-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, U8vJ4Ew0JUQ20vEALnk8a5KpAC7NvGvWmAHevd/hgcIMUdtHBvCN04yv0+N1WwC5 S7nLkDMOzgEsQb6zIzIoTQ== 0000052466-98-000016.txt : 19981202 0000052466-98-000016.hdr.sgml : 19981202 ACCESSION NUMBER: 0000052466-98-000016 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981116 FILER: COMPANY DATA: COMPANY CONFORMED NAME: IONICS INC CENTRAL INDEX KEY: 0000052466 STANDARD INDUSTRIAL CLASSIFICATION: 3559 IRS NUMBER: 042068530 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-07211 FILM NUMBER: 98751398 BUSINESS ADDRESS: STREET 1: 65 GROVE ST CITY: WATERTOWN STATE: MA ZIP: 02172 BUSINESS PHONE: 6179262500 10-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (Mark One) [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1998 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number 1-7211 IONICS, INCORPORATED (exact name of registrant as specified in its charter) MASSACHUSETTS 04-2068530 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 65 Grove Street, Watertown, Massachusetts 02472 (Address of principal executive offices) (Zip Code) (617) 926-2500 (Registrant's telephone number, including area code) NONE (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Outstanding at September 30, 1998 Common Stock, Par Value $1 16,100,480 Shares /1 IONICS, INCORPORATED FORM 10-Q FOR QUARTER ENDED SEPTEMBER 30, 1998 INDEX Page No. Part I - Financial Information Consolidated Statements of Operations 2 Consolidated Balance Sheets 3 Consolidated Statements of Cash Flows 4 Notes to Consolidated Financial Statements 5 Management's Discussion and Analysis of Results of Operations and Financial Condition 7 Part II - Other Information 12 Signatures 13 Exhibit Index 14 Exhibit 10 Material Contracts 10.1 Ionics, Incorporated 1998 Non-Employee Directors' Fee Plan 15 Exhibit 27 - Financial Data Schedule 19 (for electronic purposes only) - 1 - /2 PART I - FINANCIAL INFORMATION IONICS, INCORPORATED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (Amounts in thousands, except per share amounts)
Three Months Ended Nine Months Ended September 30, September 30, 1998 1997 1998 1997 Net revenue: Membranes and related equipment $43,608 $39,541 $120,229 $116,828 Water, food and chemical supply 23,368 25,638 67,375 87,353 Consumer products 21,900 19,934 60,513 55,145 88,876 85,113 248,117 259,326 Costs and expenses: Cost of membranes and related equipment 32,170 27,458 83,806 81,337 Cost of water, food and chemical supply 16,831 18,502 47,850 62,614 Cost of consumer products 11,876 11,086 33,356 30,641 Research and development 1,555 1,403 4,938 3,987 Selling, general and administrative 18,890 16,285 55,044 49,513 81,322 74,734 224,994 228,092 Income from operations 7,554 10,379 23,123 31,234 Interest income 388 361 689 923 Interest expense - (205) (191) (668) Equity income 168 205 426 506 Income before income taxes and minority interest 8,110 10,740 24,047 31,995 Provision for income taxes 2,676 3,544 7,794 10,558 Income before minority interest 5,434 7,196 16,253 21,437 Minority interest expense 251 - 442 - Net income $ 5,183 $ 7,196 $ 15,811 $ 21,437 Basic earnings per share $ .32 $ .45 $ .98 $ 1.35 Diluted earnings per share $ .32 $ .44 $ .97 $ 1.31 Shares used in basic earnings per share calculations 16,097 15,957 16,066 15,914 Shares used in diluted earnings per share calculations 16,273 16,393 16,383 16,414 The accompanying notes are an integral part of these financial statements.
