<PAGE> 1
================================================================================
SCHEDULE 14A
(RULE 14a)
INFORMATION REQUIRED IN PROXY STATEMENT
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 [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] CONFIDENTIAL, FOR USE OF THE COMMISSION
ONLY (AS PERMITTED BY RULE 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
</TABLE>
WATERLINK, INC.
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
XXXXXXXXXXXXXXXX
(NAME OF PERSON(S) FILING PROXY STATEMENT, IF OTHER THAN THE REGISTRANT)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies: .......
(2) Aggregate number of securities to which transaction applies: ..........
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined): ............
(4) Proposed maximum aggregate value of transaction: ......................
(5) Total fee paid: .......................................................
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid: ...............................................
(2) Form, Schedule or Registration Statement No.: .........................
(3) Filing Party: .........................................................
(4) Date Filed: ...........................................................
================================================================================
<PAGE> 2
WATERLINK, INC.
4100 Holiday Street, N.W.
Canton, Ohio 44718-2532
------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
JANUARY 15, 1998
------------------
To Our Stockholders:
The Annual Meeting of Stockholders (the "Annual Meeting") of Waterlink,
Inc. (the "Company") will be held at the Sheraton Inn Belden Village, 4375 Metro
Circle, N.W., North Canton, Ohio 44720, on January 15, 1998 at 10:00 a.m., local
time, for the following purposes:
1. To elect two Class I directors to serve until the 2001 Annual Meeting of
Stockholders and until their respective successors are elected and
qualified;
2. To approve the Waterlink, Inc. 1997 Omnibus Incentive Plan;
3. To approve the Employee Stock Purchase Plan, as amended, of Waterlink,
Inc.;
4. To ratify the appointment of Ernst & Young LLP as the independent public
auditors of the Company; and
5. To transact such other business as may properly come before the Annual
Meeting and any adjournments thereof.
The foregoing matters are described in more detail in the Proxy Statement
which follows.
The Board of Directors has fixed the close of business on December 1, 1997
as the record date for determining stockholders entitled to notice of, and to
vote at, the Annual Meeting and any adjournments thereof. Accordingly, only
holders of record of shares of Common Stock of the Company at the close of
business on such date will be entitled to notice of, and to vote at, the Annual
Meeting and any adjournments thereof. A copy of the Company's Annual Report to
Stockholders and Form 10-K for the fiscal year ended September 30, 1997 is
enclosed herewith.
YOUR VOTE IS IMPORTANT. WHETHER OR NOT YOU EXPECT TO ATTEND THE ANNUAL
MEETING, PLEASE MARK, DATE, SIGN AND RETURN PROMPTLY THE ENCLOSED PROXY CARD IN
THE ACCOMPANYING POSTAGE-PAID ENVELOPE. PROXIES ARE REVOCABLE AT ANY TIME PRIOR
TO THEIR BEING VOTED BY WRITTEN NOTICE TO THE SECRETARY OF THE COMPANY OR BY
APPEARANCE AT THE ANNUAL MEETING TO VOTE IN PERSON AND GIVING NOTICE OF SUCH
REVOCATION.
By Order of the Board of Directors
KATHLEEN S. DONATINI, Secretary
December 3, 1997
<PAGE> 3
WATERLINK, INC.
4100 Holiday Street, N.W.
Canton, Ohio 44718-2532
------------------
PROXY STATEMENT
------------------
ANNUAL MEETING OF STOCKHOLDERS
JANUARY 15, 1998
------------------
INTRODUCTION
This Proxy Statement is being furnished to stockholders of Waterlink, Inc.
(the "Company") in connection with the Annual Meeting of Stockholders of the
Company (the "Annual Meeting") to be held at 10:00 a.m., local time, on
Thursday, January 15, 1998, at the Sheraton Inn Belden Village, 4375 Metro
Circle, N.W., North Canton, Ohio, 44720. The enclosed proxy is solicited on
behalf of the Board of Directors of the Company (the "Board"), and is subject to
revocation at any time prior to the voting of the proxy as provided below.
Unless a contrary choice is indicated, all duly executed proxies received by the
Company will be voted for (i) the election of the two nominees for Class I
directors; (ii) the approval of the Waterlink, Inc. 1997 Omnibus Incentive Plan;
(iii) the approval of the Employee Stock Purchase Plan, as amended, of
Waterlink, Inc.; and (iv) the ratification of the appointment of Ernst & Young
LLP as the independent public auditors of the Company. The approximate date on
which this Proxy Statement and the enclosed proxy card are first being sent to
stockholders is December 3, 1997.
VOTING
Stockholders of record at the close of business on December 1, 1997 are
entitled to notice of, and to vote at, the Annual Meeting and any adjournments
thereof. On that date, there were outstanding 11,906,326 shares of common stock,
$.001 par value, of the Company (the "Common Stock"). Each share of Common Stock
is entitled to one vote on all matters to come before the Annual Meeting.
Directors will be elected by a plurality of the votes of the shares present in
person or represented by proxy at the Annual Meeting and entitled to vote on the
election of directors. Action on the other matters to come before the Annual
Meeting will be authorized by the affirmative vote of the majority of shares of
the Common Stock present in person or represented by proxy at the Annual Meeting
and entitled to vote on such matters. For purposes of determining whether a
matter has received a majority vote, abstentions will be included in the vote
totals, with the result that an abstention has the same effect as a negative
vote. In instances where brokers are prohibited from exercising discretionary
authority for beneficial owners who have not returned a proxy (so-called "broker
non-votes"), those shares will not be included in the vote totals, will only be
counted for purposes of determining whether a quorum is present at the Annual
Meeting and therefore will have no effect on the vote.
Shares cannot be voted at the Annual Meeting unless the holder thereof is
present or represented by proxy. When proxies in the accompanying form are
returned, properly executed, the shares represented thereby will be
1
<PAGE> 4
voted as specified thereon. Any stockholder giving a proxy has the right to
revoke it at any time prior to its exercise, either in writing, delivered to the
Secretary of the Company at its executive offices, or in person at the Annual
Meeting.
COMMON STOCK OWNERSHIP
The following table sets forth the beneficial ownership of the Common Stock
as of October 31, 1997 by certain of the executive officers of the Company, each
of the directors of the Company and all executive officers and directors of the
Company as a group, as well as by each person known by the Company to be the
beneficial owner of more than 5% of the Common Stock.
<TABLE>
<CAPTION>
SHARES OF
COMMON STOCK PERCENT
NAME AND ADDRESS BENEFICIALLY OF SHARES
OF BENEFICIAL OWNER OWNED(1) OUTSTANDING(2)
- -------------------------------------------------------------- ------------ --------------
<S> <C> <C>
Brantley Venture Partners III, L.P............................ 2,026,250(3) 16.98%
20600 Chagrin Blvd
Suite 1150
Cleveland, OH 44122
Environmental Opportunities Management Co., LLC............... 650,000(4) 5.45%
3100 Texas Commerce Tower
Houston, TX 77002
River Cities Capital Fund Limited Partnership................. 636,250(5) 5.34%
221 East 4th Street
Suite 2250
Cincinnati, OH 45202
Theodore F. Savastano......................................... 1,000,000(6) 8.33%
Chet S. Ross.................................................. 400,000(7) 3.30%
Michael J. Vantusko........................................... 125,000(8) 1.04%
L. Dean Hertert............................................... 65,000(9) *
Dr. Hans F. Larsson........................................... 0 --
Robert P. Pinkas.............................................. 2,126,250(10) 17.67%
Dr. Paul M. Sutton............................................ 13,000(11) *
Rollin S. Reiter.............................................. 28,000(11) *
John R. Miller................................................ 8,000(11) *
All directors, nominees and executive officers as a group (9
persons).................................................... 3,765,250 31.30%
</TABLE>
- ---------------
*Less than 1%
(1) Beneficial ownership includes shares of Common Stock subject to options,
warrants, rights, or similar obligations exercisable within 60 days for
purposes of computing the percentage of the person or group holding such
options or warrants. Except as noted, each stockholder has sole voting
power and sole investment power with respect to all shares beneficially
owned by such stockholder.
(2) Based upon 11,906,326 shares outstanding.
2
<PAGE> 5
(3) Includes 26,250 warrants to purchase shares of Common Stock held by
Brantley Capital Corporation, an affiliate of Brantley Venture Partners
III, L.P. Robert P. Pinkas, a director of the Company, is managing general
partner of Brantley Venture Partners III, L.P. and has sole voting and
investment power with respect to these shares.
(4) Includes an aggregate of 25,000 warrants issued to such entities to
purchase shares of Common Stock, as to which entities Environmental
Opportunities Management Co., LLC ("EOM") is the general partner and has
sole voting and investment power with respect to these shares. The Company
has been advised that Sanders Morris Mundy, one of the underwriters of the
Company's Initial Public Offering, as defined herein, owns a 75% interest
in, and thereby controls, EOM.
(5) Includes 11,250 warrants to purchase shares of Common Stock. The Company
has been advised that Mayson, Inc. ("Mayson"), an Ohio corporation, is the
general partner of the partnership which is the general partner of River
Cities Capital Fund Limited Partnership and that Mr. Edwin T. Robinson and
Mr. R. Glen Mayfield (both of 221 East 4th Street, Suite 2250, Cincinnati,
OH 45202) are the sole officers, directors and shareholders of Mayson, and
each has sole voting and investment power with respect to these shares.
(6) Includes 100,000 options to purchase shares of Common Stock which are fully
vested.
(7) Includes 220,000 options to purchase shares of Common Stock which are fully
vested.
(8) Includes 75,000 options to purchase shares of Common Stock which are fully
vested.
(9) Includes 40,000 options to purchase shares of Common Stock which are fully
vested.
(10) Includes shares, including securities referred to in footnote 3 above,
which are held by Brantley Venture Partners III, L.P., of which Mr. Pinkas
is managing general partner, and 100,000 options to purchase shares of
Common Stock which are fully vested.
(11) Includes options to purchase 3,000 shares of Common Stock which are fully
vested.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16 (a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's executive officers and directors, and
persons who beneficially own more than ten percent of a registered class of the
Company's equity securities, to file initial reports of securities ownership and
changes in such ownership with the Securities and Exchange Commission (the
"Commission"). Such executive officers, directors and greater than ten-percent
stockholders also are required by regulations promulgated by the Commission to
furnish the Company with copies of all Section 16(a) forms they file with the
Commission.
To the Company's knowledge, based solely upon a review of such copies of
the forms furnished to the Company, or written representations that no such
forms were required, during the fiscal year ended September 30, 1997, its
executive officers, directors and greater than ten-percent beneficial owners
complied with all applicable Section 16(a) filing requirements.
3
<PAGE> 6
I.
ELECTION OF DIRECTORS
Pursuant to the Company's Certificate of Incorporation and the Company's
By-Laws, the Board is divided into three classes with each director serving a
three-year term (after the initial term). The directors of Class I (Messrs. John
R. Miller and Theodore F. Savastano) hold office until the scheduled annual
meeting of stockholders on January 15, 1998, the directors of Class II (Messrs.
Rollin S. Reiter and Chet S. Ross) hold office until the scheduled annual
meeting of stockholders to be held with respect to the Company's 1998 fiscal
year and the directors of Class III (Mr. Robert P. Pinkas and Dr. Paul M.
Sutton) hold office until the scheduled annual meeting of stockholders to be
held with respect to the Company's 1999 fiscal year. Stockholders will elect the
directors of each Class for three-year terms at the appropriate annual meetings
of stockholders. Accordingly, two persons are to be elected to serve as Class I
directors at the Annual Meeting. The Board has recommended the persons named in
the table below as nominees for election as Class I directors. Both such persons
are presently directors of the Company.
Unless otherwise directed, all proxies (unless revoked or suspended) will
be voted for the election of the two nominees for director set forth below. If,
for any reason, either nominee is unable to accept such nomination or to serve
as a director, an event not currently anticipated, the persons named as proxies
reserve the right to exercise their discretionary authority to substitute such
other person or persons, as the case may be, as a substitute nominee, or the
Board has the authority to reduce the number of management nominees to such
extent as they shall deem advisable. The Company is not aware of any reason why
either nominee should become unavailable for election, or if elected, should be
unable to serve as a director. Set forth below is certain information with
respect to the nominees.
The following information is derived from information supplied by the
directors and is presented with respect to the nominees for election as
directors of the Company in Class I to serve for a term of three years and until
the election and qualification of their respective successors, and for the
directors in Classes II and III whose terms expire at the annual meeting of
stockholders occurring with respect to the Company's 1998 and 1999 fiscal years,
respectively, and until the election and qualification of their respective
successors.
NOMINEES FOR DIRECTOR WHOSE TERM EXPIRES IN 2001
(CLASS I)
<TABLE>
<CAPTION>
AGE HAS BEEN A DIRECTOR OF THE
NAME OF NOMINEE (AS OF OCTOBER 31, 1997) COMPANY SINCE
- -------------------------------------------------- ------------------------ --------------------------
<S> <C> <C>
John R. Miller.................................... 59 1997
Theodore F. Savastano............................. 60 1994
</TABLE>
DIRECTORS WHOSE TERM
CONTINUES AFTER THE ANNUAL MEETING
Directors Whose Term Expires in 1999 (CLASS II)
<TABLE>
<CAPTION>
AGE HAS BEEN A DIRECTOR OF THE
NAME OF NOMINEE (AS OF OCTOBER 31, 1997) COMPANY SINCE
- -------------------------------------------------- ------------------------ --------------------------
<S> <C> <C>
Rollin S. Reiter.................................. 69 1997
Chet S. Ross...................................... 58 1995
</TABLE>
4
<PAGE> 7
Directors Whose Term Expires in 2000 (CLASS III)
<TABLE>
<CAPTION>
AGE HAS BEEN A DIRECTOR OF THE
NAME OF NOMINEE (AS OF OCTOBER 31, 1997) COMPANY SINCE
- -------------------------------------------------- ------------------------ --------------------------
<S> <C> <C>
Robert P. Pinkas.................................. 43 1994
Dr. Paul M. Sutton................................ 49 1997
</TABLE>
John R. Miller was elected to the Board on March 13, 1997. Since 1988, Mr.
Miller has been President and Chief Executive Officer of TBN Holdings Inc., a
resource recovery and recycling company. Mr. Miller has previously served as a
director and Chairman of the Board of the Federal Reserve Bank of Cleveland and
as President, Chief Operating Officer and a director of The Standard Oil
Company. Mr. Miller serves on the Board of Directors of Eaton Corporation, a
global manufacturer of highly engineered products which serve industrial,
vehicle, construction, commercial and aerospace markets.
Robert P. Pinkas, a Director since the inception of the Company, is
Chairman of the Board, Chief Executive Officer, Treasurer and a director of
Brantley Capital Corporation, a business development corporation, and Chairman
of the Board, Chief Executive Officer, Treasurer and a manager of Brantley
Capital Management, L.L.C., an investment adviser. Mr. Pinkas also serves as
managing general partner of Brantley Venture Partners, a venture capital firm
that makes investments through its various partnership funds. Mr. Pinkas founded
and has been affiliated with the Brantley entities for more than the past five
years. Additionally, Mr. Pinkas is a director of Quad Systems Corporation,
Gliatech, Inc., Pediatric Services of America, Inc. and Medirisk, Inc.
Rollin S. Reiter was elected to the Board on March 13, 1997. Mr. Reiter was
Vice President of Sales and Marketing, Dairy, for Dean Foods Co., a grocery and
food service company in Franklin Park, Illinois from 1990 through 1993, when he
retired. Prior to that, Mr. Reiter was President of the Reiter Dairy Company in
Akron, Ohio from 1968 through 1990.
Chet S. Ross joined the Company in June 1995 as President and Chief
Executive Officer and was elected to the Board on August 1, 1995. Mr. Ross has
over 30 years of experience in the water industry. Mr. Ross and others acquired
the operations of Wallace and Tiernan Group, Inc., a water and wastewater
disinfection and chemical treatment company in May 1989, and he served as
Chairman, President and Chief Executive Officer of Wallace and Tiernan until it
was sold in 1991 to North West Water Group, PLC, a privatized water utility
company in the United Kingdom. He then was President and Chief Executive Officer
of North West Water's North American operations from 1991 to 1994 and was a
private consultant to North West Water from 1994 to 1995.
Theodore F. Savastano is the founder of the Company and has been Chairman
of the Board since its inception in December 1994. He served as Chief Executive
Officer of Hunter Environmental Services, Inc., a multi-disciplined
environmental company from August 1985 to January 1988 and as Chief Executive
Officer and founder of Summit Environmental Group, Inc., a full-service
environmental consulting engineering company from August 1988 to May 1994.
Dr. Paul M. Sutton was elected to the Board on January 2, 1997. Since 1987,
Dr. Sutton has served as President of P.M. Sutton & Associates, Inc., an
environmental process engineering company providing services to private industry
and government organizations.
5
<PAGE> 8
INFORMATION RELATING TO NON-DIRECTOR
EXECUTIVE OFFICERS OF THE COMPANY
L. Dean Hertert, Jr., 50, joined the Company as a Vice President in August
1996 and currently directs most of the Company's operations in the United
States, Canada and Latin America. Mr. Hertert joined the Company from Capital
Controls, Inc. where he was Vice President and General Manager from December
1988 to July 1996. Capital Controls Co., Inc. is a manufacturer of equipment and
instruments for municipal water, industrial process water and wastewater
treatment. Mr. Hertert has 20 years of business and multinational experience in
the areas of marketing, sales and general management.
Dr. Hans F. Larsson, 54, joined the Company as a Vice President upon
completion of the acquisition in March 1997 of the Nordic Water Products Group
subsidiaries (the "Nordic Group"). Dr. Larsson directs the Company's operations
in Europe and serves as the Managing Director of Nordic Water Products AB, a
wholly-owned subsidiary of the Company. Dr. Larsson has served as the Managing
Director of the Nordic Group since 1987.
Michael J. Vantusko, 40, a certified public accountant, joined the Company
on January 1, 1997 as Chief Financial Officer. From October 1995 to December
1996, he served as Chief Financial Officer of Waxman Industries, Inc., a
packager and distributor of plumbing, electrical and hardware products. From
February 1994 to September 1995, Mr. Vantusko served as President, Chief
Operating Officer, and Chief Financial Officer of Overdrive Systems, Inc., an
emerging software developer of electronic books. From 1979 to 1994, he was
employed by The Fairchild Corporation (formerly Banner Industries, Inc.) where
he held several positions, including Chief Financial Officer of Fairchild's
largest wholly-owned operating division from 1990 to 1994 and Vice President of
Fairchild from 1986 to 1990.
INFORMATION RELATING TO THE BOARD
OF DIRECTORS AND CERTAIN COMMITTEES OF THE BOARD
The Company consummated its initial public offering of Common Stock (the
"Initial Public Offering") in June 1997, and in connection therewith,
established certain committees of the Board. During the fiscal year ended
September 30, 1997, the Board held five meetings. The Company has an Audit
Committee, Compensation Committee and a Nominating Committee. Messrs. John R.
Miller, Rollin S. Reiter and Dr. Paul M. Sutton serve on the Audit Committee,
Messrs. John R. Miller, Robert P. Pinkas, Rollin S. Reiter and Dr. Paul M.
Sutton serve on the Compensation Committee and Messrs. John R. Miller, Robert P.
Pinkas and Dr. Paul M. Sutton serve on the Nominating Committee. Each of the
directors attended 75% or more of all meetings of the Board and of its
committees of which he was a member.
AUDIT COMMITTEE
The Audit Committee acts as a liaison between the Company's independent
auditors and the Board, reviews the scope of the annual audit and the management
letter associated therewith, reviews the Company's annual and quarterly
financial statements and reviews the sufficiency of the Company's internal
accounting controls. The Audit Committee held one meeting during fiscal 1997.
COMPENSATION COMMITTEE
The general functions of the Compensation Committee include approval (or
recommendation to the Board) of the compensation arrangements for senior
management, directors and other key employees, review of benefit
6
<PAGE> 9
plans in which officers and directors are eligible to participate and periodic
review of the equity compensation plans of the Company and the grants under such
plans. The Compensation Committee administers the 1997 Omnibus Incentive Plan of
the Company, the 1995 Stock Option Plan of the Company, the 1997 Non-Employee
Director Stock Option Plan and the Employee Stock Purchase Plan of the Company.
The Compensation Committee held four meetings during fiscal 1997.
NOMINATING COMMITTEE
The Nominating Committee makes recommendations concerning the organization,
size and composition of the Board and its committees, proposes nominees for
election to the Board and its committees and considers the qualifications,
compensation and retirement of directors. The Nominating Committee did not meet
during fiscal 1997. The Nominating Committee will consider nominations of
persons for election as directors that are submitted by stockholders in writing
in accordance with requirements set forth in the Company's By-Laws.
DIRECTOR REMUNERATION
Directors who are employees of the Company receive no compensation, as
such, for service as members of the Board or any committees of the Board.
