<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: ...........................................................
- --------------------------------------------------------------------------------
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<PAGE> 2
WATERLINK, INC.
4100 Holiday Street, N.W.
Canton, Ohio 44718-2532
------------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
AUGUST 18, 1998
------------------------
To Our Stockholders:
A Special Meeting of Stockholders (the "Special Meeting") of Waterlink,
Inc. (the "Company") will be held at the offices of the Company, 4100 Holiday
Street, N.W., Canton, Ohio 44718-2532, on August 18, 1998 at 10:00 a.m., local
time, for the following purposes:
1. To approve an amendment to the Waterlink, Inc. 1997 Omnibus Incentive
Plan to reserve an additional number of shares of Common Stock of the
Company for issuance thereunder; and
2. To transact such other business as may properly come before the Special
Meeting and any adjournments thereof.
The foregoing matters are described in more detail in the Proxy Statement
which follows.
The Board of Directors of the Company has fixed the close of business on
July 15, 1998 as the record date for determining stockholders entitled to notice
of, and to vote at, the Special 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 Special Meeting and any adjournments thereof.
YOUR VOTE IS IMPORTANT. WHETHER OR NOT YOU EXPECT TO ATTEND THE SPECIAL
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 SPECIAL MEETING TO VOTE IN PERSON AND GIVING NOTICE OF SUCH
REVOCATION.
By Order of the Board of Directors
DONALD A. WEIDIG, Secretary
July 16, 1998
<PAGE> 3
WATERLINK, INC.
4100 Holiday Street, N.W.
Canton, Ohio 44718-2532
------------------------
PROXY STATEMENT
------------------------
SPECIAL MEETING OF STOCKHOLDERS
AUGUST 18, 1998
------------------------
INTRODUCTION
This Proxy Statement is being furnished to stockholders of Waterlink, Inc.
(the "Company") in connection with the Special Meeting of Stockholders of the
Company (the "Special Meeting") to be held at 10:00 a.m., local time, on
Tuesday, August 18, 1998, at the offices of the Company, 4100 Holiday Street,
N.W., Canton, Ohio, 44718-2532. 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 the approval of the amendment (the "Amendment") to the Waterlink, Inc.
1997 Omnibus Incentive Plan (the "Incentive Plan") to increase the number of
shares reserved for issuance thereunder to the greater of (i) Two Million Seven
Hundred Fifty Thousand (2,750,000) shares or (ii) twelve and one-half percent
(12 1/2%) of the aggregate number of shares outstanding from time to time, not
to exceed Five Million (5,000,000) shares, from that which the Incentive Plan
currently provides, which is the greater of (i) One Million Seven Hundred Fifty
Thousand (1,750,000) shares or (ii) twelve and one-half percent (12 1/2%) of the
aggregate number of shares outstanding from time to time, not to exceed Five
Million (5,000,000) shares. Effective upon approval of the Amendment by the
stockholders of the Company, the Company will grant under the Incentive Plan an
option to purchase Four Hundred Thousand (400,000) shares of common stock, $.001
par value, of the Company (the "Common Stock") to T. Scott King in connection
with his employment by the Company as President and Chief Executive Officer, and
an option to purchase One Hundred Thousand (100,000) shares of Common Stock
indirectly to Henrik Kallen in connection with his employment by the Company as
President -- European Wastewater Systems. The approximate date on which this
Proxy Statement and the enclosed proxy card are first being sent to stockholders
is July 16, 1998.
VOTING
Stockholders of record at the close of business on July 15, 1998 are
entitled to notice of, and to vote at, the Special Meeting and any adjournments
thereof. On that date, there were outstanding 12,014,004 shares of Common Stock.
Each share of Common Stock is entitled to one vote on all matters to come before
the Special Meeting. Action on matters to come before the Special 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 Special 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 Special
Meeting and therefore will have no effect on the vote.
1
<PAGE> 4
Shares cannot be voted at the Special 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 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 Special Meeting.