-2- /3 IONICS, INCORPORATED CONSOLIDATED BALANCE SHEETS (Unaudited) (Amounts in thousands, except share amounts)
September 30, December 31, 1998 1997 ASSETS Current assets: Cash and cash equivalents $ 18,110 $ 25,787 Short-term investments 635 107 Notes receivable, current 3,933 3,856 Accounts receivable 108,591 98,275 Receivables from affiliated companies 2,265 2,624 Inventories: Raw materials 19,922 17,183 Work in process 10,016 8,773 Finished goods 3,830 2,954 33,768 28,910 Other current assets 6,575 6,291 Total current assets 173,877 165,850 Notes receivable, long-term 8,762 8,349 Investments in affiliated companies 6,738 3,983 Property, plant and equipment: Land 6,979 6,767 Buildings 38,055 34,239 Machinery and equipment 255,074 236,526 Other, including furniture, fixtures and vehicles 45,441 41,397 345,549 318,929 Less accumulated depreciation (156,365) (138,972) 189,184 179,957 Other assets 51,816 48,597 Total assets $430,377 $406,736 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Notes payable and current portion of long-term debt $ 3,365 $ 12,084 Accounts payable 25,641 27,099 Customer deposits 4,165 3,685 Accrued commissions 2,175 2,370 Accrued expenses 32,089 20,172 Taxes on income 1,742 602 Total current liabilities 69,177 66,012 Long-term debt and notes payable 1,532 804 Deferred income taxes 17,652 17,783 Other liabilities 1,383 2,478 Stockholders' equity: Common stock, par value $1, 55,000,000 authorized shares; issued: 16,100,480 in 1998 and 16,001,285 in 1997 16,100 16,001 Additional paid-in capital 157,263 154,479 Retained earnings 174,368 158,557 Accumulated other comprehensive income (6,927) (9,126) Unearned compensation (171) (252) Total stockholders' equity 340,633 319,659 Total liabilities and stockholders' equity $430,377 $406,736 The accompanying notes are an integral part of these financial statements. -3-
/4 IONICS, INCORPORATED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (Dollars in thousands)
Nine Months Ended September 30, 1998 1997 Operating activities: Net income $ 15,811 $ 21,437 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 20,047 20,293 Provision for losses on accounts and notes receivable 919 1,030 Compensation expense on restricted stock awards 81 81 Changes in assets and liabilities: Notes receivable (71) (2,324) Accounts receivable (10,889) 185 Inventories (4,949) (2,428) Other current assets 1 1,994 Investments in affiliates (2,479) (78) Accounts payable and accrued expenses 8,929 (3,539) Income taxes 1,551 5,451 Other (3,613) (1,886) Net cash provided by operating activities 25,338 40,216 Investing activities: Additions to property, plant and equipment (27,981) (24,713) Disposals of property, plant and equipment 1,014 775 Acquisitions, net of cash acquired - (9,604) Purchase of short-term investments (132) - Net cash used by investing activities (27,099) (33,542) Financing activities: Principal payments on current debt (12,988) (8,328) Proceeds from issuance of current debt 4,505 10,863 Principal payments on long-term debt (5) (28) Proceeds from issuance of long-term debt 395 - Proceeds from stock option plans 2,189 2,634 Net cash (used)/provided by financing activities (5,904) 5,141 Effect of exchange rate changes on cash (12) (914) Net change in cash and cash equivalents (7,677) 10,901 Cash and cash equivalents at beginning of period 25,787 12,269 Cash and cash equivalents at end of period $ 18,110 $ 23,170 The accompanying notes are an integral part of these financial statements.
/5 -4- IONICS, INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. In the opinion of Ionics, Incorporated (the "Company"), the accompanying consolidated financial statements contain all adjustments (consisting of only normal, recurring accruals) necessary to present fairly the consolidated financial position of the Company as of September 30, 1998 and December 31, 1997, the consolidated results of its operations for the three and nine months ended September 30, 1998 and 1997 and the consolidated cash flows for the nine months then ended. 2. The consolidated results of operations of the Company for the three and nine months ended September 30, 1998 and 1997 are not necessarily indicative of the results of operations to be expected for the full year. 3. Reference is made to the Notes to Consolidated Financial Statements appearing in the Company's 1997 Annual Report as filed on Form 10-K with the Securities and Exchange Commission. There have been no significant changes in the information reported in those Notes, other than from the normal business activities of the Company, and there have been no changes which would, in the opinion of Management, have a materially adverse effect upon the Company. 4. Certain prior year amounts have been reclassified to conform to the current year presentation with no impact on net income. 5. Earnings per share (EPS) calculations:
(Amounts in thousands, except per share amounts) For the three months ended September 30, 1998 1997 Net Per Share Net Per Share Income Shares Amount Income Shares Amount Basic EPS Income available to common stockholders $ 5,183 16,097 $ 0.32 $ 7,196 15,957 $ 0.45 Effect of dilutive stock options - 176 - 436 Diluted EPS $ 5,183 16,273 $ 0.32 $ 7,196 16,393 $ 0.44
-5- /6
For the nine months ended September 30, 1998 1997 Net Per Share Net Per Share Income Shares Amount Income Shares Amount Basic EPS Income available to common stockholders $ 15,811 16,066 $ 0.98 $ 21,437 15,914 $ 1.35 Effect of dilutive stock options - 317 - 500 Diluted EPS $ 15,811 16,383 $ 0.97 $ 21,437 16,414 $ 1.31
6. Comprehensive Income The Company has adopted the Statement of Financial Accounting Standards ("FAS") No. 130, "Reporting Comprehensive Income," which establishes standards for the reporting and display of comprehensive income and its components in general purpose financial statements for the year ended December 31, 1998. The table below sets forth "comprehensive income" as defined by FAS No. 130 for the three month periods and nine month periods ended September 30, 1998 and 1997.
