<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A(2)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from to
Commission file number 2-66564
SPINNAKER INDUSTRIES, INC.
-----------------------------------------------------
(Exact name of Registrant as specified in its charter)
DELAWARE 06-0544125
- -------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
600 N. PEARL ST. SUITE 2160, DALLAS, TX 75201
- ---------------------------------------- ---------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 214-855-0322
------------------------
Securities registered pursuant to Section 12(b) of the Act: NONE
----
Securities registered pursuant to Section 12(g) of the Act.
COMMON STOCK - NO PAR VALUE
------------------------------------------------------------
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulations S-K is not contained herein, and will not be contained to,
the best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K, or any
amendment to this Form 10-K [ X ]
The aggregate market value of the voting stock held by non-affiliates of the
Registrant (totaling 400,956 shares) was $14,735,133 (based upon the closing
bid of the Registrant's common stock in the NASDAQ on February 29, 1996 of
$36.75 per share). The term affiliates is deemed, for this purpose only, to
refer only to directors, officers and principal stockholders of the
Registrant.
Indicate the number of shares outstanding of each of the Registrant's classes
of common stock, as of the latest practicable date.
The number of outstanding shares of the Registrant's Common Stock was
2,715,694 as of March 1, 1996.
DOCUMENTS INCORPORATED BY REFERENCE
-----------------------------------
None
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES AND REPORTS ON
FORM 8-K
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<PAGE>
(c) Exhibits.
3(i) - Certificate of Incorporation of the Registrant, as amended
(filed as Exhibit 3(i) to the Registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1994).
3(ii) - Bylaws of the Registrant (filed as Exhibit 3(ii) to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1994).
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<PAGE>
4 - A Warrant, dated as of June 10, 1994, executed by Safety
Railway Service Corporation (filed as Exhibit 7.4 to the
Registrant's Current Report on Form 8-K dated June 13, 1994).
10.1 - Commercial Loan Open End Mortgage Deed and Security Agreement
and Commercial Mortgage Note dated July 1, 1988 in the amount
of $1,100,000 to Centerbank (formerly Connecticut Savings
Bank)(filed as Exhibit 10.1 to the Registrant's Annual Report
on Form 10-K for the fiscal year ended December 31, 1994).
10.2 - Loan Agreement dated as of September 16, 1994, between
Transamerica Business Credit Corporation and Brown-Bridge
Industries, Inc. (filed as Exhibit 10.(A) to the Registrant's
Quarterly Report on Form 10-Q for the fiscal quarter ended
September 30, 1994).
*10.3 - Management Agreement, dated June 10, 1994, by and among Boyle,
Fleming George & Co., Inc. and Safety Railway Service
Corporation (filed as Exhibit 7.1 to the Registrant's
Current Report on Form 8-K dated June 13, 1994).
10.4 - Voting Agreement, dated as of June 10, 1994, by and among
Safety Railway Service Corporation, Lynch Manufacturing
Corporation, and Boyle, Fleming, George & Co., Inc. (filed as
Exhibit 7.2 to the Registrant's Current Report on Form 8-K
dated June 13, 1994).
10.5 - Warrant Purchase Agreement, dated as of June 10, 1994, by and
among Boyle, Fleming, George & Co., Inc. and Safety Railway
Service Corporation (filed as Exhibit 7.3 to the Registrant's
Current Report on Form 8-K dated June 13, 1994).
10.6 - Assets Purchase Agreement, dated June 15, 1994, between
Brown-Bridge Acquisition Corporation and Kimberly-Clark
Corporation as amended (filed as Exhibit 10(B) to the
Registrant's Quarterly Report on Form 10-Q/A(1) for the fiscal
quarter ended June 30, 1994).
10.7 - Amendment No. 1, dated August 31, 1994, Amendment No. 2, dated
September 13, 1994, and Amendment No. 3, dated September 16,
1994, to the Assets Purchase Agreement (filed as Exhibits 7.1,
7.2 and 7.3, respectively, to the Registrant's Current Report
on Form 8-K dated September 19, 1994).
10.8 - Subordinated Promissory Notes, dated September 16, 1994, of
Safety Railway Service Corporation (filed as Exhibit 10.8 to
the Registrant's Annual Report on Form 10-K for the fiscal
year ended December 31, 1994).
10.9 - Shareholders' and Voting Agreement, dated September 16, 1994,
among Safety Railway Service Corporation, Brown-Bridge
Industries, Inc. and the
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<PAGE>
other stockholders of Brown-Bridge (filed as Exhibit 10.9 to
the Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1994).
10.10 - Agreement for the Allocation of Income Tax Liability between
Lynch Corporation and its Consolidated Subsidiaries,
dated December 18, 1988, between Lynch Corporation and
Safety Railway Service Corporation (filed as Exhibit
10.10 to the Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1994).
*10.11 - Management Agreement, dated June 10, 1994, between Lynch
Corporation and Safety Railway Service Corporation (filed as
Exhibit 10.11 to the Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1994).
10.12 - Put Option Agreement, dated September 16, 1994, by and among
Brown-Bridge Industries, Inc., Safety Railway Service
Corporation, and Management Group Shareholders (filed as
Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q
for the fiscal quarter ended March 31, 1995).
10.13 - Put Option Agreement, dated September 16, 1994, by and among
Brown-Bridge Industries, Inc., Safety Railway Service
Corporation, and Investor Group Shareholders (filed as Exhibit
10.2 to the Registrant's Quarterly Report on Form 10-Q for the
fiscal quarter ended March 31, 1995).
10.14 - Stock and Asset Purchase Agreement, dated as of September 27,
1995, by and among Central Products Acquisition Corp.,
Unisource Worldwide, Inc. and Alco Standard Corporation (filed
as Exhibit 7.1 to the Registrant's Current Report on Form 8-K
dated October 18, 1995).
10.15 - Credit Agreement, dated as of September 29, 1995, by and among
Central Products Acquisition Corp., as Borrower, Spinnaker
Industries, Inc., as Pledgor, and Heller Financial, Inc., as
Agent and a Lender (filed as Exhibit 7.2 to the Registrant's
Current Report on Form 8-K dated October 18, 1995).
10.16 - Term Note A, dated October 4, 1995, from Central Products
Acquisition Corp. payable to the order of Heller Financial,
Inc. in the original principal amount of $20 million (filed as
Exhibit 7.3 to the Registrant's Current Report on Form 8-K
dated October 18, 1995).
10.17 - Term Note B, dated October 4, 1995, from Central Products
Acquisition Corp. payable to the order of Heller Financial,
Inc. in the original principal amount of $16 million (filed as
Exhibit 7.4 to the Registrant's Current Report on Form 8-K
dated October 18, 1995).
10.18 - Revolving Note, dated September 29, 1995, from Central
Products Acquisition Corp. payable to the order of Heller
Financial, Inc. in the
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<PAGE>
maximum principal amount of $24 million (filed as Exhibit 7.5
to the Registrant's Current Report on Form 8-K dated October 18,
1995).
