term of ten years and one day. Effective May
8, 1997, the 1979 Plan was replaced by the 1997 Stock Incentive Plan,
and no additional options will be granted under the 1979 Plan. At
December 31, 1997 and 1996, 0 and 132,519 shares, respectively, were
reserved for issuance of additional options under the 1979 Plan.
Under the 1986 Stock Option Plan for Non-Employee Directors
(the "1986 Plan"), options are granted automatically at a price not
less than the fair market value of the stock at the date of grant.
The options are fully vested after a six-month period and have a term
of ten years and one day. As of December 31, 1997 and 1996, 82,500
and 98,500 shares, respectively, were reserved for issuance of
additional options under the 1986 Plan.
The Company has reserved 91,200 shares for options granted in
1990 to certain non-employees in exchange for a previously granted
option to purchase 50% of the shares of a Spanish subsidiary of the
Company which was merged with Ionics Iberica, S.A. in 1992. During
1995, an additional 30,000 options were granted to the same persons in
connection with an increase in production capacity and projected
increases in the sale of water under a long-term water sale agreement
between Ionics Iberica, S.A. and the local water utility. The fair
value of these options is being charged to operations over the ten-
year vesting period. The options have a term of ten years and one
month.
/197
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Under its 1997 Stock Incentive Plan (the "1997 Plan"), which
became effective on May 8, 1997, incentive stock options, non-
qualified stock options, and long-term performance awards may be
awarded to officers and other key employees as well as to consultants.
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 four fiscal year-ends of the Company following adoption of the
1997 Plan, commencing December 31, 1997. At December 31, 1997, there
were 1,060,276 shares reserved for issuance of additional options
under the 1997 Plan after giving effect to the automatic addition
provision. The options vest over a five-year period and have a term
of ten years.
A summary of the status of the Company's stock option plans
as of December 31, 1997, 1996 and 1995 and changes during the years
ending on those dates is presented below:
<TABLE>
<CAPTION>
1997 1996 1995
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Options in Thousands Options Price Options Price Options Price
<S> <C> <C> <C> <C> <C> <C>
Outstanding at end of prior year 2,200 $28.39 1,989 $20.30 2,185 $19.98
Granted 55 45.99 744 42.51 39 27.48
Exercised (163) 19.56 (465) 17.15 (204) 18.11
Canceled (57) 37.80 (68) 23.06 (31) 21.85
Outstanding at end of current year 2,035 $29.31 2,200 $28.39 1,989 $20.30
Options exercisable at year-end 1,964 2,137 1,913
</TABLE>
<TABLE>
<CAPTION>
The following table summarizes the information about stock
options outstanding at December 31, 1997:
Options in Thousands Options Outstanding Options Exercisable
Weighted-
Average Weighted- Number Weighted-
Number Remaining Average Exercisable Average
Range of Outstanding Contract Exercise at Exercise
Exercise Prices AT 12/31/97 Years Price 12/31/97 Price
<S> <C> <C> <C> <C> <C>
$ 4.29 8 1.6 $ 4.29 8 $ 4.29
11.88 - 15.25 134 2.5 12.16 106 12.13
19.75 - 27.63 1,148 5.8 22.33 1,124 22.22
30.38 - 43.13 687 8.7 43.06 668 43.08
45.63 - 48.25 58 9.0 47.65 58 47.65
$ 4.29 - $48.25 2,035 6.6 $29.31 1,964 $29.44
</TABLE>
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-22-
The Company has adopted a restricted stock plan (the "1994
Plan") under which shares of common stock may be granted to officers
and other key employees of the Company. Restrictions on the sale of
such common stock typically lapse over a five-year vesting period. No
shares were issued under the 1994 Plan in 1997 and 1996. During 1995,
19,822 shares were issued under the 1994 Plan. The fair value of
$540,000 was recorded as unearned compensation and is being charged to
operations over the vesting period. 280,178 shares remain reserved
for issuance.
The Company has a Section 401(k) stock savings plan under
which 150,000 shares have been registered with the Securities and
Exchange Commission for purchase on behalf of employees. Shares are
normally acquired for the plan in the open market. Through December
31, 1997, no shares had been issued under the plan.
The Company has adopted a Renewed Stockholder Rights Plan
designed to protect stockholders against abusive takeover tactics.
Each share of common stock now carries one right. Each right entitles
the holder to purchase from the Company one share of common stock (or
in certain circumstances, to receive cash, property or other
securities of the Company) at a purchase price of $175 subject to
adjustment. In certain circumstances, rights become exercisable for
common stock (or a combination of cash, property or other securities
of the Company) worth twice the exercise price of the right.
The rights are not exercisable until the occurrence of
certain events as defined in the Renewed Stockholder Rights Plan. The
rights may be redeemed by the Company at $.01 per right at any time
unless certain events occur. Unless redeemed earlier, the rights,
which have no voting power, expire on August 19, 2007.