COMMON STOCK OWNERSHIP
The following table sets forth the beneficial ownership of the Common Stock
as of June 30, 1998 by certain of the executive officers of the Company, the
former President and Chief Executive Officer, 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(6) 16.83%
20600 Chagrin Blvd
Suite 1150
Cleveland, OH 44122
River Cities Capital Fund Limited Partnership............... 636,250(7) 5.29%
221 East 4th Street
Suite 2250
Cincinnati, OH 45202
Theodore F. Savastano....................................... 1,000,000(8) 8.25%
T. Scott King(3)............................................ --(9) --
Henrik Kallen(4)............................................ --(10) --
Michael J. Vantusko......................................... 150,000(11) 1.24%
L. Dean Hertert............................................. 78,997(12) *
Dr. Hans F. Larsson......................................... 5,385(13) *
Robert P. Pinkas............................................ 2,126,250(14) 17.51%
Dr. Paul M. Sutton.......................................... 13,000(15) *
Rollin S. Reiter............................................ 28,000(15) *
John R. Miller.............................................. 8,000(15) *
Chet S. Ross(5)............................................. 692,562(16) 5.53%
All directors, nominees and executive officers as a group
(11 persons).............................................. 4,102,194(17) 33.64%
</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 12,014,004 shares outstanding.
2
<PAGE> 5
(3) The Board elected Mr. King to the position of President and Chief Executive
Officer of the Company effective June 8, 1998.
(4) The Board elected Mr. Kallen to the position of President-European
Wastewater Systems effective June 1, 1998.
(5) Effective June 5, 1998, Mr. Ross resigned as President and Chief Executive
Officer of the Company.
(6) 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.
(7) 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.
(8) Includes 100,000 options to purchase shares of Common Stock which are fully
vested.
(9) Does not include 400,000 options to purchase shares of Common Stock which
will be granted upon stockholder approval of the Amendment, which options
would not be exerciseable within 60 days.
(10) Does not include 100,000 options to purchase shares of Common Stock which
will be granted upon stockholder approval of the Amendment, which options
would not be exerciseable within 60 days.
(11) Includes 100,000 options to purchase shares of Common Stock which are fully
vested.
(12) Includes 52,500 options to purchase shares of Common Stock which are fully
vested.
(13) Includes 5,000 options to purchase shares of Common Stock which are fully
vested.
(14) Includes shares, including securities referred to in footnote 6 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.
(15) Includes options to purchase 3,000 shares of Common Stock which are fully
vested.
(16) Includes 511,600 options to purchase shares of Common Stock which are fully
vested.
(17) Includes the former President and Chief Executive Officer as part of the
group. If such person was excluded, the group would consist of 10 persons
and would beneficially own 3,409,632 shares of Common Stock or 28.11%.
EXECUTIVE COMPENSATION
The following table sets forth, for each of the years indicated, the
compensation paid by the Company to the Company's President and Chief Executive
Officer, the Company's President-European Wastewater Systems, 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 $100,000 (together,
the "Named Executive Officers"), and the Company's former President and Chief
Executive Officer.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
----------------------- -------------------
OTHER ANNUAL RESTRICTED SECURITIES
NAME AND PRINCIPAL COMPENSATION STOCK UNDERLYING ALL OTHER
POSITION YEAR SALARY($) BONUS($) ($)(1) AWARDS($) OPTIONS(#) COMPENSATION($)
------------------ ---- --------- -------- ------------ ---------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Theodore F. Savastano 1997 $234,013 $125,000 $1,055,277(5) -- 100,000 $1,658,750(6)
Chairman of the 1996 $225,800 -- $ 4,977 -- 100,000 --
Board of Directors 1995 $126,989 -- -- -- -- --
T. Scott King(2) 1997 -- -- -- -- -- --
Chief 1996 -- -- -- -- -- --
Executive Officer 1995 -- -- -- -- -- --
and President
</TABLE>
3
<PAGE> 6
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
----------------------- -------------------
OTHER ANNUAL RESTRICTED SECURITIES
NAME AND PRINCIPAL COMPENSATION STOCK UNDERLYING ALL OTHER
POSITION YEAR SALARY($) BONUS($) ($)(1) AWARDS($) OPTIONS(#) COMPENSATION($)
------------------ ---- --------- -------- ------------ ---------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Henrik Kallen(3) 1997 -- -- -- -- -- --
President-European 1996 -- -- -- -- -- --
Wastewater Systems 1995 -- -- -- -- -- --
Michael J Vantusko 1997 $123,500(8) $50,000 -- -- 225,000 $ 390(7)
Chief Financial 1996 -- -- -- -- -- --
Officer 1995 -- -- -- -- -- --
L. Dean Hertert, Jr. 1997 $137,675 $25,000 $ 288 -- 90,000 $ 365(7)
Vice President 1996 $ 21,833(9) -- -- -- 25,000 --
1995 -- -- -- -- --
Dr. Hans F. Larsson 1997 $ 64,489(10) -- -- -- 20,000 --
Vice President 1996 -- -- -- -- -- --
1995 -- -- -- -- -- --
Chet S. Ross(4) 1997 $234,013 $125,000 $ 768 -- 300,000 $ 620(7)
Former Chief 1996 $225,800 -- $ 262 -- 220,000 --
Executive Officer 1995 $ 95,267(11) -- $ 180,000 -- -- --
and President
</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 Securities and Exchange Commission (the "Commission")
disclosure threshold.