10.19 - Subordinated Promissory Note, dated September 29, 1995, from
Spinnaker Industries, Inc. payable to Alco Standard
Corporation in the original principal amount of $25 million
(filed as Exhibit 7.6 to the Registrant's Current Report on
Form 8-K dated October 18, 1995).
10.20 - Subordinated Promissory Note, dated September 29, 1995, from
Central Products Acquisition Corp. payable to Alco Standard
Corporation in the original principal amount of $5 million
(filed as Exhibit 7.7 to the Registrant's Current Report on
Form 8-K dated October 18, 1995).
10.21 - Agreement, dated October 3, 1995, between Spinnaker
Industries, Inc. and Lynch Corporation (filed as Exhibit 7.8
to the Registrant's Current Report on Form 8-K dated October
18, 1995).
10.22 - Subordinated Convertible Promissory Note, date April 5, 1996,
in the aggregate principal amount of $20,250,000, of Spinnaker
Industries, Inc. (filed as Exhibit 7.1 to the Registrant's
Current Report on Form 8-K dated April 19, 1996).
10.23 - Senior Credit Agreement, dated as of April 5, 1996, among
Spinnaker Industries, Inc. and Bankers Trust Company (filed as
Exhibit 7.2 to the Registrant's Current Report on Form 8-K
dated April 19, 1996).
10.24 - Warrant Exercise Agreement, dated April 5, 1996, among Boyle,
Fleming, George & Co., Inc, Richard J. Boyle, Ned N. Fleming,
III, Spinnaker Industries, Inc. and Bankers Trust Company
(filed as Exhibit 7.3 to the Registrant's Current Report on
Form 8-K dated April 19, 1996).
10.25 - Pledge Agreement, dated April 5, 1996, by each of the named
pledgors in favor of Banker's Trust Company (filed as Exhibit
7.4 to the Registrant's Current Report on Form 8-K dated
April 19, 1996).
11 - Statement of Computation of Per Share Earnings (filed as
Exhibit 11 to the Registrant's Annual Report on Form 10-K/A(1)
dated April 29, 1996).
21 - Subsidiaries of the Registrant (filed as Exhibit 21 to the
Registrant's Annual Report on Form 10-K/A(1) dated April 29,
1996).
23 - Consent of Deloitte & Touche LLP (filed as Exhibit 23 to the
Registrant's Annual Report on Form 10-K/A(1) dated April 29,
1996).
99.1 - Information to be Incorporated by Reference into Part III.
______________
* Management contract or compensatory plan.
The Registrant will furnish copies of these Exhibits upon request and
the payment of $.20 per page. Requests should be addressed to James Toman,
c/o Spinnaker Industries, Inc., 600 N. Pearl Street, Suite 2160, Dallas,
Texas 75201.
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<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
Spinnaker Industries, Inc.
By: /s/ Richard J. Boyle
-------------------------------------
Richard J. Boyle
Title: Chairman of the Board and Chief Executive Officer
Date: May 17, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Richard J. Boyle
- -------------------------- Chief Executive Officer May 17, 1996
Richard J. Boyle and Chairman of the Board
/s/ Ned N. Fleming, III
- -------------------------- President and Director May 17, 1996
Ned N. Fleming, III
/s/ James W. Toman
- -------------------------- Controller May 17, 1996
James W. Toman (chief financial and
accounting officer)
/s/ Anthonie C. van Ekris
- -------------------------- Director May 17, 1996
Anthonie C. van Ekris
/s/ Joseph P. Rhein
- -------------------------- Director May 17, 1996
Joseph P. Rhein
</TABLE>
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<PAGE>
<TABLE>
<S> <C> <C>
/s/ Robert E. Dolan
- -------------------------- Director May 17, 1996
Robert E. Dolan
- -------------------------- Director May 17, 1996
Mario J. Gabelli
/s/ Philip W. Colburn
- -------------------------- Director May 17, 1996
Philip W. Colburn
</TABLE>
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<PAGE>
INDEX TO EXHIBITS
3(i) - Certificate of Incorporation of the Registrant, as amended
(filed as Exhibit 3(i) to the Registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1994).
3(ii) - Bylaws of the Registrant (filed as Exhibit 3(ii) to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1994) .
4 - A Warrant, dated as of June 10, 1994, executed by Safety
Railway Service Corporation (filed as Exhibit 7.4 to the
Registrant's Current Report on Form 8-K dated June 13, 1994).
10.1 - Commercial Loan Open End Mortgage Deed and Security Agreement
and Commercial Mortgage Note dated July 1, 1988 in the amount
of $1,100,000 to Centerbank (formerly Connecticut Savings
Bank)(filed as Exhibit 10.1 to the Registrant's Annual Report
on Form 10-K for the fiscal year ended December 31, 1994).
10.2 - Loan Agreement dated as of September 16, 1994, between
Transamerica Business Credit Corporation and Brown-Bridge
Industries, Inc. (filed as Exhibit 10.(A) to the Registrant's
Quarterly Report on Form 10-Q for the fiscal quarter ended
September 30, 1994).
*10.3 - Management Agreement, dated June 10, 1994, by and among Boyle,
Fleming George & Co., Inc. and Safety Railway Service
Corporation (filed as Exhibit 7.1 to the Registrant's
Current Report on Form 8-K dated June 13, 1994).
10.4 - Voting Agreement, dated as of June 10, 1994, by and among
Safety Railway Service Corporation, Lynch Manufacturing
Corporation, and Boyle, Fleming, George & Co., Inc. (filed as
Exhibit 7.2 to the Registrant's Current Report on Form 8-K
dated June 13, 1994).
10.5 - Warrant Purchase Agreement, dated as of June 10, 1994, by and
among Boyle, Fleming, George & Co., Inc. and Safety Railway
Service Corporation (filed as Exhibit 7.3 to the Registrant's
Current Report on Form 8-K dated June 13, 1994).
10.6 - Assets Purchase Agreement, dated June 15, 1994, between
Brown-Bridge Acquisition Corporation and Kimberly-Clark
Corporation as amended (filed as Exhibit 10(B) to the
Registrant's Quarterly Report on Form 10-Q/A(1) for the fiscal
quarter ended June 30, 1994).
10.7 - Amendment No. 1, dated August 31, 1994, Amendment No. 2, dated
September 13, 1994, and Amendment No. 3, dated September 16,
1994, to the Assets Purchase Agreement (filed as Exhibits 7.1,
7.2 and 7.3, respectively, to the Registrant's Current Report
on Form 8-K dated September 19, 1994).
10.8 - Subordinated Promissory Notes, dated September 16, 1994, of
Safety Railway Service Corporation (filed as Exhibit 10.8 to
the Registrant's Annual Report on Form 10-K for the fiscal
year ended December 31, 1994).
10.9 - Shareholders' and Voting Agreement, dated September 16, 1994,
among Safety Railway Service Corporation, Brown-Bridge
Industries, Inc. and the
<PAGE>
other stockholders of Brown-Bridge (filed as Exhibit 10.9 to
the Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1994).
