SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
FILED BY THE REGISTRANT [X] Filed by a Party other than the Registrant [ ]
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Check the appropriate box:
[ ] Preliminary Proxy Statement
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
Ionics, Incorporated
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement)
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[X] No fee required.
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to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
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[Ionics, Incorporated Logo]
Ionics, Incorporated
65 Grove Street
Watertown, Massachusetts 02472-2882
Arthur L. Goldstein
Chairman and Chief Executive Officer
April 5, 2002
Dear Stockholder:
You are cordially invited to attend our 2002 Annual Meeting of
Stockholders. The meeting is scheduled for 2:00 P.M. on Wednesday, May 8, 2002,
and will be held in the Enterprise Room, Fifth Floor, State Street Bank and
Trust Company, 225 Franklin Street, Boston, MA 02110.
The notice of meeting and proxy statement that follow describe the business
to be conducted at the meeting.
As is our custom, we will give a presentation on the highlights for the
year 2001 as well as the current status of our business. I sincerely hope that
you will be able to attend this meeting and that you will have the opportunity
to meet members of our management team.
Please sign and return your proxy promptly, whether or not you plan to
attend. Your vote is very important to the Company.
On behalf of the Directors and Officers, I wish to thank you for your
interest in the Company.
Sincerely,
-s- Arthur L. Goldstein
ARTHUR L. GOLDSTEIN
Chairman and Chief Executive Officer
YOUR VOTE IS IMPORTANT
Please sign, date and return your proxy card promptly
Iconics, Incorporated Logo
IONICS, INCORPORATED
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
MAY 8, 2002
To the Stockholders of
Ionics, Incorporated:
Notice is hereby given that the Annual Meeting of Stockholders of Ionics,
Incorporated (the "Corporation" or the "Company") will be held in the Enterprise
Room, Fifth Floor, State Street Bank and Trust Company, 225 Franklin Street,
Boston, Massachusetts, on Wednesday, May 8, 2002 at 2:00 P.M. for the following
purposes:
1. To elect four Class I Directors of the Company, each to serve for a
three-year term or until a successor is elected and qualified.
2. To approve an amendment to the Corporation's 1997 Stock Incentive Plan
to increase the number of shares available for issuance under such Plan
by 800,000 shares.
3. To ratify the selection of PricewaterhouseCoopers LLP as independent
auditors for the fiscal year ending December 31, 2002.
4. To consider and act upon such other matters as may properly come before
the meeting.
The Board of Directors has fixed the close of business on March 22, 2002 as
the record date for determination of the stockholders entitled to notice of and
to vote at the meeting. Any stockholder attending the meeting may vote in person
even if such stockholder has returned a proxy.
By Order of the Board of Directors
STEPHEN KORN, Clerk
Ionics, Incorporated
65 Grove Street
Watertown, Massachusetts 02472
April 5, 2002
WHETHER OR NOT YOU EXPECT TO BE AT THE MEETING, PLEASE MARK, SIGN, DATE AND
RETURN YOUR PROXY IN THE ENVELOPE ENCLOSED HEREWITH.
IONICS, INCORPORATED
65 GROVE STREET
WATERTOWN, MASSACHUSETTS 02472-2882
------------------------------
PROXY STATEMENT
------------------------------
APRIL 5, 2002
The Notice of the 2002 Annual Meeting of Stockholders of Ionics,
Incorporated (the "Company") is set forth on the preceding page and there is
enclosed with this Proxy Statement a form of Proxy solicited by the Board of
Directors of the Company. This Proxy Statement is furnished in connection with
the solicitation of Proxies by the Board of Directors of the Company for use at
the Annual Meeting of Stockholders to be held on Wednesday, May 8, 2002 (the
"Annual Meeting") at 2:00 P.M., local time, in the Enterprise Room, Fifth Floor,
State Street Bank and Trust Company, 225 Franklin Street, Boston, Massachusetts,
and any adjournments thereof. The cost of this solicitation will be borne by the
Company. In addition to solicitation by mail, certain of the officers and
employees of the Company also may solicit Proxies personally or by telephone or
telegram. This Proxy Statement is being first sent to stockholders on or about
April 5, 2002. A copy of the Annual Report to Stockholders for the fiscal year
ended December 31, 2001 (including audited financial statements of the Company)
also accompanies this Proxy Statement.
Only stockholders of record as of the close of business on March 22, 2002
(the "Record Date") are entitled to notice of and to vote at the Annual Meeting
and/or any adjournments thereof. The outstanding stock of the Company on the
Record Date entitled to vote consisted of 17,533,242 shares of common stock,
$1.00 per share par value (the "Common Stock"). The holders of the outstanding
shares of Common Stock are entitled to one vote per share. Stockholders may vote
in person or by proxy. Execution of a Proxy will not affect a stockholder's
right to attend the meeting and vote in person. All shares represented by valid
Proxies received by the Clerk of the Company prior to the meeting will be voted
as specified in the Proxy; if no specification is made and if discretionary
authority is conferred by the stockholder, the shares will be voted FOR the
election of each of the Board's nominees to the Board of Directors in proposal
1; FOR the amendment to the 1997 Stock Incentive Plan in Proposal 2; and FOR the
ratification of the selection of an auditor in proposal 3. A stockholder giving
a Proxy has the power to revoke it at any time prior to its exercise by
delivering to the Clerk of the Company a written revocation or a duly executed
Proxy bearing a later date, or by attending the meeting and voting such shares
in person.
Votes cast by proxy or in person at the Annual Meeting will be tabulated by
the election inspectors appointed for the meeting and will determine whether or
not a quorum is present. The election inspectors will treat abstentions and
broker "non-votes" as shares that are present and entitled to vote for purposes
of determining the presence of a quorum. Abstentions, but not "non-votes," are
counted for purposes of determining the number of shares voting on a particular
matter submitted to the stockholders for a vote. Neither abstentions nor
"non-votes" are treated as having been voted for purposes of determining the
approval of any such matter. A "non-vote" occurs when a nominee holding shares
for a beneficial owner votes on one proposal, but does not vote on another
proposal because, in respect of such other proposal, the nominee does not have
discretionary voting power and has not received instructions from the beneficial
owner. Broker "non-votes" are not considered voted for the particular matter and
have the practical effect of reducing the number of affirmative votes required
to achieve a majority for such matter by reducing the total number of shares
from which the majority is calculated.
1
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table lists as of December 31, 2001, the number of shares of
the Company's Common Stock beneficially owned by stockholders known by the
Company to own more than five percent of such Common Stock outstanding at such
date:
AMOUNT AND
NATURE OF
NAME AND ADDRESS OF BENEFICIAL PERCENT OF
BENEFICIAL OWNER OWNERSHIP CLASS
------------------- ----------- ----------
FMR Corporation.......................................... 1,500,700(1) 8.6%
Fidelity Management and Research Company
82 Devonshire Street
Boston, MA 02109
Capital Research and Management Company.................. 1,200,000(2) 6.9%
333 South Hope Street
Los Angeles, CA 90071
Capital Group International, Inc......................... 1,194,600(3) 6.8%
Capital Guardian Trust Company
11100 Santa Monica Boulevard, 15th Floor
Los Angeles, CA 90025-3384
Dimensional Fund Advisors................................ 939,995(4) 5.4%
1299 Ocean Avenue, 11th Floor
Santa Monica, CA 90801
---------------
(1) Includes sole voting power as to 607,600 shares and sole dispositive power
as to all 1,500,700 shares. FMR Corporation has no shared voting power or
shared dispositive power as to any of these shares. Also includes 893,100
shares beneficially owned by Fidelity Management and Research Company, a
wholly owned subsidiary of FMR Corporation, as a result of acting as
investment advisor to various investment companies. The sole power to vote
these shares resides with the boards of trustees of these investment
companies.
(2) Includes sole dispositive power as to all 1,200,000 shares. Capital Research
and Management Company has no voting power and no shared dispositive power
as to any of these shares.
(3) Includes sole voting power as to 840,200 shares and sole dispositive power
as to all 1,194,600 shares. These entities have no shared voting power or
shared dispositive power as to any of these shares.
(4) Includes sole voting power and sole dispositive power as to all 939,995
shares. Dimensional Fund Advisors, Inc. has no shared voting power or shared
dispositive power as to any of these shares.
2
The following table sets forth as of the Record Date the number of shares
of Common Stock of the Company beneficially owned by each of the directors,
including nominees, each of the executive officers named in the Summary
Compensation Table on page 19 of this Proxy Statement, and all directors
(including nominees) and executive officers of the Company as a group (21
persons). Unless otherwise indicated, the named person possesses sole voting and
dispositive power with respect to the shares.
