<PAGE> 1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SCHEDULE 14A
(RULE 14a)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
(AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] CONFIDENTIAL, FOR USE OF THE COMMISSION
ONLY (AS PERMITTED BY RULE 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
</TABLE>
WATERLINK, INC.
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
XXXXXXXXXXXXXXXX
(NAME OF PERSON(S) FILING PROXY STATEMENT, IF OTHER THAN THE REGISTRANT)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies: .......
(2) Aggregate number of securities to which transaction applies: ..........
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined): ............
(4) Proposed maximum aggregate value of transaction: ......................
(5) Total fee paid: .......................................................
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid: ...............................................
(2) Form, Schedule or Registration Statement No.: .........................
(3) Filing Party: .........................................................
(4) Date Filed: ...........................................................
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
WATERLINK, INC.
4100 Holiday Street, N.W.
Canton, Ohio 44718-2532
------------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON SEPTEMBER 28, 1999
------------------------
To Our Stockholders:
A special meeting of stockholders of Waterlink, Inc. will be held at the
offices of Waterlink, 4100 Holiday Street N.W., Canton, Ohio on September 28,
1999 at 10:00 a.m. only for the following purposes:
1. To approve the sale in a registered offering of up to 6,300,000
shares of Waterlink common stock to specific institutional investors,
including current holders of more than five percent of Waterlink
common stock, as required under Rules 312.03(b) and (c) of the New
York Stock Exchange listed company manual, and
2. To approve the issuance of warrants to purchase in the aggregate
283,637 shares of Waterlink common stock to a current significant
stockholder and to the three executive officers of Waterlink in
connection with assisting in the process of improving Waterlink's
capital structure by guaranteeing, in the aggregate, repayment by
Waterlink of up to $2,600,000 of Waterlink senior debt, as required
under Rule 312.03(b) of the New York Stock Exchange listed company
manual.
The close of business on September 3, 1999 has been fixed as the record
date for the determination of stockholders entitled to notice of and to vote at
the meeting and at any adjournment 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. YOU MAY REVOKE THE PROXY AT ANY TIME
BEFORE IT IS EXERCISED. GIVING YOUR PROXY WILL NOT AFFECT YOUR RIGHT TO VOTE IN
PERSON IF YOU ATTEND THE MEETING.
By Order of the Board of Directors
DONALD A. WEIDIG, Secretary
September 8, 1999
<PAGE> 3
WATERLINK, INC.
4100 Holiday Street, N.W.
Canton, Ohio 44718-2532
------------------------
PROXY STATEMENT
------------------------
FOR A SPECIAL MEETING OF STOCKHOLDERS
SEPTEMBER 28, 1999
------------------------
GENERAL INFORMATION
This proxy statement is furnished in connection with the solicitation by
the board of directors of Waterlink, Inc. of proxies for a special meeting of
Waterlink's stockholders.
Shares cannot be voted at the meeting unless the stockholder is present in
person or represented by proxy. All shares represented by properly executed
proxies received by the board of directors pursuant to this solicitation will be
voted in accordance with the stockholder's directions specified on the enclosed
proxy. If no directions have been specified by marking the appropriate squares
on the proxy, the shares will be voted in accordance with the board of
directors' recommendations. A stockholder signing and returning a proxy has the
power to revoke it at any time prior to its exercise by delivering to Waterlink
a later dated proxy or by giving notice to Waterlink in writing or in open
meeting, but without affecting any vote previously taken.
The holders of a majority of the outstanding shares of Waterlink common
stock, present in person or represented by proxy and entitled to vote,
constitute a quorum for the transaction of all business at the meeting.
Abstentions and broker non-votes are included in determining if a quorum is
present at the meeting.
Only stockholders of record at the close of business on September 3, 1999
are entitled to vote at the meeting. As of September 3, 1999, there were issued
and outstanding 12,635,861 shares of Waterlink common stock. Each share is
entitled to one vote and cumulative voting is not permitted. A list of
stockholders of record entitled to vote at the meeting will be available for
examination by any stockholder for any purpose germane to the meeting, for a
period of 10 days prior to the meeting, during normal business hours at the
offices of Waterlink, 4100 Holiday Street N.W., Canton, Ohio. The list will also
be available at the meeting.
An affirmative vote of a majority of the shares present and voting at the
meeting is required for approval of each of the proposals set forth in this
proxy statement, provided that a majority of the issued and outstanding shares
entitled to vote on the proposal cast their vote. Abstentions from voting will
have the same effect as voting against the proposals.
This proxy statement and the enclosed proxy were first mailed to
stockholders on or about September 8, 1999.
1
<PAGE> 4
PROPOSAL 1
TO APPROVE THE SALE IN A REGISTERED OFFERING OF UP TO 6,300,000 SHARES OF
WATERLINK COMMON STOCK TO SPECIFIC INSTITUTIONAL INVESTORS, INCLUDING CURRENT
HOLDERS OF MORE THAN FIVE PERCENT OF WATERLINK COMMON STOCK, AS REQUIRED UNDER
RULES 312.03(b) AND (c) OF THE NEW YORK STOCK EXCHANGE LISTED COMPANY MANUAL.