10.10 - Agreement for the Allocation of Income Tax Liability between
Lynch Corporation and its Consolidated Subsidiaries,
dated December 18, 1988, between Lynch Corporation and
Safety Railway Service Corporation (filed as Exhibit
10.10 to the Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1994).
*10.11 - Management Agreement, dated June 10, 1994, between Lynch
Corporation and Safety Railway Service Corporation (filed as
Exhibit 10.11 to the Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1994).
10.12 - Put Option Agreement, dated September 16, 1994, by and among
Brown-Bridge Industries, Inc., Safety Railway Service
Corporation, and Management Group Shareholders (filed as
Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q
for the fiscal quarter ended March 31, 1995).
10.13 - Put Option Agreement, dated September 16, 1994, by and among
Brown-Bridge Industries, Inc., Safety Railway Service
Corporation, and Investor Group Shareholders (filed as Exhibit
10.2 to the Registrant's Quarterly Report on Form 10-Q for the
fiscal quarter ended March 31, 1995).
10.14 - Stock and Asset Purchase Agreement, dated as of September 27,
1995, by and among Central Products Acquisition Corp.,
Unisource Worldwide, Inc. and Alco Standard Corporation (filed
as Exhibit 7.1 to the Registrant's Current Report on Form 8-K
dated October 18, 1995).
10.15 - Credit Agreement, dated as of September 29, 1995, by and among
Central Products Acquisition Corp., as Borrower, Spinnaker
Industries, Inc., as Pledgor, and Heller Financial, Inc., as
Agent and a Lender (filed as Exhibit 7.2 to the Registrant's
Current Report on Form 8-K dated October 18, 1995).
10.16 - Term Note A, dated October 4, 1995, from Central Products
Acquisition Corp. payable to the order of Heller Financial,
Inc. in the original principal amount of $20 million (filed as
Exhibit 7.3 to the Registrant's Current Report on Form 8-K
dated October 18, 1995).
10.17 - Term Note B, dated October 4, 1995, from Central Products
Acquisition Corp. payable to the order of Heller Financial,
Inc. in the original principal amount of $16 million (filed as
Exhibit 7.4 to the Registrant's Current Report on Form 8-K
dated October 18, 1995).
10.18 - Revolving Note, dated September 29, 1995, from Central
Products Acquisition Corp. payable to the order of Heller
Financial, Inc. in the
<PAGE>
maximum principal amount of $24 million (filed as Exhibit 7.5
to the Registrant's Current Report on Form 8-K dated October 18,
1995).
10.19 - Subordinated Promissory Note, dated September 29, 1995, from
Spinnaker Industries, Inc. payable to Alco Standard
Corporation in the original principal amount of $25 million
(filed as Exhibit 7.6 to the Registrant's Current Report on
Form 8-K dated October 18, 1995).
10.20 - Subordinated Promissory Note, dated September 29, 1995, from
Central Products Acquisition Corp. payable to Alco Standard
Corporation in the original principal amount of $5 million
(filed as Exhibit 7.7 to the Registrant's Current Report on
Form 8-K dated October 18, 1995).
10.21 - Agreement, dated October 3, 1995, between Spinnaker
Industries, Inc. and Lynch Corporation (filed as Exhibit 7.8
to the Registrant's Current Report on Form 8-K dated October
18, 1995).
10.22 - Subordinated Convertible Promissory Note, date April 5, 1996,
in the aggregate principal amount of $20,250,000, of Spinnaker
Industries, Inc. (filed as Exhibit 7.1 to the Registrant's
Current Report on Form 8-K dated April 19, 1996).
10.23 - Senior Credit Agreement, dated as of April 5, 1996, among
Spinnaker Industries, Inc. and Bankers Trust Company (filed as
Exhibit 7.2 to the Registrant's Current Report on Form 8-K
dated April 19, 1996).
10.24 - Warrant Exercise Agreement, dated April 5, 1996, among Boyle,
Fleming, George & Co., Inc, Richard J. Boyle, Ned N. Fleming,
III, Spinnaker Industries, Inc. and Bankers Trust Company
(filed as Exhibit 7.3 to the Registrant's Current Report on
Form 8-K dated April 19, 1996).
10.25 - Pledge Agreement, dated April 5, 1996, by each of the named
pledgors in favor of Banker's Trust Company (filed as Exhibit
7.4 to the Registrant's Current Report on Form 8-K dated
April 19, 1996).
11 - Statement of Computation of Per Share Earnings (filed as
Exhibit 11 to the Registrant's Annual Report on Form 10-K/A(1)
dated April 29, 1996).
21 - Subsidiaries of the Registrant (filed as Exhibit 21 to the
Registrant's Annual Report on Form 10-K/A(1) dated April 29,
1996).
23 - Consent of Deloitte & Touche LLP (filed as Exhibit 23 to the
Registrant's Annual Report on Form 10-K/A(1)dated April 29,
1996).
27 - Financial Data Schedule
99.1 - Information to be Incorporated by Reference into Part III.
______________
* Management contract or compensatory plan.
<PAGE>
SPINNAKER INDUSTRIES, INC.
600 N. PEARL STREET, SUITE 2160
DALLAS, TEXAS 75201
------------------------
PROXY STATEMENT
---------------------
This Proxy Statement is furnished by the Board of Directors of Spinnaker
Industries, Inc., a Delaware corporation (the "Corporation"), in connection with
the solicitation of proxies for use at the Annual Meeting of Stockholders to be
held in the Somerset Room, Le Meridien Hotel Dallas, 650 North Pearl Street,
Dallas, Texas 75201 on Thursday, June 6, 1996, at 1:00 p.m. Dallas time and at
any adjournments thereof (the "Annual Meeting"). This Proxy Statement with the
accompanying Proxy are first being mailed to stockholders on or about May 17,
1996.
The purpose and business of the meeting is:
(1) to elect seven (7) directors to serve until the next Annual Meeting; and
(2) to transact such other business as may properly come before the Annual
Meeting and any adjournments thereof.
Only stockholders of record at the close of business on April 15, 1996, will
be entitled to vote at the Annual Meeting. As of the close of business on such
date, there were outstanding and entitled to vote 2,903,170 shares of Common
Stock. Each share of Common Stock is entitled to one vote. Where a specific
designation is given in the Proxy with respect to the vote on the directors, the
Proxy will be voted in accordance with such designation. If no such designation
is made, the Proxy will be voted FOR the nominees for directors named in this
Proxy Statement. Any stockholder giving a Proxy may revoke it at any time before
it is voted at the Annual Meeting by delivering to the Secretary of the
Corporation a written notice of revocation or duly executed Proxy bearing a
later date or by appearing at the Annual Meeting and revoking his or her Proxy
and voting in person.
ELECTION OF DIRECTORS
Seven directors are to be elected at the Annual Meeting to serve until the
next Annual Meeting of Stockholders and until their respective successors are
elected. Except where authority to vote for directors has been withheld, it is
intended that the proxies received pursuant to this solicitation will be voted
FOR the nominees named. If for any reason any such nominee is not available for
election, such proxies will be voted in favor of the remaining named nominees
and may be voted for substitute nominees in place of those who are not
candidates. Management, however, has no reason to expect that any of the
nominees will be unavailable for election.