AMOUNT AND
NATURE OF
BENEFICIAL PERCENT OF
NAME OF BENEFICIAL OWNER OWNERSHIP(#) CLASS(%)
------------------------ ------------ ----------
Douglas R. Brown............................................ 23,393(1) *
Stephen L. Brown............................................ 2,949(2) *
Arnaud de Vitry d'Avaucourt................................. 37,500(3) *
Kathleen F. Feldstein....................................... 10,392(4) *
Arthur L. Goldstein......................................... 756,756(5) 4.2
William E. Katz............................................. 251,204(6) 1.4
William K. Reilly........................................... 2,949(7) *
John J. Shields............................................. 15,929(8) *
Carl S. Sloane.............................................. 14,000(9) *
Daniel I.C. Wang............................................ 11,892(10) *
Mark S. Wrighton............................................ 16,992(11) *
Allen S. Wyett.............................................. 21,000(12) *
Edward J. Cichon............................................ 30,000(13) *
Stephen Korn................................................ 108,566(14) *
Daniel M. Kuzmak............................................ 5,000(15) *
Theodore G. Papastavros..................................... 196,574(16) 1.1
All directors and executive officers as a group (21
persons).................................................. 1,553,631(17) 8.4
---------------
# The number of shares of Common Stock deemed outstanding as of the Record
Date for each individual includes shares of Common Stock outstanding on
such date owned by such individual and all shares of Common Stock subject
to stock options held by such individual exercisable as of the Record Date
or within 60 days after the Record Date.
* Less than 1%
(1) Includes 12,000 shares which Mr. Douglas Brown has the right to acquire
pursuant to the exercise of stock options.
(2) Includes 2,000 shares which Mr. Stephen Brown has the right to acquire
pursuant to the exercise of stock options.
(3) Includes 12,500 shares which Mr. de Vitry d'Avaucourt has the right to
acquire pursuant to the exercise of stock options. Another 12,000 shares,
as to which Mr. de Vitry d'Avaucourt shares dispositive power, are held by
a financial institution in a fiduciary capacity for the benefit of Mr. de
Vitry d'Avaucourt's wife. Such number excludes 341,926 shares held in a
trust of which Mr. de Vitry d'Avaucourt's wife is the principal beneficial
owner, and also excludes an additional 524,000 shares held in a separate
trust, of which Mr. de Vitry d'Avaucourt is the principal indirect
beneficiary. Mr de Vitry d'Avaucourt disclaims beneficial ownership of such
865,926 shares.
3
(4) Includes 8,000 shares which Ms. Feldstein has the right to acquire pursuant
to the exercise of stock options.
(5) Includes 468,000 shares which Mr. Goldstein has the right to acquire
pursuant to the exercise of stock options. Includes beneficial ownership of
6,201 shares held in the Ionics Section 401(k) Plan for the account of Mr.
Goldstein. Does not include 6,800 shares by members of Mr. Goldstein's
immediate family, as to which Mr. Goldstein disclaims beneficial ownership.
(6) Includes 147,000 shares which Mr. Katz has the right to acquire pursuant to
the exercise of stock options. Does not include 4,010 shares held by
members of Mr. Katz's immediate family, as to which Mr. Katz disclaims
beneficial ownership.
(7) Includes 2,000 shares which Mr. Reilly has the right to acquire pursuant to
the exercise of stock options.
(8) Includes 12,500 shares which Mr. Shields has the right to acquire pursuant
to the exercise of stock options.
(9) Includes 13,000 shares which Mr. Sloane has the right to acquire pursuant
to the exercise of stock options.
(10) Includes 10,000 shares which Mr. Wang has the right to acquire pursuant to
the exercise of stock options.
(11) Includes 15,000 shares which Mr. Wrighton has the right to acquire pursuant
to the exercise of stock options. A total of 667 shares are held of record
by Mark S. Wrighton, trustee of the Mark S. Wrighton Revocable Trust U/A
dated September 4, 1998.
(12) Includes 17,000 shares which Mr. Wyett has the right to acquire pursuant to
the exercise of stock options. Does not include 1,000 shares held by a
member of Mr. Wyett's immediate family, as to which Mr. Wyett disclaims
beneficial ownership.
(13) Represents shares which Mr. Cichon has the right to acquire pursuant to the
exercise of stock options.
(14) Includes 106,000 shares which Mr. Korn has the right to acquire pursuant to
the exercise of stock options. Includes beneficial ownership of 1,343
shares in the Ionics Section 401(k) Plan for the account of Mr. Korn.
(15) Represents shares which Mr. Kuzmak has the right to acquire pursuant to the
exercise of stock options.
(16) Includes 123,000 shares which Mr. Papastavros has the right to acquire
pursuant to the exercise of stock options. Includes beneficial ownership of
3,714 shares in the Ionics Section 401(k) Plan for the account of Mr.
Papastavros.
(17) Assumes exercise of options held by the group for all 1,028,000 shares and
that such shares are outstanding.
The information provided in the above footnotes concerning beneficial
ownership in the Ionics Section 401(k) Plan is derived from Plan information as
of February 15, 2002.
EXPLANATION OF AGENDA FOR THE MEETING
PROPOSAL 1. ELECTION OF DIRECTORS.
The Company has a Board of Directors currently consisting of four Class I
Directors, four Class II Directors and four Class III Directors. The Class I,
Class II and Class III Directors currently in office will serve until the annual
meeting of stockholders to be held in 2002, 2003 and 2004, respectively, and
until their respective successors are duly elected and qualified (or until the
director's earlier resignation or removal). At
4
each annual meeting of stockholders, directors are elected for a full term of
three years to succeed those whose terms are expiring.
It is the intention of the persons authorized by the enclosed Proxy, which
is solicited by the Board of Directors, to nominate and elect the four persons
named in the table below as Class I Directors (all of whom presently serve as
Class I Directors), pursuant to the recommendation of the Nominating Committee
of the Board of Directors. To be elected, each nominee must receive the
affirmative vote of a plurality of the issued and outstanding shares of the
Common Stock represented in person or by Proxy at the Annual Meeting and
entitled to vote. THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR ALL
THE NOMINEES LISTED BELOW. The following table shows, for each nominee, his or
her principal occupation since January 1, 1997 and present positions with the
Company, period of past service as a Director, age on March 1, 2002, and
directorships of other public companies (i.e., companies subject to the
reporting requirements of the Securities Exchange Act of 1934 or registered as
investment companies under the Investment Company Act of 1940):
PRINCIPAL OCCUPATION
(SINCE JANUARY 1, 1997),
PRESENT POSITIONS WITH THE COMPANY PERIOD OF PAST
AND DIRECTORSHIPS SERVICE AS A
NAME AND AGE OF OTHER PUBLIC COMPANIES DIRECTOR
------------ ---------------------------------- --------------
Directors whose Terms Expire in 2002 (Class I Directors)
Douglas R. Brown President and Chief Executive Officer, since 1996
(47)*- Advent International Corp. (registered
investment advisor); director, Advent
International Corp. and Aspen Technology,
Inc.
Kathleen F. Feldstein President, Economic Studies, Inc. (private since November 1997
(61)*- economic consulting firm); director, Bank of
America Corp., BellSouth Corporation, John
Hancock Financial Services, Inc. and Knight-
Ridder, Inc.
Arthur L. Goldstein Chairman, President and Chief Executive since 1971
(66)+ Officer of the Company; director, Cabot
Corporation, State Street Corporation, and
State Street Bank and Trust Company.
Carl S. Sloane Professor of Business Administration since 1995
(65)+#- Emeritus, Harvard Graduate School of
Business Administration; director, Sapient
Corporation, The Pittston Company, and
Rayonier, Inc.
---------------
* Member of Audit Committee
# Member of Compensation Committee
+ Member of Executive Committee
- Member of Nominating Committee
5
The following table contains similar information about the Class II and
Class III Directors of the Company, whose terms of office do not expire at the
Annual Meeting and who consequently are not nominees for election in 2002:
PRINCIPAL OCCUPATION
(SINCE JANUARY 1, 1997),
PRESENT POSITIONS WITH THE COMPANY PERIOD OF PAST
AND DIRECTORSHIPS SERVICE AS A
NAME AND AGE OF OTHER PUBLIC COMPANIES DIRECTOR
------------ ---------------------------------- --------------
Directors whose Terms Expire in 2003 (Class II Directors)
Arnaud de Vitry Engineering consultant since 1964
d'Avaucourt
(75)*
William E. Katz Executive Vice President of the Company since 1961
(77)
Daniel I.C. Wang Institute Professor, Massachusetts Institute since 1997
(66)* of Technology
Mark S. Wrighton Chancellor, Washington University, St. since 1993
(52)# Louis, MO; director, Helix Technology
Corporation, Cabot Corporation, A. G.
Edwards, Inc. and OIS Optical Imaging
Systems, Inc.
---------------
* Member of Audit Committee
# Member of Compensation Committee
6
PRINCIPAL OCCUPATION
(SINCE JANUARY 1, 1997),
PRESENT POSITIONS WITH THE COMPANY PERIOD OF PAST
AND DIRECTORSHIPS SERVICE AS A
NAME AND AGE OF OTHER PUBLIC COMPANIES DIRECTOR
------------ ---------------------------------- --------------
Directors whose Terms Expire in 2004 (Class III Directors)
Stephen L. Brown Retired Chairman and Consultant, John since May 2000
(64)*- Hancock Financial Services, Inc. and John
Hancock Life Insurance Company (since June
2001); Chairman and Consultant, Hancock
Natural Resource Group; Chairman, John
Hancock Financial Services, Inc. and John
Hancock Life Insurance Company (August
1999-June 2001); previously Chairman and
Chief Executive Officer, John Hancock Mutual
Life Insurance Company; director, Aspen
Technology, Inc.