As Waterlink announced during June 1999, Waterlink's earnings during the
fiscal quarter ended June 30, 1999 were below expectations. In accordance with
the terms of its credit agreement with its senior lenders, the lower earnings
made less funds available to Waterlink under the credit agreement. The earnings
also would have caused Waterlink to have been in default of several of the
financial covenants in the credit agreement had waivers not been received. In
order to obtain sufficient funds for ongoing operations and to avoid a default
under the credit agreement, Waterlink and the senior lenders agreed to amend the
credit agreement.
As part of this amendment, the senior lenders insisted that Waterlink (1)
proceed with its plan to obtain additional funds, from equity investors or
otherwise, to enable Waterlink to be in compliance with the credit agreement,
and (2) obtain guarantees of the repayment of any additional borrowings. In
addition, the interest rate charged Waterlink under the credit agreement was
increased by 50 basis points. The senior lenders agreed to waive compliance with
specific financial covenants, which waiver remains effective until the earliest
of (a) Waterlink's monthly operating income being less than $700,000, (b)
Waterlink being in compliance with the covenants, or (c) October 8, 1999.
In order to comply with the senior lenders' requirement that Waterlink
obtain additional investor funds, Waterlink has had discussions with some
institutional investors regarding agreeing to purchase shares of Waterlink
common stock. Several institutional investors have formally advised Waterlink of
their intention to enter into securities purchase agreements to purchase shares
of Waterlink common stock. Under these agreements to be entered into prior to
the closing date of the sale of the Waterlink common stock, Waterlink would sell
to the entities, in the aggregate, up to 6,300,000 shares of Waterlink common
stock at a per share price equal to the average of the closing price of
Waterlink common stock, as reported on the New York Stock Exchange, for the
twenty day period ending the day prior to the closing date of the sale, provided
that if the average is less than $2.50 per share, then the per share purchase
price will remain $2.50 and if the average is greater than $3.00, then the per
share purchase price will remain $3.00. The closing price of a share of
Waterlink common stock, as reported on the New York Stock Exchange on September
3, 1999, was $2.50. If that date was the closing date, the per share purchase
price for the shares of Waterlink common stock to be purchased under the
securities purchase agreements would be $2.73125 and the aggregate gross
proceeds to Waterlink from the sale would be $17,206,875.
As part of the agreement, Waterlink would agree that the shares sold to the
entities will be registered under the Securities Act of 1933. Waterlink has
filed with the Securities and Exchange Commission a registration statement to
register these shares. The State of Wisconsin Investment Board has indicated its
intention to purchase 2,000,000 shares of Waterlink common stock plus a number
of shares equal to ten percent (10%) of the number of shares sold in this
intended offering in excess of 2,000,000. T. Rowe Price Associates, Inc. has
indicated its intention to purchase that number of shares of Waterlink common
stock that, when added to the 1,208,300 shares it currently owns, will result in
it owning 9.9% of the shares of Waterlink common stock outstanding after this
transaction. The prospective purchasers, the number of shares of Waterlink
common stock to be purchased and the gross proceeds anticipated to be received
by Waterlink are set forth below. This information assumes that on the closing
date, purchasers will purchase, in the aggregate, 6,300,000 shares of Waterlink
common stock and, for purposes of this information only, that the per share
purchase price is $2.73125, calculated based on the twenty day period ending
September 2, 1999. The actual number of shares
2
<PAGE> 5
purchased, both in the aggregate and by the individual purchasers, may be less
than 6,300,000 and the amounts set forth below, respectively, and the per share
purchase price may be greater than or less than $2.73125. Therefore the gross
proceeds received by Waterlink may be less than or greater than $17,206,875.
<TABLE>
<CAPTION>
NUMBER OF GROSS
PURCHASER SHARES PROCEEDS
--------- --------- -----------
<S> <C> <C>
The State of Wisconsin Investment Board..................... 2,430,000 $ 6,636,938
T. Rowe Price Associates, Inc............................... 666,350 1,819,968
Other purchasers which have not yet indicated their
intention to purchase in the offering..................... 3,203,650 8,749,969
Total....................................................... 6,300,000 $17,206,875
</TABLE>
In connection with the agreements, Waterlink anticipates amending its
Bylaws to provide it will not, without the approval of the holders of a majority
of the outstanding shares of Waterlink common stock, grant stock options at less
than the closing market price on the date of grant or reduce the price of any
options which either were granted as a non-qualified stock option grant to an
incoming employee or vendor or were granted under any of Waterlink's existing or
future stock option plans. Also, Waterlink anticipates amending its existing
stockholder rights plan to exempt the State of Wisconsin Investment Board from
being an "acquiring person" under the plan for purchases of 15% or more of the
outstanding shares of Waterlink common stock but not more than 20%. This
amendment is necessary to proceed with the anticipated sale of stock and would
allow the State of Wisconsin Investment Board to acquire beneficial ownership of
15% or more of the outstanding Waterlink common stock without triggering the
operation of the plan.