In November 1994, the Company's Board of Directors declared
a 2-for-1 stock split, effected by a 100% stock dividend which was
paid January 6, 1995 to shareholders of record on December 14, 1994.
All share and option amounts, related prices and other stockholders'
equity information have been adjusted for all periods presented to
give retroactive effect to this split.
<TABLE>
<CAPTION>
Note 10. Earnings Per Share Calculations (EPS)
Dollars in Thousands,
Except Per Share Amounts For the Year Ended 1997 For the Year Ended 1996 For the Year Ended 1995
Net Per Share Net Per Share Net Per Share
Income Shares Amount Income Shares Amount Income Shares Amount
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Basic EPS
Income available to
common stockholders $ 28,329 15,936 $ 1.78 $ 26,503 15,542 $ 1.71 $ 21,025 14,545 $ 1.45
Effect of dilutive
stock options - 473 - 564 - 540
Diluted EPS $ 28,329 16,409 $ 1.73 $ 26,503 16,106 $ 1.65 $ 21,025 15,085 $ 1.39
</TABLE>
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The effect of dilutive stock options excludes those stock options for which
the impact would have been antidilutive based on the exercise price of the
options. At December 31, 1997, 743,000 options were antidilutive. There
were no antidilutive options at December 31, 1996 and 1995.
Note 11. Operating Leases
The Company leases equipment, primarily for industrial water purification
and bottled water coolers, to customers through operating leases. The
original cost of this equipment was $96,048,000 and $86,656,000 at December
31, 1997 and 1996, respectively. The accumulated depreciation for such
equipment was $35,195,000 and $28,347,000 at December 31, 1997 and 1996,
respectively.
At December 31, 1997, future minimum rentals receivable under
noncancelable operating leases in the years 1998 through 2002 and later
were approximately $14,848,000, $13,018,000, $11,293,000, $8,876,000,
$7,182,000 and $34,227,000, respectively.
The Company leases facilities and personal property under various
operating leases. Future minimum payments due under lease arrangements are
as follows: $3,814,000 in 1998, $2,324,000 in 1999, $1,927,000 in 2000,
$1,365,000 in 2001 and $800,000 in 2002. Rent expense under these leases
was approximately $3,928,000, $4,188,000 and $3,538,000 for 1997, 1996 and
1995, respectively.
Note 12. Profit-Sharing and Pension Plans
The Company has a contributory profit-sharing plan (defined contribution
plan) which covered substantially all of the employees of its Bridgeville,
Pennsylvania operations and certain related operations during 1994.
Effective July 1, 1995 all such employees, except those who are members of
the Fabricated Products Group, became members of the Company's defined
benefit pension plan described below. Company contributions to the defined
contribution plan are made from pretax profits, may vary from 8% to 15% of
participants' compensation, and are allocated to participants' accounts in
proportion to each participant's respective compensation. Company
contributions were $253,000, $249,000 and $188,000 in 1997, 1996 and 1995,
respectively.
The Company also has a contributory defined benefit pension plan
(defined benefit plan) for its Watertown-based employees and employees of
its other domestic divisions and subsidiaries. Benefits are based on years
of service and the employee's average compensation. The Company's funding
policy is to contribute annually an amount that can be deducted for federal
income tax purposes.
The following table sets forth the defined benefit plan's funded
status and amounts recognized in the Company's balance sheet at December
31, 1997 and 1996:
/200
-24-
<TABLE>
<CAPTION>
Dollars in Thousands 1997 1996
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation,
including vested benefits of
$9,943 and $8,996, respectively $(11,992) $(10,003)
Projected benefit obligation for
service rendered to date (13,591) (10,883)
Plan assets at fair value 12,731 8,577
Projected benefit obligation in
excess of plan assets (860) (2,306)
Unrecognized net loss 1,959 993
Unrecognized prior service cost 485 523
Unrecognized net assets being
amortized over approximately 17 years (309) (362)
Adjustment for additional
minimum liability - (273)
Prepaid (accrued) pension cost at
December 31 $ 1,275 $ (1,425)
</TABLE>
<TABLE>
<CAPTION>
Net pension cost included the following components:
Dollars in Thousands 1997 1996 1995
<S> <C> <C> <C>
Service cost $1,172 $1,026 $ 706
Interest cost 932 780 658
Return on plan assets (1,314) (908) (1,157)
Net amortization and deferral 467 265 588
Net periodic pension cost $1,257 $1,163 $ 795
</TABLE>
The discount rate used in determining the projected benefit
obligation was 7.0% in 1997 and 7.25% in 1996. The rate of increase in
compensation levels used was 5.0% in 1997 and 1996. The expected long-
term rate of return on assets was 9.0%. Plan assets consist primarily of
money market, equity and fixed-income securities and are administered by
an independent trustee.
The Ionics Section 401(k) stock savings plan is available to
substantially all employees of the Company and its domestic subsidiaries.
