<PAGE>
SCHEDULE 14C INFORMATION
Information Statement Pursuant to Section 14(c) of
the Securities Exchange Act of 1934 (Amendment No. )
Check the appropriate box:
/ / Preliminary Information Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14c-5(d)(2))
/X/ Definitive Information Statement
SPINNAKER INDUSTRIES INC.
- --------------------------------------------------------------------------------
(Name of Registrant As Specified In Charter)
Payment of Filing Fee (Check the appropriate box):
/ / $125 per Exchange Act Rules 0-11(c)(1)(ii), or 14c-5(g).
/ / Fee computed on table below per Exchange Act Rules 14c-5(g) and 0-11.
1) Title of each class of securities to which transaction applies:
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2) Aggregate number of securities to which transaction applies:
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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:
------------------------------------------------------------------------
/X/ 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:
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2) Form, Schedule or Registration Statement No.:
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3) Filing Party:
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4) Date Filed:
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<PAGE>
SPINNAKER INDUSTRIES, INC.
600 N. PEARL STREET, SUITE 2160
DALLAS, TEXAS 75201
------------------------
NOTICE OF ACTION BY WRITTEN CONSENT
---------------------
July 23, 1996
To the stockholders of
SPINNAKER INDUSTRIES, INC.:
The Board of Directors of Spinnaker Industries, Inc., a Delaware corporation
(the "Corporation"), and Lynch Manufacturing Corporation ("Lynch"), a
stockholder of record as of the Record Date (as defined below) owning a majority
of the stock of the Corporation, wish to advise all holders of all of the issued
and outstanding shares of the Corporation's common stock, of action to be taken
pursuant to the written consent of Lynch. The action to be taken by Lynch is as
follows (the "Proposal"):
1. To amend the Amended Certificate of Incorporation to (a) authorize a new
class of common stock of the Corporation designated as Common Stock and (b)
establish the relative rights, powers and limitations of the Common Stock
and Class A Common Stock.
The Proposal has been approved and adopted by the Board of Directors of the
Corporation. The record date for the determination of stockholders of the
Corporation entitled to receive this Notice of Action by Written Consent and the
accompanying Information Statement and the determination of the number of shares
of common stock necessary to approve the Proposal has been fixed as of the close
of business on July 23, 1996 (the "Record Date"). As provided in the
Corporation's Certificate of Incorporation, each share of common stock entitles
its holder to one vote on any matter that properly comes before the stockholders
of the Corporation and requires a vote of the stockholders. The affirmative vote
or written consent of the holders of a majority of the outstanding shares of
common stock is necessary to approve the Proposal. As discussed herein, Lynch
owns approximately 73.5% of the issued and outstanding common stock as of the
Record Date. Lynch will deliver a written consent that will approve and adopt
the Proposal. No other class of voting security of the Corporation is issued or
outstanding. Pursuant to Section 228(d) of the General Corporation Law of the
State of Delaware, you are being provided with notice of the approval of the
Proposal by written consent of the holder of a majority of the Corporation's
common stock. Pursuant to the Securities Exchange Act of 1934, as amended, along
with this Notice, you are being furnished with an Information Statement relating
to the Proposal.
NO STOCKHOLDERS' MEETING WILL BE HELD TO VOTE ON OR DISCUSS THE PROPOSAL.
ACCORDINGLY, WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUIRED NOT TO SEND
US A PROXY.
By Order of the Board of Directors,
ROBERT A. HURWICH
SECRETARY
<PAGE>
SPINNAKER INDUSTRIES, INC.
600 N. PEARL STREET, SUITE 2160
DALLAS, TEXAS 75201
------------------------
INFORMATION STATEMENT
---------------------
This Information Statement is furnished by the Board of Directors of
Spinnaker Industries, Inc., a Delaware corporation (the "Corporation"), to
holders of all of the issued and outstanding shares of the Corporation's common
stock for the purpose of describing action to be taken by the holder of a
majority of the issued and outstanding shares of the Corporation's common stock
with respect to the Proposal set forth on the accompanying Notice of Action of
Written Consent.
This Information Statement and the Notice of Action by Written Consent are
first being mailed to stockholders of the Corporation on approximately July 23,
1996.
Only stockholders of record at the close of business on July 23, 1996 (the
"Record Date"), are entitled to receive this Information Statement and Notice of
Action by Written Consent. As of the close of business on such date, there were
issued and outstanding 3,074,598 shares of common stock of the Corporation of
which approximately 73.5% are owned by Lynch Manufacturing Corporation
("Lynch"). No other class of voting security of the Corporation is issued and
outstanding.