Because the number of shares of Waterlink common stock to be sold in this
transaction will be in excess of 20% of the number of shares outstanding before
the transaction, Rule 312.03 (c) of the New York Stock Exchange listed company
manual requires that the sale be approved by the stockholders of Waterlink. In
addition, since each of the State of Wisconsin Investment Board and T. Rowe
Price Associates, Inc. holds more than five percent of the Waterlink common
stock before the transaction and the number of shares of Waterlink common stock
that each will be purchasing exceeds one percent of the number of shares of
Waterlink common stock before the transaction, Rule 312.03 (b) of the New York
Stock Exchange listed company manual requires that the sale be approved by the
stockholders of Waterlink. While Waterlink may sell shares constituting more
than one percent of the number of shares of Waterlink common stock before the
transaction to other current holders of more than five percent of the
outstanding Waterlink common stock, as identified in the "Common Stock
Ownership" table appearing below, as of the date of this proxy statement none
has indicated its intention to purchase such shares but approval of proposal 1
would include approval of such sale to any of those specified stockholders at
the same price as referred to above.
The board of directors of Waterlink approved the sale of the shares of
Waterlink common stock as previously discussed. The board of directors believes
that the sale as described above represents the best means of satisfying the
requirement set by Waterlink's senior lenders to promptly raise additional
equity and avoiding default under Waterlink's credit agreement. While we believe
this transaction is the best means, if the proposal is not approved or the
transaction cannot be completed, Waterlink would seek other sources of capital
or pursue other strategic alternatives. We cannot assure you that Waterlink
would be able to complete an alternative approach to raising the additional
equity on a timely and sufficient basis.
The board of directors recommends that you vote FOR proposal 1.
3
<PAGE> 6
PROPOSAL 2
TO APPROVE THE ISSUANCE OF WARRANTS TO PURCHASE IN THE AGGREGATE 283,637
SHARES OF WATERLINK COMMON STOCK TO A CURRENT SIGNIFICANT STOCKHOLDER AND TO THE
THREE EXECUTIVE OFFICERS OF WATERLINK IN CONNECTION WITH ASSISTING IN THE
PROCESS OF IMPROVING WATERLINK'S CAPITAL STRUCTURE BY GUARANTEEING, IN THE
AGGREGATE, REPAYMENT BY WATERLINK OF UP TO $2,600,000 OF WATERLINK SENIOR DEBT,
AS REQUIRED UNDER RULE 312.03(b) OF THE NEW YORK STOCK EXCHANGE LISTED COMPANY
MANUAL.
In 1997, Brantley Venture Partners III, L.P., a significant stockholder of
Waterlink, had entered into a guaranty of Waterlink debt, along with other
significant stockholders, and had negotiated documentation satisfactory with the
senior lenders. In June 1999, Waterlink had a very limited period of time to
negotiate an amendment with its senior lenders to enable Waterlink to borrow
under the credit agreement and to avoid being in default. The senior lenders
advised Waterlink that a guaranty was required and that a new guaranty from
Brantley would be acceptable. Brantley agreed to assist Waterlink in this
process of improving Waterlink's capital structure and providing a guarantee of
$2.3 million of availability for Waterlink from the senior lenders, but insisted
that each of Waterlink's executive officers execute a guaranty and assist in
this process. Theodore F. Savastano, T. Scott King and Michael J. Vantusko, who
are the chairman of the board, chief executive officer and chief financial
officer, respectively, of Waterlink, agreed to guarantee, severally, in the
aggregate, an additional $300,000. Robert P. Pinkas, a director of Waterlink, is
managing general partner of Brantley. In consideration of the assistance
provided to Waterlink by this significant stockholder and the executive
officers, especially in making, in the aggregate, $2,600,000 of their own assets
available pursuant to guaranties to enable Waterlink to have funds available for
its ongoing operations, Waterlink granted these guarantors warrants to purchase,
in the aggregate, up to 283,637 shares of Waterlink common stock at an exercise
price of $0.01 per share. The warrants are immediately exercisable, expire if
unexercised in five years, and contain substantially the same terms as the other
outstanding warrants previously issued by Waterlink. The guarantors, the amount
of Waterlink senior indebtedness guaranteed and the number of shares to be
issued to each upon exercise of warrants granted to them are as follows:
<TABLE>
<CAPTION>
INDEBTEDNESS NUMBER OF
GUARANTOR GUARANTEED SHARES
--------- ------------ ---------
<S> <C> <C>
Brantley Venture Partners III, L.P................... $2,300,000 250,909
Theodore F. Savastano................................ 150,000 16,364
T. Scott King........................................ 100,000 10,909
Michael J. Vantusko.................................. 50,000 5,455
</TABLE>
Because of the status of each of the guarantors as an officer, director or
significant stockholder of Waterlink and because the 283,637 shares subject to
the warrants granted, in the aggregate, to the guarantors exceeds 1% of the
number of shares of Waterlink common stock before the issuance, Rule 312.03 (b)
of the New York Stock Exchange listed company manual requires that the grant be
approved by the stockholders of Waterlink. Of the warrants granted, warrants to
purchase, in the aggregate, 158,637 shares were granted subject to stockholder
approval. If proposal 2 is not approved, the guarantors will retain warrants to
purchase, in the aggregate, 125,000 shares, which grants do not require
stockholder approval under the New York Stock Exchange rules.