William K. Reilly President and Chief Executive Officer, Aqua since May 2000
(61)#- International Partners, L.P. (private equity
water fund); director, Conoco, Inc., E. I.
DuPont de Nemours and Company, and Royal
Caribbean International.
John J. Shields General Partner, Boston Capital Ventures since 1988
(63)#+ (venture capital), since January 2, 1998;
President and Chief Executive Officer,
King's Point Holdings Incorporated (April
1993 to December 1997).
Allen S. Wyett President, A. W. Management, Inc. since 1992
(68)#
---------------
* Member of Audit Committee
# Member of Compensation Committee
+ Member of Executive Committee
- Member of Nominating Committee
In addition to the Executive Committee of the Board of Directors, which did
not meet during the year, the Company has an Audit Committee, of which Mr.
Douglas Brown is Chairman, a Compensation Committee, of which Mr. Wyett is
Chairman, and a Nominating Committee, of which Ms. Feldstein is Chairperson.
The Audit Committee meets with management and with the Company's
independent auditors to review financial results and procedures, internal
financial controls, audit plans and recommendations. The Audit Committee also
recommends the selection of the independent auditor to the Board of Directors.
In 2000, the Audit Committee adopted, and the Board of Directors approved, the
Audit Committee Charter. A report of the Audit Committee for the year 2001
appears on page 21 of this Proxy Statement.
The Compensation Committee reviews and establishes the remuneration to be
paid to certain of the executive officers of the Company, reviews the
remuneration to be paid other officers, and acts as the administrator of the
Company's stock option and restricted stock plans. A report of the Compensation
Committee for the year 2001 appears on page 19 of this Proxy Statement.
The Nominating Committee, which was established in May 2001, considers and
proposes nominees for membership to the Board of Directors, including
nominations made by management, members of the Board of
7
Directors, and other stockholders; and reviews and considers the composition of
the Board of Directors. Nominees suggested by stockholders and sent to the
Nominating Committee in care of the Clerk of the Company will be considered by
the Nominating Committee.
During 2001, the Board of Directors held six meetings. The Audit Committee
met four times and the Compensation Committee met once. The Nominating Committee
did not meet in 2001. Each director attended 75% or more of the aggregate of (i)
the total number of meetings of the Board and (ii) the total number of meetings
held by all committees of the Board on which such director served.
If, at the time of the Annual Meeting, any of the above-named nominees is
unable to serve, a circumstance which is not anticipated, and if the enclosed
Proxy confers discretionary authority, the persons named in the Proxy will
either vote for such substitute nominee(s) as may be designated by the Board of
Directors or will vote for a reduction in the number of directors, as determined
by the Board.
Board Retirement Policy
The Board of Directors has adopted a retirement policy which requires that
any person serving as a director of the Company will voluntarily resign his or
her position as a director upon reaching the age of 75. Directors in office when
the policy was adopted in August 2000 were permitted to continue to serve until
the remainder of their terms even if they were already 75 years of age at the
time or would turn 75 prior to the expiration of their then-current term. The
policy permits the Board of Directors to waive the policy in special
circumstances.
PROPOSAL 2. APPROVAL OF AMENDMENT TO THE 1997 STOCK INCENTIVE PLAN TO INCREASE
THE NUMBER OF SHARES AVAILABLE FOR ISSUANCE BY 800,000 SHARES.
Description of 1997 Plan
Under the 1997 Stock Incentive Plan (the "1997 Plan"), the Company may
grant options to acquire its Common Stock ("Stock Options") and long term
performance awards ("Performance Awards") to officers and other key employees
of, and consultants to, the Company and its subsidiaries. As of January 31,
2002, a total of 637,023 of the 2,279,190 shares previously authorized for
issuance under the 1997 Plan remain available for future grants of Stock Options
or Performance Awards, and Stock Options covering a total of 1,609,367 shares of
Common Stock were outstanding. No Performance Awards have been granted under the
1997 Plan. Approximately 340 employees, including officers of the Company and
its subsidiaries, presently participate in the 1997 Plan.
The 1997 Plan was adopted by the Board of Directors of the Company on
February 19, 1997 and approved by the Stockholders at the 1997 Annual Meeting.
The 1997 Plan replaced the Company's 1979 Stock Option Plan as the vehicle for
the granting of Stock Options to key employees of the Company from time to time.
The 1979 Plan continues in effect only for the purpose of administering the
Stock Options remaining outstanding under the 1979 Plan.
The following is a summary of the principal features of the 1997 Plan:
Administration. The 1997 Plan is administered by the Compensation
Committee of the Board of Directors ("Committee"), which currently consists of
five non-employee Directors. Subject to its terms, the Committee has full
authority to administer the 1997 Plan, including with respect to selection of
key employees and consultants who are to receive Stock Options or Performance
Awards (together, "Awards"), the specific form of any Award, and the specific
terms and conditions of each Award.
8
Shares Available For Award. The 1997 Plan provides that the aggregate
number of shares that may be issued thereunder shall be the sum of (i) 750,000,
plus (ii) the number of shares as to which options granted under the 1979 Plan
terminate or expire without being fully exercised, plus (iii) effective as of
January 1, 1998 and each of the three successive years thereafter, a number of
shares equal to two percent of the total number of shares of Common Stock issued
and outstanding as of the close of business on December 31 of the preceding
year. As of January 31, 2002, a total of 2,279,190 shares had been made
available for Awards under the 1997 Plan.
General Provisions. The 1997 Plan contains provisions to prevent dilution
in case of stock dividends, stock splits and changes in the Company's capital
structure. The 1997 Plan may be terminated or amended at any time by the Board
of Directors, except that the Board of Directors does not have the power to
revoke or alter the terms of any valid Award previously granted pursuant to the
1997 Plan that would impair the rights of any participant without the
participant's consent, to reprice outstanding Stock Options, or, without the
approval of the stockholders, to (i) increase the number of shares of Common
Stock to be reserved for issuance and sale pursuant to Awards under the 1997
Plan, or (ii) change the description of individuals to whom Awards may be
granted pursuant to the 1997 Plan.
Nature of Awards. Under the 1997 Plan, the Committee may grant
non-qualified Stock Options (NQOs), incentive Stock Options (ISOs) and
Performance Awards. The Committee has awarded only NQOs under the 1997 Plan and
has no present intention of making other types of Awards, although it has the
flexibility of being able to do so.
Stock Options. Under the 1997 Plan, Stock Options may be granted by the
Committee until the tenth anniversary of the adoption of the 1997 Plan. Stock
Options may extend for a period of up to 10 years from the date of grant, with
the actual term to be established by the Committee at the time of grant. Unless
otherwise provided by the Committee, Stock Option grants will not be exercisable
for at least six months following grant, and become exercisable in installments
typically over a five-year period. The Committee has the discretion to grant
either ISOs or NQOs under the 1997 Plan, but to date has issued only NQOs. No
more than 750,000 shares may be issued pursuant to the exercise of ISOs granted
under the 1997 Plan. Both ISOs and NQOs must have an exercise price not less
than fair market value (generally, the closing price of the Company's Common
Stock as reported on The New York Stock Exchange on the date of grant). The
Committee has the discretion in the event the employment of an option holder is
terminated to take such action in respect of the Stock Option as the Committee
may deem appropriate, including accelerating the time that must pass before
Stock Options may be exercised, and (except with respect to ISOs) extending the
time following termination of employment during which the option holder is
entitled to exercise the Stock Option, provided that in no event may any Stock
Option be exercised after the expiration of its term. Stock Options are
non-transferable and non-assignable other than by inheritance, except that, with
the approval of the Committee, NQOs may be transferred by option holders to
immediate family members, trusts established for their benefit or partnerships
in which such immediate family members are the only partners. Under the 1997
Plan, no participant can receive an Award in any 12-month period that would
result in the issuance to that individual of more than 200,000 shares of Common
Stock.
The purchase price for shares of Common Stock upon the exercise of Stock
Options generally may be paid either in cash, by delivering to the Company such
number of shares of Common Stock owned by the option holder that, together with
any cash tendered, will equal in value the full purchase price, or by other
"cashless" exercise methods specified in the 1997 Plan. Permitting
stock-for-stock payments or other cashless exercises allows option holders to
acquire shares of Common Stock without incurring the costs that may arise when
the exercise price must be paid in cash.
9
Long-Term Performance Awards. The Committee may grant Performance Awards
under the 1997 Plan. No more than 150,000 shares of Common Stock may be issued
in connection with Performance Awards granted under the 1997 Plan. The Committee
has the discretion to consider nature, length, and starting date of the
performance period for a particular Performance Award, which shall be at least
one year. A participant may be awarded cash or Common Stock, or both, upon
attainment of Performance Award goals. To date, no Performance Awards have been
issued under the 1997 Plan.