Directors who are not employees of the Company receive an annual retainer
of $10,000, payable in equal quarterly installments. In addition, non-employee
directors receive compensation of $750 for each meeting of the Board (in excess
of the four regularly scheduled meetings) or any committee of the Board attended
by them (other than with respect to any meetings of any committee on a day on
which the Board also meets), and compensation of $250 for each additional
telephonic meeting of the Board or any committee of the Board. All directors
will be reimbursed for out of pocket expenses incurred in attending meetings of
the Board or committees and for other expenses incurred in their capacity as
directors.
In addition, directors who are not employees of the Company receive for
each year of service on the Board, options under the Company's 1997 Non-Employee
Director Stock Option Plan (the "Director Plan"). The per share exercise price
of options granted under the Director Plan is the fair market value of the
Common Stock on the date of grant. The exercise price of options granted under
the Director Plan is payable in cash or in shares of Common Stock valued at fair
market value at the time of exercise, or a combination of cash and shares;
however, the Company may establish "cashless exercise" procedures, subject to
applicable laws, rules and regulations, pursuant to which a director may
exercise an option and arrange for a simultaneous sale of the underlying Common
Stock, with the exercise price being paid from the proceeds of such sale.
Options granted under the Director Plan will expire ten years after the date of
grant, subject to earlier termination, and may be exercised as follows: 25%
after one year from the date of grant, 50% after two years from the date of
grant, 75% after three years from the date of grant and 100% after four years
from the date of grant.
Each non-employee director was granted an option to purchase 3,000 shares
of Common Stock concurrently with the Initial Public Offering. In addition, on
May 23 of each year, the anniversary of the date the Director Plan became
effective, each of the Company's then non-employee directors who have served as
directors for at least six months shall automatically be granted an option to
purchase 5,000 shares of Common Stock.
The Director Plan is administered by the Compensation Committee. The
principal terms of the option grants are set forth in the Director Plan.
Therefore, the Compensation Committee has no discretion to select which
directors receive options, the number of shares of Common Stock subject to
options or the exercise price of options.
7
<PAGE> 10
EXECUTIVE COMPENSATION
The following table sets forth, for each of the years indicated, the
compensation paid by the Company to the Company's Chief Executive Officer and
all other executive officers of the Company as of September 30, 1997 who
received annual compensation from or on behalf of the Company in excess of
$100,000 (together, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
------------------------- ---------------------------
OTHER ANNUAL RESTRICTED SECURITIES
NAME AND PRINCIPAL COMPENSATION STOCK UNDERLYING ALL OTHER
POSITION YEAR SALARY($) BONUS($) ($)(1) AWARDS($) OPTIONS(#) COMPENSATION($)
- -------------------- ---- --------- -------- ------------ ------------ ---------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Theodore F. 1997 $234,013 $125,000 $1,055,277(2) -- 100,000 $ 1,658,750(3)
Savastano 1996 $225,800 -- $ 4,977 -- 100,000 --
Chairman of 1995 $126,989 -- -- -- -- --
the Board of
Directors
Chet S. Ross 1997 $234,013 $125,000 $ 768 -- 300,000 $ 620(4)
Chief 1996 $225,800 -- $ 262 -- 220,000 --
Executive Officer 1995 $ 95,267(5) -- $ 180,000 -- -- --
and President
Michael J. 1997 $123,500(6) $50,000 -- -- 225,000 $ 390(4)
Vantusko 1996 -- -- -- -- -- --
Chief Financial 1995 -- -- -- -- -- --
Officer
L. Dean Hertert, Jr. 1997 $137,675 $25,000 $ 288 -- 90,000 $ 365(4)
Vice President 1996 $ 21,833(7) -- -- -- 25,000 --
1995 -- -- -- -- -- --
Dr. Hans F. Larsson 1997 $ 64,489(8) -- -- -- 20,000 --
Vice President 1996 -- -- -- -- -- --
1995 -- -- -- -- -- --
</TABLE>
- ------------------
(1) Certain incidental personal benefits to executive officers of the Company
may result from expenses incurred by the Company in the interest of
attracting and retaining qualified personnel. These incidental personal
benefits made available to the Named Executive Officers during 1997 are not
described herein because the incremental cost to the Company of such
benefits is below the SEC disclosure threshold.
(2) Includes $1,050,000 of gross-up payment for tax liabilities incurred by Mr.
Savastano upon exercise of the non-qualified stock options described in
footnote 3, below, which was paid to Mr. Savastano pursuant to his 1994
employment agreement with the Company.
(3) Compensation related to the exercise of 100,000 non-qualified stock options
received by Mr. Savastano pursuant to the terms of his 1994 employment
agreement with the Company, which were exercisable upon consummation of the
Initial Public Offering. Compensatory amount was determined by multiplying
the number of options exercised by the difference between the market value
at the date of exercise ($16.6875) and the exercise price of $.10 per share.
(4) Represents the Company's "match" payment relating to the Company's 401(k)
Plan.
(5) Represents salary from June 1, 1995 (date of employment with the Company).
(6) Represents salary from January 1, 1997 (date of employment with the
Company).
(7) Represents salary from August 1, 1996 (date of employment with the Company).
(8) Represents salary from March 5, 1997 (date of acquisition of the Nordic
Group).
8
<PAGE> 11
STOCK OPTION GRANTS
The following table sets forth information regarding options to purchase
Common Stock granted to the Named Executive Officers during fiscal 1997.
OPTION(1)/SAR(2) GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT
---------------------------------------------------------- ASSUMED ANNUAL
NUMBER OF PERCENT OF RATES OF STOCKS
SECURITIES TOTAL OPTIONS EXERCISE PRICE APPRECIATION
UNDERLYING GRANTED TO OF FOR OPTION TERM(3)
OPTIONS EMPLOYEES BASE PRICE EXPIRATION -------------------------
NAME GRANTED(#) FISCAL YEAR ($/SH) DATE 5%($) 10%($)
- -------------------------- ---------- ------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Theodore F. Savastano 100,000 9.8% $ 0.10 6/24/07 $1,781,784 $2,843,117
Chet S. Ross 300,000 29.3% $11.00 5/23/07 $2,075,352 $5,259,350
Michael J. Vantusko 75,000 7.3% $ 4.25 1/2/07 $ 200,460 $ 508,005
50,000 4.9% $ 4.25 6/24/97 $ 133,640 $ 338,670
100,000 9.8% $11.00 5/23/07 $ 691,784 $1,753,117
L. Dean Hertert, Jr. 15,000 1.5% $ 4.25 12/16/06 $ 40,092 $ 101,601
25,000 2.4% $ 4.25 6/24/97 $ 66,820 $ 169,335
50,000 4.9% $11.00 5/23/07 $ 345,892 $ 876,558
Dr. Hans F. Larsson 20,000 2.0% $11.00 6/24/07 $ 138,357 $ 350,623
</TABLE>
- ---------------
(1) The per share exercise price of options granted under the Company's stock
option plans is the fair market value of the Common Stock on the date of
grant, with the exception of the 100,000 non-qualified stock options granted
to Mr. Savastano described in footnote 3 of the Summary Compensation Table,
above, which had an exercise price of $.10.
(2) There have been no stock appreciation rights ("SARs") granted by the Company
to date.
(3) The potential realizable values represent future opportunity and have not
been reduced to present value in 1997 dollars. The dollar amounts included
in these columns are the result of calculations at assumed rates set by the
Commission for illustration purposes. These rates are not intended to be a
forecast of the Common Stock price and are not necessarily indicative of the
values that may be realized by the Named Executive Officers. The potential
realizable values are based on arbitrarily assumed annualized rates of stock
price appreciation of 5% and 10% over the full ten-year term of the options.
STOCK OPTION AND SAR EXERCISES
The following table sets forth certain information concerning exercises of
stock options during 1997 by each of the Named Executive Officers and their
stock options outstanding as of September 30, 1997.
9
<PAGE> 12
AGGREGATED OPTION/SAR EXERCISE IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION/SAR VALUES(1)
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
FISCAL FISCAL
YEAR-END(#) YEAR-END($)(2)
SHARES ---------------- ----------------
ACQUIRED ON VALUE EXERCISABLE(E) EXERCISABLE(E)
NAME EXERCISE(#) REALIZED($) UNEXERCISABLE(U) UNEXERCISABLE(U)
- ------------------------------------ ----------- ----------- ---------------- ----------------
<S> <C> <C> <C> <C>
Theodore F. Savastano 100,000 $ 1,658,750 100,000(E) $1,435,000(E)
-- (U) -- (U)
Chet S. Ross 135,000 $ 1,758,375 220,000(E) $3,245,000(E)
300,000(U) $2,325,000(U)
Michael J. Vantusko 50,000 -- 75,000(E) $1,087,500(E)
100,000(U) $ 775,000(U)
L. Dean Hertert, Jr. 25,000 -- 40,000(E) $ 586,250(E)
50,000(U) $ 387,500(U)
Dr. Hans F. Larsson -- -- -- (E) -- (E)
20,000(U) $ 155,000(U)
</TABLE>
- ---------------
(1) There have been no SARs granted by the Company to date.
(2) Values are calculated for options "in-the-money" by subtracting the exercise
price paid per share of the options from the per share New York Stock
Exchange consolidated closing price of $18.75 of the Common Stock on
September 30, 1997.
EMPLOYMENT AGREEMENTS
The terms of the employment arrangements between the Company and the Named
Executive Officers are described below.
Mr. Savastano's employment agreement with the Company, which became
effective as of May 23, 1997, provides for him to serve as Chairman of the Board
of the Company for an initial term of three years, subject to automatic one year
extensions upon each anniversary of the date of the employment agreement until
mandatory retirement at age 65. The employment agreement provides for an initial
annual base salary of $240,000. Mr. Savastano will be entitled to participate in
an annual incentive bonus plan (the "Bonus Plan") that the Company has agreed,
pursuant to Mr. Savastano's employment agreement, to establish. The Bonus Plan
will entitle Mr. Savastano to earn, in each year during the term of the
employment agreement, commencing with fiscal 1998, an amount ranging from 0% to
150% of his base salary, subject to achievement of certain performance goals to
be established by the Board. In the event that Mr. Savastano's employment is
terminated without cause (as defined in the employment agreement) or in the
event he terminates his employment for good reason (as defined in the employment
agreement), he will be entitled to receive (in a lump sum if such termination
occurs within one year after a change of control (as defined in the employment
agreement) of the Company) an amount equal to the present value of the product
of (i) the sum of (x) the base salary in effect on the date of termination and
(y) the annual bonus compensation paid to Mr. Savastano with respect to the
fiscal year in which Mr. Savastano's employment is terminated provided that such
bonus is calculable as of such date, and if not so calculable, then the bonus,
if any, paid to Mr. Savastano with respect to the fiscal year immediately
preceding the
10
<PAGE> 13
year in which his employment is terminated (which for fiscal 1997 shall be
deemed to be $240,000) and (ii) two; provided, however, that if any portion of
such compensation would constitute an "excess parachute payment" under Section
280G of the Internal Revenue Code of 1986, as amended (the "Code"), the Company
will pay to Mr. Savastano an additional amount to offset any taxes payable with
respect to the excess parachute payment and the additional payment. The
employment agreement also contains provisions which restrict Mr. Savastano from
competing with the Company during the term of the agreement and for 24 months
following termination thereof. In addition, on June 24, 1997 Mr. Savastano
received options exercisable to purchase 100,000 shares of Common Stock at an
exercise price of $.10 per share pursuant to his 1994 employment agreement. Such
options became exercisable upon the consummation of the Initial Public Offering
on June 27, 1997, and were exercised on September 2, 1997. The Company is
required to hold Mr. Savastano harmless from, and shall pay to Mr. Savastano,
any taxes payable by Mr. Savastano as a result of the grant of the options. The
amount of such taxes is approximately $1,117,000, of which $1,050,000 was paid
during fiscal 1997.
Mr. Ross's employment agreement with the Company, which became effective as
of May 23, 1997, provides for Mr. Ross to serve as President and Chief Executive
Officer of the Company for an initial term of three years, subject to automatic
one year extensions upon each anniversary of the date of the employment
agreement until mandatory retirement at age 65. The employment agreement
provides for an initial annual base salary of $240,000. Pursuant to his
employment agreement, Mr. Ross will be entitled to participate in the Bonus
Plan, which will entitle him to earn, in each year during the term of his
employment agreement, commencing with fiscal 1998, an amount ranging from 0% to
150% of his base salary, subject to achievement of certain performance goals to
be established by the Board. In the event that Mr. Ross' employment is
terminated without cause (as defined in the employment agreement) or in the
event he terminates his employment for good reason (as defined in the employment
agreement), Mr. Ross will be entitled to receive (in a lump sum if such
termination occurs within one year after a change of control (as defined in the
employment agreement) of the Company) an amount equal to the present value of
the product of (i) the sum of (x) the base salary in effect on the date of
termination and (y) the annual bonus compensation paid to Mr. Ross with respect
to the fiscal year in which his employment is terminated, provided that such
bonus is calculable as of such date, and if not so calculable, then the bonus,
if any, paid to him with respect to the fiscal year immediately preceding the
year in which his employment is terminated (which for fiscal 1997 shall be
deemed to be $240,000) and (ii) two; provided, however, that if any portion of
such compensation would constitute an "excess parachute payment" under Section
280G of the Code, the Company will pay to Mr. Ross an additional amount to
offset any taxes payable with respect to the excess parachute payment and the
additional payment. The employment agreement also contains provisions which
restrict Mr. Ross from competing with the Company during the term of the
agreement and for 24 months following termination thereof. Additionally,
pursuant to his employment agreement, under the terms of the 1995 Stock Option
Plan of the Company, Mr. Ross was granted a non-qualified option to purchase
300,000 shares of Common Stock at $11 per share, the initial offering price of
the Common Stock sold in the Initial Public Offering. The ability to exercise
this option vests in four equal annual installments, commencing upon the first
anniversary of the date of grant subject to acceleration in certain
circumstances.
Mr. Vantusko's employment agreement with the Company, which became
effective as of May 23, 1997, provides for Mr. Vantusko to serve as Chief
Financial Officer of the Company for an initial term of three years, subject to
automatic one year extensions upon each annual anniversary of the date of the
employment agreement, unless either party notifies the other of his or its
intent not to extend the agreement not less than one year prior to the then
scheduled expiration date. The employment agreement provides for an initial
annual base salary of $150,000. Mr. Vantusko will be entitled to participate in
the Bonus Plan, which will entitle him to earn, in each year during the term of
his employment agreement, commencing with fiscal 1998, an amount ranging from 0%
to 150% of his base salary, subject to achievement of certain performance goals
to be established by the Board. In
11
<PAGE> 14
the event that Mr. Vantusko's employment is terminated without cause (as defined
in the employment agreement) or in the event he terminates his employment for
good reason (as defined in the employment agreement), Mr. Vantusko will be
entitled to receive (in a lump sum if such termination occurs within one year
after a change of control (as defined in the employment agreement) of the
Company) an amount equal to the present value of the sum of (x) the base salary
in effect on the date of termination and (y) the annual bonus compensation paid
to Mr. Vantusko with respect to the fiscal year in which his employment is
terminated, provided that such bonus is calculable as of such date, and if not
so calculable, then the bonus, if any, paid to him with respect to the fiscal
year immediately preceding the year in which his employment is terminated (which
for fiscal 1997 shall be deemed to be $150,000). The employment agreement also
contains provisions which restrict Mr. Vantusko from competing with the Company
during the term of the agreement and for 12 months following termination
thereof. Additionally, pursuant to his employment agreement, under the terms of
the 1995 Stock Option Plan of the Company, Mr. Vantusko was granted a
non-qualified option to purchase 100,000 shares of Common Stock at $11 per
share, the initial offering price of the Common Stock sold in the Initial Public
Offering. The ability to exercise this option vests in four equal annual
installments, commencing upon the first anniversary of the date of grant,
subject to acceleration in certain circumstances.
Mr. Hertert's employment agreement with the Company, which became effective
as of May 23, 1997, provides for Mr. Hertert to serve as the Vice President of
Operations of the Company for an initial term of three years, subject to
automatic one year extensions upon each annual anniversary of the date of the
employment agreement, unless either party notifies the other of his or its
intent not to extend the agreement at least one year prior to the then scheduled
expiration date. The employment agreement provides for an initial annual base
salary of $140,000. Mr. Hertert will be entitled to participate in the Bonus
Plan, which will entitle him to earn, in each year during the term of his
employment agreement, commencing with fiscal 1998, an amount ranging from 0% to
150% of his base salary, subject to achievement of certain performance goals to
be established by the Board. In the event that Mr. Hertert's employment is
terminated without cause (as defined in the employment agreement) or in the
event he terminates his employment for good reason (as defined in the employment
agreement), Mr. Hertert will be entitled to receive (in a lump sum if such
termination occurs within one year after a change of control (as defined in the
employment agreement) of the Company) an amount equal to the present value of
the product of (i) the sum of (x) the base salary in effect on the date of
termination and (y) the annual bonus compensation paid to Mr. Hertert with
respect to the fiscal year in which his employment is terminated, provided that
such bonus is calculable as of such date, and if not so calculable, then the
bonus, if any, paid to him with respect to the fiscal year immediately preceding
the year in which his employment is terminated (which for fiscal 1997 shall be
deemed to be $140,000) and (ii) one and one-half. The employment agreement also
contains provisions which restrict Mr. Hertert from competing with the Company
during the term of the agreement and for 12 months following termination
thereof. Additionally, pursuant to his employment agreement, under the terms of
the 1995 Stock Option Plan of the Company, Mr. Hertert was granted a
non-qualified option to purchase 50,000 shares of Common Stock at $11 per share,
the initial offering price of the Common Stock sold in the Initial Public
Offering. The ability to exercise this option vests in four equal annual
installments, commencing upon the first anniversary of the date of grant,
subject to acceleration in certain circumstances.
Dr. Larsson's employment agreement with Nordic Water Products AB ("Nordic
AB"), which became effective as of July 1, 1987, provides for Dr. Larsson to
serve as Managing Director of Nordic AB, for an indefinite term. If Nordic AB
terminates the employment agreement within 12 months after Nordic AB changes
ownership, Nordic AB must provide Dr. Larsson at least 18 months notice of its
intent to terminate the agreement. The employment agreement provided for an
initial annual base salary of 336,000 Swedish krona (approximately $43,693). Dr.
Larsson's current base salary is $94,700. The employment agreement contains
12
<PAGE> 15
provisions which restrict Dr. Larsson from competing with Nordic AB, without
Nordic AB's consent, during the term of the agreement.
RELATED PARTY TRANSACTIONS
The following summarizes certain material agreements between the Company
and its executive officers, directors and certain of its existing shareholders.
The summary is not a complete description of such agreements and therefore this
discussion is qualified in its entirety by reference to the agreements, copies
of which will be made available for inspection upon written request to the
Company. It is the Company's intention that transactions with directors,
executive officers, employees or affiliates of the Company will be minimal and
will be approved in advance by a majority of the disinterested members of the
Board.
REGISTRATION RIGHTS AGREEMENTS
Several of the Company's officers, directors and holders of more than 5% of
the Common Stock have entered into a certain registration rights agreement (the
"Registration Rights Agreement") relating to shares of the Company's preferred
stock (which was converted in accordance with the terms of such preferred stock
into shares of Common Stock in connection with the Initial Public Offering), the
Common Stock issued prior to the Initial Public Offering (other than upon
exercise of stock options) and securities of the Company convertible into or
exchangeable for shares of Common Stock (other than a stock option), including
the warrants (the "1997 Warrants") issued pursuant to a certain warrant purchase
agreement executed in March 1997 between the Company and the other signatories
thereto (the "1997 Warrant Agreement"). Pursuant to the Registration Rights
Agreement, the Company granted to the signatories thereto certain rights
relating to registering the Common Stock under the Securities Act of 1933, as
amended (the "Securities Act").
In general, the "Investors," as that term is defined in the Registration
Rights Agreement (generally defined as substantially all holders of the 1997
Warrants) and Mr. Savastano may demand registration under the Securities Act of
the Common Stock issued upon the conversion of outstanding shares of the
Company's preferred stock and the exercise of the 1997 Warrants upon the request
of the Investors (treated as a single class and calculated on an "as converted
basis"). The Company will pay all registration expenses relating to such
registration. The Registration Rights Agreement otherwise contains such terms
and conditions ordinarily and customarily found in registration rights
agreements, including, without limitation, piggyback registration rights,
indemnification provisions, and holdback agreements.
1997 NOTES, 1997 WARRANTS AND STOCKHOLDER GUARANTEE
In March 1997, the Company entered into a certain note purchase agreement
(the "1997 Note Purchase Agreement") pursuant to which the Company could have
issued, and several purchasers could have committed to purchase, certain
subordinated notes (the "1997 Notes") and entered into the 1997 Warrant
Agreement with respect to the 1997 Warrants. The parties to the 1997 Note
Purchase Agreement and the holders of the 1997 Warrants include: Brantley
Capital Corporation, River Cities Capital Fund Limited Partnership and
Environmental Opportunities Management Co., LLC. These stockholders and the
other parties to the 1997 Note Purchase Agreement (other than the Company) have
received 125,000 1997 Warrants issued in accordance with the 1997 Warrant
Agreement. No 1997 Notes were issued and the obligation to make advances under
the 1997 Note Purchase Agreement has terminated.