Employees may contribute from 1% to 12% of compensation subject to
certain limits. The Company matches 50% of employee contributions
allocated to the Company's common stock up to 6% of their salary. The
Company recognized expense of $749,000, $655,000 and $512,000 in 1997,
1996 and 1995, respectively, under this plan.
The Company does not provide post-retirement health care to its
employees or any other significant post-retirement benefits other than
those described above.
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-25-
The Company will adopt Statement of Financial Accounting
Standards No. 132, "Employers' Disclosures About Pensions and Other Post-
retirement Benefits" in 1998. This statement changes the current
financial statement disclosure requirements.
Note 13. Financial Instruments
Off-Balance-Sheet Risk
The Company issues letters of credit as guarantees for various
performance and bid obligations. Approximately $27.9 million and $22.0
million of these letters were outstanding at December 31, 1997 and 1996,
respectively. Approximately 75% of the letters of credit outstanding at
December 31, 1997 are scheduled to expire in 1998. These instruments were
executed with creditworthy institutions. The Company periodically enters
into foreign exchange contracts to hedge certain operational and balance
sheet exposures against changes in foreign currency exchange rates.
Because the impact of movements in currency exchange rates on foreign
exchange contracts offsets the related impact on the underlying items
being hedged, these instruments do not subject the Company to risk that
would not otherwise result from changes in currency exchange rates. The
Company had no foreign exchange contracts outstanding at December 31,
1997 and 1996.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash equivalents,
investments, trade accounts receivable and notes receivable. The credit
risk of cash equivalents and investments is low as the funds are
primarily invested in Spanish Government securities and with major
financial institutions. The Company's concentrations of credit risk with
respect to trade accounts receivable and notes receivable is considered
low. The Company's customer base is spread across many different
industries and geographies and the Company obtains guaranteed letters of
credit for many of its foreign orders.
Fair Value of Financial Instruments
The carrying amounts of cash equivalents and investments closely
approximate their fair values as these items have relatively short
maturities and are highly liquid. Based on market information, the
carrying amounts of notes receivable and debt approximate their fair
values.
Investments in Securities
Realized gains and losses from the sale of debt and equity securities
during fiscal 1997 and 1996 were not significant.
Long-term investments, maturing in 1999 and 2001, which the
Company intends to hold to maturity have been recorded at a net cost of
$603,000 and $1,144,000 at December 31, 1997 and 1996, respectively. At
December 31, 1997, the Company also had short-term investments of
$107,000 which the Company intends to hold to maturity. The cost of
these investments approximates fair value.
/202
-26-
During 1997, the Company recorded an investment of $645,000 for
the purchase of a portion of the outstanding shares of Agrinord S.r.l.,
an Italian company in the solid waste treatment business. This
investment is accounted for under the cost method.
During 1996, the Company's investment in Watlington Waterworks
Limited (Watlington) of Bermuda decreased from 23% to 19% as a result of
the issuance by Watlington of additional shares. Accordingly, the
$1,208,000 carrying value of this investment, previously accounted for
under the equity method, has been reclassified to other assets at
December 31, 1996 and is accounted for under the cost method. This
investment, which approximates the current market value, is considered to
be available for sale.
Note 14. Acquisitions
1997 Purchases
Enersave Engineering Systems Sdn Bhd
In September 1997, the Company acquired a 55% ownership interest in
Enersave Engineering Systems Sdn Bhd (Enersave) for approximately $9.6
million. An additional payment of up to $2 million will be required
depending upon the achievement of certain future operating results.
Enersave, a Malaysian company with operations in Malaysia, China and
Indonesia, is a leading supplier of water and wastewater treatment
systems and services in Southeast Asia.
The acquisition was accounted for under the purchase method with
the results of Enersave included from September 1, 1997. Goodwill of
approximately $9.6 million is being amortized on a straight-line basis
over 30 years. Pro forma results of operations have not been presented
as the effect of this acquisition on the financial statements was not
material. Fiscal 1997 revenues for the period prior to September 1997
were approximately $10 million.
Watertec Engineering Pty. Ltd.
Effective September 1, 1997, the Company acquired 100% of the assets and
liabilities of Watertec Engineering Pty. Ltd., as Trustee of Watertec
Engineering Unit Trust and two related corporations (together "Watertec")
for an initial payment of $1.9 million. An additional payment of up to
1.1 million Australian dollars will be required depending upon the
achievement of certain future operating results. Watertec is involved in
the manufacture and supply of ozonation systems for water disinfection
and systems for chemical metering.
The acquisition was accounted for under the purchase method with
the results of Watertec included from September 1, 1997. Goodwill of
approximately $1.4 million is being amortized over 30 years. Pro forma
results of operations have not been presented as the effect of this
acquisition on the financial statements was not material. Fiscal 1997
revenues for the period prior to September 1, 1997 were approximately
$2.3 million.