The board of directors of Waterlink approved the grant of the warrants to
the guarantors of repayment of part of Waterlink's bank debt, including the
approval of a majority of the independent directors. The board of directors
believes that obtaining the individual guaranties of that significant
stockholder and the executive officers represented the best means of satisfying
the requirement set by Waterlink's senior lenders to have guaranties for any
additional corporate borrowings, and thereby continuing normal operations and
avoiding default under its credit agreement.
The board of directors recommends that you vote FOR proposal 2.
4
<PAGE> 7
In each of the transactions referred to in proposals 1 and 2, no Waterlink
stockholder has pre-emptive rights with respect to the shares of Waterlink
common stock being issued. If the sale is approved, existing stockholders would
incur a dilution in their interest in Waterlink of approximately 33.3% and the
stockholders who are allowed to purchase shares and who are granted the warrants
would have the number of shares and the percentage of outstanding shares as set
forth in the "Common Stock Ownership" table appearing below.
EXPENSES OF SOLICITATION
All expenses relating to the solicitation of proxies will be paid by
Waterlink. Waterlink has engaged MacKenzie Partners, Inc. to solicit proxies,
for a fee not to exceed $6,000, plus reimbursement of out-of-pocket expenses.
Solicitation will be made principally by mail, but in addition to MacKenzie
Partners, Inc., Waterlink's officers and regular employees may solicit proxies
by telephone or personal contact with nominal expense to Waterlink. Waterlink
will reimburse brokers, banks, and other nominees who hold Waterlink common
stock in their names for their reasonable expenses in forwarding proxy material
to the beneficial owners.
5
<PAGE> 8
COMMON STOCK OWNERSHIP
The following table sets forth the beneficial ownership of Waterlink common
stock as of July 31, 1999 by the executive officers of Waterlink, each of the
directors of Waterlink and all executive officers and directors of Waterlink as
a group, as well as by each person known by Waterlink to be the beneficial owner
of more than 5% of Waterlink common stock. Beneficial ownership includes shares
of Waterlink common stock subject to options, warrants, rights, or similar
obligations exercisable within 60 days of the date of determination 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 that
stockholder. The columns under the heading "Ownership After Transactions"
reflect the beneficial ownership of the Waterlink common stock as of July 31,
1999, modified to include the additional beneficial ownership anticipated from
the sale of 6,300,000 shares and the issuance of 158,637 warrants which are
subject to stockholder approval, as referred to in the proposals being
considered at the special meeting on September 28, 1999. The percentage
computations are based on 12,635,861 shares currently outstanding and 18,935,861
outstanding as modified to include the shares anticipated to be issued in the
transactions referred to in the proposals being considered at the special
meeting. An asterisk indicates less than one percent of shares outstanding.
<TABLE>
<CAPTION>
CURRENT OWNERSHIP OWNERSHIP AFTER TRANSACTIONS
---------------------------------- ----------------------------------------
SHARES OF WATERLINK PERCENT SHARES OF WATERLINK PERCENT
NAME AND ADDRESS COMMON STOCK OF SHARES COMMON STOCK OF SHARES
OF BENEFICIAL OWNER BENEFICIALLY OWNED OUTSTANDING BENEFICIALLY OWNED OUTSTANDING
------------------- ------------------- ----------- ------------------- -----------
<S> <C> <C> <C> <C>
Brantley Venture Partners III,
L.P............................ 2,164,127(3) 16.91% 2,304,459(15) 12.07%
20600 Chagrin Blvd
Suite 1150
Cleveland, Ohio 44122
T. Rowe Price Associates, Inc.... 1,208,300(4) 9.56% 1,874,650(4) 9.90%
100 East Pratt Street
Baltimore, MD 21202
Dimensional Fund Advisors Inc.... 815,000(5) 6.45% 815,000(5) 4.30%
1299 Ocean Avenue, 11th Floor
Santa Monica, CA 90401
State of Wisconsin Investment
Board.......................... 749,500(6) 5.93% 3,179,500(6) 16.79%
P.O. Box 7842
Madison, WI 53707
Environmental Opportunities...... 676,000(7) 5.33% 676,000(7) 3.56%
Management Co., LLC
3100 Texas Commerce Tower
Houston, TX 77002
River Cities Capital Fund........ 647,950(8) 5.12% 647,950(8) 3.42%
Limited Partnership
221 East 4th Street
Suite 2250
Cincinnati, OH 45202
Theodore F. Savastano............ 1,000,011(9)(10)(11) 7.85% 1,009,164(9)(10)(11)(16) 5.30%
T. Scott King(1)................. 119,808(9)(10) * 125,909(9)(10)(16) *
</TABLE>
6
<PAGE> 9
<TABLE>
<CAPTION>
CURRENT OWNERSHIP OWNERSHIP AFTER TRANSACTIONS
---------------------------------- ----------------------------------
SHARES OF WATERLINK PERCENT SHARES OF WATERLINK PERCENT
NAME AND ADDRESS COMMON STOCK OF SHARES COMMON STOCK OF SHARES
OF BENEFICIAL OWNER BENEFICIALLY OWNED OUTSTANDING BENEFICIALLY OWNED OUTSTANDING
------------------- ------------------- ----------- ------------------- -----------
<S> <C> <C> <C> <C>
Michael J. Vantusko.............. 182,404(9)(10) 1.43% 185,455(9)(10)(16) *
Robert P. Pinkas................. 2,267,377(9)(12) 17.57% 2,407,709(9)(15) 12.54%
Dr. Paul M. Sutton............... 15,050(9)(13) * 15,050(9)(13) *
Rollin S. Reiter................. 29,250(9) * 29,250(9) *
John R. Miller................... 9,250(9) * 9,250(9) *
Chet S. Ross(2).................. 603,362(9) 4.66% 603,362(9) 3.14%
All directors and executive...... 4,226,512(14) 31.17% 4,385,149(17) 21.91%
officers as a group (8 persons)
</TABLE>
- ---------------
(1) The board of directors elected Mr. King to the position of president and
chief executive officer of Waterlink effective June 8, 1998.