Brantley Venture Partners III, L.P. ("Brantley"), guaranteed through June
1, 1997 up to $2,000,000 of the Company's indebtedness under a certain Credit
Facility with the Bank of America, Illinois (the "Credit
13
<PAGE> 16
Facility"), in the event the Company defaulted on its payment obligations
thereunder. The Company paid no consideration to Brantley for this guarantee. To
the extent that Brantley would have been required to make a payment under its
guarantee of the Company's indebtedness under the Credit Facility, the amount of
such payments would have been deemed to be an advance under the 1997 Notes from
the date of such payment. No such payment was required and the guarantee has
terminated. Robert P. Pinkas, a director of the Company, is an affiliate of
Brantley Capital Corporation and Brantley.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee was appointed prior to the consummation of the
Initial Public Offering. The Compensation Committee's function is, in part, to
establish and review the Company's arrangements and programs for compensating
executive officers, including the Named Executive Officers named in the Summary
Compensation Table. The Compensation Committee is composed entirely of directors
who are neither officers nor employees of the Company.
The Company's executive compensation program is designed to provide
competitive compensation and benefit programs that attract and retain capable
executives who are integral to the success of the Company, reward them for
achievement of both short-term and long-term objectives and provide them with an
economic incentive to increase stockholder value. The Compensation Committee
believes its policies are best implemented by providing compensation comprised
of separate components, all of which are designed to motivate executive
performance. These components are a salary, short-term incentive compensation
(bonus) and long-term incentive compensation (stock options). The bonuses and
stock options are in addition to executives' yearly based salaries, which are
intended to be competitive with companies which the Compensation Committee
believe are comparable to the Company.
In setting executive compensation practices for the Company, the
Compensation Committee generally compares executive compensation programs with
other companies' compensation programs for executives with similar
responsibilities. The Compensation Committee reviewed compensation practices of
business included in the Company's peer group index and, based on that review,
together with an analysis of other relevant factors related to the peer group
and on negotiations with the Named Executive Officers, established levels of
base salary.
Previously, annual bonus payments to the Named Executive Officers were
determined by the Board, based upon input from directors with significant
experience in similar determinations for other companies. Currently, the
Compensation Committee administers the Bonus Plan pursuant to which the
executives of the Company, including the Named Executive Officers, are entitled
to earn, in each year during the term of their employment, commencing with
fiscal 1998, bonuses based upon a percentage of their base salary, subject to
achievement of certain performance goals to be established by the Compensation
Committee. The percentage of an eligible executive's salary that may be earned
as a bonus pursuant to the Bonus Plan will vary depending upon the employee's
position with the Company but generally is not anticipated to exceed 150% of
base salary.
The Compensation Committee believes that the grant of stock options aligns
the interests of the Company's executives with those of its stockholders. The
Compensation Committee determines the recipients of stock option grants and the
size of grants consistent with these principles, based upon the employee's
performance and position with the Company. Contemporaneous with the Initial
Public Offering, stock options were granted to approximately 33 employees,
including executive officers, pursuant to the Company's 1995 Stock Option Plan.
As of September 30, 1997, approximately 62 employees, including executive
officers, held stock options granted pursuant to the Company's 1995 Stock Option
Plan. All stock options granted during fiscal 1997 had an exercise price equal
to the market value of Common Stock on the date of grant (other than options to
purchase 100,000
14
<PAGE> 17
shares that were granted to Mr. Savastano pursuant to his 1994 employment
agreement with the Company). Generally, all stock options granted are
anticipated to vest over four years, except under limited circumstances.
COMPENSATION OF CHIEF EXECUTIVE OFFICER
Chet S. Ross's compensation for fiscal 1997 was determined pursuant to an
employment agreement entered into shortly prior to completion of the Initial
Public Offering. Mr. Ross's compensation, including base salary and bonus
compensation, was determined based upon a review of businesses in the Company's
peer group and negotiation between the Company and Mr. Ross. Pursuant to Mr.
Ross's employment agreement, he will be entitled to earn up to 150% of his base
salary pursuant to the Bonus Plan. In connection with the Initial Public
Offering and pursuant to Mr. Ross's employment agreement, he was granted options
exercisable to purchase 300,000 shares of Common Stock at the Initial Public
Offering price of $11 per share. In addition, Mr. Ross was awarded a
discretionary cash bonus of $125,000 in recognition of his leadership both
generally and in connection with the Initial Public Offering.
DEDUCTIBILITY OF EXECUTIVE COMPENSATION
Section 162(m) of the Code generally limits the annual tax deduction for
applicable remuneration paid to the Company's Chief Executive Officer and
certain other highly compensated executive officers to $1,000,000. The
Compensation Committee does not believe that the applicable renumeration to be
paid to the Company's executives will exceed the deduction limit set by Section
162(m).
MEMBERS OF THE COMMITTEE
ROLLIN S. REITER, Chairman
JOHN R. MILLER
ROBERT P. PINKAS
DR. PAUL M. SUTTON
The foregoing report of the Compensation Committee shall not be deemed
incorporated by reference by any general statement incorporating by reference
the Proxy Statement into any filing under the Securities Act or the Exchange Act
unless the Company specifically incorporates this information by reference, and
shall not otherwise be deemed filed under such acts.
15
<PAGE> 18
PERFORMANCE GRAPH
Set forth below is a graph comparing the percentage change in the
cumulative total stockholder return of the Common Stock, the Standard and Poor's
500 Index and a peer group index constructed by the Company for the period since
the Common Stock commenced trading on June 25, 1997 to the fiscal year ended
September 30, 1997. The peer group index consists of: United States Filter
Corporation; Culligan Water Technologies, Inc.; Ionics, Incorporated; Osmonics,
Inc.; and Calgon Carbon Corporation. These corporations are involved in various
aspects of the water treatment business. The graph assumes $100 invested on June
25, 1997 in the Company and each of the other indices.
PERFORMANCE GRAPH
COMPARISON OF CUMULATIVE TOTAL RETURN*
TOTAL RETURN TO STOCKHOLDERS
(ASSUMES $100 INVESTMENT ON 6-25-97
<TABLE>
<CAPTION>
MEASUREMENT PERIOD
(FISCAL YEAR COVERED) WATERLINK PEER GROUP S&P 500
<S> <C> <C> <C>
6/25/97 100 100 100
9/30/97 144 120 107
</TABLE>
Source: Carl Thompson Associates www.ctonline.com (303) 494-5472. Data from
Bloomberg Financial Markets
- ---------------
ASSUMES INITIAL INVESTMENT OF $100
*Total Return Assumes Reinvestment of Dividends (none paid by the Company)
Note: Companies in indices measured by Market Capitalization
16
<PAGE> 19
II.
APPROVAL OF THE WATERLINK, INC. 1997 OMNIBUS
INCENTIVE PLAN OF THE COMPANY
The Company's 1997 Omnibus Incentive Plan (the "Incentive Plan"), the terms
of which were disclosed previously in the prospectus of the Company issued in
connection with the Initial Public Offering, was approved by the Board and
stockholders in May 1997, prior to the Initial Public Offering. The Company is
seeking stockholder approval of the Incentive Plan again because such approval
subsequent to the Initial Public Offering is necessary for the Incentive Plan to
satisfy the requirements of Section 162(m) of the Code with respect to Awards
(as defined below) granted after the expiration of the "reliance period"
applicable to private companies that become public. If stockholder approval is
not obtained, the Incentive Plan will terminate following the expiration of such
"reliance period." Any Awards outstanding at the time of termination of the
Incentive Plan will continue in full force and effect. The following is a brief
description of the material features of the Incentive Plan; such description is
qualified in its entirety by reference to the full text of the Incentive Plan
which is attached hereto as Exhibit A.
PURPOSE
The Incentive Plan is intended to encourage selected employees, directors
or consultants of the Company to acquire or increase a proprietary interest in
the growth and performance of the Company, to generate an increased incentive to
contribute to the Company's future success and to enhance the ability of the
Company to attract and retain qualified individuals. The Incentive Plan is not
subject to any provisions of the Employee Retirement Security Act of 1974
("ERISA").
TYPE AND NUMBER
The Incentive Plan authorizes the grant of awards ("Awards") which may
consist of "incentive stock options," as that term is defined under the
provisions of Section 422 of the Code, non-qualified stock options, restricted
stock and restricted stock units, stock appreciation rights, dividend
equivalents, stock awards and other stock based awards, and performance awards.
The maximum aggregate number of shares of Common Stock which may be issued under
the Incentive Plan is the lesser of:
(i) the greater of:
(A) 1,750,000; or
(B) 12.5% of the aggregate number of shares of Common Stock outstanding
(calculated on a fully diluted basis, including the maximum number of
shares that may be issued, or subject to awards, under the Incentive
Plan and the 1995 Stock Option Plan of the Company (the Incentive Plan
and the 1995 Stock Option Plan of the Company are collectively referred
to as the "Employee Stock Plans"));
In either case, (A) or (B) above, less the number of shares issued
under the Employee Stock Plans after the effective date of the
Incentive Plan, or which are subject to outstanding awards under the
Employee Stock Plans, plus the number of any shares surrendered to the
Company in payment of the exercise price of options issued under either
of the Employee Stock Plans; or
(ii) 5,000,000.
17
<PAGE> 20
ADMINISTRATION
The Incentive Plan is administered by the Compensation Committee. The
directors comprising the Compensation Committee are considered "outside
directors" as that term is defined for purposes of Section 162(m) of the Code.
In order for a director to be considered an "outside director," such director
may not be a current employee of the Company, a former employee of the Company
who receives compensation for prior services during the taxable year or an
officer of the Company, and may not receive remuneration from the Company in any
capacity other than as a director. Members of the Compensation Committee are not
eligible to receive Awards under the Incentive Plan. The Compensation Committee
will have sole discretion to determine those individuals to whom Awards will be
granted, the types and number of awards granted, the terms and conditions of
each Award, the number of shares covered by each Award, and the time periods
during which Awards may be exercisable, and to make any other determination and
take any other action that it deems necessary or desirable for the
administration of the Incentive Plan; provided, however, that no participant in
the Incentive Plan may receive stock or stock based Awards to acquire more than
500,000 shares of Common Stock during any one fiscal year.
The Compensation Committee may grant the following Awards, subject to the
terms and conditions described below.
(1) Options
The Compensation Committee will grant options with an exercise price per
share equal to the fair market value of a share on the date of grant unless the
Compensation Committee determines otherwise, provided that the exercise price
per share under an incentive stock option will not be less than 100% of the fair
market value of a share on the date of grant. The exercise price of each
incentive stock option granted to any stockholder possessing more than 10% of
the combined voting power of all classes of capital stock of the Company or a
parent of subsidiary of the Company on the date of grant must not be less than
110% of the fair market value on the date of grant.
Non-qualified options granted will be exercisable for a term as determined
by the Compensation Committee, but generally will not exceed ten years from the
date of grant. Incentive stock options granted will be exercisable for a term of
not more than ten years from the date of grant, or not more than five years in
the case of a 10% stockholder as described in the preceding paragraph. The
Compensation Committee shall determine the events upon which the unexercised
portion of any option will terminate.
No participant may be granted incentive stock options to the extent the
aggregate fair market value, as of the date of grant, of the shares with respect
to which incentive stock options are first exercisable by such participant
during any calendar year exceeds $100,000.
In the case of a "change in control" of the Company, the Board may, in its
sole discretion, determine on a case by case basis, that each option granted
under the Incentive Plan will terminate 30 days after the occurrence of such
"change in control," but, in the event of any such termination an option holder
will have the right, exercisable during the 30 day period prior to the "change
in control" and, in certain cases as described in the Incentive Plan, within 30
days after the "change in control," to exercise in whole or in part his options
without regard to the vesting provisions applicable to such options. "Change in
control," which is defined more specifically in the Incentive Plan, generally
means (i) the acquisition of beneficial ownership by any person, other than the
Company, of securities of the Company representing a majority or more of the
combined voting power of the Company's then outstanding securities, (ii) the
failure of the individuals who presently constitute the Board (the "Incumbent
Board") to constitute at least a majority thereof, provided that any director
whose election has
18
<PAGE> 21
been approved in advance by the directors representing at least two-thirds (2/3)
of the directors comprising the Incumbent Board shall be considered for these
purposes as though such director was a member of the Incumbent Board, (iii) the
approval by the stockholders of the Company and the completion of a merger or
consolidation of the Company with any other corporation, other than a merger or
consolidation which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent at least a
majority of the combined voting power of the voting securities of the Company or
such surviving entity outstanding immediately after such merger or
consolidation; or (iv) the approval by the stockholders of the Company and the
completion of a plan of complete liquidation of the Company or an agreement for
the sale or disposition by the Company of all or substantially all of the
Company's assets.
(2) Stock Appreciation Rights
The Compensation Committee may grant stock appreciation rights which will
confer upon the participant a right to receive, upon exercise of the grant, the
difference between the fair market value of one share of Common Stock on the
date of exercise and the fair market value of one share of Common Stock on the
date of grant of the right. The Company may, at its election, pay such
difference in cash or in shares of Common Stock valued at the fair market value
of the Common Stock on the day preceding the date of payment. The grant price,
term, methods of exercise, methods of settlement, and any other terms and
conditions shall be as determined by the Compensation Committee. No aggregate
payment by the Company during any fiscal year upon the exercise of stock
appreciation rights may exceed $100,000 without Compensation Committee approval
ratified by the Board and a participant may not exercise a stock appreciation
right if the aggregate amount to be received as a result of his exercise of
stock appreciation rights in the preceding 12 months exceeds his then current
base salary.
(3) Stock Awards
The Compensation Committee may grant participants Awards that are
denominated or payable in, or otherwise based on shares of Common Stock as are
deemed by the Compensation Committee to be consistent with the purposes of the
Incentive Plan. These stock awards may include, but are not limited to, an Award
of an option, restricted stock or restricted stock units, stock appreciation
rights, and dividend equivalents. The Compensation Committee may grant
restricted stock in shares of Common Stock and restricted stock unit awards,
which are rights denominated in shares of Common Stock, subject to forfeiture
and other restrictions determined by the Compensation Committee. Such
restrictions may lapse separately or in combination, at such times and in such
installments, as the Compensation Committee may deem appropriate. Except as
otherwise determined by the Compensation Committee, until the restrictions
lapse, the shares will be forfeited upon the employee's termination of
employment (as determined under criteria established by the Compensation
Committee) for any reason during the applicable restriction period. Upon lapse
of the restriction, the shares will be delivered to the participant. The terms
and conditions of such stock awards and stock based awards, as well as the
consideration and method of payment for such shares, shall be as determined by
the Compensation Committee.
(4) Performance Awards
The Compensation Committee may grant performance awards to participants
which may be denominated as a stock award or a stock based award and which may
be payable in cash, shares of Common Stock, other securities, or other property,
and shall confer on the holder rights valued as determined by the Compensation
Committee and shall be payable to or exercisable by the holder of the award, in
whole or in part, upon the achievement of performance goals as established by
the Compensation Committee.
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<PAGE> 22
OTHER PROVISIONS APPLICABLE TO AWARDS
The Compensation Committee may grant Awards separately, or in addition to,
in tandem with, or in substitution for any other Award granted under the
Incentive Plan or any award granted under any other plan of the Company or any
affiliate. Awards granted in addition to or in tandem with other Awards under
the Incentive Plan, or in addition to or in tandem with awards granted under any
other plan of the Company or any affiliate may be granted at the same or
different times. However, any non-qualified option issued in tandem with a stock
appreciation right (a "tandem option") is subject to the following provisions.
Upon exercise of an option issued as part of a "tandem option," the participant
will be entitled to a credit toward the option exercise price equal to the value
of the stock appreciation right issued in tandem with the option exercised, but
not in an amount that would exceed the amount of the federal income tax
deduction allowed to the Company with respect to the stock appreciation right.
Upon exercise of such a tandem option, the stock appreciation right shall
terminate and the value of such right will be limited to the credit. Upon the
exercise of a "tandem option," the stock appreciation right issued as part of a
"tandem option," the option to which such stock appreciation right relates shall
cease to be exercisable to the extent of the number of shares of Common Stock
with respect to which the stock appreciation right was exercised.
Payment or transfers made by the Company upon the grant or exercise of an
Award may be made in whatever form as the Compensation Committee determines,
including but not limited to cash, shares, other securities, other awards, or
other property, or any combination thereof. The term of each Award will be for
the period as may be determined by the Compensation Committee, except for
non-qualified stock options and incentive stock options as described above.
Transferability
Awards granted under the Incentive Plan may be subject to adjustment upon a
recapitalization, stock split, stock dividend, merger, reorganization,
liquidation, extraordinary dividend, or other similar event affecting the Common
Stock. Awards (other than restricted stock with respect to which all applicable
restrictions have expired, lapsed, or been waived, hereinafter referred to as
"released stock") will not be transferable, other than by will or the laws of
descent and distribution, provided however, that a participant may designate a
beneficiary or beneficiaries to exercise his rights and to receive any property
distributable with respect to any Award upon his death. Each Award (other than
released stock) may be exercised, during the lifetime of the holder of the
Award, only by the holder, or, if permissible under applicable law, by the
holder's guardian or legal representative.
Termination and Amendment
The Incentive Plan will terminate upon the earliest of the date on which
all stock awards and all stock based awards issuable under the Incentive Plan
have been issued, the termination of the Incentive Plan by the Board or May 23,
2007. Any Awards outstanding at the time of termination of the Incentive Plan
will continue in full force and effect according to the terms and conditions of
the Award and the Incentive Plan.
The Incentive Plan may be amended or terminated by the Board, provided
however, that no amendment or termination may be effected without the approval
of the stockholders if such amendment or termination would increase the total
number of shares available for Awards under the Incentive Plan, materially
increase the benefits accruing to participants under the Incentive Plan,
materially modify the requirements as to eligibility, or where shareholder
approval would be required under Section 422 of the Code in order for incentive
stock options to qualify thereunder or under Section 162(m) of the Code. No
amendment may impair any rights of any holder of an Award previously granted
under the Incentive Plan without the holder's consent.
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<PAGE> 23
FEDERAL INCOME TAX CONSEQUENCES OF THE INCENTIVE PLAN
Non-Qualified Stock Options. The issuance of a non-qualified stock option under
the Incentive Plan will not generally result in any taxable income to the
recipient employee or a tax deduction to the Company at the time of grant.
Generally, the employee to whom a non-qualified stock option has been granted
will recognize ordinary income at the time the employee exercises the option and
receives shares of Common Stock in an amount equal to the excess of the fair
market value of such shares on the date of exercise over the option price. The
Incentive Plan is not considered to be tax-qualified under Section 401(a) of the
Code.
Notwithstanding the foregoing, upon the exercise of a non-qualified stock
option by a person subject to Section 16 of the Exchange Act ("Section 16"), the
acquisition date of the shares of Common Stock for federal income tax purposes
and the time of recognition of income will be postponed as long as the sale of
the shares of Common Stock could subject the person to suit under the "short
swing profit" provisions of Section 16, unless such person elects to be taxed on
the date of exercise. Furthermore, the amount of income recognized by the
recipient will be the excess of the fair market value of such shares of Common
Stock at the end of the postponement period (rather than at the date of
exercise) over the option price.
The Company is generally entitled to a tax deduction corresponding to the
amount of income recognized by the employee as a result of the exercise of a
non-qualified stock option for the year in which the employee recognizes such
income for federal income tax purposes.
Incentive Stock Options. Neither the receipt nor exercise of an incentive stock
option is a taxable event to the employee and if the employee does not dispose
of the shares of Common Stock acquired under an incentive stock option prior to
the expiration of the requisite holding periods described below, any gain
resulting from the sale of such shares will be long-term capital gain. In such
case, the Company would not be entitled to any tax deduction with respect to the
grant or exercise of the option. The difference between the fair market value of
the shares of the Common Stock on the date of exercise and the option price is a
tax preference item which may cause the employee to incur an alternative minimum
tax in the year of exercise. The minimum statutory holding periods are two years
from the date the option is granted and one year from the date of the exercise
of the incentive stock option. The statutory holding period for incentive stock
options is waived in the event of the employee's death.
If the shares of Common Stock are disposed of before the end of either of
such statutory holding periods (a "disqualifying disposition"), the lesser of
(i) the difference between the option price and the fair market value of such
shares on the date of exercise, or (ii) the total amount of gain realized on the
sale must be reported by the employee as ordinary income and the Company would
generally be entitled to a tax deduction in that amount. The remaining gain, if
any, would be taxed to the employee as capital gain.