/203
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Prior Years' Poolings
During 1996, the Company completed pooling transactions with Aqua Design,
Inc. (Aqua Design), Apollo Ultrapure Water Systems, Inc. (Apollo) and
Sievers Instruments, Inc. (Sievers) under which 222,977, 331,567 and
447,258 shares of common stock, respectively, were issued in exchange for
more than 90% of the outstanding common stock of each company. Because the
operating results from prior years for Aqua Design and Apollo were not
material, both individually and in the aggregate, compared to those of the
Company, these transactions were recorded by restatement of retained
earnings as of January 1, 1996 and no restatement of prior-period financial
statements was made. Aqua Design owns and operates membrane-based seawater
desalination systems to produce drinking and process water primarily for
hotels and municipalities in the Caribbean. Apollo sells ultrapure water
and related services to a variety of industrial and commercial users
primarily in southern California. Sievers manufactures instruments
designed to measure extremely low levels of organic contaminants in
ultrapure water for customers in the pharmaceutical, semiconductor and
other industries.
The accompanying financial statements have been restated to include the
accounts and operations of Sievers for all periods beginning as of January
1, 1995, since results of operations prior to this date are immaterial in
relation to the results of the Company as a whole. Intercompany
transactions between the combining entities, which were not significant,
have been eliminated.
Separate results of the combining entities prior to the combination, which
have been included in the restated results, were as follows:
<TABLE>
<CAPTION>
Three Months Twelve Months
Dollars in Thousands Ended Ended
(1996 Unaudited) March 31, 1996 December 31, 1995
<S> <C> <C>
Net revenue:
Ionics $74,157 $248,617
Sievers (Unaudited) 3,686 8,676
$77,843 $257,293
Net income:
Ionics $ 5,572 $ 19,682
Sievers (Unaudited) 513 1,343
$ 6,085 $ 21,025
</TABLE>
Prior Years' Purchases
Separation Technology, Inc.
In July 1996, the Company purchased 100% of the stock of Separation
Technology, Inc. (STI) for approximately $2.4 million through the issuance
of 58,000 shares of common stock. The results of STI have been included
in the Company's financial statements from July 1, 1996. Goodwill of
approximately $4.4 million is being amortized on a straight-line basis over
/204
-28-
20 years. Pro forma results of operations have not been presented, as the
effect of this acquisition on the financial statements was not material.
STI is a supplier of membrane-based purification equipment and related
services to the food industry with particular emphasis on dairy and
beverage applications.
Ahlfinger Water Company
On November 2, 1995, the Company acquired substantially all of the assets
and liabilities of Ahlfinger Water Company (Ahlfinger) for $5.9 million
through the issuance of 144,679 shares of common stock. Ahlfinger, based
in Dallas, is a water treatment service company with industrial and
commercial customers in Dallas and other areas of Texas. The acquisition
was accounted for under the purchase method, with the results of Ahlfinger
included from November 2, 1995. Goodwill of $4.7 million is being
amortized on a straight-line basis over 30 years. Pro forma results of
operations have not been presented, as the effect of this acquisition on
the financial statements was not material.
Note 15. Segment Information
Business Segments
The Company conducts its business in three business segments:
Membranes and Related Equipment - electrodialysis reversal systems;
reverse osmosis systems; microfiltration systems; ultrafiltration
systems; conventional water and wastewater treatment equipment; other
separations technology products; zero liquid discharge systems;
disinfection equipment including electrolytic systems for the generation
of sodium hypochlorite and ozonation equipment; instruments for analysis;
monitoring and on-line detection of pollution levels; and fabricated
products.
Water, Food and Chemical Supply - water, food and chemicals
produced by the Company's membrane-based equipment, including desalted
water for municipal and industrial use; ultrapure water for semiconductor
and other industries; reduced mineral whey for food applications; and
bleach and related chemicals.
Consumer Products - bottled water; over and under-the-sink point
of use devices; carbon filtering media; point-of-entry systems for
treating the entire home water supply; household bleach; and other
cleaning products.
In 1997, the FASB released Statement of Financial Accounting
Standards (FAS) No. 131, "Disclosures About Segments of an Enterprise and
Related Information." FAS 131 establishes standards for the way that
public business enterprises report information about operating segments
in annual financial statements and requires that those enterprises report
selected information about operating segments in interim financial
statements. It also establishes standards for related disclosures about
products and services, geographic areas, and major customers. FAS 131 is
effective for fiscal years beginning after December 15, 1997. This
Statement is a disclosure-only statement.
/205
-29-
The following table summarizes the Company's operations by the
three business segments and "Corporate and Other." Corporate and Other
includes corporate-sponsored research and development programs and
certain employee bonuses and insurance costs.