(2) Effective June 5, 1998, Mr. Ross resigned as president and chief executive
officer of Waterlink.
(3) Includes warrants to purchase 164,127 shares of Waterlink common stock held
by Brantley Capital Corporation, an affiliate of Brantley Venture Partners
III, L.P. Robert P. Pinkas, a director of Waterlink, is managing general
partner of Brantley Venture Partners III, L.P. and has sole voting and
investment power with respect to these shares.
(4) Based on its filing on Form 13 G/A dated February 12, 1999. T. Rowe Price
Associates, Inc. has sole voting power with respect to 187,900 shares and
sole dispositive power with respect to 1,208,300 shares.
(5) Based on its filing on Form 13 G dated February 11, 1999. Dimensional Fund
Advisors Inc. is a registered investment advisor and an investment manager
for investment companies and other investment vehicles. All of the
indicated shares are owned by those investment companies and investment
vehicles. Dimensional has disclaimed beneficial ownership of those
securities.
(6) Based on its filing on Form 13 G dated February 2, 1999.
(7) Includes warrants issued to entities to purchase an aggregate of 51,000
shares of Waterlink common stock, as to which entities Environmental
Opportunities Management Co., LLC is the general partner and has sole
voting and investment power with respect to these shares. Waterlink has
been advised that Sanders Morris Mundy, one of the underwriters of
Waterlink's initial public offering in 1997, owns a 75% interest in, and
thereby controls, Environmental Opportunities Management Co.
(8) Includes warrants to purchase 22,950 shares of Waterlink common stock.
Waterlink has been advised that Mayson, Inc., 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 shared voting and investment power with respect to these shares.
(9) Includes options for the indicated optionholder to purchase the indicated
shares of Waterlink common stock, which options are fully vested:
<TABLE>
<S> <C>
Theodore F. Savastano 100,000
T. Scott King 100,000
Michael J. Vantusko 130,000
Robert P. Pinkas 101,250
Dr. Paul M. Sutton 4,250
Rollin S. Reiter 4,250
John R. Miller 4,250
Chet S. Ross 300,000
</TABLE>
(10) Includes warrants to purchase the indicated shares of Waterlink common
stock:
<TABLE>
<S> <C>
Theodore F. Savastano 7,211
T. Scott King 4,808
Michael J. Vantusko 2,404
</TABLE>
(11) Mr. Savastano's business address is 4100 Holiday Street, N.W., Canton, OH,
44718.
7
<PAGE> 10
(12) Includes shares, including the 164,127 warrants referred to in footnote 3
above, which are held by Brantley Venture Partners III, L.P., of which Mr.
Pinkas is managing general partner. Mr. Pinkas's business address is 20600
Chagrin Blvd., Suite 1150, Cleveland, OH 44122.
(13) Dr. Sutton disclaims beneficial ownership of 100 shares of Waterlink common
stock held by a member of his family.
(14) Includes options to purchase 744,000 shares of Waterlink common stock,
which are fully vested, and 178,550 warrants (as indicated above). Includes
the former president and chief executive officer as part of the group. If
he was excluded, the group would consist of seven persons and would
beneficially own 3,623,150 shares of Waterlink common stock or 26.72%.
(15) Includes warrants to purchase 304,459 shares of Waterlink common stock
(including the 164,127 warrants described in note 3) held by Brantley
Capital Corporation, an affiliate of Brantley Venture Partners III, L.P.
Robert P. Pinkas, a director of Waterlink, is managing general partner of
Brantley Venture Partners III, L.P. and has sole voting and investment
power with respect to these shares.