Notwithstanding the foregoing, if the employee is subject to Section 16 at
the time of a disqualifying disposition, the acquisition date of the shares and
the time of recognition of income will be postponed as long as the sale of
shares could subject the employee to suit for "short swing profit," unless he
elects to be taxed immediately. In addition, the amount of income recognized
will be the lesser of (i) the difference between the option price and the fair
market value of such shares at the end of the postponement period (rather than
at the date of exercise), or (ii) the total amount of gain realized on the sale.
Stock Appreciation Rights. There will be no federal income tax consequences to
the employee or the Company upon the grant of a stock appreciation right or
during the period that the right remains unexercised. Upon the exercise of a
right, the employee will realize ordinary income in an amount equal to the cash
and/or the then fair market value of the shares of Common Stock received upon
exercise of the right and the Company will normally be entitled to a
corresponding federal income tax deduction. If stock so acquired is later sold
or exchanged, the
21
<PAGE> 24
difference between the sale price and the fair market value of Common Stock on
the date the individual was taxed will be taxable as capital gain or loss.
If the recipient of stock appreciation rights would be subject to potential
liability under Section 16 for the sale of shares of Common Stock acquired upon
exercise of such stock appreciation right, such individual will not be taxed
until the date when such sale would no longer subject the individual to such
potential liability and the amount of ordinary income recognized will be
determined on the basis of the fair market value of the stock on that date,
unless the individual elects (within 30 days after exercise) to include in
income an amount based upon the fair market value of the shares of Common Stock
received upon exercise of the stock appreciation right at the time of such
exercise. In the event taxation is postponed, the amount of income recognized by
the participant will be the fair market value of such shares of Common Stock at
the end of the postponement period.
Restricted Stock. Generally, an employee to whom a restricted stock award is
made will recognize ordinary income for federal income tax purposes in an amount
equal to the excess of the fair market value of the shares of Common Stock
received at the time the shares first become transferable or are no longer
subject to a substantial risk of forfeiture, over the purchase price, if any,
paid by the recipient for such Common Stock, and such amount will generally then
be deductible for federal income tax purposes by the Company. For tax purposes,
in addition to other restrictions, the Common Stock is considered to be subject
to a substantial risk of forfeiture as long as the sale of the shares could
subject the recipient to suit under the "short swing profit" provisions of
Section 16. Alternatively, if the recipient of a restricted stock award so
elects, the recipient will recognize ordinary income on the date of grant in an
amount equal to the excess of the fair market value of the shares of Common
Stock (without taking into account any lapse restrictions) on such date, over
the purchase price, if any, paid by the recipient for such Common Stock, and
such amount will generally then be deductible by the Company.
In the event of the forfeiture of the Common Stock included in a restricted
stock award, the employee will not be entitled to any deduction except to the
extent the individual paid for such Common Stock. Upon a sale of the Common
Stock included in the restricted stock award, the employee will recognize
capital gain or loss, as the case may be, equal to the difference between the
amount realized from such sale and the employee's tax basis for such shares of
Common Stock.
Performance Awards. The federal income tax consequences and Section 16
restrictions will generally be the same for performance awards as the underlying
grant of options, restricted stock awards, stock appreciation rights, or other
stock based awards. A recipient of Awards payable in cash or shares of Common
Stock will generally recognize ordinary income for federal income tax purposes
in an amount equal to the amount of cash and/or the then fair market value of
the shares of Common Stock received, in the tax year in which received, and the
Company will normally be entitled to a tax deduction for an equivalent amount
for the same year. However, if receipt of a performance award would be subject
to potential liability under Section 16 for the sale of shares received upon
exercise of an Award, the acquisition date of the shares of Common Stock for
federal income tax purposes, and the time and measurement of recognition of
income, will be postponed as long as a sale of the shares of Common Stock could
subject the participant to suit under the "short swing profit" provisions of
Section 16, unless the employee elects to be taxed on the date he receives the
shares of Common Stock.
Limitation on Company Deduction. Section 162(m) of the Code will generally limit
to $1,000,000 the Company's federal income tax deduction for compensation paid
in any year to its chief executive officer and its four highest paid executive
officers, to the extent that such compensation is not "performance based." Under
applicable Treasury regulations, and subject to certain transition rules, a
stock option or stock appreciation right will, in general, qualify as
"performance based" compensation if it (i) has an exercise price of not less
than the fair market value of the underlying stock on the date of grant, (ii) is
granted under a plan that limits the number of
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<PAGE> 25
shares for which options may be granted to an employee during any one year,
which plan is approved by a majority of the stockholders entitled to vote
thereon, and (iii) is granted by a compensation committee consisting solely of
at least two independent directors. The terms of the Incentive Plan and the
composition of the Compensation Committee are intended to comply with these
regulations relating to stock options. Other stock awards or stock based awards,
however, will not generally qualify as "performance based" compensation unless
the vesting or purchase of the restricted stock bonus is contingent upon
satisfying a separate performance goal or unless such stock awards are granted
during the "reliance period" applicable to private companies that become public.
NEW PLAN BENEFITS TABLE
For each of the Named Executive Officers and the indicated groups, the
following table sets forth (i) the aggregate number of shares of Common Stock
subject to options granted under the Incentive Plan during fiscal 1997 and (ii)
the weighted average exercise price per share of the options granted.
<TABLE>
<CAPTION>
==============================================================================================
NAME AND POSITION AVERAGE PER SHARE PRICE ($) NUMBER OF SHARES
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Theodore F. Savastano,
Chairman of the
Board of Directors $0 0
Chet S. Ross,
Executive Officer and
President $0 0
Michael J. Vantusko,
Chief Financial
Officer $0 0
L. Dean Hertert, Jr.
Vice President $0 0
Dr. Hans F. Larsson
Vice President $0 0
Executive Group $0 0
Non-Executive Director
Group $0 0
Non-Executive Officer
Employee Group $0 0
</TABLE>
RECOMMENDATION
The Board recommends a vote FOR approval of the Incentive Plan.
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<PAGE> 26
III.
APPROVAL OF THE EMPLOYEE STOCK PURCHASE PLAN OF THE COMPANY
The Employee Stock Purchase Plan of Waterlink, the terms of which were
disclosed previously in the prospectus of the Company issued in connection with
the Initial Public Offering, was approved by the Board and stockholders in May
1997, and the First Amendment to the Employee Stock Purchase Plan of Waterlink
was approved by the Board and Stockholders on June 23, 1997, prior to the
Initial Public Offering (the Employee Stock Purchase Plan of Waterlink, as
amended by the First Amendment, is referred to herein as the "Stock Purchase
Plan"). The Company is seeking stockholder approval of the Stock Purchase Plan
again because such approval subsequent to the Initial Public Offering is
necessary for the Stock Purchase Plan to satisfy the requirements of Section
162(m) of the Code with respect to options granted after the expiration of the
"reliance period" applicable to private companies that become public. If
stockholder approval is not obtained, the Employee Stock Purchase Plan will
terminate following the expiration of such "reliance period." Any Awards
outstanding at the time of termination of the Employee Stock Purchase Plan will
continue in full force and effect. The following is a brief description of the
material features of the Stock Purchase Plan; such description is qualified in
its entirety by reference to the full text of the Stock Purchase Plan which is
attached hereto as Exhibit B and Exhibit C.
NUMBER OF OPTIONS
There are reserved for issuance upon the exercise of options to be granted
under the Stock Purchase Plan an aggregate of 500,000 shares of Common Stock,
subject to adjustment upon the occurrence of certain specific capitalization
events.
PURPOSE
The Stock Purchase Plan is intended to encourage eligible employees of the
Company and its current and future subsidiaries to acquire or increase their
ownership of Common Stock on reasonable terms, and to foster a strong incentive
to put forth maximum effort for the continued success and growth of the Company,
as well as to aid in retaining individuals who put forth such efforts, and to
assist in attracting the best available individuals to the Company. The Stock
Purchase Plan is intended to qualify as an "employee stock purchase plan" under
Section 423 of the Code and is not subject to any provisions of ERISA.
ADMINISTRATION
The Stock Purchase Plan is administered by the Compensation Committee. The
members of the Compensation Committee are considered "non-employee directors" as
required by Rule 16b-3 of the Exchange Act. The Compensation Committee has full
discretion to determine when offerings will be made, the number of shares of
Common Stock to be made available in any offering, the length of the period
during which employees may elect to participate in any offering (the
"Subscription Period") and the period during which contributions of the option
price must be paid (the "Purchase Period"), and such other terms and conditions
as may be necessary or appropriate, to interpret the Stock Purchase Plan, and to
prescribe, amend and rescind rules and regulations relating to the Stock
Purchase Plan. The Compensation Committee may exclude the employees of any
specific subsidiary from any offering made under the Stock Purchase Plan and may
determine not to include certain highly compensated employees.
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<PAGE> 27
ELIGIBILITY AND TERMS
The Stock Purchase Plan provides for the granting of stock options to
current and future employees of the Company and its subsidiaries. Employees
eligible to participate in the Stock Purchase Plan are individuals employed by
the Company, or any of its current or future subsidiaries designated by the
Compensation Committee to participate in the Stock Purchase Plan, on the first
day of the Subscription Period of any offering of shares made under the Stock
Purchase Plan, provided that such individual is normally employed by the Company
or any of its subsidiaries for more than twenty hours per week and more than
five months in a calendar year, and has been employed by the Company of any of
its subsidiaries for at least six months as of the first day of the Subscription
Period of any offering.
Each eligible employee who elects to purchase shares in an offering made
under the Stock Purchase Plan will automatically be granted an option to
purchase a fixed maximum number of shares of Common Stock. The number of shares
granted under an option is determined by dividing the aggregate amount the
employee has elected to contribute, by the exercise price of the option.
Contributions may be made by payroll deduction, from both regular and bonus pay,
as well as by cash payments under certain circumstances. Such contributions
shall be subject to the claims of the Company's general creditors until used to
purchase shares on the last day of the Purchase Period as described below. No
employee may elect to purchase shares during any offering for an aggregate
purchase price in excess of the lesser of the percentage of the annual
compensation applicable to the offering as determined by the Committee, or 20%
of his annual compensation. Annual compensation for this purpose includes
bonuses paid within the 12 months preceding the Purchase Period plus the
employee's annual base rate of compensation as of the first day of the
Subscription Period. In addition, no employee shall be granted an option to
purchase shares under the Stock Purchase Plan if the employee, immediately after
the grant, owns five percent or more of the voting power or value of all classes
of stock of the Company. No employee may receive options under the Stock
Purchase Plan, and all other employee stock purchase plans of the Company, its
subsidiary, or parent, to purchase shares of Common Stock with an aggregate fair
market value of more than $25,000 in any one calendar year (determined as of the
date the option is granted).
Each person electing to participate in any offering made under the Stock
Purchase Plan must execute and deliver to the Company an election agreement
which indicates the amount to be deducted from each pay for each payroll period,
as well as any deductions to be made from any bonus payments. Employees electing
to participate in the Stock Purchase Plan will be granted an option on the first
day of the Purchase Period of any offering to purchase shares of Common Stock on
the last day of the Purchase Period. If the number of shares available to grant
under the Stock Purchase Plan on a scheduled date of grant is insufficient to
make all the grants, then each employee who elected to participate will receive
an option to purchase a pro rata number of the available shares, based on the
amount of subscriptions received.
If the sum of the amount deducted from bonus payments as elected by the
employee and the sum of all payroll deductions is less than the total amount of
the employee's election to purchase shares made during the Subscription Period,
the employee may make a cash payment in the amount of the difference. The
employee may make one election to cancel any election to have an amount deducted
from any bonus payment and may then elect to make increased payroll deduction
installment payments, provided that the total of all such installment payments
and all cash payments, do not exceed the total amount of his election to
purchase shares made during the Subscription Period. Subject to certain
limitations set forth in the Stock Purchase Plan, an employee is permitted, at
any time prior to the end of the Purchase Period applicable to the offering, to
terminate or reduce his payroll deductions, to reduce his options to purchase
shares or to withdraw all or part of the amount in his account.
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<PAGE> 28
An employee who is granted a leave of absence or who is laid off during a
Purchase Period may elect to suspend payments or may make installment payments
in cash. If the employee suspends payments, he must make up the deficiency in
his account either by immediate lump sum cash payment or with increased
installment payments so that payment for the maximum number of shares covered by
his option will be completed in the last month of the Purchase Period. If the
employee does not return to active service upon the expiration of his leave or
within 90 days from the date of his layoff, his election to purchase shall be
deemed to have been canceled at that time, and his only right will be to receive
in cash the amount credited to his account.
If in any payroll period, for reasons other than leave of absence or
layoff, an employee who has elected to participate has no pay, or has
insufficient pay (after other authorized deductions) to permit deduction of his
installment payment, such payment may be made in cash at that time. If not so
made, the Company may treat such failure as a cancellation of the employee's
election to purchase shares. If the Company does not treat such failure as a
cancellation of the employee's election to purchase shares, the employee, when
his pay is again sufficient to permit the resumption of installment payments,
must pay in cash the amount of the deficiency in his account, or arrange for
uniformly increased installment payments so that payment for the maximum number
of shares covered by his option will be completed in the last month of the
Purchase Period.
The options granted under the Stock Purchase Plan will automatically be
exercised as of the close of business on the last business day of the Purchase
Period of any offering of shares made under the Stock Purchase Plan. Upon the
exercise of an option, the aggregate amount of payroll and bonus deductions, and
cash payments credited to the account of each employee as of such date will be
applied to the exercise price for the purchase of that number of shares equal to
the amount credited to the employee's account, divided by the exercise price,
not to exceed the maximum number of shares issuable under the option. The
purchase price will be 85% of the fair market value of the shares on the first
day of the Purchase Period of the offering, unless the Compensation Committee
determines otherwise. A certificate representing the shares so purchased shall
be delivered to the employee as soon as reasonably practicable after the
exercise of the option. Any remainder not applied to purchase shares shall be
paid in cash to the employee. An employee will become a stockholder of the
Company with respect to shares for which payment has been completed on the last
business day of the Purchase Period and will have no rights as a stockholder
with respect to such shares until such time.
If an employee dies or retires, and if such person has an election to
purchase shares of Common Stock in effect at the time of his retirement or
death, he, or in the event of death, his beneficiary or the legal representative
of his estate (his "Successor"), within three months after the date of his
retirement or death, but not later than the end of the Purchase Period, may
elect to complete the remaining installment payments in cash, make a lump sum
payment in the amount of any deficiency for the remaining portion of the
Purchase Period, or may cancel his election to purchase shares of Common Stock.
If no notice is given, the election will be deemed canceled as of the date of
retirement or death and the employee or his Successor, will receive in cash the
amount credited to his account. If the employee terminates employment for any
reason other than retirement or death prior to the end of the Purchase Period,
his election to purchase shares shall thereupon be deemed canceled as of the
date on which his employment terminated. No further payments will be permitted
and the employee will receive in cash the amount credited to his account.
Options granted under the Stock Purchase Plan will be subject to adjustment
upon a recapitalization, stock split, stock dividend, merger, reorganization,
liquidation, extraordinary dividend, or other similar event affecting the
Company. Options will not be transferable other than by will or pursuant to the
laws of descent and distribution or pursuant to a qualified domestic relations
order, and will be exercisable during the lifetime of the holder only by the
holder or, in the event of death, by the holder's Successor.
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<PAGE> 29
Upon an "unusual corporate event," such as a liquidation, merger,
reorganization, or other business combination, acquisition or change in control
of the Company as defined in the Stock Purchase Plan, the Compensation Committee
may, in its sole discretion elect to terminate the Purchase Period of any
offering then in effect as of the last day of the month during which the
"unusual corporate event" occurs. In the event of any such termination, a holder
will have the right, beginning at least five days prior to such event, to either
make a lump sum payment in the amount equal to the remaining payments to be made
pursuant to his election to purchase shares, or to cancel his election to
purchase shares of Common Stock.
The Stock Purchase Plan will terminate on May 23, 2007, and options may not
be granted under the Stock Purchase after such date, although the terms of any
option may be amended in accordance with the Stock Purchase Plan at any date
prior to the end of the term of such option. Any options outstanding at the time
of termination of the Stock Purchase Plan will continue in full force and effect
according to the terms and conditions of any such option and the Stock Purchase
Plan.
The Stock Purchase Plan may be amended by the Board, provided that
stockholder approval will be necessary if required under Rule 16b-3 ("Rule
16b-3") of the General Rules and Regulations of the Exchange Act or Section 423
of the Code, and no amendment may impair any of the rights of any holder of an
option previously granted under the Stock Purchase Plan without the holder's
consent.
FEDERAL INCOME TAX CONSEQUENCES OF THE STOCK PURCHASE PLAN
Options. An employee will not be required to recognize income at the time an
option is granted, or at the time the option is exercised. If as currently
contemplated by the Stock Purchase Plan, the option price applicable to any
offering is less than the fair market value of the Common Stock on the date of
grant, then, provided the holding periods described below are met, upon the
disposition of the Common Stock by the employee (or in the event of the death of
the employee while owning such Common Stock whether or not the holding period
requirements are met), the employee will recognize compensation income (taxed as
ordinary income) in an amount equal to the lesser of (i) the excess of the fair
market value of the Common Stock at the time of such disposition or death over
the option price; or (ii) the excess of the fair market value of the Common
Stock on the date the option is granted over the option price. Any additional
gain or any loss resulting from the disposition will be taxed as long-term
capital gain or loss. The Company will not be entitled to any deduction with
respect to options granted under the Stock Purchase Plan except in connection
with a disqualifying disposition as discussed below. The Stock Purchase Plan is
not considered to be tax-qualified under Section 401(a) of the Code.
In order for an employee to receive the favorable tax treatment described
above, the employee may not sell the Common Stock within two years from the date
the option was granted nor within one year from the date the option was
exercised and the Common Stock was received. If an employee sells the Common
Stock acquired pursuant to the Stock Purchase Plan before the expiration of
these holding period requirements, the employee will recognize, at the time of
the sale, ordinary compensation income in an amount equal to the excess of the
fair market value of the Common Stock on the date the option was exercised over
the option price. The amount recognized as ordinary compensation income will
increase the employee's basis in such shares. The balance of gain or loss
resulting from the sale will be taxed as capital gain or loss. At the time of
the disqualifying sale, and subject to the $1,000,000 annual deduction
limitation for compensation paid to certain highly compensated employees of
public companies and the satisfaction by the Company of any withholding or
reporting obligations, the Company would be allowed a deduction equal to the
amount included in the employee's income as ordinary compensation income.
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<PAGE> 30
Notwithstanding the foregoing, upon the exercise of a stock option by a
person subject to Section 16, the acquisition date of the shares of Common Stock
for federal income tax purposes and the time of recognition of income will be
postponed as long as the sale of the shares of Common Stock could subject the
person to suit under the "short swing profit" provisions of Section 16, unless
such person elects to be taxed on the date of exercise. Furthermore, the amount
of income recognized by the employee will be the excess of the fair market value
of such shares of Common Stock at the end of the postponement period (rather
than at the date of exercise) over the option price.
Certain acquisitions of shares issued under the Stock Purchase Plan, which
would otherwise be considered purchases for Section 16(b) purposes, are exempt
from liability. Accordingly, the grant of an option under the Stock Purchase
Plan is exempt from liability for Section 16(b) purposes if (i) the transaction
is approved the Board or a committee of the Board that is composed solely of two
or more non-employee directors (as defined in Rule 16b-3), (ii) the transaction
is approved in advance, or subsequently ratified not later than the date of the
next annual meeting of stockholders, by stockholders, or (iii) a period of at
least six months elapses between the date of grant of the option and the date of
sale of the underlying shares acquired upon exercise of such option. The
acquisition of shares upon the exercise of an option is also exempt from
liability for Section 16(b) purposes if the option is "in-the-money" at the time
of exercise.
NEW PLAN BENEFITS TABLE
For each of the Named Executive Officers and the indicated groups, the
following table sets forth (i) the aggregate number of shares of Common Stock
which were purchased under the Stock Purchase Plan during fiscal 1997 and (ii)
the weighted average per share purchase price for such shares.
<TABLE>
<CAPTION>
==============================================================================================
NAME AND POSITION AVERAGE PER SHARE PRICE ($) NUMBER OF SHARES
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Theodore F. Savastano,
Chairman of the Board of
Directors $0.00 0
Chet S. Ross,
Executive Officer and
President $9.35 962
Michael J. Vantusko,
Chief Financial Officer $0.00 0
L. Dean Hertert, Jr.
Vice President $9.35 1,497
Dr. Hans F. Larsson
Vice President $9.35 385
Executive Group $9.35 2,844
Non-Executive Director
Group $0.00 0
Non-Executive Officer
Employee Group $9.35 41,407
</TABLE>
RECOMMENDATION
The Board recommends a vote FOR approval of the Stock Purchase Plan.
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<PAGE> 31
IV.
RATIFICATION OF INDEPENDENT CERTIFIED PUBLIC AUDITORS
At the Annual Meeting, the stockholders of the Company will be asked to
ratify the appointment of the independent public auditors of the Company.