Certain Federal Income Tax Information.
The following discussion of the United States federal income tax
consequences of the issuance and exercise of Stock Options and other Awards
granted under the 1997 Plan is based upon provisions of the Code as in effect on
the date of this Proxy Statement, current regulations, and existing
administrative rulings of the Internal Revenue Service. It is not intended to be
a complete discussion of all of the federal income tax consequences of the 1997
Plan or of the requirements that must be met in order to qualify for the
described tax treatment. In addition there may be foreign, state or local tax
consequences that are not discussed herein.
A. Incentive Stock Options (ISOs). The following general rules are
applicable under current United States federal income tax law to ISOs granted
under the 1997 Plan:
1. In general, an optionee will not recognize any taxable income upon
the grant of an ISO or upon the issuance of shares to him or her upon the
exercise of an ISO, and the Company will not be entitled to a federal
income tax deduction upon either the grant or the exercise of an ISO.
2. If shares acquired upon exercise of an ISO are not disposed of
within (i) two years from the date the ISO was granted or (ii) one year
after the date the shares are issued to the optionee pursuant to the ISO
exercise (the "Holding Periods"), the difference between the amount
realized on any subsequent disposition of the shares and the exercise price
will generally be treated as capital gain or loss to the optionee.
3. If shares acquired upon exercise of an ISO are disposed of and the
optionee does not satisfy the Holding Period (a "Disqualifying
Disposition"), then in most cases the lesser of (i) any excess of the fair
market value of the shares at the time of exercise of the ISO over the
exercise price or (ii) the actual gain on disposition, will be taxed to the
optionee as ordinary income in the year of such disposition.
4. In any year that an optionee recognizes ordinary income on a
Disqualifying Disposition of shares acquired upon exercise of an ISO, the
Company generally will be entitled to a corresponding federal income tax
deduction.
5. The difference between the amount realized by an optionee as the
result of a Disqualifying Disposition and the sum of (i) the exercise price
and (ii) the amount of ordinary income recognized under the above rules
generally will be treated as capital gain or loss.
6. Capital gain or loss recognized by an optionee on a disposition of
shares will be long-term capital gain or loss if the optionee's holding
period for the shares exceeds one year.
7. An optionee may be entitled to exercise an ISO by delivering shares
of the Company's Common Stock to the Company in payment of the exercise
price, if the optionee's ISO agreement so provides. If an optionee
exercises an ISO in such fashion, special rules apply.
8. In addition to the tax consequences described above, the exercise
of an ISO may result in additional tax liability under the "alternative
minimum tax" rules. The alternative minimum tax rate (the maximum rate is
28%) will be applied against a taxable base which is equal to "alternative
minimum taxable income," reduced by a statutory exemption. In general, the
amount by which the value of the
10
shares received upon exercise of the ISO exceeds the exercise price is
included in the optionee's alternative minimum taxable income. A taxpayer
is required to pay the higher of his regular tax liability or the
alternative minimum tax. A taxpayer who pays the alternative minimum tax
attributable to the exercise of an ISO may be entitled to a tax credit
against his or her regular tax liability in later years.
9. Special rules apply if the shares acquired upon the exercise of an
ISO are subject to vesting, or are subject to certain restrictions on
resale under federal securities law applicable to directors, officers or
10% stockholders.
B. Non-Qualified Stock Options (NQOs). The following general rules are
applicable under current federal income tax law to options granted under the
1997 Plan which do not qualify as ISOs:
1. In general, an optionee will not recognize any income upon the
grant of an NQO, and the Company will not be entitled to a federal income
tax deduction upon such grant.
2. An optionee generally will recognize ordinary income at the time of
exercise of the NQO in an amount equal to the excess, if any, of the fair
market value of the shares on the date of exercise over the exercise price.
The Company may be required to withhold income tax on this amount.
3. When an optionee sells the shares acquired upon the exercise of an
NQO, he or she generally will recognize capital gain or loss in an amount
equal to the difference between the amount realized upon the sale of the
shares and the optionee's basis in the shares (generally, the exercise
price plus the amount taxed to the optionee as ordinary income). If the
optionee's holding period for the shares exceeds one year, such gain or
loss will be long-term capital gain or loss.
4. When an optionee recognizes ordinary income attributable to an NQO,
the Company generally will be entitled to a corresponding federal income
tax deduction.
5. An optionee may be entitled to exercise an NQO by delivering shares
of the Company's Common Stock to the Company in payment of the exercise
price. If an optionee exercises an NQO in such fashion, special rules
apply.
6. Special rules apply if the shares acquired upon the exercise of an
NQO are subject to vesting, or are subject to certain restrictions on
resale under federal securities law applicable to directors, officers or
10% stockholders.
C. Long-Term Performance Awards (Performance Awards). The following
general rules are applicable under current federal income tax law to Performance
Awards that may be granted under the 1997 Plan.
1. Persons receiving shares or cash pursuant to Performance Awards
under the 1997 Plan will recognize ordinary income in an amount equal to
the fair market value of the Performance Award less any purchase price
paid.
2. The Company generally will be entitled to a corresponding income
tax deduction when such person recognizes ordinary income.
EFFECT ON 1997 PLAN OF CHANGE IN CONTROL OF THE COMPANY
In the event of a Change in Control of the Company (defined below), the
Committee may accelerate the vesting of outstanding stock options, and cause
outstanding Performance Awards to be paid out in cash, based on prorated target
results for the performance periods in question.
A Change in Control is defined as the acquisition by an individual, entity
or group, of beneficial ownership of 20% or more of either the outstanding
Common Stock or combined voting power of all voting
11
securities of the Company; continuing directors constituting less than a
majority of the Board; a business combination in which stockholders of the
Company prior to the business combination do not own beneficially more than 60%
of the then outstanding shares of common stock and the combined voting power of
the entity resulting from the business combination; or a complete dissolution,
liquidation or sale of substantially all the assets of the Company other than to
an entity of which former stockholders of the Company own more than 60% of the
outstanding voting stock and the combined voting power of such entity.
Stock Options Granted Under the 1997 Plan Since Its Inception
The following table sets fourth as of January 31, 2002 all Stock Options
granted under the 1997 Plan since its inception to (i) each of the Named
Executive Officers appearing in the Compensation Table on page 14, (ii) all
current executive officers of the Company, as a group, and (iii) all employees
who are not executive officers of the Company, as a group. No Performance Awards
have been granted under the 1997 Plan since its inception. Non-employee
directors of the Company are not eligible to participate in the 1997 Plan. No
individual, other than one named below, has received five percent or more of the
Stock Options granted under the 1997 Plan. Future awards are in the discretion
of the Compensation Committee of the Board of Directors and cannot be determined
at this time.
NUMBER OF SHARES REPRESENTED
BY STOCK OPTIONS GRANTED
NAME AND PRINCIPAL POSITION UNDER 1997 PLAN
--------------------------- ----------------------------
Arthur L. Goldstein*............................... 220,000
Chairman of the Board, President and
Chief Executive Officer
Edward J. Cichon................................... 60,000
Vice President,
Equipment Business Group
Stephen Korn....................................... 72,500
Vice President,
General Counsel and Clerk
Daniel M. Kuzmak................................... 25,000
Vice President and
Chief Financial Officer
Theodore G. Papastavros............................ 82,500
Vice President,
Strategic Planning
All Current Executive Officers..................... 603,000
All Employees who are not Executive Officers....... 1,380,250
---------------
* Received more than five percent of the Stock Options granted under the 1997
Plan.
Proposed Amendment
On February 26, 2002, the Corporation's Board of Directors amended the 1997
Plan, subject to the approval of the stockholders of the Corporation at the
Annual Meeting, to increase the number of shares available for issuance upon
exercise of Stock Options or pursuant to Performance Awards by 800,000 shares,
representing approximately 4.6% of the Corporation's outstanding stock on that
date.
12
The Board of Directors has taken such action, subject to stockholder
approval, to provide for the availability of additional shares in connection
with future grants of Stock Options and/or Performance Awards, based upon its
belief that Stock Options and Performance Awards are desirable and effective
employment incentives for the retention of key employees, as well as to attract
additional key employees to the Corporation. The Corporation has not yet
determined who will receive the shares of Common Stock underlying Stock Options
or Performance Awards that will be authorized for issuance from time to time
under the 1997 Plan if the proposed amendment is approved.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR THE
PROPOSAL TO APPROVE THE AMENDMENT TO THE 1997 PLAN TO INCREASE BY 800,000 SHARES
THE NUMBER OF SHARES OF COMMON STOCK AVAILABLE UNDER THE 1997 PLAN. The approval
of the proposed amendment to the 1997 Plan requires the affirmative vote of a
majority of the shares represented at the Annual Meeting and entitled to vote.