(16) Includes warrants to purchase the indicated shares of Waterlink common
stock, including the warrants described in note 10:
<TABLE>
<S> <C>
Theodore F. Savastano 16,364
T. Scott King 10,909
Michael J. Vantusko 5,455
</TABLE>
(17) Includes options to purchase 744,000 shares of Waterlink common stock,
which are fully vested, and 337,187 warrants (as indicated above). Includes
the former president and chief executive officer as part of the group. If
he was excluded, the group would consist of seven persons and would
beneficially own 3,781,787 shares of Waterlink common stock or 18.89%
EXECUTIVE COMPENSATION
The following table presents information regarding compensation we paid to
our chief executive officer and our other executive officers whose salary and
bonus together exceeded $100,000 in fiscal 1998. We refer to these individuals
collectively as the "Named Executive Officers." The compensation described in
the table does not include benefits which are generally available to all our
salaried employees and perquisites and other personal benefits which do not
exceed the lesser of $50,000 or 10% of the officer's salary and bonus shown in
the table.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION AWARDS
ANNUAL COMPENSATION -----------------------
-------------------------- RESTRICTED SECURITIES
NAME AND OTHER ANNUAL STOCK UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR SALARY($) BONUS($) COMPENSATION($) AWARDS($) OPTIONS(#) COMPENSATION($)
------------------ ---- --------- -------- --------------- ---------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Theodore F. Savastano 1998 $240,000 $ 45,000(3) -- -- -- --
Chairman of the 1997 $234,013 $125,000 $1,050,000(5) -- 100,000 $1,658,750(6)
Board of Directors 1996 $225,800 -- -- -- 100,000 --
T. Scott King(1) 1998 $108,750 $ 50,000(4) -- -- 400,000 $ 1,004(7)
Chief Executive 1997 -- -- -- -- -- --
Officer and President 1996 -- -- -- -- -- --
Michael J. Vantusko 1998 $162,500 $ 40,000(3) -- -- 20,000 $ 1,425(7)
Chief Financial
Officer 1997 $123,500(8) $ 50,000 -- -- 225,000 $ 390(7)
1996 -- -- -- -- -- --
Chet S. Ross(2) 1998 $160,000 $ 45,000(3) -- -- -- $ 132,791(9)
Former Chief
Executive 1997 $234,013 $125,000 -- -- 300,000 $ 620(7)
Officer and President 1996 $225,800 -- -- -- 220,000 --
</TABLE>
- ---------------
(1) The board elected Mr. King to be our president and chief executive officer
effective June 8, 1998. Salary and other compensation for 1998 represent
amounts from June 8, 1998 through September 30, 1998. For terms of Mr.
King's compensation, see "Employment Agreements," below.
(2) Effective June 5, 1998, Mr. Ross resigned as our president and chief
executive officer. The amounts shown as salary and bonus do not reflect
severance compensation paid to Mr. Ross during 1998 and described in
footnote 9 below.
8
<PAGE> 11
(3) In January 1998 bonus payments were made which represent deferred payments
in connection with our initial public offering. No other bonus amounts were
earned or paid to these individuals during fiscal 1998.
(4) Mr. King's employment agreement provided for a bonus of $50,000 upon
signing. No other bonus amount was earned by or paid to Mr. King during
fiscal 1998.
(5) Represents $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 Waterlink.
(6) The amount shown represents 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. The options were exercisable upon
consummation of the initial public offering. The 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) This represents Waterlink's "match" payment relating to our 401(k) Plan.
(8) This represents salary from January 1, 1997, the date Mr. Vantusko began
working for us.
(9) This represents payments of $130,000 made in accordance with Mr. Ross'
employment agreement of May 23, 1997 and with the agreement entered into in
June 1998 in connection with his resignation and $2,791 which represents
Waterlink's "match" payment relating to our 401(k) Plan.
STOCK OPTION GRANTS
The following table designates each grant of stock options made to the
Named Executive Officers during fiscal 1998. The per share exercise price of
options granted under our stock option plans is the fair market value of the
Waterlink common stock on the date of grant. Waterlink has not yet granted stock
appreciation rights, or SARs. Amounts under the column heading "Potential
Realizable Value..." represent hypothetical gains that could be achieve for the
options if exercised at the end of the option term. The 5% and 10% assumed
annual rates of compounded stock price appreciation are mandated by the rules of
the SEC and do not represent our estimate or projection of future Waterlink
common stock price growth. These amounts represent assumed rates of appreciation
in the value of our common stock from the fair market value on the date of
grant. Actual gains, if any, are dependent on the actual future performance of
our common stock which will benefit all stockholders.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
---------------------------------------------------------- VALUE AT
PERCENT OF ASSUMED ANNUAL
NUMBER OF TOTAL OPTIONS RATES OF STOCKS
SECURITIES GRANTED TO EXERCISE PRICE APPRECIATION
UNDERLYING EMPLOYEES OF FOR OPTION TERM
OPTIONS FISCAL BASE PRICE EXPIRATION -------------------------
NAME GRANTED(#) YEAR ($/SH) DATE 5%($) 10%($)
---- ---------- ------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Theodore F. Savastano -- -- -- -- -- --
T. Scott King 400,000 50.0% $ 7.625 8/18/08 $1,918,129 $4,860,915
Michael J. Vantusko 20,000 2.5% $13.1875 4/3/08 $ 165,871 $ 420,350
Chet S. Ross -- -- -- -- -- --
</TABLE>
STOCK OPTION EXERCISES
The following table describes exercises of stock options during fiscal 1998
by each of the Named Executive Officers and their stock options outstanding as
of September 30, 1998. Waterlink has not granted stock appreciation rights. None
of the outstanding stock options are "in-the-money" since the exercise price of
all options are in excess of the market price for Waterlink common stock on
September 30, 1998.