The Company's financial statements for the fiscal year ended September 30,
1997 have been examined by the firm of Ernst & Young LLP, independent certified
public auditors. Ernst & Young LLP have been the independent certified public
auditors of the Company since the Company's inception. Representatives of Ernst
& Young LLP are expected to be present at the Annual Meeting to make a statement
if they so desire and they are expected to be available to respond to
appropriate questions.
RECOMMENDATION
The Board recommends a vote FOR the ratification of the appointment of
Ernst & Young LLP as independent public auditors of the Company.
OTHER BUSINESS
The only business to come before the Annual Meeting of which management is
aware is set forth in this Proxy Statement. If any other business properly is
presented for action, it is intended that discretionary authority to vote the
proxies shall be exercised in respect thereof.
ANNUAL REPORTS AND FINANCIAL STATEMENTS
The Annual Report to Stockholders and Form 10-K of the Company for the year
ended September 30, 1997 is being furnished simultaneously herewith. Such report
and the financial statements included therein are not to be considered a part of
this Proxy Statement.
Upon the written request of any stockholder, management will provide, free
of charge, a copy of the exhibits to the Company's Annual Report on Form 10-K
for the fiscal year ended September 30, 1997. Requests should be directed to
Secretary, Waterlink, Inc., 4100 Holiday Street, N.W., Canton, Ohio 44718-2532.
STOCKHOLDER PROPOSALS FOR THE 1998 ANNUAL MEETING
The Company intends to hold its 1998 annual meeting of stockholders in
January 1999. In order for a stockholder proposal to be included in next year's
proxy statement, it must be received by the Secretary of the Company at its
offices, 4100 Holiday Street, N.W., Canton, Ohio 44718-2532, by September 15,
1998.
EXPENSES OF SOLICITATION
All expenses relating to the solicitation of proxies will be paid by the
Company. Solicitation will be made principally by mail, but officers and regular
employees may solicit proxies by telephone or personal contact with nominal
expense to the Company. The Company will reimburse brokers, banks, and other
nominees who hold Common Stock in their names for their reasonable expenses in
forwarding proxy material to beneficial owners thereof.
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<PAGE> 32
MANAGEMENT RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE NOMINEES TO THE
BOARD NAMED HEREIN; FOR PROPOSAL II (THE APPROVAL OF THE WATERLINK, INC. 1997
OMNIBUS INCENTIVE PLAN); FOR PROPOSAL III (THE APPROVAL OF THE EMPLOYEE STOCK
PURCHASE PLAN OF WATERLINK, INC.; AND FOR PROPOSAL IV (THE RATIFICATION OF THE
APPOINTMENT OF ERNST & YOUNG LLP).
ALL STOCKHOLDERS ARE URGED TO MARK, SIGN AND SEND IN THEIR PROXIES WITHOUT
DELAY IN THE ENCLOSED ENVELOPE. PROMPT RESPONSE IS HELPFUL AND YOUR COOPERATION
WILL BE APPRECIATED.
By Order of the Board of Directors
KATHLEEN S. DONATINI, Secretary
December 3, 1997
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<PAGE> 33
EXHIBIT A
WATERLINK INC.
1997 OMNIBUS INCENTIVE PLAN
SECTION 1. PURPOSE
The purposes of this Waterlink Inc. 1997 Omnibus Incentive Plan (the
"Plan") are to encourage selected employees, directors or consultants of
Waterlink Inc. (together with any successor thereto, the "Company") and its
Affiliates (as defined below) to acquire a proprietary interest in the growth
and performance of the Company, to generate an increased incentive to contribute
to the Company's future success and prosperity, thus enhancing the value of the
Company for the benefit of its stockholders, and to enhance the ability of the
Company and its Affiliates to attract and retain qualified individuals upon
whom, in large measure, the sustained progress, growth and profitability of the
Company depend.
SECTION 2. DEFINITIONS
As used in the Plan, the following terms shall have the meanings set forth
below:
(a) "Affiliate" shall mean any entity that, directly or through one or
more intermediaries, is controlled by, controls or is under common control
with the Company.
(b) "Award" shall mean any Option, Stock Appreciation Right,
Restricted Stock, Restricted Stock Unit, Performance Award, Dividend
Equivalent, or other Stock Award or Stock-Based Award granted under the
Plan.
(c) "Award Agreement" shall mean a written agreement, contract, or
other instrument or document evidencing an Award granted under the Plan.
(d) "Board" shall mean the Board of Directors of the Company.
(e) "Cause" shall mean (i) the Participant's willful misconduct, gross
negligence or dishonesty in the performance of his or her duties on behalf
of the Company, (ii) the neglect, failure or refusal of the Participant to
carry out any reasonable request of the Board or other officer or
supervisor having supervisory authority over the Participant, (iii) the
material breach of any provision of any employment, consulting or other
services contract between the Participant and the Company, (iv) the
entering of a plea of guilty or nolo contendere to, or the Participant's
conviction of, a felony or other crime involving moral turpitude,
dishonesty, theft or unethical business conduct.
(f) "Change in Control" of the Company shall mean (i) the acquisition
of beneficial ownership (as defined in Rule 13d-3 under the Securities
Exchange Act of 1934, as amended (the "Exchange Act")), directly or
indirectly, by any "person" (as such term is used in Sections 13(d) and
14(d) of the Exchange Act), other than the Company, of securities of the
Company representing a majority or more of the combined voting power of the
Company's then outstanding securities, (ii) the failure, for any reason, of
the individuals who presently constitute the Board of Directors (the
"Incumbent Board") to constitute at least a majority thereof, provided that
any director whose election has been approved in advance by directors
representing at least two-thirds (2/3) of the directors comprising the
Incumbent Board shall be considered, for these purposes, as though such
director were a member of the Incumbent Board, (iii) the stockholders of
the Company approve a merger or consolidation of the Company with any other
corporation, other than a merger or consolidation which would result in the
voting securities of the Company outstanding immediately
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prior thereto continuing to represent (either by remaining outstanding or
by being converted into voting securities of the surviving entity) at least
a majority of the combined voting power of the voting securities of the
Company or such surviving entity outstanding immediately after such merger
or consolidation, and such merger or consolidation occurs; or (iv) the
stockholders of the Company approve a plan of complete liquidation of the
Company or an agreement for the sale or disposition by the Company of all
or substantially all of the Company's assets.
(g) "Code" shall mean the Internal Revenue Code of 1986, as amended
from time to time.
(h) "Committee" shall mean a committee of the Board designated by the
Board to administer the Plan and composed of not less than two directors,
each of whom qualifies both as a "disinterested person" within the meaning
of Rule 16b-3 and an "outside director" as that term is defined for
purposes of Section 162(m) of the Code.
(i) "Covered Employee" shall mean an employee of the Company if either
(i) as of the close of the fiscal year, such employee is the chief
executive officer of the Company or is an individual acting in such
capacity, or (ii) the total compensation of such employee for the fiscal
year is required to be reported to shareholders under the Securities
Exchange Act of 1934 by reason of such employee being among the four
highest compensated officers for the taxable year (other than the chief
executive officer).
(j) "Dividend Equivalent" shall mean any right granted under Section
6(d) of the Plan.
(k) "Fair Market Value" means, with respect to the Shares, (a) if the
Shares are listed or admitted for trading on any national securities
exchange or included in The Nasdaq National Market or Nasdaq SmallCap
Market, the last reported sales price of the Shares on the last business
day prior to the date the value is to be determined as reported on such
exchange; (b) if the Shares are not listed or admitted for trading on any
national securities exchange or included in The Nasdaq National Market or
Nasdaq SmallCap Market, the average of the last reported closing bid and
asked quotation for the Shares on the last business day prior to the date
the value is to be determined as reported on the Automated Quotation System
of NASDAQ or a similar service if NASDAQ is not reporting such information;
(c) if the Shares are not listed or admitted for trading on any national
securities exchange or included in The Nasdaq National Market or Nasdaq
SmallCap Market or quoted by NASDAQ or a similar service, the average of
the last reported bid and asked quotation for the Shares on the last
business day prior to the date the value is to be determined as quoted by a
market maker in the Shares (or if there is more than one market maker, the
bid and asked quotation shall be obtained from two market makers and the
average of the lowest bid and highest asked quotation shall be the "Fair
Market Value"); or (d) if the Shares are not listed or admitted for trading
on any national securities exchange or included in The Nasdaq National
Market or Nasdaq SmallCap Market or quoted by NASDAQ and there is no market
maker in the Shares, the fair market value of the Shares as determined by
the Committee in good faith.
(l) "Incentive Stock Option" shall mean an option granted under
Section 6(a) of the Plan that meets the requirements of Section 422 of the
Code or any successor provision thereto.
(m) "Key Employee" shall mean any employee who is a regular employee
of the Company or its present and future Affiliates.
(n) "Non-Qualified Stock Option" shall mean an option granted under
Section 6(a) of the Plan that is not an Incentive Stock Option.
(o) "Option" shall mean an Incentive Stock Option or a Non-Qualified
Stock Option.
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<PAGE> 35
(p) "Participant" shall mean a Key Employee, director or consultant
who has been granted an Award under the Plan.
(q) "Performance Award" shall mean any right granted under Section
6(f) of the Plan.
(r) "Person" shall mean any individual, corporation, partnership,
association, joint-stock company, trust, unincorporated organization, or
government or political subdivision thereof.
(s) "Released Securities" shall mean securities that were Restricted
Securities with respect to which all applicable restrictions have expired,
lapsed, or been waived.
(t) "Restricted Securities" shall mean Restricted Stock or any other
Award under which issued and outstanding Shares are held subject to
restrictions imposed by the terms of the Award.
(u) "Restricted Stock" shall mean any Share granted under Section 6(c)
of the Plan.
(v) "Restricted Stock Unit" shall mean any right granted under Section
6(c) of the Plan that is denominated in Shares.
(w) "Rule 16b-3" shall mean Rule 16b-3 promulgated by the Securities
and Exchange Commission under the Securities Exchange Act of 1934, as
amended, or any successor rule or regulation thereto.
(x) "Shares" shall mean the common stock of the Company, $.01 par
value per share, and such other securities or property as may become the
subject of Awards pursuant to an adjustment made under Section 4(b) of the
Plan.
(y) "Stock Appreciation Right" shall mean any right granted under
Section 6(b) of the Plan.
(z) "Stock Award" shall mean an Award of an Option, Restricted Stock,
or other right or security consisting of or convertible into Shares.
(aa) "Stock-Based Award" shall mean an Award of a Stock Appreciation
Right, Dividend Equivalent, Restricted Stock Unit or other right, the value
of which is determined by reference to Shares.
(bb) "Tandem Option" shall mean a Non-Qualified Option issued in
tandem with a Stock Appreciation Right.
SECTION 3. ADMINISTRATION
(a) Generally. The Plan shall be administered by the Committee. Unless
otherwise expressly provided in the Plan, all designations, determinations,
interpretations and other decisions under or with respect to the Plan or any
Award shall be within the sole discretion of the Committee, may be made at any
time, and shall be final, conclusive and binding upon all Persons, including the
Company, any Affiliate, any Participant, any holder or beneficiary of any Award,
any stockholder of the Company ("Stockholder") and any employee of the Company
or of any Affiliate. Notwithstanding anything to the contrary contained herein,
prior to the date upon which the Company first registers its Shares under
Section 12 of the Securities Exchange Act of 1934, as amended, the Plan may be
administered by the Board of Directors, and the Board shall have all of the
rights, privileges, and authority conferred upon the Committee pursuant to the
Plan.
(b) Powers. Subject to the terms of the Plan and applicable law, the
Committee shall have full power and authority to: (i) designate Participants;
(ii) determine the type or types of Awards to be granted to each Participant
under the Plan; (iii) determine the number of Shares to be covered by (or with
respect to which payments, rights
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<PAGE> 36
or other matters are to be calculated in connection with) Awards; (iv) determine
the terms and conditions of any Award; (v) determine whether, to what extent,
and under what circumstances Awards may be settled or exercised in cash, Shares,
other Awards, or other property, or canceled, forfeited, or suspended, and the
method or methods by which Awards may be settled, exercised, canceled,
forfeited, or suspended; (vi) determine whether, to what extent, and under what
circumstances cash, Shares, other Awards, other property, and other amounts
payable with respect to an Award under the Plan shall be deferred; (vii)
accelerate the vesting of Awards; (viii) amend Awards (subject to Section 8);
(ix) interpret and administer the Plan and any instruments or agreements
relating to, or Award made under, the Plan; (x) establish, amend, suspend, or
waive such rules and regulations and appoint such agents as it shall deem
appropriate for the proper administration of the Plan; and (xi) make any other
determination and take any other action that the Committee deems necessary or
desirable for the administration of the Plan.
(c) Reliance, Indemnification. The Committee may employ attorneys,
consultants, accountants or other persons and the Committee, the Company and its
officers and directors shall be entitled to rely upon the advice, opinions or
valuations of any such persons. No member of the Committee shall be personally
liable for any action, determination or interpretation taken or made in good
faith with respect to the Plan, or Awards made thereunder, and all members of
the Committee shall be fully indemnified and protected by the Company in respect
of any such action, determination or interpretation.
SECTION 4. SHARES AVAILABLE FOR AWARDS
(a) Shares Available. Subject to adjustment as provided in Section 4(b):
(i) LIMITATION ON NUMBER OF SHARES. Awards issuable under the Plan are
limited such that the maximum aggregate number of Shares which may issued
pursuant to, or by reason of, Stock Awards and Stock-Based Awards is
500,000 per Participant in any fiscal year, and the aggregate maximum for
all Participants in all years is the lesser of (x) the greater of (A)
1,750,000 or (B) 12.5% of the number of Shares outstanding from time to
time, calculated on a fully diluted basis (including the maximum number of
Shares that may be issued, or subject to awards, under this Plan and the
Company's 1995 Stock Option Plan (collectively, the "Employee Stock
Plans")); in either case (A) or (B) above, less that number of Shares that
are issued under the Employee Stock Plans after the effective date of this
Plan or are subject to outstanding awards under the Employee Stock Plans
and plus the number of any Shares surrendered to the Company in payment of
the exercise price of options issued under any of the Employee Stock Plans,
or (y) 5,000,000. All or any number of such Shares may be the subject of
Incentive Stock Options, in the sole discretion of the Committee. To the
extent that an Award ceases to remain outstanding by reason of termination
(as opposed to vesting or exercise) of rights granted thereunder,
forfeiture or otherwise, the Shares subject to such Award shall again
become available for Award under the Plan; provided, however, that in the
case of an Award which is terminated or otherwise canceled in the same
fiscal year in which it is granted (or for purposes of determining the
aggregate maximum number of Shares which may be subject to Awards granted
to any Participant during the term of the Plan, an Award is terminated or
otherwise canceled at any time) both the new Award and the terminated Award
shall be counted for purposes of determining whether the Participant has
received the maximum number of Awards permitted under this Plan.
(ii) Accounting for Awards. For purposes of this Section 4, for any
Award which is denominated in, or with respect to, Shares, the number of
Shares covered by such Award, or to which such Award relates, shall be
counted on the date of grant of such Award against the aggregate number of
Shares available for granting Awards under the Plan; provided, however,
that Awards that operate in tandem with (whether granted
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<PAGE> 37
simultaneously with or at a different time from), or that are substituted
for, other Awards may be counted or not counted under procedures adopted by
the Committee in order to avoid double counting. Any Shares that are
delivered by the Company pursuant to any Award, and any Awards that are
granted by, or become obligations of, the Company, through the assumption
by the Company or an Affiliate of, or in substitution for, outstanding
awards previously granted by an acquired company shall be counted against
the Shares available for granting Awards under the Plan.
(iii) Sources of Shares Deliverable Under Awards. Any Shares delivered
pursuant to an Award may consist, in whole or in part, of authorized and
unissued Shares or of treasury Shares.
(b) Adjustments. In the event that the Committee shall determine that any
(i) subdivision or consolidation of Shares, (ii) dividend or other distribution
(in the form of Shares or an extraordinary cash dividend), (iii)
recapitalization or other capital adjustment of the Company or (iv) merger,
consolidation or other reorganization of the Company or other rights to purchase
Shares or other securities of the Company, or other similar corporate
transaction or event described in Treasury Regulation Section
1.162-27(e)(2)(iii)(C), affects the Shares such that an adjustment is determined
by the Committee to be appropriate in order to prevent dilution or enlargement
of the benefits or potential benefits intended to be made available under the
Plan, then the Committee shall, in such manner as it may deem equitable, adjust
any or all of (x) the number and type of Shares (or other securities or
property) which thereafter may be made the subject of Awards, (y) the number and
type of Shares (or other securities or property) subject to outstanding Awards,
and (z) the grant, purchase, or exercise price with respect to any Award or, if
deemed appropriate, make provision for a cash payment to the holder of an
outstanding Award; provided, however, in each case, no such adjustment shall be
authorized to the extent that such adjustment would (i) cause the Plan to
violate Section 422 of the Code, (ii) would constitute a material modification
of the Plan, within the meaning of Treasury Regulation Section
1.162-27(f)(2)(ii) and (h)(1)(iii), prior to the expiration of the "reliance
period" set forth in Treasury Regulation Section 1.162-27(f)(2) or (iii) after
the expiration of said reliance period, would constitute a termination and
reissuance as described in Treasury Regulation Section 1.162-27(e)(2)(vi)(C);
and provided further, however, that the number of Shares subject to any Award
denominated in Shares shall always be a whole number.
SECTION 5. ELIGIBILITY
Eligibility for Awards. Awards may be granted only to Key Employees,
directors or consultants. In determining the employees to whom Awards shall be
granted and the number of shares or units to be covered by each Award, the
Committee shall take into account the nature of employees' duties, their present
and potential contributions to the success of the Company and such other factors
as it shall deem relevant in connection with accomplishing the purposes of the
Plan. A director of the Company or an Affiliate who is not also a Key Employee
will not be eligible to receive an Award. A Key Employee, director or consultant
who has been granted an Award or Awards under the Plan may be granted an
additional Award or Awards, subject to such limitations as may be imposed by the
Code on the grant of Incentive Stock Options. Except as provided in Section
5(b), no member of the Committee shall be eligible to receive an Award under the
Plan. Notwithstanding anything to the contrary herein, Incentive Stock Options
may be granted only to employees of this Company, or its present of future
parent or subsidiary corporations (as defined in Section 424 of the Code).
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<PAGE> 38
SECTION 6. AWARDS
(a) Options. The Committee is hereby authorized to grant Options to
Participants with the following terms and conditions and with such additional
terms and conditions, in either case not inconsistent with the provisions of the
Plan, as the Committee shall determine:
(i) Exercise Price. The purchase price per Share purchasable under an
Option shall be the Fair Market Value of a Share on the date of grant
unless otherwise determined by the Committee; provided however, that the
purchase price per Share purchasable under an Incentive Stock Option shall
not be less than 100% of the Fair Market Value of a Share on the date of
grant of an Incentive Stock Option (110% in the case of an Incentive Stock
Option granted to 10-percent shareholder within the meaning of Code Section
422(c)(5)).
(ii) Option Term. The term of each Non-Qualified Stock Option shall be
fixed by the Committee but generally shall not exceed 10 years from the
date of grant. The term of each Incentive Stock Option shall in no event be
more than 10 years from the date of grant (5 years in the case of a
10-percent shareholder within the meaning of Code Section 422(c)(5)).
(iii) Time and Method of Exercise. The Committee shall determine the
time or times at which an Option may be exercised in whole or in part, and
the method or methods by which, and the form or forms (including, without
limitation, cash, Shares, outstanding Awards or other consideration, or any
combination thereof, having a Fair Market Value on the exercise date equal
to the relevant option price) in which, payment of the option price with
respect thereto may be made or deemed to have been made.
(iv) Early Termination. The Committee shall determine the events upon
which the unexercised portion of any Option granted under the Plan will be
terminated.
(v) Change of Control. Notwithstanding anything to the contrary, upon
the occurrence of a Change of Control, the Board may, in its discretion,
determine on a case by case basis, that each Option granted under the Plan
shall terminate 30 days after the occurrence of such Change in Control,
but, in the event of any such termination, the Participant shall have the
right, exercisable during the 30 day period preceding the occurrence of
such Change of Control, and, in addition, with respect to a Change of
Control described in clauses (i) and (ii) of the definition thereof, within
30 days after the occurrence of such Change of Control, to exercise in
whole or in part his Options without regard to the vesting provisions
thereof. The Company will mail or cause to be mailed to each Participant a
notice specifying the date that is to be fixed as of which all holders of
record shall be entitled to exchange their Shares for securities, cash or
other property issuable or deliverable pursuant to a Change of Control
described in clauses (iii) or (iv) of the definition thereof. In the event
any Option is not exercised in its entirety on or prior to the date
specified therein, any and all remaining rights under such Options shall
terminate as of said date.