(2) The Board elected Mr. King to the position of President and Chief Executive
Officer of the Company effective June 8, 1998. For terms of Mr. King's
compensation, see "Employment Agreements," below.
(3) The Board elected Mr. Kallen to the position of President-European
Wastewater Systems of the Company effective June 1, 1998. For terms of Mr.
Kallen's compensation, see "Employment Agreements," below.
(4) Effective June 5, 1998, Mr. Ross resigned as President and Chief Executive
Officer of the Company. The amounts do not reflect severance compensation
paid to Mr. Ross during 1998.
(5) 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 6, below, which was paid to Mr. Savastano pursuant to his 1994
employment agreement with the Company.
(6) 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
Company's initial public offering of Common Stock (the "Initial Public
Offering") which closed on June 27, 1997. 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 $.10 per share.
(7) Represents the Company's "match" payment relating to the Company's 401(k)
Plan.
(8) Represents salary from January 1, 1997 (date of employment with the
Company).
(9) Represents salary from August 1, 1996 (date of employment with the
Company).
(10) Represents salary from March 5, 1997 (date of acquisition of the Nordic
Group).
(11) Represents salary from June 1, 1995 (date of employment with the Company).
4
<PAGE> 7
STOCK OPTION GRANTS
The following table sets forth information regarding options to purchase
Common Stock granted to the Named Executive Officers and the former President
and Chief Executive Officer of the Company during fiscal 1997.
OPTION(1)/SAR(2) GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL VALUE AT
------------------------------------------------------- ASSUMED ANNUAL
NUMBER OF PERCENT OF RATES OF STOCKS
SECURITIES TOTAL OPTIONS EXERCISE PRICE APPRECIATION
UNDERLYING GRANTED TO OF FOR OPTION TERM(3)
OPTIONS EMPLOYEES BASE PRICE EXPIRATION ------------------------
NAME GRANTED(#) FISCAL YEAR ($/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
T. Scott King(4) -- -- -- -- -- --
Henrik Kallen(5) -- -- -- -- -- --
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
Chet S. Ross(6) 300,000 29.3% $11.00 5/23/07 $2,075,352 $5,259,350
</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 6 of the Summary Compensation Table,
above, which had an exercise price of $.10.
(2) There have been no stock appreciation rights ("SARs") granted by the Company
to date.
(3) The potential realizable values represent future opportunity and have not
been reduced to present value in 1997 dollars. The dollar amounts included
in these columns are the result of calculations at assumed rates set by the
Commission for illustration purposes. These rates are not intended to be a
forecast of the Common Stock price and are not necessarily indicative of the
values that may be realized by the Named Executive Officers or the former
President and Chief Executive Officer of the Company. The potential
realizable values are based on arbitrarily assumed annualized rates of stock
price appreciation of 5% and 10% over the full ten-year term of the options.
(4) The Board elected Mr. King to the position of President and Chief Executive
Officer of the Company effective June 8, 1998.
(5) The Board elected Mr. Kallen to the position of President--European
Wastewater Systems of the Company effective June 1, 1998.
(6) Effective June 5, 1998, Mr. Ross resigned as President and Chief Executive
Officer of the Company.
STOCK OPTION AND SAR EXERCISES
The following table sets forth certain information concerning exercises of
stock options during fiscal 1997 by each of the Named Executive Officers and the
former President and Chief Executive Officer of the Company, and their stock
options outstanding as of September 30, 1997.
5
<PAGE> 8
AGGREGATED OPTION/SAR EXERCISE IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION/SAR VALUES(1)
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT FISCAL OPTIONS AT FISCAL
YEAR-END(#) YEAR-END($)(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)
T. Scott King(3) -- -- -- (E) -- (E)
-- (U) -- (U)
Henrik Kallen(4) -- -- -- (E) -- (E)
-- (U) -- (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)
Chet S. Ross(5) 135,000 $1,758,375 220,000(E) $3,245,000(E)
300,000(U) $2,325,000(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.