The Corporation's Certificate of Incorporation and the General Corporation
Law of the State of Delaware ("DGCL") each require an affirmative vote or
written consent of the holders of a majority of the outstanding shares to
approve the Proposal. Since Lynch owns approximately 73.5% of the issued and
outstanding shares on the Record Date, it has the voting power to approve the
Proposal. Lynch has advised the Board of Directors that it intends to execute a
written consent approving the Proposal. Accordingly, Lynch will be able to cause
the adoption of the Proposal without the receipt of consents from the remaining
stockholders of the Corporation.
No stockholders' meeting will be held to vote on or discuss the Proposal as
permitted by the Corporation's By-laws and the DGCL.
WE ARE NOT ASKING YOU FOR A PROXY AND
YOU ARE REQUESTED NOT TO SEND US A PROXY
APPROVAL OF AMENDMENT TO THE CORPORATION'S
AMENDED CERTIFICATE OF INCORPORATION
DESCRIPTION OF AMENDMENT AND DISTRIBUTION
The Board of Directors has approved the proposal (the "Proposal") to amend
(the "Amendment") Article Fourth of the Corporation's Amended Certificate of
Incorporation to (a) authorize a new class of common stock of the Corporation to
be designated as "Common Stock" (the "Common Stock") consisting of 15,000,000
shares having no par value; and (b) fix and establish the relative rights,
powers and limitations of the Corporation's Common Stock and Class A Common
Stock. The currently outstanding shares of common stock are to be designated as
"Class A Common Stock". The full text of Article Fourth, as proposed to be
amended, is set forth as Exhibit A to this Information Statement. As more fully
described below, the purpose of the Proposal is to (1) provide the Corporation
with the flexibility to issue shares for financing, acquisition and compensation
purposes without proportionately diluting the voting interests of any
stockholders; and (2) enable stockholders of the Corporation to sell portions of
their equity interest in the Corporation without proportionately reducing their
voting interests in the Corporation.
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The Proposal is expected to be adopted and it is expected that the Board of
Directors will file the Certificate of Amendment to the Amended Certificate of
Incorporation of the Corporation with the Secretary of State of Delaware
amending the Amended Certificate of Incorporation in accordance with the
Amendment. The Amendment will be effective immediately upon acceptance of filing
by the Secretary of State of the State of Delaware. Upon such filing, every
issued and outstanding share of common stock of the Corporation shall become and
be deemed to be, and shall automatically convert into one share of Class A
Common Stock and the Board of Directors would then be free to cause the issuance
of the Common Stock without any further action on the part of the stockholders.
Although the Board of Directors presently intends to file the Certificate of
Amendment if the Amendment is approved by the stockholders, the Board of
Directors reserves the right to abandon the Proposal and not file such
Certificate of Amendment even if the Amendment is approved by the stockholders.
Further, subject to adoption of the Proposal by Lynch and filing of the
Certificate of Amendment to the Amended Certificate of Incorporation of the
Corporation, the Board of Directors has declared a dividend on the Class A
Common Stock of the Corporation payable in Common Stock on the basis of one
share of Common Stock for each share of Class A Common Stock issued. The
Distribution will be essentially a two-for-one stock split. The record date for
such distribution (the "Distribution") (such record date being the "Distribution
Record Date") is August 5, 1996 and the Distribution will be made on August 16,
1996, or as soon thereafter as is practicable. Stockholder approval of the
Distribution is not required by Delaware law and is not being solicited by this
Information Statement. Although the Board of Directors presently intends to make
the Distribution, the Distribution will not be made unless the Amendment is
approved and adopted and the Certificate of Amendment is filed with the
Secretary of State of the State of Delaware.