(vi) Incentive Stock Options. All terms of any Incentive Stock Option
granted under the Plan shall comply in all respects with the provisions of
Section 422 of the Code, or any successor provision thereto, and any
regulations promulgated thereunder. The Fair Market Value of Shares subject
to Incentive Stock Options (determined as of the date such Incentive Stock
Options are granted) exercisable for the first time by any individual
during any calendar year shall in no event exceed $100,000.
(b) Stock Appreciation Rights. The Committee is authorized to grant Stock
Appreciation Rights to Participants. Subject to the terms of the Plan and any
applicable Award Agreement, a Stock Appreciation Right granted under the Plan
shall confer upon the holder thereof a right to receive, upon exercise thereof,
an amount in
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<PAGE> 39
cash equal of the excess of (i) the Fair Market Value of one Share on the date
of exercise over (ii) the Fair Market Value of one Share on the date of grant of
the Stock Appreciation Right. Subject to the terms of the Plan and any
applicable Award Agreement, the grant price, term, methods of exercise, methods
of settlement, and any other terms and conditions of any Stock Appreciation
Right shall be as determined by the Committee. The Committee may impose such
conditions or restrictions on the exercise of any Stock Appreciation Right as it
may deem appropriate, including, but not limited to the following: (i) no
aggregate payment by the Company during any fiscal year upon the exercise of
Stock Appreciation Rights may exceed $100,000 without Committee approval
ratified by the Board, and (ii) a Participant may not exercise a Stock
Appreciation Right if the aggregate amount to be received as a result of his or
her exercise of Stock Appreciation Rights in the preceding 12 month period
exceeds such Participant's current base salary.
(c) Restricted Stock and Restricted Stock Units. The Committee is hereby
authorized to grant Awards of Restricted Stock and Restricted Stock Units to
Participants upon such conditions and subject to such restrictions as the
Committee may impose (including, without limitation, any limitation on the right
to vote a Share of Restricted Stock or the right to receive any dividend or
other right or property), which restrictions may lapse separately or in
combination at such time or times, in such installments or otherwise, as the
Committee may deem appropriate but not inconsistent with the provisions of the
Plan:
(i) Registration. Any Restricted Stock granted under the Plan may be
evidenced in such manner as the Committee may deem appropriate, including,
without limitation, book-entry registration or issuance of a stock
certificate or certificates. In the event any stock certificate is issued
in respect of shares of Restricted Stock granted under the Plan, such
certificate shall be registered in the name of the Participant and shall
bear an appropriate legend referring to the terms, conditions, and
restrictions applicable to such Restricted Stock.
(ii) Forfeiture. Except as otherwise determined by the Committee, upon
termination of employment (as determined under criteria established by the
Committee) for any reason during the applicable restriction period, all
shares of Restricted Stock and all Restricted Stock Units still, in either
case, subject to restriction shall be forfeited to and reacquired by the
Company; provided, however, that the Committee may, when it finds that a
waiver would be in the best interests of the Company, waive in whole, or in
part, any or all remaining restrictions with respect to shares of
Restricted Stock or Restricted Stock Units.
(iii) Lapse of Restrictions. Unrestricted Shares, evidenced in such
manner as the Committee shall deem appropriate, shall be delivered to the
holder of Restricted Stock promptly after such Restricted Stock shall
become Released Securities.
(d) Dividend Equivalents. The Committee is hereby authorized to grant
Awards to Participants under which the holders thereof shall be entitled to
receive payments equivalent to dividends with respect to a number of Shares and
payable on such date or dates as determined by the Committee, and the Committee
may provide that such amounts (if any) shall be deemed to have been reinvested
in additional Shares or otherwise reinvested. Subject to the terms of the Plan
and any applicable Award Agreement, such Awards may have such terms and
conditions as the Committee shall determine.
(e) Other Awards. The Committee is hereby authorized, to the extent
permitted under Rule 16b-3 and applicable law, to grant to Participants such
other Awards that are denominated or payable in, valued in whole or in part by
reference to, or otherwise based on or related to, Shares (including, without
limitation, securities convertible into Shares), as are deemed by the Committee
to be consistent with the purposes of the Plan. Subject to the terms of the Plan
and any applicable Award Agreement, the Committee shall determine the terms and
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conditions of such Awards. Shares or other securities delivered to a Participant
pursuant to a purchase right granted under this Section 6(e) shall be purchased
for such consideration, which may be paid by such method or methods and in such
form or forms, including, without limitation, cash, Shares, outstanding Awards,
or other consideration, or any combination thereof, as the Committee shall
determine.
(f) Performance Awards. The Committee is hereby authorized to grant
Performance Awards to Participants. Subject to the terms of the Plan and any
applicable Award Agreement, a Performance Award granted under the Plan (i) may
be denominated as a Stock Award or a Stock-Based Award and payable in cash,
Shares, other securities or other property and (ii) shall confer on the holder
thereof rights valued as determined by the Committee and payable to, or
exercisable by, the holder of the Performance Award, in whole or in part, upon
the achievement of such performance goals and during such performance periods as
the Committee shall establish. Subject to the terms of the Plan and any
applicable Award Agreement, the performance goals to be achieved during any
performance period, the length of any performance period, and the amount of any
payment or transfer to be made pursuant to any Performance Award shall be
determined by the Committee. Prior to granting any Performance Award, the
Committee shall, if it intends for such Awards to be exempt from the limitations
of Section 162(m) of the Code, take such action as is necessary to qualify such
Awards as performance-based compensation, within the meaning of Section 162(m)
of the Code. For example, after the "reliance period" as defined in Treasury
Regulation Section 1.162-27(f)(2), the material terms of the performance goals
must be disclosed to and approved by the public stockholders of the Company
prior to any payments with respect to such an Award.
(g) General.
(i) No Cash Consideration for Awards. Awards shall be granted for no
cash consideration or such minimal cash consideration as may be required by
applicable law.
(ii) Awards May Be Granted Separately or Together. Awards may, in the
discretion of the Committee, be granted either alone or in addition to, in
tandem with, or in substitution for any other Award or any award granted
under any other plan of the Company or any Affiliate. Awards granted in
addition to or in tandem with other Awards, or in addition to or in tandem
with awards granted under any other plan of the Company or any Affiliate,
may be granted either at the same time as or at a different time from the
grant of such other Awards or awards; provided, that any Tandem Option
shall be subject to the following provisions: upon exercise of an Option
issued as part of a Tandem Option, the Participant shall be entitled to a
credit toward the option exercise price equal to the value of the Stock
Appreciation Rights issued in tandem with the Option exercised, but not in
an amount that would exceed the amount of the federal income tax deduction
allowed to the Company in respect of such Stock Appreciation Rights. Upon
such exercise of a Tandem Option, the related Stock Appreciation Right
shall terminate and the value of such Stock Appreciation Right shall be
limited to such credit. Upon the exercise of a Stock Appreciation Right
issued as part of a Tandem Option, the Option to which such Stock
Appreciation Right relates shall cease to be exercisable to the extent of
the number of Shares with respect to which the Stock Appreciation Right was
exercised.
(iii) Forms of Payment Under Awards. Subject to the terms of the Plan
and of any applicable Award Agreement, payment or transfers to be made by
the Company or an Affiliate upon the grant or exercise of an Award may be
made in such form or forms as the Committee shall determine, including,
without limitation, cash, Shares, other securities, other Awards, or other
property, or any combination thereof, and may be made in a single payment
or transfer, in installments, or on a deferred basis, in each case in
accordance with rules and procedures established by the Committee. Such
rules and procedures may include, without limitation,
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provisions for the payment or crediting of reasonable interest on
installment or deferred payments or the grant of crediting of Dividend
Equivalents in respect of installment or deferred payments denominated in
Shares or other securities.
(iv) Limits on Transfer of Awards. No Award (other than Released
Securities), and no right under any such Award, shall be assignable,
alienable, saleable, or transferable by a Participant otherwise than by
will or by the laws of descent and distribution (or, in the case of an
Award of Restricted Securities, to the Company); provided, however, that,
if so determined by the Committee, a Participant may, in the manner
established by the Committee, designate a beneficiary or beneficiaries to
exercise the rights of the Participant, and to receive any property
distributable, with respect to any Award upon the death of the Participant.
Each Award, and each right under any Award, shall be exercisable, during
the Participant's lifetime, only by the Participant or, if permissible
under the Code and applicable law with respect to any Award, by the
Participant's guardian or legal representative. No Award (other than
Released Securities), and no right under any such Award, may be pledged,
alienated, attached, or otherwise encumbered, and any purported pledge,
alienation, attachment, or encumbrance thereof shall be void and
unenforceable against the Company or any Affiliate.
(v) Term of Awards. Except as set forth in Section 6(a)(ii), the term
of each Award shall be for such period as may be determined by the
Committee.
(vi) Share Certificates. All certificates for Shares or other
securities of the Company or any Affiliate delivered under the Plan
pursuant to any Award or the exercise thereof shall be subject to such stop
transfer orders and other restrictions as the Committee may deem advisable
under the Plan or the rules, regulations, and other restrictions of the
Securities and Exchange Commission, any stock exchange upon which such
Shares or other securities are then listed, and any applicable Federal or
state securities laws, and the Committee may cause a legend or legends to
be put on any such certificates to make appropriate reference to such
restrictions.
SECTION 7. COMPANY DEDUCTION FOR AWARD
Prior to the expiration of the "reliance period," as defined in Treasury
Regulation Section 1.162-278(f)(2), the Committee shall, if it determines to
qualify compensation payable under the Plan as performance based compensation
within the meaning of Code Section 162(m), take such actions as it deems
necessary to qualify compensation payable under the Plan as performance based
compensation.
SECTION 8. AMENDMENT AND TERMINATION
Except to the extent prohibited by applicable law and unless otherwise
expressly provided in an Award Agreement or in the Plan:
(a) Amendments to the Plan. The Board may amend, alter, suspend,
discontinue, or terminate the Plan without the consent of any Stockholder,
Participant, other holder or beneficiary of an Award, or other Person;
provided, however, that notwithstanding any other provision of the Plan or
any Award Agreement, without the approval of the Stockholders no amendment,
alteration, suspension, discontinuation, or termination shall be made that
would: (i) increase the total number of Shares available for Awards under
the Plan, except as provided in Section 4 of the Plan; (ii) materially
increase the benefits accruing to Participants under the Plan; or (iii)
materially modify the requirements as to eligibility for participation in
the Plan, or where shareholder approval would be required under Section 422
of the Code in order for Incentive Stock
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Options to qualify thereunder or under Section 162(m) of the Code.
Notwithstanding the discretionary authority granted to the Board, no
amendment of the Plan or any Award granted under the Plan shall impair any
of the rights of any holder, without such holder's consent, under any Award
theretofore granted under the Plan.
(b) Correction of Defects, Omissions, and Inconsistencies. The
Committee may correct any defect, supply any omission or reconcile any
inconsistency in the Plan or any Award in the manner and to the extent it
shall deem desirable to carry the Plan into effect.
SECTION 9. GENERAL PROVISIONS
(a) No Rights to Awards. No Participant shall have any claim to be granted
any Award under the Plan, and there is no obligation for uniformity of treatment
of Participants, or holders or beneficiaries of Awards under the Plan. The terms
and conditions of Awards need not be the same with respect to each Participant.
(b) Withholding. The Company or any Affiliate shall be authorized to
withhold from any Award granted or any payment due or transfer made under any
Award or under the Plan the amount (in cash, Shares, other securities, or other
property) of withholding taxes due in respect of an Award, its exercise, or any
payment or transfer under such Awards or under the Plan and to take such other
action as may be necessary in the opinion of the Company to satisfy all
obligations for the payment of such taxes. In case of Awards paid in Shares, the
Participant or other person receiving such Shares may be required to pay the
Company or Affiliate, as appropriate, the amount of any such withholding taxes
which is required to be withheld with respect to such Shares before the
certificate for such Shares is delivered pursuant to the Award. Furthermore, the
Company may elect to deduct such withholding taxes from any other amounts
payable in cash or in shares or from any other amounts payable at any time
thereafter to the Participant. If a Participant disposes Shares acquired upon
exercise of an Incentive Stock Option in any transaction considered to be a
disqualifying disposition under Section 421 or 422 of the Code, the Participant
shall promptly notify the Company of such transfer.
(c) No Limit on Other Plans. Nothing contained in the Plan shall prevent
the Company or any Affiliate from adopting or continuing in effect other or
additional compensation arrangements and such arrangements may be either
generally applicable or applicable only in specific cases.
(d) No Right to Employment. The grant of an Award shall not be construed as
giving a Participant the right to be retained in the employ of the Company or
any Affiliate. Further, the Company or an Affiliate may at any time dismiss a
Participant from employment, free from any liability, or any claim under the
Plan, unless otherwise expressly provided in the Plan or in any Award Agreement.
(e) Governing Law. The validity, construction, and effect of the Plan and
any rules and regulations relating to the Plan shall be determined in accordance
with the laws of the State of Delaware and applicable Federal law.
(f) Severability. If any provision of the Plan or any Award is or becomes
or is deemed to be invalid, illegal, or unenforceable in any jurisdiction, or
would disqualify the Plan or any Award under any law deemed applicable by the
Committee, such provision shall be construed or deemed amended to conform to
applicable laws, or if it cannot be construed or deemed amended without, in the
determination of the Committee, materially altering the intent of the Plan, such
provision shall be deemed void, stricken and the remainder of the Plan and any
such Award shall remain in full force and effect.
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(g) No Trust or Fund Created. Neither the Plan nor any Award shall create
or be construed to create a trust or separate fund of any kind or a fiduciary
relationship between the Company or any Affiliate and a Participant or any other
Person. To the extent that any Person acquires a right to receive payments from
the Company or any Affiliate pursuant to an Award, such right shall be no
greater than the right of any unsecured general creditor of the Company or any
Affiliate.
(h) No Fractional Shares. No fractional Shares shall be issued or delivered
pursuant to the Plan or any Award, and the Committee shall determine whether
cash, other securities, or other property shall be paid or transferred in lieu
of any fractional Shares or whether such fractional Shares or any rights thereto
shall be canceled, terminated, or otherwise eliminated.
(i) Headings. Headings are given to the Sections and subsections of the
Plan solely as a convenience to facilitate reference. Such headings shall not be
deemed in any way material or relevant to the construction or interpretation of
the Plan or any provision hereof.
SECTION 10. TERM OF THE PLAN
The Plan shall continue until the earliest of (i) the date on which all
Stock Awards and Stock-Based Awards issuable hereunder have been issued, (ii)
the termination of the Plan by the Board or (iii) May 23, 2007, 10 years from
the date of adoption of the Plan by the Board. However, unless otherwise
expressly provided in the Plan or in an applicable Award Agreement, any Award
theretofore granted may extend beyond such date and the authority of the
Committee to amend, alter, adjust, suspend, discontinue, or terminate any such
Award or to waive any conditions or rights under any such Award, and the
authority of the Board to amend the Plan, shall extend beyond such date.
SECTION 12. EFFECTIVENESS OF THE PLAN
The Plan shall become effective on the date specified by the Board.
Following approval by the Board, the plan shall be submitted to the Company's
stockholders for approval and unless the Plan is approved by the affirmative
votes of the holders of shares having a majority of the voting power of the
shares represented at a meeting duly held in accordance with Delaware Law within
twelve (12) months after being approved by the Board, the Plan and all Options
granted under it shall be void and of no force and effect.
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EXHIBIT B
EMPLOYEE STOCK PURCHASE PLAN
OF
WATERLINK, INC.
1. PURPOSE OF THE PLAN. This Employee Stock Purchase Plan of Waterlink,
Inc. adopted on this 23rd day of May, 1997, is intended to encourage eligible
employees of the Company and its current and/or future Subsidiaries, who are
designated by the Committee, as defined herein, to acquire or increase their
ownership of common stock of the Company on reasonable terms. The opportunity so
provided is intended to foster in participants a strong incentive to put forth
maximum effort for the continued success and growth of the Company and its
Subsidiaries, to aid in retaining individuals who put forth such efforts, and to
assist in attracting the best available individuals to the Company and its
Subsidiaries in the future. It is the Company's intention that this Employee
Stock Purchase Plan qualify as an "employee stock purchase Plan" under Section
423 of the Code. Accordingly, the provisions of the Plan shall be construed so
as to extend and limit participation in a manner consistent with the
requirements of that section of the Code.
2. DEFINITIONS. When used herein, the following terms shall have the
meanings set forth below:
2.1 "Account" means the account maintained for an Employee who elects
to participate in any offering of Shares made under the Plan for the
purpose of recording the amounts withheld from his Annual Compensation
pursuant to Section 9 of the Plan.
2.2 "Annual Compensation" means an amount equal to the sum of (i) the
annual base rate of pay of an Employee as determined from the payroll
records of the Company on the first day of the Subscription Period of an
offering of Shares made pursuant to the Plan, and (ii) the amount paid to
the Employee by the Company or any of its Subsidiaries under any incentive
compensation plan or bonus plan during the twelve (12) month period
immediately preceding the first day of the Subscription Period of an
offering of Shares made pursuant to the Plan.
2.3 "Board" means the Board of Directors of Waterlink Inc.
2.4 "Code" means the Internal Revenue Code of 1986, as in effect at
the time of reference, or any successor revenue code which may hereafter be
adopted in lieu thereof, and reference to any specific provisions of the
Code shall refer to the corresponding provisions of the Code as it may
hereafter be amended or replaced.
2.5 "Committee" means the Compensation Committee of the Board or any
other committee appointed by the Board which is invested by the Board with
responsibility for the administration of the Plan and whose members meet
the requirements for eligibility to serve as set forth in Rule 16b-3 and in
the Plan.
2.6 "Company" means Waterlink, Inc.
2.7 "Employees" means persons employed by the Company or any of its
current or future Subsidiaries designated by the Committee on the first day
of the Subscription Period of any offering of Shares made pursuant to the
Plan; provided, however, that no person shall be considered an Employee
unless he (i) is normally employed by the Company or any of its
Subsidiaries for more than twenty (20) hours per week and more than five
(5) months in a calendar year and (ii) has been employed by the Company or
any of its Subsidiaries for at least six (6) months as of the first day of
the Subscription Period of any such offering.
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<PAGE> 45
2.8 "Fair Market Value" means, with respect to the Shares, (a) if the
Common Stock is listed or admitted for trading on any national securities
exchange or included in The Nasdaq National Market or Nasdaq SmallCap
Market, the last reported sales price of the Shares on the last business
day prior to the date the value is to be determined as reported on such
exchange; (b) if the Common Stock is not listed or admitted for trading on
any national securities exchange or included in The Nasdaq National Market
or Nasdaq SmallCap Market, the average of the last reported closing bid and
asked quotation for the Common Stock on the last business day prior to the
date the value is to be determined as reported on the Automated Quotation
System of NASDAQ or a similar service if NASDAQ is not reporting such
information; (c) if the Common Stock is not listed or admitted for trading
on any national securities exchange or included in The Nasdaq National
Market or Nasdaq SmallCap Market or quoted by NASDAQ or a similar service,
the average of the last reported bid and asked quotation for the Common
Stock on the last business day prior to the date the value is to be
determined as quoted by a market maker in the Common Stock (or if there is
more than one market maker, the bid and asked quotation shall be obtained
from two market makers and the average of the lowest bid and highest asked
quotation shall be the "Fair Market Value"); or (d) if the Common Stock is
not listed or admitted for trading on any national securities exchange or
included in The Nasdaq National Market or Nasdaq SmallCap Market or quoted
by NASDAQ and there is no market maker in the Common Stock, the fair market
value of the Shares as determined by the Committee in good faith.
2.9 "Option" means the right granted to an Employee to purchase Shares
pursuant to an offering made under the Plan and pursuant to such Employee's
election to purchase Shares in such offering, at a price, and subject to
such limitations and restrictions as the Plan and the Committee may impose.
2.10 "Parent" means any corporation, other than the employer
corporation, in an unbroken chain of corporations ending with the employer
corporation if each of the corporations other than the employer corporation
owns stock possessing fifty percent (50%) or more of the total combined
voting power of all classes of stock in one of the other corporations in
such chain.
2.11 "Plan" means the Company's Employee Stock Purchase Plan.
2.12 "Purchase Period" means the number of calendar months during
which installment payments for Shares purchased pursuant to options granted
under the Plan shall be made.
2.13 "Rule 16b-3" means Rule 16b-3 of the General Rules and
Regulations of the Securities Exchange Act of 1934, as in effect at the
time of reference, or any successor rules or regulations which may
hereafter be adopted in lieu thereof, and any reference to any specific
provisions of Rule 16b-3 shall refer to the corresponding provisions of
Rule 16b-3 as it may hereafter be amended or replaced.
2.14 "Shares" means shares of the Company's $.001 par value common
stock or, if by reason of the adjustment provisions contained herein, any
rights under the Plan pertain to any other security, such other security.
2.15 "Subscription Period" means that period of time prescribed in any
offering of Shares made pursuant to the Plan beginning on the first day
Employees may elect to participate in such offering and ending on the last
day such elections to participate are authorized to be received and
accepted.