PROPOSAL 3. SELECTION OF AN AUDITOR
Pursuant to the recommendation of the Audit Committee, the Board of
Directors proposes that the firm of PricewaterhouseCoopers LLP, independent
certified public accountants, be appointed to serve as auditors for the fiscal
year ending December 31, 2002. The ratification of this selection is not
required under the laws of Massachusetts, where the Company is incorporated, but
the Board of Directors of the Company believes it is sound policy and in the
best interests of the stockholders to do so. In the event a majority of the
votes cast are against the selection of PricewaterhouseCoopers LLP, the Board
will consider the vote and the reasons therefor in future recommendations on the
selection of an auditor for the Company.
A representative of PricewaterhouseCoopers LLP is expected to be present at
the Annual Meeting with the opportunity to make a statement if desired, and is
expected to be available to respond to appropriate questions from stockholders
who are present at the meeting.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE RATIFICATION
OF THIS SELECTION.
13
EXECUTIVE COMPENSATION AND OTHER INFORMATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table provides summary information concerning the annual and
long-term compensation paid to or earned by the Company's Chief Executive
Officer and each of the four other most highly compensated executive officers of
the Company during the fiscal years ended December 31, 2001, 2000 and 1999 (the
"Named Executive Officers").
SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION
AWARDS
-------------------------
RESTRICTED SECURITIES ALL OTHER
ANNUAL COMPENSATION STOCK UNDERLYING COMPENSATION(2)(3)
NAME AND -------------------- AWARDS OPTIONS/SARS ------------------
PRINCIPAL POSITION YEAR SALARY($) BONUS($) ($) (#)(1) ($)
------------------ ---- --------- -------- ---------- ------------ ---
Arthur L. Goldstein...... 2001 550,000 0 0 0 51,724
Chairman of the Board, 2000 550,000 0 0 70,000 57,165
President and Chief 1999 550,000 40,000 0 0 53,283
Executive Officer
Edward J. Cichon......... 2001 220,000 0 0 0 1,894
Vice President,
Equipment 2000 220,000 0 0 30,000 2,373
Business Group 1999 197,000 30,000 0 0 1,328
Stephen Korn............. 2001 220,000 0 0 0 5,378
Vice President, General 2000 220,000 50,000 0 32,500 5,950
Counsel, and Clerk 1999 195,000 30,000 0 0 4,181
Daniel M. Kuzmak (3)..... 2001 250,000 100,000 0 25,000 36,915
Vice President and
Chief 2000 -- -- -- -- --
Financial Officer 1999 -- -- -- -- --
Theodore G.
Papastavros............ 2001 220,000 0 0 0 10,923
Vice President,
Strategic 2000 220,000 0 0 32,500 11,438
Planning 1999 197,000 30,000 0 0 9,374
---------------
(1) Options granted under the Company's 1997 Stock Incentive Plan ("1997 Plan").
Each option is exercisable for one share of Common Stock, which may be
purchased upon exercise with either cash or Common Stock. The options
granted under the 1997 Plan have a duration of ten years, and are
exercisable in 20% installments annually commencing on the first anniversary
of the date of grant. Options may not be transferred by an option holder
(other than by will or by the laws of descent and distribution or pursuant
to a valid domestic relations order), and may be exercised only while the
holder is an employee or within 90 days after termination of employment.
(2) Comprised of (a) Company matching contributions to officer's account in
Ionics Section 401(k) Plan, available to all employees after an eligibility
period, and/or (b) amounts accrued under the Company's Supplemental
Executive Retirement Plan, described below following the Pension Plan Table.
Matching 401(k) Plan contributions in 2001 for the Named Executive Officers
in their order of presentation were $5,100, $0, $2,100, $0, and $5,100,
respectively. Amounts accrued under the Supplemental Executive Retirement
Plan for the Named Executive Officers in 2001 were $46,624, $1,894, $3,278,
$3,470, and
14
$5,823, respectively. Employees may elect to contribute to the Ionics
Section 401(k) Plan from 1% to 12% of the amount that they would otherwise
receive as cash compensation, and the contributed amounts, subject to
certain limitations, are not subject to current federal income taxes.
Amounts contributed to the Plan are invested at the direction of the
employee in shares of the Company's Common Stock or in shares of one or more
of seven mutual funds. The Company contributes to the Plan, for the
individual accounts of the participants in the Plan, an amount equal to 50%
of the amount each participant has elected to invest, up to 6% of
compensation, in Common Stock of the Company. Matching amounts are invested
entirely in the Company's Common Stock. The contributions by the Company for
any one calendar year cannot exceed an aggregate maximum amount fixed from
time to time by the Board of Directors.
(3) Mr. Kuzmak commenced his employment with the Company on January 11, 2001.
The $100,000 bonus paid in 2001 was a signing bonus in the form of a loan,
25% of which was forgiven on the first anniversary of his commencement of
employment, and the balance of which will be forgiven on the second
anniversary. If the Company were to terminate Mr. Kuzmak's employment prior
to that time, the remaining repayment obligation would be forgiven, but
would be due and payable if Mr. Kuzmak left the Company's employ voluntarily
prior to that time. Any principal repayment would bear interest at the
annual rate of 7%. "All Other Compensation" for Mr. Kuzmak includes $33,445
paid to Mr. Kuzmak for certain relocation expenses incurred in connection
with the sale of his previous home and purchase of his current home,
household storage costs and temporary living expenses.
STOCK OPTION GRANTS
The following table provides information concerning the grant of stock
options (also reported in the Summary Compensation Table) under the 1997 Plan
during the fiscal year ended December 31, 2001 to the Named Executive Officers.
No stock appreciation rights ("SARs") were granted during fiscal 2001.
OPTION GRANTS IN 2001(1)
POTENTIAL
REALIZABLE VALUE
NUMBER OF AT ASSUMED
SECURITIES ANNUAL RATES
UNDERLYING PERCENTAGE OF OF STOCK PRICE
OPTIONS TOTAL OPTIONS APPRECIATION FOR
GRANTED(1) GRANTED TO OPTION TERM(2)
(SHARES OF EMPLOYEES IN EXERCISE PRICE EXPIRATION ----------------------
COMMON STOCK) FISCAL 2001 ($/SHARE) DATE 5%($) 10%($)
------------- -------------- -------------- ---------- --------- ----------
Arthur L. Goldstein... 0 -- -- -- -- --
Edward J. Cichon...... 0 -- -- -- -- --
Stephen Korn.......... 0 -- -- -- -- --
Daniel M. Kuzmak...... 25,000 59% 29.625 1/11/2011 $ 465,775 $1,180,366
Theodore G.
Papastavros......... 0 -- -- -- -- --
---------------
(1) All options were granted under the Company's 1997 Stock Incentive Plan. Each
option is exercisable for one share of Common Stock, which may be purchased
upon exercise with either cash or Common Stock. The options have a duration
of ten years and are exercisable in 20% installments annually commencing on
the first anniversary of the date of grant. The vesting of the options
accelerate so that they become fully exercisable upon the occurrence of a
"Change in Control." A Change in Control is defined as: the acquisition by
any individual, entity or group of 20% or more of the outstanding voting
shares of the Company; continuing directors constituting less than a
majority of the Board of Directors; a business
15
combination in which the stockholders of the Company prior to the business
combination do not own beneficially more than 60% of the then outstanding
shares of common stock and the combined voting power of the entity resulting
from the business combination; or a complete dissolution, liquidation or
sale of substantially all the assets of the Company other than to an entity
of which former stockholders of the Company own more than 60% of the
outstanding voting stock and the combined voting power of such entity.
Options may not be transferred by an option holder (other than by will or by
the laws of descent and distribution or pursuant to a valid domestic
relations order), and may be exercised only while the holder remains an
employee or within 90 days after termination of employment.
(2) Amounts represent hypothetical gains that could be achieved for the options
if exercised at the end of the option term. These gains are based on assumed
rates of stock appreciation of 5% and 10% compounded annually from the date
the options were granted to their expiration date and are not intended to
forecast possible future appreciation, if any, in the price of the Common
Stock. The gains shown are net of the option exercise price, but do not
include deductions for taxes or other expenses associated with the exercise
of the options or the sale of the underlying shares. The actual gains, if
any, on the stock option exercises will depend on the future performance of
the Common Stock, the option holder's continued employment through the
period that exercise rights vest and the date on which the options are
exercised.
STOCK OPTION EXERCISES
The following table provides information, with respect to the Named
Executive Officers listed in the Summary Compensation Table, concerning the
exercise of options during, and holdings of unexercised options at the end of,
fiscal year 2001.
AGGREGATED OPTION EXERCISES IN FISCAL 2001
AND FISCAL YEAR-END OPTION VALUES(1)
(I) (II) (IV)
(III) VALUE OF UNEXERCISED
NUMBER OF SECURITIES IN-THE-MONEY
SHARES UNDERLYING UNEXERCISED OPTIONS AT
ACQUIRED OPTIONS AT FISCAL FISCAL YEAR-END(2)
ON VALUE YEAR-END ($)
EXERCISE REALIZED(2) --------------------------- ---------------------------
NAME (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- -------- ----------- ----------- ------------- ----------- -------------
Arthur L. Goldstein...... 50,000 390,000 454,000 116,000 1,758,216 456,134
Edward J. Cichon......... 0 -- 24,000 36,000 102,720 154,080
Stephen Korn............. 6,000 41,950 104,500 42,000 385,505 154,940
Daniel M. Kuzmak......... 0 -- 0 25,000 0 10,125
Theodore G.