<TABLE>
<CAPTION>
Membranes Water, Food Corporate
and Related and Chemical Consumer and
Dollars in Thousands Equipment Supply Products Other Total
<S> <C> <C> <C> <C> <C>
1997
Revenue - unaffiliated customers $166,397 $113,026 $ 73,046 $ - $352,469
Inter-segment transfers 2,959 1,172 - (4,131) -
Income from operations 19,161 16,869 9,045 (2,629) 42,446
Equity income (loss) (95) 85 536 - 526
Earnings before interest, taxes and minority
interest (EBIT) 19,066 16,954 9,581 (2,629) 42,972
EBIT % of total EBIT, after allocation
of Corporate and Other 42% 37% 21% - 100%
Identifiable assets 157,212 115,302 126,608 3,631 402,753
Investments in affiliated companies 1,086 115 2,782 - 3,983
Depreciation and amortization 4,127 13,745 8,961 214 27,047
Capital expenditures 4,759 18,722 9,787 242 33,510
1996
Revenue - unaffiliated customers $151,030 $109,488 $ 66,144 $ - $326,662
Inter-segment transfers 3,277 761 - (4,038) -
Income from operations 15,482 18,611 6,636 (2,141) 38,588
Equity income - 22 419 - 441
Earnings before interest,taxes and minority
interest (EBIT) 15,482 18,633 7,055 (2,141) 39,029
EBIT % of total EBIT, after allocation
of Corporate and Other 38% 45% 17% - 100%
Identifiable assets 128,200 125,513 117,947 4,021 375,681
Investments in affiliated companies 57 30 2,821 - 2,908
Depreciation and amortization 3,740 15,102 7,075 245 26,162
Capital expenditures 7,347 16,747 22,628 168 46,890
1995
Revenue - unaffiliated customers $135,484 $ 66,510 $ 55,299 $ - $257,293
Inter-segment transfers 6,202 2,422 - (8,624) -
Income from operations 12,794 14,802 4,914 (2,520) 29,990
Equity income (loss) (49) 57 634 - 642
Earnings before interest, taxes and minority
interest (EBIT) 12,745 14,859 5,548 (2,520) 30,632
EBIT % of total EBIT, after allocation
of Corporate and Other 38% 45% 17% - 100%
Identifiable assets 120,699 103,643 95,126 (2,298) 317,170
Investments in affiliated companies - 1,218 3,656 - 4,874
Depreciation and amortization 2,878 11,663 5,973 203 20,717
Capital expenditures 13,175 15,929 21,688 150 50,942
</TABLE>
/206
-30-
Geographic Segments
Revenues are reflected in the segment from which the sales are made.
Transfers between areas are generally made at cost plus a markup which
approximates prices charged to unaffiliated customers. Certain corporate
expenses are included with the elimination of inter-segment profit in the
"Corporate and Eliminations" segment. Identifiable corporate assets, which
are net of eliminations, consist primarily of cash and short-term
investments.
Included in the United States segment are export sales of
approximately 22%, 18% and 23% for 1997, 1996 and 1995, respectively.
Including these U.S. export sales, the percentages of total revenues
attributable to activities outside the U.S. were 41%, 36% and 39% in 1997,
1996 and 1995, respectively. Information about the Company's operations by
geographic segment follows:
<TABLE>
<CAPTION>
Corporate
United Other and
Dollars in Thousands States Europe International Eliminations Total
<S> <C> <C> <C> <C> <C>
1997
Revenue - unaffiliated customers $264,604 $53,984 $33,881 $ - $352,469
Inter-segment transfers 11,418 747 942 (13,107) -
Income from operations 30,709 9,628 4,722 (2,613) 42,446
Identifiable assets 276,067 77,920 56,860 (8,094) 402,753
1996
Revenue - unaffiliated customers $256,486 $48,692 $21,484 $ - $326,662
Inter-segment transfers 10,255 1,385 3,002 (14,642) -
Income from operations 32,112 5,279 3,073 (1,876) 38,588
Identifiable assets 281,624 73,505 20,340 212 375,681
1995
Revenue - unaffiliated customers $206,276 $39,824 $11,193 $ - $257,293
Inter-segment transfers 8,343 1,655 2,935 (12,933) -
Income from operations 23,512 5,986 1,360 (868) 29,990
Identifiable assets 235,238 74,161 16,708 (8,937) 317,170
</TABLE>
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Statement of Operations Data
Dollars in Thousands,
Except Per Share Amounts 1997 % 1996 % 1995 % 1994 % 1993 %
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues $352,469 100.0 $326,662 100.0 $257,293 100.0 $222,376 100.0 $175,273 100.0
Income before income taxes
and minority interest 43,222 12.3 39,556 12.1 31,609 12.3 22,717 10.2 19,724 11.3
Net income 28,329 8.0 26,503 8.1 21,025 8.2 15,448 6.9 13,807 7.9