The Bylaws of the Corporation provide that the Board of Directors shall
consist of not less than three and no more than nine members and that vacancies
on the Board of Directors and newly-created directorships may be filled by the
Board of Directors at any meeting. Messrs. Boyle, Fleming and Rhein have served
as directors since the last annual meeting held on May 16, 1996. Mr. Michael J.
Small resigned from the Board in September 1995, and Mario J. Gabelli was
elected to the Board during the same month. Robert E. Dolan, Anthonie C. van
Ekris and Philip Wm. Colburn were elected to the Board in November 1995,
December 1995 and March 1996, respectively.
1
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The election of directors shall be determined by the affirmative vote of a
plurality of the shares of Common Stock present in person or by proxy at the
meeting and entitled to vote. An automated system administered by the
Corporation's transfer agent tabulates the votes. Pursuant to the Delaware
General Corporation Law and the Bylaws of the Corporation, shares held by
persons who abstain from voting on a proposal will be counted in determining
whether a quorum is present, but will not be counted as voting either for or
against such proposal. If a broker indicates on the proxy that it does not have
discretionary authority as to certain shares to vote on a particular matter,
those shares will not be considered as present and entitled to vote with respect
to that matter. Lynch Manufacturing Corporation ("LMC"), a wholly-owned
subsidiary of Lynch Corporation, is the holder of 77.8% of the Common Stock and
is obligated to vote its shares in favor of the nominees set forth below.
Nominations to the Board are subject to the terms of a voting agreement among
the Corporation, LMC and Boyle, Fleming, George & Co., Inc. ("BFI"), an
affiliate of Richard J. Boyle and Ned N. Fleming, III, the Chairman and Chief
Executive Officers and President of the Corporation, respectively, pursuant to
which BFI nominates one director and LMC nominates the rest of the Board.
Messrs. Boyle, Colburn, Dolan, Gabelli, Rhein and van Ekris are the persons
nominated by LMC and Mr. Fleming is the person nominated by BFI. See "Certain
Transactions".
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR EACH OF THE NOMINEES
NAMED IN THIS PROXY STATEMENT.
The following information has been furnished to the Corporation by the
nominees for director and by the non-director executive officers:
RICHARD J. BOYLE
Mr. Boyle, age 61, has been a director and Chairman and Chief Executive
Officer of the Corporation since June 1994. He also has served as a Managing
Director of Boyle, Fleming, George & Co., Inc., an investment and management
firm, since 1993. From 1990 to 1992, he was President and Chief Executive
Officer of LTV Aerospace and Defense Company, a manufacturer of aircraft,
missiles and specialty vehicles. He was Corporate Vice President, Marketing and
Business Development of Honeywell Inc., a provider of products and systems for
the industrial, building, space and marine markets from 1987 to 1990. Mr. Boyle
is a director of Key Bank of Washington and several privately-held companies.
NED N. FLEMING, III
Mr. Fleming, age 35, became a member of the Board of Directors and President
of the Corporation in June 1994. In addition, Mr. Fleming is a Managing Director
of Boyle, Fleming, George & Co., Inc., a position he has held since 1993. From
1988 to 1993, he was an Associate at Cardinal Investment Company, Inc., an
investment concern. Mr. Fleming serves on the board of directors of several
privately-held corporations.
ROBERT E. DOLAN
Mr. Dolan, age 44, became a director of the Corporation in November 1995.
Since February 1992, he has been the Chief Financial Officer of Lynch
Corporation, and its Controller since May 1990. From 1984 until 1989, Mr. Dolan
was the Corporate Controller of Plessy North America Corporation, formerly the
United States subsidiary of a United Kingdom defense
electronics/telecommunications company.
PHILIP WM. COLBURN
Mr. Colburn, age 67, elected to the Board in March 1996, has been the
Chairman of The Allen Group, Inc., a manufacturer of telecommunications
products, since 1988. From 1988 through 1991, he was also the Chief Executive
Officer of The Allen Group, Inc. Mr. Colburn is on the boards of directors of
The Allen Group, Inc., Superior Industries, Inc., Earl Scheib, Inc., and
TransPro, Inc.
2
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MARIO J. GABELLI
Mr. Gabelli, age 53, is the Chairman and Chief Executive Officer of Lynch
Corporation and the Chairman and Chief Executive Officer of Gabelli Funds, Inc,
successor to The Gabelli Group, Inc., an investment advisor and holding company
for subsidiaries engaged in various aspects of the securities business,
positions he has held for more than the past five years. Mr. Gabelli also is
Chairman, President and Chief Investment Officer of Gabelli Capital Series
Funds, Inc.(since 1994), The Gabelli Global Multimedia Trust, Inc. (since 1994),
Gabelli Gold Fund, Inc. (since 1994), Gabelli Global Series Funds, Inc. (since
1993), Gabelli Investor Funds, Inc. (since 1993), Gabelli Equity Series Funds,
Inc. (since 1991), The Gabelli Value Fund, Inc. (since 1989), The Gabelli Series
Funds, Inc. (since 1989), and The Gabelli Equity Trust Inc. (since 1986). He is
the Chairman of Gabelli International Growth Fund, Inc. (since 1994) and trustee
of The Gabelli Money Market Funds (since 1992), The Gabelli Growth Fund (since
1987) and The Gabelli Asset Fund (since 1986). He was elected as a director of
the Corporation in September 1995. Mr. Gabelli is a director of The Morgan
Group, Inc., a transportation services concern and a subsidiary of Lynch
Corporation.
JOSEPH P. RHEIN
Mr. Rhein, age 69, and a director of the Corporation since 1992, has been a
business consultant since 1989. From 1969 to 1989, he was Vice President of
Finance of SPS Technologies, Inc., a diversified world-wide manufacturing
company.
ANTHONIE C. VAN EKRIS
Mr. van Ekris, age 61, was elected to the Board in December 1995. He is the
Chairman and Chief Executive Officer of Balmac International, Inc., a New York
based importer of coffee and cocoa and exporters of refrigeration equipment, a
position he has held since 1991. Mr. van Ekris also serves as a director of
Stahel (America), Inc. and Gabelli Funds, Inc.
OTHER EXECUTIVE OFFICERS OF THE CORPORATION
K.C. CALDABAUGH
Mr. Caldabaugh, age 49, has been the Chairman, Chief Executive Officer and
President of Brown-Bridge Industries, Inc., the Corporations's 80.1% owned
subsidiary, since September 1994. Prior to that time, he served in various
management positions, including Senior Vice President and Chief Financial
Officer, of LTV Corporation, a diversified manufacturing firm, from 1987 to
1993. Mr. Caldabaugh currently serves on the Board of Directors of
Schweitzer-Mauduit International, Inc., and is also a member of the Board of
Trustees of West Virginia Wesleyan College.