Papastavros............ 12,000 94,800 116,500 46,000 435,477 171,948
---------------
(1) All options exercised by Named Executive Officers in 2001 were issued under
the now-terminated 1979 Stock Option Plan (the "1979 Plan"). Each option
granted under the 1979 Plan is exercisable with either cash or Common Stock.
Options granted under the 1979 Plan have a duration of ten years and one day
and are fully exercisable. Options granted under the 1979 Plan may not be
transferred by an option holder (other than by the laws of descent or
distribution), and may be exercised only while the holder is an employee of
the Company or of a subsidiary, or within 30 days after involuntary
termination of employment, or by the holder's estate for a period of 90 days
after his death. Options held by the Named Executive Officers at year-end
were issued under both the 1979 Plan and the 1997 Plan.
(2) Calculated as the difference between the closing price of the Company's
Common Stock, as reported on the date of option exercise (or the sales price
on such date if the individual sold on the exercise date) and
16
the exercise price of the options(s) (Column II), and as the difference between
the closing price of the Company's Common Stock, as reported on December 31,
2001 ($30.03 per share), and the exercise price of the option(s) (Column IV).
PENSION PLAN
Employees of the Company and its domestic divisions and subsidiaries
(except for employees of the Fabricated Products Group, based in Bridgeville,
Pennsylvania, who participate in a defined contribution pension plan) may at
their election participate in the Company's defined benefit retirement plan (the
"Retirement Plan") after attaining age 21 and completing one year of service. No
benefits vest under the Retirement Plan until an employee has five years of
participation, at which time the employee becomes 100% vested. An employee must
contribute at least 1% of base salary in order to accrue benefits under the
Retirement Plan. The benefits payable upon retirement vary with the years of
service and level of compensation while participating in the Retirement Plan.
Upon retirement, participants also receive the total of their own contributions
to the Retirement Plan plus the earnings thereon. The following table shows the
estimated annual Company-provided pension benefits payable to an executive
officer or other participant at normal retirement age (age 65) in the Retirement
Plan:
PENSION PLAN TABLE
(ESTIMATED ANNUAL BENEFITS
FOR YEARS OF CREDITED
SERVICE INDICATED)
YEARS OF SERVICE
BASE SALARY AT ------------------------------------------------------------------------------
RETIREMENT DATE(1) 5 10 15 20 25 30 35 40
------------------ ------- ------- ------- ------- ------- ------- ------- --------
$ 50,000 $ 2,841 $ 5,067 $ 6,887 $ 8,558 $10,229 $11,900 $13,570 $ 15,241
$ 75,000 $ 4,262 $ 7,601 $10,380 $13,011 $15,641 $18,271 $20,902 $ 23,532
$100,000 $ 5,682 $10,135 $13,873 $17,462 $21,052 $24,641 $28,230 $ 31,820
$125,000 $ 7,103 $12,668 $17,366 $21,914 $26,463 $31,012 $35,560 $ 40,109
$150,000 $ 8,524 $15,202 $20,859 $26,367 $31,874 $37,382 $42,890 $ 48,398
$175,000 $ 9,798 $17,590 $24,206 $30,673 $37,140 $43,607 $50,074 $ 56,542
$200,000 $10,000 $18,821 $26,396 $33,822 $41,249 $48,675 $56,102 $ 63,528
$225,000 $10,000 $19,465 $28,000 $36,385 $44,771 $53,157 $61,542 $ 69,928
$250,000 $10,000 $20,100 $29,594 $38,939 $48,284 $57,628 $66,973 $ 76,318
$275,000 $10,000 $20,735 $31,188 $41,492 $51,797 $62,101 $72,405 $ 82,709
$300,000 $10,000 $21,370 $32,782 $44,046 $55,309 $66,572 $77,836 $ 89,099
$325,000 $10,000 $22,006 $34,377 $46,599 $58,822 $71,045 $83,267 $ 95,490
$350,000 $10,000 $22,337 $35,224 $48,406 $61,588 $74,770 $87,951 $101,133
$375,000 $10,000 $22,337 $35,608 $49,749 $63,890 $78,031 $92,172 $106,313
$400,000 $10,000 $22,337 $35,992 $51,092 $66,192 $81,293 $96,393 $111,493
---------------
(1) Effective January 1, 2000, under Internal Revenue Code Section 401(a)(17),
no more than $170,000 of cash compensation may be taken into account in
calculating benefits under the Retirement Plan. This level was increased to
$200,000 effective January 1, 2002. The benefits set forth in the table
above reflect the compensation limit for the 2001 plan year.
17
Under the terms of the Retirement Plan, only the amount shown as "Salary"
in the Summary Compensation Table is covered under "Base Salary" above. The
fixed monthly retirement benefit of an officer retiring at normal retirement age
(assuming payment is made on a life annuity basis) is determined by the
following formula: (i) for years prior to January 1, 1989 -- one half of one
percent (0.5%) of the first $550 of base monthly salary as of January 1, 1990,
plus one and one-quarter percent (1.25%) of the balance of base monthly salary
as of that date, that sum being multiplied by the number of prior years of
service; plus (ii) for calendar year 1989, one and one-quarter percent (1.25%)
of base monthly salary as of January 1, 1990; plus (iii) for each year after
December 31, 1989 -- one and one-quarter percent (1.25%) of base monthly salary
as of January 1st of that year. Fixed retirement benefits are not subject to
deduction for Social Security benefits or other benefits received by officers.
The Named Executive Officers have been credited with the following years of
service, and would receive the following estimated annual benefits at normal
retirement age (65): Mr. Goldstein, 41.6 years, $88,978; Mr. Cichon, 3.0 years,
$55,042; Mr. Korn, 12.3 years, $43,352; Mr. Kuzmak, 1.0 year, $43,281; and Mr.
Papastavros, 46.3 years, $67,142.
In 1996, the Company's Board of Directors adopted a Supplemental Executive
Retirement Plan for officers and key employees of the Company ("SERP"). The
purpose of the SERP is to permit officers and other key employees whose Base
Salary exceeds the maximum pay upon which retirement benefits may be accrued in
any year to accrue retirement benefits on Base Salary in excess of that amount,
equivalent to the benefits that would have been accrued under the Retirement
Plan if Base Salary levels over that amount could be taken into account in
calculating benefits under the Retirement Plan. The SERP is administered by the
Compensation Committee of the Board of Directors.
STOCK PLANS
The Company currently has four stock ownership plans: the 1979 Stock Option
Plan; the 1997 Stock Incentive Plan; the 1994 Restricted Stock Plan; and the
1986 Stock Option Plan for Non-Employee Directors. No new stock options will be
granted under the 1979 Stock Option Plan, under which options to purchase
1,119,200 shares were outstanding as of January 31, 2002.
CHANGE IN CONTROL SEVERANCE AGREEMENTS
The Company has entered into Employee Retention Agreements (the
"Agreements") with each of the Named Executive Officers and with 11 other
officers of the Company or its subsidiaries. The Agreements had an initial term
expiring on December 31, 1999 (for those executive officers who were employed by
the Company in 1999 or earlier), and are automatically extended on an annual
basis unless the Company provides at least three months' notice that the
Agreements will not be extended. Each Agreement provides for severance benefits
if the employment of the employee is terminated by the Company (other than for
Cause, as defined in the Agreement, or by reason of his death or disability) or
by the employee for Good Reason (as defined in the Agreement) within 24 months
after a Change in Control (as defined in the Agreement). Each Agreement provides
that, in the event of a Potential Change in Control (as defined in the
Agreement), the employee may not voluntarily resign as an employee, subject to
certain conditions, for at least six months after the occurrence of such
Potential Change in Control.
The Agreements provide for the following severance benefits: (i) a lump-sum
payment equal to 200% (299% in the case of Mr. Goldstein) of the sum of (x) the
employee's average annual base salary in the year of his termination and the
prior two years plus (y) the average of the cash bonuses paid or awarded to him
in respect of the three fiscal years preceding his termination; and (ii) the
continuation of life, disability, dental and group health insurance benefits for
a period of 24 months without charge to the employee. To the extent
18
that payments to the employee pursuant to the Agreement (together with any other
payments or benefits, such as the accelerated vesting of stock options or
restricted stock awards, received by the employee in connection with a Change in
Control) would result in the triggering of the provisions of Sections 280G and
4999 of the Internal Revenue Code of 1986, as amended (the "Code"), the
Agreement provides that the payments to be made pursuant to the Agreement will
be reduced to the largest amount that would result in no portion of such
payments being subject to the excise tax imposed by Section 4999 of the Code.
In addition to the foregoing agreements, the Company's stock option and
restricted stock plans provide for immediate lapse of the Company's repurchase
rights or vesting of all outstanding options and awards upon any Change in
Control (as defined in such plans) of the Company.