DESCRIPTION OF THE COMMON STOCK
Under the Proposal, a new class of common stock to be designated as Common
Stock will be created. Upon filing of the Certificate of the Amendment with the
Secretary of the State of Delaware, every issued and outstanding share of common
stock of the Corporation shall become and be deemed to be, and shall
automatically convert into, one share of Class A Common Stock. The rights,
powers and limitations of the Common Stock and the Class A Common Stock are set
forth in full in Article Fourth of the Corporation's Amended Certificate of
Incorporation, as proposed to be amended. The full text of Article Fourth as
proposed to be amended is set forth as Exhibit A to this Information Statement
and is incorporated herein by reference. The following summary should be read in
conjunction with, and is qualified in its entirety by reference to, such Exhibit
A. The table set forth below summarizes certain of the relative rights, powers
and preferences and limitations of the Common Stock and Class A Common Stock as
proposed:
<TABLE>
<CAPTION>
CLASS A COMMON STOCK COMMON STOCK
---------------------------- ----------------------------
<S> <C> <C>
Voting rights (per share)................. 1 1/10
Cash dividend rights (per share).......... Pro rata share of dividends Same as Class A Common Stock
as determined by Board of except that the Board of
Directors Directors may declare
greater cash dividends
Transferability........................... Freely transferable* Freely transferable*
Preemptive, subscription and redemption
rights................................... None None
Liquidation rights........................ Pro rata share of assets Same as Class A Common Stock
remaining after payment of
all liabilities
</TABLE>
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* Certain Federal and state securities laws restrictions apply to directors,
officers, other affiliates and persons holding "restricted" stock.
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VOTING. On matters brought before the stockholders of the Corporation, each
holder of Class A Common Stock will continue to be entitled to one vote for each
share of Class A Common Stock held. Each holder of Common Stock shall be
entitled to one-tenth (1/10) vote for each share of Common Stock held. Except as
may be otherwise required by law, the holders of Common Stock and Class A Common
Stock shall vote together as a single class on all matters, subject to any
voting rights which may be granted in the future to holders of any other class
or series of stock.
DIVIDENDS. Holders of Common Stock and Class A Common Stock will be
entitled to receive ratably all such dividends, payable in cash or otherwise, as
may be declared by the Board of Directors out of assets or funds legally
available therefor except that in the case of cash dividends, (i) if, at any
time until August 31, 2001, a cash dividend is paid on the Common Stock, a cash
dividend must also be paid on the Class A Common Stock in an amount per share of
Class A Common Stock that is not greater than 100%, nor less than 66 and 2/3%,
of the amount of the cash dividend paid on each share of Common Stock or (ii)
if, at any time until August 31, 2001, a cash dividend is paid on the Class A
Common Stock, a cash dividend must also be paid on the Common Stock in an amount
that is not greater than 150%, nor less than 100%, of the amount of the cash
dividend paid on each share of the Class A Common Stock, such that a cash
dividend may not be paid on either the Common Stock or the Class A Common Stock
unless a cash dividend is also paid on the other as aforesaid. If at any time
after August 31, 2001, a cash dividend is paid on the (i) Common Stock an equal
amount to such dividend shall be paid on the Class A Common Stock and (ii) the
Class A Common Stock, an amount equal to such dividend shall be paid on Common
Stock.
In the case of dividends or other distributions payable in Common Stock of
the Corporation, holders of Common Stock may receive the same or different class
of Common Stock than the holders of Class A Common Stock and holder of Class A
Common Stock may receive the same or a different class of Common Stock than the
holders of Common Stock.
The declaration and payment of cash dividends is solely within the
discretion of the Board of Directors. The Corporation has not paid any cash
dividend in the recent past and does not anticipate paying a cash dividend in
the foreseeable future. The Corporation split the common stock of the
Corporation on a three-for-two basis in each of December 1994 and December 1995
by issuing one-half of a new share of common stock for each outstanding share.
LIQUIDATION RIGHTS. Holders of Common Stock and Class A Common Stock will
be equal and have the same rights with respect to distributions in connection
with a partial or complete liquidation of the Corporation.
TRANSFERABILITY. The Common Stock and Class A Common Stock will be freely
transferable, and except for federal and state securities law restrictions on
directors, officers and other affiliates of the Corporation and on persons
holding "restricted" stock. Corporation stockholders will not be restricted in
their ability to sell or transfer shares of the Common Stock or Class A Common
Stock. The Corporation is filing an application with NASDAQ to list the Common
Stock for trading on the NASDAQ SmallCap Market where the common stock of the
Corporation trades.
MERGERS AND CONSOLIDATIONS. Each holder of Common Stock and Class A Common
Stock will be entitled to receive the same per share consideration in a merger
or consolidation of the Corporation (whether or not the Corporation is the
surviving corporation), except that any securities issued in respect of the
Common Stock may have different or lesser voting rights than securities issued
in respect of the Class A Common Stock.