JOHN R. POWERS
Mr. Powers, age 63, joined Central Products Company, a wholly-owned
subsidiary of the Corporation acquired in October 1995, in 1979 and has been its
President since 1981. Mr. Powers currently serves on the Board of Directors of
Wisconsin Paper Group and the First National Bank of Menasha.
MARK R. MATTESON
Mr. Matteson, age 32, became Vice President, Corporate Development of the
Corporation in January 1995. During 1994, he was an Associate at Boyle, Fleming,
George & Co., Inc. From 1992 to 1994, Mr. Matteson was a Managing Associate at
George Group, Incorporated, a corporate re-engineering consulting firm. From
1990 to 1992, Mr. Matteson attended graduate business school at Georgetown
University.
JAMES W. TOMAN
Mr. Toman, age 44, has been Controller of the Corporation since January
1995. From 1991 to 1994, he was Chief Financial Officer of Entoleter, Inc., a
wholly-owned subsidiary of the Corporation. Mr. Toman was Controller of Oxford
Health Plans, Inc. from 1988 until 1991; and, from 1986 to 1988, Assistant
Treasurer at Moore McCormack Resources, Inc.
3
<PAGE>
OPERATION OF BOARD OF DIRECTORS AND COMMITTEES
There were seven meetings of the Board of Directors during 1995.
The Board of Directors has established one standing committee, the Audit
Committee, the principal duties of which are as follows: Recommends to the Board
of Directors the appointment of independent auditors; reviews annual financial
reports to stockholders prior to their publication; reviews the report by the
independent auditors concerning management procedures and policies; and
determines whether the independent auditors have received satisfactory access to
the Corporation's financial records and full cooperation of corporate personnel
in connection with their audit of the Corporation's records. The Audit Committee
met once during 1995. During 1995, all of the members of the Board served on the
audit committee, with Mr. Rhein serving as its Chairman. Mr. Rhein and Mr. Dolan
were appointed as the audit committee in February 1996.
The Corporation does not have a nominating committee, compensation committee
or executive committee. Nominations for directors and officers are considered by
the entire Board of Directors.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The entire Board of Directors considers matters relating to compensation.
Mr. Robert E. Dolan and Mr. Mario J. Gabelli are executive officers of Lynch
Corporation, which through LMC owns 77.8% of the Common Stock of the
Corporation. Messrs. Boyle and Fleming are executive officers of the
Corporation, and Mr. Boyle served as a director of Lynch Corporation, and from
August 1995 as a member of its executive compensation and benefits committee,
until he resigned in January 1996.
In June 1994, before Messrs. Boyle and Fleming became directors and
executive officers of the Corporation, the Corporation entered into a management
agreement with BFI, an entity affiliated with Richard J. Boyle, and Ned N.
Fleming, III, whereby BFI and Messrs. Boyle and Fleming agreed to provide the
Corporation with operations management, strategic planning, acquisition analysis
and implementation, investment banking and financial advisory services and the
supervision of the Corporation's financial reporting and regulatory obligations.
Pursuant to the management agreement, Mr. Boyle became the Chairman of the Board
and Chief Executive Officer and Mr. Fleming became the President of the
Corporation and both were elected to the Board of Directors.
The management agreement has an initial term of one year, and is
automatically renewable for a term of one additional year unless either party
gives notice of termination not less than 90 days before the end of the first
anniversary of the agreement. Thereafter, the agreement is terminable on
90-day's notice by either party. Under the management agreement, BFI received an
initial management fee of $200,000 per year, plus reimbursement of overhead and
other expenses. In January 1996, the management fee was increased to $400,000.
The Corporation has agreed to indemnify BFI and its affiliates against certain
claims. During the term of the management agreement, BFI and Lynch have entered
into a voting agreement whereby BFI nominates one director and Lynch nominates
the rest of the Board. Messrs. Boyle, Dolan, Gabelli, Colburn, Rhein and van
Ekris are the persons nominated by Lynch and Mr. Fleming is the nominee of BFI.
See "Certain Transactions".
Lynch Corporation has indicated that it intends to request the Board of
Directors of the Corporation to give the 90-day notice of termination under the
management agreement with the intent of having Messrs. Boyle and Fleming enter
into employment arrangements.
COMPENSATION OF DIRECTORS
The Corporation maintains, through Lynch Corporation, an insurance policy
which provides for indemnification of each Director (and officer) against
certain liabilities that each may incur in his capacity as such. Each Director,
who is not also an officer of the Corporation or Lynch Corporation (owner
through LMC of 77.8% of the Common Stock of the Corporation), receives a
director's fee of
4
<PAGE>
$850 for each Board or committee meeting the Director attends. Joseph P. Rhein,
Philip W. Colburn and Anthonie C. van Ekris are the only directors eligible to
be paid director's fees. Mr. Colburn and Lynch are parties to an advisory
agreement. See "Certain Transactions."
The Corporation is currently in the process of reviewing the compensation
that is paid to Directors.
EXECUTIVE COMPENSATION
The following table sets forth on an accrual basis for the two fiscal years
ended December 31, 1995, the compensation paid to the Chief Executive Officer of
the Corporation and the three other most highly compensated executive officers
who earned more than $100,000.
SUMMARY COMPENSATION TABLE (1)(2)
<TABLE>
<CAPTION>
OTHER ANNUAL ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) COMPENSATION ($)(4) COMPENSATION ($)
- ----------------------------------- --------- -------------- --------------- ------------------- ----------------
<S> <C> <C> <C> <C> <C>
Richard J. Boyle................... 1995 -- (3) -- (3) -- --
Chairman and Chief 1994 -- (3) -- (3) -- --
Executive Officer (3)
Ned N. Fleming, III................ 1995 -- (3) -- (3) -- --
President (3) 1994 -- (3) -- (3) -- --
K. C. Caldabaugh, 1995 $ 250,000 -- $ 3,000 $ 169,572(5)
Chairman, Chief Executive Officer 1994 -- (6) -- -- --
and President of Brown-Bridge
Industries, Inc. subsidiary (6)
John R. Powers..................... 1995 $ 194,300(7) $ 194,300(7)(8) $ 11,500(7) $ 3,000(7)(9)
President of Central Products
Company subsidiary(7)
</TABLE>
- ------------------------
(1) Neither the Chief Executive Officer nor any of the other three most highly
compensated executive officer was employed by the Corporation before 1994.
(2) Except as noted, the Corporation does yet not maintain (1) any stock option
or other similar compensation plan involving the issuance of Common Stock,
or (2) any other long-term or incentive compensation arrangements.
(3) Mr. Boyle and Mr. Fleming were elected Chairman of the Board and Chief
Executive officer, and President, respectively, in 1994, pursuant to the
terms of a management agreement and other related agreements. They receive
no salary from the Corporation, but under the management agreement BFI
receives a management fee of $200,000 per year, plus the reimbursement of
expenses. Effective January 1996, the management fee was increased to
$400,000. See "Operations of the Board of Directors and
Committees--Compensation Committee Interlocks and Insider Participation" and
"Certain Transactions".
(4) Includes automobile allowances and club membership dues.