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS ON EXECUTIVE
COMPENSATION
The Board of Directors appoints each year from among its members a
Compensation Committee (the "Committee"). The Committee, which currently
consists of five non-employee directors under Rule 16b-3 of the Securities
Exchange Act of 1934 (the "Exchange Act"), is responsible for reviewing and
establishing the compensation of the executive officers of the Company, and for
authorizing grants under the Company's 1997 Stock Incentive Plan and 1994
Restricted Stock Plan. The Committee has furnished this report concerning
compensation of executive officers for the fiscal year ended December 31, 2001.
The compensation program for executive officers involves consideration of
cash compensation, the granting of options to acquire the Company's Common
Stock, and the granting of restricted stock under the 1994 Restricted Stock
Plan.
Cash Compensation
Cash compensation of executive officers is structured to include base
salary and, based on the achievement of performance objectives, a cash bonus.
The Company determines base salary levels of executive officers by comparison to
other companies engaged in its industry, represented by those in the "peer
group" Index set forth in this Proxy Statement, or in similar industries,
subject to an evaluation of comparative overall performance of the companies.
The policy of the Company is to pay cash bonuses based on the achievement
of specified corporate, business unit and individual performance objectives. The
cash bonuses listed in the Summary Compensation Table earned by executive
officers, as well as by other senior officers, were earned under the Company's
Managerial Bonus Program. The Managerial Bonus Program considers both
quantitative and qualitative performance. Quantitative performance focuses on
two measurements: earnings before interest and taxes (EBIT) achieved by the
business unit(s) for which the executive officer has major responsibility or
involvement, and EBIT return on the average capital employed by such business
unit(s) during the year. Qualitative performance focuses primarily on the degree
to which the officer has participated in and contributed to the achievement of
specified individual, divisional, departmental or corporate non-financial
objectives.
The Committee, after consideration of management's recommendations, may
elect to utilize restricted stock in lieu of a portion of any cash award that
might be payable under the Managerial Bonus Program. The Committee may also make
discretionary restricted stock awards.
Budgeted amounts for EBIT and EBIT return on average capital employed are
established for each business unit, and for the Company as a whole, early in
each fiscal year. At the same time, a corresponding cash bonus target is
established for each executive officer based on the budgets of the business
unit(s) for which the officer has major managerial responsibility or
involvement. The cash bonus actually awarded,
19
determined early in the next fiscal year by the Committee, depends on the extent
to which the actual performance of the business unit(s) for which the officer
has responsibility or involvement meets or exceeds the budgeted amounts, and on
the degree of success in achieving the qualitative objectives.
The Committee may make discretionary bonus awards in appropriate
circumstances in which an executive officer might merit a bonus based on other
considerations.
At the request of management, Committee consideration of executive officer
compensation in 2001 was deferred. Consequently, no change was made in the base
salary of Mr. Goldstein, the Company's Chief Executive Officer, or in the base
salaries of the Company's other executive officers, from 2000 levels by the
Committee in 2001 and no bonuses were awarded to Mr. Goldstein or any other
executive officer under the Managerial Bonus Program. Mr. Goldstein's current
base salary of $550,000 was first established by the Committee in May 1999 and
continued at that level by the Committee in February 2000. The Committee did not
review executive officer compensation during its February 2002 meeting, and
plans to do so at a subsequent meeting in 2002.
Stock Options
The Committee believes that stock options are an appropriate mechanism to
provide senior management with a long-term incentive to strive for the continued
growth and success of the Company. The Company's stock option policy,
established by the Committee, is to recognize employee leadership and
significant contribution to the Company, regardless of the employee's level of
employment. The Committee also believes that ownership of the Company's stock by
management promotes the enhancement of stockholder value by creating a greater
community of interest between stockholders and management. Grants of stock
options are now made under the 1997 Stock Incentive Plan, approved by the
stockholders at the 1997 Annual Meeting. The size of stock option grants made by
the Committee is based on evaluation of a recipient's performance, salary level
and number of options held as a result of prior grants. During the fiscal year
ended December 31, 2001, no options were granted to Mr. Goldstein or to the
other executive officers of the Company, except for a stock option granted to
Mr. Kuzmak, the Company's Vice President and Chief Financial Officer, upon the
commencement of his employment.
Compliance with Internal Revenue Code Section 162(m)
Section 162(m) of the Internal Revenue Code, enacted in 1993, generally
disallows a tax deduction to a public company for compensation in excess of $1
million paid to the Company's chief executive officer and four other most highly
compensated executive officers. Certain types of performance-based compensation,
such as that available under the Company's 1979 Stock Option Plan and the 1997
Stock Incentive Plan, will not be subject to the deduction limit if certain
requirements set forth in Section 162(m) are met.
Respectfully submitted by the
Compensation Committee of the Board of
Directors
Allen S. Wyett, Chairman
William K. Reilly
John J. Shields
Carl S. Sloane
Mark S. Wrighton
20
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No member of the Compensation Committee of the Board of Directors is a
former or current officer or employee of the Company or any of its subsidiaries.
To the Company's knowledge, there were no relationships involving members of the
Compensation Committee of the Board of Directors or other directors of the
Company requiring disclosure in this Proxy Statement.
REPORT OF THE AUDIT COMMITTEE
The Audit Committee of the Board of Directors of the Company is composed of
five non-employee directors. The Board of Directors has made a determination
that each of the members of the Audit Committee satisfies the requirements of
the New York Stock Exchange's Listing Standards (Section 303.01(B)(2)(a) and
(3)) as to independence, based on a determination that none of the members of
the Audit Committee has a relationship to the Company that may interfere with
his or her independence from the Company and its management. The Board has
determined that each of the members of the Audit Committee also satisfies the
New York Stock Exchange's requirements for financial literacy and experience.
Management of the Company is responsible for preparing the financial
statements, and the Company's independent auditors are responsible for
performing an independent audit of the Company's financial statements and
issuing a report thereon. The Audit Committee recognizes that the Company's
management and independent auditors, who have more knowledge and detailed
information concerning the Company than do members of the Audit Committee, have
these primary responsibilities, and that the Audit Committee's role is to
oversee and monitor these responsibilities. In doing so, the Audit Committee is
not auditing the Company's financial statements, and is not providing any expert
or special assistance as to the Company's financial statements or any
professional certification as to the work of the independent auditors.
The responsibilities of the Audit Committee are set forth in the Charter of
the Audit Committee, which was approved by the Board of Directors of the Company
on May 2, 2000. A copy of the Charter was attached to the Proxy Statement of the
Company prepared in connection with the 2001 Annual Meeting. The Audit
Committee, among other matters, is responsible for the annual recommendation of
the independent accountants to be appointed by the Board of Directors as the
auditors of the Company and its subsidiaries, and reviews the Company's
accounting policies, control systems and compliance activities. The Audit
Committee also reviews the Charter of the Audit Committee on an annual basis.
This is a report on the Committee's activities relating to fiscal year 2001.
Review of Audited Financial Statements with Management
The Audit Committee reviewed and discussed the audited financial statements
of the Company for the fiscal year ended December 31, 2001 with the management
of the Company.
Review of Financial Statements and Other Matters with Independent Auditors
The Audit Committee discussed with PricewaterhouseCoopers LLP, the
Company's independent auditors, the matters required to be discussed by SAS 61
(Codification of Statements on Auditing Standards, AU Section 380). The Audit
Committee has received the written disclosures and the letter from
PricewaterhouseCoopers LLP required by Independence Standards Board Standard No.
1 (Independence Discussions with Audit Committees), and has discussed with
PricewaterhouseCoopers LLP that firm's independence. The Audit Committee
considered whether the provision of the non-audit services rendered during the
fiscal year ended December 31, 2001 was compatible with maintaining
PricewaterhouseCoopers LLP's independence.
21
Recommendation that Financial Statements Be Included In Annual Report
Based on the reviews and discussions referred to above, the Audit Committee
recommended to the Board of Directors that the audited financial statements be
included in the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 2001 for filing with the Securities and Exchange Commission.
Respectfully submitted by the
Audit Committee of the Board of
Directors
Douglas R. Brown, Chairman
Stephen L. Brown
Arnaud de Vitry d'Avaucourt
Kathleen F. Feldstein
Daniel I. C. Wang
INDEPENDENT AUDITORS' FEES
Audit Fees
The aggregate fees billed by PricewaterhouseCoopers LLP, the Company's
independent auditors, for professional services rendered for the audit for the
Company's annual financial statements for the fiscal year ended December 31,
2001 and for the review of the financial statements included in the Company's
Forms 10-Q for the fiscal year ended December 31, 2001, were $781,758.
Financial Information Systems Design and Implementation Fees
PricewaterhouseCoopers LLP provided no professional services for the fiscal
year ended December 31, 2001 for financial information systems design and
implementation, and therefore no fees were billed for such services.