Earnings per basic share 1.78 1.71 1.45 1.11 1.00
Earnings per diluted share 1.73 1.65 1.39 1.09 .98
</TABLE>
/207
-31-
<TABLE>
<CAPTION>
Balance Sheet Data
Dollars in Thousands 1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Current assets $165,850 $144,422 $122,387 $113,477 $109,957
Current liabilities 66,012 68,173 60,279 54,877 46,082
Working capital 99,838 76,249 62,108 58,600 63,875
Total assets 406,736 378,589 322,044 277,164 249,562
Long-term debt and notes payable 804 2,132 182 99 109
Stockholders' equity 319,659 292,217 253,044 218,610 200,081
</TABLE>
<TABLE>
<CAPTION>
Selected Quarterly Financial Data (Unaudited)
Earnings Earnings Earnings Earnings
Dollars in Thousands, Per Per Per Per
Except Per Gross Net Basic Diluted Gross Net Basic Diluted
Share Amounts Revenues Profit Income Share Share Revenues Profit Income Share Share
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1997 1996
First Quarter $ 87,102 $ 28,055 $ 6,972 $ .44 $ .43 First Quarter $ 77,843 $ 25,111 $ 6,085 $ .40 $ .38
Second Quarter 87,111 28,612 7,269 .46 .44 Second Quarter 74,902 25,972 6,440 .42 .40
Third Quarter 85,113 28,067 7,196 .45 .44 Third Quarter 84,511 27,355 6,853 .44 .43
Fourth Quarter 93,143 30,715 6,892 .43 .42 Fourth Quarter 89,406 28,376 7,125 .45 .44
$352,469 $115,449 $28,329 $1.78 $1.73 $326,662 $106,814 $26,503 $1.71 $1.65
</TABLE>
<TABLE>
<CAPTION>
Common Stock Price Range
1997 High Low 1996 High Low
<S> <C> <C> <C> <C> <C>
First Quarter $53 $45 1/4 First Quarter $43 1/2 $38 1/8
Second Quarter 50 1/2 44 5/8 Second Quarter 51 1/4 40 1/2
Third Quarter 46 3/8 40 3/4 Third Quarter 47 7/8 40
Fourth Quarter 44 3/4 33 1/2 Fourth Quarter 50 45 1/2
</TABLE>
/208
-32-
BOARD OF DIRECTORS
ARTHUR L. GOLDSTEIN *
Chairman of the Board, President and Chief Executive Officer
Ionics, Incorporated
DOUGLAS R. BROWN +
President and Chief
Executive Officer,
Advent International Corp.
WILLIAM L. BROWN +
Retired Chairman of the Board,
The First National Bank of Boston
ARNAUD DE VITRY DAVAUCOURT +
Engineering Consultant and Director of Various Organizations
WILLIAM E. KATZ
Executive Vice President
Ionics, Incorporated
KATHLEEN F. FELDSTEIN
President, Economic Studies, Inc.
ROBERT B. LUICK
Of Counsel, Sullivan and Worcester, Attorneys
JOHN J. SHIELDS #*
General Partner, Boston Capital Ventures
CARL S. SLOANE #*
Ernest L. Arbuckle Professor of Business Administration,
Harvard University Graduate School of Business Administration
DANIEL I. C. WANG +
Institute Professor and Director of Biotechnology Process
Engineering Center, Massachusetts Institute of Technology
MARK S. WRIGHTON #
Chancellor
Washington University
ALLEN S. WYETT #
President, Wyett Consulting
Group, Inc.
* Member of Executive Committee
+ Member of Audit Committee
# Member of Compensation Committee
/209
-33-
CORPORATE OFFICERS
ARTHUR L. GOLDSTEIN
Chairman of the Board, President and Chief Executive Officer
WILLIAM E. KATZ
Executive Vice President
JOHN P. BERGERON
Treasurer
ROBERT J. HALLIDAY
Vice President, Finance and Chief Financial Officer
STEPHEN KORN
Vice President,
General Counsel and Clerk
THEODORE G. PAPASTAVROS
Vice President,
Strategic Planning
A. ERNEST WHITON
Vice President and Corporate Controller
PRINCIPAL U.S. OFFICES, AFFILIATES & SUBSIDIARIES
Aqua Cool Pure Bottled Water
Watertown, Massachusetts
Elite New England
Ludlow, Massachusetts
General Ionics
Cuyahoga Falls, Ohio
Ionics Ahlfinger Water
Dallas, Texas
Ionics Apollo Ultrapure
Pico Rivera, California
Ionics Aqua Design
Deerfield Beach, Florida
Ionics, Incorporated
Bridgeville, Pennsylvania
Ionics Pure Solutions
Phoenix, Arizona
Ionics Resources Conservation
Bellevue, Washington
Ionics Separation Technology
St. Paul, Minnesota
/210
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Ionics Sievers Instruments
Boulder, Colorado
Ionics Ultrapure Water
San Jose, California
CORPORATE HEADQUARTERS
Ionics, Incorporated
65 Grove Street
Watertown, Massachusetts 02172
PRINCIPAL OVERSEAS OFFICES, AFFILIATES & SUBSIDIARIES
Aqua Cool Pure Bottled Water
London England
Eau et Industrie
Paris, France
Elite Chemicals Pty. Ltd.
Brisbane, Qld. Australia
Global Water Services, S.A.
Panama City, Panama
Ionics Asia-Pacific Pte. Ltd.
Singapore
Ionics (Bermuda) Ltd.
Hamilton, Bermuda
Ionics Iberica, S.A.