(5) Contribution to the Brown-Bridge Industries, Inc. 401(k) plan ($4,572) and
expenses directly related to his relocation from Dallas, Texas to Troy, Ohio
that were paid pursuant to an employment agreement ($165,000).
(6) Mr. Caldabaugh became Chairman, Chief Executive Officer and President of
this subsidiary upon its acquisition by the Corporation in September 1994.
As part of Mr. Caldabaugh's employment agreement, he did not commence to
earn any salary until January 1995.
(7) Central Products Company, formerly a division of Alco Standard Corporation,
was acquired in October 1995. Mr. Powers, who ran the division for the
seller, continued as the President of
5
<PAGE>
Central Products Company following the acquisition. Includes $145,725 of
Salary, $194,300 of Bonus, $9,625 in Other Annual Compensation and $3,000 in
All Other Compensation that was paid by Alco Standard Corporation; thus 87%
of the 1995 compensation was paid by the seller. From date of the purchase
through year-end, the Corporation paid Mr. Powers $50,450 or 13% of his
total 1995 compensation.
(8) Reflects a bonus paid to him by Alco Standard Corporation for services
rendered during 1995. Pursuant to the acquisition agreement, the seller
assumed and paid this bonus obligation.
(9) Contribution to the Central Products Company 401(k) plan.
EMPLOYMENT AGREEMENT AND OTHER COMPENSATION ARRANGEMENTS
Mr. Caldabaugh has an employment agreement with the Corporation's 80.1%
owned Brown-Bridge Industries, Inc. ("Brown-Bridge") subsidiary that expires in
September 1999. The agreement provides for an annual salary of $250,000, and
severance pay equal to the average annual cash compensation received by him
during the three fiscal years immediately preceding termination for any reason
other than "just cause", or his death, disability or resignation. The agreement
also granted to Mr. Caldabaugh options to purchase up to 55,000 shares of
Brown-Bridge's common stock at various prices ranging between $7.16 and $14.69
per share. The options become exercisable (1) in cumulative installments of
11,000 shares each year if certain levels of profitability, as defined in the
agreement, are met, or (2) seven years from the date of grant. The vesting of
these options will be accelerated if (i) Mr. Caldabaugh's employment is
terminated for any reason other than "just cause", or his death, disability or
resignation, (ii) Brown-Bridge is sold and he ceases to be its chief executive
officer or (iii) there is a change in control of Brown-Bridge. At April 15,
1996, 11,000 shares were vested. None of these options have been exercised.
Brown-Bridge currently has one million shares outstanding. See "Certain
Transactions".
REPORT ON EXECUTIVE COMPENSATION
The Board of Directors is responsible for developing the Corporation's
executive compensation policies and thus has functioned as the Corporation's
compensation committee.
Richard J. Boyle, the Chairman and Chief Executive Officer, and Ned N.
Fleming, III, the President, are not paid any salaries from the Corporation,
although the Corporation has entered into a management agreement with an entity
affiliated with them. See "Operation of Board of Directors and Committees --
Compensation Committee Interlocks and Insider Participation" and "Certain
Transactions". The amount of the original annual management fee paid under the
agreement was negotiated in an arms length transaction between representatives
of BFI and representatives of the Corporation prior to Messrs. Boyle and Fleming
assuming their positions with the Corporation. The management agreement may be
terminated by either party on 90-days notice. Mr. Boyle's and Mr. Fleming's
performance and the amount of the management fee and any bonuses or other fees
deemed appropriate is periodically reviewed and may be adjusted at the
discretion of the Board.
The Corporation's annual revenues have increased from approximately $6
million to approximately $250 million during their tenure. Thus, as a result of
the increase in the scope, size and complexity of the operations of the
Corporation and the acquisition of Central Products Company, the Board approved
an increase in the annual management fee from $200,000 to $400,000 effective
January 1, 1996.
The Board is also ultimately responsible for compensation paid to the other
executive officers but has charged Mr. Boyle and Mr. Fleming with the
responsibility for implementing and reviewing the specific compensation levels
for particular individuals. As with Messrs. Boyle and Fleming, all other
executive officers and their compensation levels are reviewed on an annual
basis, subject to certain employment and other agreements. In conducting
evaluations and determining executive compensation, the Corporation's objectives
are to:
- Support the achievement of desired Corporation performance.
- Provide compensation that will attract and retain superior talent and
reward performance.
6
<PAGE>
- Ensure that there is appropriate linkage between executive compensation
and the enhancement of stockholder value.
Executive compensation is designed to provide an overall level of
compensation opportunity that is competitive with companies of comparable size,
capitalization and complexity. Actual compensation levels, however, may be
greater or less than average competitive levels based upon annual and long-term
corporate performance and specific issues peculiar to the Corporation or its
subsidiaries, as well as individual performance. Executive compensation is not
necessarily determined by specific relationship to objective criteria or
benchmarks of corporate performance. Compensation is set for each individual
based on a subjective evaluation of the performance of the executive officer,
and amounts paid are not subject to particular objective criteria or the
attainment of specific results.
Members of the Board of Directors
Richard F Boyle, Chairman
Ned N. Fleming, III
Robert E. Dolan
Mario J. Gabelli
Philip Wm. Colburn
Joseph P. Rhein
Anthonie van Ekris
7
<PAGE>
CORPORATE PERFORMANCE
The following Performance Graph compares the Corporation's cumulative total
stockholder return on its Common Stock for a five-year period (December 31, 1991
to December 31, 1995) with the cumulative total return of the NASDAQ market
index (which includes the Corporation) and a peer group of companies described
more fully below.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN *
AMONG SPINNAKER, NASDAQ MARKET INDEX AND PEER GROUP * *
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
SPINNAKER IND INDUSTRY INDEX BROAD MARKET
<S> <C> <C> <C>
1990 100.00 100.00 100.00
1991 100.00 122.09 128.38
1992 92.86 135.39 129.64
1993 89.29 144.77 155.50
1994 375.00 146.98 163.26
1995 2270.31 179.36 211.77
</TABLE>
* Assumes $100 invested on December 31, 1991 in the Corporation's Common
Stock, NASDAQ Market Index and the Peer Group. Total return assumes
re-investment of dividends.
** The Peer Group index represents SIC Code 267 - Converted Paper and
Paperboard Products (which includes Brown-Bridge, its 80.1% owned
subsidiary, and Central Products Company, its wholly-owned subsidiary). This
Peer Group consists of thirty-one companies which trade on the NASDAQ,
American Stock Exchange or New York Stock Exchange.
8
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
As of the close of business on April 15, 1996, the Corporation had 2,903,170
shares of Common Stock, no par value, issued and outstanding. The following
table sets forth the number of shares of the Corporation's Common Stock (which
is the only class of outstanding voting stock of the Corporation) held by
persons known to the Corporation to own beneficially more than 5% of such Common
Stock as of April 15, 1996. (For the purposes of reporting beneficial ownership
herein, a person is considered the beneficial owner of the shares over which
such person holds or shares voting or investment power, including the power to
direct the disposition of such shares, or over which such a person can acquire
such power within 60 days by, for example, the exercise of stock options or
conversion of securities). The following information is reflected in Schedule
13Ds, as amended, that have been filed with the Securities and Exchange
Commission or which has otherwise been furnished to the Corporation.