PREEMPTIVE, SUBSCRIPTION AND REDEMPTION RIGHTS. Neither the Common Stock
nor the Class A Common Stock will carry any preemptive, subscription and
redemption rights enabling a holder to subscribe for or receive shares of any
class of stock of the Corporation or any other securities convertible into
shares of any class of stock of the Corporation.
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REASONS FOR THE PROPOSAL
The Board believes that a capital structure including Common Stock will
offer a number of potential benefits to the Corporation and its stockholders.
These benefits are described below.
FINANCING FLEXIBILITY. Implementation of the Proposal would provide the
Corporation with increased flexibility in the future to issue equity securities
in connection with acquisitions and employee benefit and incentive plans, and to
raise equity capital and to issue convertible debt as a means to finance future
growth, without proportionately diluting the voting power of the Corporation's
existing stockholders (including Lynch, a wholly-owned subsidiary of Lynch
Corporation, which owns approximately 73.5% of the outstanding common stock of
the Corporation). The listing of the Common Stock on the NASDAQ SmallCap Market
may create a trading market, the existence of which could be an important factor
in assessing the value of such stock in connection with any such acquisition,
financing or benefit or incentive plan. The Corporation has not heretofore
generally issued Class A Common Stock to finance its operations or acquisitions
except as part of the refinancing of certain seller financing provided by Alco
Standard Corporation related to the acquisition by the Corporation of Central
Products Company in October 1995. Except for a recently adopted stock option
plan for directors of the Corporation who are not officers of the Corporation or
Lynch Corporation, the Corporation has not generally used stock option or stock
grants in recent years as a means of retaining or compensating employees.
The Corporation has no agreements to issue additional equity securities or
convertible securities in any future acquisition or financing transaction after
the implementation of the Proposal. If the Corporation issues any shares for
such purposes, however, it is more likely that the shares issued would be Common
Stock. Although the Class A Common Stock may trade at a premium with respect to
the Common Stock, as discussed below, the Amendment expressly permits the Board
to issue and sell shares of Common Stock even if the consideration which could
be obtained by issuing or selling Class A Common Stock would be greater. See
"Certain Effects of the Proposal--Effect on Market Price."
STOCKHOLDER FLEXIBILITY. Under the Proposal, stockholders desiring to
maintain their relative voting positions will be able to do so even if they
decide to sell or to otherwise dispose of a significant portion of their equity
interest in the Corporation (by disposing of Common Stock and holding Class A
Common Stock). The Proposal thus gives all stockholders increased flexibility to
dispose of a portion of their equity interest in the Corporation without
necessarily affecting their relative voting power.
Stockholders who are interested in maintaining their relative voting power
in the Corporation might be less reluctant to sell or otherwise dispose of part
of their holdings if the sale or disposition of shares would not result in a
decrease in their relative voting power. Sales by these stockholders could
result in an increase in trading of shares of the Corporation, thereby
increasing liquidity, particularly with respect to Common Stock. Implementation
of the Proposal would double the number of outstanding shares of the
Corporation's common stock. Furthermore, the issuance of the Common Stock would
allow any stockholder to increase his voting power without increasing the
stockholder's equity investment by selling Common Stock and buying Class A
Common Stock with the proceeds.
CONTINUITY. The Proposal would facilitate Lynch's continued ownership of a
substantial portion of the Corporation's voting securities even if Lynch should
find it desirable to sell or dispose of a significant block of stock for
corporate purposes, and thereby enable the Corporation to continue to be managed
based on long-term objectives, which the Corporation's Board of Directors
considers to be a benefit to the Corporation and its stockholders.
CERTAIN EFFECTS OF THE PROPOSAL
EFFECT ON RELATIVE OWNERSHIP INTEREST AND VOTING POWER. Because the
Distribution is to be made to all stockholders in proportion to the number of
shares of Class A Common Stock owned on the Distribution Record Date by each
stockholder, the relative ownership interest and voting power of each holder of
a share of Class A Common Stock will be the same immediately after the
Distribution as
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it was immediately prior thereto. Under the Proposal, stockholders who sell
shares of Class A Common Stock after the Distribution will lose a greater amount
of voting control in proportion to equity than they would have prior to the
Distribution. Conversely, stockholders who sell shares of Common Stock after the
Distribution will retain a greater amount of voting control in proportion to
equity. Stockholders desiring to maintain a long-term investment in the
Corporation will be free to hold the Class A Common Stock and retain the
benefits of the voting power attached to such class of common stock.