(Amounts in thousands) Three Months Ended Nine Months Ended September 30, September 30, 1998 1997 1998 1997 Net income $ 5,183 $ 7,196 $15,811 $21,437 Other comprehensive income, net of tax: Translation adjustments 2,682 (723) 2,199 (3,636) Comprehensive income $ 7,865 $ 6,473 $18,010 $17,801
-6- /7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Results of Operations Comparison of the Three and Nine Months Ended September 30, 1998 with the Three and Nine Months Ended September 30, 1997 Revenues for the third quarter of 1998 increased 4.4% to $88.9 million from $85.1 million during the third quarter of 1997. Revenues for the nine-month period decreased 4.3% to $248.1 million from $259.3 million in the comparable period in 1997. Revenues increased in both the Membranes and Related Equipment and the Consumer Products segments for the three-month and nine-month periods. Within the Water, Food and Chemical Supply segment, revenues were lower for both the three- and nine-month periods. The largest increase in revenues during the third quarter occurred in the Membranes and Related Equipment segment while the largest increase during the nine-month period was in the Consumer Products segment. Within the Membranes and Related Equipment segment, revenues grew during the third quarter due primarily to increased sales of wastewater treatment equipment and increased sales of instrumentation. During the nine-month period, the growth in revenues reflected: the acquisition of a majority interest in Enersave Engineering Systems Sdn Bhd, a Malaysian corporation, which occurred in September 1997; increased sales of instrumentation to the pharmaceutical industry; and increased sales of wastewater treatment systems. The increases in the third quarter and the nine-month period were partially offset by a decrease in revenues from the sale of water desalting equipment. The Company continues to experience increased competitive pressure within the Membranes and Related Equipment segment, primarily for ultrapure water equipment. Revenues from the Water, Food and Chemical Supply segment decreased in both periods primarily due to a reduction in revenue from the ultrapure water supply area. In addition, decreased revenues were experienced during both periods in the chemical supply and food processing businesses. Revenues from municipal water supply decreased for the nine-month period reflecting the buy-out in the second quarter of 1997 by the City of Santa Barbara of the desalination plant that had been owned and operated by the Company. Consumer Products revenues increased in both the third quarter and the nine-month period due to higher revenues from bottled water sales. These increases resulted from continued growth in the customer base in both the United States and the United Kingdom. The increases also reflect an overall average price increase. Cost of sales as a percentage of revenues for the third quarter was 68.5% in 1998 and 67.0% in 1997. For the nine-month period, cost of sales as a percentage of revenues was 66.5% in 1998 and 67.3% in 1997. -7- /8 In the Membranes and Related Equipment segment, cost of sales as a percentage of revenues increased during the third quarter reflecting the continued competitive environment in the microelectronics industry for ultrapure water capital equipment and a change in the mix of revenues from the sale of wastewater treatment systems. Within the Water, Food and Chemical Supply segment, cost of sales decreased as a percentage of revenues during the third quarter and the nine-month period, reflecting an improvement in the mix of chemical supply contracts. Cost of sales as a percentage of revenues decreased in the Consumer Products segment for both the three-month and nine-month periods reflecting an overall improvement in prices in the home water business. Operating expenses as a percentage of revenues increased during the third quarter to 23.0% in 1998 from 20.8% in 1997. For the nine-month period, operating expenses as a percentage of revenues increased to 24.2% in 1998 from 20.6% in 1997. The increase during both periods primarily reflected the decrease in ultrapure water supply, chemical supply and food processing revenues, noted above, which typically carry disproportionately lower selling expenses as a percentage of such revenues than do revenues from other businesses. Additionally, in both periods, the Company experienced revenue growth, as noted above, in the bottled water business which typically carries disproportionately higher selling costs as a percentage of revenues than do other businesses. Operating expenses also increased due to expanded marketing initiatives, as well as the Company's continued commitment to investment in its research and development programs. Interest expense decreased during both the third quarter and the nine- month period due to lower average borrowings and interest rates. Financial Condition Working capital increased $4.9 million during the first nine months of 1998, and