<TABLE>
<CAPTION>
AMOUNT OF
BENEFICIAL PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER OWNERSHIP CLASS
- ------------------------------------------------------------------------ ------------------- ------------
<S> <C> <C>
Lynch Manufacturing Corporation (1)..................................... 2,259,063(1) 77.8%
(a wholly-owned subsidiary of Lynch Corporation)
100 Douglas Street
Yankton, S.D. 57078
Boyle, Fleming, George & Co. Inc. (2)................................... 678,945(2) 20.0(4)
600 N. Pearl Street, Suite 2160
Dallas, Texas 75201
Alco Standard Corporation............................................... 172,430(3) 5.6(4)
825 Duportail Road
Chesterbrook, Wayne, Pennsylvania 19087
</TABLE>
- ------------------------
(1) Mario J. Gabelli, of Corporate Center at Rye, Rye, New York, 10580, Chairman
of the Board and Chief Executive Officer of Lynch Corporation, and certain
family trusts own 52,200 shares (1.8%) of the Corporation's Common Stock. He
may also be deemed to be a beneficial owner of the Corporation's Common
Stock owned by Lynch Corporation, through LMC, by virtue of his and certain
affiliated parties beneficial ownership of 24.9% of the shares of Common
Stock of Lynch Corporation. Mr. Gabelli, however, specifically disclaims
beneficial ownership of all shares of the Common Stock of the Corporation
held by Lynch Corporation and LMC. All of these shares have been pledged by
LMC to secure certain indebtedness of the Corporation. See "Certain
Transactions".
(2) Includes 491,469 shares of Common Stock issuable upon the exercise of a
warrant granted to BFI in June 1994, as adjusted for two 3 for 2 stock
splits that occurred in December 1994 and December 1995. BFI, an investment
and management firm, is an affiliate of Richard J. Boyle and Ned N. Fleming,
III, the Chairman and Chief Executive Officer, and President, respectively,
of the Corporation. Messrs. Boyle and Fleming may be deemed to share voting
and dispositive power over these shares. All of these shares, all shares
issuable upon exercise of the warrant and the warrant have been pledged to
secure certain indebtedness of the Corporation and may be pledged to Lynch
under certain circumstances. See "Certain Transactions".
(3) Shares of Common Stock issuable upon conversion of a portion of the
principal of a subordinated convertible note, including accrued interest,
scheduled to occur in May 1996. See "Certain Transactions".
(4) Determined in accordance with Rule 13d-3(d)(1)(i).
9
<PAGE>
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth information concerning the beneficial
ownership of the Common Stock of the Corporation and Lynch Corporation ("Lynch")
by each director of the Corporation, as well as by all directors and executive
officers of the Corporation as a group, as of April 15, 1996.
<TABLE>
<CAPTION>
AMOUNT OF CORPORATION
AMOUNT OF LYNCH SHARES SHARES BENEFICIALLY
BENEFICIALLY OWNED (1)(2) OWNED (1)(2)
--------------------------- --------------------------
NUMBER OF NUMBER OF
NAME SHARES PERCENT SHARES PERCENT
- ---------------------------------------------------- ------------- ------------ ------------- -----------
<S> <C> <C> <C> <C>
Richard J. Boyle.................................... 1,400 * 678,945(3) 20.0%
Ned N. Fleming, III................................. -- -- 678,945(3) 20.0
Philip Wm. Colburn.................................. -- -- -- --
Robert E. Dolan..................................... 235 * 1,225 *
Mario J. Gabelli.................................... 346,905(4) 24.9(4) 52,200(5) 1.8
Anthonie C. van Ekris............................... -- -- -- --
Joseph P. Rhein..................................... -- -- 2,250 *
All Directors and Officers of the Corporation as a
Group (eleven persons, including those named
above)............................................. 348,540 25.1% 733,870(3) 21.6%
</TABLE>
- ------------------------
* Less than one percent.
(1) A person is considered to "beneficially own" the shares over which such
person holds or shares voting power or investment power or over which such
person can acquire such power within 60 days (for example, through the
exercise of stock options or conversion of securities).
(2) Except as otherwise noted, each director and officer has sole voting and
investment power with respect to the shares of Common Stock of the
Corporation and Lynch.
(3) Includes 491,469 shares of Common Stock issuable upon the exercise of a
warrant granted to BFI in June 1994, as adjusted for two 3 for 2 stock
splits that occurred in December 1994 and December 1995. BFI, an investment
and management firm, is an affiliate of Richard J. Boyle and Ned N. Fleming,
III, the Chairman and Chief Executive Officer, and President, respectively,
of the Corporation. Messrs. Boyle and Fleming may be deemed to share voting
and dispositive power over these shares. All of the shares owned by BFI, all
shares issuable upon exercise of the warrant and the warrant have been
pledged to secure certain indebtedness of the Corporation and may be pledged
to Lynch under certain circumstances. See "Security Ownership of Certain
Beneficial Owners" and "Certain Transactions".
(4) Includes 256,905 shares owned directly by Mr. Gabelli (including 2,991 held
for the benefit of Mr. Gabelli under the Corporation's 401(k) savings plan);
70,000 shares owned by a limited partnership in which Mr. Gabelli is the
general partner and has a 20% interest; and 20,000 shares owned by certain
family trusts. Mr. Gabelli disclaims beneficial ownership of the shares
owned by the family trusts and the limited parnership (other than his 20%
interest).
(5) Includes 15,300 shares held by certain family trusts. Mr. Gabelli disclaims
beneficial ownership of such share.
CERTAIN TRANSACTIONS
In June 1994, the Corporation and BFI also entered into a warrant purchase
agreement, under which BFI received a warrant to purchase 678,945 shares of
Common Stock of the Corporation for a price of $2.67 per share (as adjusted for
the 3 for 2 stock splits that occurred in December 1994 and December 1995) at
any time on or before June 10, 1999, in exchange for the Corporation's right to
receive certain future fees and co-investment rights. As part of the warrant
purchase agreement, BFI may also, on the occurrence of an equity offering by the
Corporation, receive warrants to purchase
10
<PAGE>
additional shares of Common Stock of the Corporation. The agreement also grants
certain registration rights to BFI and certain repurchase rights to the
Corporation with respect to the warrants. In April 1996, BFI purchased 187,476
shares of Common Stock by a partial exercise of the warrant in connection with a
financing transaction of the Corporation with one of its lenders. An agreement
with the lender requires BFI to make further purchases of Common Stock under the
Warrant if necessary to enable the Corporation to make its interest payments due
to the lender. BFI has pledged its warrant, all of the shares of Common Stock
owned by it, and any shares of Common Stock subsequently acquired by it, to
secure the loans made by the lender to the Corporation and may be pledged to
Lynch under certain circumstances.