Grand Canary, Spain
Ionics, Incorporated
Hong Kong
Ionics Italba, S.p.A.
Milan, Italy
Ionics Korea, Inc.
Seoul, Korea
Ionics (UK) Ltd.
London, England
Ionics Watertec Pty. Ltd.
Brisbane, Qld. Australia
Enersave Engineering Systems Sdn. Bhd.
Kuala Lumpur, Malaysia
/211
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Yuasa-Ionics Co., Ltd.
Tokyo, Japan
INVESTOR INFORMATION
The Annual Meeting of Ionics' shareholders will be held Thursday,
May 7, 1998 at 2:00 P.M. at BankBoston, 100 Federal Street,
Boston, Massachusetts.
Ionics' common stock is traded on the New York Stock Exchange
under the symbol ION. As of March 20, 1998 there were
approximately 1,700 shareholders of record. No cash dividends
were paid in either 1997 or 1996 pursuant to Ionics' current
policy to retain earnings for use in its business.
For information or assistance regarding individual stock records,
transactions or certificates, please call the Transfer Agent's
Telephone Response Center: 1-800-426-5523 between 9 A.M. and 5
P.M.
Ionics' Annual Report on Form 10-K and other corporate
information may be obtained on Ionics' home page on the
Worldwide Web at http://www.ionics.com
A copy of Ionics' Annual Report on Form 10-K, which is filed with
the Securities and Exchange Commission, will be sent to any
shareholder upon request directed to Investor Relations, Ionics,
Incorporated, P.O. Box 9131, Watertown, Massachusetts 02272-9131,
or by calling (617) 926-2510 ext. 874.
TRANSFER AGENT & REGISTRAR
State Street Bank and Trust Company
Boston, Massachusetts
AUDITORS
Coopers & Lybrand L. L. P.
Boston, Massachusetts
The Ionics Toolbox and Ionics Total Water Management are
registered service marks; Covering the Waterfront, The Ionics
Brand and Ionics Diamond Service are unregistered service marks;
Aqua Cool, Cloromat, HYgene, Ionics, Ozgen, and Sievers are
registered trademarks; and Ionics EDR 2020 is an unregistered
trademark of Ionics, Incorporated.
/212
-36-
EXHIBIT 21
IONICS, INCORPORATED
SUBSIDIARIES OF THE REGISTRANT
State or Other Jurisdiction
Name of Incorporation
Ionics Foreign Sales Corporation Limited Jamaica
Global Water Services, S.A. Panama
Ionics Italba, S.p.A. Italy
Ionics Iberica, S.A. Spain
Ionics Nederland B.V. The Netherlands
Ionics Ultrapure Water Corporation California
Ionics Securities Corporation Massachusetts
Ionics (U.K.) Limited United Kingdom
Ionics (Bermuda) Ltd.* Bermuda
Elite Chemicals Pty. Ltd. Australia
Eau et Industrie France
Resources Conservation Co. International Delaware
Ionics Asia-Pacific Pte. Ltd. Singapore
Ionics Watertec Pty. Ltd. Australia
Enersave Engineering Systems Sdn Bhd*** Malaysia
Apollo Ultrapure Water Systems, Inc. California
Aqua Design, Inc.* California
Separation Technology, Inc.** Minnesota
Ionics (Korea) Ltd. Delaware
Sievers Instruments, Inc. Colorado
* The Registrant, either directly, through Aqua Design, Inc. or
through Ionics (Bermuda) Ltd., wholly owns nine subsidiary
corporations incorporated in various Caribbean jurisdictions.
These subsidiary corporations own and operate, or operate and
maintain, desalination plants for the supply of potable water
to resorts, hotels and municipalities.
** Owns a U.K. subsidiary, SeparaTech Limited.
*** Registrant through Ionics Iberica, S.A. owns 55% of this
entity.
/213
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration
statements for the Ionics 1997 Stock Incentive Plan on Form S-8
(registration no. 333-29135); the 1979 Stock Option Plan on Form S-8
(registration nos. 333-05225, 33-54293, 33-41598, 33-5814, 33-14194, 2-
64255, 2-72936 and 2-82780); in the registration statement for the Ionics
Section 401(k) Stock Savings Plan on Form S-8 (registration no. 33-2092);
in the registration statement for the Ionics 1994 Restricted Stock Plan
(No. 33-59051); and in the registration statement for the Ionics 1986
Stock Option Plan for Non-Employee Directors (registration no. 33-54400),
of our reports, dated February 17, 1998, on our audits of the consolidated
financial statements and the financial statement schedule of Ionics,
Incorporated as of December 31, 1997 and 1996, and for each of the three
years in the period ended December 31, 1997, which are included or
incorporated by reference in this Annual Report on Form 10-K.