EFFECT ON MARKET PRICE. The market price of the Common Stock and Class A
Common Stock after the Distribution will depend, as before the implementation of
the Proposal, on many factors including, among others, the future performance of
the Corporation, general market conditions and conditions relating to
corporations in industries similar to that of the Corporation. Accordingly, the
Corporation cannot predict the prices at which the Common Stock and the Class A
Common Stock will trade following the adoption of the Amendment and the
Distribution just as the Corporation could not predict the price at which the
Class A Common Stock would trade absent the Amendment and the Distribution. It
is expected, however, that the market price of the Class A Common Stock will
reflect the effect of a two-for-one stock split. Absent other factors, the
Common Stock and Class A Common Stock are therefore expected to initially trade
at less than the price of the common stock of the Corporation prior to
implementation of the Proposal. On July 19, 1996 the closing price of the common
stock of the Corporation on the NASDAQ SmallCap Market was $90 per share.
No assurance can be given that the Common Stock and Class A Common Stock
will trade at the same price or within a narrow range of prices and it is
possible that the Class A Common Stock could trade at a premium compared to the
Common Stock. Should a premium on the Class A Common Stock develop, subsequent
issuances of the Common Stock could have a dilutive effect on all stockholders.
See "Dilutive Effect; Effect on Book Value and Earnings Per Share."
The Amendment expressly permits the Board to declare dividends on the Common
Stock in an amount greater than on the Class A Common Stock.
DILUTIVE EFFECT; EFFECT ON BOOK VALUE AND EARNINGS PER SHARE. As noted
above, the primary purpose of creating the Common Stock is to provide the
Corporation with an alternative equity financing vehicle which does not
proportionately dilute the voting rights of the existing stockholders. The
Distribution which would be made ratably to each holder of Class A Common Stock
will not proportionately dilute the voting and other economic interest of the
holders of the Class A Common Stock. However, if the Class A Common Stock were
to trade at a premium to the Common Stock, subsequent issuances of Common Stock
instead of Class A Common Stock in connection with an acquisition or other
transaction could have a greater dilutive effect on stockholders because such a
transaction would require more shares to deliver the same aggregate value.
As with any issuance of equity securities, a subsequent issuance of Common
Stock or Class A Common Stock may cause dilution of the economic interests that
each outstanding share represents. Because the Common Stock is entitled to share
equally with the Class A Common Stock with respect to all economic benefits
(subject to the authority of the Board to declare a dividend on the Common Stock
in an amount greater than any dividend on the Class A Common Stock), issuance of
Common Stock will have a dilutive effect on the economic interest of each
outstanding share of Class A Common Stock and Common Stock just as subsequent
issuances of the existing Class A Common Stock would have on currently
outstanding Class A Common Stock.
Although the interest of each stockholder in the total equity of the
Corporation will remain unchanged as a result of the Distribution, the issuance
of the Common Stock pursuant to the Distribution will cause the book value and
earnings per share of the Corporation to be adjusted to reflect the increased
number of shares outstanding. Although implemented in the form of a dividend,
for accounting purposes the Distribution will have the same effect as a
two-for-one stock split.
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Since the market price of the Class A Common Stock immediately subsequent to
the Distribution is expected to be significantly lower than the price of the
common stock of the Corporation immediately prior to the Distribution, it will
be possible to acquire more Class A Common Stock for a given amount of
consideration after the Distribution. Therefore, the Proposal would permit
stockholders to increase their relative voting control at a lower cost.
TRADING MARKET. Subsequent to the Distribution, there will be issued and
outstanding approximately 3,074,598 and 3,074,598 shares of Common Stock and
Class A Common Stock, respectively. In order to minimize dilution of the voting
power of the existing stockholders, the Corporation may be more likely to issue
additional Common Stock than Class A Common Stock in the future to raise equity,
finance acquisitions or fund employee benefit plans. Any such issuance of
additional Common Stock by the Corporation or sales of Common Stock by
stockholders may serve to further increase market activity in the Common Stock
relative to the Class A Common Stock.
FEDERAL INCOME TAX CONSEQUENCES. For federal income tax purposes, (i) the
proposed distribution of the Common Stock will not be taxable to a stockholder;
(ii) the adjusted basis of the shares of Class A Common Stock held by a
stockholder on the Distribution Record Date will be apportioned between the
shares of Class A Common Stock and the shares of Common Stock received in the
Distribution in proportion to the fair market value of the shares of each class
of stock on the date that the Distribution is distributed; and (iii) a
stockholder's holding period for the shares of Common Stock received in the
Distribution will include such stockholder's holding period for the shares of
Class A Common Stock with respect to which the shares of Common Stock were
received. Stockholders are urged to consult their tax advisors with reference to
their own specific tax situation.