When the Corporation acquired, in September 1994, its 80.1% interest in
Brown-Bridge Industries, Inc., an acquisition opportunity developed by BFI
before entering into the management agreement, certain affiliates of BFI
(including Messrs. Boyle and Fleming) and Lynch loaned the Corporation
approximately $322,000 and $965,000, respectively, at an interest rate of 18% to
help the Corporation fund its portion of the acquisition. These notes are due
and payable on September 16, 1997.
The minority stockholders of Brown-Bridge Industries, Inc., the
Corporation's majority (80.1%) owned subsidiary, consist of Lynch, certain
officers and employees of Brown-Bridge (including Mr. Caldabaugh), and certain
affiliates of BFI (including Messrs. Boyle and Fleming), all of whom acquired
their respective interests on the same terms and conditions as the Corporation.
Certain of these minority stockholders (other than Lynch), including Messrs.
Boyle, Fleming, Caldabaugh and Matteson, are parties to agreements whereby those
persons can require Brown-Bridge or the Corporation to repurchase their stock,
or at the Corporation's option, exchange their shares for shares of the
Corporation at any time between September 1998 and September 2000 at 75% of the
then fair market value of such Brown-Bridge shares.
Brown-Bridge has retained the services of George Group, Incorporated, a
consulting firm owned by Michael L. George, an affiliate of BFI and a 1%
stockholder of Brown-Bridge, to assist in improving its operations and
manufacturing processes. The fees for these services totaled $872,000 in 1995.
Since 1989, the Corporation has had an agreement with Lynch, pursuant to
which Lynch provides certain management, financial and other services to the
Corporation. For 1995, the Corporation paid Lynch fees of $100,000.
The Corporation and Lynch were parties to a tax-sharing agreement that
provided for the Corporation to pay to Lynch the Corporation's share of Lynch's
federal income tax liability. For 1995, the Corporation will pay Lynch
approximately $350,000 under this agreement. The agreement was terminated in
April 1996.
In connection with Philip Colburn's election to the Board, Colburn and Lynch
entered into an advisory agreement whereby he agreed to provide certain advisory
services concerning the Corporation to Lynch and it agreed to pay him $50,000
per year, less the director's fees received by him from the Corporation, plus
reimbursement of expenses. Lynch further agreed to indemnify Mr. Colburn to the
extent permitted by law for his service as a director of the Corporation.
In connection with the Corporation's acquisition of Central Products
Company, Lynch guaranteed $25,000,000 of indebtedness of the Corporation and
undertook certain other obligations. Under the terms of an agreement dated
October 3, 1995, the Corporation agreed to pay Lynch a monthly fee equal to .5%
of the principal amount guaranteed by Lynch and to reimburse Lynch for its
expenses incurred in connection with this agreement. The Corporation accrued
$750,000 in fees payable to Lynch under the agreement. The Lynch guarantee and
this arrangement was terminated in April 1996. In connection with the
refinancing transaction that terminated the guarantee, LCM has pledged all of
its shares of Common Stock to secure the loans made to the Corporation by one of
its lenders.
11
<PAGE>
In connection with the Corporation's acquisition of Central Products Company
from Alco Standard Corporation ("Alco"), the seller provided two subordinated
notes to the Company totaling $25,000,000 and the seller received the right to
sell these notes back to the Corporation. In April 1996, the Company completed
the refinancing of the two subordinated notes held by Alco. As part of the
refinancing, the Corporation paid Alco $7,500,000 of which $5,500,000 was a
principal payment, approximately $1,000,000 was related to accrued interest and
$1,000,000 was applied toward the purchase price of a warehouse facility which
the Corporation had a right to acquire as part of the original acquisition. The
unpaid balance of the $25,000,000 notes were refinanced by the issuance of a new
subordinated convertible promissory note in the aggregate principal amount of
$20,250,000 to Alco (the "Alco Note"). The first $6,000,000 of principal (and
the interest accrued on that principal) of the Alco Note will be converted
automatically into approximately 172,430 shares (the "Initial Conversion
Shares") of Common Stock in May 1996, unless Alco reasonably objects. The
Corporation has agreed to engage an investment banker to assist Alco with a
private sale of the Initial Conversion Shares. If a private sale cannot be
effected on or before the end of June 1996, the Corporation is obligated to
register the Initial Conversion Shares to enable Alco to sell the Initial
Conversion Shares in the public market. The Corporation has agreed to pay Alco
the difference between the net proceeds received by it upon the sale of the
Initial Conversion Shares and $6,000,000. At Alco's option, the remaining
principal amount of the Alco Note becomes convertible into Common Stock, at the
then prevailing market price, commencing with an installment of $7,000,000 in
April 1997 and the remaining balance in April 1998.
Interest on the Alco Note is payable semiannually at an annual rate of 7%,
or 9% if the Corporation elects to add the interest back into principal. The
unconverted principal of the Alco Note will be due in two installments. The
first installment of $7,000,000 will be due six months after the maturity date
of certain indebtedness of the Corporation to one of its lenders (but not before
April 5, 1997) and the balance will be due on the first anniversary of the
payment date of the $7,000,000 installment. Alco has the right to demand
immediate prepayment of the Alco Note if the Corporation successfully
consummates certain subsequent financing transactions.
RELATIONSHIP WITH INDEPENDENT AUDITORS
Representatives of Ernst & Young LLP, the independent accounting firm that
audited the consolidated financial statements of the Corporation for the fiscal
year ended December 31, 1995, are expected to be available at the Annual Meeting
with the opportunity to make a statement if they desire to do so and to answer
questions. Ernst & Young LLP has been re-selected as the Corporation's auditor
for 1996.
STOCKHOLDER PROPOSALS
Any stockholder proposal to be presented for action at the next meeting of
stockholders pursuant to the provisions of Rule 14a-8, under the Securities
Exchange Act of 1934, must be received at the Corporation's principal executive
offices no later than January 15, 1997, for inclusion in the proxy statement and
form of proxy relating to the 1997 Annual Meeting.
MISCELLANEOUS
The Board of Directors knows of no other matters which are likely to come
before the Annual Meeting. If any other matters should properly come before the
Annual Meeting, it is the intention of the persons named in the accompanying
form of Proxy to vote on such matters in accordance with their best judgment.
The solicitation of proxies is made on behalf of the Board of Directors of
the Corporation, and the cost thereof will be borne by the Corporation. The
Corporation will also reimburse brokerage firms and nominees for their expenses
in forwarding proxy material to beneficial owners of the Common Stock of the
Corporation. In addition, officers and employees of the Corporation (none of
whom will receive any compensation therefore in addition to their regular
compensation) may solicit proxies. The solicitation will be made by mail and, in
addition, may be made by telegrams, personal interviews, or telephone.
12
<PAGE>
ANNUAL REPORT
The Corporation's Annual Report to Stockholders for the fiscal year ended
December 31, 1995, is being sent to each stockholder. The Annual Report,
however, is not to be regarded as part of the proxy soliciting material.
By Order of the Board of Directors
JAMES W. TOMAN
ASSISTANT SECRETARY
DATED: May 14, 1996
13