the current ratio of 2.5 at September 30, 1998 was approximately the same at December 31, 1997. Cash provided from net income and depreciation totaled $35.9 million during the first nine months of 1998, while the primary uses of cash were for additions to property, plant and equipment and principal payments on current debt. Significant capital expenditures were incurred to support growth in bottled water operations and own and operate facilities. At September 30, 1998, the Company had $18.1 million in cash and cash equivalents, a decrease of $7.7 million from December 31, 1997. Notes payable and long-term debt decreased $8 million during the same period. The Company believes that its cash, cash from operations, lines of credit and foreign exchange facilities are adequate to meet its currently anticipated needs. -8- /9 Year 2000 Readiness Disclosure and Related Information Many currently installed computer systems and software products are coded to accept only two digit entries in the date code field and cannot distinguish 21st century dates from 20th century dates. Many companies' software and computer systems may need to be upgraded or replaced in order to distinguish 21st century dates from 20th century dates (so-called "Year 2000 (Y2K) Compliance or Compliant"). The Company's State of Readiness The Company has commenced a process to assess Y2K Compliance of its systems, including its information technology (IT) systems, manufacturing systems, products and facilities. The Company's process involves the following three phases: Phase One - Inventory and Planning The Company completed this phase in July 1998. In this phase, the Company inventoried all hardware and software that potentially is susceptible to Y2K problems, prepared plans for assessing compliance and completing remediation, and prepared vendor compliance letters. Phase Two - Assessment In this phase, the Company is assessing which of its systems and products are Y2K Compliant, obtaining compliance statements from hardware and software vendors, supply manufacturers and service trading partners, and planning for remediation of non-compliant systems. The Company expects to complete this phase in December 1998. Phase Three - Remediation and Testing In this phase, the Company will deploy plans for elimination, upgrade, replacement or modification of non-compliant systems and products and test compliance. The Company has scheduled completion of this phase for mid-1999. The Company's core operating (IT and manufacturing) system for its Watertown-based operations is not yet Y2K Compliant. The Company is currently pursuing a remediation plan for this system, has made significant progress, and expects to have it completed by mid-1999. The Company's bottled water accounting system in the United States is not yet Y2K Compliant. The Company has purchased a new integrated distribution and accounting system, which management believes will significantly enhance its bottled water operations. This new system is Y2K Compliant and implementation is scheduled for completion by mid-1999. Individual bottled water business locations are running this new system as it is implemented, which the Company believes may reduce the risks associated with potential Y2K non-Compliance should implementation not be fully completed by the end of 1999. -9- /10 The Company's other IT systems are not uniform across all operations and locations. The systems for all non-Watertown-based operations have been reviewed. The Company is currently implementing new Y2K Compliant IT systems at two major locations in the U.S. Completion of implementation of these systems is expected by mid-1999. The Company has either completed remediation or implemented new IT systems which are Y2K Compliant at its other significant non-Watertown-based operations. Remediation or replacement of IT systems at other locations is under way and expected to be completed by mid-1999. The Company believes that failure of these systems to become Y2K Compliant would be unlikely to have a material impact on the Company due to the relatively small size of these operations and the opportunity to perform relevant tasks manually. The Company's assessment plan includes assessment of Y2K Compliance of non-information technology (non-IT) components including the Company's membrane-related equipment, own and operate equipment, other products, manufacturing equipment and facilities. Substantial progress has been made in these areas and completion of such assessment is expected in December 1998. The Company has begun to receive compliance statements from vendors of both IT and non-IT systems and is revising its vendors' status on an on-going basis based upon information it is receiving. The Company is working with its most important vendors to resolve remediation and compliance problems as they are identified. Costs to Address Y2K Issues The Company's assessment and remediation of Y2K Compliance issues is anticipated to cost approximately $1.5 