2.16 "Subsidiary" or "Subsidiaries" means any corporation or
corporations other than the employer corporation in an unbroken chain of
corporations beginning with the employer corporation if each of the
corporations other than the last corporation in the unbroken chain owns
stock possessing fifty percent (50%) or more of the total combined voting
power of all classes of stock in one of the other corporations in such
chain.
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2.17 "Successor" means the legal representative of the estate of a
deceased Employee or the person or persons who shall acquire the right to
exercise or receive an Option by bequest or inheritance or by reason of the
death of the Employee.
3. STOCK SUBJECT TO THE PLAN. There will be reserved for issuance, upon the
exercise of Options to be granted from time to time pursuant to offerings made
under the Plan, an aggregate of 500,000 Shares. The Shares subject to Options
may be, in whole or in part, as the Committee shall from time to time determine,
authorized but unissued Shares, or issued Shares which shall have been
reacquired by the Company. The number of Shares reserved under the Plan may be
issued pursuant to the exercise of Options granted pursuant to one or more
offerings made under the Plan. Any Shares subject to issuance upon exercise of
options but which are not issued because of a surrender, lapse, expiration or
termination of any such Option prior to issuance of the Shares shall once again
be available for issuance in satisfaction of Options.
4. ADMINISTRATION OF THE PLAN. The Board shall appoint the Committee, which
shall consist of not less than two (2) disinterested persons as defined in Rule
16b-3. Subject to the provisions of the Plan, the Committee shall have full
authority, in its discretion, to determine when Offerings shall be made under
the Plan, the number of Shares to be made available in any such offering, the
length of the Subscription Period and Purchase Period of any such offering
(provided, however, that in no event shall the Subscription Period and the
Purchase Period of any offering together exceed twenty-seven (27) months) and
such other terms and conditions not inconsistent with the Plan as may be
necessary or appropriate; to interpret the Plan; and to prescribe, amend and
rescind rules and regulations relating to the Plan; and generally to interpret
and determine any and all matters whatsoever relating to the administration of
the Plan. The Board may from time to time appoint members to the Committee in
substitution for or in addition to members previously appointed and may fill
vacancies, however caused, in the Committee. The Committee shall select one of
its members as its chairman and shall hold its meetings at such times and places
as it shall deem advisable. A majority of its members shall constitute a quorum.
Any action of the Committee may be taken by a written instrument signed by all
of the members, and any action so taken shall be fully as effective as if it had
been taken by a vote of a majority of the members at a meeting duly called and
held. The Committee shall make such rules and regulations for the conduct of its
business as it shall deem advisable and shall appoint a Secretary who shall keep
minutes of its meetings and records of any action taken in writing. No member of
the Committee shall be liable, in the absence of bad faith, for any act or
omission with respect to his service on the Committee.
5. ELIGIBILITY TO PARTICIPATE IN OFFERINGS. All Employees shall be eligible
to participate in, and shall receive timely notice of, any offering of Shares
made under the Plan; provided, however, that the Committee may exclude all, but
not less than all, of the Employees of any specified Subsidiary from any
offering made under the Plan; and provided further, however, that the Committee
may determine that any offering of Shares made under the Plan will not be
extended to highly compensated Employees (within the meaning of Section 414(q)
of the Code). Notice of any offering of Shares pursuant to the Plan shall
specify the Subscription Period and the Purchase Period of such offering and
shall be accompanied by a written form on which an Employee may elect to
participate in such offering. In order to participate in any offering of Shares
made pursuant to the Plan, an Employee must sign an election to participate in
such offering on the form provided by the Company for such purpose stating the
Employee's desire to purchase Shares under the Plan and showing the amount which
the Employee elects to have withheld from his pay for each payroll period during
the Purchase Period. The election to participate in any such offering must be
delivered on or before the last day of the Subscription Period to the Chief
Financial Officer of the Company.
6. GRANT OF OPTIONS. Subject to the limitations set forth in Section 7 of
the Plan, each Employee who elects during the Subscription Period of any
offering made under the Plan to purchase Shares in such offering
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<PAGE> 47
shall automatically be granted an Option to purchase a fixed maximum number of
Shares determined by the following procedure:
Step 1 -- Determine the aggregate amount which will be withheld (based
on the Employee's election form) from the Employees pay during the Purchase
Period;
Step 2 -- Divide the amount determined in Step 1 by the exercise price
of the Option and round down the quotient to the nearest whole number. This
figure shall be the fixed maximum number of Shares for which the Employee
my be granted an Option to purchase.
The date on which the Option is granted to each participating Employee
shall be the first day of the Purchase Period of such offering. Notice that an
Option has been granted shall be given to each participating Employee and shall
show the maximum number of Shares subject to the Option and the amount to be
withheld from his pay for each payroll period during the Purchase Period of such
offering.
In the event the total maximum number of Shares resulting from all
elections to purchase under any offering of Shares made under the Plan exceeds
the number of Shares offered, the Company reserves the right to reduce the
maximum number of Shares which Employees may purchase pursuant to their
elections to purchase, to allot the Shares available in such manner as it shall
determine, but generally pro rata to subscriptions received, and to grant
Options to purchase only for such reduced number of Shares.
In the event an Employee's election to purchase Shares pursuant to an
offering made under the Plan is canceled, in whole or in part, pursuant to the
provisions of the Plan, a proportionate portion of the Option granted to such
Employee shall automatically terminate.
7. LIMITATIONS OF NUMBER OF SHARES WHICH MAY BE PURCHASED. The following
limitations shall apply with respect to the number of Shares which may be
purchased by each Employee who elects to participate in an offering made under
the Plan:
(a) No Employee may purchase, or elect to purchase, Shares during any
one Offering pursuant to the Plan for an aggregate purchase price in excess
of the lesser of (i) the percentage of the Annual Compensation applicable
to such offering as determined by the Committee, or (ii) twenty percent
(20%) of his Annual Compensation (in each event, which amount shall be
prorated in the event the Purchase Period is less, or more, than twelve
(12) months).
(b) No Employee shall be granted an Option to purchase Shares under
the Plan if such Employee immediately after such Option is granted, owns
stock, within the meaning of Section 424(d) of the Code, and including
stock subject to purchase under any outstanding options, possessing five
percent (5%) or more of the total combined voting power or value of all
classes of stock of the Company or, if applicable, any Subsidiary or, if
applicable, a Parent.
(c) No Employee shall be granted an Option to purchase Shares which
permits his right to purchase stock under the Plan and all other employee
stock purchase plans of the Company and, if applicable, a Subsidiary, and,
if applicable, a Parent, to accrue (as determined under Section 423(b)(8)
of the Code) at a rate which exceeds twenty-five thousand dollars ($25,000)
of the Fair Market value of such stock (determined on the date the option
to purchase is granted) for each calendar year in which such Option is
outstanding at any time.
An Employee may elect to purchase less than the number of Shares which he a
entitled to elect to purchase.
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<PAGE> 48
8. EXERCISE PRICE. The per Share exercise price for Shares subject to
purchase under Options granted pursuant to an offering made under the Plan shall
be eighty-five percent (85%) of the Fair Market Value of the Shares on the first
day of the Purchase Period of such offering, unless the Committee, in its
discretion, determines that the per Share exercise price applicable to such
offering will be greater than eighty-five percent (85%), but not more than one
hundred percent (100%), of the Fair Market Value of the Shares on the first day
of the Purchase Period of such offering.
9. METHOD OF PAYMENT. Payment of the exercise price of any Option granted
pursuant to the Plan shall be made in installments through payroll deductions,
with no right of prepayment. Each Employee electing to participate in an
offering of Shares made under the Plan shall authorize the Company to withhold a
designated amount from his regular weekly, biweekly, semimonthly or monthly pay
for each payroll period during the Purchase Period. All such payroll deductions
made for an Employee shall be credited to his Account. No interest shall accrue
on the amounts credited to an Employee's Account pursuant to this Section 9.
10. EXERCISE OF OPTIONS. As of the close of business on the last business
day of the Purchase Period of any offering of Shares made under the Plan, each
outstanding Option shall automatically be exercised. Upon the exercise of an
option, the aggregate amount of the payroll deductions credited to the Account
of each Employee as of that date will automatically be applied to the exercise
price for the purchase of that number of Shares, rounded to the nearest whole
share, equal to the Account balance divided by the exercise price, not to exceed
the maximum number of shares issuable under the Option. A certificate
representing the Shares so purchased shall be delivered to the Employee or the
Employee's Successor as soon as reasonably practicable after the exercise of the
Option. The remainder of the Account balance not applied to purchase Shares
shall be paid in cash to the Employee or the Employee's Successor as soon as
reasonably practicable after the exercise of the Option.
11. RIGHTS AS STOCKHOLDER. An Employee will become a stockholder of the
Company with respect to Shares for which payment has been completed at the close
of business on the last business day of the Purchase Period. An Employee will
have no rights as a stockholder with respect to Shares under an election to
purchase Shares until he has become a stockholder as provided above.
12. CANCELLATION OF ELECTION TO PURCHASE. An Employee who has elected to
purchase Shares during the Subscription Period of any offering made under the
Plan may cancel his election in its entirety or may partially cancel his
election by reducing the amount which he has authorized the Company to withhold
from his pay for each payroll period during the Purchase Period. Any such full
or partial cancellation shall be effective upon the delivery by the Employee of
written notice of cancellation to the Chief Financial Officer of the Company.
Such notice of cancellation must be so delivered before the close of business on
the last business day of the Purchase Period. If an Employee partially cancels
his original election by reducing the amount authorized to be withheld from his
pay, he shall continue to make installment payments at the reduced rate for the
remainder of the Purchase Period. Only one partial cancellation may be made
during a Purchase Period.
An Employee's rights upon the full or partial cancellation of his election to
purchase Shares shall be limited to the following:
(a) He may receive in cash, as soon as practicable after delivery of
the notice of cancellation the amount then credited to his Account, except
that, in the case of a partial cancellation, he must retain in his Account
an amount equal to the amount of his new payroll deduction times the number
of payroll periods in the Purchase Period through the date of cancellation,
or
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(b) He may have the amount credited to his Account at the time the
cancellation becomes effective applied to the purchase of the number of
Shares such amount will then purchase.
If option (b) is elected, installment payments must be continued for the month
in which the notice of cancellation is given. The cancellation and purchase of
Shares will become effective at the close of business on the last business day
of the Purchase Period.
13. LEAVE OF ABSENCE OR LAYOFF. An Employee purchasing Shares under the
Plan who is granted a leave of absence (including a military leave) or is laid
off during the Purchase Period may at that time (on a form provided by the
Company) elect one of the following:
(a) He may suspend payments during the leave of absence, or, in the
case of a layoff, he may suspend payments for not more than ninety (90)
days, but not in either case beyond the last month of the Purchase Period,
or
(b) He may make his installment payments in cash but not, in case of
leave of absence, for longer than his leave nor more than ninety (90) days
in case of a layoff, and in any event no later than the end of the Purchase
Period.
If option (a) is elected, the Employee at the end of the suspension period must
make up the deficiency in his Account either by immediate lump sum payment or
with increased installment payments so that payment for the maximum number of
Shares covered by his Option will be completed in the last month of the Purchase
Period. If the Employee elects to make increased installment payments, he may,
nevertheless, at any time before the end of the Purchase Period make up his
remaining deficiency by a lump sum payment.
If an Employee who has elected either of optional (a) or (b) does not return to
active service upon the expiration of his leave of absence or within ninety (90)
days from the date of his layoff, his election to purchase shall be deemed to
have been canceled at that time, and the Employee's only right will be to
receive in cash the amount credited to his Account.
14. EFFECT OF FAILURE TO MAKE PAYMENTS WHEN DUE. If in any payroll period
for any reason not set forth in Section 13, an Employee who has filed an
election to purchase Shares under the Plan has no pay, or his pay is
insufficient (after other authorized deductions) in any payroll period to permit
deduction of his installment payment, such payment may be made in cash at the
time. If not so made, the Company shall have the right, as set forth below, to
treat such failure as a cancellation of the Employee's election to purchase
Shares. If the Company does not treat such failure as a cancellation of the
Employee's election to purchase Shares, the Employee, when his pay is again
sufficient to permit the resumption of installment payments, must pay in cash
the amount of the deficiency in his Account or arrange for uniformly increased
installment payments so that payment for the maximum number of Shares covered by
his Option will be completed in the last month of the Purchase Period. If the
Employee elects to make increased installment payments, he may, nevertheless, at
any time prior to the end of the Purchase Period make up the remaining
deficiency by a lump sum payment.
Subject to the above and other provisions of the Plan permitting postponement,
the Company may treat the failure by an Employee to make any payment as a
cancellation of his election to purchase Shares. Such cancellation will be
affected by mailing notice to him at his last known business or home address.
Upon such mailing, the Employee's only right will be to receive in cash the
amount credited to his Account.
15. RETIREMENT. If an Employee who retires in a manner entitling him to
early, normal or late retirement benefits under the provisions of any retirement
plan of the Company or a Subsidiary in which the Employee participates (or if no
such plan then exists, at or after age sixty-five (65)) has an election to
purchase
B-6
<PAGE> 50
Shares in effect at the time of his retirement, he may, within three (3) months
after the date of his retirement (but in no event later than the end of the
Purchase Period), by delivering written notice to the Chief Financial Officer of
the Company, elect to:
(a) Complete the remaining installment payments in cash,
(b) Make a lump sum payment in the amount of any deficiency for the
remaining portion of the Purchase Period, or
(c) Cancel his election to purchase Shares in accordance with the
provisions of Section 12.
If no such notice is given within such period, the election will be deemed
canceled as of the date of retirement and the only right of the Employee will be
to receive in cash the amount credited to his Account.
16. DEATH. If an Employee, including a retired Employee, dies and has an
election to purchase Shares in effect at the time of his death, the Employee's
Successor may, within three (3) months from the date of death (but in no event
later than the end of the Purchase Period), by delivering written notice to the
Chief Financial Officer of the Company, elect to:
(a) Complete the remaining installment payments in cash,
(b) Make a Lump sum payment in the amount of any deficiency for the
remaining portion of the Purchase Period, or
(c) Cancel the election to purchase Shares in accordance with the
provisions of Section 12.
If no such notice is given within such period, the election will be deemed
canceled as of the date of death, and the only right of such Successor will be
to receive in cash the amount credited to the Employee's Account.
17. TERMINATION OF EMPLOYMENT OTHER THAN FOR RETIREMENT OR DEATH. If an
Employee's employment is terminated for any reason other than retirement or
death prior to the end of the Purchase Period, his election to purchase shall
thereupon be deemed canceled as of the date on which his employment terminated.
In such an event, no further payments under such election will be permitted, and
the Employee's only right will be to receive in cash the amount credited to his
Account.
18. NONTRANSFERABILITY OF OPTIONS. An Option, or an Employee's right to any
amounts held for his Account under the Plan, shall not be transferable, other
than (a) by will or the laws of descent and distribution, and an Option may be
exercised, during the lifetime of the holder of the Option, only by the holder
or in the event of death, the holder's Successor or (b) if permitted pursuant to
the Code and the Regulations thereunder without affecting the Option's
qualification under Section 423 of the Code, pursuant to a qualified domestic
relations order.
19. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION. In the event of changes in
all of the outstanding Shares by reason of stock dividends, stock splits,
recapitalizations, mergers, consolidations, combinations, or exchanges of
shares, separations, reorganizations or liquidations, or similar events, or in
the event of extraordinary cash or non-cash dividends (as defined in Treasury
Regulation Section 1.162-27(e)(2)(iii)(C)) being declared with respect to the
Shares, or similar transactions or events, the number and class of Shares
available under the Plan in the aggregate, the number and class of Shares
subject to Options theretofore granted, applicable purchase prices and all other
applicable provisions, shall, subject to the provisions of the Plan, be
equitably adjusted by the Committee to prevent expansion or dilution of such
Options. The foregoing adjustment and the manner of application of the foregoing
provisions shall be determined by the Committee in its
B-7
<PAGE> 51
sole discretion. Any such adjustment may provide for the elimination of any
fractional Share which might otherwise become subject to an Option.
20. UNUSUAL CORPORATE EVENT. Notwithstanding anything to the contrary, in
the case of an unusual corporate event such as a liquidation, merger,
reorganization (other than a reorganization defined in Code Section
368(a)(1)(F)), or other business combination, acquisition or change in control
of the Company through a tender offer or otherwise, the Committee may, in its
sole discretion, elect to terminate the Purchase Period of any offering then in
effect as of the last day of the month during which the unusual corporate event
occurs. In the event of any such termination, an option holder shall have the
right, commencing at least five (5) days prior to such unusual corporate event,
to either make a lump sum payment in the amount equal to the remaining
installment payments to be made pursuant to his election to purchase Shares, or
to cancel his election to purchase Shares in the manner set forth in Section 12.
21. TAXES. The Employee, or his Successor, shall promptly notify the
Company of any disposition of Shares acquired pursuant to the exercise of an
Option under the Plan and the Company shall have the right to deduct any taxes
required by Law to be withheld as a result of such disposition from any amounts
otherwise payable then or at any time thereafter to the Employee. The Company
shall also have the right to require an Employee, or a Successor, entitled to
receive Shares pursuant to the exercise of an Option to pay the Company the
amount of any taxes which the Company is or will be required to withhold with
respect to the Shares before the certificate for such Shares is delivered
pursuant to the Option.
22. TERMINATION OF THE PLAN. The Plan shall terminate ten (10) years from
the date hereof, and an Option shall not be granted under the Plan after that
date although the terms of any Options may be amended at any date prior to the
end of its term in accordance with the Plan. Any Options outstanding at the time
of termination of the Plan shall continue in full force and effect according to
the terms and conditions of the Option and this Plan.
23. AMENDMENT OF THE PLAN. The Plan may be amended at any time and from
time to time by the Board, but no amendment without the approval of the
stockholders of the Company shall be made if stockholder approval under Section
423 of the Code or Rule 16b-3 would be required. Notwithstanding the
discretionary authority granted to the Committee in Section 4 of the Plan, no
amendment of the Plan or any Option granted under the Plan shall impair any of
the rights of any holder, without the holder's consent, under any Option
theretofore granted under the Plan.
24. DELIVERY OF SHARES ON EXERCISE. Delivery of certificates for Shares
pursuant to the exercise of an Option may be postponed by the Company for such
period as may be required for it to comply with any applicable requirements of
any federal, state or local law or regulation or any administrative or quasi-
administrative requirement applicable to the sale, issuance, distribution or
delivery of such Shares. The Committee may, in its sole discretion, require an
Employee to furnish the Company with appropriate representations and a written
investment letter prior to the exercise of an Option or the delivery of any
Shares pursuant to the exercise of an Option.
25. FEES AND COSTS. The Company shall pay all original issue taxes on the
exercise of any Option granted under the Plan and all other fees and expenses
necessarily incurred by the Company in connection therewith.
26. NO CONTRACT OF EMPLOYMENT. Neither the adoption of this Plan nor the
grant of any Option shall be deemed to obligate the Company or any Subsidiary to
continue the employment of any Employee.
B-8
<PAGE> 52
27. EFFECTIVENESS OF THE PLAN. The Plan shall become effective as of the
date that the initial public offering price of the Shares, the offer and sale of
which has been registered under a Registration Statement declared effective by
the Securities and Exchange Commission, has been determined; provided, however,
that this Plan and all Options granted hereunder shall be null and void if an
initial public offering is not consummated within 15 days of the date that such
Registration Statement is declared effective. The Plan shall thereafter be
submitted to the Company's stockholders for approval and unless the Plan is
approved by the affirmative votes of the holders of shares having a majority of
the voting power of the shares represented at a meeting duly held in accordance
with Delaware Law within twelve (12) months after being approved by the Board,
the Plan and all Options granted under it shall be void and of no force and
effect.
28. OTHER PROVISIONS. As used in the Plan, and in other documents prepared
in implementation of the Plan, references to the masculine pronoun shall be
deemed to refer to the feminine or neuter, and references in the singular or the
plural shall refer to the plural or the singular, as the identity of the person
or persons or entity or entities being referred to may require. The captions
used in the Plan and in such other documents prepared in implementation of the
Plan are for convenience only and shall not affect the meaning of any provision
hereof or thereof.
B-9
<PAGE> 53
EXHIBIT C
FIRST AMENDMENT TO THE
EMPLOYEE STOCK PURCHASE PLAN OF WATERLINK, INC.
WHEREAS, Waterlink, Inc. (the "Company"), by action of its Board of
Directors, adopted the Employee Stock Purchase Plan of Waterlink, Inc. (the
"Plan") on May 23, 1997; and
WHEREAS, the stockholders of Waterlink, Inc. approved the Plan on May 23,
1997; and
WHEREAS, Section 23 of the Plan provides that the Plan may be amended at
any time and from time to time by the Board of Directors of the Company, subject
to stockholder approval in certain cases; and
WHEREAS, the Company desires to amend the Plan.