SECURITIES ACT OF 1933. The issuance of the Common Stock as a stock
dividend will not involve a "sale" of a security under the Securities Act of
1933, as amended (the "Securities Act"). Consequently, the Corporation is not
required to register and will not register under the Securities Act the issuance
of Common Stock. Since there will be no sale of the Common Stock, stockholders
will not be deemed to have purchased such shares separately from the Class A
Common Stock under the Securities Act and Rule 144 thereunder. Shares of Common
Stock received in the distribution, other than any such shares received by
affiliates of the Corporation within the meaning of the Securities Act, may be
offered for sale and sold in the same manner as the Class A Common Stock without
registration under the Securities Act. Affiliates of the Corporation will
continue to be subject to the restrictions specified in Rule 144 under the
Securities Act, with each class of common stock considered separately.
NASDAQ CRITERIA. The common stock of the Corporation currently trades on
the NASDAQ SmallCap Market and application is being made to trade the Common
Stock on the NASDAQ SmallCap Market as well. The Proposal is intended to comply
with the rules and requirements of NASDAQ, including the prohibition on the
listing on the NASDAQ SmallCap Market of equity securities of an issuer if that
issuer issues stock or takes other corporate actions that have a
"disenfranchising" effect on existing stockholders. The Corporation has
discussed the Proposal with NASDAQ and has been advised informally that the
issuance of the Common Stock pursuant to the terms of the Distribution would not
violate NASDAQ rules. The Corporation presently anticipates, therefore, that
both the Class A Common Stock and Common Stock will be traded on the NASDAQ
SmallCap Market.
INCREASE IN AUTHORIZED STOCK. The Amendment would not increase the number
of shares of Class A Common Stock which could be issued. Of the 10,000,000
shares of Class A Common Stock authorized, there are issued and outstanding
3,074,598 shares of Class A Common Stock. The Amendment would, however,
authorize 15,000,000 shares of Common Stock of which approximately 3,074,598
shares of Common Stock would be issued in connection with the Distribution. The
remaining 11,925,402 shares of Common Stock could be issued by the Corporation
from time to time without further stockholder approval. The Board of Directors
believes it is desirable to have the additional shares of Common Stock available
for possible future financing and acquisition transactions, and other general
corporate purposes. The Board of Directors also believes that having such
additional authorized shares available for issuance in the future will give the
Corporation greater flexibility and may allow such shares to be issued without
the expense and delay of a special stockholders' meeting.
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CERTAIN POTENTIAL DISADVANTAGES OF THE PROPOSAL
While the Board of Directors has determined that implementation of the
Proposal is in the best interest of the Corporation and its stockholders, the
Board recognizes that implementation of the Proposal may result in certain
disadvantages, including the following.
ANTI-TAKEOVER EFFECT. Under the present circumstances Lynch has the ability
to approve or disapprove any acquisition of the Corporation in a transaction
involving a merger, consolidation or sale of assets because of the voting power
of the shares held by it even though all of such shares have been pledged by
Lynch to secure certain indebtedness of the Corporation. Virtually all corporate
acquisitions take one of these three forms except acquisitions in the form of a
tender offer to buy shares from the stockholders directly, a transaction that
would not be likely in the case of the Corporation because, unless Lynch tenders
its shares, the acquiror could not obtain voting control through a tender offer.
The Amendment and Distribution will not change the fact that Lynch has
sufficient voting power to disapprove a merger, consolidation or sale of assets
of the Corporation, nor will the Proposal immediately give Lynch any relatively
greater voting control. However, by allowing the Corporation to issue a
substantial number of Common Shares and enabling the holders thereof to dispose
of a significant portion of their investment in the Corporation without
proportionately affecting their voting power, the Amendment and the Distribution
may make the Corporation a less attractive target for a takeover bid than it
otherwise may have been, or render more difficult or discourage a merger
proposal, an unfriendly tender offer, a proxy contest or the removal of
incumbent directors or management, even if such actions were favored by the
stockholders of the Corporation other than Lynch. The above is particularly more
pertinent in light of the voting agreement entered into by and between Lynch and
Boyle, Fleming, George & Co., Inc. ("BFI"), the beneficial owner of
approximately 20% (including shares issuable upon exercise of warrants granted
to BFI in June 1994) of common stock of the Corporation, under which BFI
nominates one director and Lynch nominates the rest of the Board.