million, excluding the cost of new systems implementation. Expenses to date of approximately $600,000 are consistent with such expectations. The Company does not currently expect that actual Y2K expenses finally incurred will materially exceed its estimate. Risk of the Company's Y2K Issues If the Company fails to achieve Y2K Compliance in all its systems, the Company could lose the ability to process certain of its customers' orders, manufacture products or provide services to customers until compliance is achieved or a means to work around the failure is implemented. However, most of the Company's businesses process a small number of relatively large transactions, mitigating the short- term dependence on information systems. Also, because the Company's systems are not uniform across the Company, it is anticipated that any failure would not be system-wide. Furthermore, a failure to fill an order may not necessarily result in complete loss of the order. Some orders could be filled through alternative methods within a relatively short period. Nevertheless, any disruption in order fulfillment, manufacturing or the provision of services to customers could result in some loss of revenue or claims against the Company. Moreover, there is uncertainty as to whether the Company may experience any disruption -10- /11 in these areas as a result of uncertainty concerning the Y2K readiness of third-party vendors. If disruption in any of these areas resulting from Y2K non-Compliance is greater than anticipated, the loss of revenue could be material. Contingency Plans The Company plans to complete contingency plans by mid-1999 to deal with possible failures in systems which it determines may not achieve Y2K Compliance on a timely basis. Forward-Looking Information The Company's future results of operations and certain statements contained in this Report on Form 10-Q, including without limitation in this "Management's Discussion and Analysis of Results of Operations and Financial Condition," constitute forward-looking statements. Such statements are based on management's current views and assumptions and involve risks, uncertainties and other factors that could cause actual results to differ materially from management's current expectations. Among these factors are business conditions and the general economy; competitive factors, such as acceptance of new products and price pressures; risk of nonpayment of accounts receivable; risks associated with foreign operations; the ability of the Company to achieve Y2K Compliance in accordance with its current program including the ability of the Company to ascertain and plan for compliance issues of third-party vendors; regulations and laws affecting business in each of the Company's markets; and other risks and uncertainties described from time to time in the Company's filings with the Securities and Exchange Commission. -11- /12 PART II - OTHER INFORMATION Item 1. Legal Proceedings The Attorney General of the Commonwealth of Massachusetts is conducting an investigation into certain former operations of a division of the Company during portions of the years 1991 through 1995. The Company is cooperating with this investigation of possible violations of environmental statutes and regulations that relate to one facility that ceased operations in 1995. The Company cannot predict the outcome of this matter, but it may result in administrative, civil or criminal charges and/or monetary payments. Item 5. Other Information The Company's 1999 Annual Meeting is presently expected to be held on May 6, 1999. Proposals of stockholders intended to be presented at the 1999 Annual Meeting must be received no later than November 30, 1998 for inclusion in the Company's Proxy Statement and Proxy for the 1999 Annual Meeting. Under the Company's By-Laws, notice of a stockholder proposal for action at the 1999 Annual Meeting for which inclusion in the Company's Proxy Statement will not be sought must be given to the Clerk of the Company no earlier than January 7, 1999 and no later than February 16, 1999. Notice of a stockholder proposal for nomination to the Board of Directors to be voted upon at the 1999 Annual Meeting must also be received by the Clerk of the Company no earlier than January 7, 1999 and no later than February 16, 1999. Articles V and VII of the Company's By-Laws contain certain requirements for the content of such notices. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits Exhibit 10 Material Contracts 10.1 Ionics, Incorporated 1998 Non-Employee Directors' Fee Plan. (b) Reports on Form 8-K No reports on Form 8-K were filed during the quarter ended September 30, 1998. All other items reportable under Part II have been omitted as inapplicable or because the answer is negative, or because the information was previously reported to the Securities and Exchange Commission. -12- /13 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. IONICS, INCORPORATED Date: November 14, 1998 By: /s/Arthur L. Goldstein Arthur L. Goldstein Chairman and Chief Executive Officer (duly authorized officer) Date: November 14, 1998 By: /s/Robert J. Halliday Robert J. Halliday Vice President, Finance (chief financial officer) -13- /14 EXHIBIT INDEX Sequentially Numbered Exhibit Page 10 Material Contracts 10.1 Ionics, Incorporated 1998 Non-Employee Directors' Fee Plan 16 27 Financial Data Schedule 20 (for electronic purposes only) -14- /15 EX-10 2 Exhibit 10.1 IONICS, INCORPORATED 1998 NON-EMPLOYEE DIRECTORS' FEE PLAN 1. PURPOSE. The Ionics, Incorporated 1998 Non-Employee Directors' Fee Plan (the "Fee Plan") is intended to promote the long-term interests of Ionics, Incorporated (the "Corporation") by increasing the share ownership of members of the Board of Directors of the Corporation who are not employees of the Corporation or its subsidiaries, thereby aligning their interests more closely with those of the shareholders of the Corporation, and to attract and retain highly qualified and capable non-employee Directors. 2. DEFINITIONS. (a) "Board" means the Board of Directors of the Corporation. (b) "Board Year" means the period commencing on the date of the Corporation's annual meeting of stockholders and ending on the date preceding the next following annual meeting of stockholders. (c) "Committee" means the Compensation Committee of the Board of Directors of the Corporation or any committee performing similar functions. (d) "Common Stock" means the common stock, par value $1.00 per share, of the Corporation. (e) "Corporation" means Ionics, Incorporated, a Massachusetts corporation. (f) "Director" means a member of the Board who is not an employee of the Corporation or any of its subsidiaries. (g) "Exchange Act" means the Securities Exchange Act of 1934, as amended. (h) "Fair Market Value" means as of any given date, the last reported sales price of the Common Stock as reported in The Wall Street Journal for such date, or if no such sale is reported on such date, then the last reported sales price on the last preceding trade date to the sales date; or, if no such sale is reported on the last preceding trade date to the sales date, or if the Common Stock is not publicly traded as of such date, the fair market value of the Common Stock as determined by the Committee in good faith based on the available facts and circumstances at the time. (i) "Fees" means the annual retainer scheduled to be paid to a Director for the Board Year, but excluding meeting fees paid for attendance at meetings of the Board or of any committee of the Board. /16 (j) "Grants" means issuances of Common Stock hereunder pursuant to a Share Election by a Director. (k) "Restricted Stock" means shares of Common Stock that have not been registered under the Securities Act of 1933, as amended. (l) (l) "Rule 16b-3" shall have the meaning set forth in Section 8 hereof. (m) "Share Election" shall have the meaning set forth in Section 5(a) hereof. 3. ADMINISTRATION OF THE FEE PLAN. (a) ADMINISTRATION BY THE COMMITTEE. The Fee Plan shall be administered by the Committee. (b) AUTHORITY OF THE COMMITTEE. The Committee shall adopt such rules as it may deem appropriate in order to carry out the purpose of the Fee Plan. All questions of interpretation, administration, and application of the Fee Plan shall be determined by a majority of the members of the Committee then in office, except that the Committee may authorize any one or more of its members, or any officer of the Corporation, to execute and deliver documents on behalf of the Committee. The determination of such majority shall be final and binding in all matters relating to the Fee Plan. 4. STOCK RESERVED FOR THE FEE PLAN. The number of shares of Common Stock authorized for issuance under the Fee Plan is 100,000, subject to adjustment pursuant to Section 6 hereof. Shares of Common Stock delivered hereunder may be either authorized but unissued shares or previously issued shares reacquired and held by the Corporation. 5. FORM AND TIME OF FEE PAYMENTS. (a) Election. Each Director shall be paid his or her Fee (payable in two equal installments) at the time of the first and third regular meetings of the Board during a Board Year either in cash or in Common Stock of the Corporation. Each Director shall provide a written notice to the Clerk of the Corporation at least thirty (30) days prior to the commencement of each Board Year indicating that such Director elects to be paid his or her Fee for the upcoming Board Year in cash or in Common Stock (the "Share Election"). In the event a Director fails to submit such notice, the Fee will be paid to such individual in cash. The election made by a Director pursuant hereto will apply to the Fee for the entire Board Year covered by such election. If the Fee Plan becomes effective other than at the beginning of a Plan Year and the second installment of Fees has not yet been made, then the election to be made for such year shall cover only the second installment of the Fee. /17 (b) Valuation. For a Fee payable