NOW, THEREFORE, the Company hereby amends the Plan as follows, effective as
of effective date of the Plan:
1. Section 2.2 shall be amended by adding the following at the end of such
Section:
"The Annual Compensation of an Employee who becomes an Employee due to the
acquisition by the Company of stock possessing fifty percent (50%) or more
of the total combined voting power of all classes of stock of a corporation
shall include the amount paid to such person under any incentive
compensation or bonus plan of the company so acquired, provided such
amounts were paid within the twelve (12) month period immediately preceding
the first day of the Subscription Period of an offering of Shares made
under the Plan."
2. Section 2.7 shall be amended by adding the following at the end of such
Section:
"Employment with a corporation prior to the acquisition of stock possessing
fifty percent (50%) or more of the total combined voting power of all
classes of such corporation's stock by the Company shall be included for
purposes of determining whether a person is an Employee."
3. Section 2.8 shall be amended by the addition of the following at the end
of such Section:
"In the event that a registration statement with respect to the Initial
Public Offering of Shares is filed with the Securities and Exchange
Commission, pursuant to the Securities Act of 1933, as amended, the Fair
Market Value of any Shares subject to the exercise of Options granted on or
after the effective date of such registration statement, and on or before
the Closing Date, shall be the Initial Public Offering Price."
4. Article 2 shall be amended by adding the following definitions and all
Sections within Article 2 shall be renumbered as appropriate:
"Closing Date" means the date upon which the Company closes the Initial
Public Offering.
"Initial Public Offering" means the first offering of Shares for sale to
the public in accordance with the Securities Act of 1933, as amended, and
pursuant to a registration statement on Form S-1 filed with and declared
effective by the Securities and Exchange Commission.
"Initial Public Offering Price" means the price negotiated by the
underwriters and the Company at which price the Company agrees to sell
shares to the underwriters for purposes of the Initial Public Offering.
5. Section 9 shall be amended to read as follows:
C-1
<PAGE> 54
"Payment of the exercise price of any Option granted pursuant to the Plan
shall be made in installments through payroll deductions, and may also be
made through deductions from bonuses paid during the Purchase Period and
cash payments as described herein. Each Employee electing to participate in
an offering of Shares made under the Plan shall authorize the Company to
withhold a designated amount from his regular weekly, biweekly,
semimonthly, or monthly pay for each payroll period during the Purchase
Period. The Employee may also elect to have an amount deducted from any
bonus payment made to him during the Purchase Period and to have such
amount credited to his Account, provided that the sum of all payroll
deductions and all amounts deducted from bonus payments does not exceed the
total amount of the Employee's election to purchase Shares made during the
Subscription Period, which is subject to the limits of Section 7. The
designated amount from the Employee's regular pay shall be not less than
(i) the total amount of the Employee's election to purchase Shares made
during the Subscription Period divided by the Employee's Annual
Compensation times (ii) the amount of the Employee's regular pay. If the
sum of the amount deducted from bonus payments as elected by the Employee
and the sum of all payroll deductions is less than the total amount of the
Employee's election to purchase Shares made during the Subscription Period,
the Employee may make a cash payment in the amount of the difference. The
Employee may make one election to cancel any election to have an amount
deducted from any bonus payment. Any cancellation with respect to a bonus
payment shall be in addition to the cancellation provisions of Section 12.
In the event that an Employee elects not to have the amount originally
elected to be deducted from any bonus payment deducted from such payment,
he may, but is not required to, elect to increase the payroll deduction
amount originally elected, provided that the total of all such payroll
deduction amounts during the Purchase Period, and all cash payments made,
do not exceed the total amount of his election to purchase Shares made
during the Subscription Period, which is subject to the limits of Section
7.
All payroll deductions, as well as any payments with respect to bonus
payments, shall be credited to the Employee's Account. No interest shall
accrue on the amounts credited to an Employee's Account pursuant to this
Section 9."
6. The second sentence of Section 10 shall be amended to read as follows:
"Upon the exercise of an Option, the aggregate amount of the payroll
deductions and any deductions from bonus payments, as well as any cash
payments credited to the Account of each Employee as of that date will
automatically be applied to the exercise price for the purchase of that
number of Shares, rounded to the nearest whole share, equal to the Account
balance divided by the exercise price, not to exceed the maximum number of
shares issuable under the Option."
IN WITNESS WHEREOF, the Company has executed this First Amendment as of
this 23rd day of June, 1997.
WATERLINK, INC.
By:
--------------------------------------
C-2
<PAGE> 55
[WATERLINK LOGO]
1997 ANNUAL REPORT AND FORM 10-K
<PAGE> 56
WATERLINK PROFILE
Waterlink is an international provider of a wide range of water and wastewater
systems, equipment and services, offered to municipal and industrial customers
either independently or as part of a fully engineered water purification or
wastewater treatment solution.
Waterlink's expertise is in the analysis of a customer's water purification or
wastewater treatment requirements, and the customized application of Waterlink's
systems, equipment and services to provide cost-effective solutions.
In fewer than three years, Waterlink has become, by revenue, one of the top ten
water treatment companies headquartered in the United States by acquiring
respected water industry companies and integrating capabilities for the benefit
of our customers.
Waterlink Capabilities
Single Product Delivery
System Design/Build/Operate
Contract Operations
Wastewater Treatment
MUNICIPAL AND INDUSTRIAL
Advanced Treatment
Aeration
Biological Treatment
Biosolids/Sludge:
Dewatering
Drying
Scraping
Skimming
Cutting Fluid Recovery Systems
Filtration
Grit Removal
Mixing
Oil/Water Separation
Pretreatment Systems
Primary Treatment
Screening
Secondary Treatment
Tertiary Treatment
Process Water Purification
INDUSTRIAL
Ion Exchange
Microfiltration
Nanofiltration
Reverse Osmosis
Screening
Sedimentation
Drinking Water Purification
MUNICIPAL, COMMERCIAL
AND RESIDENTIAL
Desalination/Reverse Osmosis
Filtration
Flocculation
Home Filtration
Sedimentation
<PAGE> 57
FINANCIAL SUMMARY
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------
For the year ended September 30,
--------------------------------
(Dollars in thousands) 1997 1996 1995
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Sales............................... $ 64,699 $ 19,801 $ 2,684
Operating Income (Loss)*................ 4,875 1,232 (366)
Net Income (Loss)....................... 372 306 (512)
EBITDA*................................. 6,104 1,674 (336)
=================================================================================
</TABLE>
* Operating income and EBITDA exclude a special charge to operations of
$2,630,000 related to the Company's initial public offering in June of 1997.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------
At September 30,
-----------------------------
(Dollars in thousands) 1997 1996 1995
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
Working Capital......................... $ 19,430 $ 3,438 $ 2,064
Total Assets............................ 115,860 28,991 10,819
Total Debt.............................. 18,961 12,145 6,039
Stockholders' Equity (Deficit).......... 70,873 2,407 (11)
=================================================================================
</TABLE>
<TABLE>
<CAPTION>
NET SALES
(In Thousands)
<S> <C>
1995 $ 2,684
1996 $19,801
1997 $64,699
</TABLE>
<TABLE>
<CAPTION>
TOTAL ASSETS
(In Thousands)
<S> <C>
1995 $ 10,819
1996 $ 28,991
1997 $115,860
</TABLE>
<TABLE>
<CAPTION>
OPERATING INCOME*
(In Thousands)
<S> <C>
1995 -$ 366
1996 $1,232
1997 $4,875
</TABLE>
<TABLE>
<CAPTION>
STOCKHOLDERS' EQUITY
(In Thousands)
<S> <C>
1995 -$ 11
1996 $ 2,407
1997 $70,873
</TABLE>
1
<PAGE> 58
TO OUR SHAREHOLDERS
When we looked at the water and wastewater market three years ago we saw an
industry approaching a period of rapid change and tremendous opportunity. New
market factors invited creation of an integrated company that could provide a
wide range of products, technical expertise and the flexibility to offer both
full systems or individual products and services. We created Waterlink,
envisioning a global water solutions company that would comprehensively address
the growing worldwide demand for efficient wastewater treatment systems, purer
process water and safe drinking water. With water supply and quality concerns
escalating, we recognized that Waterlink would have to be a dynamic company,
able to grow swiftly and wisely in order to maximize the potential of acquired
capabilities, learned expertise, and complementary strengths. Above all,
Waterlink would create value -- for its customers, employees, shareholders,
business partners and vendors. In this, our first annual report as a public
company, we're proud to say the Waterlink vision has become a reality.
Some of the major accomplishments of this past year include:
- - Making five significant acquisitions, bringing to 10 the number we have
completed since the Company's inception three years ago. Each addition has
added important product capability, broadened our customer base and
increased our global reach.
- - Increasing revenue over 225%, from $19.8 million last year to $64.7 million
for the year just ended.
- - Increasing operating profit before a nonrecurring charge almost 300%, from
$1.2 million last year to $4.9 million this year.
- - Positioning the Company to meet its strategic initiatives in the future by
successfully completing an initial public offering and listing on the New
York Stock Exchange in June 1997.
Today, with annualized revenues exceeding $110 million, Waterlink is one of the
top ten water treatment companies headquartered in the United States. Servicing
municipal and industrial water customers in locations throughout the world,
Waterlink has over 400 dedicated employees working from 18 operating facilities
located in seven countries, and markets its products both directly and through a
network of approximately 250 sales organizations worldwide.
<TABLE>
<CAPTION>
WATERLINK AT WORK
AROUND THE WORLD
<S> <C>
47% U.S. and Canada
39% Europe
5% Latin America
9% Other
</TABLE>
<TABLE>
<CAPTION>
WATERLINK
CUSTOMERS
<S> <C>
45% Municipal
55% Industrial
</TABLE>
The Waterlink vision has become a reality.
[PICTURE THEODORE F. SAVASTANO]
CHAIRMAN OF THE BOARD
2
<PAGE> 59
We are innovative leaders in a dynamic industry. Demand for water purification
and wastewater treatment continues to grow around the world. Economic expansion,
population growth, scarcity of usable water, public health concerns about water
quality, environmental regulation, more stringent manufacturing standards and
increased public awareness have made water and wastewater treatment issues a top
priority for both municipal and industrial customers. Water treatment
expenditures are expected to grow from about $300 billion in 1995 to over $500
billion by the year 2000.
Increasing demands on the world's water supply are making usable water more
scarce and increasing the requirement for treatment before and after its use. As
a result, water costs are rising. This is the single most significant factor
driving the demand for Waterlink's treatment solutions.
Growing populations in developing countries amplify the needs for safe drinking
water and responsible wastewater treatment capability. At the same time,
advanced manufacturing capabilities achieved by industrialized nations increase
the demand and quality specifications for high-purity water and effective
process water treatment. Driven by heightened demand for a limited resource, the
water and wastewater treatment industry has become truly global.
Total solutions providers who can integrate the required products and
technologies into systems and provide one source for accountability are emerging
in response to customer desire for the process guarantees and cost reductions
that can be gained from "one stop shopping." Waterlink is the most flexible
supplier of treatment solutions. Our capabilities span the treatment spectrum,
from offering individual products to designing, building and operating
multi-million dollar water treatment systems.
The rapid shift towards single-source water treatment solutions has also fueled
consolidation in the industry. Waterlink's commitment to creating value as a
global solutions provider, the Company's strategy to build capabilities through
both internal growth and acquisition, its enhanced capital resources and
supportive, decentralized management style make Waterlink a preferred partner in
business combinations.
Waterlink offers a broad range of products, systems and services, and will
continue to add more, reinforcing the Company's objective to create
cost-effective water and wastewater treatment solutions designed around the
customer's needs. We practice disci-
We are innovative leaders in a dynamic industry.
[PICTURE CHET S. ROSS]
President and
Chief Executive Officer
Waterlink is the most flexible supplier of integrated solutions.
<TABLE>
<CAPTION>
<S> <C>
Waterlink incorporates. 12/94
Acquires Sanborn, gains
pretreatment capability. 3/95
Acquires Great Lakes Environmental,
expands pretreatment and adds
oil/water separation capabilities. 8/95
Acquires Mass Transfer Systems,
adds aeration capability. 1/96
Acquires Aero-Mod, adds biological
treatment and contract operations
capabilities. 4/96
Acquires Water Equipment Technologies
(Waterlink Technologies), gains drinking
and process water filtration
capabilities. 9/96
</TABLE>
3
<PAGE> 60
plined growth and are achieving successful integration. The timeline illustrated
on these pages highlights the major milestones that exemplify our success with
this approach. Waterlink's rapid revenue increase can be attributed to both an
active, targeted acquisition strategy and an ambitious program for internal
growth.
Our strategic initiatives for 1998 and beyond will build upon and expand the
vision:
- - We will continue our aggressive, but focused acquisition campaign.
- - We will provide an increasing range of systems, equipment and services,
whether independently or as part of a fully engineered water purification
or wastewater treatment solution.
- - We will continue to integrate operations, achieve marketing synergies and
capitalize on cross-selling opportunities to increase profitability.
- - We will strengthen Waterlink's position as a market leader.
Waterlink was founded on a commitment to creating value for all constituents. We
would like to thank our customers, employees, shareholders, representatives,
vendors and manufacturing partners for investing the effort, talent and
resources that created a solid foundation to build upon for the future. Your
confidence and support continue to make the Waterlink vision a reality.
/s/ Theodore F. Savastano /s/ Chet S. Ross
Theodore F. Savastano Chet S. Ross
Chairman of the Board President and Chief Executive Officer
Waterlink exceeds $110 million in annualized revenues.
<TABLE>
<CAPTION>
<S> <C>
Acquires the Nordic Group of Companies,
expands internationally, gains filtration,
biosolids and design/build capabilities. 3/97
Acquires Bioclear and Lanco Environmental
Products, increases biological treatment
and clarification capabilities. Completes
initial public offering. 6/97
Acquires MEVA and Hycor Corporation, adds
screening capability. 9/97
</TABLE>
4
<PAGE> 61
CORPORATE DIRECTORY
Directors
Theodore F. Savastano
Chairman of the Board
John R. Miller * -
Director
Robert P. Pinkas -
Director
Rollin S. Reiter * -
Director
Chet S. Ross
President and Chief Executive Officer
Dr. Paul M. Sutton * -
Director
* Audit Committee
- - Compensation Committee
Corporate Officers and Senior Management
Chet S. Ross
President and Chief Executive Officer
Michael J. Vantusko
Chief Financial Officer
L. Dean Hertert, Jr.
Vice President
President, Waterlink Americas
Dr. Hans F. Larsson
Vice President
President, Waterlink Europe
Independent Accountants
Ernst & Young LLP
700 William R. Day Building
121 Cleveland Avenue South
Canton, Ohio 44720-1920
Independent Counsel
Benesch, Friedlander, Coplan
and Aronoff LLP
2300 BP Tower
200 Public Square
Cleveland, Ohio 44144-2378
Transfer Agent and Registrar
American Stock Transfer & Trust Company
40 Wall Street
New York, NY 10005
Shareholder Information
The Company's common stock trades on the New York Stock Exchange under the
symbol "WLK".
Annual Meeting
The Annual Shareholders Meeting will be held on January 15, 1998 at the Sheraton
Inn Belden Village, 4375 Metro Circle, North Canton, Ohio at 10:00 a.m.
Corporate Office
Waterlink, Inc.
4100 Holiday Street NW
Canton, Ohio 44718-2532
Phone: 330-649-4000
Fax: 330-649-4008
E-mail: [email protected]
Web: www.waterlink.com
WATERLINK OPERATING COMPANY
HEADQUARTER LOCATIONS
Waterlink Americas
Canton, Ohio
+1 330-649-4000
President
L. Dean Hertert, Jr.
AERO-MOD INCORPORATED
Manhattan, Kansas
+1 913-537-4995
President
Dr. Lawrence A. Schmid
BIOCLEAR TECHNOLOGY INC.
Winnipeg, Manitoba
+1 204-222-6388
President
J. David Romanow
GREAT LAKES
ENVIRONMENTAL, INC.
Addison, Illinois
+1 630-543-9444
President
David L. Field
HYCOR CORPORATION
Lake Bluff, Illinois
+1 847-473-3700
President
Philip A. Thompson
LANCO ENVIRONMENTAL
PRODUCTS, INC.
Grand Rapids, Michigan
+1 616-791-9100
President
Charles D. Meier
MASS TRANSFER SYSTEMS, INC.
Fall River, Massachusetts
+1 508-679-6770
President
Mark E. Neville
SANBORN TECHNOLOGIES
Medway, Massachusetts
+1 508-533-8800
President
Steven R. Friedman
WATERLINK OPERATIONAL SERVICES, INC.
d/b/a BLUE WATER SERVICES
Manhattan, Kansas
+1 913-537-4995
President
Dr. Lawrence A. Schmid
WATERLINK TECHNOLOGIES, INC.
West Palm Beach, Florida
+1 561-684-6300
President
Lawrence Stenger, Sr.
Vice President/WET/WETTEC Divisions
Jorg G. Menningmann
Vice President/NWP Division
Jeffrey A. Arnold
WATERLINK WASTEWATER SYSTEMS, INC.
Fall River, Massachusetts
+1 508-679-6770
President
Mark E. Neville
Waterlink Europe
Nynashamn, Sweden
+ 46 8 520 651 00
President
Dr. Hans F. Larsson
AXEL-JOHNSON ENGINEERING GMBH
Neuss-Grimlinghausen, Germany
+ 49 2131 3106 0
Managing Director
Adolf F. Bohm
MEVA
Frolunda, Sweden
+ 46 31 68 49 96
Managing Director
J. Krister Lundberg
NORDIC WATER PRODUCTS AB
Nynashamn, Sweden
+ 46 8 520 651 00
President
Dr. Hans F. Larsson
NORDIC WATER PRODUCTS OY
Vanda, Finland
+ 358 9 5305 6500
General Manager
Olof H. Lundell
NOXON AB
Kungsbacka, Sweden
+ 46 300 710 65
Managing Director
Lars Ake Larson
WATERLINK (UK) LIMITED
Ludlow, England
+ 44 1584 872 211
Director
William B. Mackay
ZICKERT MILJO A/S
Holstebro, Denmark
+ 45 9741 0222
Managing Director
Gerner Christiansen
ZICKERT PRODUCTS AB
Fjaras, Sweden
+ 46 300 332 00
Managing Director
Lars L. Apelqvist
[RECYCLE LOGO] Printed on recycled paper
<PAGE> 62
[WATERLINK LOGO]
4100 Holiday Street NW
Canton, Ohio 44718-2532 USA
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WATERLINK, INC.
ANNUAL MEETING OF STOCKHOLDERS, JANUARY 15, 1998
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby (i) acknowledges receipt of the Notice dated December 3,
1997, of the Annual Meeting (the "Annual Meeting") of Stockholders of Waterlink,
Inc. (the "Company") to be held on January 15, 1998, and (ii) constitutes and
appoints Chet S. Ross and Michael J. Vantusko, or either of them, attorneys and
proxies, with full power of substitution, for and in the name, place and stead
of the undersigned, to vote as directed below with respect to all shares of
Common Stock of the Company standing in the name of the undersigned, or with
respect to which the undersigned is entitled to vote, at the Annual Meeting and
any adjournment(s) or postponement(s) thereof.
1. ELECTION OF DIRECTORS
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<S> <C>
[ ] FOR the two nominees listed below [ ] WITHHOLD AUTHORITY
(except as marked to the contrary below) to vote for the nominees listed below
John R. Miller and Theodore F. Savastano
</TABLE>
INSTRUCTION: To withhold authority to vote for any individual
nominee, mark "FOR the two nominees listed below" appearing
above and write that nominee's name on the space provided here:
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2. PROPOSAL TO APPROVE THE WATERLINK, INC. 1997 OMNIBUS INCENTIVE PLAN.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. PROPOSAL TO APPROVE THE EMPLOYEE STOCK PURCHASE PLAN, AS AMENDED, OF
WATERLINK, INC.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. PROPOSAL TO RATIFY THE APPOINTMENT OF ERNST & YOUNG LLP AS THE INDEPENDENT
PUBLIC AUDITORS OF THE COMPANY.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(Continued on Reverse Side)
5. IN THEIR DISCRETION WITH RESPECT TO SUCH OTHER BUSINESS AS MAY PROPERLY COME
BEFORE THE ANNUAL MEETING.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE TWO NOMINEES LISTED ABOVE
AND FOR ALL PROPOSALS.
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 THE TWO NOMINEES LISTED ABOVE AND FOR PROPOSALS 2, 3 AND 4 ABOVE.
DATED: ____________________, 1997
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Signature
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Signature, if held jointly
PLEASE SIGN EXACTLY AS NAME APPEARS
ON THIS PROXY.
When shares are held by joint
tenants, both should sign. When
signing as attorney, executor,
administrator, trustee or guardian,
please give full title as such. If a
corporation, please sign in full
corporate name by the President or
other authorized officer. If a
Partnership, please sign in
partnership name by authorized
person.
PLEASE MARK, SIGN, DATE AND RETURN
THIS PROXY CARD PROMPTLY USING THE
ENCLOSED ENVELOPE.