9
<PAGE> 12
AGGREGATED OPTION EXERCISE IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS OPTIONS
AT FISCAL AT FISCAL
SHARES YEAR-END(#) YEAR-END($)
ACQUIRED ON VALUE EXERCISABLE(E) UNEXERCISABLE(U)
NAME EXERCISE(#) REALIZED($) UNEXERCISABLE(U) EXERCISABLE(E)
---- ----------- ----------- ---------------- ----------------
<S> <C> <C> <C> <C>
Theodore F. Savastano -- -- 100,000(E) --(E)
--(U) --(U)
T. Scott King -- -- --(E) --(E)
400,000(U) --(U)
Michael J. Vantusko -- -- 100,000(E) --(E)
95,000(U) --(U)
Chet S. Ross 220,000 $756,563 300,000(E) --(E)
--(U) --(U)
</TABLE>
EMPLOYMENT AGREEMENTS
Mr. Savastano entered into an employment agreement with Waterlink in 1997
which provides for him to serve as chairman of the board for an initial term of
three years subject to automatic one-year extensions on each anniversary of the
agreement until mandatory retirement at age 65. He is paid an annual base salary
of $240,000. Mr. Savastano participates in Waterlink's annual incentive bonus
plan which entitles him to earn annually an amount ranging from zero to 150% of
his base salary if performance goals established by the board of directors are
achieved. If Mr. Savastano's employment is terminated without cause or if he
terminates his employment for good cause, he will receive an amount equal to the
present value of twice the sum of his base salary in effect when terminated and
the annual bonus paid to him for that fiscal year if calculable, and if not
calculable, then the bonus paid to him with respect to the prior fiscal year,
except during fiscal 1999, during which the annual bonus paid is deemed to be
equal to his base salary. If the payment is as a result of a change of control
and the termination occurs within one year of the change of control, the amount
payable to Mr. Savastano will be paid in a lump sum. In either event, if the
amounts payable to Mr. Savastano are "excess parachute payments" for federal tax
purposes, Mr. Savastano will be paid an additional amount to offset any taxes
payable with respect to the excess parachute payment and the additional payment.
He is also restricted from competing with Waterlink during the term of his
agreement and for 24 months following its termination. If a change of control of
Waterlink occurs during fiscal 1999 and Mr. Savastano had his employment
terminated without cause or he terminated his employment for good cause, he
would have been entitled to a payment of $1,025,000.
Mr. King entered into an employment agreement with Waterlink in 1998 which
provided for him to serve as president and chief executive officer for an
initial term of three years subject to automatic one-year extensions on each
anniversary of the agreement until mandatory retirement at age 65. He is paid an
initial annual base salary of $300,000. Mr. King participates in Waterlink's
annual incentive bonus plan which entitles him to earn annually an amount
ranging from zero to 150% of his base salary if performance goals established by
the board of directors are achieved. He was also paid a $50,000 signing bonus.
If Mr. King's employment is terminated without cause or if he terminates his
employment for good cause, he will receive an amount equal to the present value
of one and one-half times the sum of his base salary in effect when terminated
and the annual bonus paid to
10
<PAGE> 13
him with respect to that fiscal year if termination occurs after the first four
months of the fiscal year, and if 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 was
terminated, except during fiscal 1999, during which the annual bonus paid is
deemed to be equal to his base salary. If any of the payments payable to Mr.
King under these circumstances are "excess parachute payments" for federal tax
purposes, Mr. King is to be paid an additional amount to offset any tax payable
with respect to the excess parachute payment and the additional payment. He is
also restricted from competing with Waterlink during the term of his agreement
and for 18 months following its termination. If a change of control of Waterlink
occurs during fiscal 1999 and Mr. King had his employment terminated without
cause or he terminated his employment for good cause, he would have been
entitled to a payment of $950,000. Mr. King was granted options to purchase
400,000 shares of Waterlink common stock at $7.625, which was then the fair
value. Those options vest in four equal installments beginning on May 21, 1999
subject to acceleration.