in Common Stock, the number of shares of Common Stock to be delivered to a Director shall be calculated based upon the Fair Market Value of the Common Stock on the trading date next preceding the date of the Board meeting at which payment will be made. Such calculation will be rounded to the nearest whole number. (c) Formula Plan. Nothing contained in this Section 5 shall be interpreted in such a manner so as to disqualify the Fee Plan from treatment as a "formula plan" under Rule 16b-3. (d) Limitation. No Director may receive shares of Common Stock as payment of Fees under this Agreement if such Director has already acquired shares of Common Stock pursuant to Share Elections under this Fee Plan which total one percent (1%) of the issued and outstanding Common Stock as of the date this Fee Plan is adopted. 6. EFFECT OF CERTAIN CHANGES IN CAPITALIZATION. In the event of any stock split, stock dividend, recapitalization, reorganization, merger, consolidation, combination, exchange of shares, liquidation, spin-off or other similar change in capitalization, or any distribution to holders of Common Stock other than a cash dividend, the maximum number or class of shares available under this Fee Plan, the number or class of shares of Common Stock to be delivered hereunder and each Director's share account shall be proportionately adjusted by the Committee. 7. TERM OF FEE PLAN. This Fee Plan shall become effective as of the date of approval of the Fee Plan by the Board, and shall remain in effect until terminated by the Board or until no further shares of Common Stock are available for issuance hereunder. 8. AMENDMENT; TERMINATION. The Board of the Corporation may at any time and from time to time alter, amend, suspend, or terminate this Fee Plan in whole or in part, subject to any requirement of shareholder approval required by applicable law, rule or regulation, including Rule 16b-3 of the Exchange Act, as amended from time to time ("Rule 16b-3"); and provided, further, that the provisions of Section 5(a) hereof shall not be amended more than once every six months, other than to comply with changes in the Internal Revenue Code of 1986, as amended, the Employee Retirement Income Security Act of 1974, as amended, or the rules thereunder. Notwithstanding the foregoing, no amendment shall affect adversely any of the rights of any Director, without such Director's consent, under any election theretofore in effect under this Fee Plan. /18 9. GENERAL RESTRICTIONS. (a) INVESTMENT REPRESENTATIONS. The shares of Common Stock issued under the plan will be Restricted Stock. The Corporation may require any Director to whom Common Stock is transferred, as a condition of receiving such Common Stock, to give written assurances in substance and form satisfactory to the Corporation and its counsel to the effect that such person is acquiring the Common Stock for his or her own account for investment and not with any present intention of selling or otherwise distributing the same, and to such other effects as the Corporation deems necessary or appropriate in order to comply with Federal and applicable state securities laws. (b) COMPLIANCE WITH SECURITIES LAWS. Each Grant shall be subject to the requirement that, if at any time counsel to the Corporation shall determine that the listing, registration, or qualification of the shares subject to such Grant upon any securities exchange or under any state or federal law, or the consent or approval of any governmental or regulatory body, is necessary as a condition of, or in connection with, the issuance of shares of Common Stock thereunder, such grant may not be accepted or exercised in whole or in part unless such listing, registration, qualification, consent or approval shall have been effected or obtained on conditions acceptable to the Committee. Nothing herein shall be deemed to require the Corporation to apply for or to obtain such listing, registration or qualification. 10. WITHHOLDING. The Corporation may defer making payments under this Fee Plan until satisfactory arrangements have been made for the payment of any federal, state or local income taxes required to be withheld with respect to such payment or delivery. 11. GOVERNING LAW. This Fee Plan and all rights hereunder shall be construed in accordance with and governed by the laws of the Commonwealth of Massachusetts. 12. FEE PLAN INTERPRETATION. This Fee Plan is intended to comply with Rule 16b-3 to the extent applicable to this Fee Plan, and shall be construed to so comply. 13. HEADINGS. The headings of sections and subsections herein are included solely for convenience of reference and shall not affect the meaning of any of the provisions of this Fee Plan. /19 EX-27 3
5 1,000 9-MOS DEC-31-1998 SEP-30-1998 18,110 635 115,160 (2,636) 33,768 173,877 345,549 (156,365) 430,377 69,177 0 16,100 0 0 324,533 430,377 248,117 248,117 165,012 165,012 0 919 191 23,621 7,794 15,811 0 0 0 15,811 .98 .97
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