Although the Board of Directors considers it to be in the best interest of
the stockholders to put the Corporation in a position where it can issue equity
securities without making itself more vulnerable to hostile takeovers, the
impeding of hostile takeovers could mean that stockholders will lose a chance to
sell their shares at a premium over the prevailing market prices since hostile
takeovers frequently involve the purchase of stock directly from stockholders at
a premium price. While the Board believes that this may be true, it also
believes that the advantages of the Amendment and the Distribution significantly
outweigh this disadvantage. See "Reasons for the Proposal." Making the
Corporation less vulnerable to a hostile takeover also means that any proposed
acquisition of the Corporation would have to be negotiated with its management,
and this process could result in receipt of an even greater premium. The
Corporation is not aware of any existing or planned effort on the part of any
party to attempt an acquisition of the Corporation. The Corporation has no
present intention of seeking any such transaction.
LIQUIDITY. The creation of a new class of common stock (with the result
being that there are two classes of common stock) may adversely affect the
liquidity of each class of common stock when compared to the liquidity situation
where there existed only a single class of common stock. Furthermore, the
Proposal would allow stockholders desiring to maintain their relative voting
power while disposing of a significant portion of their equity interest in the
Corporation to do so by continuing to hold Class A Common Stock and disposing of
Common Stock. This may adversely affect the liquidity of the Class A Common
Stock as compared to the liquidity of the common stock of the Corporation prior
to the implementation of the Proposal.
STATE STATUTES. Some state securities statutes contain provisions which,
following the issuance of shares of Common Stock, may restrict offerings of
equity securities by the Corporation or the secondary trading of its equity
securities in such states. Because of the availability of applicable exemptions
from such restrictions and because such restrictive provisions would only apply
to offers or sales made in a limited number of states, the Corporation does not
believe that such provisions will materially
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adversely affect the aggregate amount of equity securities which the Corporation
will be able to offer, the price obtainable for its equity securities in such
offerings or the secondary trading market for its equity securities.
ACQUISITION ACCOUNTING. Use of the Common Stock in an acquisition could
adversely affect the ability of the Corporation to utilize the pooling of
interests method of accounting if it were otherwise available.
BROKERAGE COSTS; SECURITY FOR CREDIT. As is typical in connection with any
stock split, brokerage charges and stock transfer taxes, if any, may be somewhat
higher with respect to purchases and sales of Common Stock after the
Distribution, assuming transactions of the same dollar amount, because of the
increased number of shares involved. The Corporation does not expect that the
adoption of the Amendment and the Distribution will affect the ability of
holders to use the Class A Common Stock or Common Stock as security for the
extension of credit by financial institutions or securities brokers or dealers.
INVESTMENT BY INSTITUTIONS. The holding of lower voting equity securities
such as the Common Stock may not be permitted by the investment policies of
certain institutional investors and therefore the Distribution may cause such
stockholders to sell their Common Stock as well as cause potential stockholders
not to purchase Common Stock after the Distribution.
INTERESTS OF CERTAIN PERSONS
Lynch has an interest in the implementation of the Proposal because, as
noted above, the Proposal may enhance the ability of Lynch to retain voting
control of the Corporation even if it disposes of a substantial portion of its
shares of Common Stock.
By Order of the Board of Directors
ROBERT A. HURWICH
SECRETARY
Dated: July 22, 1996
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EXHIBIT A
RESOLVED, that the Amended Certificate of Incorporation of Spinnaker
Industries, Inc. be amended by changing the Fourth Article thereof so that, as
amended, said Article shall be and read as follows:
FOURTH: The total number of shares that the Corporation is authorized to
issue is twenty-five million (25,000,000), which shall be common stock. Each of
these shares shall have no par value.
"1. DESIGNATION
(a). Fifteen million (15,000,000) shares of common stock are hereby
designated "Common Stock" and ten million (10,000,000) shares of common
stock are hereby designated "Class A Common Stock".
(b). Immediately upon the filing of this Certificate of Amendment of the
Amended Certificate of Incorporation of Spinnaker Industries, Inc.
("Certificate of Amendment") by the Secretary of State of the State of
Delaware every issued share of common stock of the Corporation shall become
and be deemed to be, and shall automatically convert into, one (1) share of
Class A Common Stock. Certificates for shares of stock issued upon filing of
this Certificate of Amendment shall thereafter represent only shares of
Class A Common Stock.