Mr. Vantusko entered into an agreement with Waterlink in 1997 which
provides for him to serve as chief financial officer for initial terms of three
years subject to automatic one-year extensions on each anniversary of the
agreement. He was paid an annual base salary of $150,000. Mr. Vantusko
participates in Waterlink's annual incentive plan which entitles him to earn
annually an amount ranging from zero to 150% of his base salary if performance
goals established by the board of directors are achieved. If Mr. Vantusko's
employment is terminated without cause or if he terminates his employment for
good cause, he will receive an amount equal to the sum of his base salary in
effect when terminated and the annual bonus paid to him for that fiscal year if
calculable, and if not calculable, then the bonus paid to him with respect to
the prior fiscal year, except during fiscal 1999, during which the annual bonus
paid is deemed to be equal to his base salary. He is also restricted from
competing with Waterlink during the term of his agreement and for 12 months
following its termination. If a change of control of Waterlink occurs during
fiscal 1999 and Mr. Vantusko had his employment terminated without cause or he
terminated his employment for good cause, he would have been entitled to a
payment of $425,000. In 1997, Mr. Vantusko was granted options to purchase
100,000 shares of Waterlink common stock at $11.00 per share, the initial
offering price of the Waterlink common stock sold in our initial public
offering. This option vests in four equal annual installments beginning on May
23, 1998, subject to acceleration. Effective April 1, 1999, Mr. Vantusko's
annual base salary was increased to $200,000.
Chet Ross entered into an agreement with Waterlink to resign his employment
in June, 1998. Mr. Ross had served as president and chief executive officer
since 1995. Pursuant to the agreement, Mr. Ross's employment terminated on June
5, 1998 at which time he also resigned as a director. Mr. Ross will receive
$780,000 payable in 48 equal semi-annual installments. He also retained for up
to two years standard executive employee medical and similar benefits. Stock
options to purchase 300,000 shares of Waterlink common stock granted to him in
May 1997 with an exercise price of $11.00 per share, which options are
exercisable until January 10, 2000, subject to agreed-upon volume limitations,
became vested. Mr. Ross agreed to maintain as confidential information he had
access to while employed by Waterlink. Mr. Ross is restricted from competing
with Waterlink until June 4, 2000.
11
<PAGE> 14
STOCKHOLDER PROPOSALS FOR THE 1999 ANNUAL MEETING
Waterlink intends to hold its next annual meeting of stockholders in
January 2000. In order for a stockholder proposal to be included in next year's
annual proxy statement, it must have been received by the secretary of Waterlink
at 4100 Holiday Street, N.W., Canton, Ohio 44718-2532, by August 6, 1999.
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
September 8, 1999
12
<PAGE> 15
PROXY CARD
WATERLINK, INC.
SPECIAL MEETING OF STOCKHOLDERS, SEPTEMBER 28, 1999
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby (a) acknowledges receipt of the notice dated September 8,
1999 of the special meeting of stockholders of Waterlink, Inc. to be held on
September 28, 1999 and (b) appoints T. Scott King and Michael J. Vantusko, or
either of them, attorneys and proxies with full power of substitution in each of
them, in the name, place and stead of the undersigned to vote as proxy all the
stock of the undersigned in Waterlink at the special meeting and any
adjournment(s) or postponement(s) of the special meeting.
[X] Please mark your vote as in this example.
1. TO APPROVE THE SALE IN A REGISTERED OFFERING OF UP TO 6,300,000 SHARES OF
WATERLINK COMMON STOCK TO SPECIFIC INSTITUTIONAL INVESTORS, INCLUDING CURRENT
HOLDERS OF MORE THAN FIVE PERCENT OF WATERLINK COMMON STOCK, AS REQUIRED
UNDER RULES 312.03(B) AND (C) OF THE NEW YORK STOCK EXCHANGE LISTED COMPANY
MANUAL.
[ ] FOR [ ] AGAINST [ ] WITHHELD
2. TO APPROVE THE ISSUANCE OF WARRANTS TO PURCHASE IN THE AGGREGATE 283,637
SHARES OF WATERLINK COMMON STOCK TO A CURRENT SIGNIFICANT STOCKHOLDER AND TO
THE THREE EXECUTIVE OFFICERS OF WATERLINK IN CONNECTION WITH ASSISTING IN THE
PROCESS OF IMPROVING WATERLINK'S CAPITAL STRUCTURE BY GUARANTEEING, IN THE
AGGREGATE, REPAYMENT BY WATERLINK OF UP TO $2,600,000 OF WATERLINK SENIOR
DEBT, AS REQUIRED UNDER RULE 312.03(B) OF THE NEW YORK STOCK EXCHANGE LISTED
COMPANY MANUAL.
[ ] FOR [ ] AGAINST [ ] WITHHELD
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL 1 AND FOR PROPOSAL 2.
(Sign on Reverse Side)
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED FOR THE PROPOSAL IF NO
INSTRUCTION TO THE CONTRARY IS INDICATED OR IF NO INSTRUCTION IS GIVEN.
DATED: , 1999
------------------------
------------------------------------
Signature
------------------------------------
Signature, if held jointly
PLEASE SIGN EXACTLY AS YOUR NAME
APPEARS ON THIS PROXY.
When shares are held by joint
tenants, both should sign. When
signing as attorney, executor,
administrator, trustee or guardian,
please give full title. If a
corporation, please sign in full
corporate name by the president or
other authorized officer. If a
partnership, please sign in
partnership name by authorized
person. If shares held in the name
of two or more persons all should
sign.
PLEASE MARK, SIGN, DATE AND RETURN
THIS PROXY IN THE ENCLOSED ENVELOPE.