All Other Fees
The aggregate fees billed by PricewaterhouseCoopers LLP for services other
than those described above were as follows:
Foreign statutory audits.................................... $ 129,209
Tax - related services...................................... $ 869,412
Other....................................................... $ 70,562
----------
Total.................................................. $1,069,183
==========
22
STOCK PERFORMANCE GRAPH
The following presentation compares the Company's Common Stock price in the
five-year period from December 31, 1996 to December 31, 2001 to the S&P 500
Stock Index and to a "peer group" index over the same period. The peer group
index consists of the common stock of Calgon Carbon Corporation, Osmonics, Inc.,
and Pall Corporation. These corporations are involved in various aspects of the
water treatment or liquids separations businesses. The presentation assumes that
the value of an investment in each of the Company's Common Stock, the S&P 500
Index, and the peer group index was $100 on December 31, 1996, and that any cash
dividends paid by any constituent company (none have been paid by the Company)
were reinvested in the same security.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN AMONG
IONICS, INCORPORATED, S&P 500 INDEX AND "PEER GROUP" INDEX OF COMPARABLE
COMPANIES
PERFORMANCE GRAPH
Value at December 31,
---------------------------------------------------------------------------------------------------------
1996 1997 1998 1999 2000 2001
---------------------------------------------------------------------------------------------------------
Ionics $100.00 $ 81.51 $ 62.37 $ 58.59 $ 59.11 $ 62.56
Peer Group $100.00 $ 83.27 $ 95.62 $ 84.76 $ 84.14 $103.24
S&P 500 Index $100.00 $133.38 $171.50 $207.59 $188.72 $166.30
DIRECTOR COMPENSATION
Each director who is not an employee of the Company receives an annual
retainer of $15,000, plus a fee of $2,000 for each regular meeting of the Board
of Directors attended. In addition, each non-employee director who is a member
of a committee of the Board of Directors also receives a fee of $1,000 for each
meeting of the committee attended.
In August 1998, the Board of Directors adopted the 1998 Non-Employee
Directors' Fee Plan ("Fee Plan"). The Fee Plan permits non-employee directors to
elect to receive payment of the annual retainer fee in cash or in Common Stock.
The valuation of the Common Stock is based on the last reported sales price of
the
23
Common Stock on the New York Stock Exchange on the trading date next preceding
the date of the Board meeting at which payment will be made. Annual retainer
fees are paid in two equal annual installments.
Under the Company's 1986 Stock Option Plan for Non-Employee Directors (the
"1986 Plan"), each person who is not an employee of the Company or any of its
subsidiaries and who is elected a director of the Company is automatically
entitled to receive an option for 2,000 shares of Common Stock upon his or her
initial election (or, if elected by the Board of Directors, at the time of the
next annual meeting of stockholders), and an option to acquire 2,000 additional
shares upon completion of each next successive year in office. Options granted
under the 1986 Plan have an exercise price equal to the fair market value on the
date of grant, do not become exercisable until the expiration of six months from
the date of grant, and thereafter may be exercised only during certain "window"
periods. Options granted under the 1986 Plan expire ten years after the date of
grant, and terminate 30 days after the holder ceases to be a director, or 90
days following a director's death. Options for 112,000 shares of Common Stock
are currently outstanding under the 1986 Plan.
STOCKHOLDER PROPOSALS
The Company's 2003 Annual Meeting is presently expected to be held on May
8, 2003. Proposals of stockholders intended to be presented at the 2003 Annual
Meeting must be received no later than January 6, 2003, for inclusion in the
Company's proxy statement and proxy for that meeting, except that if the date of
the 2003 Annual Meeting is changed by more than 30 calendar days from the
presently expected date, the Company must receive such proposal within a
reasonable time before the Board of Directors makes its proxy solicitation.
Under the Company's By-Laws, stockholder proposals submitted for action at
the annual meeting but not proposed for inclusion in the Company's proxy
statement must be given to the Clerk of the Company not less than 80 nor more
than 120 days prior to the anniversary date of the immediately preceding annual
meeting. Therefore, stockholders who wish to make a proposal at the 2003 Annual
Meeting (other than one that will be included in the Company's proxy materials)
must notify the Company no later than February 17, 2003 and no earlier than
January 8, 2003. In the case of a special meeting of stockholders, or in the
event the annual meeting is called for a date more than 60 days prior to the
anniversary date, a stockholder must give such notice no later than 20 days
following the date on which notice of the meeting date was mailed or publicly
disclosed. Stockholder proposals for nomination of candidates to the Board of
Directors are subject to similar time constraints. Articles V and VII of the
Company's By-Laws contain certain requirements for the content of such
proposals.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's directors,
executive officers and holders of more than 10% of the Company's Common Stock
(collectively, "Reporting Persons") to file with the Commission initial reports
of ownership and reports of changes in ownership of Common Stock of the Company.
Such persons are required by regulations of the Commission to furnish the
Company with copies of all such filings. Based on its review of the copies of
such filings received by it with respect to the fiscal year ended December 31,
2001 and written representations from certain Reporting Persons, the Company
believes that all Reporting Persons complied with all Section 16(a) filing
requirements in the fiscal year ended December 31, 2001.
24
OTHER MATTERS
As of this time, the Board of Directors knows of no other matters to be
brought before the meeting. However, if other matters properly come before the
meeting or any adjournment thereof, and if discretionary authority to vote with
respect thereto has been conferred by the enclosed Proxy, the persons named in
the Proxy will vote the Proxy in accordance with their best judgment as to such
matters. Discretionary authority, if conferred by the enclosed Proxy, will
include authority to vote on matters concerning which the Company did not
receive timely notice pursuant to the provisions of the Company's By-Laws (see
"Stockholder Proposals").
EXPENSES AND SOLICITATION
The cost of solicitation of proxies will be borne by the Company. In
addition to soliciting stockholders by mail, certain of the Company's directors,
officers and employees, without additional remuneration, may solicit proxies in
person or by telephone or other means of electronic communication. Brokers and
other custodians, nominees and fiduciaries will be requested to forward
proxy-soliciting material to the owners of stock held in their names, and the
Company will reimburse such brokers and other custodians, nominees and
fiduciaries for their reasonable out-of-pocket costs. Solicitation by directors,
officers and employees of the Company may also be made of some stockholders in
person or by mail, telephone or other means of electronic communication
following the original solicitation. The Company may, if appropriate, retain an
independent proxy solicitation firm to assist in soliciting proxies. If the
Company does so, it will pay such firm's customary fees and expenses.
By Order of the Board of Directors
STEPHEN KORN, Clerk
Watertown, Massachusetts
April 5, 2002
25
IONICS, INCORPORATED
C/O EQUISERVE
P.O. BOX 43068
PROVIDENCE, RI 02940
DETACH HERE
[X] PLEASE MARK
VOTES AS IN
THIS EXAMPLE.
--------------------------------------------------------------------------------
IONICS, INCORPORATED
--------------------------------------------------------------------------------
1. Election of all four Class I Directors listed below.
NOMINEES: (01) Douglas R. Brown, (02) Kathleen F. Feldstein
(03) Arthur L. Goldstein and (04) Carl S. Sloane
FOR ALL NOMINEES WITHHELD FROM ALL NOMINEES
[ ] [ ]
[ ]
_____________________________________________________________________________
For all nominees except as noted above
2. To approve an amendment to the Company's 1997 Stock Incentive Plan to
increase the maximum number of shares of Common Stock issuable under the
Plan by 800,000 shares.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
3. Proposal to ratify the selection of PricewaterhouseCoopers LLP as auditors
for fiscal year ending December 31, 2002.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
4. To consider and act upon such other matters as may properly come before the
meeting.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
Mark box at right if an address change or comment has been noted on the reverse
side of this card.
[ ]
Please be sure to sign and date this Proxy.
Signature: ______________ Date: ________ Signature: _____________ Date: ________
DETACH HERE
IONICS, INCORPORATED
65 GROVE STREET, WATERTOWN, MASSACHUSETTS 02472
PROXY FOR ANNUAL MEETING TO BE HELD MAY 8, 2002
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints ARTHUR L. GOLDSTEIN and STEPHEN KORN, and each
of them, as Proxies of the undersigned, each with full power to appoint his
substitute, and hereby authorizes both of them, or any one if only one be
present, to represent and to vote, as designated below, all the shares of Common
Stock of Ionics, Incorporated held of record by the undersigned or with respect
to which the undersigned is entitled to vote or act at the Annual Meeting of
Stockholders to be held on May 8, 2002, or at any adjournment thereof.
This proxy, when properly executed, will be voted in the manner directed herein
by the undersigned stockholder. If no direction is made, this proxy will be
voted FOR Proposals 1, 2 and 3, with discretionary authority to vote upon such
other matters as may properly come before the meeting.
If you wish to vote in accordance with the Board of Directors' recommendation,
just sign and date on the reverse side. You need not mark any boxes.
--------------------------------------------------------------------------------
PLEASE VOTE, DATE AND SIGN ON REVERSE AND RETURN PROMPTLY IN THE
ENCLOSED ENVELOPE.
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Please sign exactly as your name(s) appear(s) on the books of the Corporation.
Joint owners should each sign personally. Trustees and other fiduciaries should
indicate the capacity in which they sign, and where more than one name appears,
a majority must sign. If a corporation, this signature should be that of an
authorized officer who should state his or her title.
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