(3) The Board elected Mr. King to the position of President and Chief Executive
Officer of the Company effective June 8, 1998.
(4) The Board elected Mr. Kallen to the position of President--European
Wastewater Systems of the Company effective June 1, 1998.
(5) Effective June 5, 1998, Mr. Ross resigned as President and Chief Executive
Officer of the Company.
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
6
<PAGE> 9
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 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. King's employment agreement with the Company, which became effective as
of May 21, 1998, provides for Mr. King, effective June 8, 1998, 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 $300,000.
Pursuant to his employment agreement, Mr. King 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. The employment agreement also provides for
a bonus payment of $50,000 upon signing. In the event that Mr. King'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. King 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. King with respect
to the fiscal year in which his employment is terminated if the termination
occurs after the first four months of a fiscal year, and if the termination
occurs during the first four months of a fiscal year, 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 1998 or the first four
months of fiscal 1999 shall be deemed to be $300,000) and (ii) one and one-half;
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. King 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. King from competing with the Company
during the term of the agreement and for 18 months following termination
thereof. Additionally, pursuant to his employment agreement, under the terms of
the Incentive Plan, Mr. King will be granted an option to purchase 400,000
shares of Common Stock, at the fair
7
<PAGE> 10
market value of such shares on the date of grant, upon approval of the Amendment
by the stockholders of the Company. The ability to exercise this option vests in
four equal annual installments, commencing on May 21, 1999 subject to
acceleration in certain circumstances.
Mr. Kallen's arrangement with the Company, which became effective as of
June 1, 1998, provides for Mr. Kallen to serve as President -- European
Wastewater Systems of the Company for an initial term of two years, subject to
automatic one year extensions upon each anniversary of the date of the
agreement, unless either party notifies the other of his or its intent not to
extend the agreement not less than 30 days prior to the then scheduled
expiration date. The agreement provides for an initial annual base payment of
the Swedish equivalent of $180,000. Mr. Kallen will be entitled to participate
in the Bonus Plan, which will entitle him to earn, in each year during the term
of the agreement, commencing with fiscal 1999, an amount ranging from 0% to 150%
of his base payment, subject to achievement of certain performance goals to be
established by the Board. The agreement also provides for the payment of an
annual sum equal to 35% of the then effective base payment and 35% of any bonus
amount payable pursuant to the Bonus Plan, as payment for certain benefits (the
"Substitute Benefit Amount"). In the event that the agreement is terminated by
the Company without cause (as defined in the agreement) or in the event the
agreement by him for good reason (as defined in the agreement), Mr. Kallen will
be entitled to receive a continuation of the then effective base payment, the
annual bonus compensation for the fiscal year in which termination occurs, and
the Substitute Benefit Amount with respect thereto for a period of one year. The
agreement also contains provisions which restrict Mr. Kallen from competing with
the Company during the term of the agreement and for 12 months following
termination thereof. Additionally, pursuant to the agreement, subject to
approval of the Amendment by the stockholders of the Company, Mr. Kallen will be
granted an option to purchase 100,000 shares of Common Stock at the fair market
value of such shares on the date of grant. 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 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
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this option vests in four equal annual installments, commencing upon the first
anniversary of the date of grant, subject to acceleration in certain
circumstances. Effective April 1, 1998, Mr. Vantusko's annual base salary was
increased to $175,000.
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
provisions which restrict Dr. Larsson from competing with Nordic AB, without
Nordic AB's consent, during the term of the agreement.
In June 1998, the Company entered into an agreement with Mr. Ross in
connection with the termination of his employment with the Company. Mr. Ross had
served as President and Chief Executive Officer of the Company since June 1995.
Pursuant to the agreement, Mr. Ross's employment with the Company terminated on
June 5, 1998, at which time he also resigned as a Director of the Company and
his employment agreement with the Company terminated. The agreement provides for
Mr. Ross (i) to receive $780,000 in forty-eight equal bi-monthly installments,
(ii) to retain for up to two years certain standard executive employee medical
and similar benefits, and (iii) to become vested as to stock options to purchase
300,000 shares of Common Stock granted to him on May 23, 1997 under his prior
employment agreement, which options are exercisable until January 10, 2000,
subject to certain agreed-upon volume limitations. The agreement also requires
that Mr. Ross maintain as confidential certain information as to which he had
access during his employment with the Company and restricts
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Mr. Ross from competing with the Company for 24 months following June 5, 1998.