/s/COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
March 27, 1998
/214
<TABLE>
EXHIBIT 24
POWER OF ATTORNEY
We, the undersigned officers and directors of Ionics, Incorporated (the
"Company"), hereby severally constitute Arthur L. Goldstein and Stephen
Korn, and each of them, to sign for us, and in our names in the capacities
indicated below, the Annual Report on Form 10-K of the Company for the
fiscal year ended December 31, 1997, and any and all amendments to such
Annual Report, hereby ratifying and confirming our signatures as they may be
signed by our attorneys to such Annual Report and any and all amendments
thereto.
Witness our hands on the respective dates set forth below.
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/Douglas R. Brown Director February 24, 1998
Douglas R. Brown
/s/William L. Brown Director February 24, 1998
William L. Brown
/s/Arnaud de Vitry d'Avaucourt Director February 24, 1998
Arnaud de Vitry d'Avaucourt
/s/Kathleen F. Feldstein Director February 24, 1998
Kathleen F. Feldstein
/s/Arthur L. Goldstein Chairman of the Board February 24, 1998
Arthur L. Goldstein of Directors, Chief
Executive Officer and
President (Principal
Executive Officer)
/s/William E. Katz Director February 24, 1998
William E. Katz
/s/Robert B. Luick Director February 24, 1998
Robert B. Luick
/s/John J. Shields Director February 24, 1998
John J. Shields
/s/Carl S. Sloane Director February 24, 1998
Carl S. Sloane
/s/Daniel I.C. Wang Director February 24, 1998
Daniel I.C. Wang
/s/Mark S. Wrighton Director February 24, 1998
Mark S. Wrighton
/s/Allen S. Wyett Director February 24, 1998
Allen S. Wyett
</TABLE>
/215
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 25,787
<SECURITIES> 107
<RECEIVABLES> 104,319
<ALLOWANCES> (2,188)
<INVENTORY> 28,910
<CURRENT-ASSETS> 165,850
<PP&E> 318,929
<DEPRECIATION> (138,972)
<TOTAL-ASSETS> 406,736
<CURRENT-LIABILITIES> 66,012
<BONDS> 0
<COMMON> 16,001
0
0
<OTHER-SE> 303,658
<TOTAL-LIABILITY-AND-EQUITY> 406,736
<SALES> 352,469
<TOTAL-REVENUES> 352,469
<CGS> 237,020
<TOTAL-COSTS> 237,020
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,408
<INTEREST-EXPENSE> (947)
<INCOME-PRETAX> 42,696
<INCOME-TAX> 14,280
<INCOME-CONTINUING> 28,329
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 28,329
<EPS-PRIMARY> 1.78
<EPS-DILUTED> 1.73
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 9,479
<SECURITIES> 0
<RECEIVABLES> 85,058
<ALLOWANCES> (2,153)
<INVENTORY> 20,564
<CURRENT-ASSETS> 122,387
<PP&E> 247,255
<DEPRECIATION> (91,369)
<TOTAL-ASSETS> 322,044
<CURRENT-LIABILITIES> 60,279
<BONDS> 0
<COMMON> 14,801
0
0
<OTHER-SE> 238,243
<TOTAL-LIABILITY-AND-EQUITY> 322,044
<SALES> 257,293
<TOTAL-REVENUES> 257,293
<CGS> 173,000
<TOTAL-COSTS> 173,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 579
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 30,967
<INCOME-TAX> 10,584
<INCOME-CONTINUING> 21,025
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 21,025
<EPS-PRIMARY> 1.45
<EPS-DILUTED> 1.39
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 9,742
<SECURITIES> 0
<RECEIVABLES> 93,642
<ALLOWANCES> (2,464)
<INVENTORY> 23,711
<CURRENT-ASSETS> 134,301
<PP&E> 271,076
<DEPRECIATION> (102,181)
<TOTAL-ASSETS> 346,808
<CURRENT-LIABILITIES> 76,886
<BONDS> 0
<COMMON> 15,378
0
0
<OTHER-SE> 243,967
<TOTAL-LIABILITY-AND-EQUITY> 346,808
<SALES> 77,843
<TOTAL-REVENUES> 77,843
<CGS> 52,732
<TOTAL-COSTS> 52,732
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 232
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 9,074
<INCOME-TAX> 3,065
<INCOME-CONTINUING> 6,085
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,085
<EPS-PRIMARY> .40
<EPS-DILUTED> .38
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 13,388
<SECURITIES> 0
<RECEIVABLES> 88,128
<ALLOWANCES> (2,087)
<INVENTORY> 22,913
<CURRENT-ASSETS> 131,899
<PP&E> 287,039
<DEPRECIATION> (107,703)
<TOTAL-ASSETS> 356,164
<CURRENT-LIABILITIES> 77,059
<BONDS> 0
<COMMON> 15,500
0
0
<OTHER-SE> 253,379
<TOTAL-LIABILITY-AND-EQUITY> 356,164
<SALES> 152,745
<TOTAL-REVENUES> 152,745
<CGS> 101,662
<TOTAL-COSTS> 101,662
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 329
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 18,475
<INCOME-TAX> 6,169
<INCOME-CONTINUING> 12,525
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