(c). Except as otherwise expressly provided in this Amended Certificate
of Incorporation, all issued and outstanding shares of Common Stock and
Class A Common Stock shall be identical and shall entitle the holders
thereof to the same rights and privileges.
"2. VOTING
"At every meeting of the stockholders, every holder of Common Stock shall be
entitled to one-tenth (1/10) vote in person or by proxy for each share of
Common Stock standing in his name on the transfer books of the Corporation
and every holder of Class A Common Stock shall be entitled to one (1) vote
in person or by proxy for each share of Class A Common Stock standing in his
name on the transfer books of the Corporation. Except as may be otherwise
required by law or by this Article Fourth, the holders of Common Stock and
Class A Common Stock shall vote together as a single class on all matters,
subject to any voting rights which may be granted in the future to holders
of any other class or series of stock. The number of authorized shares of
Common Stock and Class A Common Stock may be increased or decreased from
time to time by the affirmative vote of a majority of the stock of the
Corporation entitled to vote, voting as a single class.
"3. DIVIDENDS AND OTHER DISTRIBUTIONS. Subject to any other provision of the
Corporation's Amended Certificate of Incorporation, as amended from time to
time, holders of Common Stock and Class A Common Stock shall be entitled to
receive ratably such dividends and other distributions in cash, stock or
property of the Corporation as may be declared thereon by the Board of
Directors from time to time out of assets or funds of the Corporation
legally available therefor; provided that in the case of cash dividends, (i)
if, at any time until August 31, 2001, a cash dividend is paid on the Common
Stock, a cash dividend must also be paid on the Class A Common Stock in an
amount per share of Class A Common Stock that is not greater than 100%, nor
less than 66 2/3%, of the amount of the cash dividend paid on each share of
the Common Stock or (ii) if, at any time until August 31, 2001, a cash
dividend is paid on the Class A Common Stock, a cash dividend must also be
paid on the Common Stock in an amount that is not greater than 150%, nor
less than 100%, of the amount of the cash dividend paid on each share of the
Class A Common Stock, such that a cash dividend may not be paid on either
the Common Stock or the Class A Common Stock unless a cash dividend is also
paid on the other as aforesaid. If at any time after August 31, 2001, a cash
dividend is paid on the (i) Common Stock an amount equal to such dividend
shall be paid on the Class A Common Stock and (ii) the Class A Common Stock,
an amount equal to such dividend shall be paid on the Common Stock. In the
case of dividends or other distributions payable in common stock of the
Corporation, holders of Common Stock may
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receive the same or a different class of common stock than the holders of
Class A Common Stock and holders of Class A Common Stock may receive the
same or a different class of common stock than the holders of Common Stock.
"4. MERGER/CONSOLIDATIONS. In any merger or consolidation of the Corporation
with or into any other corporation or a merger of any other corporation into
the Corporation, the shares of Common Stock and Class A Common Stock shall
be treated equivalently, except that any securities issued in respect of the
Common Stock may have different or lesser voting rights than securities
issued in respect of the Class A Common Stock.
"5. LIQUIDATION RIGHTS. In the event of any dissolution, liquidation or
winding up of the affairs of the Corporation, whether voluntary or
involuntary, after payment or provision for payment of the debts and other
liabilities of the Corporation, and subject to prior payment in full of all
amounts payable to the holders of Preferred Stock, the remaining assets and
funds of the Corporation, if any still exist, shall be divided among and
paid ratably to the holders of Common Stock and Class A Common Stock. A
merger or consolidation of the Corporation with or into any other
corporation or a sale or conveyance of all or any part of the assets of the
Corporation (which shall not in fact result in the liquidation of the
Corporation and the distribution of assets to stockholders) shall not be
deemed to be a voluntary or involuntary liquidation or dissolution or
winding up of the Corporation within the meaning of this subsection.
"6. SPLIT, SUBDIVISION OR COMBINATION. If the Corporation shall in any manner
split, subdivide or combine the outstanding shares of Common Stock or Class
A Common Stock, the outstanding shares of the other class of common stock
shall be proportionately split, subdivided or combined in the same manner
and on the same basis (subject to the last sentence of Section 3 above) as
the outstanding shares of the other class of common stock have been split,
subdivided or combined.
"7. PREEMPTIVE, SUBSCRIPTION AND REDEMPTION RIGHTS. The holders of Common
Stock and Class A Common Stock shall have no preemptive, subscription or
redemption rights."
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