Mr. Ross's employment agreement with the Company, which became effective as of
May 23, 1997, provided 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
provided for an initial annual base salary of $240,000. Pursuant to his
employment agreement, Mr. Ross was entitled to participate in the Bonus Plan,
which entitled 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 established by
the Board. In the event that Mr. Ross' employment was terminated without cause
(as defined in the employment agreement) or in the event he terminated his
employment for good reason (as defined in the employment agreement), Mr. Ross
was entitled to receive (in a lump sum if such termination occurred 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 was terminated, provided that such bonus was 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 was
terminated (which for fiscal 1997 was deemed to be $240,000) and (ii) two;
provided, however, that if any portion of such compensation constituted an
"excess parachute payment" under Section 280G of the Code, the Company was to
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 contained provisions which restricted 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 was to vest in four equal annual
installments, commencing upon the first anniversary of the date of grant subject
to acceleration in certain circumstances.
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
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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.
I.
APPROVAL OF THE AMENDMENT TO THE WATERLINK, INC. 1997 OMNIBUS
INCENTIVE PLAN TO RESERVE AN
ADDITIONAL NUMBER OF SHARES OF COMMON STOCK FOR ISSUANCE THEREUNDER
The Amendment was authorized by the Board on May 20, 1998 in order to make
additional shares of Common Stock available to fulfill the objective of the
Company to more closely and directly tie the remuneration of its executive
officers and key employees to increases in stockholder value. The Amendment, the
complete text of which is attached hereto as Exhibit A, would increase the
number of shares reserved for issuance under the Incentive Plan from (i) the
greater of One Million Seven Hundred Fifty Thousand (1,750,000) shares or twelve
and one-half percent (12 1/2%) of the aggregate number of shares outstanding
from time to time, not to exceed Five Million (5,000,000) shares, to (ii) the
greater of Two Million Seven Hundred Fifty Thousand (2,750,000) shares or twelve
and one-half percent (12 1/2%) of the aggregate number of shares outstanding
from time to time, not to exceed Five Million (5,000,000) shares. Effective upon
approval of the Amendment by the stockholders of the Company, the Company will
grant under the Incentive Plan an option to purchase Four Hundred Thousand
(400,000) shares of Common Stock to T. Scott King in connection with his
employment by the Company as President and Chief Executive Officer, and an
option to purchase One Hundred Thousand (100,000) shares of Common Stock
indirectly to Henrik Kallen in connection with his employment by the Company as
President-European Wastewater Systems.
The following is a brief description of the material features of the
Incentive Plan; such description is not intended to be complete and is qualified
in its entirety by reference to the full text of the Incentive Plan, which is
set forth in its entirety, as amended, as Exhibit B hereto.
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").
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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 presently may be
issued under the Incentive Plan is the lesser of:
(i) the greater of:
(A) 1,750,000((1)); 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.
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
has 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 grants 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
- ---------------
(1) The Amendment proposes that this be increased to 2,750,000.
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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 are 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 are 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 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 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.
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(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.
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
is 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.
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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") are not 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.
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
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<PAGE> 18
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 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
16
<PAGE> 19
(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 $1,000,000 the Company's federal income tax deduction for compensation paid
in any year to its chief executive officer and its four highest paid executive
officers, to the extent that such compensation is not "performance based." Under
applicable Treasury regulations, and subject to certain transition rules, a
stock option or stock appreciation right will, in general, qualify as
"performance based" compensation if it (i) has an exercise price of not less
than the fair market value of the underlying stock on the date of grant, (ii) is
granted under a plan that limits the number of shares for which options may be
granted to an employee during any one year, which plan is approved by a majority
of the stockholders entitled to vote thereon, and (iii) is granted by a
compensation committee consisting solely of at least two independent directors.
The terms of the Incentive Plan and the composition of the Compensation
Committee are intended to comply with these regulations relating to stock
options. Other stock awards or stock based awards, however, will not generally
qualify as "performance based" compensation unless the vesting or purchase of
the restricted stock bonus is contingent upon satisfying a separate performance
goal or unless such stock awards are granted during the "reliance period"
applicable to private companies that become public.
17
<PAGE> 20
NEW PLAN BENEFITS TABLE
For each of the Named Executive Officers, the former President and Chief
Executive Officer of the Company and the indicated groups, the following table
sets forth (i) the aggregate number of shares of Common Stock subject to options
granted under the Incentive Plan during fiscal 1998 and (ii) the weighted
average exercise price per share of the options granted.
<TABLE>
<CAPTION>
===============================================================================================
NAME AND POSITION AVERAGE PER SHARE PRICE ($) NUMBER OF SHARES
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Theodore F. Savastano
Chairman of the
Board of Directors $ 0 0
T. Scott King(1)
Chief Executive Officer
and
President $ 0 0
Henrik Kallen(2)
President -- European
Wastewater Systems $ 0 0
Michael J. Vantusko,
Chief Financial
Officer $13.1875 20,000
L. Dean Hertert, Jr.
Vice President $13.1875 20,000
Dr. Hans F. Larsson
Vice President $13.1875 20,000
Chet S. Ross(3)
Former Chief Executive
Officer
and President $ 0 0
Executive Officer Group $13.1875 60,000
Non-Executive Officer
Director
Group $ 0 0
Non-Executive Officer
Employee Group $13.1875 160,000
</TABLE>
- ---------------
(1) The Board elected Mr. King to the position of President and Chief Executive
Officer of the Company effective June 8, 1998.
(2) The Board elected Mr. Kallen to the position of President -- European
Wastewater Systems of the Company effective June 1, 1998.
(3) Effective June 5, 1998, Mr. Ross resigned as President and Chief Executive
Officer of the Company.
RECOMMENDATION
The Board recommends a vote FOR approval of the Amendment.
18
<PAGE> 21
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.
THE BOARD RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR PROPOSAL I (THE
APPROVAL OF THE AMENDMENT TO THE WATERLINK, INC. 1997 OMNIBUS INCENTIVE PLAN TO
RESERVE AN ADDITIONAL 1,000,000 SHARES OF COMMON STOCK FOR ISSUANCE THEREUNDER).
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
DONALD A. WEIDIG, Secretary
July 16, 1998
19
<PAGE> 22
EXHIBIT A
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)
2,750,000 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.
A-1
<PAGE> 23
EXHIBIT B
WATERLINK INC.
1997 OMNIBUS INCENTIVE PLAN
(AS AMENDED BY THE BOARD, SUBJECT TO STOCKHOLDER APPROVAL)
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
B-1
<PAGE> 24
merger or consolidation which would result in the voting securities of the
Company outstanding immediately prior thereto continuing to represent
(either by remaining outstanding or by being converted into voting
securities of the surviving entity) 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.
B-2
<PAGE> 25
(o) "Option" shall mean an Incentive Stock Option or a Non-Qualified
Stock Option.
(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
B-3
<PAGE> 26
under the Plan; (iii) determine the number of Shares to be covered by (or with
respect to which payments, rights 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)
2,750,000 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
B-4
<PAGE> 27
Awards under the Plan; provided, however, that Awards that operate in
tandem with (whether granted 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).
B-5
<PAGE> 28
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
B-6
<PAGE> 29
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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<PAGE> 31
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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<PAGE> 32
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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<PAGE> 33
(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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WATERLINK, INC.
SPECIAL MEETING OF STOCKHOLDERS, AUGUST 18, 1998
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby (i) acknowledges receipt of the Notice dated
July 16, 1998, of the Special Meeting (the "Special Meeting") of Stockholders of
Waterlink, Inc. (the "Company") to be held on August 18, 1998, and (ii)
constitutes and appoints T. Scott King 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 Special Meeting and any adjournment(s) or postponement(s) thereof.
(CONTINUED ON REVERSE SIDE)
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<PAGE> 35
1. PROPOSAL TO APPROVE THE AMENDMENT TO THE WATERLINK, INC.
1997 OMNIBUS INCENTIVE PLAN.
FOR AGAINST ABSTAIN
----- ----- -----
2. IN THEIR DISCRETION WITH RESPECT TO SUCH OTHER BUSINESS AS MAY
PROPERLY COME BEFORE THE SPECIAL MEETING.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF THE AMENDMENT TO
THE WATERLINK, INC. 1997 OMNIBUS INCENTIVE PLAN
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 PROPOSAL 1 ABOVE.
---
PLEASE SIGN EXACTLY AS When shares are held by joint tenants, both
NAME APPEARS ON THIS PROXY. 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 an authorized
person.
DATED: ____, 1998
-----------------------------------------------
Signature of Stockholder
-----------------------------------------------
Signature, if held jointly
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
